defm14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to §240.14a-12
MOBILE MINI, INC.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o No
fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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þ Fee
paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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7420
South Kyrene Road
Suite 101
Tempe, Arizona 85283
June 4, 2008
Dear Stockholders:
MERGER
PROPOSED YOUR VOTE IS IMPORTANT
We cordially invite you to attend a special meeting of
stockholders of Mobile Mini, Inc. to be held at the Hilton
Airport Hotel, 2435 South 47th Street, Phoenix, Arizona 85034,
on June 26, 2008. The meeting will begin at 9:00 a.m.
local time.
On February 22, 2008, we and Cactus Merger Sub, Inc., a
wholly owned subsidiary of Mobile Mini, Inc., entered into an
Agreement and Plan of Merger, which we refer to as the Merger
Agreement, with MSG WC Holdings Corp., which we refer to as
Mobile Storage Group, the indirect parent of Mobile Storage
Group, Inc. and Mobile Services Group, Inc., and Welsh, Carson,
Anderson & Stowe X, L.P., as representative of the
stockholders of MSG WC Holdings Corp., whereby Cactus Merger Sub
will merge with and into MSG WC Holdings Corp. in a transaction
valued at approximately $701.5 million. Pursuant to the
merger, we will assume approximately $535.0 million of
Mobile Storage Groups outstanding indebtedness and will
acquire all outstanding shares of Mobile Storage Group for
$12.5 million in cash and 8,555,556 shares of newly
issued Mobile Mini convertible redeemable participating
preferred stock, which we refer to as the preferred stock, with
a liquidation preference of $154.0 million, subject to
certain closing and post-closing adjustments. In no event shall
Mobile Mini be obligated to issue to the stockholders of Mobile
Storage Group more than 8,555,556 shares of preferred
stock. The preferred stock will be initially convertible into
8,555,556 shares of our common stock, representing a fully
diluted ownership in Mobile Mini of approximately 20.0%, as of
March 31, 2008.
At the special meeting, we will ask you to:
(1) approve and adopt the Merger Agreement and the merger;
(2) approve an amendment to our certificate of
incorporation to increase the number of authorized shares of
preferred stock, par value $0.01 per share, from
5,000,000 shares to 20,000,000 shares;
(3) approve an amendment to our certificate of
incorporation to authorize the designation of a series of
preferred stock as Series A Convertible Redeemable
Participating Preferred Stock;
(4) approve the issuance of 8,555,556 shares of
Series A Convertible Redeemable Participating Preferred
Stock in connection with the merger;
(5) approve adjournments or postponements of the special
meeting, if necessary, to permit further solicitation of proxies
if there are not sufficient votes at the time of the special
meeting in favor of the foregoing Proposals; and
(6) approve an amendment to our certificate of
incorporation to provide that the authorized preferred stock may
be issued in one or more classes or any series of any class,
with such voting powers, designations, preferences and relative
participating, optional or other rights, as well as any
qualifications, limitations or restrictions, as shall be fixed
by the Board of Directors of Mobile Mini from time to time.
This proxy statement provides information about the merger and
Mobile Storage Group that holders of Mobile Mini common stock
should know when they vote. We urge you to read this entire
proxy statement carefully.
The Board of Directors of Mobile Mini unanimously recommends
that holders of common stock vote for each of
the Proposals. While each of the Proposals is being voted upon
separately, each of Proposals 1, 2, 3, 4 and 5 relate to
the merger and related matters and each of Proposals 1, 2,
3 and 4 must be approved in order for any of them to be
implemented and the merger to be consummated.
Your vote is very important, regardless of the number of
shares you own. Whether or not you plan to attend the special
meeting, please submit a proxy as soon as possible to make sure
your shares are represented at the special meeting. Please take
the time to submit your proxy by following the instructions
presented in this proxy statement.
I strongly support this combination of our companies and join
with our Board of Directors in recommending that you vote in
favor of each of the Proposals described in this proxy statement.
Steven G. Bunger
President, Chief Executive Officer and
Chairman of the Board
Neither the Securities and Exchange Commission
(SEC) nor any state securities commission has
approved or disapproved the merger, passed upon the merits or
fairness of the Merger Agreement or the transactions
contemplated thereby, including the proposed merger, or passed
upon the adequacy or accuracy of the information contained in
this document. Any representation to the contrary is a criminal
offense.
This proxy statement is dated June 4, 2008, and is first
being mailed to stockholders of Mobile Mini on or about
June 5, 2008.
7420 South Kyrene Road
Suite 101
Tempe, Arizona 85283
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
A special meeting of stockholders of Mobile Mini, Inc. will be
held on June 26, 2008 at 9:00 a.m., local time, at the
Hilton Airport Hotel, 2435 South 47th Street, Phoenix, Arizona
85034 for the following matters:
1. To approve and adopt the Merger Agreement by and among
Mobile Mini, Cactus Merger Sub, Inc., a wholly-owned subsidiary
of Mobile Mini, MSG WC Holdings Corp., the indirect parent of
Mobile Storage Group, Inc. and Mobile Services Group, Inc., and
Welsh, Carson, Anderson & Stowe X, L.P., as
representative of the stockholders of MSG WC Holdings Corp.,
pursuant to which Cactus Merger Sub will merge with and into MSG
WC Holdings Corp. and immediately thereafter, MSG WC Holdings
Corp. and two of its subsidiaries will be merged into Mobile
Mini;
2. To approve an amendment to Mobile Minis
certificate of incorporation to increase the number of
authorized shares of preferred stock, par value $0.01 per share,
from 5,000,000 shares to 20,000,000 shares;
3. To approve an amendment to Mobile Minis
certificate of incorporation to authorize the designation of a
series of preferred stock as Series A Convertible
Redeemable Participating Preferred Stock;
4. To approve the issuance of 8,555,556 shares of
Series A Convertible Redeemable Participating Preferred
Stock in connection with the merger;
5. To approve adjournments or postponements of the special
meeting, if necessary, to permit further solicitation of proxies
if there are not sufficient votes at the time of the special
meeting in favor of the foregoing Proposals;
6. To approve an amendment to Mobile Minis
certificate of incorporation to provide that the authorized
preferred stock may be issued in one or more classes or any
series of any class, with such voting powers, designations,
preferences and relative participating, optional or other
rights, as well as any qualifications, limitations or
restrictions, as shall be fixed by the Board of Directors of
Mobile Mini from time to time; and
7. To transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board of Directors of Mobile Mini unanimously recommends
that you vote FOR all of the Proposals described above.
Only stockholders of record at the close of business on
May 19, 2008 are entitled to receive notice of and to vote
at the special meeting and any adjournment or postponement of
the special meeting. A list of stockholders entitled to vote
will be available for examination at the meeting by any
stockholder for any purpose germane to the meeting. The list
will also be available for the same purpose for ten days prior
to the meeting at our principal executive office at 7420 South
Kyrene Road, Suite 101, Tempe, Arizona 85283
Your vote is important, regardless of the number of shares
you own. Whether or not you plan to attend the special meeting,
please submit a proxy as soon as possible to make sure your
shares are represented at the special meeting. Please take the
time to submit your proxy by following the instructions
presented in this proxy statement.
By Order of the Board of Directors
Steven G. Bunger,
President, Chief Executive Officer and
Chairman of the Board
June 4, 2008
SUMMARY
TERM SHEET
This Summary Term Sheet highlights selected information
contained in the proxy statement and may not contain all of the
information that is important to you. You are urged to read the
entire proxy statement, along with the annexes and exhibits
attached thereto, carefully.
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Merger and Merger Agreement On
February 22, 2008, we entered into an Agreement and Plan of
Merger, which we refer to as the Merger Agreement, with Cactus
Merger Sub, Inc., a wholly-owned subsidiary of Mobile Mini, MSG
WC Holdings Corp., the indirect parent of Mobile Storage Group,
Inc. and Mobile Services Group, Inc., and Welsh, Carson,
Anderson & Stowe X, L.P., or WCAS, as representative
of the stockholders of MSG WC Holdings Corp., pursuant to which
Cactus Merger Sub will merge with and into MSG WC Holdings Corp.
Immediately after the merger, MSG WC Holdings Corp. and two of
its subsidiaries will be merged into Mobile Mini.
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In connection with Mobile Minis acquisition of all of the
outstanding shares of capital stock of Mobile Storage Group,
pursuant to the Merger Agreement, Mobile Mini will:
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assume approximately $535.0 million of the Mobile Storage
Groups outstanding indebtedness;
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pay $12.5 million in cash; and
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issue 8,555,556 shares of Mobile Mini preferred stock with
a liquidation preference of $154.0 million, subject to
certain closing and post-closing adjustments.
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In no event shall Mobile Mini be obligated to issue to the
stockholders of Mobile Storage Group more than
8,555,556 shares of preferred stock.
The preferred stock:
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will be initially convertible into 8,555,556 shares of
Mobile Minis common stock, representing a conversion price
of $18.00 per Mobile Mini share; and
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will represent a fully diluted ownership in Mobile Mini of
approximately 20.0%, as of March 31, 2008. See The
Agreement and Plan of Merger on page 40.
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Stockholder Vote You, as a holder of Mobile
Mini common stock, are being asked to consider and vote upon
certain proposals in order to approve the completion of the
merger. You are being asked to vote on a total of six proposals,
not all of which are a condition to the completion of the
merger. A FOR vote on these proposals will approve
the merger agreement and the merger, approve certain amendments
to Mobile Minis certificate of incorporation which would
increase the number of authorized shares of Mobile Mini
preferred stock, approve the designation of a series of
preferred stock as Series A Convertible Redeemable
Participating Preferred Stock, approve the issuance of
8,555,556 shares of Series A Convertible Redeemable
Participating Preferred Stock, approve adjournments and
postponements of the special meeting in order to permit further
solicitation of proxies if there are not sufficient votes at the
time of the special meeting in favor of the proposals and
approve an amendment to Mobile Minis certificate of
incorporation which would authorize the issuance of classes or
series of authorized preferred stock with voting powers, rights
and limitations as shall be fixed by the Board of Directors from
time to time. For a description of the proposals and the votes
necessary for the proposals to be approved see
Information about the Special Meeting and
Voting on page 19.
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Effect of the Merger on Mobile Mini
Stockholders Because Cactus Merger Sub, Inc., a
wholly-owned subsidiary of Mobile Mini, is merging with and into
MSG WC Holdings Corp., the shares of Mobile Mini common stock
held by Mobile Mini stockholders will not be changed by the
merger and Mobile Mini stockholders will continue to hold their
existing shares following completion of the merger. However,
upon completion of the merger, current holders of Mobile Mini
common stock will experience some dilution of their equity and
voting power. After completion of the merger, WCAS and its
affiliated entities will own approximately 20.0% of Mobile
Minis outstanding common stock, on a fully diluted basis
as of March 31, 2008. The preferred stock being issued to
WCAS will have full voting rights. See The Agreement
and Plan of Merger on page 40.
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Reasons for Merger In evaluating the merger,
Mobile Minis Board of Directors consulted with senior
management, legal and financial advisers and considered several
material factors to reach its decision to approve and adopt the
Merger Agreement. The merger will establish the combined company
as a leading provider of portable storage solutions and will
improve the combined companys ability to service an
expanded customer base. Further, the merger has been structured
to maintain a strong balance sheet with sufficient liquidity and
potential for improved revenue growth and to generate cost
synergies as a result of the significant overlap in corporate
functions and branch infrastructure. See The
Merger Reasons for Merger; Recommendations of the
Board of Directors of Mobile Mini on page 30.
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Mobile Storage Group Mobile Storage Group is
a leading international provider of portable storage products
with a lease fleet of approximately 117,000 units and 89
branch locations throughout the U.S. and U.K. It focuses on
leasing portable storage containers, storage trailers and mobile
offices, and, to complement its core leasing business, also
sells portable storage products. For the twelve months ended
December 31, 2007, Mobile Storage Group generated revenues
of approximately $233.1 million and had income from
continuing operations of approximately $3.8 million. MSG WC
Holdings Corp. owns 100% of the capital stock of MSG WC
Intermediary Co., which owns 100% of the capital stock of Mobile
Services Group, Inc., which owns 100% of the capital stock of
Mobile Storage Group, Inc. See Information About Mobile
Storage Group on page 98.
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Conditions to Completion of Merger Completion
of the merger is subject to the approval of the merger by the
holders of a majority of outstanding shares of Mobile Mini
common stock, as well as other conditions, including the
accuracy of certain representations and warranties made by each
party to the Merger Agreement, the expiration or termination of
any applicable governmental and regulatory waiting periods, no
occurrence of facts or circumstances constituting a material
adverse effect to the parties to the Merger since the date of
the Merger Agreement and Mobile Minis receipt of amounts
set forth in the commitment letter upon the terms and conditions
of the commitment letter or any alternative financing in
accordance with the Merger Agreement, among others. See
The Agreement and Plan of Merger Conditions
to the Merger on page 50.
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Risk Factors In deciding how to vote your
shares of common stock on the matters described in this proxy
statement, you should carefully consider the risks related to
the merger. These risks include, among other things, risks
related to the uncertainty that Mobile Mini will be able to
realize the anticipated benefits and cost savings of the merger
and integrate successfully its existing business with the Mobile
Storage Group business. In addition, because Mobile Mini will
take on substantial additional indebtedness to finance the
merger, this could limit Mobile Minis financial and
operating flexibility and ability to react to changes in the
industry and economic conditions and could divert financial
resources away from the expansion and improvement of its
business. For a discussion of these risks and other risks, see
the Risk Factors extracted from Part I,
Item 1A of Mobile Minis Annual Report on
Form 10-K
for the year ended December 31, 2007, filed with the
Securities and Exchange Commission (SEC) on
February 29, 2008, which is included in Annex C
and which such discussion is incorporated herein by reference.
See Where You Can Find More Information on
page 111.
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TABLE
OF CONTENTS
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Page
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SUMMARY TERM SHEET
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1
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6
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12
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13
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14
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15
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16
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18
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19
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22
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26
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26
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30
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32
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37
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37
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38
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38
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38
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38
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40
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55
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57
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61
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74
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77
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98
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109
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111
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111
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112
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F-1
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Annex A Merger Agreement
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Annex B Opinion of Oppenheimer & Co.
Inc.
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Annex C Excerpts from Annual Report on
Form 10-K, as amended by Form 10-K/A, for the Year
Ended December 31, 2007
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Annex D Quarterly Report on
Form 10-Q
for the Quarter Ended March 31, 2008
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iii
QUESTIONS
AND ANSWERS ABOUT THE MERGER
AND SPECIAL MEETING OF STOCKHOLDERS
The following questions and answers are intended to address
briefly some commonly asked questions regarding the special
meeting and the merger. These questions and answers may not
address all of the information that may be important to you.
Please refer to the more detailed information contained
elsewhere in this proxy statement and the annexes to this proxy
statement.
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Q: |
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What are the Merger Agreement and the merger? |
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A. |
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On February 22, 2008 we entered into the Merger Agreement,
with Cactus Merger Sub, Inc., a wholly-owned subsidiary of
Mobile Mini, MSG WC Holdings Corp., the indirect parent of
Mobile Storage Group, Inc. and Mobile Services Group, Inc. and
WCAS, as representative of the stockholders of MSG WC Holdings
Corp., pursuant to which Cactus Merger Sub will merge with and
into MSG WC Holdings Corp. Immediately after the merger, MSG WC
Holdings Corp. and two of its subsidiaries will be merged into
Mobile Mini. |
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Why am I receiving this proxy statement? |
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You are receiving this proxy statement because you have been
identified as a holder of Mobile Mini common stock. This proxy
statement is being used to solicit proxies on behalf of the
Board of Directors of Mobile Mini for the special meeting. This
proxy statement contains important information about the merger
and related transactions and the special meeting, and you should
read it carefully. |
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What am I being asked to vote upon? |
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You are being asked to consider and vote upon the following
Proposals: |
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Proposal 1 To approve the Merger
Agreement and the merger; |
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Proposal 2 To approve an amendment to
Mobile Minis certificate of incorporation to increase the
number of authorized shares of preferred stock, par value $0.01
per share, from 5,000,000 shares to 20,000,000 shares; |
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Proposal 3 To approve an amendment to
Mobile Minis certificate of incorporation to authorize the
designation of a series of preferred stock as Series A
Convertible Redeemable Participating Preferred Stock; |
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Proposal 4 To approve the issuance of
8,555,556 shares of Series A Convertible Redeemable
Participating Preferred Stock; |
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Proposal 5 To approve adjournments or
postponements of the special meeting, if necessary, to permit
further solicitation of proxies if there are not sufficient
votes at the time of the special meeting in favor of the
foregoing Proposals; and |
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Proposal 6 To approve an amendment to
Mobile Minis certificate of incorporation to provide that
the authorized preferred stock may be issued in one or more
classes or any series of any class, with such voting powers,
designations, preferences and relative participating, optional
or other rights, as well as any qualifications, limitations or
restrictions, as shall be fixed by the Board of Directors of
Mobile Mini from time to time. |
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What is required to complete the merger? |
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To complete the merger, Mobile Mini stockholders must approve
Proposals 1, 2, 3 and 4. Approval of Proposals 5 and 6
is not a condition to the completion of the merger. |
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In addition to obtaining stockholder approval, Mobile Mini and
Mobile Storage Group must satisfy or waive all other closing
conditions set forth in the Merger Agreement. For a more
complete discussion of the conditions to the closing, see the
section entitled The Merger Agreement
Conditions to the Merger on page 50. |
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Why do I need to approve the issuance of the preferred
stock? |
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The shares of preferred stock to be issued in connection with
the merger are initially convertible into 8,555,556 shares
of Mobile Mini common stock, representing approximately 24.7%,
at December 31, 2007, of our common stock currently
outstanding. The issuance of the preferred stock in connection
with the merger requires the approval of holders of Mobile Mini
under NASDAQ Stock Market rules because the number of |
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shares of common stock into which the preferred stock is
convertible is in excess of 20% of the number of shares of
common stock currently outstanding. |
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What happens to existing shares of Mobile Mini common stock
in the merger? |
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Because Cactus Merger Sub, Inc., a wholly-owned subsidiary of
Mobile Mini, is merging with and into MSG WC Holdings Corp., the
shares of Mobile Mini common stock held by Mobile Mini
stockholders will not be changed by the merger and Mobile Mini
stockholders will continue to hold their existing shares
following completion of the merger. |
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What will the Mobile Storage Group stockholders be entitled
to receive pursuant to the merger? |
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Mobile Storage Group stockholders will be entitled to receive
$12.5 million in cash and 8,555,556 shares of newly
issued Mobile Mini preferred stock with a liquidation preference
of $154.0 million, subject to certain closing and
post-closing adjustments. |
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Upon completion of the merger, will WCAS have the ability to
exert influence over Mobile Mini? |
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A. |
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After completion of the merger, WCAS and its affiliated entities
will own 20.0% of Mobile Minis outstanding common stock,
on a fully diluted basis, as of March 31, 2008, and will
have the right to appoint two directors to the Board of
Directors of Mobile Mini, subject to WCAS and its affiliated
entities ownership of at least 2,000,000 shares of
preferred stock (or common stock issued upon conversion of the
preferred stock) of Mobile Mini. As a result of the merger, WCAS
would have the ability to exert some influence over Mobile
Minis management policies and affairs, even though it
would not control the outcome of any matter submitted to Mobile
Minis stockholders. |
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Upon completion of the merger, will current holders of Mobile
Minis common stock be subject to a dilution of their
equity and of their voting power? |
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Current holders of Mobile Mini common stock could experience
some dilution of their equity and voting power. After completion
of the merger, WCAS and its affiliated entities will own 20.0%
of Mobile Minis outstanding common stock, on a fully
diluted basis, as of March 31, 2008. The preferred stock
being issued to WCAS will have full voting rights. |
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Will the rights of the common stock be subordinated to the
rights of the preferred stock being issued to WCAS? |
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The certificate of designation for Mobile Minis preferred
stock being issued to WCAS and its affiliated entities provides
that the preferred stock will rank senior to the common stock
only with respect to a distribution upon the occurrence of the
bankruptcy, liquidity, dissolution or winding up of Mobile Mini.
In addition, if Mobile Mini enters into a binding agreement in
respect of a sale of Mobile Mini or at any time after the tenth
anniversary of the closing date, the holders of a majority of
the then outstanding shares of the preferred stock being issued
to WCAS have the right to require Mobile Mini to redeem all of
the shares of such preferred stock then outstanding. For more
information, see Proposals to Be Considered and Voted upon
by Holders of Mobile Mini Common Stock at the Special
Meeting Proposal Three Summary of
the terms of the Series A Convertible Redeemable
Participating Preferred Stock on page 22. |
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Why does Mobile Mini need to amend its certificate of
incorporation to increase the number of authorized shares? |
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A. |
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The amendment to Mobile Minis certificate of incorporation
authorizing additional shares of preferred stock is a condition
in the Merger Agreement to the closing of the merger and is
necessary for Mobile Mini to have enough authorized shares of
preferred stock to issue the Series A Convertible
Redeemable Participating Preferred Stock as part of the
consideration for the merger. |
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Mobile Minis certificate of incorporation currently does
not authorize a sufficient number of shares of preferred stock
to issue shares of preferred stock as merger consideration.
Mobile Mini is currently authorized to issue 95 million
shares of common stock and 5 million shares of preferred
stock. As of the date of this proxy statement, no shares of
Mobile Mini preferred stock were issued and outstanding. Mobile
Mini must issue 8,555,556 shares of the Series A
Convertible Redeemable Participating Preferred Stock in the
merger. Authorizing additional shares of preferred stock is
required to enable Mobile Mini to have sufficient shares of
preferred stock authorized for issuance in the merger. |
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When do you expect the merger to be completed? |
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We anticipate that the closing of the merger will occur promptly
after the date of the special meeting if the requisite
stockholder approvals are received, assuming the other
conditions to closing of the merger are satisfied or waived. For
more information, see The Agreement and Plan of
Merger Conditions to the Merger on
page 50. |
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Am I entitled to appraisal rights? |
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Holders of Mobile Mini common stock are not entitled to
appraisal rights in connection with the merger under the General
Corporation Law of the State of Delaware or Mobile Minis
certificate of incorporation. |
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Who may vote at the special meeting? |
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A. |
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Holders of record of common stock at the close of business on
May 19, 2008, which we refer to as the record date, are
entitled to notice of and to vote at the special meeting. At the
record date, 34,646,848 shares of common stock of Mobile
Mini were issued and outstanding. A list of stockholders
entitled to vote will be available for examination at the
meeting by any stockholder for any purpose germane to the
meeting. The list will also be available for the same purpose
for ten days prior to the meeting at our principal executive
office at 7420 South Kyrene Road, Suite 101, Tempe, Arizona
85283. |
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How many votes do Mobile Mini stockholders have? |
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Each holder of record of Mobile Mini common stock as of the
close of business on the record date will be entitled to one
vote, in person or by proxy, for each share of Mobile Mini
common stock held in his, her or its name on the books of Mobile
Mini on that date. |
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As of the record date, directors and executive officers of
Mobile Mini and their affiliates as a group beneficially owned
and were entitled to vote approximately 1,098,106 shares of
Mobile Mini common stock, representing approximately 3.2% of the
votes entitled to be cast at the special meeting. All of the
directors and executive officers of Mobile Mini who are entitled
to vote at the special meeting have indicated that they intend
to vote their shares of Mobile Mini common stock in favor each
of the Proposals, although such persons have not entered into
agreements obligating them to do so. |
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Q: |
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What stockholder approvals are required for Mobile Mini? |
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A. |
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Proposals 4 and 5 require the affirmative vote of a
majority of those shares present in person or represented by
proxy and entitled to vote thereon at the special meeting. |
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Proposals 1, 2, 3 and 6 require the affirmative vote of
holders of at least a majority of our outstanding common stock. |
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Why did I receive more than one proxy card? |
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A. |
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You will receive multiple proxy cards if you hold your shares in
multiple accounts or in different ways (e.g., custodial
accounts, trusts, joint tenancy). If your shares are held by a
broker (i.e., in street name), you will receive your
proxy card or other voting information from your broker, and you
will need to return your proxy card or cards to your broker. |
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What constitutes a quorum? |
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A. |
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In order to conduct business at the special meeting, a quorum
must be present. The holders of a majority of the votes entitled
to be cast at the special meeting, present in person or
represented by proxy, constitute a quorum under Mobile
Minis bylaws. Mobile Mini will treat shares of Mobile
Minis common stock represented by a properly signed and
returned proxy, including abstentions and broker non-votes, as
present at the Mobile Mini special meeting for the purposes of
determining the existence of a quorum. |
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How are votes counted? |
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A. |
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For all Proposals, you may vote for,
against or abstain. If you
abstain, it has the same effect as a vote
against Proposals 1, 2, 3 and 6.
Abstentions will have no effect on Proposals 4 and 5 but
will reduce the number of votes required to approve this
Proposal. With respect to any other matter that properly comes
before the meeting, the proxy holders will vote as recommended
by the Board of Directors of Mobile Mini or, if no
recommendation is given, in their own discretion. |
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Q: |
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What are the Boards recommendations on how I should
vote my shares? |
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A. |
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The Board of Directors of Mobile Mini recommends that you vote
your shares FOR each of the Proposals. |
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While each of the Proposals is being voted upon separately, each
of Proposals 1, 2, 3, 4 and 5 relate to the merger and
related matters and each of Proposals 1, 2, 3 and 4 must be
approved in order for any of them to be implemented and the
merger to be consummated. |
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Q: |
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When and where is the special meeting? |
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A. |
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A special meeting of stockholders will be held on June 26,
2008 at 9:00 a.m. local time at the Hilton Airport Hotel,
2435 South 47th Street, Phoenix, Arizona 85034. |
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Q: |
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What is the difference between a shareholder of
record and a street name holder? |
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A. |
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These terms describe how shares are held. If your shares are
registered directly in your name with Wells Fargo Shareowner
Services, our transfer agent, you are a shareholder of
record. If your shares are held in the name of a
brokerage, bank, trust or other nominee as a custodian, you are
a street name holder. |
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What do I need to do now and how do I vote? |
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A. |
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We encourage you to read this proxy statement carefully,
including its annexes, and then vote your proxy for the relevant
Proposals. |
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If you are a shareholder of record, you have
several choices. You can vote your proxy: |
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by mailing the enclosed proxy card using the
enclosed envelope;
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over the telephone; or
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via the Internet.
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Please refer to the specific instructions set forth on the
enclosed proxy card. |
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If you hold your shares in street name, your
broker/bank/trust/nominee will provide you with materials and
instructions for voting your shares. Please follow those
instructions carefully |
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Can I vote my shares in person at the special meeting? |
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If you are a shareholder of record, you may vote
your shares in person at the special meeting. If you hold your
shares in street name, you must obtain a legal proxy
from your broker, banker, trustee or nominee, giving you the
right to vote the shares at the special meeting. |
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May I change my vote after I have submitted my proxy? |
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Yes. You may revoke your proxy by doing one of
the following: |
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by sending a written notice of revocation to the
Secretary of Mobile Mini that is received by Mobile Mini prior
to the special meeting, stating that you revoke your proxy;
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by signing a later-dated proxy card and submitting
it so that it is received prior to the special meeting in
accordance with the instructions included in the proxy card(s);
or
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by attending the special meeting and voting your
shares in person.
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Q: |
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Are there risks associated with the merger that stockholders
of Mobile Mini should be aware of? |
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A. |
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In deciding how to vote your shares of common stock on the
matters described in this proxy statement, you should carefully
consider the risks related to the merger. These risks include,
among other things, risks related to the uncertainty that Mobile
Mini will be able to realize the anticipated benefits and cost
savings of the merger and integrate successfully its existing
business with the Mobile Storage Group business. In addition,
because Mobile Mini will take on substantial additional
indebtedness to finance the merger, this could limit Mobile
Minis financial and operating flexibility and ability to
react to changes in the industry and economic conditions and
could divert financial resources away from the expansion and
improvement of its business. For a discussion of these risks and
other risks, see the Risk Factors extracted from
Part I, Item 1A of Mobile Minis Annual Report on
Form 10-K
for the year ended December 31, 2007, which is included as
Annex C which is incorporated herein by reference. See
Where You Can Find More Information beginning on
page 111 of this proxy statement. |
4
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Who is paying for this proxy solicitation? |
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A. |
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Mobile Mini pays the costs of soliciting proxies. We have
retained Morrow & Co., LLC to assist in the
solicitation of proxies. We will pay Morrow & Co.,
LLC $7,500 plus out-of-pocket expenses for its assistance. Upon
request, we will reimburse brokers, dealers, banks and trustees,
or their nominees, for reasonable expenses incurred by them in
forwarding proxy materials to beneficial owners of shares of our
common stock. |
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Is this proxy statement the only way that proxies are being
solicited? |
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A. |
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In addition to mailing these proxy materials, certain directors,
officers or employees of Mobile Mini may solicit proxies by
telephone, facsimile,
e-mail or
personal contact. They will not be specifically compensated for
doing so. |
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Who can help answer my questions? |
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A. |
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If you would like to receive additional copies of this proxy
statement, without charge, or if you have questions about the
special meeting, including the procedures for voting your
shares, you should contact our proxy solicitor
Morrow & Co., LLC at: |
(800)
607-0088
(U.S. and Canada)
(203) 658-9400
(International)
You may
also obtain additional information about Mobile Mini from the
documents we file with the SEC or by following the instructions
in the section entitled Where You Can Find More
Information on page 111.
5
SUMMARY
The following summary highlights selected information from
this proxy statement and may not contain all of the information
that is important to you. You should carefully read this proxy
statement, including the annexes, for a more complete
understanding of the merger and other Proposals described in
this summary term sheet. We have included page references to
direct you to more complete descriptions of the topics presented
in this summary. In this proxy statement, we,
us, our and Mobile Mini
refer to Mobile Mini, Inc., a Delaware corporation, and its
subsidiaries as a combined entity, except where it is noted or
the context makes clear that the reference is only to Mobile
Mini, Inc. and Mobile Storage Group refers to MSG WC
Holdings Corp., a Delaware corporation, and its subsidiaries as
a combined entity, except where it is noted or the context makes
clear that the reference is only to MSG WC Holdings Corp.
Mobile
Mini
We were founded in 1983 and we believe we are one of the largest
providers of portable storage solutions in the United States
through our total lease fleet of 160,100 portable storage and
portable office units at December 31, 2007. We offer a wide
range of portable storage products in varying lengths and widths
with an assortment of differentiated features such as our
proprietary security systems, multiple doors, electrical wiring
and shelving. At December 31, 2007, we operated through a
network of 56 branches located in the United States, three in
Canada, six in the United Kingdom, and one in The Netherlands.
Our portable units provide secure, accessible temporary storage
for a diversified client base of approximately 93,000 customers,
including large and small retailers, construction companies,
medical centers, schools, utilities, distributors, the
U.S. and U.K. military, hotels, restaurants, entertainment
complexes and households. Our customers use our products for a
wide variety of storage applications, including retail and
manufacturing inventory, construction materials and equipment,
documents and records and household goods. Based on an
independent market study, we believe our customers are engaged
in a vast majority of the industries identified in the
four-digit SIC (Standard Industrial Classification) manual
published by the U.S. Bureau of the Census. During the
twelve months ended December 31, 2007, we generated
revenues of approximately $318.3 million and had a net
income of approximately $44.2 million.
Our common stock trades on The Nasdaq Global Select Market under
the symbol MINI. We maintain our principal executive
offices at 7420 S. Kyrene Road, Suite 101, Tempe,
Arizona 85283. Our telephone number is
(480) 894-6311,
and our Internet address is www.mobilemini.com.
Information contained on our website does not constitute part of
this proxy statement.
Mobile
Storage Group (page 98)
Mobile Storage Group is a leading international provider of
portable storage products with a lease fleet of approximately
117,000 units and 89 branch locations throughout the
U.S. and U.K. It focuses on leasing portable storage
containers, storage trailers and mobile offices, and, to
complement its core leasing business, also sells portable
storage products. Its storage containers and storage trailers
provide secure, convenient and cost-effective
on-site
storage of inventory, construction supplies, equipment and other
goods. Its mobile office units provide temporary office space
and employee facilities for, among other uses, construction
sites, trade shows, special events and building refurbishments.
During 2007, Mobile Storage Group leased or sold portable
storage products to over 45,000 customers in diverse end markets
ranging from large companies with a national presence to small
local businesses. For the twelve months ended December 31,
2007, Mobile Storage Group generated revenues of approximately
$233.1 million and had income from continuing operations of
approximately $3.8 million.
MSG WC Holdings Corp. owns 100% of the capital stock of MSG WC
Intermediary Co., which owns 100% of the capital stock of Mobile
Services Group, Inc., which owns 100% of the capital stock of
Mobile Storage Group, Inc.
The address of MSG WC Holdings Corp.s principal executive
offices is:
c/o Mobile
Storage Group, Inc., 700 North Brand Boulevard, 10th Floor,
Glendale, California 91203, and its telephone number is
818-253-3200.
6
The
Merger (page 26)
On February 22, 2008, we entered into an Agreement and Plan
of Merger, which we refer to as the Merger Agreement, with
Cactus Merger Sub, Inc., a wholly-owned subsidiary of Mobile
Mini, MSG WC Holdings Corp., the indirect parent of Mobile
Storage Group, Inc. and Mobile Services Group, Inc., and Welsh,
Carson, Anderson & Stowe X, L.P., or WCAS, as
representative of the stockholders of MSG WC Holdings Corp.,
pursuant to which Cactus Merger Sub will merge with and into MSG
WC Holdings Corp. Immediately after the merger, MSG WC Holdings
Corp. and two of its subsidiaries will be merged into Mobile
Mini.
In connection with Mobile Minis acquisition of all of the
outstanding shares of capital stock of Mobile Storage Group,
pursuant to the Merger Agreement, Mobile Mini will:
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assume approximately $535.0 million of the Mobile Storage
Groups outstanding indebtedness;
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pay $12.5 million in cash; and
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issue 8,555,556 shares of Mobile Mini preferred stock with
a liquidation preference of $154.0 million, subject to
certain closing and post-closing adjustments.
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In no event shall Mobile Mini be obligated to issue to the
stockholders of Mobile Storage Group more than
8,555,556 shares of preferred stock.
The preferred stock:
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will be initially convertible into 8,555,556 shares of
Mobile Minis common stock, representing a conversion price
of $18.00 per Mobile Mini share; and
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will represent a fully diluted ownership in Mobile Mini of
approximately 20.0% as of March 31, 2008.
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The assumed debt includes $200.0 million in aggregate
principal amount of the
93/4% Senior
Notes due 2014, or Mobile Storage Groups Senior Notes,
issued by Mobile Services Group, Inc. and Mobile Storage Group,
Inc., which will remain outstanding after the closing of the
merger. Other than Mobile Storage Groups Senior Notes and
certain notes payables and capitalized lease obligations, we
intend to refinance the remaining assumed debt at the closing of
the merger with cash on hand
and/or a
portion of the proceeds from our expected $1.0 billion
asset-based revolving credit facility.
Why You
are Receiving this Proxy Statement (page 22)
In order to complete the merger, at the special meeting to be
held on June 26, 2008, holders of Mobile Mini common stock
must approve the Merger Agreement and the merger, the amendment
to our certificate of incorporation to increase the authorized
shares of preferred stock and to authorize the designation of a
series of preferred stock as Series A Convertible
Redeemable Participating Stock and the issuance of the
Series A Convertible Redeemable Participating Preferred
Stock to the stockholders of Mobile Storage Group. The holders
of Mobile Mini common stock will also be asked to approve the
other Proposals described in this proxy statement, which are not
a condition to the completion of the merger.
Proposal 1:
The Merger Agreement and the Merger (page 22)
Mobile Mini is asking holders of common stock to approve and
adopt the Merger Agreement and the merger.
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Proposal 2:
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Amendment
to Mobile Minis Certificate of Incorporation to Authorize
Additional Shares of Preferred Stock (page 22)
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The amendment to Mobile Minis certificate of incorporation
authorizing additional shares of preferred stock is required
under the terms of the Merger Agreement and is necessary to
enable Mobile Mini to have enough shares of authorized preferred
stock to issue shares of preferred stock in connection with the
merger. The amendment, if approved by Mobile Minis
stockholders, would result in an increase to the authorized
number of shares of preferred stock of Mobile Mini from
5,000,000 shares to 20,000,000 shares and a
corresponding increase to Mobile Minis
7
total number of authorized shares of capital stock from
100,000,000 shares to 115,000,000 shares. The
authorized number of shares of common stock would remain
unchanged at 95,000,000 shares.
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Proposal 3:
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Amendment
to Mobile Minis Certificate of Incorporation to Authorize
Designation of Series A Convertible Redeemable
Participating Preferred Stock (page 22)
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The amendment to Mobile Minis certificate of incorporation
authorizing the designation of a series of preferred stock as
Series A Convertible Redeemable Participating Preferred
Stock, which we refer to as preferred stock, is required under
the terms of the Merger Agreement and is necessary to enable
Mobile Mini to issue such shares of preferred stock in
connection with the merger. The amendment, if approved by Mobile
Minis stockholders, would authorize Mobile Mini to issue
8,555,556 shares of preferred stock.
Each share of preferred stock will have a liquidation preference
of $18.00, subject to adjustment for stock splits, stock
dividends, stock combinations, recapitalizations and like
occurrences and will be convertible into one share of Mobile
Minis common stock, subject to adjustment from time to
time as provided in the certificate of designation. The
preferred stock will be mandatorily convertible into Mobile Mini
common stock if, after the first anniversary of the issuance of
the preferred stock, Mobile Minis common stock trades
above $23.00 per share for a period of 30 consecutive trading
days. The preferred stock will not have any cash or
payment-in-kind
dividends (unless a dividend is paid with respect to the common
stock, in which case dividends will be paid on the preferred
stock on an equal basis with the common stock, on an
as-converted basis), will not impose any covenants upon Mobile
Mini, and will include an optional redemption feature following
the tenth anniversary of the issue date and upon certain change
of control events at the request of a majority of the holders of
the preferred stock. Holders of shares of preferred stock will
be entitled to vote, voting together with the holders of common
stock as a single class, on all matters on which holders of
common stock are entitled to vote, on an as-converted basis.
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Proposal 4:
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Approval
of Issuance of Series A Convertible Redeemable
Participating Preferred Stock (page 24)
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We are seeking stockholder approval to issue
8,555,556 shares of preferred stock as part of the
consideration for the merger. At December 31, 2007, these
preferred shares, if assumed to be converted into
8,555,556 shares of common stock, would represent
approximately 24.7% of our common stock outstanding before the
completion of the merger. The issuance of the preferred stock in
connection with the merger requires the approval of holders of
Mobile Mini under NASDAQ Stock Market rules because the number
of shares of common stock into which the preferred stock is
convertible is in excess of 20% of the number of shares of
common stock currently outstanding.
Proposal 5:
Approval of Adjournments or Postponements of the Special Meeting
(page 24)
Mobile Mini is asking holders of common stock to approve
adjournments or postponements of the special meeting if
necessary, to permit further solicitation of proxies if there
are not sufficient votes at the time of the special meeting in
favor of the foregoing Proposals.
Approval of Proposal 5 is not a condition to the completion
of the merger.
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Proposal 6:
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Amendment
to Mobile Minis Certificate of Incorporation to Authorize
the Board of Directors of Mobile Mini to Determine Terms of
Preferred Stock (page 25)
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The amendment, if approved by Mobile Minis stockholders,
would provide that authorized preferred stock of Mobile Mini may
be issued in one or more classes or any series of any class,
with such voting powers, designations, preferences and relative
participating, optional or other rights, as well as any
qualifications, limitations or restrictions, as shall be fixed
by the Board of Directors of Mobile Mini from time to time.
The amendment will provide Mobile Mini with increased financial
flexibility in meeting future capital requirements by allowing
undesignated preferred stock to be available with such features
as determined by the Board of Directors of Mobile Mini for any
proper corporate purpose without further stockholder approval.
It is anticipated that such purposes may include the issuance of
preferred stock for cash as a means of obtaining capital for use
by Mobile Mini, or issuance as part or all of the consideration
required to be paid by Mobile Mini for
8
acquisitions of other businesses or assets. This amendment is
not being proposed as a means of preventing or dissuading a
hostile or coercive change in control or takeover of Mobile
Mini. However, the undesignated preferred stock could be used
for such a purpose. If the undesignated preferred stock were to
be issued (i) in connection with a stockholder rights plan,
also known as a poison pill plan, or (ii) to
purchasers supporting the Board of Directors of Mobile Mini in
resisting a specific takeover proposal, such issuance could have
the effect of delaying or preventing a change of control of
Mobile Mini by increasing the number of outstanding shares
entitled to vote and by increasing the number of votes required
to approve a change of control of Mobile Mini.
Approval of Proposal 6 is not a condition to the completion
of the merger.
Board
Recommendation (page 30)
The Board of Directors of Mobile Mini unanimously recommends a
vote FOR each of the Proposal described
above. While each of the Proposals is being voted upon
separately, each of Proposals 1, 2, 3, 4 and 5 relate to
the merger and related matters and each of Proposals 1, 2,
3 and 4 must be approved in order for any of them to be
implemented and the merger to be consummated.
Reasons
for the Merger (page 30)
In evaluating the merger, the Board of Directors of Mobile Mini
consulted with our senior management and our legal and financial
advisors and considered, among others, the following material
factors to reach its decision to approve and adopt the Merger
Agreement:
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the merger will establish the combined company as a leading
global provider of portable storage solutions in the US and the
UK;
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our ability to service an expanded customer base will be
significantly expanded;
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the merger has been structured to maintain a strong balance
sheet with sufficient liquidity and our revenue growth potential
will be improved through implementing our growth model into
newly acquired Mobile Storage Group branches; and
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the merger is expected to generate cost synergies of at least
$25 million on an annualized basis, which are expected to
be fully realized by the end of fiscal year 2009, as a result of
the significant overlap in corporate functions and branch
infrastructure.
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Opinion
of Mobile Minis Financial Advisor (page 32)
In connection with the merger, the Board of Directors of Mobile
Mini received a written opinion, dated February 21, 2008,
of Mobile Minis financial advisor, Oppenheimer &
Co. Inc., or Oppenheimer, as to the fairness, from a financial
point of view and as of the date of the opinion, to Mobile Mini
of the aggregate consideration to be paid in the merger by
Mobile Mini. The full text of Oppenheimers written
opinion, dated February 21, 2008, which describes the
assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached to this proxy
statement as Annex B. Oppenheimers opinion was
provided to the Board of Directors of Mobile Mini in connection
with its evaluation of the aggregate consideration from a
financial point of view to Mobile Mini. Oppenheimers
opinion does not address any other aspect of the merger and does
not constitute a recommendation to any stockholder as to how
such stockholder should vote or act with respect to any matters
relating to the merger.
Expected
Timing of the Merger (page 42)
We anticipate that the closing of the merger will occur promptly
after the date of the special meeting if the requisite
stockholder approvals are received, assuming the other
conditions to closing of the merger are satisfied or waived.
Conditions
to Completion of the Merger (page 50)
Completion of the merger is subject to various conditions,
including, among others:
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approval of the merger by the holders of a majority of the
outstanding shares of Mobile Mini common stock;
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The representations and warranties of each of party (which shall
be read as though none of them contained any materiality or
material adverse effect qualifications), shall be true and
correct on the date of the closing (other than those made as of
a specified date, in which case as of such specified date),
except to the extent that breaches of such representations and
warranties do not have and would not reasonably be expected to
have, individually or in the aggregate, a material adverse
effect on the representing party and subject to other exceptions
regarding the parties representations and warranties
relating to authority and enforceability, consents and approvals
and no violations, capitalization (subject to de minimis
exceptions), subsidiaries capitalization, and no material
adverse effect (and absence of certain changes with respect to
Mobile Storage Group) since September 30, 2007 to
February 22, 2008.
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the expiration or termination of any applicable waiting periods
under the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, or HSR;
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no occurrence of events, facts, circumstances, changes or
effects, individually or in the aggregate, constituting a
material adverse effect on Mobile Mini or Mobile Storage Group,
as the case may be, since February 22, 2008; and
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Mobile Minis receipt of the amounts set forth in the
commitment letter upon the terms and conditions of the
commitment letter or any alternative financing in accordance
with the Merger Agreement.
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Each of the conditions to Mobile Minis and Mobile Storage
Groups obligations to complete the merger may be waived,
in whole or in part, to the extent permitted by applicable law,
by agreement of Mobile Mini and Mobile Storage Group if the
condition is a condition to both Mobile Minis and Mobile
Storage Groups obligation to complete the merger, or by
the party for which such condition is a condition of its
obligation to complete the merger. The Boards of Directors of
Mobile Mini and Mobile Storage Group may evaluate the
materiality of any such waiver to determine whether amendment of
this proxy statement and re-solicitation of proxies is
necessary. However, Mobile Mini and Mobile Storage Group
generally do not expect any such waiver to be significant enough
to require an amendment of this proxy statement and
re-solicitation of stockholders. In the event that any such
waiver is not determined to be significant enough to require
re-solicitation of stockholders, Mobile Mini will have the
discretion to complete the merger without seeking further Mobile
Mini stockholder approval.
Financing
of the Merger (page 38)
In connection with the merger, we expect to enter into a
$1.0 billion asset-based revolving credit facility. The
security for the credit facility will include a lien on
substantially all of the combined companys present and
future assets. Mobile Mini plans to use a portion of the
proceeds from the credit facility to repay a portion of the
approximately $535.0 million indebtedness of Mobile Storage
Group, the $12.5 million cash component of the merger
consideration, the $24.5 million estimated amount of
transaction costs related to the merger, and to refinance
outstanding amounts under our existing revolving credit facility.
Termination
of the Merger Agreement; Fees Payable (page 53)
The Merger Agreement contains certain termination rights for
both Mobile Mini and Mobile Storage Group, and further provides
that, upon termination of the Merger Agreement under specified
circumstances, Mobile Mini may be required to reimburse Mobile
Storage Group for all reasonable, documented out-of-pocket costs
and expenses of Mobile Storage Group incurred in connection with
the negotiation and execution of the Merger Agreement and the
evaluation of the transactions contemplated thereby up to a
maximum of $3.0 million.
Governmental
and Regulatory Matters (page 38)
To complete the merger, Mobile Mini and Mobile Storage Group
must make certain filings under HSR and all applicable waiting
periods under HSR must have expired or otherwise terminated.
Mobile Mini and Mobile Storage Group filed pre-merger
notifications on March 5, 2008 and the applicable waiting
periods under HSR have not yet expired or otherwise been
terminated.
10
No
Appraisal Rights (page 38)
Holders of Mobile Mini common stock are not entitled to
appraisal rights in connection with the merger under the General
Corporation Law of the State of Delaware or Mobile Minis
certificate of incorporation.
Risk
Factors
In deciding how to vote your shares of common stock on the
matters described in this proxy statement, you should carefully
consider the risks related to the merger. These risks include,
among other things, risks related to the uncertainty that Mobile
Mini will be able to realize the anticipated benefits and cost
savings of the merger and integrate successfully its existing
business with the Mobile Storage Group business. In addition,
because Mobile Mini will take on substantial additional
indebtedness to finance the merger, this could limit Mobile
Minis financial and operating flexibility and ability to
react to changes in the industry and economic conditions and
could divert financial resources away from the expansion and
improvement of its business. For a discussion of these risks and
other risks, see the Risk Factors extracted from
Part I, Item 1A of Mobile Minis Annual Report on
Form 10-K
for the year ended December 31, 2007, which is included as
Annex C which is incorporated herein by reference. See
Where You Can Find More Information beginning on
page 111 of this proxy statement.
11
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this proxy statement,
including those relating to Mobile Minis, Mobile Storage
Groups and the combined companys strategies and
other statements that are predictive in nature, that depend upon
or refer to future events or conditions, or that include words
such as will, should, may,
expects, anticipates,
intends, plans, believes,
estimates and similar expressions, are
forward-looking statements. Forward looking statements include
the information concerning possible or assumed future results of
operations of Mobile Mini, Mobile Storage Group and the combined
company as set forth under The Merger Reasons
for the Merger; Recommendation of the Board of Directors of
Mobile Mini beginning on page 30. These statements
are not historical facts but instead represent only
expectations, estimates and projections regarding future events.
These statements are not guarantees of future performance and
involve certain risks and uncertainties that are difficult to
predict. These risks include, among other things, risks related
to the uncertainty that Mobile Mini will be able to realize the
anticipated benefits and cost savings of the merger and
integrate successfully its existing business with the Mobile
Storage Group business. In addition, because Mobile Mini will
take on substantial additional indebtedness to finance the
merger, this could limit Mobile Minis financial and
operating flexibility and ability to react to changes in the
industry and economic conditions and could divert financial
resources away from the expansion and improvement of its
business. Furthermore, these risks and uncertainties may also
include other market, business, legal and operational
uncertainties discussed elsewhere in this document. For a
discussion of certain of these risks, see the Risk
Factors extracted from Part I, Item 1A of Mobile
Minis annual report on
Form 10-K
for the year ended December 31, 2007, which is included as
Annex C which is incorporated herein by reference.
See Where You Can Find More Information beginning on page
111 of this proxy statement.
Mobile Mini undertakes no obligation to update any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
applicable securities laws.
12
PRICE
RANGE OF MOBILE MINI COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Our common stock trades on The Nasdaq Global Select Market under
the symbol MINI. The following are the high and low
sale prices for the common stock during the periods indicated as
reported by the Nasdaq Stock Market after giving effect to a
two-for-one stock split effected on March 10, 2006.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Quarterly for 2006:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
31.32
|
|
|
$
|
25.70
|
|
Second Quarter
|
|
$
|
37.12
|
|
|
$
|
26.64
|
|
Third Quarter
|
|
$
|
31.98
|
|
|
$
|
25.95
|
|
Fourth Quarter
|
|
$
|
33.35
|
|
|
$
|
26.85
|
|
Quarterly for 2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
29.40
|
|
|
$
|
25.12
|
|
Second Quarter
|
|
$
|
33.65
|
|
|
$
|
26.30
|
|
Third Quarter
|
|
$
|
32.01
|
|
|
$
|
21.56
|
|
Fourth Quarter
|
|
$
|
25.23
|
|
|
$
|
16.50
|
|
Quarterly for 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
20.13
|
|
|
|
14.07
|
|
Second Quarter (through June 3, 2008)
|
|
$
|
25.31
|
|
|
$
|
18.61
|
|
We had approximately 200 holders of record of our common stock
on May 30, 2008, and we estimate that we have more than
5,000 beneficial owners of our common stock.
We have not paid cash dividends on our common stock and do not
expect to do so in the foreseeable future, as we intend to
retain all earnings to provide funds for the operation and
expansion of our business. Further, our revolving credit
agreement, the indenture governing our senior notes and the
indenture governing Mobile Storage Groups Senior Notes
(which we will assume and which will remain outstanding after
the closing of the merger) restrict our ability to pay dividends
or other distributions on our common stock. In the future we may
enter into agreements that may restrict our ability to pay
dividends or other distributions on our common stock.
13
CAPITALIZATION
The following table shows Mobile Minis capitalization as
of March 31, 2008 on an actual and pro forma basis. The
actual column reflects our capitalization as of
March 31, 2008 on a historical basis, without any
adjustments to reflect subsequent or anticipated events. The
pro forma column reflects our capitalization as of
March 31, 2008 with adjustments to reflect:
|
|
|
|
|
the issuance of 8,555,556 shares of the Series A
Convertible Redeemable Participating Preferred Stock to Mobile
Storage Group stockholders; and
|
|
|
|
borrowings under the proposed new $1.0 billion asset-based
revolving credit facility and application of the proceeds
therefrom, including the repayment of indebtedness of Mobile
Storage Group to be assumed in connection with the merger.
|
|
|
|
|
|
|
|
|
|
|
|
March, 31, 2008
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
7.4
|
|
|
$
|
7.4
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
237.4
|
|
|
$
|
601.9
|
|
Notes payable
|
|
|
0.4
|
|
|
|
1.3
|
|
Capitalized lease obligations
|
|
|
|
|
|
|
6.6
|
|
6.875% Senior Notes due 2015
|
|
|
149.4
|
|
|
|
149.4
|
|
9.75% Senior Notes due 2014, at fair value(1)
|
|
|
|
|
|
|
187.0
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
387.2
|
|
|
|
946.2
|
|
Convertible preferred stock(2)
|
|
|
|
|
|
|
154.0
|
|
Stockholders equity
|
|
|
468.8
|
|
|
|
468.8
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
856.0
|
|
|
$
|
1,569.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mobile Storage Groups Senior Notes recorded at their fair
value at March 31, 2008. |
|
(2) |
|
Liquidation preference at issuance. |
14
SELECTED
FINANCIAL DATA OF MOBILE MINI
The following table sets forth selected historical consolidated
financial information of Mobile Mini for the periods presented.
The selected financial information, as of December 31,
2007, and for each of the five fiscal years then ended, has been
derived from Mobile Minis audited consolidated financial
statements. This financial information and other data should be
read in conjunction with the respective audited consolidated
financial statements of Mobile Mini, including the notes
thereto, and Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in
Annex C and Annex D and which such
information is incorporated in this proxy statement by
reference. See Where You Can Find More Information
beginning on page 111. This information should also be read
in conjunction with the unaudited pro forma condensed
consolidated financial statements beginning on page 61.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
(unaudited)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
128,482
|
|
|
$
|
149,856
|
|
|
$
|
188,578
|
|
|
$
|
245,105
|
|
|
$
|
284,638
|
|
|
$
|
70,036
|
|
Sales
|
|
|
17,248
|
|
|
|
17,919
|
|
|
|
17,499
|
|
|
|
26,824
|
|
|
|
31,644
|
|
|
|
8,098
|
|
Other
|
|
|
838
|
|
|
|
566
|
|
|
|
1,093
|
|
|
|
1,434
|
|
|
|
2,020
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
146,568
|
|
|
|
168,341
|
|
|
|
207,170
|
|
|
|
273,363
|
|
|
|
318,302
|
|
|
|
78,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
11,487
|
|
|
|
11,352
|
|
|
|
10,845
|
|
|
|
17,186
|
|
|
|
21,651
|
|
|
|
5,633
|
|
Leasing, selling and general expenses
|
|
|
80,124
|
|
|
|
90,696
|
|
|
|
109,257
|
|
|
|
139,906
|
|
|
|
166,994
|
|
|
|
43,470
|
|
Florida litigation expense
|
|
|
8,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,026
|
|
|
|
11,427
|
|
|
|
12,854
|
|
|
|
16,741
|
|
|
|
21,149
|
|
|
|
5,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
110,139
|
|
|
|
113,475
|
|
|
|
132,956
|
|
|
|
173,833
|
|
|
|
209,794
|
|
|
|
54,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
36,429
|
|
|
|
54,866
|
|
|
|
74,214
|
|
|
|
99,530
|
|
|
|
108,508
|
|
|
|
23,769
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2
|
|
|
|
|
|
|
|
11
|
|
|
|
437
|
|
|
|
101
|
|
|
|
33
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
3,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(16,299
|
)
|
|
|
(20,434
|
)
|
|
|
(23,177
|
)
|
|
|
(23,681
|
)
|
|
|
(24,906
|
)
|
|
|
(6,145
|
)
|
Debt restructuring/extinguishment expense
|
|
|
(10,440
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,425
|
)
|
|
|
(11,224
|
)
|
|
|
|
|
Foreign currency exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
107
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
9,692
|
|
|
|
34,432
|
|
|
|
54,208
|
|
|
|
69,927
|
|
|
|
72,586
|
|
|
|
17,646
|
|
Provision for income taxes
|
|
|
3,780
|
|
|
|
13,773
|
|
|
|
20,220
|
|
|
|
27,151
|
|
|
|
28,410
|
|
|
|
6,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,912
|
|
|
$
|
20,659
|
|
|
$
|
33,988
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
|
$
|
10,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.21
|
|
|
$
|
0.71
|
|
|
$
|
1.14
|
|
|
$
|
1.25
|
|
|
$
|
1.24
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.70
|
|
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,625
|
|
|
|
28,974
|
|
|
|
29,867
|
|
|
|
34,243
|
|
|
|
35,489
|
|
|
|
34,086
|
|
Diluted
|
|
|
28,925
|
|
|
|
29,565
|
|
|
|
30,875
|
|
|
|
35,425
|
|
|
|
36,296
|
|
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At March 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(unaudited)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease fleet, net
|
|
$
|
383,672
|
|
|
$
|
454,106
|
|
|
$
|
550,464
|
|
|
$
|
697,439
|
|
|
$
|
802,923
|
|
|
$
|
815,599
|
|
Total assets
|
|
|
515,080
|
|
|
|
592,146
|
|
|
|
704,957
|
|
|
|
900,030
|
|
|
|
1,028,851
|
|
|
|
1,046,588
|
|
Total debt
|
|
|
240,610
|
|
|
|
277,044
|
|
|
|
308,585
|
|
|
|
302,045
|
|
|
|
387,989
|
|
|
|
387,227
|
|
Stockholders equity
|
|
|
189,293
|
|
|
|
216,369
|
|
|
|
267,975
|
|
|
|
442,004
|
|
|
|
457,890
|
|
|
|
468,795
|
|
15
SELECTED
FINANCIAL DATA OF MOBILE STORAGE GROUP
The following tables set forth the selected historical
consolidated financial data of Mobile Storage Group for the
periods indicated. Mobile Services Group, Inc. was acquired by
MSG WC Holdings Corp. on August 1, 2006. The financial data
for periods prior to August 1, 2006 are derived from the
financial statements of Mobile Services Group, Inc.
(predecessor) prior to its acquisition by MSG WC Holdings Corp.
(successor). The selected historical consolidated financial data
for the fiscal year ended December 31, 2005, the periods
from January 1, 2006 to August 1, 2006, and from
August 2, 2006 to December 31, 2006, for the fiscal
year ended December 31, 2007 and the consolidated balance
sheet information as of December 31, 2006 and 2007 are
derived from the audited consolidated financial statements of
MSG WC Holdings Corp. included in this proxy statement. The
selected historical consolidated financial data for the three
months ended March 31, 2008 and the consolidated balance
sheet information as of March 31, 2008 are derived from the
unaudited consolidated financial statements of MSG WC Holdings
Corp. also included in this proxy statement. The selected
historical consolidated financial data as of and for the fiscal
year ended December 31, 2003 and 2004 and the consolidated
balance sheet information as of December 31, 2005 are
derived from the audited consolidated financial statements of
Mobile Services Group, Inc. not included in this proxy
statement. The financial information set forth below should be
read in conjunction with Mobile Storage Groups financial
statements and the related notes, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included in this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 2,
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
2006 to
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
113,975
|
|
|
$
|
127,040
|
|
|
$
|
143,417
|
|
|
$
|
91,088
|
|
|
$
|
75,596
|
|
|
$
|
192,318
|
|
|
$
|
49,303
|
|
Sales
|
|
|
31,064
|
|
|
|
29,336
|
|
|
|
35,584
|
|
|
|
22,410
|
|
|
|
14,812
|
|
|
|
40,809
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
145,039
|
|
|
|
156,376
|
|
|
|
179,001
|
|
|
|
113,498
|
|
|
|
90,408
|
|
|
|
233,127
|
|
|
|
60,214
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
23,064
|
|
|
|
21,636
|
|
|
|
27,114
|
|
|
|
16,223
|
|
|
|
10,289
|
|
|
|
28,784
|
|
|
|
7,681
|
|
Trucking and yard costs
|
|
|
35,858
|
|
|
|
40,811
|
|
|
|
44,764
|
|
|
|
27,965
|
|
|
|
23,053
|
|
|
|
58,833
|
|
|
|
14,992
|
|
Depreciation and amortization
|
|
|
13,806
|
|
|
|
14,502
|
|
|
|
19,471
|
|
|
|
12,191
|
|
|
|
8,223
|
|
|
|
22,216
|
|
|
|
6,379
|
|
Selling, general and administrative expenses
|
|
|
39,037
|
|
|
|
42,129
|
|
|
|
46,909
|
|
|
|
31,403
|
|
|
|
24,135
|
|
|
|
67,307
|
|
|
|
18,774
|
|
Other selling, general and administrative expenses
stock related compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
1,662
|
|
|
|
3,168
|
|
|
|
551
|
|
Management fees to majority stockholder
|
|
|
445
|
|
|
|
422
|
|
|
|
400
|
|
|
|
329
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Abandoned offering costs
|
|
|
(613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for lease fleet impairment
|
|
|
|
|
|
|
9,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
33,442
|
|
|
|
27,721
|
|
|
|
40,343
|
|
|
|
(15,619
|
)
|
|
|
23,017
|
|
|
|
52,819
|
|
|
|
11,837
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(20,393
|
)
|
|
|
(23,096
|
)
|
|
|
(26,249
|
)
|
|
|
(15,557
|
)
|
|
|
(19,877
|
)
|
|
|
(51,218
|
)
|
|
|
(13,060
|
)
|
Foreign currency transaction gain (loss)
|
|
|
7,267
|
|
|
|
1,013
|
|
|
|
(1,386
|
)
|
|
|
212
|
|
|
|
74
|
|
|
|
714
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
(1,424
|
)
|
|
|
|
|
|
|
(780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(26
|
)
|
|
|
270
|
|
|
|
(241
|
)
|
|
|
(84
|
)
|
|
|
(58
|
)
|
|
|
(141
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes
|
|
|
18,866
|
|
|
|
5,908
|
|
|
|
11,687
|
|
|
|
(31,048
|
)
|
|
|
3,156
|
|
|
|
2,174
|
|
|
|
(1,308
|
)
|
Provision (benefit) for income taxes
|
|
|
7,449
|
|
|
|
2,539
|
|
|
|
4,652
|
|
|
|
(9,240
|
)
|
|
|
1,044
|
|
|
|
(1,618
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
11,417
|
|
|
|
3,369
|
|
|
|
7,035
|
|
|
|
(21,808
|
)
|
|
|
2,112
|
|
|
|
3,792
|
|
|
|
(757
|
)
|
Income (loss) from discontinued operations (net of tax provision
(benefit) of $871, $300, $122, $225, $125, $(697); and $(26) for
the years 2003, 2004, 2005, the periods from January 1 to
August 1, 2006 and August 2 to December 31, 2006, the
year 2007 and the three months ended March 31, 2008,
respectively)
|
|
|
1,307
|
|
|
|
451
|
|
|
|
184
|
|
|
|
337
|
|
|
|
188
|
|
|
|
(1,110
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,724
|
|
|
$
|
3,820
|
|
|
$
|
7,219
|
|
|
$
|
(21,471
|
)
|
|
$
|
2,300
|
|
|
$
|
2,682
|
|
|
$
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
(In thousands)
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease equipment, net
|
|
$
|
228,893
|
|
|
$
|
246,492
|
|
|
$
|
257,498
|
|
|
$
|
297,776
|
|
|
$
|
344,415
|
|
|
$
|
348,459
|
|
Total assets
|
|
|
371,350
|
|
|
|
402,934
|
|
|
|
415,161
|
|
|
|
759,299
|
|
|
|
836,020
|
|
|
|
837,990
|
|
Total debt
|
|
|
217,547
|
|
|
|
238,987
|
|
|
|
250,247
|
|
|
|
458,545
|
|
|
|
522,354
|
|
|
|
532,322
|
|
Stockholders equity
|
|
|
82,226
|
|
|
|
86,838
|
|
|
|
80,864
|
|
|
|
193,454
|
|
|
|
201,579
|
|
|
|
201,388
|
|
17
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following tables present, as of December 31, 2007, and
as of March 31, 2008 and for the year ended
December 31, 2007 and for the quarter ended March 31,
2008, selected unaudited pro forma condensed combined financial
data of Mobile Mini and has been prepared using the purchase
method of accounting. The unaudited pro forma condensed combined
statements of operations data gives effect to the merger as if
it had occurred on the first day of the period and the unaudited
pro forma condensed combined balance sheet data gives effect to
the merger as if it had occurred on the date of such balance
sheet.
You should read this information in conjunction with
(i) the separate historical consolidated financial
statements and accompanying notes of Mobile Mini contained in
Annex C and Annex D and which such
information is incorporated by reference into this proxy
statement, (ii) the separate historical consolidated
financial statements and accompanying notes of Mobile Storage
Group included in this proxy statement and (iii) the
unaudited pro forma condensed combined financial statements and
accompanying notes included elsewhere in this proxy statement.
See Unaudited Pro Forma Condensed Combined Financial
Statements and Where You Can Find More
Information beginning on page 61 and page 111,
respectively.
The selected unaudited pro forma condensed combined financial
data is provided for illustrative purposes only and do not
purport to represent what the actual consolidated results of
operations or the consolidated financial position of Mobile Mini
would have been had the business combination with Mobile Storage
Group occurred on the respective date assumed, nor are they
necessarily indicative of future consolidated operating results
or financial position.
The selected unaudited pro forma condensed combined financial
data does not reflect anticipated benefits derived from combined
synergies, operating efficiencies and cost savings that are
expected to result from the acquisition, and does not give
benefits to expected expansion to be derived from the combined
companys growth projects nor changes in leasing yield
subsequent to the date of such unaudited pro forma condensed
combined financial data. The data also does not include the
anticipated integration costs that we expect to incur as part of
consummating the merger, consisting primarily of costs relating
to employee severance and retention, asset and personnel
relocations, eliminating approximately 5 to 15 Mobile Mini
branch locations in the US which overlap with Mobile Storage
Group branch locations and certain duplicate functions of the
companies such as payroll, advertising and corporate operating
systems. Mobile Mini estimated these integration costs will be
approximately $19.0 million, with some of these expenses
incurred at closing and others incurred over a period of time.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands except per share data)
|
|
|
Pro Forma Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
551,429
|
|
|
$
|
138,755
|
|
Total operating expenses
|
|
|
389,544
|
|
|
|
103,009
|
|
Income from operations
|
|
|
161,885
|
|
|
|
35,746
|
|
Income from continuing operations
|
|
|
52,929
|
|
|
|
11,185
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.20
|
|
|
|
0.26
|
|
Diluted
|
|
|
1.18
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands)
|
|
|
Pro Forma Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Lease fleet, net
|
|
$
|
1,087,293
|
|
|
$
|
1,104,013
|
|
Total assets
|
|
|
1,873,056
|
|
|
|
1,885,246
|
|
Total debt
|
|
|
944,704
|
|
|
|
946,202
|
|
Convertible Preferred Stock
|
|
|
153,990
|
|
|
|
153,990
|
|
Stockholders equity
|
|
|
457,890
|
|
|
|
468,795
|
|
18
INFORMATION
ABOUT THE SPECIAL MEETING AND VOTING
Mobile Mini is furnishing this proxy statement to you in order
to provide you with important information regarding the matters
to be considered at the special meeting and at any adjournment
or postponement of the special meeting. Mobile Mini first mailed
this proxy statement and the accompanying form of proxy to its
stockholders on or about June 5, 2008.
Special
Meeting Date, Time and Place
A special meeting of stockholders will be held on June 26,
2008 at 9:00 a.m. local time at the Hilton Airport Hotel,
2435 South 47th Street, Phoenix, Arizona 85034.
Agenda
At the special meeting, stockholders of Mobile Mini will be
asked to consider and vote upon the following Proposals:
|
|
|
|
|
Proposal 1: To approve the Merger
Agreement and the merger;
|
|
|
|
Proposal 2: To approve an amendment to
Mobile Minis certificate of incorporation to increase the
authorized number of shares of preferred stock of Mobile Mini
from 5,000,000 shares, $0.01 par value per share, to
20,000,000 shares, $0.01 par value per share, and
correspondingly increase Mobile Minis total number of
authorized shares of capital stock from 100,000,000 shares
to 115,000,000 shares;
|
|
|
|
Proposal 3: To approve an amendment to
Mobile Minis certificate of incorporation to authorize the
designation of a series of preferred stock as Series A
Convertible Redeemable Participating Preferred Stock;
|
|
|
|
Proposal 4: To approve the issuance of
8,555,556 shares of Series A Convertible Redeemable
Participating Preferred Stock to holders of Mobile Storage Group
as partial consideration in the merger;
|
|
|
|
Proposal 5: To approve adjournments or
postponements of the special meeting, if necessary, to permit
further solicitation of proxies if there are not sufficient
votes at the time of the special meeting in favor of the
foregoing Proposals; and
|
|
|
|
Proposal 6: To approve an amendment to
our certificate of incorporation to provide that the authorized
preferred stock may be issued in one or more classes or any
series of any class, with such voting powers, designations,
preferences and relative participating, optional or other
rights, as well as any qualifications, limitations or
restrictions, as shall be fixed by the Board of Directors of
Mobile Mini from time to time.
|
These Proposals are being voted upon separately, and only
approval of Proposals No. 1, 2, 3 and 4 is a condition
to completion of the merger.
Record
Date; Stockholders Entitled to Vote
Only stockholders of record at the close of business on
May 19, 2008 are entitled to receive notice of and to vote
at the meeting and any adjournment or postponement of the
special meeting.
As of the record date, directors and executive officers of
Mobile Mini and their affiliates as a group beneficially owned
and were entitled to vote approximately 1,098,106 shares of
Mobile Mini common stock, representing approximately 3.2% of the
votes entitled to be cast at the special meeting. All of the
directors and executive officers of Mobile Mini who are entitled
to vote at the special meeting have indicated that they intend
to vote their shares of Mobile Mini common stock in favor of
each of the Proposals.
Voting
and Revocation of Proxies
The proxy accompanying this proxy statement is solicited on
behalf of the Board of Directors of Mobile Mini for use at the
special meeting.
19
General. Assuming a quorum is present, shares
represented by a properly signed and dated proxy will be voted
at the special meeting in accordance with the instructions
indicated on the proxy. Proxies that are properly signed and
dated but that do not contain voting instructions will be voted
FOR each of the Proposals.
Abstentions. Mobile Mini will count a properly
executed proxy marked abstain with respect to
a particular Proposal as present for purposes of determining
whether a quorum is present. If you abstain
from voting with respect to Proposals 1, 2, 3 and 6 it will
have the same effect as if you voted against
such Proposal.
Broker Non-Votes. Proxies submitted by brokers
that do not indicate a vote for some or all of the Proposals
because the brokers do not have discretionary voting authority
and have not received instructions from you as to how to vote on
those Proposals (so-called broker non-votes) are
considered shares present for purposes of
determining whether a quorum exists. Broker non-votes with
respect to each of the Proposals are not deemed to be
present.
Voting Shares in Person that are Held Through
Brokers. If you are a shareholder of
record, you may vote your shares in person at the special
meeting. If you hold your shares in street name, you
must obtain a legal proxy from your broker, banker, trustee or
nominee, giving you the right to vote the shares at the special
meeting.
Submitting a Proxy by Telephone or Through the
Internet. Delaware law permits submission of
proxies by telephone or electronically through the Internet,
instead of submitting proxies by mail on the enclosed proxy
card. Thus, stockholders of record and many stockholders who
hold their shares through a broker or bank will have the option
to submit their proxies or voting instructions by telephone or
electronically through the Internet. Please note that there are
separate arrangements for using the telephone and the Internet
depending on whether your shares are registered in Mobile
Minis stock records in your name or in the name of a
broker/bank/trust/nominee. If you hold your shares through a
broker/bank/trust/nominee, your broker/bank/trust/nominee will
provide you with materials and instructions for voting your
shares.
Revocation of Proxies. You may revoke your
proxy by doing one of the following:
|
|
|
|
|
by sending a written notice of revocation to the Secretary of
Mobile Mini that is received by the Company prior to the special
meeting, stating that you revoke your proxy;
|
|
|
|
by signing a later-dated proxy card and submitting it so that it
is received prior to the special meeting in accordance with the
instructions included in the proxy card(s); or
|
|
|
|
by attending the special meeting and voting your shares in
person.
|
Required
Stockholder Vote
In order to conduct business at the special meeting, a quorum
must be present. The holders of a majority of the votes entitled
to be cast at the special meeting, present in person or
represented by proxy, constitute a quorum under Mobile
Minis bylaws. Mobile Mini will treat shares of Mobile
Minis common stock represented by a properly signed and
returned proxy, including abstentions and broker non-votes, as
present at the Mobile Mini special meeting for the purposes of
determining the existence of a quorum.
With respect to any matter submitted to a vote of Mobile Mini
stockholders, each holder of Mobile Mini common stock will be
entitled to one vote, in person or by proxy, for each share of
Mobile Mini common stock held in his, her or its name on the
books of Mobile Mini on the record date.
Proposals 4 and 5 require the affirmative vote of a
majority of those shares present in person or represented by
proxy and entitled to vote thereon at the special meeting.
Proposals 1, 2, 3 and 6 require the affirmative vote of
holders of at least a majority of our outstanding common stock.
All other actions considered at the meeting may be taken upon
the affirmative vote of a majority of those shares present in
person or represented by proxy and entitled to vote thereon at
the special meeting.
As of the record date, directors and executive officers of
Mobile Mini and their affiliates as a group beneficially owned
and were entitled to vote approximately 1,098,106 shares of
Mobile Mini common stock, representing
20
approximately 3.2% of the votes entitled to be cast at the
special meeting. All of the directors and executive officers of
Mobile Mini who are entitled to vote at the special meeting have
indicated that they intend to vote their shares of Mobile Mini
common stock in favor of each of the Proposals, although such
persons have not entered into agreements obligating them to do
so.
Recommendations
by the Board of Directors of Mobile Mini
The Board of Directors of Mobile Mini unanimously recommends
that Mobile Mini stockholders vote FOR each of the
Proposals.
The matters to be considered at the special meeting are of great
importance to the stockholders of Mobile Mini. Accordingly, you
are encouraged to read and carefully consider the information
presented in this proxy statement, and to submit your proxy by
telephone or mail in the enclosed postage-paid envelope.
Proxy
Solicitation
Mobile Mini will pay the costs of soliciting proxies. Pursuant
to the terms of the Merger Agreement, the fees and expenses
associated with the filing, printing and mailing of this proxy
statement will be borne by Mobile Mini. We have retained
Morrow & Co., LLC to assist in the solicitation of
proxies. We will pay Morrow & Co., LLC $7,500 plus
out-of-pocket
expenses for its assistance. Certain directors, officers or
employees of Mobile Mini may solicit proxies by telephone,
facsimile, email or personal contact. They will not be
specifically compensated for doing so. The extent to which any
proxy soliciting efforts will be necessary depends upon how
promptly proxies are received. You should send in your proxy by
mail without delay or vote by telephone. Mobile Mini also
reimburses brokers and other custodians, nominees and
fiduciaries for their expenses in sending these materials to you
and getting your voting instructions. A more complete
description of how to send your proxy is included on the proxy
accompanying this proxy statement.
Other
Business
Mobile Mini is not currently aware of any business other than
the named Proposals to be acted upon at the special meeting. If,
however, any other matters are properly brought before the
meeting, or any adjournment or postponement thereof, the persons
named in the enclosed form of proxy, and acting under that
proxy, will have discretion to vote or act on those matters in
accordance with their best judgment.
No
Appraisal Rights
Under Delaware law and under our certificate of incorporation,
holders of Mobile Mini common stock are not entitled to
appraisal rights with respect to the matters to be considered at
the special meeting.
Other
Information
Representatives of Ernst & Young LLP are not expected
to be present at the special meeting.
21
PROPOSALS TO
BE CONSIDERED AND VOTED UPON BY HOLDERS OF MOBILE
MINI COMMON STOCK AT THE SPECIAL MEETING
Proposal One
Approval
of the Merger Agreement and the Merger
Mobile Mini is asking its stockholders to consider and vote upon
a proposal to authorize and approve the Merger Agreement,
pursuant to which Cactus Merger Sub will merge with and into MSG
WC Holdings Corp. Immediately after the merger, MSG WC Holdings
Corp. and two of its subsidiaries will be merged into Mobile
Mini.
Proposal Two
Approval
of an Amendment to Mobile Minis Certificate of
Incorporation
to increase the number of Authorized Shares
Mobile Mini is seeking the approval of holders of common stock
for an amendment to Mobile Minis certificate of
incorporation to increase the number of authorized shares of
preferred stock, par value $0.01 per share, from
5,000,000 shares to 20,000,000 shares and a
corresponding increase to Mobile Minis total number of
authorized shares of capital stock from 100,000,000 shares
to 115,000,000 shares. The authorized number of shares of
common stock would remain unchanged at 95,000,000 shares.
The amendment is required under the terms of the Merger
Agreement and is necessary to enable Mobile Mini to have enough
shares of authorized preferred stock to issue shares of
preferred stock in connection with the merger. Accordingly, if
this proposal is not approved by stockholders at the special
meeting, a condition to the closing of the merger will not be
satisfied and the merger will not be consummated. If this
proposal is approved by stockholders and the merger is
consummated, Mobile Mini will have the ability to issue an
additional 11,444,444 shares of preferred stock in the
future.
Proposal Three
Approval
of an Amendment to Mobile Minis Certificate of
Incorporation
to authorize the Designation of Series A Convertible
Redeemable Participating Preferred Stock
Mobile Mini is seeking the approval of holders of common stock
for an amendment to Mobile Minis certificate of
incorporation to authorize the designation of a series of
preferred stock as Series A Convertible Redeemable
Participating Preferred Stock.
The amendment authorizing the designation of a series of
preferred stock as Series A Convertible Redeemable
Participating Preferred Stock is required under the terms of the
Merger Agreement and is necessary to enable Mobile Mini to issue
such shares of preferred stock in connection with the merger.
Accordingly, if this proposal is not approved by stockholders at
the special meeting, a condition to the closing of the merger
will not be satisfied and the merger will not be consummated.
The amendment, if approved by Mobile Minis stockholders,
would authorize Mobile Mini to issue 8,555,556 shares of
preferred stock.
Summary
of the terms of the Series A Convertible Redeemable
Participating Preferred Stock
The following is a summary of the material provisions of the
certificate of designation which is included as Exhibit D
to Annex A, and is incorporated by reference into
this proxy statement. This summary describes the material
provisions of the Series A Convertible Redeemable Preferred
Stock. We encourage you to read the certificate of designation
carefully.
Ranking. The preferred stock will, with
respect to dividend rights, rights upon a liquidity event,
rights to any other distributions or payments with respect to
capital stock, voting rights and all other rights and
preferences, rank junior to each other class or series of
capital stock of Mobile Mini other than (i) in all respects
all classes or series of
22
common stock existing or created after the date hereof,
(ii) with respect to any other class or series of capital
stock which by its terms ranks junior to the preferred stock, it
shall rank senior to each such series of capital stock,
(iii) with respect to dividends and voting rights, it shall
rank pari passu with the common stock, and (iv) with
respect to a distribution upon the occurrence of a liquidity
event it shall rank senior to the common stock.
Dividends. Holders of record of shares of
preferred stock shall be entitled to receive when, as and if,
declared by the Board of Directors of Mobile Mini, out of funds
legally available therefor, cash dividends payable on shares of
the preferred stock at the same time as cash dividends are paid
on shares of common stock (and in the same manner and amount as
if such shares of the preferred stock had been converted into
shares of common stock at the time of such cash dividends).
Preference Upon a Liquidity Event. The
preferred stock to be issued in connection with the merger will
have an aggregate liquidation preference of $154 million,
assuming no unpaid dividends. Upon the occurrence of a Liquidity
Event, each holder of shares of preferred stock then outstanding
shall be entitled to be paid out of the assets of Mobile Mini
legally available for distribution to its stockholders, a per
share amount on such date equal to the greater of
(i) $18.00 per share of preferred stock (as adjusted to
reflect stock splits, stock dividends, stock combinations,
recapitalizations an like occurrences) (such amount referred to
as the original liquidation preference) plus all declared
and unpaid dividends per each share of preferred stock and
(ii) the amount such holder would be entitled to receive if
each share of preferred stock held by it were converted at the
Conversion Rate then in effect into shares of common stock
immediately prior to the occurrence of such Liquidity Event
before any payment is made to the holders of common stock or any
other class or series of capital stock ranking junior to the
preferred stock. For example, if Mobile Mini has no declared and
unpaid dividends and files for bankruptcy, the amount per share
that each holder of shares of preferred stock will receive would
be $18.15, assuming a conversion price of $18.15 and further
assuming that sufficient funds would be available for such
payments at that time. The amount to be received by such holders
of shares of preferred stock is referred to as the Series A
Liquidation Preference.
Conversion Rate means the rate at which shares of
Series A Convertible Redeemable Participating Preferred
Stock may be converted into shares of common stock, as
determined by dividing the original liquidation preference by
the conversion price, which shall initially be $18.00 and shall
be subject to adjustments under the terms of the certificate of
designation.
Liquidity Event means a voluntary or involuntary
filing of bankruptcy of Mobile Mini or any liquidation,
dissolution or winding up of Mobile Mini (but shall not include
the sale of Mobile Mini).
Voting Rights. Each holder of the preferred
stock will be entitled to vote, voting together with the holders
of common stock as a single class, on all matters on which
holders of common stock are entitled to vote, on an as-converted
basis.
Optional Conversion. Each share of preferred
stock will be convertible into such number of shares of Mobile
Mini common stock as is determined by dividing the original
liquidation preference by the conversion price, which shall
initially be $18.00, subject to adjustment from time to time as
provided in the certificate of designation.
Holder Optional Redemptions. (a) At any
time after the tenth anniversary of the issue date, at the
written election of the holders of a majority of the then
outstanding shares of the preferred stock (referred to as the
Majority Holders), Mobile Mini shall redeem all of the shares of
preferred stock then outstanding on the date specified by the
Majority Holders for an amount per share equal to the
Series A Liquidation Preference. If the funds of Mobile
Mini legally available for the redemption of shares of preferred
stock are insufficient to permit the payment of the amounts due
to such holders, then the holders of preferred stock shall share
in any legally available funds pro rata based on the
number of shares of preferred stock held by each such holder.
Until all required payments have been made, (i) Mobile Mini
shall use commercially reasonable efforts to obtain the funds
and/or make
funds legally available as necessary to make the required
remaining payments, (ii) the number of directors on the
Board of Directors of Mobile Mini shall be increased by 1 and
the Majority Holders shall have the right to appoint the 1
additional director and (iii) the amount of the required
remaining payments shall accrue interest at a rate of 10% per
annum, compounded quarterly, until the remaining payments are
paid in full.
(b) If Mobile Mini enters into a binding agreement in
respect of a sale of Mobile Mini (x) on or prior to
June 22, 2008, (y) on or prior to the date that is
90 days after the issue date and the negotiations in
connection with
23
such sale commenced prior to the issue date, or (z) after
the date which is 90 days after the issue date (since
February 22, 2008 to the date of this proxy statement,
there has been no negotiations in connection with such sale),
and in any such case the per-share purchase price of the common
stock in connection with such sale is less than $23.00 per
share, then at the written election of the Majority Holders,
Mobile Mini shall redeem all of the shares of preferred stock
then outstanding at a price per share equal to (i) in the
case of clauses (x) or (y) above, $21.60 per share,
and (ii) in the case of clause (z) above, the original
liquidation preference plus declared but unpaid dividends.
Corporation Optional Redemption. Subject to
the rights of the holders described in paragraph (b) above
under Holder Optional Redemptions, Mobile Mini may
redeem all of the shares of preferred stock then outstanding
simultaneously with the consummation of a sale of Mobile Mini in
which the per share purchase price of the common stock in
connection with such sale is less than $23.00 per share for an
amount per share equal to the original liquidation preference
plus declared but unpaid dividends.
Mandatory Conversion. The preferred stock will
be mandatorily convertible into Mobile Mini common stock if
(x) after the first anniversary of the issuance of the
preferred stock, Mobile Minis common stock trades above
$23.00 per share for a period of 30 consecutive trading days or
(y) Mobile Mini enters into a binding agreement in respect
of a sale of Mobile Mini in which the per-share purchase price
of the common stock is less than $23.00 per share and the
Majority Holders did not exercise the optional redemption
described above.
Proposal Four
Approval
of the Issuance of 8,555,556 Shares of Series A
Convertible
Redeemable Participating Preferred Stock
Mobile Mini is seeking the approval of holders of common stock
for the issuance of 8,555,556 shares of Series A
Convertible Redeemable Participating Preferred Stock in
connection with the merger.
These shares, convertible initially into approximately
8,555,556 million shares of Mobile Mini common stock,
represent approximately 24.7%, at December 31, 2007, of our
common stock outstanding before the completion of the merger.
The issuance of the preferred stock in connection with the
merger requires the approval of holders of Mobile Mini under
NASDAQ Stock Market rules because the number of shares of common
stock into which the preferred stock is convertible is in excess
of 20% of the number of shares of common stock currently
outstanding. Accordingly, if this proposal is not approved by
stockholders at the special meeting, a condition to the closing
of the merger will not be satisfied and the merger will not be
consummated.
Proposal Five
Approval
of Adjournments or Postponements of the Special
Meeting
Mobile Mini is asking holders of common stock to approve
adjournments or postponements of the special meeting, if
necessary, to permit further solicitation of proxies if there
are not sufficient votes at the time of the special meeting in
favor of the foregoing Proposals.
Approval of Proposal 5 is not a condition to the completion
of the merger.
24
Proposal Six
Approval
of an Amendment to Mobile Minis Certificate of
Incorporation
to Authorize the Board of Directors of Mobile Mini to Determine
Terms of Preferred Stock
Mobile Mini is seeking the approval of holders of common stock
for an amendment to Mobile Minis certificate of
incorporation to provide that authorized preferred stock may be
issued in one or more classes or any series of any class, with
such voting powers, designations, preferences and relative
participating, optional or other rights, as well as any
qualifications, limitations or restrictions, as shall be fixed
by the Board of Directors of Mobile Mini from time to time.
The amendment will provide Mobile Mini with increased financial
flexibility in meeting future capital requirements, as it will
allow preferred stock to be available with such features as
determined by the Board of Directors of Mobile Mini for any
proper corporate purpose without further stockholder approval.
It is anticipated that such purposes may include the issuance of
preferred stock for cash as a means of obtaining capital for use
by Mobile Mini, or issuance as part or all of the consideration
required to be paid by Mobile Mini for acquisitions of other
businesses or assets. This amendment is not being proposed as a
means of preventing or dissuading a hostile or coercive change
in control or takeover of Mobile Mini. However, the preferred
stock could be used for such a purpose. If preferred stock were
to be issued (i) in connection with a stockholder rights
plan, also known as a poison pill plan, or
(ii) to purchasers supporting the Board of Directors of
Mobile Mini in resisting a specific takeover proposal, such
issuance could have the effect of delaying or preventing a
change of control of Mobile Mini by increasing the number of
outstanding shares entitled to vote and by increasing the number
of votes required to approve a change of control of Mobile Mini.
Approval of Proposal 6 is not a condition to the completion
of the merger.
25
THE
MERGER
Background
of the Merger
As a participant in the portable storage industry, the
management of Mobile Mini is generally familiar with Mobile
Storage Groups business and has met and meets from time to
time with other portable storage companies (including Mobile
Storage Group) at industry conferences and similar events. On an
ongoing basis, Mobile Minis senior management reviews
Mobile Minis business strategy and evaluates options for
achieving Mobile Minis long-term strategic goals and
enhancing stockholder value. In connection with these reviews,
Mobile Minis management, periodically, has evaluated
potential acquisitions that would further Mobile Minis
growth strategy, enhance its geographic distribution, strengthen
its access to valued customers and enhance its leading position
in the portable storage solution industry in the US and the UK.
Mobile Mini has had prior dialogue with Mobile Storage Group
with respect to a potential business combination. Mobile Mini
initially engaged in discussions with Mobile Storage Group as it
considered the importance of being a leading global provider of
portable storage solutions both inside and outside the US.
Mobile Mini examined the geographic footprint of its activities
and considered that a potential combination with Mobile Storage
Group could position it to cover more major markets for portable
storage in the US and the UK. Mobile Mini also looked for
opportunities to generate cost synergies. In 2005, prior to the
acquisition of Mobile Storage Group by WCAS, Mobile Minis
management met with and had preliminary discussions with Mobile
Storage Groups owners and management to determine Mobile
Minis potential interest in exploring a business
combination with Mobile Storage Group. These discussions between
Mobile Mini and Mobile Storage Group did not proceed beyond the
stage of preliminary meetings and dialogue on this topic, due to
differences regarding Mobile Storage Groups preliminary
valuation and Mobile Minis analysis of the level of
potential operating synergies, cost savings and additional debt
that would result from that potential combination. There were no
other discussions with third parties regarding possible material
strategic alternatives with such third parties.
On October 30, 2007, at the request of WCAS, the majority
stockholder of Mobile Storage Group, Mobile Minis senior
management and representatives of WCAS met in Chandler, Arizona.
During this initial meeting, WCASs representatives and
Mobile Minis senior management discussed in general terms
the respective businesses of Mobile Storage Group and Mobile
Mini and prospects for the industry. During the course of these
discussions, WCASs representatives and Mobile Minis
senior management had the opportunity to discuss possible
business relationships between the two companies, including a
possible business combination, and exchanged preliminary views
regarding the potential strategic fit of the two organizations
and the complementary nature of their service and product
offerings. In addition, WCASs representatives and Mobile
Minis senior management had high level discussions on the
strategic merits of a business combination including potential
synergies. The potential synergies discussed included the
potential to generate cost savings from overlap in corporate
functions and branch infrastructure. These initial discussions
contemplated potential cost savings but such savings were not
quantified during these initial discussions. Both parties also
recognized the possibility of other potential strategic merits
of a business combination, including the expanded geographic
footprint and customer base a combination of the two companies
would provide. Terms of a potential combination of Mobile Mini
and Mobile Storage Group were not discussed at this meeting, but
it was agreed that, as a follow up to this meeting, WCAS would
provide Mobile Mini with an outline of a transaction structure
to effect a business combination.
Following this initial discussion with WCAS, Mobile Mini
contacted Oppenheimer, Mobile Minis financial advisor, to
request Oppenheimers assistance with Mobile Minis
review of the forthcoming proposal from WCAS. Additionally,
Mobile Minis senior management discussed with the Board of
Directors of Mobile Mini the meeting with WCAS and the prospect
of a potential business combination with Mobile Storage Group.
On November 16, 2007, Mobile Mini received a preliminary
proposal for discussion purposes from Mobile Storage
Groups financial advisor, Lehman Brothers, Inc.
(hereinafter referred to as Lehman), and WCAS, which included
potential transaction terms and a potential structure for a
prospective business combination. According to the terms of such
preliminary proposal, Mobile Storage Group would merge into
Mobile Mini in a transaction valued at approximately
$750 million. Under the terms of such proposal, Mobile Mini
would acquire all of the outstanding shares of the common stock
of Mobile Storage Group for consideration consisting of shares
of Mobile
26
Mini convertible preferred stock having a face value of
$222.9 million, a conversion price of $19.50 per share and
a 5% payable in-kind dividend and the assumption by Mobile Mini
of the outstanding debt of Mobile Storage Group, which would
result in Mobile Storage Group stockholders fully diluted
ownership in Mobile Mini of approximately 24%, assuming
conversion of Mobile Mini preferred stock. At the time of this
initial proposal, on November 16, 2007, Mobile Minis
stock price closed at $18.40 per share.
During the four weeks following this initial proposal, Mobile
Mini and Mobile Storage Group exchanged revised proposals
focusing on transaction value and deal structure regarding the
potential combination of Mobile Mini and Mobile Storage Group.
During this period, Mobile Mini enlisted Deutsche Bank
Securities Inc. (hereinafter DB Securities) to act as a
financial advisor to Mobile Mini in addition to Oppenheimer. DB
Securities advised Mobile Mini in connection with certain terms
and conditions of the transaction. DB Securities was not asked
to, and did not, provide an opinion with respect to the fairness
of the transaction. In addition to its role as a financial
advisor to Mobile Mini, DB Securities is one of the financial
institutions providing Mobile Mini with debt financing to
complete the Merger, see The Merger
Financing.
On November 29, 2007, Mobile Mini provided a
counterproposal to WCAS and Mobile Storage Group. According to
the terms of such counterproposal, Mobile Storage Group would
merge into Mobile Mini in a transaction valued at approximately
$715 million and Mobile Mini would acquire all of the
outstanding shares of the common stock of Mobile Storage Group
for consideration consisting of a combination of
5.9 million shares of Mobile Mini common stock and
$75 million in cash and the assumption by Mobile Mini of
approximately $535 million of outstanding debt of Mobile
Storage Group (hereinafter referred to as the MSG
Debt), which would result in Mobile Storage Group
stockholders fully diluted ownership in Mobile Mini of
approximately 15%.
On December 2, 2007, Mobile Storage Group submitted a
further revised proposal providing for a transaction valued at
approximately $735 million pursuant to which Mobile Mini
would acquire all of the outstanding shares of the common stock
of Mobile Storage Group for a consideration consisting of
approximately 10.5 million shares of Mobile Mini common
stock valued at $19.00 per share and the assumption by Mobile
Mini of the MSG Debt, which would result in Mobile Storage Group
stockholders fully diluted ownership in Mobile Mini of
approximately 23%.
On December 4, 2007, Mobile Mini submitted a further
revised proposal, providing for a transaction valued at
approximately $685 million in which Mobile Mini removed the
$75 million cash component of the merger consideration from
its prior offer and proposed that Mobile Mini would acquire all
of the outstanding shares of the common stock of Mobile Storage
Group for consideration consisting of 7.9 million shares of
Mobile Mini common stock valued at $19.00 per share and the
assumption by Mobile Mini of the MSG Debt, which would result in
Mobile Storage Group stockholders fully diluted ownership
in Mobile Mini of approximately 18%.
After the discussions with WCAS had commenced, Mobile
Minis senior management regularly apprised the Board of
Directors of Mobile Mini of its discussions with WCAS and Mobile
Storage Group, reviewing the potential strategic rationale for
the combination and discussing the terms and overall structure
of the proposed transaction.
On December 6, 2007, Mobile Mini and Mobile Storage Group
discussed terms and structure for a potential business
combination pursuant to which Mobile Storage Group would merge
into Mobile Mini in a transaction valued at $715 million.
Mobile Mini would acquire all of the outstanding shares of the
common stock of Mobile Storage Group for consideration
consisting of a combination of 8.5 million shares of Mobile
Mini common stock valued at $20.00 per share and
$12.5 million in cash and the assumption by Mobile Mini of
the MSG Debt, which would result in Mobile Storage Group
stockholders fully diluted ownership in Mobile Mini of
approximately 20%. On December 6, 2007, Mobile Minis
stock price closed at $20.49 per share.
On December 12, 2007, Mobile Mini, Mobile Storage Group and
WCAS met to discuss an agenda for management presentations and
due diligence meetings scheduled for December 19 and 20, 2007 in
Phoenix, Arizona.
On December 14, 2007, the companies finalized and
memorialized in a non-binding term sheet the terms discussed on
December 6, 2007 and Mobile Mini, Mobile Storage Group and
WCAS executed a mutual confidentiality agreement.
27
On December 17, 2007, White & Case LLP, outside
counsel to Mobile Mini, and Kirkland & Ellis LLP,
outside counsel to Mobile Storage Group, together with
Oppenheimer, DB Securities and Lehman, met telephonically to
discuss the scope of a proposed merger agreement.
On December 19 and 20, 2007, Mobile Mini, Mobile Storage Group
and WCAS met in Phoenix to further discuss potential synergies
and commence due diligence efforts. The companies discussed that
of the approximately $25 million of expected cost savings
from overlap in corporate functions and branch infrastructure,
approximately 51% would come from combining corporate offices in
the US and the UK and approximately 49% would come from
consolidating certain branch locations, and approximately 82%
would be realized in the US while approximately 18% would be
realized in the UK. The companies financial advisors were
also present at this meeting.
On December 26, 2007, extensive and detailed financial,
operational and legal due diligence was commenced by each of
Mobile Mini and Mobile Storage Group regarding the other. This
due diligence continued through the execution of the definitive
Merger Agreement on February 22, 2008.
On December 28, 2007, White & Case LLP, on behalf
of Mobile Mini, distributed an initial draft of the Merger
Agreement to Mobile Storage Group and Kirkland & Ellis
LLP.
On January 3, 2008, Mobile Mini, Mobile Storage Group and
WCAS met in Phoenix to discuss Mobile Minis business and
operations for due diligence purposes. The companies
financial advisors also participated in this meeting.
On January 8, 2008, WCAS and Mobile Storage Group provided
an issues list on the draft Merger Agreement. WCAS and Mobile
Storage Group proposed to make reciprocal a number of
representations and warranties and covenants of Mobile Storage
Group in the draft Merger Agreement. In addition, WCAS and
Mobile Storage Group proposed revising the Mobile Mini common
stock component of the merger consideration, which as originally
agreed to provided for a fixed number of shares, and requested a
purchase price protection mechanism, or collar, that
would allow for an increase in the number of shares of Mobile
Minis common stock to be received by the stockholders of
Mobile Storage Group in the event Mobile Minis stock did
not trade at a price of $19.00 or higher. On January 8,
2008, at the time of this additional request by Mobile Storage
Group, Mobile Mini common stock price closed at $16.31 per
share, significantly below the Mobile Mini common stock closing
price of $20.49 per share on December 6, 2007.
On January 8, 2008, White & Case LLP and
Kirkland & Ellis LLP discussed certain provisions of
the draft Merger Agreement.
On January 10, 2008, WCAS, Mobile Storage Group, Mobile
Mini and their respective financial advisors began conversations
regarding alternative structures for the transaction in light of
the decline in Mobile Minis stock price since
December 6, 2007. In the course of these discussions,
Mobile Mini rejected any purchase price protection
mechanism and WCAS proposed to address the issue by changing the
common stock portion of the merger consideration to a
convertible preferred security.
On January 14, 2008, Mobile Mini provided a revised
proposal to Mobile Storage Group and WCAS. The proposal rejected
the convertible preferred security and instead suggested adding
contingent value rights or CVRs as a
component to the merger consideration for Mobile Storage Group
stockholders to address the decline in transaction value caused
by Mobile Minis stock price decline.
On January 14, 2008, White & Case LLP and
Kirkland & Ellis LLP discussed telephonically certain
provisions of the draft Merger Agreement.
On January 15, 2008, Mobile Minis senior management,
with the assistance of Mobile Minis legal and financial
advisors, updated the Board of Directors of Mobile Mini on the
ongoing discussion regarding deal structure and proposed merger
consideration, including the purchase price
protection mechanism requested by WCAS and Mobile
Minis counterproposal of issuing CVRs. The Board of
Directors of Mobile Mini also received an update on Mobile
Minis ongoing due diligence on Mobile Storage Group and
outstanding issues on the draft Merger Agreement.
28
Thereafter, within the following two weeks, Mobile Mini, WCAS
and Mobile Storage Group, together with their respective
financial advisors, held various telephone conversations to
discuss and further explain their respective proposals regarding
the merger consideration and transaction structure for the
business combination of the two companies. These telephone
conversations, however, did not result in any change to the
terms of such proposals, due in part to the volatility of Mobile
Minis stock.
On January 29, 2008, Mobile Storage Group and WCAS provided
a revised proposal. Under the terms of the revised proposal,
Mobile Storage Group would merge into Mobile Mini and Mobile
Mini would acquire all of the outstanding shares of the common
stock of Mobile Storage Group for a revised consideration
consisting of a combination of $12.5 million in cash and
shares of convertible preferred stock of Mobile Mini with an
aggregate liquidation preference of $140 million, a
conversion price of $18.00 per share, and no dividend, and the
assumption by Mobile Mini of the MSG Debt, which would result in
fully diluted ownership of the Mobile Storage Group stockholders
in Mobile Mini of approximately 18.2%, assuming conversion of
Mobile Minis preferred stock. In addition, the revised
proposal from Mobile Storage Group contemplated the issuance to
Mobile Storage Group stockholders of five million Mobile Mini
common stock options in three tranches of options with strike
prices of $20.00, $25.00 and $30.00.
On February 1, 2008, Mobile Mini submitted a
counterproposal to the Mobile Storage Group and WCAS
January 29, 2008 proposal, pursuant to which Mobile Storage
Group would merge into Mobile Mini and Mobile Mini would acquire
all of the outstanding shares of the common stock of Mobile
Storage Group in a transaction valued at approximately
$700.5 million, for consideration consisting of a
combination of $12.5 million in cash, Mobile Mini
convertible preferred shares with a liquidation preference of
$153 million, a conversion price of $18.00 per share and no
dividend, and 8.5 million CVRs valued at a maximum of
$17 million, and the assumption by Mobile Mini of the MSG
Debt, which would result in fully diluted ownership of the
Mobile Storage Group stockholders in Mobile Mini of
approximately 19.7%, assuming conversion of Mobile Minis
preferred stock. For the next two days, Mobile Mini and Mobile
Storage Group continued negotiating the form and amount of the
merger consideration and material contract terms.
On February 3, 2008, Mobile Mini and Mobile Storage Group
continued to discuss a revised deal structure and finally agreed
to a revised deal structure with a transaction value of
$701.5 million and merger consideration consisting of
$12.5 million in cash and Mobile Mini convertible preferred
shares with a liquidation preference of $154 million, a
conversion price of $18.00 per share and no dividend, and the
assumption by Mobile Mini of the MSG Debt, which would result in
fully diluted ownership of the Mobile Storage Group stockholders
in Mobile Mini of approximately 19.1%, assuming conversion of
Mobile Mini preferred stock.
From February 3, 2008 through February 22, 2008,
Mobile Mini, Mobile Storage Group and their respective advisors
engaged in numerous conference calls and discussions on the
terms of the Merger Agreement. To reflect the progress of these
discussions and negotiations, on February 10, 2008,
White & Case LLP, on behalf of Mobile Mini, circulated
a revised Merger Agreement to Kirkland & Ellis LLP,
WCAS and Mobile Storage Group. On February 19, 2008,
Kirkland & Ellis LLP, on behalf of Mobile Storage
Group, circulated a further revised Merger Agreement to
White & Case LLP and Mobile Mini.
During the week of February 11, 2008, White &
Case LLP, on behalf of Mobile Mini, circulated initial drafts of
the form joinder agreement, the forms of stockholders agreement,
escrow agreement and certificate of designation for Mobile
Minis preferred stock, all of which were negotiated by
Mobile Mini and Mobile Storage Group and their respective legal
advisors in the following days until the execution of the Merger
Agreement on February 22, 2008.
On February 11, 2008, the Board of Directors of Mobile Mini
reviewed and discussed the transaction with Mobile Minis
senior management and advisors.
On February 20, 2008, Mobile Minis senior management
and advisors updated the Board of Directors of Mobile Mini on
the status of the final negotiations and discussions with Mobile
Storage Group.
On February 21, 2008, the Board of Directors of Mobile Mini
met and was presented with the proposed Merger Agreement and
ancillary agreements for approval. At that meeting, Mobile
Minis senior management and legal and financial advisors
reviewed with the Board of Directors of Mobile Mini the
transaction and related matters. During this meeting,
Oppenheimer reviewed with the Board of Directors of Mobile Mini
its financial analysis of the
29
aggregate merger consideration to be paid in the merger by
Mobile Mini and rendered to the Board of Directors of Mobile
Mini an oral opinion, which was confirmed by delivery of a
written opinion dated February 21, 2008, to the effect
that, as of that date and based on and subject to the matters
described in the opinion, the aggregate merger consideration to
be paid in the merger by Mobile Mini was fair, from a financial
point of view, to Mobile Mini. The Board of Directors of Mobile
Mini discussed with Mobile Minis management the financial
forecasts relating to Mobile Mini and Mobile Storage Group on a
combined basis that were provided to Oppenheimer by Mobile
Minis management and, based on those discussions, believed
Oppenheimers reliance upon those forecasts was reasonable.
After deliberation, the Board of Directors of Mobile Mini
unanimously determined that the transactions contemplated in the
Merger Agreement and in the ancillary agreements, are advisable,
fair to and in the best interest of Mobile Mini and its
stockholders. The Board of Directors of Mobile Mini then
unanimously approved the Merger Agreement and the ancillary
agreements and resolved to recommend to Mobile Mini stockholders
the approval and adoption of the Merger Agreement and the
ancillary agreements.
On February 22, 2008, Mobile Mini and Mobile Storage Group
executed the Merger Agreement and Mobile Mini and certain
stockholders of Mobile Storage Group executed the joinder
agreement. Prior to the open of the market on February 22,
2008, Mobile Mini issued a press release announcing the Merger
Agreement entered into with Mobile Storage Group.
Reasons
for the Merger; Recommendation of the Board of Directors of
Mobile Mini
In evaluating the merger, the Board of Directors of Mobile Mini
consulted with our senior management and our legal and financial
advisors. In reaching its decision to approve and adopt the
Merger Agreement and recommend that our stockholders vote
FOR approval and adoption of the Merger Agreement
and the merger, the Board of Directors of Mobile Mini considered
the following material factors:
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the merger will establish the combined company as a leading
global provider of portable storage solutions in the US and the
UK; The Board of Directors of Mobile Mini considered Mobile
Storage Groups 86 branches, of which 66 branches are in
the US and 20 branches are in the UK.
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our geographic footprint will be significantly expanded and we
will be positioned to cover most major markets for portable
storage in both the US and the UK; The Board of Directors of
Mobile Mini considered that because Mobile Mini has only six
branches in the UK, the merger will provide it with
significantly improved coverage in the UK. Furthermore the Board
of Directors of Mobile Mini considered that the merger with
Mobile Storage Group will allow Mobile Mini to be present in 20
new cities in the US and 14 new cities in the UK and that such
opportunity could allow Mobile Mini to avoid the high fixed
costs associated with opening branches in new markets or cities.
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our ability to service an expanded customer base will be
significantly expanded;
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our revenue growth potential will be improved through
implementing our growth model into newly acquired Mobile Storage
Group branches;
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the merger is expected to generate cost synergies of at least
$25 million on an annualized basis, which are expected to
be fully realized by the end of fiscal year 2009, as a result of
the significant overlap in corporate functions and branch
infrastructure; It is expected that approximately 51% of the
potential cost savings would come from combining corporate
offices in the US and the UK and 49% would come from
consolidating certain branch locations, and that approximately
82% of the cost savings would be realized in the US while
approximately 18% would be realized in the UK.
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the Board of Directors of Mobile Mini considered that the merger
is expected to deliver accretion of approximately 3.5% and 29%
to Mobile Minis earnings per share in 2008 and 2009,
respectively, relative to publicly available research
analysts consensus EPS estimates for such years, including
the benefit of expected synergies and excluding integration
costs. Accretion of earnings per share excluded integration
costs in order to provide a measure of Mobile Minis
expected operating performance after the merger without regard
to certain expenses that related to the consummation of the
merger. The integration costs are estimated at approximately
$19.0 million, that consist primarily of costs relating to
employee severance and retention, asset and personnel
relocations, eliminating approximately 5 to 15 Mobile
Mini branch locations
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in the US which overlap with Mobile Storage Group branch
locations and certain duplicate functions of the companies such
as payroll, advertising and corporate operating systems.
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the merger has been structured to maintain a strong balance
sheet with sufficient liquidity; The Board of Directors of
Mobile Mini considered that, because the merger consideration
was predominantly paid in stock, Mobile Minis expected
post-merger debt would be manageable. The Board of Directors
based this conclusion on an analysis of the expected post merger
debt and the expected EBITDA for the combined post merger
company as reflected in the financial forecasts it considered in
evaluating the merger. The Board of Directors of Mobile Mini
also considered the positive impact on its post-merger liquidity
of the new $1 billion revolving credit facility liquidity;
and
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Oppenheimers opinion, dated February 21, 2008, to the
Board of Directors of Mobile Mini as to the fairness, from a
financial point of view and as of the date of the opinion, to
Mobile Mini of the aggregate consideration to be paid in the
merger by Mobile Mini, as more fully described below under the
caption Opinion of Mobile Minis Financial
Advisor. In considering Oppenheimers opinion, the
Board of Directors of Mobile Mini took into account the
financial analyses performed by Oppenheimer and the fact that
certain of such analyses were based on projections prepared by
Mobile Minis management regarding Mobile Mini and Mobile
Storage Group on a combined basis after giving effect to
estimated synergies and strategic benefits anticipated by Mobile
Minis management to result from the merger, which
projections, although believed by Mobile Minis management
to be prepared on a reasonable basis at the time of preparation,
may not necessarily reflect actual future results.
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The Board of Directors of Mobile Mini also considered potential
risks and costs relating to the merger, including:
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the risks and costs to us if the merger is not completed,
including the diversion of management and employee attention,
the loss of business opportunities that might otherwise have
been pursued, potential employee attrition and the potential
effect on business and customer relationships;
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the risk that holders of Mobile Mini common stock may fail to
approve the merger and the issuance of the preferred stock;
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the risk that we may fail to realize the anticipated benefits of
the merger;
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the risk that the integration process could adversely impact our
ongoing operations and costs the of integration, including costs
associated with the elimination of overlap in corporate
functions and branch infrastructure;
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the risks and costs associated with the additional indebtedness
incurred in connection with the merger and the adverse impact
such additional indebtedness could have on our ability to
operate our business; and
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the fees and expenses associated with completing the merger in
an amount of approximately $24.5 million.
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The foregoing discussion addresses certain material information
and factors considered by the Board of Directors of Mobile Mini
in its consideration of the merger, including factors that
support the merger as well as those that may weigh against it.
In view of the variety of factors and the quality and amount of
information considered, the Board of Directors of Mobile Mini
did not find it practicable to, and did not make specific
assessments of, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination.
In addition, the Board of Directors of Mobile Mini did not
undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, was
favorable or unfavorable to its ultimate determination. The
determination to approve the merger was made after consideration
of all of the factors in the aggregate. In addition, individual
members of the Board of Directors of Mobile Mini may have given
different weights to different factors.
The actual benefits from the merger, costs of integration and
ability to achieve expected synergies could differ materially
from the estimates and expectations discussed above.
Accordingly, the potential benefits described above or the
potential benefits described in this proxy statement may not be
realized.
31
Opinion
of Mobile Minis Financial Advisor
Mobile Mini has engaged Oppenheimer as its financial advisor in
connection with the merger. In connection with this engagement,
Mobile Mini requested that Oppenheimer evaluate the fairness,
from a financial point of view, to Mobile Mini of the aggregate
consideration to be paid in the merger by Mobile Mini. On
February 21, 2008, at a telephonic meeting of the Board of
Directors of Mobile Mini held to evaluate the merger,
Oppenheimer rendered to the Board of Directors of Mobile Mini an
oral opinion, which was confirmed by delivery of a written
opinion, dated February 21, 2008, to the effect that, as of
that date and based on and subject to the matters described in
its opinion, the aggregate consideration to be paid in the
merger by Mobile Mini was fair, from a financial point of view,
to Mobile Mini.
The full text of Oppenheimers written opinion, dated
February 21, 2008, which describes the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken, is attached to this proxy statement as
Annex B. Oppenheimers opinion was provided to the
Board of Directors of Mobile Mini in connection with its
evaluation of the aggregate consideration from a financial point
of view to Mobile Mini. Oppenheimers opinion does not
address any other aspect of the merger and does not constitute a
recommendation to any stockholder as to how such stockholder
should vote or act with respect to any matters relating to the
merger. The summary of Oppenheimers opinion described
below is qualified in its entirety by reference to the full text
of its opinion.
In arriving at its opinion, Oppenheimer:
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reviewed a draft dated February 20, 2008 of the Merger
Agreement and certain related documents;
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reviewed audited financial statements of Mobile Services Group,
Inc., referred to in this section as Mobile Services, for fiscal
years ended December 31, 2006, December 31, 2005 and
December 31, 2004, and draft unaudited financial statements
of Mobile Services and Mobile Storage Group for fiscal year
ended December 31, 2007 prepared by Mobile Storage
Groups management (as adjusted by Mobile Minis
management in the case of the draft unaudited financial
statements of Mobile Services);
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held discussions with the senior managements of Mobile Mini and
Mobile Storage Group with respect to the businesses and
prospects of Mobile Mini and Mobile Storage Group;
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reviewed estimates prepared by Mobile Minis management as
to the potential synergies and strategic benefits anticipated by
Mobile Minis management to result from the merger;
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reviewed and analyzed certain publicly available financial data
for companies that Oppenheimer deemed relevant in evaluating
Mobile Storage Group;
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reviewed and analyzed certain publicly available information for
transactions that Oppenheimer deemed relevant in evaluating the
merger;
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reviewed the financial terms of Mobile Mini preferred stock,
including the conversion and redemption features of Mobile Mini
preferred stock;
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reviewed historical market prices of Mobile Mini common stock;
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reviewed certain potential pro forma financial effects of the
merger on Mobile Mini based on financial forecasts and estimates
relating to Mobile Mini and Mobile Storage Group on a combined
basis for calendar years 2008 through 2010, including estimates
as to the potential synergies and strategic benefits anticipated
by Mobile Minis management to result from the merger,
prepared by Mobile Minis management;
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reviewed other public information concerning Mobile Mini and
Mobile Storage Group; and
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performed such other analyses, reviewed such other information
and considered such other factors as Oppenheimer deemed
appropriate.
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In rendering its opinion, Oppenheimer relied upon and assumed,
without independent verification or investigation, the accuracy
and completeness of all of the financial and other information
provided to or discussed with Oppenheimer by Mobile Mini, Mobile
Storage Group and their respective employees, representatives
and affiliates
32
or otherwise reviewed by Oppenheimer. Mobile Mini was not
provided with financial forecasts for Mobile Services or Mobile
Storage Group prepared by the management of Mobile Storage Group
beyond calendar year 2008. In addition, based on the assessments
of Mobile Minis management as to the likelihood of
achieving the financial results reflected in the financial
forecasts provided by Mobile Storage Groups management for
calendar year 2008, Oppenheimer was directed by Mobile
Minis management not to rely upon those financial
forecasts for purposes of its analyses, and further was advised
by Mobile Minis management that financial forecasts for
Mobile Services or Mobile Storage Group on a standalone basis
were not prepared by Mobile Minis management. Accordingly,
with Mobile Minis consent, Oppenheimer did not undertake
an analysis of the financial performance of Mobile Storage Group
on a standalone basis beyond calendar year 2007. With respect to
the draft unaudited financial statements of Mobile Services and
Mobile Storage Group for fiscal year ended December 31,
2007, prepared by Mobile Storage Groups management (as
adjusted by Mobile Minis management in the case of the
draft unaudited financial statements of Mobile Services),
Oppenheimer was advised and, at Mobile Minis direction,
assumed, without independent verification or investigation, that
the financial statements (including the adjustments) were
reasonably prepared on bases reflecting the best available
information, estimates and judgments of the managements of
Mobile Storage Group and Mobile Mini, as the case may be, and
further assumed that the draft unaudited financial statements of
Mobile Services and Mobile Storage Group for fiscal year ended
December 31, 2007, when completed, would not vary
materially from the unaudited financial statements for such
fiscal year. With respect to the financial forecasts and
estimates relating to Mobile Mini and Mobile Storage Group on a
combined basis utilized by Oppenheimer in evaluating certain
potential pro forma financial effects of the merger on Mobile
Mini (including estimates prepared by Mobile Minis
management as to the potential synergies and strategic benefits
anticipated by Mobile Minis management to result from the
merger), Oppenheimer assumed, at Mobile Minis direction,
without independent verification or investigation, that such
forecasts and estimates were reasonably prepared on bases
reflecting the best available information, estimates and
judgments of Mobile Minis management as to the future
financial condition and operating results of the combined
company and such synergies and strategic benefits. Oppenheimer
relied, at Mobile Minis direction, without independent
verification or investigation, on the assessments of Mobile
Minis management as to the ability of Mobile Mini to
integrate the businesses of Mobile Mini and Mobile Storage
Group. Oppenheimer assumed, with Mobile Minis consent,
that the merger would be treated as a reorganization for federal
income tax purposes. Representatives of Mobile Mini advised
Oppenheimer, and Oppenheimer therefore also assumed, that the
final terms of the Merger Agreement would not vary materially
from those set forth in the draft reviewed by Oppenheimer.
Oppenheimer further assumed, with Mobile Minis consent,
that the merger would be consummated in accordance with its
terms without waiver, modification or amendment of any material
term, condition or agreement and in compliance with all
applicable laws and other requirements and that, in the course
of obtaining the necessary regulatory or third party approvals,
consents and releases with respect to the merger, no delay,
limitation, restriction or condition would be imposed, that
would have an adverse effect on Mobile Mini, Mobile Storage
Group or the merger (including the contemplated benefits to
Mobile Mini of the merger). Oppenheimer neither made nor
obtained any independent evaluations or appraisals of the assets
or liabilities, contingent or otherwise, of Mobile Mini or
Mobile Storage Group.
Oppenheimer did not express any opinion as to the underlying
valuation, future performance or long-term viability of Mobile
Mini or Mobile Storage Group, the actual value of Mobile Mini
preferred stock (or the shares of Mobile Mini common stock into
which shares of Mobile Mini preferred stock are convertible)
when issued or the prices at which Mobile Mini preferred stock
or Mobile Mini common stock would trade or otherwise be
transferable at any time. Oppenheimer expressed no view as to,
and its opinion did not address, any terms or other aspects or
implications of the merger (other than the aggregate
consideration to the extent expressly specified in its opinion)
or any aspect or implication of any other agreement, arrangement
or understanding entered into in connection with the merger or
otherwise, including, without limitation, the form or structure
of the merger or the aggregate consideration, any adjustments to
the aggregate consideration or the terms of Mobile Mini
preferred stock. In addition, Oppenheimer expressed no view as
to, and its opinion did not address, the fairness of the amount
or nature of, or any other aspect relating to, the compensation
to be received by any individual officers, directors or
employees of any parties to the merger, or any class of such
persons, relative to the aggregate consideration. Oppenheimer
also expressed no view as to, and its opinion did not address,
the underlying business decision of Mobile Mini to effect the
merger, the relative merits of the merger as compared to any
alternative business strategies that might exist for Mobile Mini
or the effect of any other transaction in which Mobile Mini
might engage. Oppenheimers opinion was
33
necessarily based on the information available to it and general
economic, financial and stock market conditions and
circumstances as they existed and could be evaluated by
Oppenheimer on the date of its opinion. Although subsequent
developments may affect its opinion, Oppenheimer does not have
any obligation to update, revise or reaffirm its opinion. The
Company has advised Oppenheimer that the Company does not intend
to obtain an updated opinion from Oppenheimer and, as such, no
updated opinion will be obtained.
The summary below of the financial analyses performed by
Oppenheimer in connection with its opinion is not a complete
description of such analyses, but rather a summary of the
material financial analyses performed by Oppenheimer in
connection with its opinion. The preparation of a financial
opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances and, therefore, a financial opinion
is not readily susceptible to summary description. Oppenheimer
arrived at its ultimate opinion based on the results of all
analyses undertaken by it and assessed as a whole, and did not
draw, in isolation, conclusions from or with regard to any one
factor or method of analysis for purposes of its opinion.
Accordingly, Oppenheimer believes that its analyses and this
summary must be considered as a whole and that selecting
portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses
and factors or the narrative description of the analyses, could
create a misleading or incomplete view of the processes
underlying Oppenheimers analyses and opinion.
In performing its analyses, Oppenheimer considered industry
performance, general business, economic, market and financial
conditions and other matters existing as of the date of its
opinion, many of which are beyond the control of Mobile Mini and
Mobile Storage Group. No company, business or transaction used
in the analyses is identical to Mobile Storage Group or the
merger, and an evaluation of the results of those analyses is
not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the
acquisition, public trading or other values of the companies,
business segments or transactions analyzed. Accordingly, such
analyses may not necessarily utilize all companies, businesses
or transactions that could be deemed comparable to Mobile
Storage Group or the merger.
The forecasts and estimates contained in Oppenheimers
analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual
values or future results, which may be significantly more or
less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the forecasts and estimates used in, and the
results derived from, Oppenheimers analyses are inherently
subject to substantial uncertainty.
The type and amount of consideration payable in the merger were
determined through negotiation between Mobile Mini and Mobile
Storage Group, and the decision to enter into the transaction
was solely that of the Board of Directors of Mobile Mini.
Oppenheimers opinion and financial presentation were only
one of many factors considered by the Board of Directors of
Mobile Mini in its evaluation of the merger and should not be
viewed as determinative of the views of the Board of Directors
of Mobile Mini or management with respect to the merger or the
aggregate consideration.
The following is a summary of the material financial analyses
reviewed with the Board of Directors of Mobile Mini in
connection with Oppenheimers opinion dated
February 21, 2008. The financial analyses summarized
below include information presented in tabular format. In order
to fully understand Oppenheimers financial analyses, the
tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the
financial analyses. Considering the data in the tables below
without considering the full narrative description of the
financial analyses, including the methodologies and assumptions
underlying the analyses, could create a misleading or incomplete
view of Oppenheimers financial analyses. For purposes
of the Selected Companies Analysis and
Selected Precedent Transactions Analysis summarized
below, the illustrative market value of the aggregate
consideration refers to an illustrative value of the
aggregate consideration payable by Mobile Mini in the merger,
assuming no purchase price adjustments, of $146.5 million
based on the sum of the following:
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the aggregate cash consideration payable by Mobile Mini in the
merger of $12.5 million; and
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an illustrative market value of the shares of Mobile Mini
preferred stock issuable in the merger of $134.0 million
based on, among other things, the aggregate liquidation
preference of those shares, the estimated yield to maturity of a
hypothetical
10-year,
zero coupon debt instrument of Mobile Mini and the estimated
option value of the conversion feature of Mobile Mini preferred
stock taking into account the historical trading price
volatility of Mobile Mini common stock.
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References below to adjusted financial data of
Mobile Storage Group relate to financial data of Mobile Storage
Group for calendar year 2007 utilized in Oppenheimers
financial analyses based on draft unaudited financial statements
prepared by Mobile Storage Groups management, as adjusted
by Mobile Minis management for one-time professional fees
and the pro forma full-year impact of acquisitions effected by
Mobile Storage Group in 2007 and January 2008, certain operating
improvements experienced by Mobile Storage Group in the second
half of 2007 and certain accounting adjustments.
Selected
Companies Analysis
Oppenheimer reviewed financial and stock market information for
the five selected companies set forth below. These companies
were selected primarily because they are publicly traded
companies in the equipment rental services industry, which is
the industry in which Mobile Storage Group operates, with rental
asset and other business characteristics generally similar to
those of Mobile Storage Group and which, in Oppenheimers
view, were deemed relevant for purposes of comparison. Among
these companies, Oppenheimer focused in particular on Mobile
Mini and McGrath RentCorp, both of which engage, as does Mobile
Storage Group, in the specialty rental services segment of the
equipment rental services industry.
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Specialty Rental Services Companies
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Other Equipment Rental Services Companies
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Mobile
Mini
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H & E Equipment Services, Inc.
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McGrath
RentCorp
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RSC Holdings Inc.
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United Rentals, Inc.
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Oppenheimer reviewed, among other things, enterprise values of
the selected companies, calculated as fully-diluted market value
based on closing stock prices on February 20, 2008, plus
debt, less cash, as multiples of latest 12 months (as of
September 30, 2007) earnings before interest, taxes,
depreciation and amortization, referred to as EBITDA, and
earnings before interest and taxes, referred to as EBIT.
Financial data for the selected companies were based on public
filings and other publicly available information.
Oppenheimer then applied to Mobile Storage Groups calendar
year 2007 adjusted EBITDA and adjusted EBIT a selected range of
EBITDA multiples of 6.9x to 10.3x derived from Mobile
Minis latest 12 months and five-year average
historical latest 12 months EBITDA, respectively, and a
selected range of EBIT multiples of 9.1x to 11.2x derived from
McGrath RentCorps latest 12 months and five-year
historical average latest 12 months EBIT, respectively.
This analysis indicated the following implied equity reference
range for Mobile Storage Group, as compared to the illustrative
market value of the aggregate consideration:
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Implied Equity Reference Range
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Illustrative Market Value
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for Mobile Storage Group
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of Aggregate Consideration
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$28.8 million $234.0 million
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$146.5 million
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Oppenheimer also applied Mobile Minis latest
12 months EBITDA multiple of 6.9x and McGrath
RentCorps latest 12 months EBIT multiple of 9.1x to
Mobile Storage Groups calendar year 2007 adjusted EBITDA
and adjusted EBIT, respectively, in each case after giving
effect to potential synergies and strategic benefits anticipated
by Mobile Minis management to result from the merger. This
analysis indicated the following implied equity reference range
for Mobile Storage Group, as compared to the illustrative market
value of the aggregate consideration:
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Implied Equity Reference Range
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Illustrative Market Value
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for Mobile Storage Group
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of Aggregate Consideration
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$210.9 million $246.7 million
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$146.5 million
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Selected
Precedent Transactions Analysis
Oppenheimer reviewed, to the extent publicly available,
financial information in the seven selected transactions set
forth below announced since November 2005. These transactions
were selected primarily because they involved target companies
or businesses in the equipment rental services industry, which
is the industry in which Mobile Storage Group operates, with
rental asset and other business characteristics generally
similar to those of Mobile Storage Group and which, in
Oppenheimers view, were deemed relevant for purposes of
comparison. Among these transactions, Oppenheimer focused in
particular on transactions having transaction values of
$150 million or more for which transaction multiples were
publicly available, namely the Ristretto Group S.a.r.l./Williams
Scotsman International, Inc. and WCAS/Mobile Storage Group, Inc.
transactions.
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Announcement Date
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Transaction Value
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Acquiror
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Target
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11/2007
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$200.0 million
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First Atlantic Capital, Ltd.
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Sprint Industrial Holdings LLC
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10/2007
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$2,304.6 million
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Ristretto Group S.a.r.l.
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Williams Scotsman International, Inc.
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09/2007
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$107.7 million
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General Finance Corporation
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Royal Wolf Trading Australia Pty Ltd
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04/2007
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Not Publicly Available
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Resun Corporation
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Transport International Pool, Inc. (d/b/a GE Modular
Space)
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07/2006
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$605.0 million
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WCAS
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Mobile Storage Group, Inc.
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03/2006
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$49.9 million
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Mobile Mini, Inc.
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Royal Wolf Group
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10/2005
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$510.0 million
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Lightyear Capital
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Baker Tanks, Inc.
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Oppenheimer reviewed transaction values in the selected
transactions, calculated as the equity value implied for the
target company based on the consideration payable in the
selected transaction, plus debt, less cash, as multiples of
latest 12 months EBITDA and EBIT. Financial data for the
selected transactions were based on publicly available
information at the time of announcement of the relevant
transaction. Oppenheimer then applied to Mobile Storage
Groups calendar year 2007 adjusted EBITDA and adjusted
EBIT a selected range of latest 12 months EBITDA and EBIT
multiples of 9.4x to 9.6x and 14.8x to 15.1x, respectively,
derived from the Ristretto Group S.a.r.l./Williams Scotsman
International, Inc. and WCAS/Mobile Storage Group, Inc.
transactions. This analysis indicated the following implied
equity reference range for Mobile Storage Group, as compared to
the illustrative market value of the aggregate consideration:
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Implied Equity Reference Range
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Illustrative Market Value
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for Mobile Storage Group
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of Aggregate Consideration
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$306.2
million $323.7 million
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$146.5 million
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Accretion/Dilution
Analysis
Oppenheimer reviewed the potential pro forma effect of the
merger on Mobile Minis calendar years 2008 and 2009
estimated earnings per share, referred to as EPS, in each case
after giving effect to potential synergies and strategic
benefits anticipated by Mobile Minis management to result
from the merger and before giving effect to expected integration
costs, as more fully described above under the caption
Reasons for the Merger; Recommendation of the Board of
Directors of Mobile Mini beginning on page 30.
Estimated financial data of the combined company were based on
internal estimates of Mobile Minis management. Based on an
assumed merger closing date of March 31, 2008, this
analysis indicated that the merger could be accretive to Mobile
Minis calendar years 2008 and 2009 estimated EPS by
approximately 3.5% and 29.0%, respectively, relative to publicly
available research analysts consensus EPS estimates for
such years. Actual results may vary from projected results and
the variations may be material.
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Miscellaneous
Mobile Mini has agreed to pay Oppenheimer for its financial
advisory services in connection with the merger an aggregate fee
of approximately $4.5 million, $1.0 million of which
was payable upon delivery of its opinion and approximately
$3.5 million of which is contingent upon consummation of
the merger. Mobile Mini also has agreed to reimburse Oppenheimer
for its reasonable expenses, including reasonable fees and
expenses of its legal counsel, and to indemnify Oppenheimer and
related parties against liabilities, including liabilities under
the federal securities laws, relating to, or arising out of, its
engagement. In addition, the assignor of certain investment
banking assets of Oppenheimer in the past performed investment
banking and other services for Mobile Mini unrelated to the
merger, for which services such assignor received compensation,
including having acted as joint bookrunner for an offering of
senior notes of Mobile Mini in May 2007 and as joint bookrunner
for an offering of Mobile Mini common stock in March 2006. In
the ordinary course of business, Oppenheimer and its affiliates
may actively trade the securities of Mobile Mini and debt
securities of Mobile Services for Oppenheimers and its
affiliates own accounts and for the accounts of customers
and, accordingly, may at any time hold a long or short position
in such securities.
The issuance of Oppenheimers opinion was approved by an
authorized committee of Oppenheimer. Mobile Mini selected
Oppenheimer as its financial advisor based on Oppenheimers
reputation and experience. Oppenheimer is a nationally
recognized investment banking firm and, as a part of its
investment banking business, is regularly engaged in valuations
of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities,
private placements and valuations for other purposes.
The Board
of Directors of Mobile Mini Following the Merger
As required by the stockholders agreement, upon consummation of
the merger, Mobile Mini will expand the size of the Board of
Directors of Mobile Mini to 8 from 6 and will appoint
2 directors designated by WCAS, to fill the vacancies.
WCAS has indicated that it will designate Michael E. Donovan and
Sanjay Swani to serve as directors.
Michael E. Donovan previously served as a member of the Mobile
Storage Group, Inc. Board of Directors since August 2006.
Mr. Donovan joined WCAS, in 2001 and is currently a
principal. Prior to joining WCAS, Mr. Donovan worked at
Windward Capital Partners and the investment banking division of
Merrill Lynch. Mr. Donovan currently serves on the Board of
Directors of several privately-held companies, including
Ozburn-Hessey Logistics Inc. and United Surgical Partners
International Inc. Mr. Donovan graduated with a B.A. from
Yale University in 1998.
Sanjay Swani previously served as a member of the Mobile Storage
Group, Inc. Board of Directors since August 2006. Mr. Swani
is a general partner of WCAS. Mr. Swani joined WCAS as a
vice president in 1999 and became a general partner in 2001.
Prior to joining WCAS, Mr. Swani worked at Fox
Paine & Company, L.L.C. from June 1998 to May 1999 and
was with Morgan Stanley & Co. Incorporated in their
mergers & acquisitions area from 1994 to 1998 and in
their debt capital markets area from 1988 to 1990.
Mr. Swani has an undergraduate degree from Princeton
University (1987) and graduate degrees from the MIT Sloan
School of Management (1994) and Harvard Law School (1994).
Mr. Swani currently serves on the Board of Directors of ITC
DeltaCom, Inc. and several privately-held companies including
Ozburn-Hessey Logistics, Inc., Venture Transport Logistics,
L.L.C., and Global Knowledge Networks, Inc.
Management
of Mobile Mini After the Merger
Upon completion of the merger, the executive management team of
the combined company will include senior executives from Mobile
Mini and from Mobile Storage Group. Steve Bunger will continue
to serve as Chairman, President and Chief Executive Officer and
Larry Trachtenberg will continue to serve as Chief Financial
Officer. Doug Waugaman, CEO of Mobile Storage Group, is expected
to join Mobile Mini as COO of Integration. Jody Miller, Bill
Armstead, Ron Halchishak and Jeffrey Kluckman, senior executives
at Mobile Storage Group, are expected to assume senior roles at
Mobile Mini.
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Governmental
and Regulatory Matters
The consummation of the merger is conditioned upon all
applicable waiting periods under HSR having expired or otherwise
terminated. On March 5, 2008, Mobile Mini and Mobile
Storage Group each filed HSR pre-merger notification and report
forms with the Antitrust Division of the U.S. Department of
Justice and the Federal Trade Commission for review in
connection with the proposed merger. HSR provides for an initial
30-calendar-day waiting period following the necessary filings
by the parties to the merger. The waiting period expired on
Friday, April 4, 2008.
Anticipated
Accounting and Tax Treatment
Mobile Mini intends to account for the merger as a purchase of
Mobile Storage Group in accordance with generally accepted
accounting principles in the United States. Mobile Storage Group
will be treated as the acquired entity for such purposes.
Accordingly, the aggregate fair value of the consideration paid
by Mobile Mini in connection with the merger will be allocated
to Mobile Storage Groups assets based on their fair values
as of the completion of the merger. The difference between the
fair value of Mobile Storage Groups assets, liabilities
and other items and the aggregate fair value of the
consideration paid by Mobile Mini will be recorded as goodwill
and other assets and intangibles. The results of operations of
Mobile Storage Group will be included in Mobile Minis
consolidated results of operations only for periods subsequent
to the completion of the merger.
For U.S. federal income tax purposes, Mobile Mini will not
be entitled to allocate the aggregate fair market value of the
consideration paid by Mobile Mini in connection with the merger
with Mobile Storage Group to Mobile Storage Groups assets.
Instead, Mobile Mini will inherit the Mobile Storage
Groups tax basis in its assets and will not be able to
increase that tax basis to reflect the value of the aggregate
consideration paid or the fair market value of the assets. As a
result, Mobile Minis tax-deductible depreciation of the
former Mobile Storage Group assets will be less than if those
assets had been purchased at the time of the merger for their
fair value. In addition, in the event that Mobile Mini resells
any of the former Mobile Storage Group assets, it will calculate
taxable gain by reference to their tax basis.
No
Appraisal Rights
Under Delaware law, Mobile Mini stockholders will not have
appraisal rights pursuant to the merger and the other
transactions contemplated by the Merger Agreement.
Financing
In anticipation of the merger, we have obtained a commitment
letter, or the Commitment Letter, from Deutsche Bank Securities
Inc., Deutsche Bank AG New York Branch, Bank of America
Securities LLC, Bank of America, N.A., J.P. Morgan
Securities Inc. and JPMorgan Chase Bank, N.A. (collectively, the
Commitment Parties), dated February 22, 2008,
with respect to a first lien senior secured revolving credit
facility under which we may borrow up to $1.0 billion,
subject to a borrowing base. We intend to use a portion of the
proceeds from such credit facility to refinance our existing
credit facility, to pay the cash portion of the merger
consideration and the transaction costs related to the merger.
The proceeds will also be used to refinance a portion of the
approximately $535.0 million of the Mobile Storage Group
indebtedness to be assumed in connection with the merger as well
as amounts outstanding under our existing revolving credit
facility. In connection with the Commitment Letter, we have
agreed to pay to the Commitment Parties an underwriting fee upon
closing of the merger. Such underwriting fee is included in the
total transaction fees and expenses presented on page 62
and will not recur. In addition, we have agreed to pay to
Deutsche Bank AG New York Branch an annual administration fee of
$150,000 to act as administrative agent. We do not have any
current plans to repay the credit facility.
The credit facility will have a U.S. facility and a U.K.
subfacility. Mobile Mini and certain of its
U.S. subsidiaries will be borrowers under the
U.S. facility and the U.S. facility will be guaranteed
by substantially all U.S. subsidiaries that are not
borrowers. The U.K. subsidiaries will be borrowers under the
U.K. subfacility, and Mobile Mini and substantially all other
subsidiaries that are not U.K. borrowers will be guarantors of
the U.K. subfacility. The U.S. facility will be secured by
a first priority lien on substantially all assets of the
U.S. borrowers
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and U.S. guarantors. The U.K. subfacility will be secured
by a first priority lien on substantially all of the assets of
Mobile Mini and its subsidiaries.
The credit facility will have a term of five years from the date
of the execution and delivery of the definitive financing
agreement and related documentation. The U.K. subfacility will
have a borrowing limit of not more than $200 million, and
borrowings under such facility may be made in Pounds Sterling or
Euros. The availability of borrowings under the credit facility
will be subject to a borrowing base calculated as a discount to
the value of certain pledged collateral. The credit facility
will include an uncommitted incremental credit facility of up to
$250.0 million. The credit facility will contain optional
and mandatory prepayment provisions consistent with our existing
revolving credit facility, with such modifications as may be
appropriate given the merger and the related transactions.
Borrowings under the credit facility will bear interest at a
rate equal to, at our option, either (a) LIBOR plus an
applicable margin or (b) the prime rate plus an applicable
margin. We expect that the initial applicable margin for
borrowings will be 1.00% with respect to prime rate borrowings
and 2.50% with respect to LIBOR borrowings, in each case subject
to adjustment pursuant to a market flex provision.
The applicable margins may adjust from time to time based on our
leverage ratio. In addition to paying interest on outstanding
principal under the credit facility, we will be required to pay
an unused line fee to the lenders under the revolving credit
facilities in respect of the unutilized commitments thereunder.
The unused line fee rate is 0.375% per annum if the unused
amount is less than or equal to 50% of the aggregate commitments
or 0.25% per annum if the unused amount is greater than 50%. We
must also pay customary letter of credit fees.
The commitments of the banks under the Commitment Letter are
subject to, among other things, the consummation of the merger
on or before August 15, 2008, and other conditions
customary in transactions of this sort, including that since
December 31, 2006, there has occurred no event, fact or
circumstance that has caused or could reasonably be expected to
have a material adverse effect on Mobile Mini, and since
September 30, 2007, there has occurred no event, fact or
circumstance that has caused or could reasonably be expected to
cause a material adverse effect on Mobile Storage. We anticipate
that the definitive financing agreement will include
(i) representations and warranties, covenants and events of
default consistent with our existing revolving credit facility,
with such modifications as may be appropriate given the merger
and the related transactions, (ii) financial maintenance
covenants consisting of maximum leverage ratio, minimum fixed
charge coverage ratio and minimum utilization rate, each of
which shall only be tested if excess availability under our
borrowing base is less than the greater of
(a) $100.0 million and (b) 10% of the total
commitments under the credit facility and (iii) customary
indemnities for the lenders under the credit facilities.
39
THE
AGREEMENT AND PLAN OF MERGER
The following summary describes the material provisions of
the Merger Agreement. This summary may not contain all of the
information about the Merger Agreement that is important to you
and is qualified in its entirety by reference to the Merger
Agreement, which is included as Annex A to this
proxy statement. We urge you to read the entire Merger Agreement
and the other annexes to this proxy statement carefully and in
their entirety.
The Merger Agreement has been included to provide you with
information regarding its terms. The terms and information in
the Merger Agreement should not be relied on as disclosure about
Mobile Mini, Cactus Merger Sub, Inc. or Mobile Storage Group
without consideration of the information provided elsewhere in
this document and in the excerpts from the periodic reports
included as Annex C and the periodic report included
in Annex D, which such information is incorporated
by reference into this proxy statement. The terms of the Merger
Agreement (such as the representations and warranties) govern
the contractual rights and relationships, and allocate risk,
among the parties in relation to the merger. In particular, the
representations and warranties made by the parties to each other
in the Merger Agreement have been negotiated among the parties
with the principal purpose of setting forth their respective
rights with respect to their obligation to close the merger
should events or circumstances change or be different from those
stated in the representations and warranties. Matters may change
from the state of affairs contemplated by the representations
and warranties. None of Mobile Mini, Cactus Merger Sub, Inc. or
Mobile Storage Group undertakes any obligation to publicly
release any revisions to the representations and warranties,
except as required under U.S. federal or other applicable
securities laws.
Structure
of the Merger
On February 22, 2008, we entered into the Merger Agreement
with Cactus Merger Sub, Inc., a wholly-owned subsidiary of
Mobile Mini, MSG WC Holdings Corp., and WCAS, as representative
of the stockholders of MSG WC Holdings Corp., pursuant to which
Cactus Merger Sub will merge with and into MSG WC Holdings Corp.
Immediately after the merger, MSG WC Holdings Corp. and two of
its subsidiaries will be merged into Mobile Mini.
Cancellation of Stock held by Stockholders of Mobile Storage
Group. Each share of Mobile Storage Groups
common stock issued and outstanding immediately prior to the
effective time of the merger and held by the stockholders of
Mobile Storage Group, and all rights in respect thereof shall,
by virtue of the merger and without any action on the part of
the stockholder, forthwith cease to exist and be converted into
and represent the right to receive an amount, in cash and shares
of Mobile Minis preferred stock equal to the Merger
Consideration divided by the number of shares of
Mobile Storage Groups common stock issued and outstanding
immediately prior to the effective time of the merger and held
by the stockholders of Mobile Storage Group.
Conversion of Cactus Merger Sub Stock. At the
effective time of the merger, by virtue of the merger and
without any action on the part of any party, each share of
Cactus Merger Sub, Inc.s common stock issued and
outstanding immediately prior to the effective time of the
merger, will be converted into and exchanged for one validly
issued, fully paid, and nonassessable share of the surviving
corporations common stock. Each stock certificate of
Cactus Merger Sub, Inc. evidencing ownership of any such shares
will from and after the effective time of the merger, evidence
ownership of shares of the Mobile Storage Groups common
stock, so that, after the effective time of the merger, Mobile
Mini shall be the holder of all of the issued and outstanding
shares of the Mobile Storage Groups common stock.
Effect on Options. Immediately prior to the
effective time of the merger, all options issued under the
option plans of Mobile Storage Group (other than the options
held by William Armstead, Jeffrey Kluckman, Jody Miller and
Allan Villegas pursuant to certain nonqualified stock option
agreements with Mobile Storage Group, dated August 1,
2006) that are outstanding on such date will be cancelled
and will cease to exist, and the holder of such options will
cease to have any rights with respect thereto, except with
respect to Messrs. Armstead, Kluckman, Villegas and Miller
who will have the right to receive a pro rata portion of the
Merger Consideration. The pro rata portion of the stockholders
of Mobile Storage Group shall be calculated as if the options
held by William Armstead, Jeffrey Kluckman, Jody Miller and
Allan Villegas were exercised for cash immediately prior to the
effective time of the merger and William Armstead, Jeffrey
Kluckman, Jody Miller and Allan Villegas shall receive a pro
rata portion of the Merger Consideration.
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No Further Ownership Rights in Mobile Storage Group Common
Stock. At and after the effective time of the
merger, each stockholder of Mobile Storage Group shall cease to
have any rights as a stockholder of Mobile Storage Group, except
as otherwise required by applicable law and except for the right
of each stockholder of Mobile Storage Group to surrender his or
her stock certificate or lost stock certificate affidavit in
exchange for payment of the applicable Merger Consideration, and
no transfer of Mobile Storage Group common stock shall be made
on the stock transfer books of the surviving corporation. At the
close of business on the day of the effective time of the merger
the stock ledger of Mobile Storage Group shall be closed.
Merger
Consideration
Merger Consideration. Upon completion of the
merger, the stockholders of Mobile Storage Group shall receive
$701,500,000 less the Net Debt of Mobile Storage Group,
plus or minus the Net Debt Adjustment, plus
or minus the Working Capital Adjustment, plus or
minus the Capital Expenditure Adjustment minus the
unpaid Transaction Expenses of Mobile Storage Group plus
the Acquisition Amount, which we refer to as the Merger
Consideration.
Closing Statement and Estimated Merger
Consideration. At least 3 business days, but not
more than 5 business days, prior to the closing date,
Mobile Storage Group shall deliver to Mobile Mini a statement,
as of the closing date, setting forth Mobile Storage
Groups good faith calculation of the estimated Merger
Consideration based on Mobile Storage Groups estimates of
its Net Debt, the Net Debt Adjustment, the Working Capital
Adjustment, the Capital Expenditures Adjustment, its unpaid
Transaction Expenses and the Acquisition Amount.
Acquisition Amount means the value of any
corporate acquisition by Mobile Storage Group or any of its
subsidiaries approved by Mobile Mini in writing.
Net Debt means the consolidated indebtedness
of Mobile Storage Group and its subsidiaries minus the
consolidated cash and cash equivalents of Mobile Storage Group
and its subsidiaries as of the closing.
Net Debt Adjustment means the amount, if any,
by which the Net Debt is greater or less than $535,000,000.
Working Capital Adjustment means the amount,
if any, by which the working capital is greater than $1,500,000
or is less than -$1,500,000 as of the closing (if the working
capital is between $1,500,000 and -$1,500,000, the Working
Capital Adjustment shall be $0.00).
Capital Expenditure Adjustment means the
amount, if any, by which Mobile Storage Groups
consolidated capital expenditures for the period commencing on
January 1, 2008 and ending on the closing date is greater
or less than the capital expenditures amount for the same period
shown on, or derived from, the adjusted capital expenditures
budget of Mobile Storage Group for the calendar year ended
December 31, 2008 made available to Mobile Mini (as
adjusted in the event the closing date is a date other than the
last day of a calendar month).
Transaction Expenses means the amount payable
by Mobile Storage Group for all
out-of-pocket
costs and expenses incurred by Mobile Storage Group or on behalf
of its stockholders in connection with the merger, such as
brokers fees, advisors fees and expenses, required
consent payments, stay-around and similar bonuses or
payments to current or former directors, officers, employees and
consultants paid as a result or in connection with the merger as
of the closing other than the payments under the agreed to
retention bonus plan.
To the extent the estimated Merger Consideration payable at
closing exceeds $154,000,000, the stockholders of Mobile Storage
Group will receive the aggregate of 8,555,556 shares of
preferred stock of Mobile Mini valued at $18.00 per share
plus an amount of cash equal to the amount by which the
estimated Merger Consideration exceeds $154,000,000. If the
estimated Merger Consideration is equal to or less than
$154,000,000, the stockholders of Mobile Storage Group will only
receive an amount of shares of preferred stock of Mobile Mini
equal to the estimated Merger Consideration divided
by $18.00.
At the closing, the Mobile Storage Group stockholders will place
into escrow $15,000,000 of the estimated Merger Consideration
(in cash
and/or
shares of Mobile Mini preferred stock valued at $18.00 per
share) to satisfy any post-closing adjustments of the Merger
Consideration and to secure their indemnification obligations
under the Merger Agreement. At all times while shares of Mobile
Mini preferred stock are held in escrow, the stockholders of
Mobile Storage Group shall have the right to (i) exercise
any voting rights with respect to the escrowed shares of
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preferred stock, and (ii) receive all products and proceeds
of any of the escrowed shares of preferred stock, including all
dividends, whether in the form of cash, stock or any other form,
and any other rights and other property which the stockholders
of Mobile Storage Group are, from time to time, entitled to
receive in respect of, or in exchange, for any or all of the
escrowed shares.
Merger Consideration Adjustments. The
estimated Merger Consideration will be subject to post-closing
adjustments. To the extent the Merger Consideration as finally
determined is greater or less than the estimated Merger
Consideration paid at closing, Mobile Mini or the stockholders
of Mobile Storage Group, as the case may be, shall pay the
appropriate merger consideration adjustment pursuant to the
terms of the Merger Agreement. Pursuant to the Merger Agreement,
the stockholders of Mobile Storage Group may elect to pay in
cash any merger consideration adjustment in lieu of releasing or
returning any preferred stock held in escrow or otherwise.
In no event shall Mobile Mini be obligated to issue to the
stockholders of Mobile Storage Group more than
8,555,556 shares of preferred stock.
Surviving
Corporation, Governing Documents and Officers and
Directors
At the effective time of the merger, the certificate of
incorporation and by-laws of Mobile Storage Group, as in effect
immediately prior to such effective time, will be the
certificate of incorporation and by-laws respectively of the
surviving corporation of the merger. Subject to Mobile
Minis right to request the resignation of Mobile Storage
Groups officers and directors at the effective time of the
merger, the officers and directors of Mobile Storage Group prior
to the effective time of the merger will continue to be the
officers and directors of the surviving corporation of the
merger, subject to the applicable provisions of the certificate
of incorporation and by-laws of the surviving corporation.
Closing
Unless the parties agree otherwise, the completion of the merger
will occur on a date to be specified by Mobile Mini and Mobile
Storage Group that will be no later than 3 business days
immediately following the day on which the last of the closing
conditions (other than any conditions that by their nature are
to be satisfied at the closing) is satisfied or waived. See
Conditions to the Merger beginning on
page 50. The parties currently expect to complete the
merger in the second quarter of 2008.
Effective
Time of the Merger
The merger will become effective upon the acceptance of the
filing of a certificate of merger in accordance with
Section 251 of the Delaware Law with the Secretary of State
of the State of Delaware, or at such other subsequent date or
time as Mobile Mini, Cactus Merger Sub, Inc. and Mobile Storage
Group may agree and specify in the certificate of merger. Mobile
Mini, Cactus Merger Sub, Inc. and Mobile Storage Group will file
the certificate of merger on the closing date of the merger.
Representations
and Warranties
The Merger Agreement contains representations and warranties
made by Mobile Storage Group to Mobile Mini and Cactus Merger
Sub, Inc. relating to a number of matters, including the
following:
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corporate authorization to execute, deliver and perform the
Merger Agreement, and the enforceability of the Merger Agreement;
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absence of conflicts with, or violations of, organizational
documents, applicable law or other obligations as a result of
the execution, delivery and consummation of the transactions
contemplated by the Merger Agreement;
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due organization and good standing;
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capitalization;
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due organization, good standing and capitalization of the
subsidiaries of Mobile Storage Group;
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timely filing of documents required to be filed with the
Securities and Exchange Commission, accuracy of such filings,
compliance of such filings with applicable federal securities
law requirements and establishment and maintenance of disclosure
controls and procedures;
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accuracy of information to be provided by Mobile Storage Group
for inclusion in this proxy statement;
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accuracy of selected financial statements;
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absence of certain undisclosed liabilities;
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accuracy of minute books;
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title and condition of tangible personal property and assets and
accuracy of list of rental fleet of storage trailers, storage
containers and portable offices provided to Mobile Storage Group;
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owned and leased real properties;
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material contracts;
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litigation;
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tax matters;
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insurance;
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intellectual property matters;
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compliance with laws;
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relationship with customers;
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labor and employment relations;
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employee benefit plan matters;
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environmental matters;
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affiliate transactions;
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obtaining of and compliance with permits;
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absence of any material adverse effect and certain other changes
or events;
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brokers or finders fees;
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absence of certain changes in the business;
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absence of conduct of business; and
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scope of representations and warranties and disclaimer of
implied and other representations and warranties in the Merger
Agreement and related documents.
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The Merger Agreement also contains representations and
warranties made by Mobile Mini and Cactus Merger Sub, Inc. to
Mobile Storage Group relating to a number of matters, including
the following:
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corporate authorization to execute, deliver and perform the
Merger Agreement, and the enforceability of the Merger Agreement;
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absence of conflicts with, or violations of, organizational
documents, applicable law or other obligations as a result of
the execution, delivery and consummation of the transactions
contemplated by the Merger Agreement;
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due organization and good standing;
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capitalization;
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due organization, good standing and capitalization of certain
subsidiaries of Mobile Mini;
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timely filing of documents required to be filed with the
Securities and Exchange Commission, accuracy of such filings,
compliance of such filings with applicable federal securities
law requirements and establishment and maintenance of disclosure
controls and procedures;
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accuracy of information to be provided by Mobile Mini or Cactus
Merger Sub, Inc. for inclusion in this proxy statement;
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accuracy of selected financial statements;
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absence of certain undisclosed liabilities;
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accuracy of list of rental fleet of storage trailers, storage
containers and portable offices provided to Mobile Storage Group;
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litigation;
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tax matters;
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compliance with laws;
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employee benefit plan matters;
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absence of certain changes in the business;
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brokers or finders fees;
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effectiveness of debt financing commitments and sufficiency of
funds available to Mobile Mini to consummate the transactions
contemplated by the Merger Agreement and to pay all related fees
and expenses; and
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scope of representations and warranties and disclaimer of
implied and other representations and warranties in the Merger
Agreement and related documents.
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The representations and warranties contained in the Merger
Agreement were made for purposes of the Merger Agreement and are
subject to qualifications and limitations agreed to by the
respective parties in connection with negotiating the terms of
the Merger Agreement. In addition, certain representations and
warranties were made as of a specific date, may be subject to a
contractual standard of materiality different from what might be
viewed as material to stockholders, or may have been used for
purposes of allocating risk between the respective parties
rather than establishing matters as facts. This description of
the representations and warranties, and their reproduction in
the copy of the Merger Agreement attached to this proxy
statement as Annex A, are included solely to provide
investors with information regarding the terms of the Merger
Agreement. Accordingly, the representations and warranties and
other provisions of the Merger Agreement should not be read
alone, but instead should only be read together with the
information provided elsewhere in this proxy statement and in
the excerpts from the periodic reports included in
Annex C and the periodic report included in
Annex D, which such information is incorporated by
reference into this proxy statement. See Where
You Can Find More Information beginning on page 111.
Certain of these representations and warranties are qualified by
materiality or material adverse effect.
For purposes of the Merger Agreement, a material adverse
effect with respect to Mobile Storage Group or Mobile
Mini, as the case may be, means any event, circumstance, fact,
change or effect that, individually or in the aggregate, is or
would reasonably be expected to be materially adverse
(i) to the business, assets, liabilities, results of
operation or financial condition of that party and its
subsidiaries, taken as a whole or (ii) on the ability of
that party to materially perform its obligations under the
Merger Agreement, other than a material adverse effect that
arises or results from any of the following:
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changes in general political, economic, financial, capital
market or industry-wide conditions;
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changes in law or changes in generally accepted accounting
principles, or GAAP;
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acts of war (whether or not declared), political unrest,
terrorism or escalation of hostilities;
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the announcement or other disclosure of the Merger Agreement or
the transactions contemplated thereby; and
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action taken by a party expressly required by the Merger
Agreement;
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except, in the case of the first three points above, to the
extent such change has a disproportionately negative effect on
such party and its subsidiaries (taken as whole), compared with
other companies operating in the same industry.
The representations and warranties in the Merger Agreement
survive until 12 months after the closing date of the
merger. If the Merger Agreement is validly terminated, there
will be no liability under the representations and warranties of
the parties, or otherwise under the Merger Agreement, except as
described below under Effect of
Termination and Termination Fees and
Expenses beginning on page 54.
Covenants
and Agreements
Conduct of Business of Mobile Storage Group Pending the
Merger. Mobile Storage Group has agreed that,
except as set forth in the Merger Agreement, during the period
commencing on February 22, 2008 and ending at the earlier
of the completion of the merger or the termination of the Merger
Agreement, Mobile Storage Group will cause each of its
subsidiaries to carry on its business in the ordinary and usual
course and to use all commercially reasonable efforts to
preserve intact its present business organizations, keep
available the services of its officers and employees and
maintain satisfactory relationships with licensors, suppliers,
distributors, customers and others with which it has a business
relationship.
Additionally, Mobile Storage Group has agreed that, except as
may be approved in writing by Mobile Mini or as expressly
permitted or required by the Merger Agreement, prior to the
completion of the merger, Mobile Storage Group will not, and
will cause each of its subsidiaries to, refrain from the
following (provided, however, that this provision shall not be
construed to give to Mobile Mini, directly or indirectly, the
right to control or direct Mobile Storage Groups
businesses or operations prior to the completion of the merger):
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amending or restating of charter or by-laws;
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issuing, or delivering (i) any capital stock of, or other
equity or voting interest in, Mobile Storage Group or its
subsidiaries or (ii) any securities convertible into,
exchangeable for or evidencing the right to subscribe for or to
acquire (x) any shares of capital stock of, or other equity
or voting interest in Mobile Storage Group or any of its
subsidiaries or (y) any securities convertible into,
exchangeable for, or evidencing the right to subscribe for or to
acquire, any shares of capital stock of, or other equity or
voting interest in, Mobile Storage Group or any of its
subsidiaries, except for issuances of capital stock of Mobile
Storage Group or its subsidiaries upon the exercise of any
outstanding options or warrants;
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declaring, paying or setting aside any dividend or other
distribution other than dividends or distributions by any
subsidiary to Mobile Storage Group, or splitting, combining,
redeeming, reclassifying, purchasing or otherwise acquiring
directly, or indirectly, any shares of capital stock of, or
other equity or voting interest in Mobile Storage Group or its
subsidiaries (except for purchases of equity of Mobile Storage
Group or its subsidiaries, held by its management or making any
other change in the capital structure of Mobile Storage Group or
its subsidiaries);
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increasing the compensation payable (including wages, salaries
and bonuses or any other renumeration) or to become payable to
any employee or agent being paid an annual base salary of
$150,000 or more, or to any officer or director of Mobile
Storage Group, other than pursuant to existing contracts or
applicable law;
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making of any bonus, profit sharing, pension, retirement or
insurance payment, distribution or arrangement to or with any
officer, employee or agent being paid an annual base salary of
$150,000 or more or any director of Mobile Storage Group, except
for payments (i) in connection with a transaction retention
program mutually agreed to by Mobile Mini and Mobile Storage
Group, (ii) accrued prior to the date of the Merger
Agreement, (iii) required by the terms of any employee
benefit plan, (iv) made in the ordinary course of business
consistent with past practice, or (v) otherwise required by
applicable law;
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establishing, adopting, entering into, amending or terminating
of any material employee benefit plan or any collective
bargaining, thrift, compensation or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any
directors, officers or employees other than the implementation
of a transaction retention program mutually agreed to by Mobile
Mini and Mobile Storage Group;
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entering into, materially amending or terminating any material
contract;
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incurring, assuming or modifying any indebtedness (other than
revolving indebtedness incurred pursuant to the existing credit
facility of Mobile Storage Group and its subsidiaries) or
capitalized lease obligations exceeding $4,000,000 in the
aggregate, in each case, in the ordinary course of business
consistent with past practice;
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subjecting any material property or assets or any capital stock,
or other equity or voting interests to any lien other than
permitted liens;
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selling transfering, leasing, licensing or otherwise disposing
any assets or properties in excess of $50,000 individually or
$200,000 in the aggregate other than (i) sales of equipment
in the ordinary course of business consistent with past
practice, (ii) leases or licenses entered into in the
ordinary course of business consistent with past practice, and
(iii) sales of trailers, containers and wood offices and
other units in the ordinary course of business consistent with
past practice solely as part of the normal course of retail
sales;
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except for certain exceptions, acquiring any business or entity,
by merger or consolidation, purchase of substantial assets or
equity interests, or by any other manner, in a single
transaction or a series of related transactions;
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making of any capital expenditure or commitment thereto not
contemplated by the Mobile Storage Group capital expenditures
budget or otherwise, acquiring any assets or properties other
than supplies or inventory in the ordinary course of business
consistent with past practice or make any change to capital
expenditures budget, the Mobile Storage Group capital
expenditures budget;
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writing-off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business consistent
with past practice;
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canceling or waiving any claims or rights of substantial value;
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making any change in any method of accounting or auditing
practice other than those required by GAAP or by applicable laws;
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except as required by any applicable law or order, making any
material tax election or settle
and/or
compromise any material tax liability (except for settlements in
connection with tax audits in the ordinary course of business),
preparing any tax returns in a manner materially inconsistent
with the past practices or filing any material amended tax
return or claim for refund of taxes;
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except for certain exceptions, paying, discharging, settling or
satisfying any claims, liabilities, legal proceedings or
obligations in excess of $100,000;
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planning, announcing, implementing or effecting of any reduction
in force, lay-off, early retirement program, severance program
or other program or effort concerning the termination of
employment of employees (other than individual employee
terminations in the ordinary course of business);
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making of any loans, advances or capital contributions to, or
investments in, any entity other than to Mobile Storage
Groups subsidiaries;
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entering into any contract or letter of intent (whether or not
binding) with respect to, or committing or agreeing to do,
whether or not in writing, any of the foregoing;
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taking any action which may cause Mobile Mini and its
subsidiaries to incur losses as a consequence of any breach of
certain applicable UK laws concerning employment rights; or
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financing capital expenditures by entering into operating leases
in a manner inconsistent with past practice.
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Additionally, Mobile Storage Group and its subsidiaries have
agreed that, during the period commencing on February 22,
2008 and ending at the earlier of the completion of the merger
or the termination of the Merger Agreement, they shall use all
commercially reasonable efforts to (i) confer on a monthly
basis with one or more designated representatives of Mobile Mini
regarding operational matters (including employee and human
resources related matters) and the general status of ongoing
operations to the extent permitted by law and (ii) keep all
insurance policies currently maintained with respect to Mobile
Storage Group and its subsidiaries and their respective assets
and properties, or suitable replacements or renewals, in full
force and effect through the close of business until the
completion of the merger. Neither Mobile Storage Group nor its
subsidiaries MSG WC Intermediary Co. and Mobile Services Group,
Inc. will conduct any business, incur any new indebtedness or
hold any new assets other than the equity interests of their
respective subsidiaries. Further, Mobile Storage Group has
agreed to provide Mobile Mini with a monthly consolidated
balance sheet of Mobile Storage Group and its subsidiaries for
the preceding month and the related profit and loss statement
when they are available, and has agreed to cause its Chief
Executive Officer and Chief Financial Officer to be available to
discuss such financial statements and the operating performance
of Mobile Storage Group. Mobile Storage Group has also agreed to
provide Mobile Mini with its final audited 2007 financial
statements after it is received from Mobile Storage Groups
auditors, and to notify Mobile Mini upon obtaining any knowledge
of any proposed audit adjustments to the draft financial
statements of Mobile Services Group, Inc. and its subsidiaries
as at December 31, 2007.
Conduct of Business of Mobile Mini Pending the
Merger. During the period commencing on
February 22, 2008 and ending at the earlier of the
completion of the merger or the termination of the Merger
Agreement. Mobile Mini has agreed not to:
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amend or restate its charter or by-laws, other than Mobile
Minis filings with the Secretary of State of the State of
Delaware following approval of the merger by Mobile Minis
stockholders;
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declare, pay or set aside any dividend or make any distribution
other than dividends or distributions by any subsidiary of
Mobile Mini to Mobile Mini or any other wholly owned subsidiary
of Mobile Mini;
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split, combine, redeem, reclassify, purchase or otherwise
acquire directly, or indirectly (other than pursuant to Mobile
Minis previously announced share buyback program), any
shares of capital stock of, or other equity or voting interest
in, Mobile Mini or its subsidiaries except for purchases of
equity held by management of Mobile Mini or its
subsidiaries; or
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incur any indebtedness for borrowed money which would reasonably
be expected to cause the conditions to the debt financing to be
obtained by Mobile Mini not to be satisfied.
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Further, Mobile Mini has agreed that, during the period
commencing on February 22, 2008 and ending at the earlier
of the completion of the merger or the termination of the Merger
Agreement, Mobile Mini will, and will cause each of its
subsidiaries to, use all commercially reasonable efforts to
confer on a monthly basis with one or more designated
representatives of Mobile Storage Group regarding operational
matters (including employee and human resources related matters)
and the general status of ongoing operations.
Exclusivity. From February 22, 2008 and
until the earlier of the completion of the merger or the
termination of the Merger Agreement, Mobile Storage Group and
its subsidiaries have agreed not to engage in any discussions or
negotiations with, or provide any information to, any person or
entity (other than Mobile Mini and its affiliates and
representatives), concerning any purchase of any capital stock
of Mobile Storage Group or any of its subsidiaries or any
merger, consolidation or other business combination, asset sale,
recapitalization or similar transaction involving Mobile Storage
Group or any of its subsidiaries. Mobile Storage Group has
agreed to notify Mobile Mini as soon as practicable after Mobile
Storage Group has knowledge of any person making any proposal,
offer, inquiry, or contact with Mobile Storage Group, with
respect to any such proposal for purchase of capital stock,
merger, consolidation, asset sale, recapitalization or similar
transaction involving Mobile Storage Group or its subsidiaries
and to describe the identity of the person making such proposal
and the substance and material terms of such contact and such
proposal.
Mobile Mini has agreed not to knowingly solicit during the
period commencing on February 22, 2008 and ending on the
earlier of the date that is 4 months from February 22,
2008 or on the date of the completion of the merger, any
proposals to acquire Mobile Mini.
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Access to Information. The Merger Agreement
provides mutual rights to each of Mobile Storage Group and
Mobile Mini to access the properties, books and records of the
other party, and obligates each party to provide information
regarding its business and properties to the other party to the
extent permitted by law. Each of Mobile Mini and Mobile Storage
Group and their respective subsidiaries agree to permit the
other party and its representatives to have reasonable access
during normal business hours and on reasonable written advance
notice, to its premises and to its properties, books and records
and shall cause its officers, employees counsel, accountants,
consultants and other representatives to furnish the other party
with such financial and operating data and other information
with respect to its business and properties as such other party
shall request from time to time. Such investigation and
assistance shall not unreasonably disrupt the operations of the
party providing access to such investigation, cause the loss of
attorney/client privilege, and any information provided pursuant
to such investigation by either Mobile Mini or Mobile Storage
Group or their respective subsidiaries shall be subject to the
terms of the mutual confidentiality agreement, between Mobile
Storage Group and Mobile Mini.
Notification of Certain Matters. Mobile
Storage Group agrees to provide prompt written notice to Mobile
Mini of (i) any notice of, or other communication relating
to, a default or event of default under any material contact,
(ii) any representation or warranty made by Mobile Storage
Group in the Merger Agreement or in any instrument delivered
pursuant to it becoming untrue or inaccurate in any material
respect, (iii) the failure of any condition precedent to
either partys obligations, and (iv) any notice or
other communication from any third party alleging that the
consent of such third party is or may be required in connection
with the transactions contemplated by the Merger Agreement. The
Merger Agreement provides that such notice shall amend Mobile
Storage Groups disclosure letter for informational
purposes only and will not affect Mobile Minis remedies
under the Merger Agreement, or cure any breach of any covenant,
representation or warranty in the Merger Agreement or related
agreements for any purpose, including satisfaction of closing
conditions and Mobile Minis rights to indemnification.
Debt Financing. Mobile Mini agrees to use all
commercially reasonable efforts to (i) maintain in full
force and effect the Commitment Letter and refrain from
amending, terminating, or waiving any provisions under the
Commitment Letter, (ii) to the extent within its control,
comply with all of its covenants in, and as promptly as
practicable take all actions necessary or desirable to cause all
of the conditions to the funding of the financing contemplated
in, the Commitment Letter, and ensure that there is no breach or
default or event of default under any of its existing financing
agreements, and (iii) accept any changes in the terms and
conditions of the proposed financing contemplated in the
market flex provision of the Commitment Letter or
fee letter related thereto. Mobile Mini agrees to notify Mobile
Storage Group following receipt of any notification from any
financing source under the Commitment Letter or other financing
of such sources indications that it does not intend to
provide, questions its requirement to provide or asserts its
inability or refusal to provide the financing described in the
Commitment Letter.
If the funding under the Commitment Letter becomes unavailable
or Mobile Mini reasonably believes that such funding may not
occur (other than due to breach by Mobile Storage Group of the
Merger Agreement or related agreements), Mobile Mini agrees to
use all commercially reasonable efforts to obtain alternative
financing on terms that are no less favorable than to those
contained in the Commitment Letter. Mobile Mini shall keep
Mobile Storage Group reasonably informed of any material adverse
developments relating to the proposed debt financing.
Affiliate Agreements. Mobile Storage Group
agrees to, and to cause its subsidiaries to, terminate at or
prior to the completion of the merger, without payment or
penalty, certain contracts between Mobile Storage Group or its
subsidiaries and any of their affiliates (other than Mobile
Storage Group or its subsidiaries) set forth on Mobile Storage
Groups disclosure letter to the Merger Agreement.
Mobile Storage Groups Option
Plans. Mobile Storage Group agrees, as of the
time of the completion of the merger, to take all actions
necessary to (i) terminate all stock option plans (other
than the options held by Messrs. Armstead, Kluckman,
Villegas and Miller, all of whom will receive their respective
pro rata portion of the Merger Consideration), stock incentive
plans and any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the
capital stock of Mobile Storage Group or its subsidiaries,
(ii) cancel, terminate, and forfeit, all outstanding stock
options, shares of restricted stock, or other awards in respect
of the capital stock of Mobile Storage Group or its subsidiaries
granted pursuant to such stock option plans or stock
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incentive plans, and (iii) amend provisions of any employee
benefit plan providing for the issuance, transfer or grant of
any capital stock of, or any interest in respect of capital
stock of, Mobile Storage Group or its subsidiaries.
WARN. Mobile Storage Group shall be liable for
any obligations with respect to employees arising under the
Worker Adjustment and Retraining Notification Act, or WARN, and
similar applicable state laws to the extent arising from the
actions taken by Mobile Storage Group or its subsidiaries (not
at the direction of Mobile Mini) on or prior to the completion
of the merger. Mobile Storage Group agrees to cooperate with
Mobile Mini in connection with providing notices under the WARN
or similar applicable state laws and to notify Mobile Mini prior
to announcing, implementing or effecting certain
employment losses on or prior to the completion of
the merger. On the date of the completion of the merger, Mobile
Storage Group shall provide Mobile Mini with a list, by date and
location, of such employment losses that occurred
within the preceding 90 days or are scheduled to occur on
or after the completion of the merger.
UK Employees. From February 22, 2008
until the earlier of the completion of the merger or the
termination of the Merger Agreement, Mobile Storage Group and
its subsidiaries agree to consider written requests from Mobile
Mini with respect to compliance with obligations imposed by
certain applicable UK laws with respect to employees of Mobile
Storage Groups subsidiaries in the United Kingdom. If
Mobile Storage Group and its subsidiaries decide to implement
any such written requests of Mobile Mini, Mobile Mini shall
indemnify stockholders and affiliates of Mobile Storage Group
against losses incurred or suffered by them arising from the
implementation of any such written request.
Indemnification of Directors and
Officers. Mobile Mini agrees that its
organizational documents shall contain provisions no less
favorable with respect to the limitation or elimination of
liability and indemnification than are set forth in the
organizational documents of Mobile Storage Group as of the date
of the Merger Agreement. Such provisions shall not be amended,
repealed or otherwise modified for a period of 6 years
after the completion of the merger in any manner materially
adverse to individuals who are directors or officers of Mobile
Storage Group or its subsidiaries prior to the completion of the
merger. Mobile Mini also agrees to purchase tail insurance
covering each person currently covered by the Mobile Storage
Groups or its subsidiaries directors and
officers liability insurance policies, with respect to
matters or circumstances occurring at or prior to the completion
of the merger, on coverage terms that are equivalent in all
material respects to the coverage terms of such current
insurance policies in effect for Mobile Storage Group and its
subsidiaries on the date of the Merger Agreement.
Parent Organizational Documents. Immediately
prior to the effective time and assuming the receipt of Mobile
Minis stockholders approval, Mobile Mini shall file with
the Secretary State of the State of Delaware the amendment to
its certificate of incorporation and the certificate of
designation to be effective immediately prior to the effective
time.
Waiver of Standstill. Regardless the
standstill provisions of the mutual confidentiality agreement
between Mobile Storage Group and Mobile Mini, after this proxy
statement has been mailed to Mobile Minis stockholders,
WCAS, the majority stockholder of Mobile Storage Group, shall be
permitted to purchase up to 2,000,000 shares of common
stock of Mobile Mini in the aggregate, subject to applicable
laws. Such purchases shall not be permitted to be made in the
event WCAS is in possession of material non-public information.
Such purchases may be effectuated through market trades or
private purchases prior or after the closing of the Merger.
Because the proxy statement will be mailed to Mobile Minis
stockholders after the record date for the special meeting of
stockholders of Mobile Mini, WCAS will not have any voting
rights with respect to the approval of the Merger. Two business
days prior to the completion of the merger, Mobile Storage Group
shall deliver a certificate to Mobile Mini containing a list of
each such purchase that includes the name of the acquiring
person, the number of shares acquired, the means by which such
shares were acquired, the date of each such purchase, and the
purchase prices paid by such persons. After the completion of
the merger, WCAS shall notify Mobile Mini in writing within 2
business days after such purchase of securities, which notice
shall contain the same information described in the immediately
preceding sentence.
Financial Reports. Promptly following their
availability in the ordinary course of business, Mobile Mini
shall provide Mobile Storage Group with a monthly consolidated
balance sheet of Mobile Mini and its subsidiaries for the
preceding month and the related profit and loss statement, and
shall cause Mobile Minis Chief Executive
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Officer and the Chief Financial Officer to be available to
discuss such financial statements and the financial and
operating performance of Mobile Mini as reasonably requested by
Mobile Storage Group.
Compensation and Benefits. For at least
9 months following the completion of the merger, Mobile
Mini will cause the surviving corporation to provide
compensation and benefits to the employees of Mobile Storage
Group as of the completion of the merger that are substantially
equivalent in the aggregate to either the compensation and
benefits received by such continuing employees of Mobile Storage
Group prior to the completion of the merger, or the compensation
and benefits provided to similarly situated employees of Mobile
Mini and its subsidiaries.
Unless Mobile Mini requests otherwise in writing, the Board of
Directors of Mobile Storage Group is required to adopt
resolutions generally terminating, effective no later than the
day prior to the completion of the merger, any 401(k)
plan sponsored or contributed to by Mobile Storage Group.
Mobile Mini will cause any Mobile Mini compensation or benefit
plan in which the continuing employees of Mobile Storage Group
participate following the completion the merger, to treat, for
purposes of vesting and eligibility, service rendered to the
Mobile Services Group as service to Mobile Mini and is
affiliates, subject to certain exceptions. Each of Mobile Mini
and the surviving corporation will cause its medical, dental and
other welfare plans in which the continuing employees of Mobile
Storage Group or their dependants commence to participate after
the completion of the merger to waive certain preexisting
condition limitations and take into account certain deductible
and out-of-pocket expenses incurred by the continuing employees
of Mobile Storage Group and their dependants under similar plans
of Mobile Storage Group or any of its subsidiaries. Mobile Mini
and its affiliates agree to be solely responsible for satisfying
the COBRA health care continuation coverage requirements for
certain qualifying individuals who were covered by the health
plans of Mobile Storage Group prior to the completion of the
merger.
Prior to the completion of the merger, Mobile Storage Group will
use commercially reasonable efforts to cause those persons who
are subject to the rules regarding the Federal excise tax on
excess parachute payments to waive any payment
contingent upon the merger to the extent such payment would be
subject to such excise tax. Following the receipt of such
waivers, Mobile Storage Group will submit such payments for
approval by its stockholders, and provide stockholders with
disclosure of such payments.
Certain Other Covenants. The Merger Agreement
also contains additional covenants, including covenants relating
to the filing of this proxy statement, Mobile Storage
Groups cooperation with Mobile Mini in connection with the
debt financing, cooperation and consultation regarding filings
and proceedings with governmental and other agencies and
organizations and obtaining required consents, cooperation and
consultation regarding public statements with respect to
transactions contemplated by the Merger Agreement and
cooperation with respect to contesting or defending any legal
proceedings brought by a third party in connection with the
transactions contemplated by the Merger Agreement.
Conditions
to the Merger
Conditions to Each Partys
Obligations. The respective obligations of each
of Mobile Mini and Mobile Storage Group, to effect the merger
are conditioned upon the satisfaction or waiver by Mobile Mini
and Mobile Storage Group of the following conditions:
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all applicable waiting periods under HSR will have expired or
otherwise been terminated;
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no provision of any applicable law, judgment, order or
injunction making illegal or otherwise prohibiting the
consummation of the merger or delaying such consummation beyond
August 15, 2008, shall be in effect; and
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Mobile Mini shall have obtained the approval of the Merger
Agreement, the merger and the issuance of the Mobile Mini
Preferred Stock to Mobile Storage Group stockholders in
connection with the merger by the affirmative vote of the
holders of a majority of the outstanding shares of Mobile Mini
common stock.
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Conditions to Obligations of Mobile Mini. The
obligations of Mobile Mini to effect the merger are conditioned
upon the satisfaction or waiver by Mobile Mini of the following
conditions:
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the representations and warranties of Mobile Storage Group
(i) with respect to authority and enforceability, consents
and approvals and no violations, capitalization of Mobile
Storage Group and its subsidiaries (other than, with respect to
de minimis variations in the number of outstanding shares
of Mobile Storage Group
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common stock) and no material adverse effect and absence of
certain changes with respect to Mobile Storage Group, shall be
true and correct in all respects on and as of the closing date
with the same effect as though such representations and
warranties had been made on and as of such date and
(ii) all other representations and warranties of Mobile
Storage Group contained in the Merger Agreement shall be true
and correct (without giving effect to any
materiality, material adverse effect or
similar qualifiers contained in any of such representations and
warranties) as of the closing date with the same effect as
though such representations and warranties had been made on and
as of such date (other than those made as of a specified date,
which shall be true and correct in all respects as of such
specified date), except for such failures to be true and correct
that do not have and would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on
Mobile Storage Group;
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Mobile Storage Group shall have performed in all material
respects all of the covenants and agreements required to be
performed by it under the Merger Agreement at or prior to the
closing date of the merger, and Mobile Mini shall have received
a certificate signed on behalf Mobile Storage Group by a senior
executive officer of Mobile Storage Group to such effect;
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since February 22, 2008, there shall have been no events,
facts, circumstances, changes or effects, individually or in the
aggregate, constituting a material adverse effect on Mobile
Storage Group, and Mobile Mini shall have received a certificate
signed on behalf of Mobile Storage Group by a senior executive
officer of Mobile Storage Group to such effect;
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the execution and delivery of the Escrow Agreement by Mobile
Storage Group;
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Mobile Mini shall have received the amounts set forth in the
Commitment Letter upon the terms and conditions of the
Commitment Letter or any alternative financing in accordance
with the Merger Agreement;
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all indebtedness of Mobile Storage Group as of the closing date
other than the remaining indebtedness shall be repaid and
evidenced by the receipt of pay-off letters in connection with
the termination of such indebtedness;
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the receipt by Mobile Mini of an affidavit from Mobile Storage
Group dated the closing date, stating it is not a United
States real property holding corporation;
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the receipt by Mobile Mini of copies of the termination
agreements relating to certain contracts of Mobile Storage Group
with affiliates; and
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the execution and delivery of the stockholders agreement by
WCAS, WCAS Capital Partners IV., L.P. and WCAS Management
Corporation.
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Conditions to Obligations of Mobile Storage
Group. The obligations of Mobile Storage Group to
effect the merger are conditioned upon the satisfaction or
waiver by Mobile Storage Group of the following conditions:
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the representations and warranties of Mobile Mini (i) with
respect to authority and enforceability, existence and good
standing, capitalization of Mobile Mini and its subsidiaries
(other than, with respect to de minimis variations in the number
of outstanding shares of Mobile Mini common stock), and no
material adverse effect with respect to Mobile Mini, shall be
true and correct in all respects on and as of the closing date
with the same effect as though such representations and
warranties had been made on and as of such date and
(ii) all other representations and warranties of Mobile
Mini contained in the Merger Agreement shall be true and correct
(without giving effect to any materiality,
material adverse effect or similar qualifiers
contained in any of such representations and warranties) as of
the closing date with the same effect as though such
representations and warranties had been made on and as of such
date (other than those made as of a specified date, which shall
be true and correct in all respects as of such specified date),
except for such failures to be true and correct that do not have
and would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on Mobile Mini;
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since February 22, 2008, there shall have been no events,
facts, circumstances, changes or effects, individually or in the
aggregate, constituting a material adverse effect on Mobile
Mini, and Mobile Storage
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Group shall have received a certificate signed on behalf of
Mobile Mini by a senior executive officer of Mobile Mini to such
effect;
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Mobile Mini shall have performed in all material respects all of
the covenants and agreements required to be performed by it
under the Merger Agreement at or prior to the closing date of
the merger, and Mobile Storage Group shall have received a
certificate signed on behalf Mobile Mini by a senior executive
officer of Mobile Mini to such effect; and
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the execution and delivery of the stockholders agreement by
Mobile Mini.
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Each of the conditions to Mobile Minis and Mobile Storage
Groups obligations to complete the merger may be waived,
in whole or in part, to the extent permitted by applicable law,
by agreement of Mobile Mini and Mobile Storage Group if the
condition is a condition to both Mobile Minis and Mobile
Storage Groups obligation to complete the merger, or by
the party for which such condition is a condition of its
obligation to complete the merger. The Boards of Directors of
Mobile Mini and Mobile Storage Group may evaluate the
materiality of any such waiver to determine whether amendment of
this proxy statement and re-solicitation of proxies is
necessary. However, Mobile Mini and Mobile Storage Group
generally do not expect any such waiver to be significant enough
to require an amendment of this proxy statement and
re-solicitation of stockholders. In the event that any such
waiver is not determined to be significant enough to require
re-solicitation of stockholders, Mobile Mini will have the
discretion to complete the merger without seeking further Mobile
Mini stockholder approval.
Indemnification
Mobile Storage Groups stockholders have agreed to hold
Mobile Mini and its affiliates, successors and assigns harmless
on an after tax basis (taking into account benefits arising from
the loss) for any losses which arise from or in connection with
any breach by Mobile Storage Group or any of Mobile Storage
Groups stockholders of any of their representations,
warranties or covenants under the Merger Agreement or in any
ancillary agreement or in any instrument, certificate or writing
delivered pursuant to the Merger Agreement. Mobile Mini has
agreed to hold harmless Mobile Storage Groups stockholders
and their affiliates on an after-tax basis (taking into account
benefits arising from any loss) for any breach by Mobile Mini of
any of its representations, warranties or covenants under the
Merger Agreement or in any instrument, certificate or writing
delivered pursuant to the Merger Agreement.
The obligations to indemnify and hold harmless for breaches of
representations and warranties pursuant to the Merger Agreement
shall survive until the date that is 12 months after the
consummation of the merger, except for claims for
indemnification asserted prior to the end of such period, which
claims shall survive until final resolution thereof. The maximum
amount of Mobile Minis and Mobile Storage Groups
indemnification liabilities under the Merger Agreement is
$30 million each. Indemnification claims may be asserted
only if each individual indemnifiable loss exceeds $50,000 and
until the total amount of losses exceeds $3 million;
provided, that to the extent the amount of indemnifiable losses
exceeds the $3 million, the indemnified party shall be
entitled to recover the entire amount of losses in excess of
$1.5 million. For purposes of determining whether an
individual loss exceeds $50,000, all losses based on claims or a
series of related claims arising out of similar facts or
circumstances shall be aggregated.
All claims for indemnification by Mobile Mini shall first be
satisfied from the escrow amount and once the escrow amount has
been paid to satisfy Mobile Minis indemnification claims
or released to Mobile Storage Groups stockholders pursuant
to the escrow agreement, Mobile Mini shall be entitled to pursue
all claims for indemnification directly against Mobile Storage
Groups stockholders in accordance with the joinder
agreement or letters of transmittal, as the case may be. Except
as otherwise provided in the joinder agreement, the
indemnification obligations of Mobile Storage Groups
stockholders are several and not joint.
All claims for indemnification by Mobile Storage Groups
stockholders as finally determined pursuant to the Merger
Agreement, shall be paid by Mobile Mini to such Mobile Storage
Groups stockholders by wire transfer in immediately
available funds to the bank accounts designated by such Mobile
Storage Groups stockholders in a notice to Mobile Mini not
less than two business days prior to such payment.
Release of Amounts in Escrow. Subject to the
terms of the Merger Agreement, (i) if the cash in escrow
exceeds the amount of an indemnification claim by Mobile Mini,
then the escrow agent shall release an amount in
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cash equal to such claim to Mobile Mini; (ii) if the claim
exceeds the cash in escrow but is less than the aggregate Fair
Market Value of the preferred stock plus the cash then
held in escrow, then the escrow agent shall release the entire
balance of the cash then held in escrow plus a number of
shares of preferred stock equal to the amount by which Mobile
Minis indemnification claim exceeds the cash balance in
escrow divided by the Fair Market Value; or
(iii) if Mobile Minis claim exceeds the aggregate
Fair Market Value of preferred stock plus the cash then
held in escrow, then the stockholders of Mobile Storage Group
shall, at their option (x) return to Mobile Mini a number
of shares of preferred stock of Mobile Mini equal to such excess
divided by the Fair Market Value per share of the
preferred stock, or (y) pay to Mobile Mini in accordance
with the joinder agreement or the applicable letter of
transmittal, as the case may be, such excess in cash.
Fair Market Value means, for purposes of
valuing Mobile Minis preferred stock under the
indemnification provisions of the Merger Agreement, the
as-converted value of Mobile Minis preferred stock based
on the average of the closing prices of Mobile Minis
common stock on the NASDAQ reporting system or on the principal
exchange on which Mobile Minis common stock is traded (as
reported in the Wall Street Journal) over a period of
30 days consisting of the day the final amount of
indemnifiable losses has been agreed to or otherwise determined
pursuant to the provisions of the Merger Agreement and the 29
consecutive trading days prior to such day the final amount of
indemnifiable losses has been agreed or otherwise determined
pursuant to the provisions of the Merger Agreement; provided,
that if Mobile Minis common stock is not traded on any
exchange or the over-the-counter market, then Market
Price shall be determined in good faith by Mobile Mini and
WCAS.
Insurance Policies. The amount of losses
payable pursuant to the indemnification provision of the Merger
Agreement shall be reduced by any amounts actually received
under applicable insurance policies or from any other person
alleged to be responsible for such losses.
Termination
The Merger Agreement may be terminated at any time before the
completion of the merger, in any of the following circumstances:
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by mutual written consent of Mobile Mini and Mobile Storage
Group;
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by either Mobile Mini or Mobile Storage Group, if
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the merger does not occur on or before August 15, 2008,
provided that the right to terminate the Merger Agreement shall
not be available to either Mobile Mini or Mobile Storage Group,
as the case may be, if its failure to fulfill any obligation
under the Merger Agreement shall be the cause of the failure of
the closing to occur on or before such date;
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there has been a breach of any representations and warranties or
any covenant to be performed by either Mobile Mini or Mobile
Storage Group in a manner such that the closing conditions
described in Conditions to Each Partys
Obligations and Conditions to
Obligations of Mobile Mini or Conditions
to Obligations of Mobile Storage Group or, as the case may
be, would not be satisfied, provided that any such breach of a
representation or warranty or a covenant has not been cured
within 10 business days following receipt by the breaching party
of written notice of such breach;
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there shall be any law making illegal or otherwise prohibiting
the consummation of the merger or any order of any competent
authority prohibiting such transactions, which has been entered
and become final and non-appealable; or
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the approval of the Merger Agreement, the merger and the
issuance of the Mobile Mini preferred stock to Mobile Storage
Group stockholders in connection with the merger by the
affirmative vote of the holders of a majority of the outstanding
shares of Mobile Mini common stock are not obtained.
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Termination
Fees and Expenses
If the Merger Agreement is terminated:
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by either Mobile Mini or Mobile Storage Group because the Mobile
Mini stockholders failed to approve of the Merger Agreement, the
merger and the issuance of the preferred stock to the
stockholders of Mobile Storage Group and at the time of such
termination (i) neither Mobile Storage Group nor its
stockholders have breached any of their representations,
warranties, covenants and agreements contained in the Merger
Agreement, other than the failure of any condition to Mobile
Storage Groups closing under the Merger Agreement caused
by Mobile Minis breach of its obligations thereunder,
(ii) all of the conditions to Mobile Storage Groups
obligations to consummate the merger have been satisfied or
would be capable of being satisfied at or prior to the effective
time of the merger assuming the effective time of the merger
were to occur at any time up to and including August 15,
2008, and (iii) there exists at any time prior to the
special meeting a bona-fide acquisition proposal to acquire all
or substantially all of the common stock or assets of Mobile
Mini then within 3 business days of the date of such termination
Mobile Mini shall reimburse Mobile Storage Group for up to
$3 million of its reasonable, documented out-of-pocket
costs and expenses of Mobile Storage Group incurred in
connection with the negotiation and execution of the Merger
Agreement and the evaluation of the merger.
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Effect of
Termination
If the Merger Agreement is terminated in accordance therewith,
upon written notice, the Merger Agreement shall be terminated,
without any liability (other than liability for any willful
breach) on the part of Mobile Mini or Mobile Storage Group;
provided, that the provisions of the Merger Agreement relating
to public announcements, termination, effects of termination,
expenses and transfer taxes, governing law and jurisdiction will
survive any termination thereof.
Specific
Performance
Each of Mobile Mini and Mobile Storage Group are entitled to an
injunction or injunctions to prevent actual breaches of the
Merger Agreement by the other party and to enforce specifically
the terms and provisions of the Merger Agreement.
Amendments
The Merger Agreement may not be changed, and any of the terms,
covenants, representations, warranties and conditions cannot be
waived, except pursuant to an instrument in writing signed by
Mobile Mini and Mobile Storage Group or, in the case of a
waiver, by the party waiving compliance.
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THE
JOINDER AGREEMENT
The following is a summary of the material provisions of the
joinder agreement to the Merger Agreement by and among Mobile
Mini and certain stockholders of Mobile Storage Group. The
joinder agreement is included as Exhibit A to
Annex A and is incorporated by reference into this
proxy statement. We encourage you to read the joinder agreement
carefully.
Joinder to the Merger Agreement. Concurrently
with the execution of the Merger Agreement, Mobile Mini, Cactus
Merger Sub and Mobile Storage Group have entered into a joinder
agreement with each of WCAS, WCAS Capital Partners IV, L.P.,
WCAS Management Corporation and De Nicola Holdings, L.P. Among
other things, each such stockholder of Mobile Storage Group has
agreed to be bound by all provisions in the Merger Agreement
that provide for any liability or obligation of any stockholders
of Mobile Storage Group. At the closing, all other stockholders
of Mobile Storage Group will be required to execute and deliver
a letter of transmittal which, among other things, will contain
the relevant provisions of the joinder agreement described below
(including the indemnification obligations but excluding the
non-competition and non-solicitation covenants) prior to
receiving their respective pro rata portions of the Merger
Consideration.
Indemnification Obligations and
Limitations. Each stockholder shall be liable
under the indemnification obligation set forth in the Merger
Agreement on a several basis and each such stockholder shall be
responsible for its pro rata portion of any losses and in each
case (other than WCAS) limited to its respective Pro Rata Cap.
The indemnification obligation of WCAS shall be limited to an
aggregate amount equal to the greater of its Pro Rata Cap, or
$15 million plus the amount (including preferred
stock of Mobile Mini valued at $18.00 per share), if any, paid
from the escrow indemnification amount to satisfy any purchase
price adjustment in favor of Mobile Mini. Any amount in excess
of WCASs Pro Rata Cap shall be available only to the
extent that Mobile Mini is unsuccessful after using all
commercially reasonable efforts to collect from the other
stockholders of Mobile Storage Group.
Pro Rata Cap shall mean, with respect to each
stockholder of Mobile Storage Group, the product of such
stockholders pro rata portion multiplied by
$15 million, plus the amount (including preferred
stock of Mobile Mini valued at $18.00 per share), if any, paid
from the escrow indemnification amount to satisfy any purchase
price adjustment in favor of Mobile Mini under the Merger
Agreement.
Mobile Mini Rights Agreement. Mobile
Minis execution of the Merger Agreement shall constitute
Prior Written Approval of the Company (as defined
under that certain rights agreement, dated as of
December 9, 1999, between Mobile Mini and Norwest Bank
Minnesota, N.A.) solely with respect to the Mobile Storage Group
stockholders and WCASs acquisition of the preferred stock
of Mobile Mini (and the conversion into common stock in respect
thereof) in connection with the merger.
Representations and Warranties. The joinder
agreement contains representations and warranties made by each
stockholder signatory of the joinder agreement to Mobile Mini
relating to a number of matters including: authority and
enforceability; consents and approvals and no violations;
existence and good standing; title to shares of Mobile Storage
Group common stock; understanding of agreements and
non-reliance; accredited investor and qualified purchaser;
investment for own account; and restrictions on Mobile Mini
preferred stock.
Non-Competition and Non-Solicitation. During
the period commencing at the effective time of the merger and
ending on the date that is one year after the WCAS Directorship
Term End Date, each stockholder signatory of the joinder
agreement and its controlled affiliates will not, within any
jurisdiction within any marketing area in which Mobile Mini is
doing a substantial amount of business, directly or indirectly
own any interest in, manage, operate, control, be employed by or
participate in the ownership, management, operation or control
of, or in any manner engage in, any competitive business.
Each stockholder of Mobile Storage Group signatory of the
joinder agreement agrees, during such non-competition restricted
period, to, and to cause its controlled affiliates to, refrain
from:
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soliciting or encouraging any individual who is an employee of
Mobile Mini in the position of branch manager or
higher as of WCAS Directorship Term End Date, to terminate his
or her employment relationship with Mobile Mini;
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soliciting, hiring or retaining any individual who is an
employee of Mobile Mini in the position of branch
manager or higher as of the WCAS Directorship Term End
Date to become an employee of, or provide services to, any
person other than Mobile Mini or any of its subsidiaries; or
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soliciting business for the benefit of any competitive business
from any person that is a customer of Mobile Mini that accounts
for at least $500,000 of Mobile Minis gross revenues (on a
consolidated basis) for the applicable fiscal year.
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Nothing shall preclude generalized searches for employees, any
solicitation or hiring of any employee who has been terminated
by Mobile Mini at least 6 months prior to such solicitation
or hiring, and any hiring of any employee of the Mobile Mini who
approaches such stockholder signatory of the joinder agreement
on his or her own volition.
WCAS Directorship Term End Date means the
date on which WCAS ceases to hold, in the aggregate, at least
2,000,000 shares of preferred stock or common stock issued
upon conversion or exchange of the preferred stock.
Certain Other Agreements. Each stockholder of
Mobile Storage Group who signed the joinder agreement has also
agreed to (i) waive any and all appraisal rights under
applicable law, (ii) the appointment of WCAS as stockholder
representative, and (iii) the termination of that certain
stockholders agreement by and among Mobile Storage Group and its
stockholders, dated August 1, 2006 and that certain
management services agreement, dated as of August 1, 2006,
among the Mobile Storage Group, WCAS Management Corporation and
Mobile Services Group, Inc. effective as of the effective time
of the merger.
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THE
STOCKHOLDERS AGREEMENT
The following is a summary of the material provisions of the
stockholders agreement to be entered into by and among Mobile
Mini and certain stockholders of Mobile Storage Group upon
completion of the merger. The stockholders agreement is included
as Exhibit C to Annex A and is incorporated by
reference into this proxy statement. We encourage you to read
the stockholders agreement carefully
Transfer
of Equity Securities
Transfer Restrictions. No Mobile Storage Group
stockholder party to the stockholders agreement shall,
voluntarily or involuntarily, directly or indirectly, transfer
in any manner, any equity or debt securities of Mobile Mini, in
whole or in part, or any other right or interest therein, or
enter into any transaction which results in the economic
equivalent of a transfer to any person except pursuant to a
permitted transfer. Any attempt to transfer any security in
violation of the transfer restrictions shall be null and void
and Mobile Mini will not permit or give any effect to any such
transfer to be made on its books and records.
Permitted Transfers. A Mobile Storage Group
stockholder party to the stockholders agreement may carry out
any of the following transfers:
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any transfer following such stockholders death, to such
stockholders legal representative, heir or legatee, or any
gift during such stockholders lifetime to such
stockholders spouse, children, grandchildren or to a trust
or other legal entity for the exclusive benefit of such
stockholder or any one or more of the foregoing;
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any transfer to any affiliate of such stockholder (as long as
the permitted transferee agrees in writing to be bound by all
the provisions of the stockholders agreement); provided that
such affiliate is not a competitor of Mobile Mini or an adverse
party in any material legal proceeding with Mobile Mini;
provided further that any such affiliate shall transfer such
securities to such stockholder from whom the securities were
originally received or acquired within 5 calendar days after
ceasing to be an affiliate of such stockholder; and
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any transfer, occurring on or after the first anniversary of the
closing date; provided, that private sales of common stock of
Mobile Mini or sales of preferred stock to any single transferee
shall not exceed 3% of the fully diluted common stock of Mobile
Mini; and provided, further, that such transferee is not a
competitor of Mobile Mini or an adverse party in any material
legal proceeding with Mobile Mini.
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In the event of permitted transfers of preferred stock of Mobile
Mini, in addition to the foregoing, the aggregate number of
permitted transferees in connection with transfers by any single
stockholder party to the stockholders agreement (other than
WCAS, Lehman and California State Teachers Retirement
System) shall not exceed 1 person, and transfers by WCAS,
Lehman and the California State Teachers Retirement System
shall not exceed 5, 2 and 2 persons, respectively. Prior to
any permitted transfers of preferred stock of Mobile Mini, each
transferee shall agree in writing not to transfer pursuant to a
private sale any preferred stock to a competitor of Mobile Mini
or an adverse party in any material legal proceeding with Mobile
Mini.
Customary Black-out Periods. Subject to
certain exceptions, at all times during which WCAS has the right
to nominate a director, neither WCAS nor any of its controlled
affiliates shall sell any securities other than during any
period when the directors and officers of WCAS and its
subsidiaries are not prohibited from selling securities pursuant
to the written policies and procedures of Mobile Mini governing
transfers of securities by such officers and directors as may be
in effect from time to time.
Standstill. Subject to certain exceptions for
pooled investment vehicles managed or under the control of WCAS
or any of its affiliates that primarily invest on a passive
basis in debt securities or debt instruments, or any trust or
other investment vehicle formed for the benefit of individuals
or charitable concerns, such as publicly traded mutual funds and
blind trusts, for the period commencing on the closing date and
ending on the date on which WCAS, and each permitted transferee
of WCAS as the case may be, in the aggregate, no longer hold
equity securities constituting (or representing upon the
conversion thereof) 5% or more of the outstanding shares of
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common stock of Mobile Mini, WCAS, and each permitted transferee
of WCAS as the case may be, shall, and shall cause their
controlled affiliates to, refrain from directly or indirectly:
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acquiring, announcing an intention to acquire, offering or
proposing to acquire, soliciting an offer to sell or agree to
acquire, or entering into any arrangement or undertaking to
acquire, directly or indirectly, by purchase, or otherwise,
record or direct or indirect beneficial ownership interest in
any equity or debt securities of Mobile Mini or any assets
(other than purchases of assets in the ordinary course of
business) or other securities of Mobile Mini or any of its
subsidiaries;
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making, effecting, initiating, curing or participating in any
take-over bid, tender offer, exchange offer, merger,
consolidation, business combination, recapitalization,
restructuring, liquidation, dissolution or other extraordinary
transaction involving Mobile Mini or any of its subsidiaries;
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soliciting, making, effecting, initiating, causing, or
participating in any way in, directly or indirectly, any
solicitation of proxies or consents from any holders of any
securities of the Mobile Mini or any of its subsidiaries or
calling or seeking to have called any meeting of stockholders of
the Mobile Mini or any of its subsidiaries;
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forming, joining or participating in, or otherwise encouraging
the formation of, any group (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act) with respect to any securities
that are not equity securities (other than the preferred stock
of Mobile Mini and common stock of Mobile Mini issued upon
conversion thereof) and debt securities of Mobile Mini or any of
its subsidiaries;
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arranging, facilitating, or in any way participating, directly
or indirectly, in any financing for the purchase of any
securities or assets of Mobile Mini or any of its subsidiaries
that are not equity securities (other than the preferred stock
of Mobile Mini and common stock of Mobile Mini issued upon
conversion thereof) and debt securities of Mobile Mini or any of
its subsidiaries;
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acting, directly or indirectly, to seek control or direct the
Board of Directors, stockholders, policies or affairs of Mobile
Mini or any of its subsidiaries; soliciting, proposing, seeking
to effect or negotiating with any other person with respect to
any form of business combination transaction involving Mobile
Mini or other extraordinary transaction involving Mobile Mini or
any of its subsidiaries; or disclosing an intent, purpose, plan
or proposal with respect to Mobile Mini, or any securities or
assets of Mobile Mini or any of its subsidiaries that are not
equity securities (other than the preferred stock of Mobile Mini
and common stock of Mobile Mini issued upon conversion thereof)
and debt securities of Mobile Mini or any of its subsidiaries;
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taking any action that is intended to or reasonably expected to
require Mobile Mini or any of its subsidiaries to make a public
announcement of any of the types of the foregoing matters;
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agreeing or offering to take, or encouraging or proposing
(publicly or privately) the taking of, or announcing an
intention to take, or otherwise making any public announcement
with respect to any of the foregoing actions;
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requesting of, or proposing to Mobile Mini, or any of its
representatives that Mobile Mini amend or waive or consider the
amendment or waiver of any term of the foregoing standstill
provisions.
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Notwithstanding the foregoing, in the event WCAS has not
acquired up to 2.0 million shares of Mobile Mini common
stock under the waiver of standstill provision of the Merger
Agreement (see Waiver of Standstill,
beginning on page 49 hereof), WCAS shall continue to be
permitted to purchase up to 2.0 million shares of Mobile
Mini common stock under such provision of the Merger Agreement.
Registration
Rights
Shelf Registration Statement. Mobile Mini
shall use all commercially reasonable efforts to file a shelf
registration statement under the U.S. Securities Act of
1933, as amended, or Securities Act on or about the date that is
the 10-month
anniversary of the closing date covering all of the shares of
Mobile Mini common stock issuable upon conversion of the
preferred stock and shares of Mobile Mini common stock acquired
pursuant to the Merger
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Agreement as described in Waiver of
Standstill, beginning on page 49 (hereinafter the
registrable securities) then held by the Mobile
Storage Group stockholders party to the stockholders agreement
on
Form S-3
to enable the resale of such registrable securities after the
first anniversary of the closing date on a delayed or continuous
basis.
Required Registrations. At any time after the
date, if any, that (x) Mobile Mini is not permitted to file
or maintain a
Form S-3
in connection with the shelf registration in accordance with the
terms of the stockholders agreement, or (y) the shelf
registration expired in accordance with the terms of the
stockholders agreement and not all registrable securities
registered in such shelf registration have been sold, the
holders of registrable securities representing at least a
majority of the outstanding registrable securities shall have
the right to request Mobile Mini to effect a registration under
the Securities Act of registrable securities held by such
stockholders. Mobile Mini shall not be required to comply with
more than 1 such demand request during any 6 month period
and shall only be obligated to comply with 4 demand requests in
total.
Incidental Registration. If, at any time after
the first anniversary of the closing date, Mobile Mini proposes
to register any of its securities under the Securities Act for
sale to the public, any Mobile Storage Group stockholder party
to the stockholders agreement shall have the right at each such
time to include registrable securities held by it that are not
otherwise covered by the shelf registration statement or a
required registration statement in such registration statement
subject to any underwriters customary cut back.
Distribution Black-Out Period. Subject to
certain exceptions and limitations if the Board of Directors of
Mobile Mini reasonably determines that the registration and
distribution of registrable securities (i) would reasonably
be expected to impede, delay or interfere with, or require
premature disclosure of, any material financing, offering,
acquisition, merger, corporate reorganization, segment
reclassification or discontinuation of operations, or other
significant transaction or any negotiations, discussions or
pending proposals with respect thereto, involving the Mobile
Mini or any of its subsidiaries, or (ii) would require
disclosure of non-public material information, the disclosure of
which would reasonably be expected to adversely affect Mobile
Mini, Mobile Mini shall be entitled to postpone the filing or
effectiveness or suspend the effectiveness of a registration
statement
and/or the
use of any prospectus for a period of time not to exceed
60 days. Mobile Mini shall promptly give the stockholders
party to the stockholders agreement written notice of such
postponement or suspension (which notice need not specify the
nature of the event giving rise to such suspension); provided,
that Mobile Mini shall not utilize this deferral right more than
once in any 6 month period and provided further that Mobile
Mini may extend such period to be up to 90 days in the
aggregate, but if it elects to do so it shall not be permitted
to impose a subsequent black-out period until a time that is
more than 6 months after the end of such black-out period.
Registration Expenses. Mobile Mini will pay
all registration expenses in connection with each registration
of securities pursuant to the stockholders agreement, including,
without limitation, any such registration not effected by Mobile
Mini, except for any incremental registration expenses incurred
by Mobile Mini in connection with the registration of any shares
of common stock acquired by WCAS after the filing of the proxy
statement in accordance with the Merger Agreement, as described
in Waiver of Standstill, beginning on
page 49.
Holdback Agreements. The Mobile Storage Group
stockholders party to the stockholders agreement (and Mobile
Mini and its executive officers if requested by the
underwriters) shall not sell, make any short sale of, grant any
option for the purchase of, or otherwise dispose of any
securities, other than those securities included in a
registration described above for the 7 days prior to and
the 90 days after the effectiveness of the registration
statement pursuant to which such offering shall be made (or such
longer periods as may be advised by the underwriter).
Board of
Directors of Mobile Mini
Composition. At the effective time, Mobile
Mini shall expand the size of the Board of Directors of Mobile
Mini so that the number of members on the Board of Directors of
Mobile Mini is equal to 8 and shall appoint (i) one
individual designated by WCAS, whose term ends in 2010 or 2011
and (ii) another individual designated by WCAS, whose term
ends in 2009. The individuals nominated by WCAS must satisfy the
requirements of the nominating and corporate governance
committee of the Board of Directors of Mobile Mini and will hold
such seat until the next annual meeting of Mobile Mini at which
such seat is up for re-election. WCAS has designated
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Mr. Sanjay Swani and Mr. Michael E. Donovan,
respectively, to fill the seat of the WCAS directors mentioned
above.
Each time the applicable class of directors comes ups for
re-election, until the WCAS Directorship Term End Date, the
Board of Directors of Mobile Mini shall nominate for election
and recommend that the stockholders of Mobile Mini elect to the
Board of Directors of Mobile Mini one individual selected by
WCAS to fill the seat that Mr. Sanjay Swani will hold upon
the consummation of the merger.
Board Observation Rights. From and after
January 1, 2010, until the WCAS Directorship Term End Date,
WCAS shall be entitled to designate 1 observer to attend, as a
non-voting observer, all meetings (including participation in
telephonic meetings) of the Board of Directors of Mobile Mini
subject to the limitations set forth on the stockholders
agreement.
Transfer of preferred stock by
WCAS. WCASs rights to designate a permanent
director, a temporary director, or an observer shall immediately
terminate and expire on the WCAS Directorship Term End Date.
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UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance
Sheet as of December 31, 2007 and as of March 31, 2008
and the Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2007 and the
quarter ended March 31, 2008 are based upon the historical
consolidated financial statements of Mobile Storage Group
included in this proxy statement and on the historical
consolidated financial statements of Mobile Mini, which are
contained in Annex C and Annex D and
which such information is incorporated by reference into this
proxy statement, giving effect to the merger and other
transactions that will be effective upon completion of the
merger.
The Unaudited Pro Forma Condensed Combined Statements of
Operations gives effect to the merger as if it had occurred on
the first day of the period and the Unaudited Pro Forma
Condensed Combined Balance sheet gives effect to the merger as
if it had occurred on the date of such balance sheet. The two
major categories of adjustments reflected in the Unaudited Pro
Forma Condensed Combined Financial Statements are Purchase
Accounting Adjustments and Other Merger
Adjustments.
Purchase
Accounting Adjustments
Purchase accounting adjustments include adjustments necessary to
allocate the purchase price to the tangible and intangible
assets and liabilities of Mobile Storage Group based on their
estimated fair values. A detailed description of each of these
purchase accounting adjustments follows:
Fair Market Value Adjustments The pro
forma financial statements reflect the purchase price allocation
based on a preliminary assessment of fair market values and
lives assigned to the assets, liabilities and leases being
acquired. Fair market values in the pro forma financial
statements were determined based on preliminary discussion with
independent valuation consultants, industry trends and by
reference to market rates and transactions. After the closing of
the merger, Mobile Mini, with the assistance of valuation
consultants, will complete its evaluation of the fair value and
the lives of the assets, liabilities and leases acquired. Fair
market value adjustments reflected in the pro forma financial
statements may be subject to significant revisions and
adjustments pending finalization of those valuation studies.
Significant assets and liabilities adjusted to fair market value
which are subject to finalization of valuation studies include
lease fleet, property and equipment, customer lists and other
intangibles, operating leases, deferred revenue and continuing
debt obligations of Mobile Mini.
Purchase Price Allocation The value of
the merger consideration was determined based on the deemed fair
value (assumed to be liquidation value and could change
significantly upon closing) of shares of Mobile Minis
preferred stock to be issued upon the closing of the
transaction, cash consideration to be paid to shareholders of
Mobile Storage Group, the fair value of liabilities to be
assumed, and direct acquisition costs Mobile Mini expects to
incur in connection with the merger. The following table
summarizes the estimated purchase price (dollars in millions):
|
|
|
|
|
Fair value of shares of Mobile Mini preferred stock issued to
Mobile Storage Group shareholders
|
|
$
|
154.0
|
|
Cash consideration paid to Mobile Storage Group shareholders
|
|
|
5.3
|
(1)
|
Assumption of debt
|
|
|
542.2
|
(1)
|
|
|
|
|
|
Total purchase value
|
|
$
|
701.5
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because Mobile Storage Groups debt was
$542.2 million, including accrued interest on the senior
subordinated notes, as of March 31, 2008, instead of
$535 million, the cash consideration payment has been
reduced from $12.5 million to $5.3 million. |
61
The following table summarizes the pro forma net assets acquired
and liabilities assumed in connection with the merger and the
preliminary allocation of the purchase price (dollars in
millions):
|
|
|
|
|
Current assets
|
|
$
|
50.2
|
|
Lease fleet
|
|
|
288.4
|
|
Property plant and equipment, net
|
|
|
25.6
|
|
Other assets, including other intangibles
|
|
|
85.2
|
|
Goodwill
|
|
|
364.7
|
|
Liabilities assumed, less debt assumed
|
|
|
(112.6
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
701.5
|
|
|
|
|
|
|
Income Taxes Upon completion of the
merger, Mobile Mini will evaluate whether there is any reduction
necessary of its deferred tax asset valuation allowance. Any
such reduction in the valuation allowance would be recorded as a
decrease to goodwill. Due to the change in ownership upon
completion of the merger, the annual usage of any attributes
that were generated prior to the merger may be substantially
limited.
The historical financial statements of Mobile Storage Group
reflect other reclassifications of certain balances to conform
with Mobile Minis financial statement presentation.
Amendment
of Credit Facility
In order to finance Mobile Minis merger with Mobile
Storage Group and to provide the combined company with financing
for its continuing operations, it will enter into a new
$1 billion revolving credit facility that will be effective
either before or upon completion of the merger. The Unaudited
Pro Forma Condensed Combined Statements of Operations give
effect to this material agreement as if it occurred on the first
day of the period and the unaudited pro forma condensed combined
balance sheet gives effect to the material agreement as if it
occurred on the date of such balance sheet.
The pro forma adjustments reflect an initial line of credit draw
of $601.9 million immediately available upon closing of the
merger, which amounts were used as follows (in millions):
|
|
|
|
|
|
|
Pro forma
|
|
|
Refinance Mobile Minis line of credit
|
|
$
|
237.4
|
|
Repayment of Mobile Storage Groups line of credit
|
|
|
225.3
|
|
Payment of Mobile Storage Groups senior subordinated notes
plus accrued interest
|
|
|
109.4
|
|
Payment to Mobile Storage Groups shareholders
|
|
|
5.3
|
(1)
|
|
|
|
|
|
|
|
|
577.4
|
|
Transaction fees and expenses
|
|
|
24.5
|
|
|
|
|
|
|
|
|
$
|
601.9
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because Mobile Storage Groups debt was
$542.2 million, including accrued interest on the senior
subordinated notes, as of March 31, 2008, instead of
$535 million, the payment to Mobile Storage Groups
shareholders has been reduced from $12.5 million to
$5.3 million. |
Other
Merger Discussions
The Unaudited Pro Forma Condensed Combined Financial Statements
are provided for illustrative purposes only and do not purport
to represent what the actual consolidated results of operations
or the consolidated financial position of Mobile Mini would have
been had the business combination with Mobile Storage Group
occurred on the respective date assumed, nor are they
necessarily indicative of future consolidated operating results
or the future consolidated financial position of Mobile Mini.
62
The Unaudited Pro Forma Condensed Combined Financial Statements
do not reflect anticipated benefits derived from combined
synergies, operating efficiencies and cost savings that are
expected to result from the acquisition following the merger,
nor any benefits to be derived from the combined companys
growth projects nor any changes in leasing yield subsequent to
the date of such Unaudited Pro Forma Condensed Combined
Financial Statements.
Although Mobile Mini believes that cost savings will ultimately
be realized upon the consolidation and integration of the
companies, Mobile Mini expects to incur significant integration
costs as part of consummating the merger, consisting primarily
of costs relating to employee severance and retention, asset and
personnel relocations, eliminating approximately 5 to 15 Mobile
Mini branch locations in the US which overlap with Mobile
Storage Group branch locations and certain duplicate functions
of the companies such as payroll, advertising and corporate
operating systems. Mobile Mini estimated these integration costs
will be approximately $19.0 million, with some of these
expenses incurred at closing and others incurred over a period
of time. Furthermore, in addition to the pro forma adjustments,
additional liabilities may be incurred in connection with the
business combination and ultimate reorganization. These
estimated integration costs and potential additional liabilities
have not been reflected in the Unaudited Pro Forma Condensed
Combined Financial Statements because information necessary to
reasonably estimate all costs and to formulate detailed
restructuring plans is not available. Accordingly, the
allocation of the purchase price cannot be estimated with a
reasonable degree of accuracy and may differ materially from the
amounts assumed in the Unaudited Pro Forma Condensed Combined
Financial Statements.
As shown in the adjustments below, Mobile Mini expects the
accounting for the acquisition of Mobile Storage Group to result
in a significant amount of goodwill. We have not adjusted Mobile
Storage Groups historical amount of identifiable
intangible assets associated with customer lists, customer
relations and trade names. The valuation study of these
intangible assets has not been completed. Upon the final reports
of this valuation, goodwill and other assets and intangibles
will be further adjusted to reflect the valuation results.
The Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with the separate historical
consolidated financial statements and accompanying notes of
Mobile Mini contained in Annex C and
Annex D and which such information is incorporated
by reference into this proxy statement and the separate
historical consolidated financial statements and accompanying
notes of Mobile Storage Group included in this proxy statement.
See Where You Can Find More Information on
page 111.
63
Unaudited
Pro Forma Condensed Combined Statement of Operations
For The Year Ended December 31, 2007
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
Storage
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Mini
|
|
|
Group
|
|
|
Financial
|
|
|
Merger
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
284,638
|
|
|
$
|
192,318
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
476,956
|
|
Sales
|
|
|
31,644
|
|
|
|
40,809
|
|
|
|
|
|
|
|
|
|
|
|
72,453
|
|
Other
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
318,302
|
|
|
|
233,127
|
|
|
|
|
|
|
|
|
|
|
|
551,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
21,651
|
|
|
|
28,784
|
|
|
|
|
|
|
|
|
|
|
|
50,435
|
|
Trucking and yard costs
|
|
|
|
|
|
|
58,833
|
|
|
|
(58,833
|
)(N)
|
|
|
|
|
|
|
|
|
Leasing, selling and general expenses
|
|
|
166,994
|
|
|
|
67,307
|
|
|
|
62,001
|
(N)
|
|
|
|
|
|
|
296,302
|
|
Stock related compensation
|
|
|
|
|
|
|
3,168
|
|
|
|
(3,168
|
)(N)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,149
|
|
|
|
22,216
|
|
|
|
|
|
|
|
(558
|
)(P)
|
|
|
42,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
209,794
|
|
|
|
180,308
|
|
|
|
|
|
|
|
(558
|
)
|
|
|
389,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
108,508
|
|
|
|
52,819
|
|
|
|
|
|
|
|
558
|
|
|
|
161,885
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
101
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
Interest expense
|
|
|
(24,906
|
)
|
|
|
(51,218
|
)
|
|
|
|
|
|
|
7,508
|
(Q)
|
|
|
(68,616
|
)
|
Debt restructuring/extinguishment expense
|
|
|
(11,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,224
|
)
|
Foreign currency exchange gain
|
|
|
107
|
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
72,586
|
|
|
|
2,174
|
|
|
|
|
|
|
|
8,066
|
|
|
|
82,826
|
|
Provision (benefit) for income taxes
|
|
|
28,410
|
|
|
|
(1,618
|
)
|
|
|
|
|
|
|
3,105
|
(R)
|
|
|
29,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
44,176
|
|
|
|
3,792
|
|
|
|
|
|
|
|
4,961
|
|
|
|
52,929
|
|
Income (loss) from discontinued operations, net of tax provision
(benefit)
|
|
|
|
|
|
|
(1,110
|
)
|
|
|
1,110
|
(O)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
44,176
|
|
|
$
|
2,682
|
|
|
$
|
1,110
|
|
|
$
|
4,961
|
|
|
$
|
52,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.20
|
(U)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.22
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.18
|
(U)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,489
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
(S)
|
|
|
44,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,296
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
(S)
|
|
|
44,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Unaudited
Pro Forma Condensed Combined Balance Sheet
December 31, 2007
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
Storage
|
|
|
|
|
|
Purchase
|
|
|
Other
|
|
|
|
|
|
|
Mini
|
|
|
Group
|
|
|
Financial
|
|
|
Accounting
|
|
|
Merger
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,703
|
|
|
$
|
2,331
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,034
|
|
Receivables, net
|
|
|
37,221
|
|
|
|
34,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,816
|
|
Inventories
|
|
|
29,431
|
|
|
|
14,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,923
|
|
Lease fleet, net
|
|
|
802,923
|
|
|
|
344,415
|
|
|
|
|
|
|
|
(60,045
|
)(B)
|
|
|
|
|
|
|
1,087,293
|
|
Property, plant and equipment, net
|
|
|
55,363
|
|
|
|
29,077
|
|
|
|
|
|
|
|
(3,500
|
)(C)
|
|
|
|
|
|
|
80,940
|
|
Deposits and prepaid expenses
|
|
|
11,334
|
|
|
|
7,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,982
|
|
Other assets and intangibles, net
|
|
|
9,086
|
|
|
|
76,402
|
|
|
|
13,175
|
(A)
|
|
|
(9,855
|
)(D)
|
|
|
15,000
|
(K)
|
|
|
103,808
|
|
Deferred financial costs
|
|
|
|
|
|
|
13,111
|
|
|
|
(13,111
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
|
|
|
|
64
|
|
|
|
(64
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
79,790
|
|
|
|
313,885
|
|
|
|
|
|
|
|
57,110
|
(M)
|
|
|
9,475
|
(M)
|
|
|
460,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,028,851
|
|
|
$
|
836,020
|
|
|
$
|
|
|
|
$
|
(16,290
|
)
|
|
$
|
24,475
|
|
|
$
|
1,873,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
20,560
|
|
|
$
|
13,911
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,471
|
|
Accrued liabilities
|
|
|
38,941
|
|
|
|
28,945
|
|
|
|
6,420
|
(A)
|
|
|
21,413
|
(E)
|
|
|
|
|
|
|
95,719
|
|
Customer deposits
|
|
|
|
|
|
|
6,420
|
|
|
|
(6,420
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
237,857
|
|
|
|
218,737
|
|
|
|
|
|
|
|
121,900
|
(F)
|
|
|
24,475
|
(L)
|
|
|
602,969
|
|
Notes payable
|
|
|
743
|
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,689
|
|
Obligations under capital leases
|
|
|
10
|
|
|
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
Senior notes, net
|
|
|
149,379
|
|
|
|
200,000
|
|
|
|
|
|
|
|
(16,000
|
)(G)
|
|
|
|
|
|
|
333,379
|
|
Senior subordinated notes, net
|
|
|
|
|
|
|
96,014
|
|
|
|
|
|
|
|
(96,014
|
)(H)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
123,471
|
|
|
|
62,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
570,961
|
|
|
|
634,441
|
|
|
|
|
|
|
|
31,299
|
|
|
|
24,475
|
|
|
|
1,261,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,990
|
(I)
|
|
|
|
|
|
|
153,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
367
|
|
|
|
190,741
|
|
|
|
|
|
|
|
(190,741
|
)(J)
|
|
|
|
|
|
|
367
|
|
Additional paid-in capital
|
|
|
278,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,593
|
|
Retained earnings
|
|
|
213,894
|
|
|
|
4,982
|
|
|
|
|
|
|
|
(4,982
|
)(J)
|
|
|
|
|
|
|
213,894
|
|
Accumulated other comprehensive income
|
|
|
4,336
|
|
|
|
5,856
|
|
|
|
|
|
|
|
(5,856
|
)(J)
|
|
|
|
|
|
|
4,336
|
|
Treasury stock
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
457,890
|
|
|
|
201,579
|
|
|
|
|
|
|
|
(201,579
|
)
|
|
|
|
|
|
|
457,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,028,851
|
|
|
$
|
836,020
|
|
|
$
|
|
|
|
$
|
(16,290
|
)
|
|
$
|
24,475
|
|
|
$
|
1,873,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common and common share
equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,555(S
|
)
|
|
|
44,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,555(S
|
)
|
|
|
44,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per weighted average
common and common share
equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
12.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.89
|
(T)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
12.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.64
|
(T)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Notes to
Unaudited Pro Forma Condensed Combined Financial
Statements
The Unaudited Pro Forma Condensed Combined Financial Statements,
which have been prepared by Mobile Mini management, have been
derived from historical consolidated financial statements of
Mobile Mini, contained in Annex C and
Annex D and which such information is incorporated
by reference into this proxy statement and historical
consolidated financial statements of Mobile Storage Group
included in this proxy statement.
Upon completion of the combination with Mobile Storage Group,
the pre-combination shareholders of Mobile Mini will own
approximately 80.2% of the combined company (80.0% on a fully
diluted basis, as of March 31, 2008) and the
pre-combination shareholders of Mobile Storage Group will own
approximately 19.8% of the combined company (20.0% on a fully
diluted basis, as of March 31, 2008). In addition to
considering these relative shareholdings, Mobile Mini management
also considered the proposed composition and terms of the Board
of Directors of Mobile Mini, the proposed structure and members
of the executive management team of Mobile Mini in determining
the accounting acquirer. Based on the weight of these factors,
Mobile Mini management concluded that Mobile Mini was the
accounting acquirer.
|
|
2.
|
Pro Forma
Assumptions and Adjustments
|
The following assumptions and related pro forma adjustments give
effect to the proposed business combination of Mobile Mini and
Mobile Storage Group as if such combination occurred on
January 1, 2007, in the Unaudited Pro Forma Condensed
Combined Statement of Operations for the year ended
December 31, 2007, and on December 31, 2007, for the
Unaudited Pro Forma Condensed Combined Balance Sheet.
The Unaudited Pro Forma Condensed Combined Financial Statements
are provided for illustrative purposes only and do not purport
to represent what the actual consolidated results of operations
or the consolidated financial position of Mobile Mini would have
been had the business combination with Mobile Storage Group
occurred on the respective dates assumed, nor are they
necessarily indicative of future consolidated operating results
or the future consolidated financial position of Mobile Mini.
The Unaudited Pro Forma Condensed Combined Financial Statements
do not reflect the anticipated benefits derived from combined
synergies, operating efficiencies and cost savings that are
expected to result from the acquisition following the completion
of the merger, nor any benefits to be derived from the combined
companys growth projects nor changes in leasing yield
subsequent to the date of such Unaudited Pro Forma Condensed
Combined Financial Statements.
Although Mobile Mini believes that cost savings will ultimately
be realized upon the consolidation and integration of the
companies, Mobile Mini expects to incur significant integration
costs as part of consummating the merger, consisting primarily
of costs relating to employee severance and retention, asset and
personnel relocations, eliminating approximately 5 to 15 Mobile
Mini branch locations in the US which overlap with Mobile
Storage Group branch locations and certain duplicate functions
of the companies such as payroll, advertising and corporate
operating systems. Mobile Mini estimated these integration costs
will be approximately $19.0 million, with some of these
expenses incurred at closing and others incurred over a period
of time. Furthermore, in addition to the pro forma adjustments,
additional liabilities may be incurred in connection with the
business combination and ultimate reorganization. These
estimated integration costs and potential additional liabilities
have not been reflected in the Unaudited Pro Forma Condensed
Combined Financial Statements because information necessary to
reasonably estimate all costs and to formulate detailed
restructuring plans is not available. Accordingly, the
allocation of the purchase price cannot be estimated with a
reasonable degree of accuracy and may differ materially from the
amounts assumed in the Unaudited Pro Forma Condensed Combined
Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements
include the following pro forma assumptions and adjustments. The
final valuation could be materially different than the pro forma
adjustment, either positively or negatively.
A) This pro forma adjustment is to reclassify certain
balances on Mobile Storage Groups historical consolidated
financial statement to conform to Mobile Minis
presentation. In the Unaudited Pro Forma
66
Condensed Combined Balance Sheet this includes Deferred
financing costs and Assets held for sale which
are combined with Other assets and intangibles, net
and Customer deposits is combined with Accrued
liabilities.
B) This pro forma adjustment is to reduce the carrying
value of the lease fleet to fair market value based on
preliminary indications from a third party appraiser and based
on the end use by Mobile Mini which differs from Mobile Storage
Group, specifically units will be rebranded and locking systems
added. This also includes the regulatory sales tax in certain
jurisdictions in which we operate where it is required.
C) This pro forma adjustment is to reduce the fair values
of property, plant and equipment for abandonment of Mobile
Storage Groups land and leasehold improvements and
equipment that have no future value to Mobile Minis
operations.
D) This pro forma adjustment is to reduce the values of
other assets and intangibles for assets and intangibles that
have no future value to Mobile Mini.
E) This pro forma adjustment is to (i) increase
liabilities for required sales tax on purchased assets in
certain jurisdictions, (ii) severance payments to Mobile
Storage Groups personnel, (iii) future lease payments
on abandoned Mobile Storage Groups properties,
(iv) Phase I studies and other costs associated with the
abandoned properties and (v) other liabilities related to
the merger.
F) This pro forma adjustment is related to borrowings under
a new $1.0 billion revolving facility for the
extinguishment of certain debt at face value and accrued
interest. The proceeds from borrowings under this credit
facility would be used to: (i) pay off certain existing
debt obligations of Mobile Storage Group, and (ii) pay
$12.5 million to stockholders of Mobile Storage Group as a
portion of the purchase price to acquire all outstanding shares
of Mobile Storage Group. The following table summarizes this
adjustment (in millions):
|
|
|
|
|
|
|
Pro forma
|
|
|
Retirement of Mobile Storage Groups senior subordinated
notes plus accrued interest
|
|
$
|
109.4
|
|
Payment to Mobile Storage Groups stockholders
|
|
|
12.5
|
|
|
|
|
|
|
|
|
$
|
121.9
|
|
|
|
|
|
|
G) This pro forma adjustment is to reduce the value of
Mobile Storage Groups 9.75% senior notes to fair
value at December 31, 2007.
H) This pro forma adjustment reflects retirement of Mobile
Storage Groups senior subordinated notes.
I) This pro forma adjustment represents the issuance of
convertible preferred stock with a liquidation preference of
$154.0 million, convertible into 8,555,556 shares of
Mobile Mini common stock.
J) This pro forma adjustment eliminates the historical
shareholders equity accounts of Mobile Storage Group.
K) This pro forma adjustment is to record the estimated
amount of fees and expenses related to Mobile Minis new
$1.0 billion credit facility.
L) This pro forma adjustment is to record the estimated
transaction fees incurred in relation to the merger and the
estimated amount of fees and expenses related to the new credit
facility.
M) This pro forma adjustment reflects the additional
goodwill incurred as a result of the preliminary purchase price
allocation and estimated transactions costs.
N) These pro forma adjustments relate to reclassifications
made to the Mobile Storage Group historical consolidated
financial information to conform to Mobile Minis
presentation. In the Unaudited Pro Forma Condensed Combined
Statements of Operations this included reclassifying amounts
described by Mobile Storage Group on a single line item as
Trucking and yard costs, Management fees to
majority stockholder and Other selling, general and
administrative expenses stock related
compensation into Leasing, selling and general
expenses based on Mobile Minis reporting for these
items.
67
O) This pro forma adjustment is to eliminate the
discontinued operations of Mobile Storage Group that are no
longer relevant on a going-forward basis.
P) This pro forma adjustment reduces depreciation expense
related to the preliminary purchase price allocation reduction
of the lease fleet.
Q) This pro forma adjustment reduces interest expense based
on the pro forma debt levels at December 31, 2007 and the
estimated LIBOR rate on the variable rate line of credit and the
estimated effect on other debt costs and amortizations. If the
assumed LIBOR rate on the line of credit were to change by
1/8%,
interest expense would change by approximately $0.8 million.
R) This pro forma adjustment is to reflect income taxes at
an assumed combined statutory tax rate of 38.5%.
S) This pro forma adjustment reflects the issuance of
convertible preferred stock with a liquidation preference of
$154.0 million, convertible into 8,555,556 shares of
Mobile Mini common stock at a conversion price of $18 per share.
T) The pro forma as adjusted book value computation assumes
the conversion of the preferred stock into common stock.
U) The pro forma as adjusted earnings per share computation
assumes the conversion of the preferred shares into common stock.
Mobile Mini estimates it will incur approximately
$24.5 million of transaction costs, consisting primarily of
financial advisory, legal and accounting fees, financing costs
and financial printing and other charges related to the purchase
of Mobile Storage Group. A portion of these transaction costs
will be recorded as deferred charges on the combined
companys balance sheet and a portion will be recorded as
part of the cost to purchase Mobile Storage Group. These
estimates are preliminary and, therefore, are subject to change.
The allocation of the purchase price is based upon
managements preliminary estimates and certain assumptions
with respect to the fair value increment associated with the
assets to be acquired and the liabilities to be assumed. The
actual fair values of the assets and liabilities will be
determined as of the date of acquisition and may differ
materially from the amounts disclosed above in the assumed pro
forma purchase price allocation because of changes in fair
values of the assets and liabilities between December 31,
2007 and the date of the transaction, and as further analysis
(including of identifiable intangible assets) is completed.
Consequently, the actual allocation of the purchase price may
result in adjustments in the Unaudited Pro Forma Condensed
Combined Statement of Operations. Following completion of the
transaction, the earnings of the combined company will reflect
the impact of purchase accounting adjustments, including the
effect of changes in the cost bases of both tangible and
identifiable intangible assets and liabilities.
68
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2008
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Storage
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Mobile Mini, Inc.
|
|
|
Group
|
|
|
Financial
|
|
|
Other Merger
|
|
|
As
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
70,036
|
|
|
$
|
49,303
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
119,339
|
|
Sales
|
|
|
8,098
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
|
19,009
|
|
Other
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
78,541
|
|
|
|
60,214
|
|
|
|
|
|
|
|
|
|
|
|
138,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
5,633
|
|
|
|
7,681
|
|
|
|
|
|
|
|
|
|
|
|
13,314
|
|
Trucking and yard costs
|
|
|
|
|
|
|
14,992
|
|
|
|
(14,992
|
)(N)
|
|
|
|
|
|
|
|
|
Leasing, selling and general expenses
|
|
|
43,470
|
|
|
|
18,774
|
|
|
|
15,543
|
(N)
|
|
|
|
|
|
|
77,787
|
|
Stock related compensation
|
|
|
|
|
|
|
551
|
|
|
|
(551
|
)(N)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,669
|
|
|
|
6,379
|
|
|
|
|
|
|
|
(140
|
)(P)
|
|
|
11,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
54,772
|
|
|
|
48,377
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
103,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
23,769
|
|
|
|
11,837
|
|
|
|
|
|
|
|
140
|
|
|
|
35,746
|
|
Other Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
33
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
Interest expense
|
|
|
(6,145
|
)
|
|
|
(13,060
|
)
|
|
|
|
|
|
|
1,708
|
(Q)
|
|
|
(17,497
|
)
|
Foreign currency exchange loss
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) for continuing operations before provision
(benefit) for income taxes
|
|
|
17,646
|
|
|
|
(1,308
|
)
|
|
|
|
|
|
|
1,848
|
|
|
|
18,186
|
|
Provision (benefit) for income taxes
|
|
|
6,988
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
711
|
(R)
|
|
|
7,001
|
(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
10,658
|
|
|
|
(757
|
)
|
|
|
|
|
|
|
1,137
|
|
|
|
11,185
|
|
Income (loss) from discontinued operations, net of tax provision
(benefit)
|
|
|
|
|
|
|
(36
|
)
|
|
|
36
|
(O)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,658
|
|
|
$
|
(793
|
)
|
|
$
|
36
|
|
|
$
|
1,137
|
|
|
$
|
11,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.26
|
(U)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.26
|
(U)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,086
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
(S)
|
|
|
42,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
(S)
|
|
|
42,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
Unaudited
Pro Forma Condensed Combined Balance Sheet
March 31, 2008
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Storage
|
|
|
|
|
|
Purchase
|
|
|
Other
|
|
|
Pro Forma
|
|
|
|
Mobile Mini, Inc.
|
|
|
Group
|
|
|
Financial
|
|
|
Accounting
|
|
|
Merger
|
|
|
As
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,423
|
|
|
$
|
2,853
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,276
|
|
Receivables, net
|
|
|
34,652
|
|
|
|
31,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,383
|
|
Inventories
|
|
|
30,011
|
|
|
|
15,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,660
|
|
Lease fleet, net
|
|
|
815,599
|
|
|
|
348,459
|
|
|
|
|
|
|
|
(60,045
|
)(B)
|
|
|
|
|
|
|
1,104,013
|
|
Property, plant and equipment, net
|
|
|
55,332
|
|
|
|
29,130
|
|
|
|
|
|
|
|
(3,500
|
)(C)
|
|
|
|
|
|
|
80,962
|
|
Deposits and prepaid expenses
|
|
|
10,799
|
|
|
|
7,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,107
|
|
Other assets and intangibles, net
|
|
|
13,007
|
|
|
|
75,269
|
|
|
|
12,522
|
(A)
|
|
|
(9,855
|
)(D)
|
|
|
15,000
|
(K)
|
|
|
105,943
|
|
Deferred financial costs
|
|
|
|
|
|
|
12,522
|
|
|
|
(12,522
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
79,765
|
|
|
|
315,069
|
|
|
|
|
|
|
|
49,593
|
(M)
|
|
|
9,475
|
(M)
|
|
|
453,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,046,588
|
|
|
$
|
837,990
|
|
|
$
|
|
|
|
$
|
(23,807
|
)
|
|
$
|
24,475
|
|
|
$
|
1,885,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,019
|
|
|
$
|
16,031
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,050
|
|
Accrued liabilities
|
|
|
44,215
|
|
|
|
20,301
|
|
|
|
5,855
|
(A)
|
|
|
21,413
|
(E)
|
|
|
|
|
|
|
91,784
|
|
Customer deposits
|
|
|
|
|
|
|
5,855
|
|
|
|
(5,855
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
237,418
|
|
|
|
225,310
|
|
|
|
|
|
|
|
114,713
|
(F)
|
|
|
24,475
|
(L)
|
|
|
601,916
|
|
Notes payable
|
|
|
404
|
|
|
|
895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,299
|
|
Obligations under capital leases
|
|
|
5
|
|
|
|
6,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,587
|
|
Senior notes, net
|
|
|
149,400
|
|
|
|
200,000
|
|
|
|
|
|
|
|
(13,000
|
)(G)
|
|
|
|
|
|
|
336,400
|
|
Senior subordinated notes, net
|
|
|
|
|
|
|
99,535
|
|
|
|
|
|
|
|
(99,535
|
)(H)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
129,332
|
|
|
|
62,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
577,793
|
|
|
|
636,602
|
|
|
|
|
|
|
|
23,591
|
|
|
|
24,475
|
|
|
|
1,262,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,990
|
(I)
|
|
|
|
|
|
|
153,990
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
368
|
|
|
|
191,447
|
|
|
|
|
|
|
|
(191,447
|
)(J)
|
|
|
|
|
|
|
368
|
|
Additional paid-in capital
|
|
|
280,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,358
|
|
Retained earnings
|
|
|
224,552
|
|
|
|
4,189
|
|
|
|
|
|
|
|
(4,189
|
)(J)
|
|
|
|
|
|
|
224,552
|
|
Accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
2,817
|
|
|
|
5,752
|
|
|
|
|
|
|
|
(5,752
|
)(J)
|
|
|
|
|
|
|
2,817
|
|
Treasury stock
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
468,795
|
|
|
|
201,388
|
|
|
|
|
|
|
|
(201,388
|
)
|
|
|
|
|
|
|
468,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,046,588
|
|
|
$
|
837,990
|
|
|
$
|
|
|
|
$
|
(23,807
|
)
|
|
$
|
24,475
|
|
|
$
|
1,885,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and common share equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,086
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
|
|
|
|
|
|
|
42,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
|
|
|
|
|
|
|
42,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common and common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.61
|
(T)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
13.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.53
|
(T)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
Notes to
Unaudited Pro Forma Condensed Combined Financial
Statements
The Unaudited Pro Forma Condensed Combined Financial Statements,
which have been prepared by Mobile Mini management, have been
derived from historical consolidated financial statements of
Mobile Mini contained in Annex C and
Annex D and which such information is incorporated
by reference into this proxy statement and historical
consolidated financial statements of Mobile Storage Group
included in this proxy statement.
Upon completion of the combination with Mobile Storage Group,
the pre-combination shareholders of Mobile Mini will own
approximately 80.2% of the combined company (80.0% on a fully
diluted basis, as of March 31, 2008) and the
pre-combination shareholders of Mobile Storage Group will own
approximately 19.8% of the combined company (20.0% on a fully
diluted basis, as of March 31, 2008). In addition to
considering these relative shareholdings, Mobile Mini management
also considered the proposed composition and terms of the Board
of Directors of Mobile Mini, the proposed structure and members
of the executive management team of Mobile Mini in determining
the accounting acquirer. Based on the weight of these factors,
Mobile Mini management concluded that Mobile Mini was the
accounting acquirer.
|
|
2.
|
Pro Forma
Assumptions and Adjustments
|
The following assumptions and related pro forma adjustments give
effect to the proposed business combination of Mobile Mini and
Mobile Storage Group as if such combination occurred on
January 1, 2008, in the Unaudited Pro Forma Condensed
Combined Statement of Operations for the three month period
ended March 31, 2008, and on March 31, 2008, for the
Unaudited Pro Forma Condensed Combined Balance Sheet.
The Unaudited Pro Forma Condensed Combined Financial Statements
are provided for illustrative purposes only and do not purport
to represent what the actual consolidated results of operations
or the consolidated financial position of Mobile Mini would have
been had the business combination with Mobile Storage Group
occurred on the respective dates assumed, nor are they
necessarily indicative of future consolidated operating results
or the future consolidated financial position of Mobile Mini.
The Unaudited Pro Forma Condensed Combined Financial Statements
do not reflect the anticipated benefits derived from combined
synergies, operating efficiencies and cost savings that are
expected to result from the acquisition following the completion
of the merger, nor any benefits to be derived from the combined
companys growth projects nor changes in leasing yield
subsequent to the date of such Unaudited Pro Forma Condensed
Combined Financial Statements.
Although Mobile Mini believes that cost savings will be realized
upon the consolidation and integration of the companies, Mobile
Mini expects to incur significant integration costs as part of
consummating the merger, consisting primarily of costs relating
to employee severance and retention, asset and personnel
relocations, eliminating approximately 5 to 15 Mobile Mini
branch locations in the US which overlap with Mobile Storage
Group branch locations and certain duplicate functions of the
companies such as payroll, advertising and corporate operating
systems. Mobile Mini estimated these integration costs will be
approximately $19.0 million, with some of these expenses
incurred at closing and others incurred over a period of time.
Furthermore, in addition to the pro forma adjustments,
additional liabilities may be incurred in connection with the
business combination and ultimate reorganization. These
eliminated integration costs and potential additional
liabilities have not been reflected in the Unaudited Pro Forma
Condensed Combined Financial Statements because information
necessary to reasonably estimate all costs and to formulate
detailed restructuring plans is not available. Accordingly, the
allocation of the purchase price cannot be estimated with a
reasonable degree of accuracy and may differ materially from the
amounts assumed in the Unaudited Pro Forma Condensed Combined
Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements
include the following pro forma assumptions and adjustments. The
final valuation could be materially different than the pro forma
adjustment, either positively or negatively.
A) This pro forma adjustment is to reclassify certain
balances on Mobile Storage Groups historical consolidated
financial statement to conform to Mobile Minis
presentation. In the Unaudited Pro Forma Condensed
71
Combined Balance Sheet this includes Deferred financing
costs which is combined with Other assets and
intangibles, net and Customer deposits is
combined with Accrued liabilities.
B) This pro forma adjustment is to reduce the carrying
value of the lease fleet to fair market value based on
preliminary indications from a third party appraiser and based
on the end use by Mobile Mini which differs from Mobile Storage
Group, specifically units will be rebranded and locking systems
added. This also includes the regulatory sales tax in certain
jurisdictions in which we operate where it is required.
C) This pro forma adjustment is to reduce the fair values
of property, plant and equipment for abandonment of Mobile
Storage Groups land and leasehold improvements and
equipment that have no future value to Mobile Minis
operations.
D) This pro forma adjustment is to reduce the values of
other assets and intangibles for assets and intangibles that
have no future value to Mobile Mini.
E) This pro forma adjustment is to (i) increase
liabilities for required sales tax on purchased assets in
certain jurisdictions, (ii) severance payments to Mobile
Storage Groups personnel, (iii) future lease payments
on abandoned Mobile Storage Groups properties,
(iv) Phase I studies and other costs associated with the
abandoned properties and (v) other liabilities related to
the merger.
F) This pro forma adjustment is related to borrowings under
a new $1.0 billion revolving facility for the
extinguishment of certain debt at face value and accrued
interest. The proceeds from borrowings under this credit
facility would be used to: (i) pay off certain existing
debt obligations of Mobile Storage Group, and (ii) pay
$5.3 million to stockholders of Mobile Storage Group as a
portion of the purchase price to acquire all outstanding shares
of Mobile Storage Group. The following table summarizes this
adjustment (in millions):
|
|
|
|
|
|
|
Pro forma
|
|
|
Retirement of Mobile Storage Groups senior subordinated
notes plus accrued interest
|
|
$
|
109.4
|
|
Payment to Mobile Storage Groups stockholders
|
|
|
5.3
|
|
|
|
|
|
|
|
|
$
|
114.7
|
|
|
|
|
|
|
G) This pro forma adjustment is to reduce the value of
Mobile Storage Groups 9.75% senior notes to fair
value at March 31, 2008.
H) This pro forma adjustment reflects retirement of Mobile
Storage Groups senior subordinated notes.
I) This pro forma adjustment represents the issuance of
convertible preferred stock with a liquidation preference of
$154.0 million, convertible into 8,555,556 shares of
Mobile Mini common stock.
J) This pro forma adjustment eliminates the historical
shareholders equity accounts of Mobile Storage Group.
K) This pro forma adjustment is to record the estimated
amount of fees and expenses related to Mobile Minis new
$1.0 billion credit facility.
L) This pro forma adjustment is to record the estimated
transaction fees incurred in relation to the merger and the
estimated amount of fees and expenses related to the new credit
facility.
M) This pro forma adjustment reflects the additional
goodwill incurred as a result of the preliminary purchase price
allocation and estimated transactions costs.
N) These pro forma adjustments relate to reclassifications
made to the Mobile Storage Group historical consolidated
financial information to conform to Mobile Minis
presentation. In the Unaudited Pro Forma Condensed Combined
Statements of Operations this included reclassifying amounts
described by Mobile Storage Group on a single line item as
Trucking and yard costs and Other selling,
general and administrative expenses stock related
compensation into Leasing, selling and general
expenses based on Mobile Minis reporting for these
items.
O) This pro forma adjustment is to eliminate the
discontinued operations of Mobile Storage Group that are no
longer relevant on a going-forward basis.
72
P) This pro forma adjustment reduces depreciation expense
related to the preliminary purchase price allocation reduction
of the lease fleet.
Q) This pro forma adjustment reduces interest expense based
on the pro forma debt levels at March 31, 2008 and the
estimated LIBOR rate on the variable rate line of credit and the
estimated effect on other debt costs and amortizations. If the
assumed LIBOR rate on the line of credit were to change by
1/8%,
interest expense would change by approximately $0.8 million
on an annualized basis.
R) This pro forma adjustment is to reflect income taxes at
an assumed combined statutory tax rate of 38.5%.
S) This pro forma adjustment reflects the issuance of
convertible preferred stock with a liquidation preference of
$154.0 million, convertible into 8,555,556 shares of
Mobile Mini common stock at a conversion price of $18 per share.
T) The pro forma as adjusted book value computation assumes
the conversion of the preferred stock into common stock.
U) The pro forma as adjusted earnings per share computation
assumes the conversion of the preferred shares into common stock.
Mobile Mini estimates it will incur approximately
$24.5 million of transaction costs, consisting primarily of
financial advisory, legal and accounting fees, financing costs
and financial printing and other charges related to the purchase
of Mobile Storage Group. A portion of these transaction costs
will be recorded as deferred charges on the combined
companys balance sheet and a portion will be recorded as
part of the cost to purchase Mobile Storage Group. These
estimates are preliminary and, therefore, are subject to change.
The allocation of the purchase price is based upon
managements preliminary estimates and certain assumptions
with respect to the fair value increment associated with the
assets to be acquired and the liabilities to be assumed. The
actual fair values of the assets and liabilities will be
determined as of the date of acquisition and may differ
materially from the amounts disclosed above in the assumed pro
forma purchase price allocation because of changes in fair
values of the assets and liabilities between March 31, 2008
and the date of the transaction, and as further analysis
(including of identifiable intangible assets) is completed.
Consequently, the actual allocation of the purchase price may
result in adjustments in the Unaudited Pro Forma Condensed
Combined Statement of Operations. Following completion of the
transaction, the earnings of the combined company will reflect
the impact of purchase accounting adjustments, including the
effect of changes in the cost bases of both tangible and
identifiable intangible assets and liabilities.
73
CERTAIN
FORECASTS RELATING TO MOBILE MINI
In connection with Mobile Minis evaluation of strategic
alternatives, Mobile Minis management provided certain
forecasted financial and operating data for the years 2008
through 2010 to WCAS. Mobile Mini does not as a matter of course
make public projections as to future revenues, earnings, or
other results. Mobile Mini is presenting the forecasted
financial information set forth below solely to give Mobile
Minis stockholders access to forecasted financial
information that was materially similar to the forecasted
financial information made available to WCAS in connection with
the merger. The forecasted financial information is summarized
in the table below.
The accompanying forecasted financial information was not
prepared with a view toward public disclosure or with a view
toward complying with any guidelines or policies of regulatory
authorities in the United States, including but not limited to,
the published guidelines of the SEC, the principles established
by the Financial Accounting Standards Board, or the guidelines
established by the American Institute of Certified Public
Accountants with respect to prospective financial information.
The accompanying forecasted financial information should not be
relied upon as being necessarily indicative of actual future
results, and stockholders are cautioned not to place undue
reliance on the prospective financial information.
Neither Mobile Minis independent auditor nor any other
independent accountants have compiled, examined, or performed
any procedures with respect to the forecasted financial
information contained below, nor have they expressed any opinion
or other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim
any association with, the forecasted financial information.
The assumptions and estimates underlying the forecasted
financial information are inherently uncertain and are subject
to a wide variety of significant business, economic, and
competitive risks and uncertainties that could cause actual
results to differ materially from those contained in the
forecasted financial information. The forecasts below were
prepared for the fiscal years ended December 31, 2008
through 2010, and were based on market and other data and
assumptions available to Mobile Mini. These forecasts have not
been updated to reflect changing conditions in the
non-residential construction sector of the economy,
the fluctuations between the British pound
(GBP) and U.S. dollar or changes in used
ocean-going containers costs, raw materials used in
manufacturing costs or other expenses incident to the our
operations. The forecasts relate to Mobile Mini and Mobile
Storage Group on a combined basis and reflect the estimated
synergies and strategic benefits anticipated by Mobile
Minis management to result from the merger. For these
reasons, there is no assurance that the forecasts are reflective
of projections of the revenues, expenses, EBITDA or market
conditions that Mobile Minis management believes Mobile
Mini would experience as an independent company.
The inclusion of these forecasts in the proxy statement should
not be regarded as a representation to stockholders by Mobile
Mini or Mobile Storage Group, their respective managements or
Boards of Directors or any of their respective advisors, agents
or representatives that the results reflected in these forecasts
will be realized.
The forecasts below are or involve forward-looking statements
and are based upon a variety of assumptions, including Mobile
Minis ability to achieve strategic goals, objectives and
targets over the applicable periods. These assumptions involve
judgments with respect to future economic, competitive and
regulatory conditions, financial market conditions and future
business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond Mobile
Minis control. Many important factors, in addition to
those discussed elsewhere in this proxy statement, could cause
Mobile Minis results to differ materially from those
expressed or implied by the forward-looking statements. These
factors include Mobile Minis competitive environment, its
ability to manage its lease fleet, general economic and other
market conditions in which it operates and matters affecting its
business generally, all of which are difficult to predict and
many of which are beyond Mobile Minis control Accordingly,
there can be no assurance that any of the forecasts are
necessarily indicative of Mobile Minis actual future
performance or that actual results will not differ materially
from those in the forecasts set forth below. See the Risk
Factors extracted from Part I, Item 1A of Mobile
Minis Annual Report on
Form 10-K
for the year ended December 31, 2007, included in
Annex C which is incorporated herein by reference
(see Where You Can Find More Information beginning
on page 111 of this proxy statement) and Special Note
Regarding Forward Looking Statements beginning on
page 12 of the proxy statement.
74
Base Case
Forecast
In connection with Mobile Minis evaluation of strategic
alternatives, Mobile Minis management provided certain
forecasted financial and operating data for the years 2008
through 2010 to WCAS (the Initial Forecast). These
forecasts that were made available to WCAS were subsequently
revised by Mobile Minis management to reflect more
conservative perspectives on the operating and financing costs
of the combined company following managements completion
of due diligence (the Base Case Forecast). The Base
Case Forecast, which was provided to the Board of Directors of
Mobile Mini and to Mobile Minis financial advisor and
which was used, at the direction of Mobile Minis
management, by the financial advisor in performing its financial
analysis in connection with its opinion, is summarized in the
table below, which presents revenues, EBITDA, merger expenses,
net income and earnings per share (EPS). Mobile Mini
did not provide the Base Case Forecast to WCAS because it
believed that the differences between the Base Case Forecast and
the Initial Forecast were not material.
The Base Case Forecast was prepared using a number of
assumptions. These assumptions have not been updated since these
forecasts were prepared. The Base Case Forecast, in the view of
Mobile Minis management at the date of its preparation,
was prepared on a reasonable basis, reflected the best available
estimates and judgments at the time, and presented, to the best
of Mobile Minis managements knowledge and belief,
the expected course of action and the expected future financial
performance of Mobile Mini. However the forecasted financial
information summarized below should not be relied upon as being
necessarily indicative of actual future results, and
stockholders are cautioned not to place undue reliance on the
prospective financial information as more fully indicated above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008(1)
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Leasing Revenue
|
|
$
|
470,881
|
|
|
$
|
589,418
|
|
|
$
|
650,323
|
|
Total Revenue
|
|
|
515,819
|
|
|
|
638,677
|
|
|
|
701,423
|
|
EBITDA
|
|
|
204,533
|
|
|
|
269,992
|
|
|
|
308,834
|
|
Merger Expenses
|
|
|
19,057
|
|
|
|
|
|
|
|
|
|
Net Income(2)
|
|
|
53,360
|
|
|
|
95,199
|
|
|
|
122,247
|
|
EPS(2)
|
|
$
|
1.30
|
|
|
$
|
2.18
|
|
|
$
|
2.77
|
|
|
|
Note: |
The projections were prepared with a constant foreign exchange
rate assumption of US$2.05 / GBP 1.00.
|
|
|
|
(1) |
|
Assumes transaction completion date of 03/31/08: 2008 represents
9 months combined and 3 months Mobile Mini standalone. |
|
(2) |
|
Net income and EPS for 2008 includes one-time merger expenses
that were assumed to accrue in one quarter. |
Aggressive
Forecast
At the request of WCAS, Mobile Minis management modified
the Initial Forecast to reflect a more aggressive case (the
Initial Aggressive Forecast). The Initial Aggressive
Forecast was prepared solely as a courtesy to WCAS. As discussed
above, Mobile Minis management revised the Initial
Forecast to reflect more conservative perspectives on the
operating and financing costs of the combined company, and,
after the Company made those revisions, it also made conforming
changes to the Initial Aggressive Forecast (the Base Case
Aggressive Forecast). The Base Case Aggressive Forecast,
which was provided for informational purposes to, but, at the
direction of Mobile Minis management, not utilized in
connection with the opinion of, Mobile Minis financial
advisor, is summarized in the table below, which presents
revenues, EBITDA, merger expenses, net income and EPS. Mobile
Mini did not provide the Base Case Aggressive Forecast to WCAS
because it believed that the differences between the Base Case
Aggressive Forecast and the Initial Aggressive Forecast were not
material.
The Base Case Aggressive Forecast and the Initial Aggressive
Forecast were prepared using a number of aggressive assumptions.
The Company believes such aggressive assumptions were arbitrary.
These assumptions have not been updated since these forecasts
were prepared. Furthermore, the growth reflected in these
forecasts, in the view of Mobile Minis management, are not
achievable. The forecasted financial information summarized
below should therefore not be relied upon as being indicative of
actual future results, and stockholders are cautioned not to
place any reliance on the prospective financial information as
more fully indicated above.
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008(1)
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Leasing Revenue
|
|
$
|
485,010
|
|
|
$
|
618,314
|
|
|
$
|
695,182
|
|
Total Revenue
|
|
|
530,517
|
|
|
|
668,273
|
|
|
|
747,200
|
|
EBITDA
|
|
|
214,821
|
|
|
|
293,246
|
|
|
|
346,467
|
|
Merger Expenses
|
|
|
19,057
|
|
|
|
|
|
|
|
|
|
Net Income(2)
|
|
|
59,729
|
|
|
|
107,910
|
|
|
|
141,826
|
|
EPS(2)
|
|
$
|
1.45
|
|
|
$
|
2.47
|
|
|
$
|
3.22
|
|
Note: The projections were prepared with a constant foreign
exchange rate assumption of US$2.05 / GBP 1.00.
|
|
|
(1) |
|
Assumes transaction completion date of 03/31/08: 2008 represents
9 months combined and 3 months Mobile Mini standalone. |
|
(2) |
|
Net income and EPS for 2008 includes one-time merger expenses
that were assumed to accrue in one quarter. |
76
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mobile Mini. The disclosure under the caption
Managements Discussion and Analysis of Financial
Condition and Results of Operations in the excerpts from
our Annual Report on
Form 10-K
for the year ended December 31, 2007 and in our Quarterly
Report on
Form 10-Q
for the fiscal quarter ended March 31, 2008 is contained in
Annex C and Annex D, respectively, and
such disclosure is incorporated herein by reference. See
Where You Can Find More Information on page 111.
Mobile Storage Group. Mobile Services Group,
Inc. (referred to in this discussion as Mobile
Services) was acquired (referred to in this discussion as
the Acquisition) by MSG WC Holdings Corp. (referred
to in this discussion as Mobile Storage Group) on
August 1, 2006 and in accordance with Securities and
Exchange Commission rules has applied push down
accounting to its post-Acquisition consolidated financial
statements to reflect the new basis of accounting. For more
information, see Mobile Storage Groups consolidated
financial statements and the related notes included elsewhere in
this proxy statement. All references in this discussion to
events or activities which occurred prior to the completion of
the Acquisition on August 1, 2006 relate to Mobile Services
Group, Inc., as the predecessor company (the
Predecessor). All references in this discussion to
events or activities which occurred after completion of the
Acquisition on August 1, 2006 relate to Mobile Storage
Group, as the successor company (the Successor).
For purposes of the discussions below, we combined the results
of operations of the Predecessor and Successor during the twelve
months ended December 31, 2006 in order to achieve a
meaningful comparison of Mobile Storage Groups results of
operations during the periods indicated in 2005, 2006 and 2007.
Overview
Mobile Storage Group is a leading international provider of
portable storage products with a lease fleet of
approximately 117,000 portable storage containers, trailers
and mobile offices and 89 branch locations throughout the
U.S. and U.K. Mobile Storage Group focuses on leasing
portable storage products, and, to complement its core leasing
business, it also sells portable storage products. Mobile
Storage Groups storage containers and storage trailers
provide secure, convenient and cost-effective
on-site
storage of inventory, construction supplies, equipment and other
goods. Mobile Storage Groups mobile office units provide
temporary office space and employee facilities for, among other
uses, construction sites, trade shows, special events and
building refurbishments. During 2007, Mobile Storage Group
leased or sold its portable storage products to over 45,000
customers in diverse end markets ranging from large companies
with a national presence to small local businesses.
Mobile Storage Group currently has 69 branch locations in the
U.S. and revenues attributable to its operations in the
U.S. accounted for approximately 59%, 64%, 64%, 63% and 65%
of its total revenues during the years ended December 31,
2005, 2006, 2007, and the three months ended March 31, 2007
and 2008, respectively. Mobile Storage Group currently has 20
branch locations in the U.K. and revenues attributable to its
operations in the U.K. accounted for approximately 41%, 36%,
36%, 37% and 35% of its total revenues during the years ended
December 31, 2005, 2006, 2007, and the three months ended
March 31, 2007 and 2008, respectively.
Merger
with Mobile Mini
On February 22, 2008, Mobile Storage Group entered into a
definitive merger agreement with Mobile Mini of Tempe, Arizona.
Mobile Storage Group and certain of its subsidiaries, including
Mobile Services Group, Inc. will merge into Mobile Mini.
Pursuant to the merger, Mobile Mini will assume approximately
$535.0 million of Mobile Storage Groups outstanding
indebtedness and will acquire all outstanding shares of Mobile
Storage Group for $12.5 million in cash and shares of newly
issued Mobile Mini convertible preferred stock which is
redeemable at the holders option following the tenth year
after the issue date. Closing of the transaction is subject to
approval by Mobile Minis stockholders, receipt of a new
$1.0 billion asset-based revolving credit facility and
customary closing conditions. No closing date has been set at
this time, depending on the timing of various disclosure
requirements and the approval by Mobile Mini stockholders.
Holdings board of directors has approved the payment of
bonuses to certain employees subject to the closing of the
transaction.
77
Discontinued
Operations
During the fourth quarter of 2006, Mobile Storage Group
committed to plans to sell its Action Trailer Sales division
(Action), thereby meeting the held-for-sale criteria
set forth in Statement of Financial Accounting Standard
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Action is
comprised of three locations in the U.S., which are primarily
engaged in the business of buying and selling used trailers. In
accordance with SFAS No. 144 and EITF Issue
No. 03-13,
Applying the Conditions in Paragraph 42 of FASB
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations, the net assets of Action are
presented separately as assets held for sale and the operating
results of Action are presented within discontinued operations.
Prior period financial results were reclassified to conform to
these changes in presentation. The disposal of Actions
assets was completed by the end of 2007.
Key
Financial Measures
The following key financial measures are used by Mobile Storage
Groups management to operate and assess the performance of
its business: revenues and costs of operations.
Revenues. Lease and lease related revenues
represented approximately 82% of Mobile Storage Groups
total revenues during both the year ended December 31, 2006
and 2007, and 81% and 82% during the three months ended
March 31, 2007 and 2008, respectively. Mobile Storage Group
derives its leasing revenues primarily from the leasing of
portable storage products. Included in Mobile Storage
Groups lease and lease related revenues are services
related to leasing such as charges for a damage waiver and lease
equipment repairs. Also included in lease and lease related
revenues are the fees that Mobile Storage Group charges for the
delivery and
pick-up of
its leasing equipment to and from its customers premises,
delivery of equipment Mobile Storage Group sells to its
customers and repositioning its leasing equipment.
In addition to Mobile Storage Groups lease and lease
related revenues, it also generates revenues from selling
containers, trailers and mobile offices to its customers. Sales
represented approximately 18% of Mobile Storage Groups
total revenues during both the year ended December 31, 2006
and 2007, and 19% and 18% during the three months ended
March 31, 2007 and 2008, respectively. Included in Mobile
Storage Groups sales revenues are charges for modifying or
customizing sales equipment to customers specifications.
Costs
of Operations.
Mobile Storage Groups costs of operations consist
primarily of:
|
|
|
|
|
cost of sales;
|
|
|
|
trucking and yard costs;
|
|
|
|
selling, general and administrative expenses; and
|
|
|
|
depreciation and amortization expenses.
|
Mobile Storage Groups cost of sales includes the cost of
purchasing and refurbishing equipment that it sells to its
customers. Trucking costs include the salaries and other
payroll-related costs of Mobile Storage Groups trucking
personnel, the costs of operating and maintaining its
transportation equipment, including fuel costs, and, when
necessary, the cost of hiring outside transportation companies
to deliver and pick up its portable storage products. Yard costs
include the salaries and other payroll-related costs of Mobile
Storage Groups yard personnel, the costs associated with
the maintenance and repair of its lease fleet, the costs of
outside shop repairs and the expense of subleasing equipment.
Mobile Storage Groups selling, general and administrative
expenses include all costs associated with its selling efforts,
including marketing costs and salaries and commissions of its
marketing and sales staff. These expenses also include Mobile
Storage Groups overhead costs, such as salaries of its
administrative, corporate and branch personnel and the leasing
of its facilities. Depreciation and amortization expenses are
comprised primarily of costs related to depreciation of Mobile
Storage Groups lease fleet and its transportation
equipment.
78
Results
of Operations
On August 1, 2006, Mobile Storage Group and its affiliates
acquired control of Mobile Services capital stock. The
amounts shown below for the year ended December 31, 2006
represent a combination of Mobile Services results of
operations for the period from January 1, 2006 to
August 1, 2006 before the Acquisition (the
Predecessor) with the results for the period from
August 2, 2006 to December 31, 2006 of Mobile Storage
Group after the Acquisition (the Successor).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Combined
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
143,417
|
|
|
$
|
91,088
|
|
|
$
|
75,596
|
|
|
$
|
166,684
|
|
|
$
|
192,318
|
|
|
$
|
43,201
|
|
|
$
|
49,303
|
|
Sales
|
|
|
35,584
|
|
|
|
22,410
|
|
|
|
14,812
|
|
|
|
37,222
|
|
|
|
40,809
|
|
|
|
10,424
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
179,001
|
|
|
|
113,498
|
|
|
|
90,408
|
|
|
|
203,906
|
|
|
|
233,127
|
|
|
|
53,625
|
|
|
|
60,214
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
27,114
|
|
|
|
16,223
|
|
|
|
10,289
|
|
|
|
26,512
|
|
|
|
28,784
|
|
|
|
7,402
|
|
|
|
7,681
|
|
Trucking and yard costs
|
|
|
44,764
|
|
|
|
27,965
|
|
|
|
23,053
|
|
|
|
51,018
|
|
|
|
58,833
|
|
|
|
13,495
|
|
|
|
14,992
|
|
Depreciation and amortization
|
|
|
19,471
|
|
|
|
12,191
|
|
|
|
8,223
|
|
|
|
20,414
|
|
|
|
22,216
|
|
|
|
4,791
|
|
|
|
6,379
|
|
Selling, general and administrative expenses
|
|
|
46,909
|
|
|
|
32,103
|
|
|
|
25,797
|
|
|
|
57,900
|
|
|
|
70,475
|
|
|
|
17,530
|
|
|
|
19,325
|
|
Management fees
|
|
|
400
|
|
|
|
329
|
|
|
|
29
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
40,343
|
|
|
|
(15,619
|
)
|
|
|
23,017
|
|
|
|
7,398
|
|
|
|
52,819
|
|
|
|
10,407
|
|
|
|
11,837
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(26,249
|
)
|
|
|
(15,557
|
)
|
|
|
(19,877
|
)
|
|
|
(35,434
|
)
|
|
|
(51,218
|
)
|
|
|
(11,982
|
)
|
|
|
(13,060
|
)
|
Foreign currency translation gain (loss)
|
|
|
(1,386
|
)
|
|
|
212
|
|
|
|
74
|
|
|
|
286
|
|
|
|
714
|
|
|
|
2
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
(780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(241
|
)
|
|
|
(84
|
)
|
|
|
(58
|
)
|
|
|
(142
|
)
|
|
|
(141
|
)
|
|
|
7
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes
|
|
|
11,687
|
|
|
|
(31,048
|
)
|
|
|
3,156
|
|
|
|
(27,892
|
)
|
|
|
2,174
|
|
|
|
(1,566
|
)
|
|
|
(1,308
|
)
|
Provision (benefit) for income taxes
|
|
|
4,652
|
|
|
|
(9,240
|
)
|
|
|
1,044
|
|
|
|
(8,196
|
)
|
|
|
(1,618
|
)
|
|
|
(636
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,035
|
|
|
|
(21,808
|
)
|
|
|
2,112
|
|
|
|
(19,696
|
)
|
|
|
3,792
|
|
|
|
(930
|
)
|
|
|
(757
|
)
|
Income (loss) from discontinued operations, net of tax provision
|
|
|
184
|
|
|
|
337
|
|
|
|
188
|
|
|
|
525
|
|
|
|
(1,110
|
)
|
|
|
(270
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,219
|
|
|
$
|
(21,471
|
)
|
|
$
|
2,300
|
|
|
$
|
(19,171
|
)
|
|
$
|
2,682
|
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
The data shown below reflects the combined results of operations
of the Predecessor and Successor during the twelve months ended
December 31, 2006 in order to achieve a meaningful
comparison of Mobile Storage Groups results of operations
during the periods indicated in 2005, 2006 and 2007. The data
set forth below is expressed as a percentage of total revenues
for the periods indicated. Certain amounts may not add due to
rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Twelve Months Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
|
80.1
|
%
|
|
|
81.7
|
%
|
|
|
82.5
|
%
|
|
|
80.6
|
%
|
|
|
81.9
|
%
|
Sales
|
|
|
19.9
|
|
|
|
18.3
|
|
|
|
17.5
|
|
|
|
19.4
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
15.1
|
|
|
|
13.0
|
|
|
|
12.3
|
|
|
|
13.8
|
|
|
|
12.8
|
|
Trucking and yard costs
|
|
|
25.0
|
|
|
|
25.0
|
|
|
|
25.2
|
|
|
|
25.2
|
|
|
|
24.9
|
|
Depreciation and amortization
|
|
|
10.9
|
|
|
|
10.0
|
|
|
|
9.5
|
|
|
|
8.9
|
|
|
|
10.6
|
|
Selling, general and administrative expenses
|
|
|
26.2
|
|
|
|
28.4
|
|
|
|
30.2
|
|
|
|
32.7
|
|
|
|
32.1
|
|
Management fees
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
22.5
|
|
|
|
3.6
|
|
|
|
22.7
|
|
|
|
19.4
|
|
|
|
19.7
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(14.7
|
)
|
|
|
(17.4
|
)
|
|
|
(22.0
|
)
|
|
|
(22.3
|
)
|
|
|
(21.7
|
)
|
Foreign currency translation gain (loss)
|
|
|
(0.8
|
)
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes and
discontinued operations
|
|
|
6.5
|
|
|
|
(13.7
|
)
|
|
|
0.9
|
|
|
|
(2.9
|
)
|
|
|
(2.2
|
)
|
Provision (benefit) for income taxes
|
|
|
2.6
|
|
|
|
(4.0
|
)
|
|
|
(0.7
|
)
|
|
|
(1.2
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
3.9
|
|
|
|
(9.7
|
)
|
|
|
1.6
|
|
|
|
(1.7
|
)
|
|
|
(1.3
|
)
|
Income (loss) from discontinued operations, net of tax provision
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4.0
|
%
|
|
|
(9.4
|
)%
|
|
|
1.2
|
%
|
|
|
(2.2
|
)%
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
43,201
|
|
|
$
|
49,303
|
|
|
$
|
6,102
|
|
|
|
14.1
|
%
|
Sales
|
|
|
10,424
|
|
|
|
10,911
|
|
|
|
487
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
53,625
|
|
|
|
60,214
|
|
|
|
6,589
|
|
|
|
12.3
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales
|
|
|
7,402
|
|
|
|
7,681
|
|
|
|
279
|
|
|
|
3.8
|
%
|
Trucking and yard costs
|
|
|
13,495
|
|
|
|
14,992
|
|
|
|
1,497
|
|
|
|
11.1
|
%
|
Depreciation and amortization
|
|
|
4,791
|
|
|
|
6,379
|
|
|
|
1,588
|
|
|
|
33.1
|
%
|
Selling, general and administrative expenses
|
|
|
17,530
|
|
|
|
19,325
|
|
|
|
1,795
|
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,407
|
|
|
|
11,837
|
|
|
|
1,430
|
|
|
|
13.7
|
%
|
Interest expense, net
|
|
|
(11,982
|
)
|
|
|
(13,060
|
)
|
|
|
(1,078
|
)
|
|
|
9.0
|
%
|
Foreign currency transaction gain
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
Other income (expense)
|
|
|
7
|
|
|
|
(85
|
)
|
|
|
(92
|
)
|
|
|
(1314.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before benefit for income taxes
and discontinued operations
|
|
|
(1,566
|
)
|
|
|
(1,308
|
)
|
|
|
258
|
|
|
|
16.5
|
%
|
Benefit for income taxes
|
|
|
(636
|
)
|
|
|
(551
|
)
|
|
|
(85
|
)
|
|
|
(13.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(930
|
)
|
|
|
(757
|
)
|
|
|
343
|
|
|
|
36.8
|
%
|
Loss from discontinued operations, net of tax provision
|
|
|
(270
|
)
|
|
|
(36
|
)
|
|
|
234
|
|
|
|
86.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
|
$
|
577
|
|
|
|
48.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Lease and lease related revenues
during the three months ended March 31, 2008 amounted to
$49.3 million compared to $43.2 million during the
same period in 2007, representing an increase of
$6.1 million or 14.1%. This was driven by an increase in
Mobile Storage Groups average total number of units on
lease per month, which increased by 5.2% during the three months
ended March 31, 2008 compared to the same period last year,
combined with increases in lease rates. Mobile Storage
Groups lease fleet increased from 111,327 units as of
March 31, 2007 to 116,916 units as of March 31,
2008 as a result of an increase in Mobile Storage Groups
capital expenditures activity. Mobile Storage Groups
average fleet utilization remained unchanged at 76.3% during the
first quarter of 2008 and 2007.
Sales revenues during the three months ended March 31, 2008
amounted to $10.9 million compared to $10.4 million
during the same period in 2007, representing an increase of
$0.5 million or 4.7%. This increase was primarily due to
growth in sales revenues from Mobile Storage Groups
U.S. operations resulting from an increase in sales of
containers and trailers. Growth in the sales revenues in the
U.S. was partially offset by a decline in sales revenues
from Mobile Storage Groups U.K. operations.
The average value of the U.S. dollar against the British
pound continued to decline compared to last year. The average
currency exchange rate during the three months ended
March 31, 2008 was $1.98 to one British pound compared to
$1.95 to one British pound during the same period in 2007. This
fluctuation in foreign currency exchange rates resulted in an
increase to Mobile Storage Groups lease and lease related
revenues and sales revenues from the U.K. of $0.2 million
and $0.1 million, respectively, during the three months
ended March 31, 2008 compared to the same period in 2007.
Cost of Sales. Cost of sales, which relates
entirely to Mobile Storage Groups sales business,
increased by $0.3 million to $7.7 million during the
three months ended March 31, 2008 compared to
$7.4 million during the same period in 2007 due to higher
sales revenues in 2008. Mobile Storage Groups gross profit
margin from sales
81
revenues during the three months ended March 31, 2008
increased to 29.6% compared to 29.0% last year mainly due to
higher gross margins realized from sales of accommodation units
in the U.K.
Trucking and Yard Costs. Trucking and yard
costs increased from $13.5 million during the three months
ended March 31, 2007 to $15.0 million during the three
months ended March 31, 2008 due to a higher volume of
business activity resulting from the growth in Mobile Storage
Groups core leasing business. As a percentage of lease and
lease related revenue, trucking and yard costs during the three
months ended March 31, 2008 decreased to 30.4% compared to
31.2% for the same period in 2007 due to repairs and maintenance
costs incurred during the first quarter of 2007 that were higher
than normal and which did not repeat in 2008.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $1.6 million to
$6.4 million during the three months ended March 31,
2008 compared to $4.8 million during the same period in
2007. This is primarily due to the growth in Mobile Storage
Groups lease fleet resulting from Mobile Storage
Groups capital expenditures and acquisition activities.
Depreciation and amortization increased to 10.6% of total
revenues during the three months ended March 31, 2008
compared to 8.9% of total revenues during the three months ended
March 31, 2007 primarily due to an increase in amortization
expenses related to intangible assets from acquisitions
completed since March 31, 2007.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses during the three months ended March 31, 2008
amounted to $19.3 million compared to $17.5 million
during the three months ended March 31, 2007. This
$1.8 million increase is primarily due to the following
factors: (i) an increase in administrative expenses related
to new locations and management personnel we have added since
March 31, 2007 driven by the growth of Mobile Storage
Groups business and Mobile Storage Groups expansion
into new markets; (ii) an increase in sales and marketing
expenses as a result of sales personnel and sales and marketing
resources that Mobile Storage Group added to its infrastructure
since March 31, 2007 in line with its strategy of
continuing to increase organic growth and market expansion
through increased sales and marketing efforts; and (iii) an
increase in the cost of Mobile Storage Groups liability
insurance and health benefit plans as a result of the growth of
Mobile Storage Groups business. These increases were
partially offset by a decrease in administrative expenses in
Mobile Storage Groups U.K. operations related to
management consulting expenses incurred during the first half of
2007 which were not incurred in 2008. This resulted in a
decrease of selling, general and administrative expenses to
32.1% of total revenues during the first quarter of 2008
compared to 32.7% of total revenues during the same period last
year.
Interest Expense. Net interest expense
increased to $13.1 million during the three months ended
March 31, 2008 compared to $12.0 million during the
three months ended March 31, 2007. This is due to the
increase in Mobile Storage Groups total debt from
$522.4 million as of December 31, 2007 to
$532.3 million as of March 31, 2008 primarily as a
result of borrowings used to finance Mobile Storage Groups
capital expenditures and acquisition activities during 2008. The
weighted average interest rate on Mobile Storage Groups
total debt decreased from 9.5% as of December 31, 2007 to
8.8% as of March 31, 2008.
Income Taxes. Mobile Storage Groups
income tax benefit for the three months ended March 31,
2007 and 2008 was $0.6 million. The overall effective tax
rate was approximately 41% and 42% during the three months ended
March 31, 2007 and 2008, respectively.
Net Income. Net loss for the three months
ended March 31, 2008 was $0.8 million compared to
$1.2 million for the three months ended March 31, 2007
primarily because of higher revenues.
82
Twelve
Months Ended December 31, 2007 Compared to Twelve Months
Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
166,684
|
|
|
$
|
192,318
|
|
|
$
|
25,634
|
|
|
|
15.4
|
%
|
Sales
|
|
|
37,222
|
|
|
|
40,809
|
|
|
|
3,587
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
203,906
|
|
|
|
233,127
|
|
|
|
29,221
|
|
|
|
14.3
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales
|
|
|
26,512
|
|
|
|
28,784
|
|
|
|
2,272
|
|
|
|
8.6
|
%
|
Trucking and yard costs
|
|
|
51,018
|
|
|
|
58,833
|
|
|
|
7,815
|
|
|
|
15.3
|
%
|
Depreciation and amortization
|
|
|
20,414
|
|
|
|
22,216
|
|
|
|
1,802
|
|
|
|
8.8
|
%
|
Selling, general and administrative expenses
|
|
|
57,900
|
|
|
|
70,475
|
|
|
|
12,575
|
|
|
|
21.7
|
%
|
Management fees
|
|
|
358
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
(100.0
|
)%
|
Acquisition transaction expenses
|
|
|
40,306
|
|
|
|
|
|
|
|
(40,306
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
7,398
|
|
|
|
52,819
|
|
|
|
45,421
|
|
|
|
614.0
|
%
|
Interest expense, net
|
|
|
(35,434
|
)
|
|
|
(51,218
|
)
|
|
|
(15,784
|
)
|
|
|
44.5
|
%
|
Foreign currency translation gain
|
|
|
286
|
|
|
|
714
|
|
|
|
428
|
|
|
|
149.7
|
%
|
Other income (expense)
|
|
|
(142
|
)
|
|
|
(141
|
)
|
|
|
1
|
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes and discontinued
operations
|
|
|
(27,892
|
)
|
|
|
2,174
|
|
|
|
30,066
|
|
|
|
107.8
|
%
|
Provision (benefit) for income taxes
|
|
|
(8,196
|
)
|
|
|
(1,618
|
)
|
|
|
6,578
|
|
|
|
80.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(19,696
|
)
|
|
|
3,792
|
|
|
|
23,488
|
|
|
|
119.3
|
%
|
Income (loss) from discontinued operations, net of tax provision
|
|
|
525
|
|
|
|
(1,110
|
)
|
|
|
(1,635
|
)
|
|
|
(311.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,171
|
)
|
|
$
|
2,682
|
|
|
$
|
21,853
|
|
|
|
114.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Lease and lease related revenues
during the twelve months ended December 31, 2007 amounted
to $192.3 million compared to $166.7 million during
the same period in 2006, representing an increase of
$25.6 million or 15.4%. This was driven by an increase in
Mobile Storage Groups average total number of units on
lease per month, which increased by 5.4% during the twelve
months ended December 31, 2007 compared to the same period
last year, combined with increases in price. Mobile Storage
Groups lease fleet increased from 111,892 units as of
December 31, 2006 to 117,417 units as of
December 31, 2007 as a result of its capital expenditures
and acquisition activity. Mobile Storage Groups average
fleet utilization during the twelve months ended
December 31, 2007 decreased to 78.3% compared to 80.2%
during the same period in 2006 primarily because of (i) an
overall decrease in demand for portable storage units from its
retail customers as compared to the prior year, combined with
(ii) the acquisitions of businesses with lower utilization
rates during the fourth quarter of 2006 and during 2007.
Sales revenues during the twelve months ended December 31,
2007 amounted to $40.8 million compared to
$37.2 million during the same period in 2006, representing
an increase of $3.6 million or 9.6%. This was primarily due
to growth in sales revenues from Mobile Storage Groups
U.S. operations resulting from an increase in sales of
containers and trailers. Growth in the sales revenues in the
U.S. was partially offset by a decline in sales revenues
from Mobile Storage Groups U.K. operations.
The average value of the U.S. dollar against the British
pound continued to decline compared to last year. The average
currency exchange rate during the twelve months ended
December 31, 2007 was $2.00 to one British pound compared
to $1.84 to one British pound during the same period in 2006.
This fluctuation in foreign currency exchange rates resulted in
an increase to Mobile Storage Groups lease and lease
related revenues and sales revenues from the U.K. of
$5.6 million and $1.0 million, respectively, during
the twelve months ended December 31, 2007 compared to the
same period in 2006.
83
Cost of Sales. Cost of sales, which relates
entirely to Mobile Storage Groups sales business,
increased by $2.3 million to $28.8 million during the
twelve months ended December 31, 2007 compared to
$26.5 million during the same period in 2006 due to higher
sales revenues in 2007. Mobile Storage Groups gross profit
margin from sales revenues during the twelve months ended
December 31, 2007 increased to 29.5% compared to 28.8% last
year mainly due to higher gross margins realized from sales of
containers in the U.S. as Mobile Storage Group continues to
derive more value from the modifications it performs on
containers that it sells.
Trucking and Yard Costs. Trucking and yard
costs increased from $51.0 million during the twelve months
ended December 31, 2006 to $58.8 million during the
twelve months ended December 31, 2007 due to a higher
volume of business activity resulting from the growth in Mobile
Storage Groups core leasing business. As a percentage of
lease and lease related revenue, trucking and yard costs during
the twelve months ended December 31, 2007 compared to the
same period in 2006 were unchanged at 30.6%.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $1.8 million to
$22.2 million during the twelve months ended
December 31, 2007 compared to $20.4 million during the
same period in 2006. This is primarily due to the growth in
Mobile Storage Groups lease fleet resulting from its
capital expenditures and acquisition activities. Depreciation
and amortization decreased to 9.5% of total revenues during the
twelve months ended December 31, 2007 compared to 10.0% of
total revenues during the twelve months ended December 31,
2006.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses during the twelve months ended December 31, 2007
amounted to $70.5 million compared to $57.9 million
during the twelve months ended December 31, 2006. This
$12.6 million increase is primarily due to the following
factors: (i) an increase in sales and marketing expenses as
Mobile Storage Group continued to make investments in its sales
personnel and added resources to its sales and marketing
infrastructure in line with its effort to continue increasing
organic growth and market expansion; (ii) an increase in
administrative expenses in Mobile Storage Groups U.K.
operations primarily related to management consulting expenses
incurred during the first six months of 2007 to assist Mobile
Storage Group with management and operational initiatives it
carried out to improve its U.K. business, and (iii) an
increase in the stock-based compensation expense as a result of
the vesting of stock options granted by Mobile Storage Group to
its key employees. As a result of these factors, Mobile Storage
Groups selling, general and administrative expenses
increased to 30.2% of total revenues during the twelve months
ended December 31, 2007 compared to 28.4% of total revenues
during the twelve months ended December 31, 2006.
Acquisition Transaction Expenses. These
expenses were incurred during the twelve months ended
December 31, 2006, in connection with the Acquisition. See
Note 1 to Mobile Storage Groups audited consolidated
financial statements for additional information regarding these
expenses.
Interest Expense. Net interest expense
increased to $51.2 million during the twelve months ended
December 31, 2007 compared to $35.4 million during the
twelve months ended December 31, 2006. This is due to the
increase in Mobile Storage Groups total debt from
$458.5 million as of December 31, 2006 to
$522.4 million as of December 31, 2007 primarily as a
result of borrowings used to finance Mobile Storage Groups
capital expenditures and acquisition activities during 2007. The
weighted average interest rate on Mobile Storage Groups
total debt increased from 9.2% as of December 31, 2006 to
9.5% as of December 31, 2007.
Income Taxes. Mobile Storage Groups
income tax benefit for the twelve months ended December 31,
2007 was $1.6 million compared to a benefit of
$8.2 million for the twelve months ended December 31,
2006, representing a decrease of $6.6 million. The tax
benefit for the twelve months ended December 31, 2006, was
due to the net loss resulting from the Acquisition transaction
costs incurred in 2006. Mobile Storage Groups overall
effective tax rate was approximately 29% and 74% during 2006 and
2007, respectively. The difference in the effective tax rate
compared to the statutory federal rate of 35% in 2006 and 34% in
2007 is primarily due to certain foreign permanent and tax rate
differences.
Net Income. Net income for the twelve months
ended December 31, 2007 was $2.7 million compared to a
net loss of $19.2 million for the twelve months ended
December 31, 2006 primarily because of the Acquisition
transaction costs incurred in 2006.
84
Twelve
Months Ended December 31, 2006 Compared to Twelve Months
Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2005
|
|
|
2006
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
143,417
|
|
|
$
|
166,684
|
|
|
$
|
23,267
|
|
|
|
16.2
|
%
|
Sales
|
|
|
35,584
|
|
|
|
37,222
|
|
|
|
1,638
|
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
179,001
|
|
|
|
203,906
|
|
|
|
24,905
|
|
|
|
13.9
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales
|
|
|
27,114
|
|
|
|
26,512
|
|
|
|
(602
|
)
|
|
|
(2.2
|
)%
|
Trucking and yard costs
|
|
|
44,764
|
|
|
|
51,018
|
|
|
|
6,254
|
|
|
|
14.0
|
%
|
Depreciation and amortization
|
|
|
19,471
|
|
|
|
20,414
|
|
|
|
943
|
|
|
|
4.8
|
%
|
Selling, general and administrative expenses
|
|
|
46,909
|
|
|
|
57,900
|
|
|
|
10,991
|
|
|
|
23.4
|
%
|
Management fees
|
|
|
400
|
|
|
|
358
|
|
|
|
(42
|
)
|
|
|
(10.5
|
)%
|
Acquisition transaction expenses
|
|
|
|
|
|
|
40,306
|
|
|
|
40,306
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
40,343
|
|
|
|
7,398
|
|
|
|
(32,945
|
)
|
|
|
(81.7
|
)%
|
Interest expense, net
|
|
|
(26,249
|
)
|
|
|
(35,434
|
)
|
|
|
(9,185
|
)
|
|
|
35.0
|
%
|
Foreign currency translation gain (loss)
|
|
|
(1,386
|
)
|
|
|
286
|
|
|
|
1,672
|
|
|
|
(120.6
|
)%
|
Loss on early extinguishment of debt
|
|
|
(780
|
)
|
|
|
|
|
|
|
780
|
|
|
|
(100.0
|
)%
|
Other income (expense)
|
|
|
(241
|
)
|
|
|
(142
|
)
|
|
|
99
|
|
|
|
(41.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes and discontinued
operations
|
|
|
11,687
|
|
|
|
(27,892
|
)
|
|
|
(39,579
|
)
|
|
|
(338.7
|
)%
|
Provision (benefit) for income taxes
|
|
|
4,652
|
|
|
|
(8,196
|
)
|
|
|
(12,848
|
)
|
|
|
(276.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,035
|
|
|
|
(19,696
|
)
|
|
|
(26,731
|
)
|
|
|
(380.0
|
)%
|
Income from discontinued operations, net of tax provision
|
|
|
184
|
|
|
|
525
|
|
|
|
341
|
|
|
|
185.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,219
|
|
|
$
|
(19,171
|
)
|
|
$
|
(26,390
|
)
|
|
|
(365.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Lease and lease related revenues
during 2006 amounted to $166.7 million compared to
$143.4 million during 2005, representing an increase of
$23.3 million or 16.2%. This was driven by an increase in
Mobile Storage Groups average total number of units on
lease per month, which increased by 10.3% during 2006 compared
to the same period last year, combined with increases in price.
Mobile Storage Groups lease fleet increased from
99,414 units as of December 31, 2005 to
111,892 units as of December 31, 2006 as a result of
Mobile Storage Groups capital expenditures and acquisition
activity. Mobile Storage Groups average fleet utilization
during 2006 decreased to 80.2% compared to 82.2% during 2005
primarily because of a softer retail season this year compared
to last year combined with the acquisitions of businesses during
2006 with lower utilization rates. Compared to 2005, retailers
in general ordered fewer portable storage units in 2006, such
orders were received later during the year and such units were
utilized for a shorter period of time during 2006.
Sales revenues during 2006 amounted to $37.2 million
compared to $35.6 million during 2005, representing an
increase of $1.6 million or 4.6%. This was mainly due to
growth in revenues from sales of containers at Mobile Storage
Groups U.S. operations. Growth in sales revenues in
the U.S. was partially offset by a decline in sales
revenues from Mobile Storage Groups U.K. operations
primarily because its revenues from sales of accommodation units
returned to normalized levels during 2006 after an unusually
high level of sales volume of accommodation units in the U.K.
during 2005.
The average value of the U.S. dollar against the British
pound declined during 2006 as compared to 2005. The average
currency exchange rate during 2005 was $1.82 to one British
pound compared to $1.84 to one British pound during 2006. This
fluctuation in foreign currency exchange rates resulted in an
increase to Mobile Storage Groups lease and lease related
revenues and sales revenues from the U.K. of $0.7 million
and $0.1 million, respectively, during 2006 compared to
2005.
85
Cost of Sales. Cost of sales, which relates
entirely to Mobile Storage Groups sales business,
decreased by $0.6 million to $26.5 million during 2006
compared to $27.1 million during 2005 despite higher sales
revenues in 2006. Mobile Storage Groups gross profit
margin from sales revenues during 2006 increased to 28.8%
compared to 23.8% during 2005 period mainly due to higher gross
margins realized from sales of containers in the
U.S. combined with an improvement in product mix. Mobile
Storage Groups sales of accommodation units in the U.K.,
which generally carry a lower gross margin than sales of storage
containers, were lower during 2006 compared to last year.
Trucking and Yard Costs. Trucking and yard
costs increased from $44.8 million during 2005 to
$51.0 million during 2006 due to a higher volume of
business activity resulting from the growth in Mobile Storage
Groups core leasing business. As a percentage of lease and
lease related revenue, trucking and yard costs decreased to
30.6% during 2006, compared to 31.2% during 2005 because of
gains in operating efficiency combined with the improvement in
operating leverage Mobile Storage Group realized from higher
leasing revenues over the fixed portion of its trucking and yard
costs.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $0.9 million to
$20.4 million during 2006 compared to $19.5 million
during 2005 period due to the continued growth in Mobile Storage
Groups lease fleet resulting from its capital expenditures
and acquisition activity, as well as higher amortization
expenses related to the amortization of other intangible assets
recorded as a result of the Acquisition. Depreciation and
amortization decreased to 10.0% of total revenues during 2006
compared to 10.9% of total revenues during 2005 due to the
growth in Mobile Storage Groups revenues.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses during 2006 amounted to $57.9 million compared to
$46.9 million during the same period in 2005. This
$11.0 million increase is primarily due to the following
factors: (i) an increase in sales and marketing expenses as
Mobile Storage Group added sales personnel and other resources
to its sales infrastructure to continue to increase organic
growth and market expansion; (ii) higher sales commissions
paid as a result of higher revenues and (iii) the expensing
of stock options effective in January 2006 in accordance with
SFAS No. 123(R), Share-Based Payment,
resulting in $2.4 million of additional compensation
expense recorded during 2006. As a percentage of total revenue,
selling, general and administrative expenses increased to 28.4%
during 2006 compared to 26.2% during 2005 primarily because of
the additional investment in resources Mobile Storage Group has
made into its sales and marketing infrastructure since the first
half of 2005, combined with the compensation expense related to
stock options recognized during 2006.
Acquisition Transaction Expenses. These
expenses were incurred during the twelve months ended
December 31, 2006, in connection with the Acquisition. See
Note 1 to Mobile Storage Groups audited consolidated
financial statements for additional information regarding these
expenses.
Interest Expense. Net interest expense
increased to $35.4 million during 2006 compared to
$26.2 million during 2005. This is due to the increase in
Mobile Storage Groups total debt from $250.2 million
as of December 31, 2005 to $458.5 million as of
December 31, 2006 as a result of new debt obligations
Mobile Storage Group incurred under its new capital structure in
connection with the Acquisition, combined with borrowings to
finance capital expenditures and acquisition activity completed
during 2006. This was partially offset by a reduction in the
weighted average interest rate on Mobile Storage Groups
debt obligations under its post-Acquisition capital structure.
Mobile Storage Groups weighted average interest rate
decreased to 9.2% as of December 31, 2006 compared to 9.5%
prior to Mobile Storage Groups debt refinancing as of
December 30, 2005.
Foreign Currency Translation. Ravenstock MSG,
Mobile Storage Groups U.K. subsidiary, has certain
U.S. dollar-denominated debt, including short term
intercompany borrowings, which are remeasured at each financial
reporting date with the impact of the remeasurement being
recorded as foreign currency translation gain or loss in Mobile
Storage Groups consolidated statements of income. Mobile
Storage Group incurred a foreign currency translation gain of
$0.3 million during 2006 compared to a loss of
$1.4 million during 2005 due to fluctuations in foreign
currency exchange rates.
Income Taxes. Mobile Storage Groups
income tax provision decreased by $12.9 million from a
provision of $4.7 million during 2005 to a benefit of
$8.2 million during 2006 due to pretax losses generated in
2006 as a result of the Acquisition transaction expenses
incurred in the amount of $40.3 million. Mobile Storage
Groups overall effective tax benefit rate declined to
approximately 29% during 2006 from an effective tax provision
rate of
86
approximately 40% during 2005 as a result of certain
non-deductible amounts included in the Acquisition transaction
expenses.
Net Income (Loss). Mobile Storage Group had a
net loss of $19.2 million during 2006 compared to net
income of $7.2 million during 2005 primarily due to the
$40.3 million of Acquisition transaction expenses which
were incurred during 2006, net of the related income tax benefit.
Non-GAAP Measures
EBITDA and adjusted EBITDA are supplemental measures of Mobile
Storage Groups performance that are not required by, or
presented in accordance with GAAP. These measures are not
measurements of Mobile Storage Groups financial
performance under GAAP and should not be considered as
alternatives to net income, income from operations or any other
performance measures derived in accordance with GAAP or as an
alternative to cash flow from operating, investing or financing
activities as a measure of liquidity.
EBITDA is a non-GAAP measure, which Mobile Storage Group defines
as earnings before interest expense, income taxes and
depreciation and amortization. Mobile Storage Group calculates
adjusted EBITDA by adjusting EBITDA to eliminate the impact of
certain items it does not consider to be indicative of the
performance of its ongoing operations. You are encouraged to
evaluate each adjustment and whether you consider each to be
appropriate. In addition, in evaluating EBITDA and adjusted
EBITDA, you should be aware that in the future, Mobile Storage
Group may incur expenses similar to the adjustments in the
presentation of EBITDA and adjusted EBITDA. Mobile Storage
Groups presentation of EBITDA and adjusted EBITDA should
not be construed as an inference that Mobile Storage
Groups future results will be unaffected by unusual or
non-recurring items.
Mobile Storage Group presents EBITDA and adjusted EBITDA because
it considers them to be important supplemental measures of
Mobile Storage Groups performance. Mobile Storage Group
believes EBITDA and adjusted EBITDA are useful to an investor in
evaluating its operating performance because:
|
|
|
|
|
they are widely accepted financial indicators of a
companys ability to service its debt;
|
|
|
|
they are widely used in the portable storage industry to
(i) measure a companys operating performance without
regard to items such as depreciation and amortization, which can
vary depending upon accounting methods used and the book value
of assets, and (ii) present a meaningful measure of
corporate performance exclusive of a companys capital
structure and the method by which assets were acquired; and
|
|
|
|
they help investors to more meaningfully evaluate and compare
the results of its operations from period to period by removing
from its operating results the impact of its capital structure,
primarily interest expense from its outstanding debt, and asset
base, primarily depreciation and amortization of its property
and equipment.
|
Mobile Storage Groups management uses EBITDA and adjusted
EBITDA:
|
|
|
|
|
as measurements of operating performance because they assist
management in comparing their companys performance on a
consistent basis by removing from its operating results the
impact of its capital structure, which includes interest expense
from its outstanding debt, and asset base, which includes
depreciation and amortization of its property and equipment;
|
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|
|
to allocate resources and capital to its operating segments;
|
|
|
|
to measure performance for incentive compensation programs;
|
|
|
|
to evaluate potential acquisitions and other growth
opportunities; and
|
|
|
|
in presentations to the members of its board of directors to
enable its board to have the same consistent measurement basis
of operating performance used by management.
|
Mobile Storage Group believes the use of EBITDA and adjusted
EBITDA along with GAAP financial measures enhances the
understanding of its operating results and is useful to its
management and investors in comparing performance with
competitors, estimating enterprise value and making investment
decisions. Adjusted EBITDA as used here may not be comparable to
similarly titled measures reported by competitors.
87
EBITDA and adjusted EBITDA have limitations as analytical tools,
and you should not consider them in isolation, or as a
substitute for analysis of Mobile Storage Groups results
as reported under GAAP. Because of these limitations, EBITDA and
adjusted EBITDA should not be considered as measures of
discretionary cash available to Mobile Storage Group to invest
in the growth of Mobile Storage Groups business or to
reduce Mobile Storage Groups indebtedness. Mobile Storage
Group compensates for these limitations by relying primarily on
Mobile Storage Groups GAAP results and using EBITDA and
adjusted EBITDA only supplementally.
The following is a reconciliation of net income to EBITDA and to
adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
2006 to
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Net income (loss)
|
|
$
|
3,820
|
|
|
$
|
7,219
|
|
|
$
|
(21,471
|
)
|
|
$
|
2,300
|
|
|
$
|
2,682
|
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
(Income) loss from discontinued operations
|
|
|
(451
|
)
|
|
|
(184
|
)
|
|
|
(337
|
)
|
|
|
(188
|
)
|
|
|
1,110
|
|
|
|
270
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
3,369
|
|
|
|
7,035
|
|
|
|
(21,808
|
)
|
|
|
2,112
|
|
|
|
3,792
|
|
|
|
(930
|
)
|
|
|
(757
|
)
|
Interest expense, net
|
|
|
23,096
|
|
|
|
26,249
|
|
|
|
15,557
|
|
|
|
19,877
|
|
|
|
51,218
|
|
|
|
11,982
|
|
|
|
13,060
|
|
Provision (benefit) for income taxes
|
|
|
2,539
|
|
|
|
4,652
|
|
|
|
(9,240
|
)
|
|
|
1,044
|
|
|
|
(1,618
|
)
|
|
|
(636
|
)
|
|
|
(551
|
)
|
Depreciation and amortization
|
|
|
14,502
|
|
|
|
19,471
|
|
|
|
12,191
|
|
|
|
8,223
|
|
|
|
22,216
|
|
|
|
4,791
|
|
|
|
6,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations
|
|
|
43,506
|
|
|
|
57,407
|
|
|
|
(3,300
|
)
|
|
|
31,256
|
|
|
|
75,608
|
|
|
|
15,207
|
|
|
|
18,131
|
|
Foreign currency translation (gain) loss(a)
|
|
|
(1,013
|
)
|
|
|
1,386
|
|
|
|
(212
|
)
|
|
|
(74
|
)
|
|
|
(714
|
)
|
|
|
(2
|
)
|
|
|
|
|
Loss on early extinguishment of debt(b)
|
|
|
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
(270
|
)
|
|
|
241
|
|
|
|
84
|
|
|
|
58
|
|
|
|
141
|
|
|
|
(7
|
)
|
|
|
85
|
|
Non-cash stock option expense(c)
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
1,662
|
|
|
|
3,168
|
|
|
|
612
|
|
|
|
551
|
|
Management and board fees(d)
|
|
|
484
|
|
|
|
477
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers compensation adjustments(e)
|
|
|
261
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash asset impairment charge(f)
|
|
|
9,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses(g)
|
|
|
|
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
52,123
|
|
|
$
|
60,951
|
|
|
$
|
37,966
|
|
|
$
|
32,902
|
|
|
$
|
78,203
|
|
|
$
|
15,810
|
|
|
$
|
18,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
The following is a reconciliation of net cash provided by
operating activities to EBITDA and adjusted EBITDA from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
2006 to
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
24,967
|
|
|
$
|
35,195
|
|
|
$
|
21,300
|
|
|
$
|
24,602
|
|
|
$
|
42,768
|
|
|
$
|
5,322
|
|
|
$
|
8,787
|
|
Net cash (provided by) used in discontinued operations
|
|
|
399
|
|
|
|
(29
|
)
|
|
|
(55
|
)
|
|
|
(48
|
)
|
|
|
(7,350
|
)
|
|
|
(647
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
25,366
|
|
|
|
35,166
|
|
|
|
21,245
|
|
|
|
24,554
|
|
|
|
35,418
|
|
|
|
4,675
|
|
|
|
8,765
|
|
Changes in operating assets and liabilities
|
|
|
5,933
|
|
|
|
1,070
|
|
|
|
(15,447
|
)
|
|
|
(5,949
|
)
|
|
|
8,996
|
|
|
|
2,955
|
|
|
|
1,219
|
|
Noncash expenses, excluding depreciation and amortization
|
|
|
(13,428
|
)
|
|
|
(9,730
|
)
|
|
|
(15,415
|
)
|
|
|
(8,270
|
)
|
|
|
(18,406
|
)
|
|
|
(3,769
|
)
|
|
|
(4,362
|
)
|
Income tax provision (benefit)
|
|
|
2,539
|
|
|
|
4,652
|
|
|
|
(9,240
|
)
|
|
|
1,044
|
|
|
|
(1,618
|
)
|
|
|
(636
|
)
|
|
|
(551
|
)
|
Interest expense, net
|
|
|
23,096
|
|
|
|
26,249
|
|
|
|
15,557
|
|
|
|
19,877
|
|
|
|
51,218
|
|
|
|
11,982
|
|
|
|
13,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations
|
|
|
43,506
|
|
|
|
57,407
|
|
|
|
(3,300
|
)
|
|
|
31,256
|
|
|
|
75,608
|
|
|
|
15,207
|
|
|
|
18,131
|
|
Foreign currency translation (gain) loss(a)
|
|
|
(1,013
|
)
|
|
|
1,386
|
|
|
|
(212
|
)
|
|
|
(74
|
)
|
|
|
(714
|
)
|
|
|
(2
|
)
|
|
|
|
|
Loss on early extinguishment of debt(b)
|
|
|
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
(270
|
)
|
|
|
241
|
|
|
|
84
|
|
|
|
58
|
|
|
|
141
|
|
|
|
(7
|
)
|
|
|
85
|
|
Non-cash stock option expense(c)
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
1,662
|
|
|
|
3,168
|
|
|
|
612
|
|
|
|
551
|
|
Management and board fees(d)
|
|
|
484
|
|
|
|
477
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers compensation adjustments(e)
|
|
|
261
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash asset impairment charge(f)
|
|
|
9,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses(g)
|
|
|
|
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
52,123
|
|
|
$
|
60,951
|
|
|
$
|
37,966
|
|
|
$
|
32,902
|
|
|
$
|
78,203
|
|
|
$
|
15,810
|
|
|
$
|
18,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
(a) |
|
Represents adjustments arising from differences in exchange
rates from period to period when U.S. dollar-denominated
borrowings of Mobile Storage Groups foreign subsidiaries
are remeasured at each reporting date using the local currency
as the functional currency. |
|
(b) |
|
Represents the incurrence of loss on early extinguishment of
debt for the write-off of the remaining unamortized deferred
loan costs and the payment of prepayment penalties related to
the refinancing of Mobile Storage Groups revolving credit
facility in December 2005. |
|
(c) |
|
Represents recognition of the cost of all share-based payments
to employees, including grants of employee stock options, based
on fair values as required by SFAS No. 123(R) adopted
by Mobile Storage Group effective on January 1, 2006.
Mobile Storage Group estimates the fair value of employee share
options using option-pricing models and adjust these estimates
throughout the year. |
|
(d) |
|
Represents: (i) management fees paid to Mobile Storage
Groups previous equity sponsor which Mobile Storage Group
does not pay to its new equity sponsor and (ii) board fees
paid to Mobile Storage Groups previous Board of Directors
in excess of what Mobile Storage Group pays its new Board of
Directors. |
|
(e) |
|
Represents payments of retroactive supplemental insurance
premiums for claims occurring in the period in which the
adjustment is made but actually paid in a subsequent period and
deduction of the expense of such premium in the period it was
actually paid. |
|
(f) |
|
Represents an impairment charge resulting from the
identification of specific lease fleet and property and
equipment to be held for sale. Their value was impaired using a
comparison of estimated fair market value, which was based upon
then current estimates of selling prices or scrap values, less
selling costs, compared to the carrying value. |
|
(g) |
|
Represents expenses incurred in connection with the Acquisition.
See Note 1 to Mobile Storage Groups audited
consolidated financial statements for additional information
regarding these expenses. |
Liquidity
and Capital Resources
Mobile Storage Groups principal sources of liquidity have
been cash provided by operations and borrowings under its bank
credit facilities or debt agreements. Mobile Storage
Groups historical uses of cash have been for its operating
expenses, capital expenditures, acquisitions of businesses and
payment of principal and interest on outstanding debt
obligations. Supplemental information pertaining to Mobile
Storage Groups combined sources and uses of cash is
presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Twelve Months Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Net cash provided by operating activities
|
|
$
|
35,195
|
|
|
$
|
45,902
|
|
|
$
|
42,768
|
|
|
$
|
8,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(42,598
|
)
|
|
$
|
(394,418
|
)
|
|
$
|
(77,397
|
)
|
|
$
|
(10,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$
|
9,349
|
|
|
$
|
348,092
|
|
|
$
|
35,547
|
|
|
$
|
2,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities. Net cash provided by
operating activities during the twelve months ended
December 31, 2007 of $42.8 million primarily relates
to income from continuing operations of $3.8 million,
provision for doubtful accounts of $1.6 million, non-cash
interest expense of $3.3 million, depreciation and
amortization of $22.2 million, deferred income taxes of
$(2.0) million, stock-based compensation of
$3.2 million, accrued interest on senior subordinated notes
and accretion of original issue discount of $13.0 million,
net cash provided by operating activities of discontinued
operations of $7.4 million, and a $9.0 million net
decrease in working capital. Net cash provided by operating
activities during the twelve months ended December 31, 2006
of $45.9 million primarily relates to the loss from
continuing operations of $19.7 million, prepayment penalty
on the repayment of subordinated notes of $11.5 million,
write-off of deferred financing costs $8.1 million,
non-cash interest expense of $3.2 million, depreciation and
amortization of $20.4 million, deferred income taxes of
$(10.0) million, stock-based compensation of
$4.7 million, accrued interest on senior subordinated notes
and accretion of original issue discount of $5.0 million,
accrued Acquisition transaction expense of $17.2 million,
and a $4.2 million net increase in working capital. Net
cash provided by operating activities during the three months
ended March 31, 2008 of $8.8 million primarily relates
to the
90
loss from continuing operations of $0.8 million,
depreciation and amortization of $6.4 million, accrued
interest on senior subordinated notes and accretion of original
issue discount of $3.5 and 1.2 million net decrease in
working capital.
Investing Activities. Net cash used in
investing activities primarily relates to acquisitions of
businesses and capital expenditures. Payments for businesses
acquired, net of cash acquired amounted to $2.5 million,
$31.0 million and $20.9 million during the three
months ended March 31, 2008 and the twelve months ended
December 31, 2007 and 2006, respectively. Mobile Storage
Group incurred net capital expenditures totaling
$8.1 million, $46.4 million and $39.2 million
during the three months ended March 31, 2008 and the twelve
months ended December 31, 2007 and 2006, respectively.
During the twelve months ended December 31, 2006, Mobile
Storage Group also incurred expenditures of $317.1 million
in connection with the acquisition of the Predecessor company
and paid $17.2 million in transaction fees relating to this
acquisition.
Financing Activities. Net cash provided by
financing activities mainly relates to borrowings or payments on
long-term debt under Mobile Storage Groups debt
agreements, and preferred stock redemptions and dividend
payments under its pre-Acquisition capital structure. Net cash
provided by financing activities of $2.4 million and
$35.5 million during the three months ended March 31,
2008 and the twelve months ended December 31, 2007
primarily relates to net borrowings from Mobile Storage
Groups new credit facility during 2007. Net cash provided
by financing activities of $348.1 million during the twelve
months ended December 31, 2006 mainly relates to
$168.6 million in net borrowings from Mobile Storage
Groups new credit facility, $185.3 million of equity
contributions, $78.0 million proceeds from the issuance of
senior subordinated notes, net of original issue discount,
combined with the $200.0 million proceeds from the issuance
of the senior notes, $192.3 million repayment of borrowings
made under the old credit facility and $83.2 million
redemption of subordinated notes.
Mobile Storage Groups cash position and debt obligations
as of December 31, 2005, 2006, 2007 and March 31,
2008, are shown below and should be read in conjunction with
Mobile Storage Groups consolidated financial statements
and notes thereto included in this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
1,469
|
|
|
$
|
2,331
|
|
|
$
|
2,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
$
|
250,247
|
|
|
$
|
458,545
|
|
|
$
|
522,354
|
|
|
$
|
532,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Storage Group believes that its cash flow provided by
operations will be adequate to cover its 2008 working capital
needs, debt service requirements and a certain portion of its
planned capital expenditures to the extent such items are known
or are reasonably determinable based on current business and
market conditions. Mobile Storage Group expects to finance
certain of its capital expenditure requirements under its credit
facilities.
Credit
Facilities and Financing
New
Credit Facility
In connection with the Acquisition on August 1, 2006,
Mobile Storage Group entered into a new credit facility. The new
credit facility is a
5-year
senior secured, asset-based revolving credit facility providing
for loans of up to $300 million, subject to specified
borrowing base formulas, of which the dollar equivalent of up to
£85 million can be drawn in borrowings denominated in
British pounds and may be borrowed (and re-borrowed) by
Ravenstock MSG for use in Mobile Storage Groups U.K.
operations. Mobile Storage Group may also incur up to
$50 million of additional senior secured debt under the new
credit facility, subject to the consent of the joint-lead
arrangers under the new credit facility, the availability of
lenders willing to provide such incremental debt and compliance
with the covenants and certain other conditions under the new
credit facility. On August 1, 2006, $162 million was
drawn on the new credit facility, including
£37.7 million drawn under the U.K. borrowing sublimit.
As of March 31, 2008, Mobile Storage Groups aggregate
borrowing capacity pursuant to the borrowing base under the new
credit facility amounted to $74.7 million, net of the
$225.3 million in outstanding borrowings as of
March 31, 2008.
91
Senior
Notes
Mobile Storage Group issued $200 million of senior notes on
August 1, 2006 in connection with the Acquisition. Interest
on the senior notes accrues at a rate of
93/4%
per annum and is payable on February 1 and August 1 of each
year. Mobile Storage Group paid the interest on the notes as
they became due, which amounted to a $9.8 million payment
each on February 1, 2007, August 1, 2007, and
February 1, 2008. The senior notes mature on August 1,
2014. The senior notes are senior unsecured obligations and are
guaranteed by all of Mobile Storage Groups current and
future domestic subsidiaries, except for certain immaterial
domestic subsidiaries. The senior notes and guarantees are
effectively junior to all of Mobile Storage Groups secured
indebtedness to the extent of the collateral securing such
indebtedness. The senior notes are not guaranteed by any of
Mobile Storage Groups foreign subsidiaries and are
structurally subordinated to the indebtedness and other
liabilities of such non-guarantor subsidiaries.
Subordinated
Notes
On August 1, 2006, Mobile Storage Group issued
$90 million in aggregate principal amount of subordinated
notes to WCAS Capital Partners IV, L.P., an affiliate of Welsh
Carson, and a strategic co-investor. The proceeds of the
subordinated notes were contributed to Mobile Services in the
form of common equity capital and were used to fund the
Acquisition.
The subordinated notes mature on February 1, 2015 and are
structurally and contractually subordinated to the new credit
facility and the senior notes. The subordinated notes are
unsecured and do not possess the benefit of a guarantee. The
subordinated notes accrue interest on a
payment-in-kind,
non-cash basis at 12.0% per annum for the first two years.
Thereafter, interest will be payable quarterly at 10.0% per
annum subject to the terms of the new credit facility and the
senior notes. If Mobile Storage Group is prohibited from making
cash interest payments, interest will continue to accrue on a
payment-in-kind,
non-cash basis at 12.0% per annum.
Contractual
Obligations
Mobile Storage Groups future contractual obligations as of
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Debt(1)
|
|
$
|
515,697
|
|
|
$
|
199
|
|
|
$
|
510
|
|
|
$
|
218,933
|
|
|
$
|
296,055
|
|
Capital lease obligations
|
|
|
6,657
|
|
|
|
1,310
|
|
|
|
2,836
|
|
|
|
2,069
|
|
|
|
442
|
|
Interest on debt and capital lease obligations(2)
|
|
|
211,435
|
|
|
|
32,188
|
|
|
|
62,197
|
|
|
|
61,756
|
|
|
|
55,294
|
|
Operating leases
|
|
|
28,228
|
|
|
|
7,197
|
|
|
|
10,401
|
|
|
|
5,270
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
762,017
|
|
|
$
|
40,894
|
|
|
$
|
75,944
|
|
|
$
|
288,028
|
|
|
$
|
357,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principal payments are reflected when contractually required and
no early paydowns are reflected. Debt includes $96,014 of
subordinated notes, net of unamortized original issue discount
of $10,166 as of December 31, 2007. |
|
(2) |
|
Estimated interest for debt for all periods
presented is calculated using the interest rate effective as of
December 31, 2007 of (i) 7.52% weighted average
interest rate on borrowings under the new credit facility and
(ii) 9.75% on the senior notes.
|
|
|
|
Assumes interest on the subordinated notes
accrues on a
payment-in-kind
basis at 12.0% per annum until August 1, 2008; afterwards,
interest becomes payable in cash at 10.0% per annum until the
subordinated notes mature on February 1, 2015.
|
|
|
|
Capital lease interest is based upon
contractually agreed upon amounts.
|
92
Off-Balance
Sheet Arrangements
Mobile Storage Group does not maintain any off-balance sheet
arrangements.
Seasonality
Demand from some of Mobile Storage Groups customers can be
seasonal. Demand from Mobile Storage Groups construction
customers tends to be higher in the second and third quarters
when the weather is warmer. Demand from Mobile Storage
Groups larger retail customers is stronger in the fourth
quarter as these customers prepare to store higher levels of
inventories for the holiday season. The units leased to Mobile
Storage Groups retail customers tend to be returned in the
first quarter of the following year, leading to lower
utilization rates and rental revenues during this period.
Critical
Accounting Policies
The preparation of Mobile Storage Groups financial
statements, in accordance with generally accepted accounting
principles (GAAP), requires it to make estimates and
assumptions affecting 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. Mobile Storage Group evaluates its estimates and
judgments on an ongoing basis. Mobile Storage Group bases its
estimates and judgments on historical experience and on various
other factors it believes to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
not readily apparent from other sources. Mobile Storage
Groups actual results may differ from these estimates
under different assumptions or conditions.
Mobile Storage Group believes the following critical accounting
policies and the related judgments and estimates affect the
preparation of its consolidated financial statements:
Revenue Recognition. Mobile Storage Group
leases and sells various types of storage containers, trailers
and mobile offices to customers. Leases to customers are
generally on a short-term basis, qualifying as operating leases.
The aggregate lease payments are generally less than the
purchase price of the equipment. Revenue is recognized as earned
in accordance with the lease terms established by the lease
agreements and when collectibility is reasonably assured.
Revenue from sales of equipment is recognized upon delivery and
when collectibility is reasonably assured.
Revenue from sales and lease equipment unit delivery and hauling
is recognized when these services are provided. Costs associated
with these activities are included in trucking and yard costs in
the consolidated statements of income.
Customers in the U.S. are generally billed in advance for
each 28-day
period and customers in the U.K. are generally billed monthly in
arrears. Deferred revenue is recorded for the unearned portion
of pre-billed lease income.
Depreciation of Lease Equipment. Lease
equipment consists primarily of storage containers, storage
trailers and mobile offices. The lease equipment is recorded at
cost and depreciated on a straight-line basis over their
estimated useful lives, as follows: containers
20 years; trailers and portable steel offices
15 years; portable timber offices
10 years. Salvage values are determined when the lease
equipment is acquired and are typically 70% for containers and
10% for trailers and steel and timber mobile offices. Management
of Mobile Storage Group believes the estimated salvage values
for Mobile Storage Groups portable storage products do not
cause carrying values to exceed net realizable values. Normal
repairs and maintenance to lease equipment are expensed as
incurred and included in yard costs.
Mobile Storage Group periodically reviews its depreciation
policy against various factors, including its historical
experience with the useful life of each type of equipment, lease
rates obtained on older units, the results of the independent
annual appraisal of its lease fleet performed by Mobile Storage
Groups lenders, profit margins realized on its sales of
depreciated lease equipment, and depreciation policies in effect
among larger competitors in the industry. If Mobile Storage
Group were to revise its depreciation policy on containers,
93
which comprise approximately 64%, 74% and 74% of the net book
value of Mobile Storage Groups lease fleet as of
December 31, 2006, December 31, 2007 and
March 31, 2008, respectively, such revision could impact
Mobile Storage Groups earnings. For example, a change in
the estimate used in the residual value and useful life of
containers would have the following approximate effect on Mobile
Storage Groups income from operations and net income
(loss) as reflected in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
Twelve Months Ended
|
|
|
Three Months Ended
|
|
|
|
Residual
|
|
|
Life in
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
Value
|
|
|
Years
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
As reported:
|
|
|
70%
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
$
|
40,343
|
|
|
$
|
7,398
|
|
|
$
|
52,819
|
|
|
$
|
10,407
|
|
|
$
|
11,837
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
7,219
|
|
|
$
|
(19,171
|
)
|
|
$
|
2,682
|
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
As adjusted for change in estimates:
|
|
|
70%
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
$
|
40,803
|
|
|
$
|
7,958
|
|
|
$
|
53,582
|
|
|
$
|
10,552
|
|
|
$
|
12,029
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
7,496
|
|
|
$
|
(18,776
|
)
|
|
$
|
2,877
|
|
|
$
|
(1,114
|
)
|
|
$
|
(682
|
)
|
As adjusted for change in estimates:
|
|
|
70%
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
$
|
39,577
|
|
|
$
|
6,464
|
|
|
$
|
51,550
|
|
|
$
|
10,166
|
|
|
$
|
11,517
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
6,758
|
|
|
$
|
(19,831
|
)
|
|
$
|
2,357
|
|
|
$
|
(1,343
|
)
|
|
$
|
(978
|
)
|
As adjusted for change in estimates:
|
|
|
65%
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
$
|
39,961
|
|
|
$
|
6,931
|
|
|
$
|
52,183
|
|
|
$
|
10,286
|
|
|
$
|
11,677
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
6,989
|
|
|
$
|
(19,501
|
)
|
|
$
|
2,519
|
|
|
$
|
(1,272
|
)
|
|
$
|
(886
|
)
|
As adjusted for change in estimates:
|
|
|
55%
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
$
|
39,195
|
|
|
$
|
5,999
|
|
|
$
|
50,913
|
|
|
$
|
10,045
|
|
|
$
|
11,358
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
6,528
|
|
|
$
|
(20,159
|
)
|
|
$
|
2,195
|
|
|
$
|
(1,415
|
)
|
|
$
|
(1,070
|
)
|
Goodwill and Other Intangible Assets. Mobile
Storage Group accounts for goodwill in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives
and requires these assets be reviewed for impairment at least
annually. Mobile Storage Group tests goodwill for impairment
using the two-step process prescribed in SFAS No. 142.
The first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any.
Mobile Storage Group performed the required impairment tests of
goodwill and indefinite-lived intangible assets as of
October 1, 2005, 2006 and 2007. Based on these tests,
Mobile Storage Group determined that no impairment related to
goodwill and indefinite-lived intangible assets exist.
Other intangible assets with finite useful lives are amortized
over their useful lives. Intangible assets with finite useful
lives consist primarily of noncompete covenants and customer
relationships which are amortized over the expected period of
benefit which range from five to ten years. Noncompete covenants
are amortized using the straight-line method while customer
relationships are amortized using an accelerated method that
reflects the related customer attrition rates.
Provision for Doubtful Accounts. Mobile
Storage Group is required to estimate the collectibility of its
trade receivables. Accordingly, Mobile Storage Group maintains
allowances for doubtful accounts for estimated losses that may
result from the inability of its customers to make required
payments. Mobile Storage Group evaluates a variety of factors in
assessing the ultimate realization of these receivables,
including the current credit-worthiness of its customers, its
days outstanding trends, a review of historical collection
results and a review of specific past due receivables. If the
financial conditions of Mobile Storage Groups customers
were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required,
resulting in decreased net income. To date, uncollectible
accounts have been within the range of expectations of Mobile
Storage Groups management.
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Commitments and Contingencies. In the normal
course of business, Mobile Storage Group estimates potential
future loss accruals related to legal, tax and other
contingencies. These accruals require Mobile Storage Group
managements judgment on the outcome of various events
based on the best available information. However, due to changes
in facts and circumstances, the ultimate outcomes could be
different than Mobile Storage Group managements estimates.
Recent
Accounting Pronouncements
On January 1, 2008, Mobile Storage Group adopted
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. In
February 2008, the FASB released FASB Staff Position (FSP
FAS 157-2
Effective Date of FASB Statement No. 157), which delayed
the effective date of SFAS No. 157 for nonfinancial
assets, such as goodwill and long-lived assets, and nonfinancial
liabilities, subject to certain exceptions until January 1,
2009. The adoption of SFAS No. 157 for financial
assets and liabilities did not have a material impact on Mobile
Storage Groups financial condition or results of
operations.
On January 1, 2008, Mobile Storage Group adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose to elect, at
specified election dates, to measure eligible financial
instruments at fair value. Mobile Storage Group has currently
chosen not to adopt the provisions of SFAS No. 159 for
its existing financial instruments.
In December 2007, the FASB issued SFAS No. 141R
(revised 2007), Business Combinations
(SFAS No. 141R), which replaces SFAS No 141.
SFAS No. 141R establishes the principles and
requirements for how an acquirer: (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase; and (iii) determines what information to
disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS No. 141R makes some significant changes to
existing accounting practices for acquisitions.
SFAS No. 141R is to be applied prospectively to
business combinations consummated on or after the beginning of
the first annual reporting period on or after December 15,
2008. Mobile Storage Group is currently evaluating the impact
SFAS No. 141R will have on its future business
combinations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes
new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. Mobile Storage
Group does not believe the adoption of this statement will have
a material effect on its financial position, results of
operations, and cash flows.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 applies to all derivative instruments and
related hedged items accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities. It requires entities to provide greater
transparency about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement
No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an
entitys financial position, results of operations, and
cash flows. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008.
Mobile Storage Group does not believe the adoption of this
statement will have a material effect on its results of
operations or financial condition.
Quantitative
and Qualitative Disclosures about Market Risk
Mobile Storage Group is exposed to market risk from changes in
interest rates, especially U.S. LIBOR and U.K. LIBOR
applicable to the new credit facility, and from fluctuations in
foreign currency exchange rates as a result of Mobile Storage
Groups operations in the U.K.
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Interest
Rate Risks
Outstanding balances under the new credit facility bear interest
at a variable rate based on a margin over LIBOR. The new credit
facility permits Mobile Storage Group to draw funds by taking
out LIBOR contracts at varying maturities. LIBOR contracts are
fixed rate instruments for a period of between one and six
months, entered into at Mobile Storage Groups discretion,
provided that the new credit facility does not permit more than
six such contracts to be outstanding in each of the
U.S. and U.K. at any one time. Mobile Storage Groups
portfolio of LIBOR contracts vary in length and interest rate.
Any adverse change in interest rates could affect Mobile Storage
Groups overall borrowing rate when LIBOR contracts are
renewed. Given the amounts outstanding under the new credit
facility at December 31, 2007, a hypothetical 1% increase
in the U.S. LIBOR and U.K. LIBOR from the applicable rates
at December 31, 2007 would increase Mobile Storage
Groups net interest expense by approximately
$2.3 million on an annual basis and would therefore
decrease both Mobile Storage Groups earnings and cash flow
for that annual period.
Mobile Storage Group is not currently a party to any interest
rate swap agreements or other financial instruments to hedge
against the risk of increases in interest rates. Mobile Storage
Groups management monitors interest rates and trends in
interest rates and will from time to time evaluate the
advisability of entering into derivative transactions to hedge
its interest rate risk. Mobile Storage Group cannot predict
market fluctuations in interest rates and their impact on its
new credit facility. As such, Mobile Storage Groups
operating results in the future may differ materially from
estimated results due to adverse changes in interest rates.
Mobile Storage Group believes that inflation has not had a
material effect on its results of operations. However, an
inflationary environment could materially increase interest
rates on Mobile Storage Groups floating rate debt which,
as of December 31, 2007, comprised approximately 38% of
Mobile Storage Groups total indebtedness. The price of
portable storage units for Mobile Storage Groups fleet
purchases could also increase in such an environment.
Foreign
Currency Risks
Mobile Storage Group is also subject to market risks resulting
from fluctuations in foreign currency exchange rates as a result
of its operations outside of the U.S. During the year ended
December 31, 2007 and the three months ended March 31,
2008, Mobile Storage Group derived approximately 36% and 35%,
respectively of its total revenues from its operations in the
U.K. Mobile Storage Group estimates that a 10% decrease in the
U.S. dollar versus the British pound would have increased
its revenues for the year ended December 31, 2007 and the
three months period ended March 31, 2008, by approximately
$8.3 million and $2.3 million, respectively, or
approximately 4% of total revenues in both periods. Currently,
revenues and expenses of Mobile Storage Groups operating
subsidiary, Ravenstock MSG, in the U.K. are recorded in British
pounds, which is the functional currency for this subsidiary.
Mobile Storage Group is exposed to market risks related to
foreign currency translation caused by fluctuations in foreign
currency exchange rates between the U.S. dollar and the
British pound. Mobile Storage Group seeks to limit exposure to
foreign currency transactional losses from its U.K. operations
by denominating revenues and expenses of Mobile Storage
Groups U.K. subsidiary in its functional currency. The
assets and liabilities of Mobile Storage Groups U.K.
subsidiary are translated from the British pound into the
U.S. dollar at the exchange rate in effect at each balance
sheet date, while income statement amounts are translated at the
average rate of exchange prevailing during the reporting period.
A strengthening of the U.S. dollar against the British
pound could, therefore, reduce the amount of cash and income
Mobile Storage Group receives and recognizes from its U.K.
operations. As foreign exchange rates vary, Mobile Storage
Groups results of operations and profitability may be
harmed. The effect of foreign currency translation risks caused
by foreign currency exchange rate fluctuations between the
U.S. dollar and the British pound on Mobile Storage
Groups operating results for the year ended
December 31, 2007 and the three months ended March 31,
2008, was not insignificant. As a result of fluctuations in
foreign currency exchange rates, Mobile Storage Groups
total revenues increased by approximately $6.6 million and
$0.3 million during the year ended December 31, 2007
and the three months period ended March 31, 2008,
respectively, relative to the comparable prior period. Mobile
Storage Group cannot predict the effects of exchange rate
fluctuations on its future operating results because of the
potential volatility of currency exchange rates. To the
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extent Mobile Storage Group expands its business into other
countries, it anticipates that it will face similar market risks
related to foreign currency translations caused by exchange rate
fluctuations between the U.S. dollar and the currencies of
those countries. Mobile Storage Group does not currently engage
in foreign currency exchange hedging transactions to manage its
foreign currency exposure. If and when Mobile Storage Group does
engage in foreign currency exchange hedging transactions, Mobile
Storage Group cannot assure you that its strategies will
adequately protect its operating results from the effects of
exchange rate fluctuations.
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INFORMATION
ABOUT MOBILE STORAGE GROUP
Business
Overview
Mobile Storage Group is a leading international provider of
portable storage products with a lease fleet of approximately
117,000 units and 89 branch locations throughout the
U.S. and U.K. Mobile Storage Group focuses on leasing
portable storage containers, storage trailers and mobile
offices, and, to complement its core leasing business, Mobile
Storage Group also sells portable storage products. Mobile
Storage Groups storage containers and storage trailers
provide secure, convenient and cost-effective
on-site
storage of inventory, construction supplies, equipment and other
goods. Mobile Storage Group mobile office units provide
temporary office space and employee facilities for, among other
uses, construction sites, trade shows, special events and
building refurbishments. During 2007, Mobile Storage Group
leased or sold its portable storage products to over 45,000
customers in diverse end markets ranging from large companies
with a national presence to small local businesses. For the
twelve months ended March 31, 2008, Mobile Storage Group
generated revenues of $239.7 million and adjusted EBITDA of
$81.2 million.
The following charts illustrate Mobile Storage Groups
revenues by type, geography and end markets during 2007:
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Revenue Mix by Type
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Revenue Mix by Geography
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Revenue
Mix by End Markets
Mobile Storage Group believes its core leasing business is
highly attractive because it:
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delivers recurring revenues with an average lease duration of
more than 15 months for its core storage container products;
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consists primarily of storage containers that have useful lives
of approximately 20 years and retain substantial residual
value throughout their lives;
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features average monthly leasing rates for storage containers
that recoup its average unit investment (excluding variable
costs) in approximately 28 months;
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benefits from high utilization levels that have averaged in
excess of 80% over the last five years;
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produces high incremental unit leasing operating margins on
storage containers estimated to be approximately 50% (based on
contribution of a new portable storage unit on lease after
deductions for the cost of leasing, commissions and
depreciation);
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benefits from a highly diversified customer base; and
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features discretionary capital expenditures that can be readily
adjusted depending on market conditions and opportunities.
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The majority of Mobile Storage Groups lease fleet is
comprised of refurbished steel portable storage containers
purchased from container leasing companies and brokers. Mobile
Storage Group also purchases new containers from China, which
Mobile Storage Group believes is a cost-effective means of
procuring new containers. Mobile Storage Groups customers
use its storage containers for a wide variety of storage
applications, including storage of construction materials,
retail and manufacturing inventory, documents and records and
household goods. Mobile Storage Groups storage trailers
are similar to its storage containers, but also have wheels and
provide elevated storage. Mobile Storage Group believes these
features provide an added benefit to customers whose operations
involve the use of loading docks, such as retailers,
distribution centers, manufacturers and other warehouse-type
businesses. Mobile Storage Groups mobile office units
include timber units and steel units that can be customized to
meet specific customer needs.
Mobile Storage Groups sales business complements its
leasing business because it allows Mobile Storage Group to
leverage its scale and purchase storage containers on terms that
Mobile Storage Group believes are more favorable than those
available to certain of its competitors. Mobile Storage Group
believes that its sales business further complements its leasing
business because there is minimal overlap between the respective
customer bases of these businesses and because it facilitates
the management of its lease fleet by allowing Mobile Storage
Group to regularly sell used equipment and replace it with newer
equipment.
Industry
Overview
The storage industry in the U.S. and U.K. includes two
primary sectors: fixed-site self-storage and portable storage.
Fixed-site self-storage is used primarily by individuals for the
temporary storage of household items at a permanent facility.
Portable storage, which is the sector in which Mobile Storage
Group operates, is used primarily by businesses for secure,
temporary storage at the customers location. The portable
storage industry serves a broad range of industries, including
construction, services, retail, manufacturing, transportation,
utilities and government.
Portable storage offers customers a flexible, secure,
cost-effective and convenient alternative to constructing
permanent warehouse space or storing items at a fixed-site
self-storage facility by providing additional space for higher
levels of inventory, equipment or other goods on an as-needed
basis. Although Mobile Storage Group is not aware of any
published estimates, Mobile Storage Group believes the portable
storage industry is growing due to an increasing awareness of
its convenience and cost benefits.
The portable storage industry is highly fragmented and remains
mostly local in nature. Mobile Storage Group believes that there
are more than 2,000 businesses in the U.S. and more than
300 businesses in the U.K. that lease portable storage products.
Mobile Storage Group believes most of these businesses are
small, family-run operations.
Mobile Storage Group believes it is one of a few competitors in
the U.S. and U.K. who possesses the branch network,
customer relationships and infrastructure to compete on a
national and regional basis while maintaining a strong local
market presence. Mobile Storage Group believes that national and
regional customers are increasingly seeking providers with a
multi-market presence, breadth and quality of product selection,
centralized sales and service capabilities and management
information tools that provide real-time tracking capability in
order to more efficiently satisfy their portable storage needs.
Mobile Storage Group believes that having a local presence
through
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an extensive branch network provides a national storage provider
a competitive advantage by allowing it to reduce the time and
cost of delivering portable storage products to customer sites
and provide superior customer service.
Mobile
Storage Groups Business Strengths
Mobile Storage Group is a leading provider of portable storage
products on a national, regional and local basis in both the
U.S. and U.K. Mobile Storage Group believes its leading
position is due to the following strengths:
Market Leader with Extensive Geographic Coverage and
Scale. With its lease fleet of approximately
117,000 units and 89 branch locations, Mobile Storage Group
is one of the largest participants in the portable storage
industry. Mobile Storage Groups branch offices have a
broad geographic footprint and serve major metropolitan areas in
the U.S. and U.K. Mobile Storage Groups scale enables
it to serve a diverse customer base and effectively service
national customers on a multi-regional or national basis through
its national accounts program while also serving local
customers. The size of Mobile Storage Groups fleet also
allows Mobile Storage Group to offer a wide selection of
products to its customers and achieve purchasing efficiencies.
Highly Diversified Customer Base. Mobile
Storage Group has established strong relationships with a
diverse customer base in both the U.S. and U.K., ranging
from large companies with a national presence to small local
businesses. During 2007, Mobile Storage Group leased or sold its
portable storage products to over 45,000 customers. Mobile
Storage Groups customers operate in more than 850
four-digit standard industrial classification codes, including
customers in the construction, services, retail, manufacturing,
transportation, utilities and government sectors. In 2007,
Mobile Storage Groups largest customer accounted for
approximately 2% of its total revenues and Mobile Storage
Groups top ten customers accounted for approximately 10%
of its total revenues. Mobile Storage Group believes that the
diversity of its business limits the impact on Mobile Storage
Group of changes in any given customer, geography or end market.
Focus On Customer Service and Support. Mobile
Storage Groups operating infrastructure in the
U.S. and U.K. is designed to ensure that Mobile Storage
Group consistently meets or exceeds expectations by reacting
quickly and effectively to satisfy its customers needs. On
the national and regional level, Mobile Storage Groups
administrative support services and scalable management
information systems enhance its service by enabling Mobile
Storage Group to access real-time information on product
availability, customer reservations, customer usage history and
rates. Mobile Storage Group further supports national customers
by providing them with a single point of contact to handle all
of their portable storage needs. Mobile Storage Group believes
this focus on customer service attracts new and retains existing
customers. In 2007, approximately 69% of its lease and lease
related revenues were generated from customers who leased
portable storage products from Mobile Storage Group in prior
years.
Significant Cash Flow Generation and Discretionary Capital
Expenditures. Mobile Storage Group has
consistently generated significant cash flow from operations by
maintaining high utilization rates and increasing the yield of
its lease fleet. Mobile Storage Groups yield equals its
lease and lease related revenues divided by the total number of
units in its lease fleet. During the last five years, Mobile
Storage Group has achieved an average utilization rate in excess
of 80% and its yield increased at a compound annual growth rate
of 4.7%. In addition, its cumulative cash flow from operating
activities from 2003 to 2007 totaled $177.1 million. A
significant portion of Mobile Storage Groups capital
expenditures are discretionary in nature, thus providing Mobile
Storage Group with the flexibility to readily adjust the amount
that it spends based on its business needs and prevailing
economic conditions.
Experienced Management Team. Mobile Storage
Group has an experienced and proven senior management team, with
its ten most senior managers having an average of over
13 years of experience in the equipment leasing industry.
Mobile Storage Groups President and Chief Executive
Officer, Douglas Waugaman, has 12 years of experience in
the equipment leasing industry and was previously the President
and Chief Operating Officer of Rental Service Corporation.
Mobile Storage Groups management team has been integral in
developing and maintaining its high level of customer service,
deploying technology to improve operational efficiencies and
integrating acquisitions. Mobile Storage Group believes its
recent strong operating performance is a direct result of the
vision and strategic guidance of its management team.
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Products
and Services
Mobile Storage Group provides a broad range of portable storage
products to meet the needs of its customers. The following
provides a description of Mobile Storage Groups portable
storage products and their features:
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Storage Containers. Storage containers
comprise approximately 78% of Mobile Storage Groups lease
fleet. Storage containers vary in size from 10 feet to
48 feet in length, with 20-foot and 40-foot length
containers being the most common. Standard storage containers
generally are eight feet wide and eight and one-half feet high
and are built to the International Organization for
Standardization standards for carrying ocean cargo.
Historically, Mobile Storage Group has purchased most of its
storage containers used from container leasing companies and
brokers. Mobile Storage Group typically refurbishes these
containers by removing rust and dents, repairing floors,
painting, adding its branded signage and installing new locking
systems. Mobile Storage Group is opportunistic in making storage
container purchases. Depending on the prevailing market pricing
and supply dynamics, Mobile Storage Group sometimes purchases
new storage containers from manufacturers and their agents
instead of purchasing used storage containers from container
leasing companies and brokers. Mobile Storage Group also
modifies many of its storage containers by splitting them into
various sizes and providing customized features such as storage
and office combination units, shelving, windows, vents and
roll-up
doors.
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Mobile Offices and Accommodation Units. Mobile
offices comprise approximately 9% of Mobile Storage Groups
lease fleet. Mobile Storage Group purchases pre-built mobile
offices that are made of steel or timber and typically require
little or no modification for lease as mobile office units.
Mobile office units range from 10 feet to 60 feet in
length, and most include air conditioning and heating, phone
jacks, tiled floors, secure doors, windows and electrical
wiring. The configuration of Mobile Storage Groups offices
can be customized by stacking and connecting individual units to
make larger offices. In the U.K., where Mobile Storage
Groups offices are also referred to as cabins or
accommodation units, Mobile Storage Group also can provide
office furniture and specialized features such as toilets or
showers.
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Storage Trailers. Storage trailers comprise
approximately 8% of Mobile Storage Group lease fleet. Storage
trailers, which vary in size from 28 feet to 53 feet
in length, are trailers that are no longer used to move
merchandise in interstate commerce. Mobile Storage Groups
storage trailers, which are used in a manner similar to its
storage containers, have wheels and provide elevated storage.
Mobile Storage Group believes these features provide added
benefits to many of its customers whose operations involve the
use of loading docks. Some of Mobile Storage Groups
storage trailers may also be used to transport cargo locally.
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Cartage Trailers. Cartage trailers comprise
approximately 5% of Mobile Storage Groups lease fleet.
Mobile Storage Groups cartage trailers range in size from
28 feet to 53 feet in length. Mobile Storage
Groups cartage trailers are used by customers to transport
goods over the road within a
100-mile
radius of its branch location. These trailers are picked up by
the customer using their own truck and returned to the same
branch location where the unit was leased.
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Mobile Storage Group complements its core business, leasing
portable storage products, with the following products and
services:
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Sales of Portable Storage Products. Mobile
Storage Group sells portable storage products from its branch
locations. The majority of the products sold are used storage
containers; however, Mobile Storage Group also sells mobile
offices and trailers.
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Generally, Mobile Storage Group purchases used portable storage
products from its vendors directly for resale. In addition,
Mobile Storage Group occasionally sells new portable storage
products that it has purchased directly from the manufacturer or
its agents. Buying portable storage products directly for resale
adds scale to Mobile Storage Groups purchasing, which is
beneficial to overall supplier relationships and purchasing
terms. In the normal course of managing its business, Mobile
Storage Group also sells used portable storage products directly
from its lease fleet. The sale of these in-fleet units has
historically been a cost-effective method of replenishing and
upgrading its lease fleet.
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Mobile Storage Groups sales business includes modifying or
customizing units to meet customer requirements. Modifications
requested by customers range from painting or installing shelves
or lock boxes to more substantive conversions of units into
finished, portable, insulated, air-conditioned mobile office
units that include doors and windows.
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Delivery,
Pick-up and
Repositioning of Portable Storage
Products. Mobile Storage Group delivers portable
storage products directly to its customers premises using
specialized delivery vehicles, and Mobile Storage Group charges
its customers a delivery and
pick-up fee.
Once its portable storage products are placed on a
customers site, Mobile Storage Group can also reposition
the units. Mobile Storage Group subcontracts some of this
delivery and repositioning work to third parties.
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Other Ancillary Products and Services. Mobile
Storage Group leases furniture, steps, shelving and other items
to its customers for their use in connection with its portable
storage products. Mobile Storage Group also offers its lease
customers a damage waiver program that protects them in case the
leased unit is damaged. For customers who do not select the
damage waiver program, Mobile Storage Group bills them for the
cost of any repairs.
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Branch
Network
Mobile Storage Group operates its business through 89 branch
locations throughout the U.S. and U.K. Because geographic
accessibility to customers is a necessity of the portable
storage industry, Mobile Storage Group believes that its
strategy of employing a broad branch network allows it to better
serve its existing customers and attract new customers.
Mobile Storage Groups 89 locations are managed by 83
branch managers, with some branch managers assigned to oversee
one or more smaller locations in markets adjacent to their
primary branch. Mobile Storage Groups branches typically
have a sales staff dedicated to the local market, with
transportation personnel responsible for delivery and
pick-up of
its units and yard personnel responsible for loading and
unloading units and performing modifications, repairs and
maintenance. In certain regions of the U.S., some of Mobile
Storage Groups branches also act as hubs. These hubs serve
as the primary procurement, modification and maintenance centers
for branches located within the region. These hubs help lower
the operating costs of Mobile Storage Groups non-hub
branches and provide non-hub branches with a broader selection
of portable storage products.
In addition, Mobile Storage Group occasionally uses agency
arrangements to supplement its branch network. In a typical
agency arrangement, an independent contractor stores, delivers
and retrieves Mobile Storage Groups equipment in return
for delivery and
pick-up fees
and commissions on revenues. Mobile Storage Group believes that
agencies, which typically have a lease fleet of 50 to
300 units, are a cost-effective way of expanding into new
markets. When a critical level of leasing and sales volume is
attained in these markets, Mobile Storage Group reviews its
agency relationships to determine if a stand-alone operation or
an acquisition in that market would be prudent. Agency
agreements are typically renewable annually and cancelable upon
60 days notice prior to their applicable renewal
dates. Mobile Storage Group has 10 agencies in addition to its
89 branch locations. At December 31, 2007, approximately
1,160 storage containers and storage trailers or approximately
1% of Mobile Storage Groups total lease fleet were leased
to its customers through agency arrangements.
Refurbishment
and Maintenance of Fleet
Mobile Storage Group typically refurbishes used storage
containers before adding them to its lease fleet. Refurbishment
can include removing rust and dents, repairing floors, painting,
installing new seals around the doors and installing a new
locking system. These refurbishments are typically performed at
the branch locations, but in some circumstances, the units are
refurbished by one of Mobile Storage Groups hub locations
before being sent to a branch. To meet specialized demand for
products, Mobile Storage Group also on occasion performs
customizations of units, including splitting units to create
multiple smaller units and other substantial modifications.
These customizations can be performed by Mobile Storage
Groups U.S. hubs and some of its larger branch
locations. Smaller U.S. branches and Mobile Storage
Groups U.K. branches typically outsource the splitting of
units to a third party.
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Used storage trailers typically require similar refurbishments
as those described for storage containers, but may also require
unique refurbishments, including repairing or replacing brakes
and brake lights and replacing tires. Many of these trailer
refurbishments are done by Mobile Storage Groups hubs and
branches, but brake repairs are typically performed by third
parties.
Mobile Storage Groups mobile office units are typically
bought new and do not require refurbishment when purchased. In
certain circumstances, Mobile Storage Groups offices
require assembly, which is also outsourced to a third party.
Ongoing maintenance to Mobile Storage Groups lease fleet
is performed on an as-needed basis and is intended to maintain
the value of its units and keep them in lease-ready condition.
Most of this maintenance on storage containers, storage trailers
and mobile offices is primarily performed in-house. Maintenance
requirements on containers are generally minor and include
removing rust and dents, patching small holes, repairing floors,
painting and replacing seals around the doors. Storage trailer
maintenance may also include repairing or replacing brakes,
lights, doors and tires. Brake repairs are typically outsourced.
Maintenance requirements for offices tend to be more significant
than for storage containers or storage trailers and may involve
repairs of electric wiring, air conditioning units, doors,
windows and roofs. Major office repairs are often outsourced.
Whether performed by Mobile Storage Group or a third party, the
cost of maintenance and repair of Mobile Storage Groups
lease fleet is included in its yard costs.
Customers
Mobile Storage Group has established strong relationships with a
diverse set of customers, ranging from large national retailers
and manufacturers to local sole proprietors. During 2007, Mobile
Storage Group leased its portable storage products to a
diversified base of approximately 45,000 national, regional and
local companies in more than 850 four-digit standard industrial
classification codes including the construction, services,
retail, manufacturing, transportation, utilities, wholesale and
government sectors. In 2007, Mobile Storage Groups largest
customer accounted for approximately 2% of total revenues and
its top ten customers accounted for approximately 10% of its
total revenues.
In terms of Mobile Storage Groups sales business during
2007, Mobile Storage Groups largest sales customer
accounted for approximately 11% of total sales revenues and its
top ten sales customers accounted for approximately 23% of its
total sales revenues.
Historically, Mobile Storage Groups customer base in the
U.S. and U.K. has been relatively stable from year to year.
Mobile Storage Group estimates that its U.S. lease and
lease related revenues and U.S. sales revenues in 2007 came
from the following end markets:
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End Markets U.S. Leasing
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End Markets U.S. Sales
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Mobile Storage Group estimates that its U.K. lease and lease
related revenues and U.K. sales revenues in 2007 came from the
following end markets:
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End Markets U.K. Leasing
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End Markets U.K. Sales
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On an aggregate basis, Mobile Storage Group estimates that its
most significant customers in terms of revenues participate in
the construction, services, retail, manufacturing,
transportation, communications and utilities, wholesale and
government sectors.
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Construction. Construction customers include a
diverse selection of contractors and subcontractors who work on
both residential buildings and commercial projects, such as
office buildings, warehouses, highway and street repair, and
plant shutdowns and refurbishments. Mobile Storage Group
believes its construction customer base is characterized by a
wide variety of contractors and subcontractors, including
general contractors, mechanical contractors, plumbers,
electricians and roofers. Contractors typically use storage
containers to securely store construction materials and supplies
at construction sites. They also lease Mobile Storage
Groups mobile office units to provide
on-site
offices and facilities. Because many of Mobile Storage
Groups customers operate in multiple segments of the
construction industry, it is difficult for Mobile Storage Group
to determine exactly to what extent its units are used in
commercial versus residential construction. Nevertheless, Mobile
Storage Group believes the majority of its lease and lease
related revenue is derived from the commercial construction
market. Demand from Mobile Storage Groups construction
customers tends to be higher in the second and third quarters
when the weather is warmer, particularly in the U.S.
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Services. Service customers include equipment
leasing companies that sublease Mobile Storage Groups
equipment, entertainment companies, schools, hospitals, medical
offices and theme parks. These customers typically use Mobile
Storage Groups storage containers to store a wide variety
of goods. These customers also lease mobile offices for special
events.
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Retail. Retail customers include both large
national chains and small local stores. These customers
typically lease storage containers and storage trailers to store
excess inventory and supplies. Retail customers also use Mobile
Storage Groups storage products during store remodeling or
refurbishment. Demand from these customers can be seasonal and
tends to peak during the winter holidays.
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Manufacturing. Manufacturing customers include
a broad array of manufacturers, including oil refineries,
petrochemical refineries, carpet manufacturers, textile
manufacturers and bottling companies. They generally lease
storage containers and storage trailers to store both inventory
and raw materials.
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Transportation, Communication and
Utilities. These customers include freight
forwarders, recycling plants, electric utilities and marinas.
These customers use storage containers and storage trailers to
store a wide variety of materials and goods.
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Wholesale. Wholesale customers include food
suppliers, furniture wholesalers and apparel wholesalers. These
customers typically lease storage containers and storage
trailers to store their inventories.
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Government. Government customers include
public schools, correctional institutions, fire departments as
well as the U.S. military. These customers generally lease
storage containers and storage trailers to safeguard materials
used in their day-to-day operations and various government
projects.
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104
Sales and
Marketing
As of March 31, 2008, Mobile Storage Groups sales and
marketing team consisted of 254 people of which 210 are in
the U.S. and 44 are in the U.K. Members of Mobile Storage
Groups sales group act as its primary customer service
representatives and are responsible for fielding calls,
processing credit applications, quoting prices and handling
orders. Mobile Storage Groups marketing group is primarily
responsible for coordinating direct mail and other advertising
campaigns, producing company literature, creating promotional
sales tools and performing the administration of its sales
management tools using Salesforce.coms CRM application.
Mobile Storage Groups centralized support services group
handles all billing, collections and other support functions,
allowing its sales and marketing team to focus on addressing the
needs of its customers. Mobile Storage Groups marketing
programs emphasize the cost-savings and convenience of using its
products versus constructing temporary or permanent storage
facilities. Mobile Storage Groups market its services
through a number of promotional vehicles, including the yellow
pages, prominent branding of its equipment, telemarketing,
targeted mailings, trade shows and limited advertising in
publications.
The development of Mobile Storage Groups marketing
programs involves branch managers, regional vice presidents and
senior management, all of whom participate in devising
branch-by-branch
marketing strategies, demand forecasts and its branch marketing
budgets. Mobile Storage Groups branch managers, working
with its corporate marketing team, determine the timing, content
and target audience of direct mailings, specials and promotional
offers, while its corporate office manages the marketing process
itself to ensure the consistency of its message, achieve
economies of scale and relieve its local branches of the
administrative responsibility of running its marketing programs.
Mobile Storage Groups believes that its approach to
marketing is consistent with the local nature of its business
and allows each branch to employ a customized marketing plan
that fosters growth within its particular market.
In an effort to further develop relationships with
multi-regional and national customers who generally centralize
their procurement of portable storage products, Mobile Storage
Group implemented its U.S. national accounts program in
1999, under which Mobile Storage Group enters into agreements
with customers to provide them with a single contact for
nationwide account servicing and pricing. All of Mobile Storage
Groups national accounts customers have the ability to
access its extranet and view the status of their lease units on
a location and unit basis in real time. As of December 31,
2007, Mobile Storage Group had ten customer service
representatives and four members of its sales and marketing team
dedicated to its U.S. national accounts program. Mobile
Storage Groups national accounts customers in the
U.S. generated approximately 21% of its U.S. lease and
lease related revenues in 2007.
In addition to its traditional sales and marketing efforts,
Mobile Storage Group has established strategic relationships
with several equipment leasing companies that have designated
Mobile Storage Group as a preferred vendor of storage units.
Through these relationships, Mobile Storage Groups
strategic partners will offer its storage units through their
retail networks to their customers in return for a commission.
Investment
in Lease Fleet
Mobile Storage Group expands its lease fleet both by making
capital expenditures and by acquiring fleets owned by other
businesses. The amount Mobile Storage Group spends is highly
discretionary and can be readily adjusted to respond to business
needs and prevailing economic conditions. Mobile Storage Group
is not committed to any material long-term purchase contracts
with suppliers or manufacturers. Additionally, given the long
life and durability of its lease fleet assets, Mobile Storage
Group does not have the fleet replacement issues faced by many
general equipment leasing companies whose estimated useful life
for their fleet assets are generally up to 10 years. By
contrast, Mobile Storage Groups lease fleet assets have
useful lives of between 10 and 20 years.
Mobile Storage Group closely monitors capital expenditures for
additions to its fleet, as well as those incurred in connection
with upgrades, conversions and modifications of its existing
units. Mobile Storage Group reviews all fleet capital
expenditures at the branch and corporate levels to ensure that
Mobile Storage Group is investing its capital prudently,
including by reviewing utilization rates and evaluating
specified return on invested capital.
105
Mobile Storage Group purchases used fleet containers from
container leasing companies, shipping lines, container depots
and brokers and new containers from manufacturers in China or
their agents. Container leasing companies are companies that
lease containers primarily to the large shipping companies that
use these containers to store goods as they transport them over
the ocean. After using a container for a number of years, the
container leasing companies and the shipping lines will often
sell their used containers to brokers or portable storage
companies like Mobile Storage Group. Container depots are
typically companies located near seaports that store and
maintain containers for the container leasing companies and the
shipping companies. They often sell used containers on behalf of
the shipping companies and container leasing companies or buy
and then resell the units themselves.
Mobile Storage Group purchases its storage trailers primarily
from trailer leasing companies and trucking companies. Mobile
Storage Group purchases the majority of its mobile office units
new directly from the manufacturers. These manufacturers are
located primarily in the U.K., China and the U.S. Because
most of the mobile offices that Mobile Storage Group purchases
have been made primarily of steel, the price of those units
tends to fluctuate with the price of steel.
Mobile Storage Group supplements its fleet spending with
acquisitions. Since January 2002, Mobile Storage Group has
completed 38 in-market acquisitions and 27 new
market acquisitions in the U.S. and U.K. Mobile Storage
Group believes that acquisitions provide it with an attractive
growth alternative given the prices it pays and its extensive
acquisition and integration experience. Mobile Storage Group
generally acquires assets and operations similar to its own, and
these acquisitions extend its customer base. Acquisitions are
generally fully integrated into Mobile Storage Groups
existing locations within one to three weeks. While the timing
and cost of acquisitions are difficult to predict, Mobile
Storage Group regularly evaluates such opportunities.
While Mobile Storage Group is not a party to any long term
supply agreements and demand has varied over time, Mobile
Storage Group believes there is a sufficient supply of both new
and used storage containers, storage trailers and mobile
offices. If Mobile Storage Group was unable for any reason to
continue its relationship with its existing suppliers, Mobile
Storage Group believes there are multiple alternative sources of
supply available to it on similar terms for the purchase of both
new and used portable storage products and mobile offices.
Mobile Storage Group also believes that such supply will
continue to be sufficient to meet its demand for the foreseeable
future.
Management
Information and Back Office Systems
Mobile Storage Groups management information systems,
including the RentalMan software program, are scalable and
provide it with critical information to help Mobile Storage
Group manage its business. Utilizing its systems, Mobile Storage
Group tracks a number of key operating and financial metrics
including utilization, lease rates, customer trends and fleet
data. All Mobile Storage Groups branches use RentalMan and
are electronically linked to its AS/400 mainframe system. Branch
managers and corporate management use RentalMan to monitor
pricing, utilization and customer activity. With RentalMan,
Mobile Storage Group can individually track the units in its
lease fleet and monitor the performance of each of its branch
locations on a real-time basis. Mobile Storage Group has also
supplemented the information provided by RentalMan with a
database system that provides branch managers with an
Internet-based tool through which they can easily monitor on a
daily basis their branch performance using a number of key
metrics. Mobile Storage Groups systems also capture
detailed customer and usage information which it uses to target
new customers as well as increase the penetration of its
existing customer base.
Mobile Storage Group enhanced its information systems by
implementing sales management tools using Salesforce.coms
CRM software applications to more effectively provide leads to
its sales force and track the success of its sales and marketing
efforts. The implementation of Salesforce.coms CRM
software applications has been completed in the U.S. and in
the U.K.
Billing
and Lease Terms
Mobile Storage Group manages its billing process centrally from
its administrative support office located in Burbank, California
for its operations in the U.S. and at its
Stockton-on-Tees,
England office for its operations in the U.K. Each of its
branches maintains a price book with rates that are determined
centrally and reviewed by Mobile
106
Storage Groups senior management. Mobile Storage Group
generally invoices its U.S. customers in advance on a
28-day cycle
and its U.K. customers monthly in arrears.
The lease period for Mobile Storage Groups portable
storage products varies, but averages approximately
15 months for storage containers and 22 months for
trailers. Leases for Mobile Storage Groups units are
typically structured on a month-to-month basis with no fixed
term. In addition to the monthly lease rates, Mobile Storage
Groups customers are responsible for the costs of delivery
and pickup.
Competition
With the exception of mobile offices in the U.S., the portable
storage industry is highly fragmented, with numerous
participants at the local level leasing and selling storage
containers, storage trailers and other structures used for
temporary storage. Mobile Storage Group also competes with
conventional fixed self-storage facilities. Mobile Storage Group
believes that participants in its industry compete on the basis
of customer relationships, price, service, delivery speed and
breadth and quality of equipment offered. In every area Mobile
Storage Group serves, Mobile Storage Group competes with
multiple local, regional, and national portable storage
providers. Some of Mobile Storage Groups competitors may
have greater market share, less indebtedness, greater pricing
flexibility or superior marketing and financial resources.
Mobile Storage Groups largest competitors in the storage
container and storage trailer markets in the U.S. are
Mobile Mini, Inc., Williams Scotsman International, Inc., PODS,
Moveable Cubicle, Eagle Leasing and National Trailer Storage.
Mobile Storage Groups largest competitors in the
U.S. mobile office market are ModSpace and Williams
Scotsman International, Inc. Mobile Storage Groups largest
competitors in the storage container and mobile office markets
in the U.K. are Elliott Group, Speedy Space, Mobile Mini UK and
Hewden Stuart. Mobile Storage Group also competes with
fixed-site self-storage facilities, such as U-Haul
International, Inc., Public Storage, Inc. and Shurgard Storage
Centers, Inc.
Trademarks
and Trade Names
Mobile Storage Group owns or has rights to trademarks or trade
names that it uses in conjunction with the operation of its
business. The logo
MS®,
The Mobile Storage
Group®,
Tunnel-Tainer®
and Mobile Services
Grouptm
are Mobile Storage Groups registered trademarks in the
U.S. Ravenstock
MSG®,
Ravenstock MSG
Ltd®.
with the flying box logo, MS The Mobile Storage
Group®,
and the logo MS with the words The Mobile
Storage Group are Mobile Storage Groups
registered trademarks in the U.K. Mobile Storage Group uses the
Ravenstock
MSG®
trademark in the U.K. but it has not applied for
registration of this trademark in the U.S. Each trademark,
trade name or service mark of any other company appearing in
this proxy statement belongs to its holder.
Properties
Corporate Headquarters. Mobile Storage Group
maintains its headquarters in a facility of approximately
16,000 square feet in Glendale, California, which is
approximately 8 miles north of downtown Los Angeles. Mobile
Storage Groups executive, financial, accounting, legal,
marketing and human resources functions are located there. The
lease of the headquarters will expire in September 2015. Mobile
Storage Groups European headquarters is located in
Stockton-on-Tees,
England where Mobile Storage Group leases 10,000 square
feet of office space. The term on this lease is through July
2017.
Branch Locations. Mobile Storage Group owns
its branch locations in Gardena, California; Fresno, California;
Chicago, Illinois; Bridgend, Wales; and Manningtree, England.
Mobile Storage Group leases all of its other branch locations.
Most of Mobile Storage Groups major leased properties have
remaining lease terms of at least 1 year, and Mobile
Storage Group believes that none of its individual branch
locations is material to its operations, and Mobile Storage
Group also believes that satisfactory alternative properties
could be found in all of its markets if necessary.
Employees
As of March 31, 2008, Mobile Storage Group had
approximately 980 employees, of whom approximately 660 were
located in the U.S. and approximately 320 in the U.K.
Mobile Storage Group has not had a work stoppage
107
since its founding in 1987, and none of its personnel are
represented under collective bargaining agreements with it.
Mobile Storage Group believes it has good relations with its
employees.
Regulatory
and Environmental Compliance
Mobile Storage Group is subject to certain federal, state, local
and foreign environmental, transportation, health and safety
laws and regulations. Mobile Storage Group incurs significant
costs to comply with these laws and regulations, but from time
to time Mobile Storage Group may be subject to additional costs
and penalties as a result of non-compliance. The discovery of
currently unknown matters or conditions, new laws and
regulations or different enforcement or interpretation of
existing laws and regulations could materially harm its business
or operations in the future.
In the U.S., Mobile Storage Group is subject to federal, state
and local laws and regulations that govern and impose liability
for activities and operations which may have adverse
environmental effects such as discharges to air and water, as
well as handling and disposal practices for hazardous substances
and other wastes under the Comprehensive Environmental Response,
Compensation, and Liability Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act and similar
state and local laws and regulations. In the ordinary course of
business, Mobile Storage Group uses and generates substances
that are regulated or may be hazardous under environmental laws.
Environmental laws also may impose liability for activities such
as soil or groundwater contamination and off-site waste
disposal, including such contamination or disposal that occurred
prior to the acquisition of its businesses. Mobile Storage Group
may incur costs related to alleged environmental damage
associated with past or current properties owned or leased
by it.
In the U.K., Mobile Storage Groups operations are subject
to the requirements of the Environmental Protection Act, the
Health and Safety at Work Act and the Town and County Planning
Acts, and under these statutes, are subject to regulation by the
Environment Agency, the Health and Safety Executive and local
government authorities.
Mobile Storage Group has conducted preliminary environmental
assessments on some of its owned and leased properties,
primarily those acquired from Raven Hire Limited in November
2001. These assessments generally consist of an investigation of
environmental conditions at the subject property (not including
soil or groundwater sampling or analysis), as well as a review
of available information regarding the site and publicly
available data regarding conditions at other sites in the
vicinity. As a result of these property assessments, Mobile
Storage Group has become aware that current or former operations
or activities at some of its properties have not been or may not
be in compliance with environmental laws relating to such
matters as air emissions, wastewater discharges and hazardous
substance use, or may have resulted in soil
and/or
groundwater contamination. In this regard, certain such
facilities are the subject of environmental investigations or
remedial actions.
To date, no environmental matter has been material to Mobile
Storage Groups operations. Based on its past experience
and the estimated costs of matters identified in the preliminary
environmental assessments, Mobile Storage Group believes that
any environmental matters relating to Mobile Storage Group of
which it is currently aware will not be material to its overall
business or financial condition. Mobile Storage Group does not
currently maintain environmental insurance.
Legal
Proceedings
Mobile Storage Group is a party to various legal proceedings
arising in the normal course of its business. Mobile Storage
Group carries insurance, subject to deductibles under the
specific policies, to protect it against losses from legal
claims. Mobile Storage Group is not a party to any material
legal proceedings nor, to its knowledge, is any material legal
proceeding threatened against it.
108
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of May 30,
2008 with respect to the beneficial ownership of shares of our
common stock by:
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each of our directors, director nominees and named executive
officers;
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all of our named executive officers and directors as a
group; and
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each person we know to be the beneficial owner of 5% or more of
the outstanding shares of common stock.
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Beneficial ownership is determined in accordance with
Rule 13d-3
under the Exchange Act, and generally includes voting or
investment power over securities. Under this rule, a person is
deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days of May 30, 2008
upon the exercise of options. Each beneficial owners
percentage ownership is determined by assuming that all options
held by such person that are exercisable within 60 days of
May 30, 2008 have been exercised. Except in cases where
community property laws apply or as indicated in the footnotes
to this table, we believe that each stockholder identified in
the table possesses sole voting and investment power over all
shares of common stock shown as beneficially owned by the
stockholder.
Unless otherwise noted, the address of each person named in the
table is 7420 South Kyrene Road, Suite 101, Tempe, Arizona
85283.
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Name
|
|
Number
|
|
|
Percent
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Directors and Executive Officers:
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|
|
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Kyle G. Blackwell(1)
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135,669
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*
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Steven G. Bunger(2)
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880,278
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2.5
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%
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Martin T Crayden(3)
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37,211
|
|
|
|
*
|
|
Jeffrey S. Goble(4)
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16,250
|
|
|
|
*
|
|
Jon D. Keating(5)
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208,457
|
|
|
|
*
|
|
Deborah K. Keeley(6)
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109,754
|
|
|
|
*
|
|
Russell C. Lemley(7)
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53,106
|
|
|
|
*
|
|
Ronald E. Marshall(8)
|
|
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32,796
|
|
|
|
*
|
|
Ronald J. Marusiak(9)
|
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|
182,506
|
|
|
|
*
|
|
Stephen A McConnell(10)
|
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85,000
|
|
|
|
*
|
|
Lawrence Trachtenberg(11)
|
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384,529
|
|
|
|
1.1
|
%
|
Michael L. Watts(12)
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|
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25,000
|
|
|
|
*
|
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All directors and executive officers as a group
(12 persons)(13)
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2,150,556
|
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|
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6.0
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%
|
5% Holders:
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|
|
|
|
|
|
|
T. Rowe Price Associates, Inc.(14)
|
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|
3,144,700
|
|
|
|
9.1
|
%
|
Thomas R. Smith(15)
|
|
|
2,922,009
|
|
|
|
8.4
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%
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Scott J. Vassalluzzo(15)
|
|
|
2,311,048
|
|
|
|
6.7
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%
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TimesSquare Capital Management, LLC(16)
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|
2,188,580
|
|
|
|
6.3
|
%
|
Columbia Wanger Asset Management, L.P.(17)
|
|
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2,750,000
|
|
|
|
7.9
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%
|
Barclays Global Investors(18)
|
|
|
1,755,096
|
|
|
|
5.1
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%
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* |
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Less than 1% |
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(1) |
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Includes: 106,896 shares of common stock owned by REB/BMB
Family Limited Partnership, of which Mr. Blackwell is a
member or partner; 1,977 shares of common stock held
indirectly in the Mobile Mini 401(k) plan; 6,000 shares of
common stock subject to exercisable options; and
20,796 shares of restricted stock which are forfeitable
until vested. |
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(2) |
|
Includes: 49,000 shares of common stock owned by Bunger
Holdings, L.L.C.; 213,794 shares of common stock owned by
REB/BMB Family Limited Partnership, of which Mr. Bunger is
a member or partner; |
109
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5,000 shares held directly; 6,429 shares of common
stock held indirectly in the Mobile Mini 401(k) plan;
496,000 shares of common stock subject to exercisable
options; and 110,055 shares of restricted stock which are
forfeitable until vested. |
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(3) |
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Includes: 6,000 shares of common stock subject to
exercisable options and 31,211 shares of restricted stock
which are forfeitable until vested. |
|
(4) |
|
Includes: 2,500 shares of common stock and
13,750 shares of common stock subject to exercisable
options. |
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(5) |
|
Includes: 34,000 shares of common stock owned by Bunger
Holdings, L.L.C.; 148,908 shares of common stock owned by
REB/BMB Family Limited Partnership, of which Mr. Keating is
a member or partner; 1,814 shares of common stock held
indirectly in the Mobile Mini 401(k) plan; 7,200 shares of
common stock subject to exercisable options; and
16,535 shares of restricted stock which are forfeitable
until vested. |
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(6) |
|
Includes: 4,925 shares of common stock held indirectly in
the Mobile Mini 401(k) plan; 72,000 shares of common stock
subject to exercisable options; and 32,829 shares of
restricted stock which are forfeitable until vested. |
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(7) |
|
Includes: 1,568 shares of common stock held indirectly in
the Mobile Mini 401(k) plan; 17,000 shares of common stock
subject to exercisable options and 34,538 shares of
restricted stock which are forfeitable until vested. |
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(8) |
|
Includes: 12,000 shares of common stock subject to
exercisable options and 20,796 shares of restricted stock
which are forfeitable until vested. |
|
(9) |
|
Includes: 85,006 shares of common stock and
97,500 shares of common stock subject to exercisable
options. |
|
(10) |
|
Includes: 62,500 shares of common stock and
22,500 shares of common stock subject to exercisable
options. |
|
(11) |
|
Includes: 10,500 shares of common stock held directly;
4,030 shares of common stock held indirectly;
6,650 shares of common stock held indirectly in the Mobile
Mini 401(k) plan; 280,000 shares of common stock subject to
exercisable options and 83,349 shares of restricted stock
which are forfeitable until vested. |
|
(12) |
|
Includes: 2,500 shares of common stock and
22,500 shares of common stock subject to exercisable
options. |
|
(13) |
|
Includes: 747,997 shares of common stock;
1,052,450 shares of common stock subject to exercisable
options and 350,109 shares of restricted stock which are
forfeitable until vested. |
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(14) |
|
Based solely on the information provided in Amendment No. 9
to Schedule 13G jointly filed by T. Rowe Price Associates, Inc.,
or TRP, and T. Rowe Price New Horizons Fund, Inc., or Fund, (or
collectively the Reporting Persons), with the Securities and
Exchange Commission dated February 13, 2008 and on
Form 13F filed for the quarter ended March 31, 2008.
Of the 3,144,700 shares, TRP has sole voting power with
respect to 818,800 shares and sole dispositive power with
respect to 3,144,700 shares, and Fund has sole voting power
with respect to 2,291,400 shares. TRP is an Investment
Adviser registered under the Investment Advisers Act of 1940 (an
Investment Adviser and Fund is an Investment Company
registered under Section 8 of the Investment Company Act of
1940. No individual clients holdings of the shares are
more than 5% of Mobile Minis outstanding shares of common
stock. The address for TRP and Fund is 100 E. Pratt
Street, Baltimore, Maryland 21202. |
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(15) |
|
Included in the shares of common stock indicated as beneficially
owned by Thomas W. Smith, or Smith, and Scott J. Vassalluzzo, or
Vassalluzzo, are 2,183,219 shares as to which they have
shared voting and shared dispositive power. In addition, Smith
beneficially owns 469,240 shares of common stock as to
which he has sole voting and dispositive power and Vassalluzzo
beneficially owns 27,000 shares of common stock as to which
he has sole voting and dispositive power. Of the shares
indicated as beneficially owned by Smith and Vassalluzzo,
2,572,838 shares in the aggregate are beneficially owned in
their capacities as investment managers for certain managed
accounts. The foregoing is based on the information provided in
Amendment No. 7 to Schedule 13G filed by Smith and
Vassalluzzo with the Securities and Exchange Commission dated
February 14, 2008 and on Form 13F filed by Prescott
Investors, Inc., for the quarter ended March 31, 2008. The
principal office of Smith and Vassalluzzo is 323 Railroad
Avenue, Greenwich, Connecticut 06830. |
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(16) |
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Based solely on the information provided on Form 13F filed
by TimesSquare Capital Management, LLC, or TimesSquare, for the
quarter ended March 31, 2008. TimesSquare is an Investment
Adviser. No individual |
110
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clients holdings of the shares are more than 5% of Mobile
Minis outstanding shares of common stock. The address of
TimesSquare is 1177 Avenue of the Americas, 39th Floor, New
York, NY 10036. |
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(17) |
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Based solely on the information provided in Schedule 13G
filed by Columbia Wanger Asset Management, L.P. and Columbia
Acorn Trust, under a Joint Filing Agreement, or Columbia, with
the Securities and Exchange Commission dated January 23,
2008 and on Form 13F filed for the quarter ended
March 31, 2008. Columbia has sole dispositive power over
2,750,000 shares. Columbia is an Investment Adviser. The
address of Columbia is 227 West Monroe Street,
Suite 3000, Chicago, IL 60606. |
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(18) |
|
Based solely on the information provided by Barclays Global
Investors, NA., or Barclays, Barclays Global Fund Advisors, or
Advisors, and Barclays Global Investors, Ltd., or Investors, (or
collectively the Barclays Entities), on Form 13F filed for
the quarter ended March 31, 2008. The address of Barclays,
Advisors, and Investors is 45 Fremont Street,
San Francisco, CA 94105. |
INFORMATION
ABOUT STOCKHOLDER PROPOSALS
Whether or not the merger is completed, Mobile Mini intends to
hold its annual meeting of stockholders in 2009. Stockholders
who seek to nominate directors or to present proposals for
inclusion in the proxy statement and form of proxy, or otherwise
for consideration at the annual meeting must timely submit
nominations of directors or other proposals to us in addition to
complying with certain rules and regulations promulgated by the
Securities and Exchange Commission. We intend to hold our 2009
annual meeting during June 2009. We must receive proposals for
our 2009 annual meeting no later than January 18, 2009, for
possible inclusion in the proxy statement, or between March 1
and March 31, 2009, for possible consideration at the
meeting.
Direct any proposals, as well as related questions, to our
Corporate Secretary at the address set forth on the first page
of this proxy statement.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange
Act, and in accordance with these requirements, we file annual,
quarterly and special reports, proxy statements and other
information with the SEC. Excerpts from our Annual Report on
Form 10-K, as amended by
Form 10-K/A
for the year ended December 31, 2007 are included in
Annex C to this proxy statement and a copy of our
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 is attached as
Annex D to this proxy statement. You may read any
document we file with the SEC, including the registration
statement and its exhibits, on the Internet at the SECs
web site at www.sec.gov. Our website, www.mobilemini.com, has
copies of the annual and quarterly reports as well under the
heading Investor Information. You may also read and
copy any document we file with the SEC at its public reference
facilities at 100 F Street, N.E.,
Washington, D.C. 20549. You can also obtain copies of these
documents at prescribed rates by writing to the Public Reference
Section at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for further information on the operations of the public
reference facilities.
The SEC allows us to incorporate by reference into
this proxy statement the information contained in certain
documents we filed with the SEC, which means that we can
disclose important information to you by referring to those
documents. The information incorporated by reference is
considered to be part of this proxy statement, and later
information that we file with the SEC will update and supersede
that information. Any statement contained in a document that is
that is an annex to this proxy statement is automatically
updated and superseded if information contained in this proxy
statement, or information that we later file with the SEC,
modifies or replaces the statement. Although we have not
incorporated by reference any of our prior filings into this
proxy statement as of the date of this proxy statement, we
incorporate by reference any documents filed by us pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this proxy statement and before the date of the
special meeting.
To receive a free copy of this proxy statement, the opinion or
the periodic reports from which excerpts are included in this
proxy statement and any information concerning us, write to us
at Mobile Mini, Inc. 7420 South Kyrene Road,
Suite 101. Tempe, AZ 85283. Attention: Investor Relations.
111
You should rely only on the information contained in this
proxy statement to vote on the Proposals in connection with the
merger. No person has been authorized to give any information or
to make any representations not contained in this proxy
statement in connection with the offer described in this proxy
statement and, if given or made, such information and
representations must not be relied upon as having been
authorized by us. Neither the delivery of this proxy statement
nor the issuance of shares of Mobile Mini preferred stock in
connection with the merger shall under any circumstances create
any implication that there has been no change in the affairs of
Mobile Mini, Inc. since the date hereof.
OTHER
MATTERS
The Board of Directors of Mobile Mini does not know of any
matters to be presented at the special meeting other than those
set forth in the Notice of special meeting accompanying this
proxy statement. However, if any other matters properly come
before the meeting, the persons named in the enclosed proxy card
intend to vote on such matters the shares they represent as the
Board of Directors of Mobile Mini may recommend.
Pursuant to the rules of the SEC, we and services that we employ
to deliver communications to our stockholders are permitted to
deliver to two or more stockholders sharing the same address a
single copy of each of our Annual Report to stockholders and our
proxy statement. Upon written or oral request, we will deliver a
separate copy of the Annual Report to stockholders
and/or proxy
statement to any stockholder at a shared address to which a
single copy of each document was delivered and who wishes to
receive separate copies of such documents in the future.
Stockholders receiving multiple copies of such documents may
likewise request that we deliver single copies of such documents
in the future. Stockholders may notify us of their requests by
calling or writing us at our investor relations firm at The
Equity Group, Inc., 800 Third Avenue, 36th Floor, New York,
New York 10022, telephone
(212) 836-9609.
It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. You are,
therefore, urged to execute promptly and return the accompanying
proxy in the envelope which has been enclosed for your
convenience. Stockholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may
refrain from voting in person and allow their proxies to be
voted.
By Order of
the Board of Directors
Sincerely,
Lawrence Trachtenberg
Secretary
Tempe, Arizona
June 4, 2008
112
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Mobile
Mini Financial Statements
Excerpts from the Mobile Mini Annual Report on
Form 10-K,
as amended by
Form 10-K/A,
for the fiscal year ended December 31, 2007 and the Mobile
Mini Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2008 including the
financial statements and notes thereto included therein are
included in Annex C and Annex D to, and
incorporated by reference into, this proxy statement.
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Page
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MSG WC Holdings Corp. Consolidated Financial Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-8
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F-29
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F-30
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F-31
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F-33
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F-1
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Ernst & Young LLP
21800 Oxnard Street
Suite 500
Woodland Hills, California 91367
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Phone: (818) 703-4700
www.ey.com
|
REPORT OF
INDEPENDENT AUDITORS
Board of Directors and Stockholders
MSG WC Holdings Corp.
We have audited the accompanying consolidated balance sheets of
MSG WC Holdings Corp. as of December 31, 2006 and
December 31, 2007 (Successor Company), and the related
consolidated statements of operations, stockholders equity
and cash flows for the year ended December 31, 2005
(Predecessor Company), the periods from January 1, 2006 to
August 1, 2006 (Predecessor Company), and from
August 2, 2006 to December 31, 2006 (Successor
Company), and the year ended December 31, 2007 (Successor
Company). These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Companys 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
Companys 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 financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1 to the consolidated financial
statements, Mobile Services Group, Inc. consummated a
transaction with MSG WC Holdings Corp. on August 1, 2006.
As a result, the periods presented in the accompanying
consolidated financial statements reflect a new basis of
accounting beginning August 2, 2006.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of MSG WC Holdings Corp. as of
December 31, 2006 and December 31, 2007 (Successor
Company), and the consolidated results of their operations and
their cash flows for the year ended December 31, 2005
(Predecessor Company), the periods from January 1, 2006 to
August 1, 2006 (Predecessor Company), and from
August 2, 2006 to December 31, 2006 (Successor
Company), and the year ended December 31, 2007 (Successor
Company) in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial
statements, Mobile Services Group, Inc. changed its method of
accounting for Share-Based Payments in accordance with Statement
of Financial Accounting Standards No. 123 (revised
2004) on January 1, 2006.
Woodland Hills, California
March 18, 2008
A Member
Practice of Ernst & Young Global
F-2
MSG WC
HOLDINGS CORP.
|
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Successor
|
|
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|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
ASSETS:
|
Cash and cash equivalents
|
|
$
|
1,469
|
|
|
$
|
2,331
|
|
Accounts receivable, net of allowance for doubtful accounts of
$701 and $1,316 at December 31, 2006 and 2007, respectively
|
|
|
30,342
|
|
|
|
34,595
|
|
Inventories
|
|
|
5,550
|
|
|
|
14,492
|
|
Lease equipment, net of accumulated depreciation of $5,384 and
$17,622 at December 31, 2006 and 2007, respectively
|
|
|
297,776
|
|
|
|
344,415
|
|
Property and equipment, net of accumulated depreciation of
$1,617 and $6,534 at December 31, 2006 and 2007,
respectively
|
|
|
19,973
|
|
|
|
29,077
|
|
Goodwill
|
|
|
298,079
|
|
|
|
313,885
|
|
Other intangible assets, net
|
|
|
77,955
|
|
|
|
76,402
|
|
Deferred financing costs, net
|
|
|
15,246
|
|
|
|
13,111
|
|
Prepaid expenses and other assets
|
|
|
5,342
|
|
|
|
7,648
|
|
Assets held for sale and discontinued operations
|
|
|
7,567
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
759,299
|
|
|
$
|
836,020
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
Accounts payable
|
|
$
|
11,169
|
|
|
$
|
13,911
|
|
Accrued liabilities
|
|
|
24,978
|
|
|
|
28,945
|
|
Customer deposits
|
|
|
5,998
|
|
|
|
6,420
|
|
Senior revolving credit facility
|
|
|
172,267
|
|
|
|
218,737
|
|
Capital leases and other notes payable
|
|
|
3,268
|
|
|
|
7,603
|
|
93/4% Senior
Notes Due 2014
|
|
|
200,000
|
|
|
|
200,000
|
|
Senior Subordinated Notes, net of unamortized original issue
discount of $11,490 and $10,166 at December 31, 2006 and
2007, respectively
|
|
|
83,010
|
|
|
|
96,014
|
|
Deferred income taxes
|
|
|
65,155
|
|
|
|
62,811
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
565,845
|
|
|
|
634,441
|
|
Commitments and contingencies Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 215,000 shares
authorized, 147,000 shares issued and outstanding at
December 31, 2006 and 2007, respectively
|
|
|
187,573
|
|
|
|
190,741
|
|
Notes receivable from stockholders
|
|
|
(610
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
4,191
|
|
|
|
5,856
|
|
Retained earnings
|
|
|
2,300
|
|
|
|
4,982
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
193,454
|
|
|
|
201,579
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
759,299
|
|
|
$
|
836,020
|
|
|
|
|
|
|
|
|
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See accompanying notes to consolidated financial statements.
F-3
MSG WC
HOLDINGS CORP.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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Predecessor
|
|
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Successor
|
|
|
|
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Period from
|
|
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Period from
|
|
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|
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|
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Year Ended
|
|
|
January 1,
|
|
|
August 2, 2006
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
2006 to August 1,
|
|
|
to December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
143,417
|
|
|
$
|
91,088
|
|
|
$
|
75,596
|
|
|
$
|
192,318
|
|
Sales
|
|
|
35,584
|
|
|
|
22,410
|
|
|
|
14,812
|
|
|
|
40,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
179,001
|
|
|
|
113,498
|
|
|
|
90,408
|
|
|
|
233,127
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
27,114
|
|
|
|
16,223
|
|
|
|
10,289
|
|
|
|
28,784
|
|
Trucking and yard costs
|
|
|
44,764
|
|
|
|
27,965
|
|
|
|
23,053
|
|
|
|
58,833
|
|
Depreciation and amortization
|
|
|
19,471
|
|
|
|
12,191
|
|
|
|
8,223
|
|
|
|
22,216
|
|
Selling, general and administrative expenses
|
|
|
46,909
|
|
|
|
32,103
|
|
|
|
25,797
|
|
|
|
70,475
|
|
Management fees
|
|
|
400
|
|
|
|
329
|
|
|
|
29
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
40,343
|
|
|
|
(15,619
|
)
|
|
|
23,017
|
|
|
|
52,819
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(26,249
|
)
|
|
|
(15,557
|
)
|
|
|
(19,877
|
)
|
|
|
(51,218
|
)
|
Foreign currency translation gain (loss)
|
|
|
(1,386
|
)
|
|
|
212
|
|
|
|
74
|
|
|
|
714
|
|
Loss on early extinguishment of debt
|
|
|
(780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(241
|
)
|
|
|
(84
|
)
|
|
|
(58
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes
|
|
|
11,687
|
|
|
|
(31,048
|
)
|
|
|
3,156
|
|
|
|
2,174
|
|
Provision (benefit) for income taxes
|
|
|
4,652
|
|
|
|
(9,240
|
)
|
|
|
1,044
|
|
|
|
(1,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,035
|
|
|
|
(21,808
|
)
|
|
|
2,112
|
|
|
|
3,792
|
|
Income (loss) from discontinued operations (net of tax provision
of $122, $225, $125 for the year 2005, the periods from January
1 to August 1, 2006 and from August 2 to December 31,
2006, respectively, and net of tax benefit of $697 for year
ended December 31, 2007
|
|
|
184
|
|
|
|
337
|
|
|
|
188
|
|
|
|
(1,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,219
|
|
|
$
|
(21,471
|
)
|
|
$
|
2,300
|
|
|
$
|
2,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
MSG WC
HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Receivable
|
|
|
Other
|
|
|
Earnings
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
From
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Stockholders
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2005
|
|
|
4,489,000
|
|
|
|
21,621
|
|
|
|
220,000
|
|
|
|
63,941
|
|
|
|
|
|
|
|
18,883
|
|
|
|
(17,607
|
)
|
|
|
86,838
|
|
Redemption of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
Redemption of Series B, H, I and J preferred stock,
including cumulative dividends
|
|
|
(210,000
|
)
|
|
|
(2,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405
|
)
|
|
|
(2,501
|
)
|
Preferred stock dividends, $1.07 per share in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,468
|
)
|
|
|
(2,468
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,219
|
|
|
|
7,219
|
|
Adjustment for foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,172
|
)
|
|
|
|
|
|
|
(8,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
4,279,000
|
|
|
|
19,525
|
|
|
|
220,000
|
|
|
|
63,889
|
|
|
|
|
|
|
|
10,711
|
|
|
|
(13,261
|
)
|
|
|
80,864
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,041
|
|
Redemption of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Redemption of Series G and K preferred stock, including
cumulative dividends
|
|
|
(2,360,000
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(702
|
)
|
|
|
(938
|
)
|
Preferred stock dividends, $0.54 per share in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,159
|
)
|
|
|
(1,159
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,471
|
)
|
|
|
(21,471
|
)
|
Adjustment for foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,495
|
|
|
|
|
|
|
|
5,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 1, 2006
|
|
|
1,919,000
|
|
|
|
19,289
|
|
|
|
220,000
|
|
|
|
66,922
|
|
|
|
|
|
|
|
16,206
|
|
|
|
(36,593
|
)
|
|
|
65,824
|
|
Elimination of historical stockholders equity upon
consummation of the Acquisition
|
|
|
(1,919,000
|
)
|
|
|
(19,289
|
)
|
|
|
(220,000
|
)
|
|
|
(66,922
|
)
|
|
|
|
|
|
|
(16,206
|
)
|
|
|
36,593
|
|
|
|
(65,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contributions
|
|
|
|
|
|
|
|
|
|
|
147,000
|
|
|
|
185,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,911
|
|
Notes receivable from stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
(610
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,300
|
|
|
|
2,300
|
|
Adjustment for foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,191
|
|
|
|
|
|
|
|
4,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
147,000
|
|
|
|
187,573
|
|
|
|
(610
|
)
|
|
|
4,191
|
|
|
|
2,300
|
|
|
|
193,454
|
|
Notes paid by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
610
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,682
|
|
|
|
2,682
|
|
Adjustment for foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,665
|
|
|
|
|
|
|
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
147,000
|
|
|
$
|
190,741
|
|
|
$
|
|
|
|
$
|
5,856
|
|
|
$
|
4,982
|
|
|
$
|
201,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
MSG WC
HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 2,
|
|
|
|
|
|
|
Year Ended
|
|
|
2006 to
|
|
|
2006 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,219
|
|
|
$
|
(21,471
|
)
|
|
$
|
2,300
|
|
|
$
|
2,682
|
|
(Income) Loss from discontinued operations
|
|
|
(184
|
)
|
|
|
(337
|
)
|
|
|
(188
|
)
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,035
|
|
|
|
(21,808
|
)
|
|
|
2,112
|
|
|
|
3,792
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation loss (gain)
|
|
|
1,386
|
|
|
|
(212
|
)
|
|
|
(74
|
)
|
|
|
(714
|
)
|
Loss on early extinguishment of debt
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
768
|
|
|
|
744
|
|
|
|
147
|
|
|
|
1,644
|
|
Write-off of receivables due from affiliates
|
|
|
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs and original issue
discount
|
|
|
3,180
|
|
|
|
2,107
|
|
|
|
1,093
|
|
|
|
3,311
|
|
Depreciation
|
|
|
17,822
|
|
|
|
11,246
|
|
|
|
7,001
|
|
|
|
18,385
|
|
Amortization
|
|
|
1,649
|
|
|
|
945
|
|
|
|
1,222
|
|
|
|
3,831
|
|
Acceleration of original issue discount and prepayment penalty
on Subordinated Notes
|
|
|
|
|
|
|
11,450
|
|
|
|
|
|
|
|
|
|
Write-off of deferred financing costs
|
|
|
|
|
|
|
8,144
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,616
|
|
|
|
(10,386
|
)
|
|
|
397
|
|
|
|
(2,007
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
3,041
|
|
|
|
1,662
|
|
|
|
3,168
|
|
Accrued interest on Senior Subordinated Notes, including
accretion of original issue discount
|
|
|
|
|
|
|
|
|
|
|
5,045
|
|
|
|
13,004
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,513
|
)
|
|
|
(1,452
|
)
|
|
|
(1,575
|
)
|
|
|
(6,162
|
)
|
Inventories
|
|
|
(3,944
|
)
|
|
|
(5,652
|
)
|
|
|
797
|
|
|
|
(9,495
|
)
|
Prepaid expenses and other assets
|
|
|
(1,071
|
)
|
|
|
(580
|
)
|
|
|
(43
|
)
|
|
|
(2,355
|
)
|
Accounts payable and accrued liabilities
|
|
|
5,458
|
|
|
|
5,969
|
|
|
|
6,770
|
|
|
|
9,016
|
|
Accrued Acquisition transaction expenses
|
|
|
|
|
|
|
17,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
35,166
|
|
|
|
21,245
|
|
|
|
24,554
|
|
|
|
35,418
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
29
|
|
|
|
55
|
|
|
|
48
|
|
|
|
7,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
35,195
|
|
|
|
21,300
|
|
|
|
24,602
|
|
|
|
42,768
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Predecessor
|
|
|
|
|
|
|
|
|
|
|
(317,138
|
)
|
|
|
|
|
Acquisition payment of Predecessor transaction expenses
|
|
|
|
|
|
|
|
|
|
|
(17,162
|
)
|
|
|
|
|
Other acquisitions, net
|
|
|
(4,890
|
)
|
|
|
(8,757
|
)
|
|
|
(12,155
|
)
|
|
|
(31,039
|
)
|
Purchases of lease equipment
|
|
|
(32,466
|
)
|
|
|
(17,109
|
)
|
|
|
(17,483
|
)
|
|
|
(38,931
|
)
|
Purchases of property and equipment
|
|
|
(6,266
|
)
|
|
|
(2,416
|
)
|
|
|
(2,198
|
)
|
|
|
(7,427
|
)
|
Proceeds from assets held for sale
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(42,598
|
)
|
|
|
(28,282
|
)
|
|
|
(366,136
|
)
|
|
|
(77,397
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (payments) under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BofA Credit Facility
|
|
|
18,590
|
|
|
|
11,060
|
|
|
|
(192,278
|
)
|
|
|
|
|
Borrowings under New Credit Facility
|
|
|
|
|
|
|
|
|
|
|
168,592
|
|
|
|
52,717
|
|
Payments under New Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,784
|
)
|
Redemption of Subordinated Notes
|
|
|
|
|
|
|
|
|
|
|
(83,200
|
)
|
|
|
|
|
Issuance of
93/4% Senior
Notes due 2014
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
F-6
MSG WC
HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 2,
|
|
|
|
|
|
|
Year Ended
|
|
|
2006 to
|
|
|
2006 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Issuance of Senior Subordinated Notes, net of original issue
discount
|
|
|
|
|
|
|
|
|
|
|
77,965
|
|
|
|
|
|
Deferred financing costs
|
|
|
(2,600
|
)
|
|
|
(1,160
|
)
|
|
|
(15,313
|
)
|
|
|
|
|
Payments on capital leases and notes payable
|
|
|
(1,620
|
)
|
|
|
(562
|
)
|
|
|
(208
|
)
|
|
|
(1,176
|
)
|
Equity contributions
|
|
|
|
|
|
|
|
|
|
|
185,301
|
|
|
|
|
|
Proceeds on note receivable from stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
610
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Redemption of Predecessor common stock
|
|
|
(52
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Predecessor preferred stock dividends paid
|
|
|
(2,468
|
)
|
|
|
(1,159
|
)
|
|
|
|
|
|
|
|
|
Predecessor redemptions of preferred stock
|
|
|
(2,501
|
)
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
9,349
|
|
|
|
7,233
|
|
|
|
340,859
|
|
|
|
35,547
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(1,946
|
)
|
|
|
(251
|
)
|
|
|
2,144
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
|
|
|
|
|
|
|
|
1,469
|
|
|
|
862
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,469
|
|
|
$
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
22,858
|
|
|
$
|
13,550
|
|
|
$
|
4,848
|
|
|
$
|
35,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (refunded)
|
|
$
|
1,618
|
|
|
$
|
1,715
|
|
|
$
|
553
|
|
|
$
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash operating, investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accreted onto principal balance of Senior Subordinated
Notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,045
|
|
|
$
|
13,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
5,032
|
|
|
$
|
8,965
|
|
|
$
|
12,155
|
|
|
$
|
31,936
|
|
Liabilities assumed
|
|
|
(142
|
)
|
|
|
(208
|
)
|
|
|
|
|
|
|
(897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in connection with acquisitions
|
|
$
|
4,890
|
|
|
$
|
8,757
|
|
|
$
|
12,155
|
|
|
$
|
31,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligations incurred
|
|
$
|
|
|
|
$
|
229
|
|
|
$
|
238
|
|
|
$
|
5,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in exchange for notes receivable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
610
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payment to Predecessor stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,089
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities used in the Companys
consolidated statement of cash flows for the period ended
December 31, 2006 have been determined using the
Successors opening balance sheet at August 2, 2006
which includes the push down of purchase accounting. Refer to
Note 1 to the consolidated financial statements for a
summary of the values attributed to the Companys assets
and liabilities in the Acquisition transaction.
As a result of the purchase price allocation, the consolidated
statement of cash flows for the period ended December 31,
2006 excludes a non-cash decrease to accounts receivable,
inventories and lease equipment of $240, $337 and $5,923,
respectively, and a non-cash increase to other intangible assets
and net deferred tax liabilities of $65,287 and $20,972,
respectively.
See accompanying notes to consolidated financial statements.
F-7
MSG WC
HOLDINGS CORP.
(Dollars in thousands, except per share data)
|
|
1.
|
Business
and Basis of Presentation
|
Organization
and Business
MSG WC Holdings Corp. (Holdings), together with its
wholly-owned operating subsidiary, Mobile Services Group, Inc.
(MSG, and collectively with Holdings, the
Company), is an international provider of portable
storage solutions with 87 locations throughout the United States
and the United Kingdom. The Company leases and sells portable
storage containers, trailers and mobile offices. The Company has
a diversified customer base, including large national and small
local companies in the construction, services, retail,
manufacturing, transportation, utilities and government sectors.
These customers use portable storage solutions for a variety of
purposes, including storing and transporting inventory,
equipment and documents and providing temporary office space.
The consolidated financial statements include the accounts of
the Company and its subsidiaries, including its operating
company in the United Kingdom, Ravenstock MSG Limited. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Acquisition
On August 1, 2006, MSG WC Holdings Corp., a newly formed
entity controlled by Welsh, Carson, Anderson & Stowe
X, L.P. (Welsh Carson) and its affiliates, acquired
control of the capital stock of MSG (the
Acquisition) in exchange for consideration of
approximately $606,000, subject to certain adjustments and
excluding fees and expenses. The Acquisition was financed with
$439,965 of debt financing and $185,911 of cash contributions
from Welsh Carson and its affiliates and certain members of the
Companys management in exchange for common equity. A
portion of the consideration was used to repay in full the
Companys existing senior secured credit facility (the
BofA Credit Facility), to repay in full all of the
Companys subordinated notes (Subordinated
Notes) and to redeem all of its issued and outstanding
preferred stock.
The $439,965 of debt financing consists of the following:
(i) $200,000 of
93/4% Senior
Notes due 2014 (the Senior Notes) issued by MSG and
its wholly-owned subsidiary, Mobile Storage Group, Inc., on the
closing date of the Acquisition; and
(ii) a new $300,000 senior secured, asset-based revolving
credit facility (the New Credit Facility), which
includes a £85,000 U.K. borrowing sublimit. A total of
$162,000 was drawn on the New Credit Facility on the closing
date, including £37,716 drawn under MSGs U.K.
borrowing sublimit. The New Credit Facility matures on
August 1, 2011.
(iii) $77,965 Senior Subordinated Notes, net of original
issue discount of $12,035. The Senior Subordinated Notes mature
on February 1, 2015.
In connection with the consummation of the Acquisition in August
2006, the Company (i) forgave $527 of receivables due from
affiliates and (ii) redeemed all of its issued and
outstanding preferred stock, including all preferred dividend
payments due which totaled $28,854. Additionally, the
Acquisition resulted in a change of control, as defined by the
Acquisitions 2005 stock option plan, which resulted in the
immediate vesting of all outstanding and unvested options under
the plan.
The Acquisition was accounted for by the Company using the
purchase method of accounting in accordance with Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations. Accordingly, the total
purchase price, including related fees and expenses, are to be
allocated to the acquired net assets based upon their estimated
fair value as of August 1, 2006.
All references in the consolidated financial statements and the
accompanying notes thereto to events or activities which
occurred prior to the completion of the Acquisition on
August 1, 2006 relate to Mobile Services Group, Inc., as
the predecessor company (the Predecessor). All
references in the consolidated financial
F-8
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements and the accompanying notes thereto to events or
activities which occurred after completion of the Acquisition on
August 1, 2006 relate to MSG WC Holdings Corp., as the
successor company (the Successor).
The following table summarizes the fair values assigned to the
Companys assets acquired and liabilities assumed in
connection with the Acquisition on August 1, 2006. The fair
values allocated to other intangible assets were determined
based on a third-party valuation performed as of August 1,
2006.
|
|
|
|
|
Accounts receivable
|
|
$
|
28,163
|
|
Inventories
|
|
|
13,189
|
|
Lease equipment
|
|
|
274,493
|
|
Property and equipment
|
|
|
18,367
|
|
Goodwill
|
|
|
292,568
|
|
Other intangible assets
|
|
|
75,902
|
|
Deferred financing costs
|
|
|
16,171
|
|
Prepaid expenses and other assets
|
|
|
8,694
|
|
|
|
|
|
|
Total assets acquired
|
|
|
727,547
|
|
Accounts payable and accrued liabilities
|
|
|
35,085
|
|
New Credit Facility
|
|
|
162,000
|
|
93/4% Senior
Notes due 2014
|
|
|
200,000
|
|
Senior Subordinated Notes, net of original issue discount
|
|
|
77,965
|
|
Other debt obligations
|
|
|
3,135
|
|
Deferred income taxes
|
|
|
63,451
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
541,636
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
185,911
|
|
|
|
|
|
|
The Company incurred the following costs as a result of the
Acquisition and related financing transactions which were
recorded by the Predecessor as of August 1, 2006. These
costs are referred to herein collectively as the
Acquisition Transaction Expenses.
|
|
|
|
|
Write-off of deferred financing costs related to the BofA Credit
Facility
|
|
$
|
8,144
|
|
Payment of original issue discount upon early redemption of
Subordinated Notes
|
|
|
8,250
|
|
Prepayment penalty upon early redemption of Subordinated Notes
|
|
|
3,200
|
|
Compensation costs related to the acceleration of vesting of
stock options
|
|
|
2,341
|
|
Write-off of receivables due from CMSI Capital Holdings, Inc
|
|
|
527
|
|
Professional fees and other transaction expenses
|
|
|
17,844
|
|
|
|
|
|
|
Acquisition Transaction Expenses
|
|
$
|
40,306
|
|
|
|
|
|
|
Upon consummation of the Acquisition on August 1, 2006, the
Company paid $6,091 and $6,000 in transaction fees to the
Companys former majority stockholder and Welsh Carson,
respectively. These amounts are included in the Acquisition
Transaction Expenses, except for $3,461 of the fees paid to
Welsh Carson which are included in the Companys net
deferred financing costs as of December 31, 2006.
The following unaudited pro forma information has been prepared
as if the Acquisition had occurred as of the beginning of the
periods presented for the Predecessor. The pro forma adjustments
for the year ended December 31, 2005, and the period from
January 1, 2006 to August 1, 2006, include estimated
adjustments for the following items: a) a decrease to
depreciation and amortization expense which amounts to $1,705
and $1,071, respectively, related to adjustments to the
depreciation of lease equipment resulting from the adjustment to
fair value at the date of the
F-9
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Acquisition as well as adjustments to amortization expense
resulting from the amortization of other intangible assets
recorded in connection with the Acquisition b) the
elimination of management fees charged by the Companys
former majority stockholder which amounts to $400 and $329,
respectively; c) an increase to interest expense based on
the Companys capitalization structure upon consummation of
the Acquisition which amounts to $20,572 and $13,323,
respectively; and d) the related income tax effects of such
pro forma adjustments resulting in a decrease to the income tax
expense of $7,383, and an increase in the income tax benefit of
$3,888, respectively.
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
Period from
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Total revenues
|
|
$
|
179,001
|
|
|
$
|
113,498
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes
|
|
$
|
(6,780
|
)
|
|
$
|
(42,972
|
)
|
Net income (loss)
|
|
$
|
(3,865
|
)
|
|
$
|
(29,507
|
)
|
|
|
2.
|
Summary
of Significant Accounting Policies
|
Revenue
Recognition
The Company leases and sells portable storage containers,
trailers and mobile offices to its customers. Leases to
customers are generally on a short-term basis qualifying as
operating leases. The aggregate lease payments are generally
less than the purchase price of the equipment.
The Company also generates revenue from sales and lease
equipment unit delivery,
pick-up and
repositioning. Costs associated with these activities are
included in trucking and yard costs in the consolidated
statements of operations.
In accordance with Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements
(SAB 101), and SAB No. 104, Revenue
Recognition (SAB 104), the Company
recognizes revenues when the following fundamental criteria are
met: (i) persuasive evidence of an arrangement exists, (ii)
delivery has occurred or services have been rendered, (iii) the
price to the customer is fixed or determinable and (iv)
collection of the resulting receivable is reasonably assured.
Based on these criteria, lease revenue is typically recognized
on a
straight-line
basis over the lease term, sales revenue is typically recognized
once delivery has been made, and revenue from unit delivery,
pick-up and
repositioning is typically recognized when these services are
provided.
With respect to lease revenue, customers in the United States
are often billed in advance for each
28-day
period and customers in the United Kingdom are generally billed
monthly in arrears. Deferred revenue is recorded for the
unearned portion of pre-billed lease income.
Cash
and Cash Equivalents
The Company considers highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and does not believe it
is exposed to any significant credit risk on cash and cash
equivalents.
Concentration
of Credit Risk
Financial instruments potentially exposing the Company to
concentrations of credit risk consist primarily of receivables.
Concentrations of credit risk with respect to receivables are
limited due to the large number of
F-10
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customers spread over a large geographic area in many industry
segments. The Companys receivables related to sales are
generally secured by the equipment sold to the customer. The
Companys receivables related to its lease operations are
primarily small month-to-month amounts generated from both
off-site and
on-site
customers. The Company has the right to repossess lease
equipment for nonpayment.
Inventories
Inventories consist primarily of equipment held for sale and are
carried at the lower of cost or market. Cost of equipment is
determined when acquired and is based on the
specific-identification method.
Lease
Equipment
Lease equipment consists primarily of portable storage
containers, trailers and mobile offices used by the Company in
its lease fleet. The lease equipment is recorded at cost and
depreciated on a straight-line basis, containers over the
estimated life of 20 years and trailers and portable
offices (steel and timber) over the estimated lives of
15 years (prior to January 1, 2005). Salvage values
are determined when the lease equipment is acquired and are
typically 70% for containers, 50% for trailers (prior to
January 1, 2005) and 10% for portable offices.
Effective January 1, 2005, the Company changed its estimate
of salvage value for trailers from 50% to 10% and changed the
estimated life of portable timber offices from 15 to
10 years. These changes in estimates resulted from the
Companys historical experience with this equipment and are
consistent with industry practice. These changes in estimates
were implemented on a prospective basis and resulted in
additional depreciation expense in 2005 of approximately $4,600.
Management believes the estimated salvage values do not cause
carrying values to exceed net realizable values. Normal repairs
and maintenance to lease equipment are expensed as incurred.
Property
and Equipment
Property and equipment is stated at cost. Depreciation for
property and equipment is recorded on the straight-line method
over their estimated useful lives of five years. Transportation
equipment is generally depreciated over five to seven years with
a salvage value of 20%. Leasehold improvements and buildings are
depreciated on the straight-line method over their estimated
useful lives of 12 years, or the term of the underlying
lease agreement, whichever is shorter.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in connection with
acquisitions. The Company accounts for goodwill in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS 142 prohibits the
amortization of goodwill and intangible assets with indefinite
useful lives and requires these assets be reviewed for
impairment at least annually. The Company tests goodwill for
impairment using the two-step process prescribed in
SFAS 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. The Company performed the required
impairment tests of goodwill and indefinite-lived intangible
assets as of October 1, 2005, 2006 and 2007. The Company
has determined that no impairments related to goodwill and
indefinite-lived intangible assets exist.
Other intangible assets with finite useful lives are amortized
over their useful lives. Intangible assets with finite useful
lives consist primarily of noncompete covenants and customer
relationships which are amortized over the expected period of
benefit which range from five to ten years. Noncompete covenants
are amortized using the straight-line method while customer
relationships are amortized using an accelerated method that
reflects the related customer attrition rates.
In connection with the Acquisition completed on August 1,
2006, the Company allocated $16,293 to customer relationships
with a useful life of 10 years, and $59,609 to trade names
based on a third-party valuation of the
F-11
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimated fair values of these intangible assets as of
August 1, 2006. At December 31, 2006 and 2007,
noncompete covenants amounted to $1,263 and $1,162,
respectively, net of accumulated amortization of $369 and $972,
respectively. Customer relationships amounted to $16,105 and
$14,261 as of December 31, 2006 and 2007, respectively, net
of accumulated amortization of $759 and $3,701, respectively.
The amortization of intangible assets resulted in amortization
expense which amounted to $1,649, $945, $1,222 and $3,831 for
the year ended December 31, 2005, the periods from
January 1, 2006 to August 1, 2006 and from
August 2, 2006 to December 31, 2006, and the year
ended December 31, 2007, respectively. Included in other
intangible assets are indefinite-lived trade names which amount
to $60,587 and $60,979 as of December 31, 2006 and 2007,
respectively.
The estimated future amortization expense of intangible assets
as of December 31, 2007, is as follows:
|
|
|
|
|
2008
|
|
$
|
3,800
|
|
2009
|
|
|
2,286
|
|
2010
|
|
|
1,600
|
|
2011
|
|
|
1,177
|
|
2012 and thereafter
|
|
|
6,560
|
|
|
|
|
|
|
|
|
$
|
15,423
|
|
|
|
|
|
|
Impairment
of Long-Lived Assets
The Company periodically reviews for the impairment of
long-lived assets and certain identifiable intangibles and
assesses when an event or change in circumstances indicates the
carrying value of an asset may not be recoverable. An impairment
loss would be recognized when estimated future cash flows
expected to result from the use of the asset and the eventual
disposition is less than its carrying amount.
Accrued
Liabilities
Included in accrued liabilities in the accompanying consolidated
balance sheets are deferred revenues totaling $1,446 and $1,926
as of December 31, 2006 and 2007, respectively, resulting
from advanced billings for a portion of the Companys
customers.
Fair
Value of Financial Instruments
The estimated fair value of financial instruments has been
determined by the Company using available market information
valuation methodologies. Management uses judgment in estimating
fair values. Accordingly, the estimates may not be indicative of
the amounts that the Company could realize in a current market
exchange.
The carrying amounts of cash and cash equivalents, receivables
and accounts payable approximate fair values. The carrying
amounts of the Companys borrowings under the Subordinated
Notes and the revolving credit facility approximate fair value
based on the Companys current incremental borrowing rates
for similar types of borrowing arrangements or since the
floating rates change with market conditions. The estimated fair
value of the Companys
93/4% Senior
Notes is approximately $183,250 at December 31, 2007 based
on quoted market prices.
Income
Taxes
Deferred income taxes have been provided for using the liability
method. Deferred tax assets and liabilities are determined based
upon the difference between the financial statement bases and
tax bases of assets and liabilities as measured by the enacted
tax rate which will be in effect when these differences are
expected to reverse. These differences are primarily related to
depreciation. Foreign taxes are provided based on the tax rates
of the country of the subsidiary.
F-12
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
The Company expenses costs of advertising as incurred, except
for direct-response advertising which is capitalized and
amortized over its expected period of future benefits.
Direct-response advertising consists primarily of costs incurred
for directory listings which guide customers to the Company. The
capitalized costs are amortized over the periods the directories
are current and no longer than 12 months.
Advertising costs of approximately $870 and $974 were
capitalized and included in prepaid expenses and other assets at
December 31, 2006 and 2007, respectively, and will be
amortized over the related direct response marketing period.
Advertising expenses totaled $2,553, $1,766, $1,221 and $3,650
for the year ended December 31, 2005, for the periods from
January 1 to August 1, 2006 and August 2 to
December 31, 2006, and for the year ended December 31,
2007, respectively.
Foreign
Currency Translation
The financial position and results of operations of the
Companys foreign subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of
this subsidiary are translated at the exchange rate in effect at
each balance sheet date. Income statement accounts are
translated at the average rate of exchange prevailing during
each fiscal quarter. Translation adjustments arising from
differences in exchange rates from period to period are included
in the accumulated other comprehensive income (loss) in
stockholders equity.
Ravenstock MSG Limited has outstanding
U.S. dollar-denominated short-term intercompany receivables
of $1,745 at December 31, 2006 and short-term intercompany
borrowings of $3,683 as of December 31, 2007. These
borrowings are remeasured at each reporting date with the impact
of the remeasurement being recorded in foreign currency
translation gain or loss in the consolidated statements of
operations.
Employee
Stock Options
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment
(SFAS 123(R)), which is a revision of FASB
Statement No. 123, Accounting for Stock-Based
Compensation. SFAS 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25) and amends FASB Statement
No. 95, Statement of Cash Flows.
SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the statement of income based on their fair values. The fair
value of employee stock options is estimated using
option-pricing models adjusted for the unique characteristics of
those instruments. That cost is recognized over the period
during which an employee is required to provide service in
exchange for the award.
As required, the Company adopted SFAS 123(R) effective on
January 1, 2006, using the modified-prospective transition
method. Under this method, the compensation cost is recognized
for awards granted and for awards modified, repurchased or
cancelled in the period after adoption. Compensation cost is
also recognized for the unvested portion of awards granted prior
to adoption. Prior year financial statements are not restated.
The Company recorded $3,041 and $1,662, and $3,168 in
compensation expense during the period from January 1, 2006
to August 1, 2006, the period from August 2, 2006 to
December 31, 2006, and the year ended December 31,
2007, respectively relating to the adoption of SFAS 123(R),
of which $2,341 is included in Acquisition Transaction Expenses
during the period January 1, 2006 to August 1, 2006,
while the remaining amounts are included in selling, general and
administrative expense, during each respective period. This
resulted in a decrease of $3,041, $1,662, and $3,168 to income
from operations and approximately $1,210, $660 and $1,260 to net
income during the period from January 1, 2006 to
August 1, 2006, the period from August 2, 2006 to
December 31, 2006, and the year ended December 31,
2007, respectively. The adoption of SFAS 123(R) had no
effect on the Companys cash flows.
For the year ended December 31, 2005, the Company accounted
for stock-based compensation grants under the intrinsic value
method in accordance with APB 25, whereby no compensation
expense is recognized in the consolidated financial statements
for stock-based employee awards if the exercise price is equal
to or greater than
F-13
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the fair value of the Companys common stock on the date of
grant. Under the fair-value accounting method, the fair value of
each option granted has been estimated at the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
2005
|
|
Risk-free interest rate range
|
|
3.8%-4.2%
|
Expected holding period
|
|
5 years
|
Dividend rate
|
|
0.0%
|
Volatility
|
|
34.0%
|
Under these assumptions, the weighted-average fair value of the
stock option grants during the year ended December 31,
2005, was $325.98 per share. These amounts are amortized over
the vesting period of the options. If the Company had accounted
for stock options consistent with the fair-value accounting
method, utilizing the assumptions detailed above, the
Companys net income would have been as follows:
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Net income as reported
|
|
$
|
7,219
|
|
Pro forma stock-based employee compensation (cost) benefit under
fair-value method
|
|
|
1,041
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
8,260
|
|
|
|
|
|
|
The Companys stock option plan was terminated on
August 1, 2006 in connection with the consummation of the
Acquisition. See Stock Option Plans in Note 10
for additional information.
Comprehensive
Income
For the year ended December 31, 2005, the periods from
January 1, 2006 to August 1, 2006 and from
August 2, 2006 to December 31, 2006, and the year
ended December 31, 2007, comprehensive income (loss)
amounted to $(953), $(15,976), $6,491 and $4,347, respectively.
The difference between net income and comprehensive income
relates to the Companys change in foreign currency
translation adjustments.
Segment
Information
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131),
establishes standards for the way companies report information
about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. Based on the
provisions of SFAS 131 and the manner in which the chief
operating decision maker analyzes the business, the Company has
determined it does not have separately reportable operating
segments.
Estimates
and Assumptions
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
Recent
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB)
issued Financial Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes, which clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB
Statement No. 109, Accounting for
F-14
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income Taxes. The interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company
adopted the provision of this interpretation effective
January 1, 2007. The adoption of FIN 48 did not have a
material impact on the Companys consolidated financial
position and results of operations. See
Note 7 Income Taxes for
further discussion.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements, but does not require any new fair value
measurement. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007 and interim periods
within those fiscal years. The Company is in the process of
determining the effect, if any, that the adoption of
SFAS No. 157 will have on its consolidated financial
statements. Because Statement No. 157 does not require any
new fair value measurements or remeasurements of previously
computed fair values, the Company does not believe the adoption
of this Statement will have a material effect on its results of
operations or financial condition.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159). Under SFAS No. 159, the
Company may elect to report financial instruments and certain
other items at fair value on a
contract-by-contract
basis with changes in value reported in earnings. This election
is irrevocable. SFAS No. 159 provides an opportunity
to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously
required to use a different accounting method than the related
hedging contracts when the complex provisions of
SFAS No. 133 hedge accounting are not met.
SFAS No. 159 is effective for years beginning after
November 15, 2007. The Company does not believe the
adoption of this statement will have a material effect on its
results of operations or financial condition.
In December 2007, the FASB issued SFAS No. 141R
(revised 2007), Business Combinations, which
replaces SFAS No 141. SFAS 141R establishes the
principles and requirements for how an acquirer:
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R makes some significant
changes to existing accounting practices for acquisitions.
SFAS 141R is to be applied prospectively to business
combinations consummated on or after the beginning of the first
annual reporting period on or after December 15, 2008. The
Company is currently evaluating the impact SFAS 141R will
have on its future business combinations.
The Company acquired the assets of certain companies during the
year ended December 31, 2005, the periods from
January 1, 2006 to August 1, 2006 and from
August 2, 2006 to December 31, 2006, and the year
ended December 31, 2007, for an aggregate purchase price of
$4,890, $8,757, $12,155 and $31,039, respectively, which the
Company paid in cash. The acquisitions were accounted for as
purchases and the acquired assets were recorded at their
estimated fair values on the date of acquisition. The
accompanying consolidated financial statements include the
operations of the acquired companies from the respective dates
of acquisition.
F-15
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the assets acquired and liabilities assumed
has been allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Accounts receivable
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Lease equipment
|
|
|
3,178
|
|
|
|
6,948
|
|
|
|
7,386
|
|
|
|
15,224
|
|
Property and equipment
|
|
|
194
|
|
|
|
233
|
|
|
|
|
|
|
|
1,378
|
|
Non-compete agreements
|
|
|
25
|
|
|
|
100
|
|
|
|
|
|
|
|
350
|
|
Goodwill
|
|
|
1,159
|
|
|
|
1,009
|
|
|
|
3,701
|
|
|
|
14,173
|
|
Customer relationships
|
|
|
448
|
|
|
|
675
|
|
|
|
1,068
|
|
|
|
811
|
|
Accrued liabilities
|
|
|
(142
|
)
|
|
|
(208
|
)
|
|
|
|
|
|
|
(897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,890
|
|
|
$
|
8,757
|
|
|
$
|
12,155
|
|
|
$
|
31,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following unaudited pro forma information presents a summary
of results of operations of the Company as if the transactions
described above had occurred at the beginning of the respective
year of acquisition. The pro forma results adjust for the
amortization of other intangible assets, the increase in
interest expense and certain income tax adjustments. The pro
forma financial information is not necessarily indicative of the
results of operations as they would have been had the
transactions been effected on the assumed dates or of future
results of operations of the combined entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
$
|
179,816
|
|
|
$
|
113,672
|
|
|
$
|
91,693
|
|
|
$
|
239,779
|
|
Income (loss) from operations
|
|
$
|
40,959
|
|
|
$
|
(15,525
|
)
|
|
$
|
23,530
|
|
|
$
|
55,924
|
|
Net income (loss)
|
|
$
|
92
|
|
|
$
|
(26,970
|
)
|
|
$
|
1,931
|
|
|
$
|
(156
|
)
|
|
|
4.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Land and building
|
|
$
|
3,876
|
|
|
$
|
5,218
|
|
Transportation equipment
|
|
|
13,603
|
|
|
|
22,439
|
|
Furniture, fixtures and office equipment
|
|
|
3,465
|
|
|
|
6,403
|
|
Leasehold improvements
|
|
|
646
|
|
|
|
1,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,590
|
|
|
|
35,611
|
|
Less accumulated depreciation
|
|
|
(1,617
|
)
|
|
|
(6,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,973
|
|
|
$
|
29,077
|
|
|
|
|
|
|
|
|
|
|
F-16
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Revolving Credit Facility
In December 2005, the Company refinanced its borrowings under
its existing credit facility by entering into a new
5-year
agreement with Bank of America (the BofA Credit
Facility) as agent for a bank syndicate, up to a maximum
of $260,000. The BofA Credit Facility consisted entirely of
revolving loans which had no scheduled principal payments prior
to maturity in December 2009. As a result of the debt
refinancing completed in December 2005, the Company
recorded a loss on the early extinguishment of debt of $780 for
the write-off of the remaining unamortized deferred loan costs
and prepayment penalties relating to its existing credit
facility.
Borrowings under the BofA Credit Facility were secured by a lien
on substantially all of the Companys assets and were based
on a borrowing base amount determined by a percentage of the
collateral value of the lease equipment, accounts receivable and
inventories. The lease equipment was required to be appraised at
least annually and the advance rates were determined annually at
the time of the appraisal. The advance rate for the lease fleet
assets was calculated by dividing the lesser of (1) 85% of
Orderly Liquidation Value as determined by the annual appraisal
or (2) 90% of net book value by the net book value of total
rental fleet for the U.S. or U.K. As of December 31,
2005, the lease equipment advance rate for the U.S. was
89.7% and for the U.K. was 84.5%. Interest was payable monthly
or with respect to LIBOR borrowings, either quarterly or on the
last day of the applicable interest period. The revolving loans
bore interest at U.S. LIBOR or U.K. LIBOR plus 1.75% to
3.0% or at U.S. Base Rate or U.K. Base Rate, as defined,
plus 0% to 1.25%. At December 31, 2005, substantially all
outstanding revolving loans bore interest at U.S. LIBOR or
U.K. LIBOR plus 2.5%. At December 31, 2005, the
Companys weighted-average interest rate on outstanding
obligations under the BofA Credit Facility was 7.22%.
Borrowings under the BofA Credit Facility were fully repaid and
the facility was extinguished in connection with the Acquisition
on August 1, 2006. As a result, the Company wrote-off
$8,144 in remaining unamortized deferred loan costs related to
the BofA Credit Facility (included in Acquisition Transaction
Expenses).
In connection with the Acquisition on August 1, 2006, the
Company entered into the New Credit Facility. The New Credit
Facility is a senior secured, asset-based revolving credit
facility providing for loans of up to $300,000, subject to
specified borrowing base formulas, of which the dollar
equivalent of up to £85,000 can be drawn in borrowings
denominated in British pounds and may be borrowed (and
re-borrowed) by Ravenstock for use in the Companys U.K.
operations. The Company may also incur up to $50,000 of
additional senior secured debt under the New Credit Facility,
subject to the consent of the joint-lead arrangers under the New
Credit Facility, the availability of lenders willing to provide
such incremental debt and compliance with the covenants and
certain other conditions under the New Credit Facility.
As of December 31, 2007, the Companys aggregate
borrowing capacity pursuant to the borrowing base under the New
Credit Facility amounts to $81,263, net of the $218,737 in
outstanding borrowings as of December 31, 2007.
Borrowings under the New Credit Facility are secured by a lien
on substantially all of the Companys assets. Such
borrowings are governed by a borrowing base, with respect to the
Companys domestic assets (including assets of subsidiary
guarantors) and the assets of Ravenstock (including assets of
subsidiary guarantors), respectively, consisting of the sum of
(i) 85.0% of eligible accounts receivable, plus
(ii) the lesser of 100.0% of the net book value and
90.0% of the net orderly liquidation value of eligible lease
fleet assets, plus (iii) the lesser of 90.0% of the
net book value of and 80.0% of the net orderly liquidation value
of eligible machinery and equipment, plus (iv)
(A) until an acceptable appraisal is received, 90% of the
net book value of eligible inventory (subject to an aggregate
$25,000 inventory sublimit) or (B) after an acceptable
appraisal is received, the lesser of (x) 90% of the net
book value of eligible inventory and (y) 90% of the net
orderly liquidation value of eligible inventory (subject to an
aggregate $25,000 inventory sublimit, provided that the
inventory sublimit may be increased up to $35,000 subject to the
completion of an appraisal of the eligible inventory). The
borrowing base is also subject to certain other adjustments and
reserves to be determined by the administrative agent for the
lenders under the New Credit Facility. In general,
F-17
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
borrowings under the New Credit Facility bear interest based, at
the Companys option, on either the agent lenders
base rate or U.S. or U.K. LIBOR, in each case plus a
margin. The applicable margin on base rate borrowings can range
from 0.5% to 1.25% and 1.5% to 2.25% for LIBOR borrowings based
on the Companys ratio of total debt to EBITDA at the time
of determination. As of December 31, 2007, the interest
rate for borrowings under the New Credit Facility is based
on the agent lenders base rate plus 1.0% or LIBOR plus
2.0%. The Companys weighted-average interest rate on
outstanding obligations under the New Credit Facility as of
December 31, 2007 is 7.52%.
The New Credit Facility places various restrictions on the
Company, including the incurrence of additional debt, specified
limits on capital expenditures and acquisitions, the amounts of
dividends which can be paid by the Company, and does not allow
for dividends to be paid on common stock. In addition, the New
Credit Facility requires the Company to meet specific financial
ratios if the total aggregate borrowing capacity falls below
$30,000. Had the Company been subject to such financial ratios
as of December 31, 2007, the Company would have been in
full compliance.
The Company had $3,446 in letters of credit outstanding at
December 31, 2007 related to its workers compensation and
automobile insurance policies. There were no outstanding draws
against such letters of credit as of December 31, 2007.
Subordinated
Notes
The Companys subordinated notes, as amended (the
Subordinated Notes), consisted of notes held by The
Northwestern Mutual Life Insurance Company, Caisse de depot et
placement du Quebec, John Hancock Life Insurance Company and its
affiliates and New York Life Insurance Company. The Subordinated
Notes were issued in principal amounts of $25,000 and $55,000 in
the years ended December 31, 2001 and 2002, respectively,
and bore interest at 12% per annum with interest payable
semiannually. The notes required a lump-sum principal repayment
in an amount equal to $50 for each $1,000 principal amount of
the notes then outstanding on December 30, 2008, with the
remaining principal due June 29, 2010.
Amortization of the original issue discount amounted to $1,317
and $908 for the year ended December 31, 2005, and the
period from January 1, 2006 to August 1, 2006,
respectively, and is included in interest expense in the
consolidated statements of operations. The Subordinated Notes
placed various restrictions on the Company and required the
Company to meet specific financial ratios in order to incur
additional debt, subject to certain exceptions.
In connection with the Acquisition on August 1, 2006, the
Company paid $83,200 to redeem all of the Subordinated Notes at
face value, including $3,200 of prepayment penalties plus all
accrued interest through the redemption date.
Senior
Notes
In connection with the Acquisition, the Company issued $200,000
of Senior Notes on August 1, 2006. Interest on the Senior
Notes accrues at a rate of
93/4%
per annum and is payable on February 1 and August 1 of each
year, beginning on February 1, 2007. The Senior Notes
mature on August 1, 2014. The Senior Notes place various
restrictions on the Company, including the incurrence of
additional debt, sales of assets and payment of dividends. The
Company is in compliance with the debt covenants under the
Senior Notes as of December 31, 2007. The Senior Notes are
senior unsecured obligations of the Company and are guaranteed
by all of the Companys current and future domestic
subsidiaries, except for certain immaterial domestic
subsidiaries. Such notes and guarantees are effectively junior
to all of the Companys secured indebtedness to the extent
of the collateral securing such indebtedness. The Senior Notes
are not guaranteed by any of the Companys foreign
subsidiaries and are structurally subordinated to the
indebtedness and other liabilities of such non-guarantor
subsidiaries.
F-18
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Subordinated Notes
On August 1, 2006, Holdings issued $90,000 in aggregate
principal amount of subordinated notes (the Holdings
Notes) to WCAS Capital Partners IV, L.P., an affiliate of
Welsh Carson, and a strategic co-investor. The proceeds from the
Holdings Notes were contributed by Holdings to MSG in the form
of common equity capital and were used to fund the Acquisition.
The Holdings Notes mature on February 1, 2015 and are
structurally and contractually subordinated to the New Credit
Facility and the Senior Notes. The Holdings Notes are unsecured
and do not possess the benefit of a guarantee. Interest on the
Holdings Notes accrues on a
payment-in-kind,
non-cash basis at 12.0% per annum for the first two years.
Thereafter, interest will be payable quarterly at 10.0% per
annum subject to the terms of the New Credit Facility and the
Senior Notes. If the Company is prohibited from making cash
interest payments, interest will continue to accrue on a
payment-in-kind,
non-cash basis at 12.0% per annum. The Senior Subordinated Notes
are included on the consolidated balance sheet net of a $12,035
original issue discount, of which $10,166 remains unamortized as
of December 31, 2007.
Other
Notes Payable
Included in capital leases and other notes payable are certain
notes payable with a principal balance outstanding of $1,301 and
$946 as of December 31, 2006 and 2007, respectively. Future
payments on other notes payable obligations are as follows:
2008 $199; 2009 $279; 2010
$231; 2011 $104; 2012 $92;
Thereafter $41.
|
|
6.
|
Obligations
Under Capital Leases
|
Included in capital leases and other notes payable are certain
capital lease obligations expiring through 2013 with various
leasing companies with a principal balance outstanding of $1,967
and $6,657 as of December 31, 2006 and 2007, respectively.
The lease agreements provide the Company with a purchase option
at the end of the lease term based on an
agreed-upon
percentage of the original cost of the equipment. These leases
have been capitalized using interest rates ranging from
approximately 5.5% to 8.5%. The leases are secured by the
equipment under lease. At December 31, 2006 and 2007,
equipment acquired under capital leases and related accumulated
depreciation are included in lease equipment, net.
Future payments under capitalized lease obligations are as
follows:
|
|
|
|
|
2008
|
|
$
|
1,778
|
|
2009
|
|
|
1,771
|
|
2010
|
|
|
1,701
|
|
2011
|
|
|
1,427
|
|
2012
|
|
|
864
|
|
Thereafter
|
|
|
474
|
|
|
|
|
|
|
Total payments
|
|
|
8,015
|
|
Less amounts representing interest
|
|
|
(1,358
|
)
|
|
|
|
|
|
|
|
$
|
6,657
|
|
|
|
|
|
|
F-19
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision (benefit) for income taxes from continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73
|
|
State
|
|
|
220
|
|
|
|
193
|
|
|
|
46
|
|
|
|
82
|
|
Foreign
|
|
|
816
|
|
|
|
953
|
|
|
|
601
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
1,146
|
|
|
|
647
|
|
|
|
389
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,770
|
|
|
|
(9,336
|
)
|
|
|
305
|
|
|
|
(1,778
|
)
|
State
|
|
|
365
|
|
|
|
(986
|
)
|
|
|
(94
|
)
|
|
|
675
|
|
Foreign
|
|
|
481
|
|
|
|
(64
|
)
|
|
|
186
|
|
|
|
(904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,616
|
|
|
|
(10,386
|
)
|
|
|
397
|
|
|
|
(2,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,652
|
|
|
$
|
(9,240
|
)
|
|
$
|
1,044
|
|
|
$
|
(1,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income from continuing operations before provision for
taxes for foreign operations is $5,225, $824, $2,987 and $5,137
for the year ended December 31, 2005, the periods from
January 1, 2006 to August 1, 2006 and from
August 2, 2006, to December 31, 2006, and the year
ended December 31, 2007, respectively.
The net deferred tax asset and liability in the accompanying
consolidated balance sheets consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
72,971
|
|
|
$
|
73,178
|
|
Goodwill and other intangible assets
|
|
|
25,491
|
|
|
|
27,812
|
|
Transaction gain
|
|
|
2,782
|
|
|
|
2,730
|
|
Other
|
|
|
671
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
101,915
|
|
|
|
103,735
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carryforward
|
|
|
32,459
|
|
|
|
36,148
|
|
Stock compensation
|
|
|
648
|
|
|
|
1,861
|
|
Intangibles amortization
|
|
|
2,664
|
|
|
|
|
|
Other
|
|
|
1,651
|
|
|
|
3,712
|
|
|
|
|
|
|
|
|
|
|
Subtotal deferred tax assets
|
|
|
37,422
|
|
|
|
41,721
|
|
Valuation allowance
|
|
|
(662
|
)
|
|
|
(797
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
36,760
|
|
|
|
40,924
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
65,155
|
|
|
$
|
62,811
|
|
|
|
|
|
|
|
|
|
|
F-20
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the U.S. federal statutory rate to the
Companys effective tax rate from continuing operations
before discontinued operations for the periods indicated below
is as follows (percentages shown reflect income tax expense
(benefit)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Statutory federal rate
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
Permanent differences
|
|
|
0.3
|
|
|
|
11.8
|
|
|
|
1.8
|
|
|
|
(5.9
|
)
|
Foreign permanent and tax rate differences
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
2.4
|
|
State taxes, net of federal benefit
|
|
|
4.2
|
|
|
|
(2.5
|
)
|
|
|
(3.2
|
)
|
|
|
(91.5
|
)
|
Valuation allowance
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
Other, net
|
|
|
2.0
|
|
|
|
(0.1
|
)
|
|
|
0.8
|
|
|
|
(13.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.8
|
%
|
|
|
(29.8
|
)%
|
|
|
33.7
|
%
|
|
|
(74.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has federal net operating loss carryforwards at
December 31, 2007 of approximately $90,600 which expire in
various amounts in 2012 through 2024. At December 31, 2007,
the Company has state operating loss carryovers of approximately
$74,000 that expire in various amounts beginning after January
2008. In addition, as of December 31, 2007, the Company has
approximately $6,000 of federal and state net operating losses
related to stock-based compensation for which benefits of future
deductions will be recorded as additional paid in capital when
realized as reductions in taxes payable.
The Company has undergone changes in ownership which limit the
amount of net operating loss currently available as a deduction.
Such limitation could result in the Company being required to
pay tax currently because only a portion of the net operating
loss is available. Management believes the Company will fully
realize its federal net operating loss carryforwards and a
valuation reserve was not necessary at December 31, 2007.
A valuation allowance has been established for certain deferred
tax assets that management has determined will likely not be
realized. The valuation allowance is primarily related to
certain state net operating loss carryforwards. In the third
quarter of 2007, the Company recorded a valuation allowance
related to purchase accounting in the amount of $10,833 that
increased deferred tax liabilities and goodwill. In the fourth
quarter of 2007, it was determined this was in error and was
reversed at year-end.
The Company adopted the provisions of Financial Interpretation
No. (FIN) 48, Accounting for Uncertainty in Income Taxes,
on January 1, 2007. Upon adoption, the Company recognized
no adjustment in its balance of unrecognized tax benefits and no
adjustment to retained earnings. As of the date of adoption, the
Companys unrecognized tax benefits amounted to $570. The
following table summarizes the activity related to the
Companys gross unrecognized tax benefits from
January 1, 2007 to December 31, 2007:
|
|
|
|
|
Balance as of January 1, 2007
|
|
$
|
570
|
|
Adjustments:
|
|
|
|
|
Prior year tax positions
|
|
|
|
|
Current year tax positions
|
|
|
|
|
Settlements with taxing authorities
|
|
|
|
|
Lapsing of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
570
|
|
|
|
|
|
|
F-21
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense which were
insignificant for the year ended December 31, 2007. The
Company does not expect any significant increases or decreases
to its unrecognized tax benefits within 12 months of this
reporting date. The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax of multiple
state and foreign jurisdictions. With few exceptions, the
Company is no longer subject to U.S. federal income tax
examinations for years before 2004; state and local income tax
examinations before 2002; and foreign income tax examinations
before 2006. There are no income tax examinations currently in
process.
|
|
8.
|
Related-Party
Transactions
|
Consulting
Agreement with Board Members
The Company has consulting agreements with (i) its former
chief executive officer and current board member, (ii) its
former executive vice-president and current board member, and
(iii) a current board member for their consulting services.
Such services relate to consulting on strategic business plans,
acquisitions, and customer and vendor relationships. Fees and
expenses paid in connection with these agreements amounted to
$92, $66 and $201 for the period January 1, 2006 to
August 1, 2006, the period August 2, 2006 to
December 31, 2006 and for the year ended December 31,
2007, respectively.
Transactions
with PV Realty LLC
The Company leases property from PV Realty, LLC, a company
controlled by the Companys i) former chief executive
officer and current board member; and ii) former executive
vice-president and current board member. The Company pays annual
rent of $83 through August 31, 2008. The Company believes
the price and terms of this lease are at fair market value.
Fees
to Former Majority Stockholder
In June 2000, the Company began to pay management fees to its
then majority stockholder under a management agreement for
financial advisory services including reviewing the business,
operations and prospects of the Company with management,
assisting in acquisitions, and finding and negotiating with
potential financing sources. The term of the management
agreement was for three years with automatic one-year extensions
unless terminated with six months notice by the Board of
Directors or the stockholders after the initial three-year term.
Fees were payable in advance in semiannual installments on
January 1 and July 1 of each year. Fees and expenses incurred in
connection with the management agreement amounted to $400, $329
and $29 for the year ended December 31, 2005, and the
periods from January 1, 2006 to August 1, 2006 and
from August 2, 2006 to December 31, 2006,
respectively. This management agreement was terminated on
August 1, 2006 in connection with the Acquisition.
|
|
9.
|
Redeemable
Preferred Stock
|
The Company issued Series E redeemable convertible
preferred stock in 2000 through 2001 with a par value of $20 per
share. The Series E preferred stock was nonvoting and was
convertible into shares of common stock, determined by dividing
the liquidation preference of the preferred shares by the
offering price upon an underwritten public offering of shares of
common stock. The remaining shares were mandatorily redeemable
on the tenth anniversary of the issuance of such shares or
anytime at the option of the Company. Thus, outstanding
Series E preferred stock is mandatorily redeemable
beginning in 2010.
In connection with the consummation of the Acquisition in August
2006, the Company redeemed all of its issued and outstanding
Series E preferred stock, totaling 238,000 shares,
including all cumulated dividends, for $5,601 in cash.
F-22
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Preferred
Stock
The Company had several series of redeemable preferred stock
including Series B, C, G, H, I, J, and K. Such
preferred stock were nonvoting except as required by law.
Series B, C and G shares were nonconvertible.
Series H, I, and J shares were automatically
convertible into shares of common stock six months and one day
subsequent to the completion of an initial public offering of
the Companys common stock. Series K shares were
automatically convertible into shares of common stock,
determined by dividing the liquidation preference of the
preferred shares by the offering price upon an underwritten
public offering of shares of common stock. For certain series of
preferred stock, the holder was entitled to receive an annual
dividend payable in cash. Such earned participating dividends
were cumulative from the date first earned until paid or until
the respective shares were redeemed by the Company.
The par value and annual dividend rate of each series of
preferred stock was as follows:
|
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
Annual
|
Series
|
|
(per share)
|
|
Dividend%
|
|
B
|
|
$
|
10.0
|
|
|
|
10.0
|
%
|
C
|
|
$
|
20.0
|
|
|
|
8.5
|
%
|
G
|
|
$
|
0.1
|
|
|
|
None
|
|
H
|
|
$
|
10.0
|
|
|
|
10.0
|
%
|
I
|
|
$
|
10.0
|
|
|
|
10.0
|
%
|
J
|
|
$
|
10.0
|
|
|
|
10.0
|
%
|
K
|
|
$
|
0.1
|
|
|
|
None
|
|
In connection with the consummation of the Acquisition in August
2006, the Company redeemed all of its issued and outstanding
Series B, C, G, H, I, J and K preferred stock,
totaling 1,933,000 shares, including all accumulated
dividends, for $24,512, including $1,089 and $131 that remained
accrued at December 31, 2006 and 2007, respectively.
Stock
Option Plans
Prior to the Acquisition, the Company had a stock option
incentive plan (the Pre-Acquisition Option Plan)
which provided for the grant of options to acquire an aggregate
of up to 33,049 shares of common stock to employees and
directors. Such options generally vested upon the passage of
time as specified in each option agreement and had a life of ten
years from the date of grant.
The following summarizes the activities under the Companys
Pre-Acquisition Option Plan in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Weighted-Average
|
|
|
|
of
|
|
|
Exercise Price
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
per Share
|
|
|
per Share
|
|
|
Options outstanding, January 1, 2006
|
|
|
27,164
|
|
|
$
|
403.55 - 1,181.70
|
|
|
$
|
670.39
|
|
Options forfeited
|
|
|
(572
|
)
|
|
$
|
403.55 - 1,181.70
|
|
|
$
|
773.58
|
|
Options exercised
|
|
|
(26,592
|
)
|
|
$
|
403.55 - 1,181.70
|
|
|
$
|
668.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, August 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the consummation of the Acquisition, a change
of control, as defined by the Pre-Acquisition Option Plan,
occurred which resulted in the immediate vesting of all
outstanding and unvested options under such plan. This immediate
vesting resulted in a pre-tax compensation charge of $2,341. The
Pre-Acquisition Option Plan was terminated on August 1,
2006 in conjunction with the Acquisition.
F-23
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2006, the Company established two stock option plans
(the 2006 Option Plans) which provided for the grant
of options to acquire an aggregate of up to 32,000 shares
of common stock to employees and directors. Options granted
under the 2006 Option Plans generally vest based upon two
equally-weighted factors: (i) the passage of time, and
(ii) the achievement of certain performance objectives as
specified in each option agreement. During 2007, there were
4,050 options granted to certain key employees and directors
under the 2006 Option Plans which vest in accordance with the
terms of the respective option agreements.
The Company also established the 2006 Stock Incentive Plan (the
2006 Incentive Plan) in August 2006 which provided
for the grant of options to acquire an aggregate of up to
2,768 shares of common stock to certain key employees in
connection with the assumption of pre-existing options
outstanding under the Pre-Acquisition Option Plan. During 2007,
there were no new options granted under the 2006 Incentive Plan.
The fair value of each option grant in 2006 was estimated on the
date of grant using the Black-Scholes option-pricing model based
on the following weighted-average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
5.05
|
%
|
Expected volatility
|
|
|
34.5
|
%
|
Expected option life (in years)
|
|
|
5.0
|
|
Expected dividend yield
|
|
|
0
|
%
|
The risk-free interest rate is based on the implied yield
currently available on U.S. Treasury zero coupon issues.
The expected volatility is primarily based on historical
volatility levels of the Companys public competitors. The
expected option life was estimated by the Company based on
historical experience.
The following table summarizes the combined activities under the
2006 Option Plans and the 2006 Incentive Plan:
2006
Option Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Weighted-Average
|
|
|
|
of
|
|
|
Exercise Price
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
per Share
|
|
|
per Share
|
|
|
Options outstanding, August 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
20,828
|
|
|
$
|
1,255.59
|
|
|
$
|
1,255.59
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006
|
|
|
20,828
|
|
|
$
|
1,255.59
|
|
|
$
|
1,255.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,050
|
|
|
$
|
1,255.59
|
|
|
$
|
1,255.59
|
|
Options forfeited
|
|
|
2,174
|
|
|
$
|
1,255.59
|
|
|
$
|
1,255.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2007
|
|
|
22,704
|
|
|
$
|
1,255.59
|
|
|
$
|
1,255.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Weighted-Average
|
|
|
|
of
|
|
|
Exercise Price
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
per Share
|
|
|
per Share
|
|
|
Options outstanding, August 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,768
|
|
|
$
|
600.00 - $935.00
|
|
|
$
|
719.26
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2006
|
|
|
2,768
|
|
|
$
|
600.00 - $935.00
|
|
|
$
|
719.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
299
|
|
|
$
|
600.00
|
|
|
$
|
600.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2007
|
|
|
2,469
|
|
|
$
|
600.00 - $935.00
|
|
|
$
|
733.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Weighted-
|
|
|
Shares
|
|
|
Weighted-
|
|
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable at
|
|
|
Average
|
|
|
|
December 31,
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
December 31,
|
|
|
Exercise Price
|
|
Range of Exercise Prices
|
|
2007
|
|
|
(in years)
|
|
|
per Share
|
|
|
2007
|
|
|
per Share
|
|
|
$600.00
|
|
|
1,234
|
|
|
|
6.2
|
|
|
$
|
600.00
|
|
|
|
1,234
|
|
|
$
|
600.00
|
|
$750.00-$935.00
|
|
|
1,235
|
|
|
|
7.6
|
|
|
$
|
867.29
|
|
|
|
1,235
|
|
|
$
|
867.28
|
|
$1,255.59
|
|
|
22,704
|
|
|
|
8.8
|
|
|
$
|
1,255.59
|
|
|
|
5,782
|
|
|
$
|
1,255.59
|
|
The stock options outstanding as of December 31, 2007 have
a weighted-average remaining contractual life of approximately
8.6 years and an aggregate intrinsic value of $1,289. The
stock options exercisable as of December 31, 2007 have a
weighted average remaining contractual life of approximately
8.2 years and an aggregate intrinsic value of $1,289. The
weighted-average fair value of options granted during the period
from August 2, 2006 to December 31, 2006 and the year
ended December 31, 2007 was $492.79 and $478.98 per share,
respectively.
As of December 31, 2007, the total unrecognized
compensation cost related to non-vested share-based compensation
arrangements granted under the 2006 Plans amounted to $6,311,
which is expected to be recognized over a weighted-average
period of approximately 3.5 years.
|
|
11.
|
Commitments
and Contingencies
|
The Company leases its corporate offices and various yard
facilities under noncancelable operating leases with terms
expiring at various dates through January 2025. Rent expense
under these agreements was approximately $5,254, $3,435, $2,681
and $7,390 for the year ended December 31, 2005, the
periods from January 1, 2006 to August 1, 2006 and
from August 2, 2006 to December 31, 2006, and the year
ended December 31, 2007, respectively.
Future minimum payments under all noncancelable operating leases
with terms in excess of one year at December 31, 2007, are
as follows:
|
|
|
|
|
2008
|
|
$
|
7,197
|
|
2009
|
|
|
5,826
|
|
2010
|
|
|
4,575
|
|
2011
|
|
|
2,975
|
|
2012 and thereafter
|
|
|
7,655
|
|
|
|
|
|
|
|
|
$
|
28,228
|
|
|
|
|
|
|
F-25
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is party to various legal proceedings arising in the
normal course of business. The Company carries insurance,
subject to deductibles under the specific policies, to protect
against losses from legal claims. The Company is not currently
party to any material legal proceedings nor, to its knowledge,
are any significant legal proceedings threatened.
The Company sponsors a defined contribution pension plan
covering substantially all full-time employees. The defined
contribution plan is designed to provide tax deferred retirement
benefits to the Companys employees. The Company
historically did not make matching contributions. During 2004,
the Company changed the plan to provide matching contributions
whereby the Company matches 25% of the participant contributions
up to 4% of the employees compensation during the plan
year. Effective January 2007, the Company increased the
employer-matching contribution to 25% of the participant
contributions up to 6% of the employees compensation
during the plan year. The total contribution to the plan was
approximately $92, $61, $51 and $198 for the year ended
December 31, 2005, the periods from January 1, 2006 to
August 1, 2006 and from August 2, 2006 to
December 31, 2006, and the year ended December 31,
2007, respectively.
The Companys subsidiaries in the United Kingdom contribute
to a group personal pension plan. Amounts contributed, which
were not significant for any period presented, represent the
Companys obligation under the terms of the plan.
Condensed financial information of the Companys foreign
subsidiaries, the operations of which are principally located in
the United Kingdom, at December 31, 2006 and 2007, and for
the year ended December 31, 2005, the periods from
January 1, 2006 to August 1, 2006 and August 2,
2006 to December 31, 2006, and the year ended
December 31, 2007, before eliminations of intercompany
balances and profits, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Lease equipment, net
|
|
$
|
102,337
|
|
|
$
|
120,654
|
|
Goodwill
|
|
|
35,239
|
|
|
|
45,019
|
|
All other assets
|
|
|
47,760
|
|
|
|
53,067
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,336
|
|
|
$
|
218,740
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,752
|
|
|
$
|
7,730
|
|
Notes payable
|
|
|
73,627
|
|
|
|
87,752
|
|
Other liabilities
|
|
|
34,424
|
|
|
|
35,229
|
|
Stockholders equity
|
|
|
71,533
|
|
|
|
84,036
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,336
|
|
|
$
|
218,740
|
|
|
|
|
|
|
|
|
|
|
F-26
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Revenues and Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
72,750
|
|
|
$
|
42,342
|
|
|
$
|
30,799
|
|
|
$
|
83,474
|
|
Costs and expenses
|
|
|
69,042
|
|
|
|
41,773
|
|
|
|
28,747
|
|
|
|
75,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,708
|
|
|
$
|
569
|
|
|
$
|
2,052
|
|
|
$
|
7,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Discontinued
Operations
|
Effective during the fourth quarter of 2006, the Company
committed to plans to sell its Action Trailer Sales division
(Action), thereby meeting the held-for-sale criteria
set forth in SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Action is
comprised of three locations in the U.S. which are
primarily engaged in the business of buying and selling used
trailers. The sale of Action was completed in the third quarter
of 2007. In accordance with SFAS No. 144 and EITF
Issue
No. 03-13,
Applying the Conditions in Paragraph 42 of FASB
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations, the net assets of Action are
presented separately as assets held for sale in the accompanying
consolidated balance sheets and the operating results of Action
are presented as discontinued operations in the accompanying
consolidated statements of operations and cash flows. Prior
period financial results were reclassified to conform to these
changes in presentation.
The results of discontinued operations for the year ended
December 31, 2005, the periods from January 1, 2006 to
August 1, 2006 and August 2, 2006 to December 31,
2006, and the year ended December 31, 2007, are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
Year Ended
|
|
|
January 1 to
|
|
|
August 2 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
August 1,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Revenues
|
|
$
|
18,059
|
|
|
$
|
17,019
|
|
|
$
|
7,336
|
|
|
$
|
10,411
|
|
Income (loss) before provision for income taxes
|
|
|
306
|
|
|
|
562
|
|
|
|
313
|
|
|
|
(1,807
|
)
|
Provision (benefit) for income taxes
|
|
|
122
|
|
|
|
225
|
|
|
|
125
|
|
|
|
(697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
184
|
|
|
$
|
337
|
|
|
$
|
188
|
|
|
$
|
(1,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense allocated to Actions discontinued
operations for the year ended December 31, 2005, the
periods from January 1, 2006 to August 1, 2006 and
from August 2, 2006 to December 31, 2006, and the year
ended December 31, 2007, was based upon a ratio of
(i) the net assets of the discontinued operations compared
to (ii) the overall net assets plus debt obligations of the
Company and amounted to $431, $349, $182 and $0, respectively.
At December 31, 2006 and 2007, assets held for sale and
discontinued operations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Accounts receivable, net
|
|
$
|
901
|
|
|
$
|
|
|
Inventories
|
|
|
6,366
|
|
|
|
58
|
|
Other assets
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,567
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
F-27
MSG WC
HOLDINGS CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
15.
Subsequent Event
On February 22, 2008 the Company entered into a definitive
merger agreement with Mobile Mini, Inc. of Tempe, Arizona. The
Company and certain of its subsidiaries, including Mobile
Services Group, Inc., will merge into Mobile Mini in a
transaction valued at approximately $701.5 million.
Pursuant to the merger, Mobile Mini will assume approximately
$535.0 million of the Companys outstanding
indebtedness and will acquire all outstanding shares of capital
stock of the Company for $12.5 million in cash and shares
of newly issued Mobile Mini convertible preferred stock with a
liquidation preference of $154.0 million, which will be
initially convertible into approximately 8.55 million
shares of Mobile Mini common stock, and is redeemable at the
holders option, ten years after the date of issuance.
Closing of the transaction is subject to approval by Mobile
Minis stockholders, obtaining required governmental
approvals, receipt of a new $1.0 billion asset-based
revolving credit facility and customary closing conditions. No
closing date has been set at this time, pending receipt of the
necessary approvals.
Mobile Mini has received a fully underwritten commitment from
Deutsche Bank AG, Bank of America and JP Morgan for a
$1.0 billion asset-based revolving line of credit facility
to fund the transaction, subject to customary conditions
including the execution of definitive documentation.
F-28
MSG WC
HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
ASSETS:
|
Cash and cash equivalents
|
|
$
|
2,331
|
|
|
$
|
2,853
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,316 and $1,403 at December 31, 2007 and March 31,
2008, respectively
|
|
|
34,595
|
|
|
|
31,731
|
|
Inventories
|
|
|
14,492
|
|
|
|
15,649
|
|
Lease equipment, net of accumulated depreciation of $17,622 and
$20,961 at December 31, 2007 and March 31, 2008,
respectively
|
|
|
344,415
|
|
|
|
348,459
|
|
Property and equipment, net of accumulated depreciation of
$6,534 and $8,121 at December 31, 2007 and March 31,
2008, respectively
|
|
|
29,077
|
|
|
|
29,130
|
|
Goodwill
|
|
|
313,885
|
|
|
|
315,069
|
|
Other intangible assets, net
|
|
|
76,402
|
|
|
|
75,269
|
|
Deferred financing costs, net
|
|
|
13,111
|
|
|
|
12,522
|
|
Prepaid expenses and other assets
|
|
|
7,648
|
|
|
|
7,308
|
|
Assets held for sale and discontinued operations
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
836,020
|
|
|
$
|
837,990
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
Accounts payable
|
|
$
|
13,911
|
|
|
$
|
16,031
|
|
Accrued liabilities
|
|
|
28,874
|
|
|
|
20,301
|
|
Customer deposits
|
|
|
6,420
|
|
|
|
5,855
|
|
Senior revolving credit facility
|
|
|
218,737
|
|
|
|
225,310
|
|
Capital leases and other notes payable
|
|
|
7,603
|
|
|
|
7,477
|
|
93/4% Senior
Notes Due 2014
|
|
|
200,000
|
|
|
|
200,000
|
|
Senior Subordinated Notes, net of unamortized original issue
discount of $10,166 and $9,831 at December 31, 2007 and
March 31, 2008, respectively
|
|
|
96,014
|
|
|
|
99,535
|
|
Deferred income taxes
|
|
|
62,727
|
|
|
|
62,093
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
634,286
|
|
|
|
636,602
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 215,000 shares
authorized, 147,000 shares issued and outstanding at
December 31, 2007 and March 31, 2008
|
|
|
190,896
|
|
|
|
191,447
|
|
Accumulated other comprehensive income
|
|
|
5,856
|
|
|
|
5,752
|
|
Retained earnings
|
|
|
4,982
|
|
|
|
4,189
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
201,734
|
|
|
|
201,388
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
836,020
|
|
|
$
|
837,990
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-29
MSG WC
HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Lease and lease related
|
|
$
|
43,201
|
|
|
$
|
49,303
|
|
Sales
|
|
|
10,424
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
53,625
|
|
|
|
60,214
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
7,402
|
|
|
|
7,681
|
|
Trucking and yard costs
|
|
|
13,495
|
|
|
|
14,992
|
|
Depreciation and amortization
|
|
|
4,791
|
|
|
|
6,379
|
|
Selling, general and administrative expenses
|
|
|
17,530
|
|
|
|
19,325
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,407
|
|
|
|
11,837
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(11,982
|
)
|
|
|
(13,060
|
)
|
Foreign currency translation gain
|
|
|
2
|
|
|
|
|
|
Other income (expense)
|
|
|
7
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before provision for income taxes
|
|
|
(1,566
|
)
|
|
|
(1,308
|
)
|
Benefit for income taxes
|
|
|
(636
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(930
|
)
|
|
|
(757
|
)
|
Loss from discontinued operations (net of tax benefit of $176
and $26 for the three months ended March 31, 2007 and 2008,
respectively)
|
|
|
(270
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-30
MSG WC
HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,200
|
)
|
|
$
|
(793
|
)
|
Loss from discontinued operations
|
|
|
270
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(930
|
)
|
|
|
(757
|
)
|
Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
(2
|
)
|
|
|
|
|
Provision for doubtful accounts
|
|
|
442
|
|
|
|
277
|
|
Amortization of deferred financing costs
|
|
|
628
|
|
|
|
683
|
|
Depreciation
|
|
|
4,154
|
|
|
|
5,121
|
|
Amortization
|
|
|
637
|
|
|
|
1,258
|
|
Deferred income taxes
|
|
|
(1,075
|
)
|
|
|
(669
|
)
|
Stock-based compensation
|
|
|
612
|
|
|
|
551
|
|
Accrued interest on Senior Subordinated Notes, including
accretion of original issue discount
|
|
|
3,164
|
|
|
|
3,520
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,969
|
|
|
|
2,563
|
|
Inventories
|
|
|
(508
|
)
|
|
|
(763
|
)
|
Prepaid expenses and other assets
|
|
|
(1,955
|
)
|
|
|
251
|
|
Accounts payable and accrued liabilities
|
|
|
(2,461
|
)
|
|
|
(3,270
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
4,675
|
|
|
|
8,765
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
647
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,322
|
|
|
|
8,787
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Acquisitions, net
|
|
|
|
|
|
|
(2,525
|
)
|
Purchases of lease equipment
|
|
|
(8,214
|
)
|
|
|
(6,581
|
)
|
Purchases of property and equipment
|
|
|
(1,157
|
)
|
|
|
(1,533
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9,371
|
)
|
|
|
(10,639
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings under Credit Facility
|
|
|
5,500
|
|
|
|
13,083
|
|
Payments under Credit Facility
|
|
|
(1,858
|
)
|
|
|
(10,357
|
)
|
Payments on capital leases and notes payable
|
|
|
(270
|
)
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,372
|
|
|
|
2,379
|
|
Effect of foreign exchange rate changes on cash
|
|
|
884
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
207
|
|
|
|
522
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,469
|
|
|
|
2,331
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,676
|
|
|
$
|
2,853
|
|
|
|
|
|
|
|
|
|
|
F-31
WC
HOLDINGS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12,127
|
|
|
$
|
21,109
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
537
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Details of acquisitions:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
|
|
|
$
|
2,545
|
|
Liabilities assumed
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Net cash paid in connection with acquisitions
|
|
$
|
|
|
|
$
|
2,525
|
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligations incurred
|
|
$
|
589
|
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-32
|
|
1.
|
Business
and Basis of Presentation
|
Organization
and Business
MSG WC Holdings Corp. (Holdings), together with its
wholly-owned operating subsidiary, Mobile Services Group, Inc.
(MSG, and collectively with Holdings, the
Company), is an international provider of portable
storage solutions with 87 locations throughout the United States
and the United Kingdom. The Company leases and sells portable
storage containers, trailers and mobile offices. The Company has
a diversified customer base, including large national and small
local companies in the construction, services, retail,
manufacturing, transportation, utilities and government sectors.
These customers use portable storage solutions for a variety of
purposes, including storing and transporting inventory,
equipment and documents and providing temporary office space.
The consolidated financial statements include the accounts of
the Company and its subsidiaries, including its operating
company in the United Kingdom, Ravenstock MSG Limited. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles
(GAAP) for interim condensed financial information.
Accordingly, they do not include all the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations, and cash
flows for all periods presented have been made. The results of
operations for the period ended March 31, 2008 are not
necessarily indicative of the operating results that may be
expected for the entire year ending December 31, 2008.
These condensed consolidated financial statements should be read
in conjunction with the Companys December 31, 2007
audited consolidated financial statements and accompanying notes
thereto.
Merger
with Mobile Mini
On February 22, 2008, the Company entered into a definitive
merger agreement with Mobile Mini, Inc. (Mobile
Mini) of Tempe, Arizona. The Company and certain of its
subsidiaries, including Mobile Services Group, Inc., will merge
into Mobile Mini in a transaction valued at approximately
$701.5 million. Pursuant to the merger, Mobile Mini will
assume approximately $535.0 million of the Companys
outstanding indebtedness and will acquire all outstanding shares
of capital stock of the Company for $12.5 million in cash
and shares of newly issued Mobile Mini convertible preferred
stock with a liquidation preference of $154.0 million,
which following the tenth year after the issue date will be
initially convertible into approximately 8.55 million
shares of Mobile Mini common stock, and is redeemable at the
holders option, ten years after the date of issuance. The
Companys board of directors has approved the payment of
bonuses to certain employees subject to the closing of the
transaction. Closing of the transaction is subject to approval
by Mobile Minis stockholders, obtaining required
governmental approvals, receipt of a new $1.0 billion
asset-based revolving credit facility and customary closing
conditions.
Acquisition
On August 1, 2006, MSG WC Holdings Corp., a newly formed
entity controlled by Welsh, Carson, Anderson & Stowe
X, L.P. (Welsh Carson) and its affiliates, acquired
control of the capital stock of the Company (the
Acquisition) in exchange for consideration of
approximately $606,000, subject to certain adjustments and
excluding fees and expenses. The Acquisition was financed with
$439,965 of debt financing and $185,911 of cash contributions
from Welsh Carson and its affiliates and certain members of the
Companys management in exchange
F-33
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
for common equity. A portion of the consideration was used to
repay in full the Companys then existing senior secured
credit facility, to repay in full all of the Companys
Subordinated Notes and to redeem all of its issued and
outstanding preferred stock.
The $439,965 of debt financing consists of the following:
(i) $200,000 of
93/4% Senior
Notes (Senior Notes) issued by the Company and its
wholly-owned subsidiary Mobile Storage Group, Inc. on the
closing date of the Acquisition; and
(ii) a new $300,000 senior secured, assets-based revolving
credit facility (the Credit Facility), which
includes a £85,000 U.K. borrowing sublimit. A total of
$162,000 was drawn on the Credit Facility on the closing date,
including £37,716 drawn under the Companys U.K.
borrowing sublimit. The Credit Facility matures on
August 1, 2011.
(iii) $77,965 Senior Subordinated Notes, net of original
issue discount of $12,035. The Senior Subordinated Notes mature
on February 1, 2015.
In connection with the consummation of the Acquisition in August
2006, the Company (i) forgave $527 of receivables due from
affiliates and (ii) redeemed all of its issued and
outstanding preferred stock, including all preferred dividend
payments due which totaled $28,854. Additionally, the
Acquisition resulted in a change of control, as defined by the
Companys 2005 stock option plan, which resulted in the
immediate vesting of all outstanding and unvested options under
the plan.
The Acquisition was accounted for by Holdings using the purchase
method of accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141,
Business Combinations. Accordingly, the total purchase
price, including related fees and expenses, are to be allocated
to the acquired net assets based upon their estimated fair value
as of August 1, 2006. In addition, the Securities and
Exchange Commission requires the application of push down
accounting in business combinations where the ownership of
an entity has changed. Thus, the post-Acquisition financial
statements of the Company, as the acquired entity, reflect the
new basis of accounting in accordance with Staff Accounting
Bulletin, which we refer to as SAB 54.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Revenue
Recognition
The Company leases and sells portable storage containers,
trailers and mobile offices to its customers. Leases to
customers are generally on a short-term basis qualifying as
operating leases. The aggregate lease payments are generally
less than the purchase price of the equipment.
The Company also generates revenue from sales and lease
equipment unit delivery,
pick-up and
repositioning is recognized when these services are provided.
Costs associated with these activities are included in trucking
and yard costs in the consolidated statements of operations.
In accordance with Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements
(SAB 101), and SAB No. 104,
Revenue Recognition (SAB 104), the
Company recognizes revenues when the following fundamental
criteria are met: (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been
rendered, (iii) the price to the customer is fixed or
determinable and (iv) collection of the resulting
receivable is reasonably assured. Based on these criteria, lease
revenue is typically recognized on a straight-line basis over
the lease term, sales revenue is typically recognized once
delivery has been made, and revenue from unit delivery, pick-up
and repositioning is typically recognized when these services
are provided.
F-34
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
With respect to lease revenue, customers in the United States
are often billed in advance for each
28-day
period and customers in the United Kingdom are generally billed
monthly in arrears. Deferred revenue is recorded for the
unearned portion of pre-billed lease income.
Inventories
Inventories consist primarily of equipment held for sale and are
carried at the lower of cost or market. Cost of equipment is
determined when acquired and is based on the
specific-identification method.
Lease
Equipment
Lease equipment consists primarily of portable storage
containers, trailers and mobile offices used by the Company in
its lease fleet. The lease equipment is recorded at cost and
depreciated on a straight-line basis, containers over the
estimated life of 20 years, trailers and portable steel
offices over the estimated lives of 15 years and portable
timber offices over the estimated life of 10 years. Salvage
values are determined when the lease equipment is acquired and
are typically 70% for containers and 10% for trailers and
portable offices (steel and timber). Management believes the
estimated salvage values do not cause carrying values to exceed
net realizable values. Normal repairs and maintenance to lease
equipment are expensed as incurred.
Property
and Equipment
Property and equipment is stated at cost. Depreciation for
property and equipment is recorded on the straight-line method
over their estimated useful lives of five years. Transportation
equipment is generally depreciated over five to seven years with
a salvage value of 20%. Leasehold improvements and buildings are
depreciated on the straight-line method over their estimated
useful lives of 12 years, or the term of the underlying
lease agreement, whichever is shorter.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in connection with
acquisitions. The Company accounts for goodwill in accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives
and requires these assets be reviewed for impairment at least
annually. The Company tests goodwill for impairment using the
two-step process prescribed in SFAS No. 142. The first
step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company
performed the required impairment tests of goodwill and
indefinite-lived intangible assets as of October 1, 2005,
2006 and 2007. The Company has determined that no impairments
related to goodwill and indefinite-lived intangible assets exist.
Other intangible assets with finite useful lives are amortized
over their useful lives. Intangible assets with finite useful
lives consist primarily of noncompete covenants and customer
relationships which are amortized over the expected period of
benefit which range from five to ten years. Noncompete covenants
are amortized using the straight-line method while customer
relationships are amortized using an accelerated method that
reflects the related customer attrition rates.
In connection with the Acquisition completed on August 1,
2006, the Company allocated $16,293 to customer relationships
with a useful life of 10 years, and $59,609 to trade names
based on a third-party valuation of the estimated fair values of
these intangible assets as of August 1, 2006. At
December 31, 2007 and March 31, 2008, noncompete
covenants amounted to $1,162 and $1,074 , respectively, net of
accumulated amortization of $972 and $1,060, respectively.
Customer relationships amounted to $14,261 and $13,239 as of
December 31, 2007 and March 31, 2008, respectively,
net of accumulated amortization of $3,701 and $4,782,
respectively. The amortization
F-35
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
of intangible assets resulted in amortization expense which
amounted to $637 and $1,258 for the three months ended
March 31, 2007 and 2008, respectively. Included in other
intangible assets are indefinite-lived trade names which amount
to $60,979 and $60,956 as of December 31, 2007 and
March 31, 2008, respectively.
Income
Taxes
Deferred income taxes have been provided for using the liability
method. Deferred tax assets and liabilities are determined based
upon the difference between the financial statement bases and
tax bases of assets and liabilities as measured by the enacted
tax rate which will be in effect when these differences are
expected to reverse. These differences are primarily related to
depreciation. Foreign taxes are provided based on the tax rates
of the country of the subsidiary.
Foreign
Currency Translation
The financial position and results of operations of the
Companys foreign subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of
this subsidiary are translated at the exchange rate in effect at
each balance sheet date. Income statement accounts are
translated at the average rate of exchange prevailing during
each fiscal quarter. Translation adjustments arising from
differences in exchange rates from period to period are included
in the accumulated other comprehensive income in
stockholders equity.
Ravenstock MSG Limited has outstanding
U.S. dollar-denominated short-term intercompany borrowings
of $3,683 and $3,702 as of December 31, 2007 and
March 31, 2008, respectively. These borrowings are
remeasured at each reporting date with the impact of the
remeasurement being recorded in foreign currency transaction
gain in the consolidated statements of operations.
Comprehensive
Loss
For the three months ended March 31, 2007 and 2008,
comprehensive loss amounted to $1,050 and $897, respectively.
The difference between net loss and comprehensive loss relates
to the Companys change in foreign currency translation
adjustments.
Estimates
and Assumptions
The preparation of the financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation.
Recent
Accounting Pronouncements
On January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. In
February 2008, the FASB released FASB Staff Position (FSP
FAS 157-2
Effective Date of FASB Statement No. 157), which delayed
the effective date of SFAS No. 157 for nonfinancial
assets, such as goodwill and long-lived assets, and nonfinancial
liabilities, subject to certain exceptions until January 1,
2009. The adoption of SFAS No. 157 for financial
assets and liabilities did not have a material impact on the
Companys financial condition or results of operations.
F-36
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
On January 1, 2008, the Company adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose to elect, at
specified election dates, to measure eligible financial
instruments at fair value. The Company has currently chosen not
to adopt the provisions of SFAS No. 159 for its
existing financial instruments.
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141R (revised
2007), Business Combinations (SFAS No. 141R),
which replaces SFAS No. 141. SFAS No. 141R
establishes the principles and requirements for how an acquirer:
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R makes some
significant changes to existing accounting practices for
acquisitions. SFAS No. 141R is to be applied
prospectively to business combinations consummated on or after
the beginning of the first annual reporting period on or after
December 15, 2008. The Company is currently evaluating the
impact SFAS No. 141R will have on its future business
combinations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes
new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company does
not believe the adoption of this statement will have a material
effect on its financial position, results of operations, and
cash flows.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 applies to all derivative instruments and
related hedged items accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities. It requires entities to provide greater
transparency about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement
No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an
entitys financial position, results of operations, and
cash flows. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. The
Company does not believe the adoption of this statement will
have a material effect on the results of operations or financial
condition.
The Company acquired the assets of a portable storage company
during the three months ended March 31, 2008 for an
aggregate purchase price of $2,525, which the Company paid in
cash. No acquisitions were completed during the three months
ended March 31, 2007. The acquisition was accounted for as
a purchase and the acquired assets were recorded at their
estimated fair values on the date of acquisition. The
accompanying consolidated financial statements include the
operations of the acquired company from the date of acquisition.
F-37
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
The fair value of the assets acquired and liabilities assumed
has been allocated as follows:
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
Lease equipment
|
|
$
|
972
|
|
Property and equipment
|
|
|
413
|
|
Goodwill
|
|
|
1,094
|
|
Customer relationships
|
|
|
66
|
|
Accrued liabilities
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
$
|
2,525
|
|
|
|
|
|
|
|
|
4.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Land and building
|
|
$
|
5,218
|
|
|
$
|
5,371
|
|
Transportation equipment
|
|
|
22,439
|
|
|
|
23,464
|
|
Furniture, fixtures and office equipment
|
|
|
6,403
|
|
|
|
6,733
|
|
Leasehold improvements
|
|
|
1,551
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,611
|
|
|
|
37,251
|
|
Less accumulated depreciation
|
|
|
(6,534
|
)
|
|
|
(8,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,077
|
|
|
$
|
29,130
|
|
|
|
|
|
|
|
|
|
|
Senior
Revolving Credit Facility
The Companys Credit Facility is a senior secured,
asset-based revolving credit facility providing for loans of up
to $300,000, subject to specified borrowing base formulas, of
which the dollar equivalent of up to £85,000 can be drawn
in borrowings denominated in British pounds and may be borrowed
(and re-borrowed) by Ravenstock for use in the Companys
U.K. operations. The Company may also incur up to $50,000 of
additional senior secured debt under the Credit Facility,
subject to the consent of the joint-lead arrangers under the
Credit Facility, the availability of lenders willing to provide
such incremental debt and compliance with the covenants and
certain other conditions under the Credit Facility.
As of March 31, 2008, the Companys aggregate
borrowing capacity pursuant to the borrowing base under the
Credit Facility amounts to $74,690 , net of the $225,310 in
outstanding borrowings.
Borrowings under the Credit Facility are secured by a lien on
substantially all of the Companys assets. Such borrowings
are governed by a borrowing base, with respect to the
Companys domestic assets (including assets of subsidiary
guarantors) and the assets of Ravenstock (including assets of
subsidiary guarantors), respectively, consisting of the sum of
(i) 85.0% of eligible accounts receivable, plus
(ii) the lesser of 100.0% of the net book value and
90.0% of the net orderly liquidation value of eligible lease
fleet assets, plus (iii) the lesser of 90.0% of the
net book value of and 80.0% of the net orderly liquidation value
of eligible machinery and equipment, plus (iv)
(A) until an acceptable appraisal is received, 90% of the
net book value of eligible inventory (subject to an aggregate
$25,000 inventory sublimit) or (B) after an acceptable
appraisal is received, the lesser of (x) 90% of the net
book value of
F-38
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
eligible inventory and (y) 90% of the net orderly
liquidation value of eligible inventory (subject to an aggregate
$25,000 inventory sublimit, provided that the inventory sublimit
may be increased up to $35,000 subject to the completion of an
appraisal of the eligible inventory). The borrowing base is also
subject to certain other adjustments and reserves to be
determined by the administrative agent for the lenders under the
Credit Facility. In general, borrowings under the Credit
Facility bear interest based, at the Companys option, on
either the agent lenders base rate or U.S. or U.K.
LIBOR, in each case plus a margin.
The applicable margin on base rate borrowings can range from
0.5% to 1.25% and 1.5% to 2.25% for LIBOR borrowings based on
the Companys ratio of total debt to EBITDA at the time of
determination. As of March 31, 2008, the interest rate for
borrowings under the Credit Facility is based on the agent
lenders base rate plus 1.0% or LIBOR plus 2.0%. The
Companys weighted-average interest rate on outstanding
obligations under the Credit Facility as of March 31, 2008
is 6.33%.
The Credit Facility places various restrictions on the Company,
including the incurrence of additional debt, specified limits on
capital expenditures and acquisitions, the amounts of dividends
which can be paid by the Company, and does not allow for
dividends to be paid on common stock. In addition, the Credit
Facility requires the Company to meet specific financial ratios
if the total aggregate borrowing capacity falls below $30,000.
Had the Company been subject to such financial ratios as of
March 31, 2008, the Company would have been in full
compliance.
The Company had $3,856 in letters of credit outstanding at
March 31, 2008 related to its workers compensation and
automobile insurance policies. There were no outstanding draws
against such letters of credit as of March 31, 2008.
Senior
Notes
In 2006, the Company issued $200,000 of Senior Notes on
August 1, 2006. Interest on the Senior Notes accrues at a
rate of
93/4%
per annum and is payable on February 1 and August 1 of each
year, beginning on February 1, 2007. The Senior Notes
mature on August 1, 2014. The Senior Notes place various
restrictions on the Company, including the incurrence of
additional debt, sales of assets and payment of dividends. The
Company is in compliance with the debt covenants under the
Senior Notes as of March 31, 2008. The Senior Notes are
senior unsecured obligations of the Company and are guaranteed
by all of the Companys current and future domestic
subsidiaries, except for certain immaterial domestic
subsidiaries. Such notes and guarantees are effectively junior
to all of the Companys secured indebtedness to the extent
of the collateral securing such indebtedness. The Senior Notes
are not guaranteed by any of the Companys foreign
subsidiaries and are structurally subordinated to the
indebtedness and other liabilities of such non-guarantor
subsidiaries. At March 31, 2008, the fair value of the
Senior Notes was approximately $187,000.
Senior
Subordinated Notes
On August 1, 2006, Holdings issued $90,000 in aggregate
principal amount of subordinated notes (the Holdings
Notes) to WCAS Capital Partners IV, L.P., an affiliate of
Welsh Carson, and a strategic co-investor. The proceeds from the
Holdings Notes were contributed by Holdings to MSG in the form
of common equity capital and were used to fund the Acquisition.
The Holdings Notes mature on February 1, 2015 and are
structurally and contractually subordinated to the Credit
Facility and the Senior Notes. The Holdings Notes are unsecured
and do not possess the benefit of a guarantee. Interest on the
Holdings Notes accrues on a
payment-in-kind,
non-cash basis at 12.0% per annum for the first two years.
Thereafter, interest will be payable quarterly at 10.0% per
annum subject to the terms of the Credit Facility and the Senior
Notes. If the Company is prohibited from making cash interest
payments, interest will continue to accrue on a
payment-in-kind,
non-cash basis at 12.0% per annum. The Senior
F-39
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
Subordinated Notes are included on the consolidated balance
sheet net of a $12,035 original issue discount, of which $9,831
remains unamortized as of March 31, 2008.
Other
Notes Payable
Included in capital leases and other notes payable are certain
notes payable with a principal balance outstanding of $946 and
$895 as of December 31, 2007 and March 31, 2008,
respectively.
|
|
6.
|
Obligations
Under Capital Leases
|
Included in capital leases and other notes payable are certain
capital lease obligations expiring through 2013 with various
leasing companies with a principal balance outstanding of $6,657
and $6,582 as of December 31, 2007 and March 31, 2008,
respectively. The lease agreements provide the Company with a
purchase option at the end of the lease term based on an
agreed-upon
percentage of the original cost of the equipment. These leases
have been capitalized using interest rates ranging from
approximately 5.5% to 8.5%. The leases are secured by the
equipment under lease. At December 31, 2007 and
March 31, 2008, equipment acquired under capital leases and
related accumulated depreciation are included in lease equipment.
|
|
7.
|
Related-Party
Transactions
|
Consulting
Agreement with Board Members
The Company has consulting agreements with (i) its former
chief executive officer and current board member, (ii) its
former executive vice-president and current board member and
(iii) a current board member for their consulting services.
Such services relate to consulting on strategic business plans,
acquisitions, and customer and vendor relationships. Fees and
expenses paid in connection with these agreements amounted to
$51 and $50 for the three months ended March 31, 2007 and
2008, respectively.
Transactions
with PV Realty LLC
The Company leases property from PV Realty, LLC, a company
controlled by the Companys i) former chief executive
officer and current board member; and ii) former executive
vice-president and current board member. The Company pays annual
rent of $83 through August 31, 2008. The Company believes
the price and terms of this lease are at fair market value.
F-40
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
Condensed financial information of the Companys foreign
subsidiaries, the operations of which are principally located in
the United Kingdom, at December 31, 2007 and March 31,
2008 and for the three months ended March 31, 2007 and
2008, before eliminations of intercompany balances and profits,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Lease equipment, net
|
|
$
|
120,654
|
|
|
$
|
124,144
|
|
Goodwill
|
|
|
45,019
|
|
|
|
43,103
|
|
All other assets
|
|
|
53,067
|
|
|
|
53,043
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,740
|
|
|
$
|
220,290
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,730
|
|
|
$
|
11,021
|
|
Notes payable
|
|
|
87,752
|
|
|
|
88,217
|
|
Other liabilities
|
|
|
35,229
|
|
|
|
32,825
|
|
Stockholders equity
|
|
|
88,029
|
|
|
|
88,227
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,740
|
|
|
$
|
220,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Revenues and Net Income
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
20,005
|
|
|
$
|
20,910
|
|
Costs and expenses
|
|
|
19,613
|
|
|
|
20,347
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
392
|
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Discontinued
Operations
|
Effective during the fourth quarter of 2006, the Company
committed to plans to sell its Action Trailer Sales division
(Action), thereby meeting the held-for-sale criteria
set forth in SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Action is
comprised of three locations in the U.S. which are
primarily engaged in the business of buying and selling used
trailers. The sale of Action was completed in the third quarter
of 2007. In accordance with SFAS No. 144 and EITF
Issue
No. 03-13,
Applying the Conditions in Paragraph 42 of FASB
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations, the net assets of Action are
presented separately as assets held for sale in the accompanying
consolidated balance sheets and the operating results of Action
are presented as discontinued operations in the accompanying
consolidated statements of operations and cash flows. Prior
period financial results were reclassified to conform to these
changes in presentation.
F-41
MSG WC
HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(INFORMATION AT MARCH 31, 2008 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND MARCH 31, 2008 ARE UNAUDITED)
The results of discontinued operations for the three months
ended March 31, 2007 and 2008, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Revenues
|
|
$
|
3,958
|
|
|
$
|
8
|
|
Loss before benefit for income taxes
|
|
|
(446
|
)
|
|
|
(62
|
)
|
Benefit for income taxes
|
|
|
(176
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(270
|
)
|
|
$
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense allocated to Actions discontinued
operations for the three months ended March 31, 2007 was
based upon a ratio of (i) the net assets of the
discontinued operations compared to (ii) the overall net
assets plus debt obligations of the Company and amounted to $108.
Included in assets held for sale and discontinued operations are
inventories and other assets of $58 and $6, respectively, as of
December 31, 2007. There were no assets held for sale and
discontinued operations as of March 31, 2008.
F-42
Annex
A
AGREEMENT
AND PLAN OF MERGER
BY AND AMONG
MOBILE MINI, INC.,
CACTUS MERGER SUB, INC.,
MSG WC HOLDINGS CORP.
AND
TARGET STOCKHOLDER REPRESENTATIVE
February 22, 2008
A-1
Table
of Contents
|
|
|
|
|
|
|
Page
|
|
ARTICLE I DEFINITIONS
|
|
|
A-6
|
|
§1.1 Definitions
|
|
|
A-6
|
|
§1.2 Other Defined Terms
|
|
|
A-13
|
|
§1.3 Construction
|
|
|
A-13
|
|
|
|
|
|
|
ARTICLE II THE MERGER AND SUBSEQUENT MERGERS
|
|
|
A-13
|
|
§2.1 The Merger
|
|
|
A-13
|
|
§2.2 Certificate of Incorporation of
the Surviving Corporation
|
|
|
A-13
|
|
§2.3 By-laws of the Surviving
Corporation
|
|
|
A-13
|
|
§2.4 Directors and Officers of the
Surviving Corporation
|
|
|
A-13
|
|
§2.5 The Subsequent Mergers
|
|
|
A-14
|
|
|
|
|
|
|
ARTICLE III EFFECT OF THE MERGER ON CAPITAL STOCK
|
|
|
A-14
|
|
§3.1 Conversion of Stock
|
|
|
A-14
|
|
§3.2 Effect on Options
|
|
|
A-14
|
|
§3.3 Delivery of Funds; Surrender of
Certificates; Payments
|
|
|
A-15
|
|
§3.4 Determination of Merger
Consideration Adjustment
|
|
|
A-16
|
|
§3.5 No Further Rights of Transfers
|
|
|
A-18
|
|
§3.6 Withholding Rights
|
|
|
A-19
|
|
§3.7 Closing
|
|
|
A-19
|
|
§3.8 Further Assurances
|
|
|
A-19
|
|
§3.9 Target Stockholder
Representative
|
|
|
A-19
|
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET
|
|
|
A-20
|
|
§4.1 Authority and Enforceability
|
|
|
A-20
|
|
§4.2 Consents and Approvals; No
Violations
|
|
|
A-20
|
|
§4.3 Existence and Good Standing of
Target
|
|
|
A-21
|
|
§4.4 Capitalization of Target
|
|
|
A-21
|
|
§4.5 Target Subsidiaries
|
|
|
A-21
|
|
§4.6 SEC Filings
|
|
|
A-22
|
|
§4.7 Financial Statements
|
|
|
A-23
|
|
§4.8 Liabilities
|
|
|
A-24
|
|
§4.9 Books and Records
|
|
|
A-24
|
|
§4.10 Properties; Containers
|
|
|
A-24
|
|
§4.11 Owned Real Property
|
|
|
A-24
|
|
§4.12 Leased Real Property
|
|
|
A-25
|
|
§4.13 Material Contracts
|
|
|
A-25
|
|
§4.14 Litigation
|
|
|
A-26
|
|
§4.15 Taxes
|
|
|
A-27
|
|
§4.16 Insurance
|
|
|
A-28
|
|
§4.17 Intellectual Property
|
|
|
A-28
|
|
§4.18 Compliance with Laws
|
|
|
A-29
|
|
§4.19 Customers
|
|
|
A-29
|
|
§4.20 Employment Relations
|
|
|
A-29
|
|
§4.21 Employee Benefit Plans
|
|
|
A-30
|
|
§4.22 Environmental Laws and Regulations
|
|
|
A-32
|
|
A-2
|
|
|
|
|
|
|
Page
|
|
§4.23 Affiliate Transactions
|
|
|
A-32
|
|
§4.24 Permits
|
|
|
A-32
|
|
§4.25 Absence of Changes
|
|
|
A-33
|
|
§4.26 Brokers or Finders Fees
|
|
|
A-34
|
|
§4.27 Certain Business Practices
|
|
|
A-34
|
|
§4.28 Special Purpose Representations
|
|
|
A-34
|
|
§4.29 Due Diligence by Target
|
|
|
A-34
|
|
|
|
|
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT
|
|
|
A-35
|
|
§5.1 Authority and Enforceability
|
|
|
A-35
|
|
§5.2 Consents and Approvals; No
Violations
|
|
|
A-35
|
|
§5.3 Existence and Good Standing
|
|
|
A-35
|
|
§5.4 Capitalization of Parent
|
|
|
A-36
|
|
§5.5 Parent Subsidiaries
|
|
|
A-36
|
|
§5.6 SEC Filings
|
|
|
A-37
|
|
§5.7 Financial Statements; No
Material Adverse Effect
|
|
|
A-37
|
|
§5.8 Liabilities
|
|
|
A-38
|
|
§5.9 Properties; Containers
|
|
|
A-38
|
|
§5.10 Litigation
|
|
|
A-38
|
|
§5.11 Taxes
|
|
|
A-38
|
|
§5.12 Compliance with Laws
|
|
|
A-39
|
|
§5.13 Employee Benefits
|
|
|
A-39
|
|
§5.14 Certain Business Practices
|
|
|
A-39
|
|
§5.15 Brokers or Finders Fees
|
|
|
A-39
|
|
§5.16 Financing
|
|
|
A-40
|
|
§5.17 Due Diligence by Parent
|
|
|
A-40
|
|
|
|
|
|
|
ARTICLE VI COVENANTS OF TARGET
|
|
|
A-40
|
|
§6.1 Conduct of Business of Target
|
|
|
A-40
|
|
§6.2 Exclusive Dealing
|
|
|
A-42
|
|
§6.3 Review of Target
|
|
|
A-43
|
|
§6.4 Notification of Certain
Matters; Amendments to Target Disclosure Letter
|
|
|
A-43
|
|
§6.5 Assistance with Debt Financing
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§6.6 Resignation of Officers and
Directors
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§6.7 Affiliate Agreements
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§6.8 Target Option Plans
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§6.9 WARN
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§6.10 Parents Requests Regarding Employees
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ARTICLE VII COVENANTS OF PARENT
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§7.1 Conduct of Business of Parent
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§7.2 Debt Financing
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§7.3 Indemnification of Directors
and Officers
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§7.4 Parent Organizational Documents
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§7.5 Review of Parent
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§7.6 Parent Stockholders Approval
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§7.7 Waiver of Standstill
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Page
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§7.8 Financial Reports
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§7.9 Compensation and Benefits
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§7.10 Exclusivity
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§7.11 Escrowed Shares
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ARTICLE VIII COVENANTS OF PARENT AND TARGET
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§8.1 Regulatory and Other Approvals
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§8.2 All Commercially Reasonable
Efforts
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§8.3 Public Announcements
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§8.4 Litigation Support
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ARTICLE IX CONDITIONS TO CLOSING
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§9.1 Conditions to Obligations of
Parent and Target
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§9.2 Conditions to Obligation of
Parent
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§9.3 Conditions to Obligations of
Target
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ARTICLE X TAX MATTERS
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§10.1 Tax Return Preparation
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§10.2 Cooperation
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§10.3 Tax-Free Reorganization
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ARTICLE XI SURVIVAL
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§11.1 Representations and Warranties
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§11.2 Indemnification
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§11.3 Indemnification Procedure
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§11.4 Third Party Claims
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§11.5 Calculation of Indemnity
Payments
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ARTICLE XII TERMINATION AND ABANDONMENT
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§12.1 Termination
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§12.2 Effect of Termination
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ARTICLE XIII MISCELLANEOUS
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§13.1 Expenses; Transfer Taxes
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§13.2 Governing Law
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§13.3 Jurisdiction; Agents for
Service of Process
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§13.4 Table of Contents; Captions
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§13.5 Notices
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§13.6 Assignment; Parties in Interest
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§13.7 Counterparts
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§13.8 Entire Agreement
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§13.9 Amendments
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§13.10 Severability
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§13.11 Third Party Beneficiaries
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§13.12 No Strict Construction
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§13.13 Waiver of Jury Trial
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§13.14 Specific Performance
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ANNEXES
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Annex A Other Defined Terms
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EXHIBITS
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Exhibit A Form of Joinder Agreement
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Exhibit B Form of Escrow Agreement
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Exhibit C Form of Stockholders Agreement
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Exhibit D Form of Series A Convertible
Redeemable Participating Preferred Stock Certificate of
Designation
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Exhibit E Form of Amendment to Amended and
Restated Certificate of Incorporation of Parent
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Exhibit F List of Indebtedness of Target
and its Subsidiaries as of December 31, 2007
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A-5
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated February 22, 2008
(this Agreement), by and among MOBILE MINI,
INC., a Delaware corporation (the Parent),
CACTUS MERGER SUB, INC., a Delaware corporation and a direct
wholly-owned subsidiary of Parent (Merger
Sub), MSG WC HOLDINGS CORP., a Delaware corporation
(the Target), and Target Stockholder
Representative (as defined below), on the other hand.
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub and Target have, on the terms and subject to the conditions
set forth in this Agreement, (a) determined that the merger
of Merger Sub with and into Target, as set forth below (the
Merger), is fair to, and in the best
interests of, their respective stockholders, and declared that
the Merger is advisable, (b) authorized and approved this
Agreement, the Merger, the execution and delivery of the other
agreements referred to herein, and the consummation of the
transactions contemplated hereby and thereby and (c) in the
case of Target, recommended acceptance of the Merger and
approval and adoption of this Agreement to its stockholders, in
accordance with the Delaware General Corporation Law, as amended
(the DGCL);
WHEREAS, pursuant to the terms and subject to the conditions set
forth in this Agreement, all of the issued and outstanding
shares of common stock, par value $0.01 per share, of the Target
Common Stock (as defined below) shall be converted pursuant to
the Merger into the right to receive a combination of cash and
shares of convertible redeemable participating preferred stock,
par value $0.01 per share of Parent, pursuant to the terms of
the Certificate of Designation (as defined below)
(Parent Preferred Stock), as herein provided;
WHEREAS, Parent and Target desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger; and
WHEREAS, simultaneously herewith, certain of the equity holders
of Target have executed a joinder to this Agreement in the form
of Exhibit A hereto (the Joinder
Agreement) pursuant to which each such equity holder,
among other things, adopted this Agreement, consented to the
transactions contemplated hereby, waived appraisal rights,
agreed to the indemnification and other provisions contained
herein applicable to the equityholders, agreed to
non-compete/non-solicitation provisions, agreed to the
termination of the Sponsor Stockholders Agreement effective as
of the Effective Time, and made various representations and
warranties.
WHEREAS, immediately following the Merger, the parties shall
undertake the Subsequent Merger (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth herein, and other valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, and
intending to be legally bound hereby, Parent, Merger Sub, Target
and the Target Stockholder Representative (each, a
Party and collectively, the
Parties), hereto agree as follows:
ARTICLE I
DEFINITIONS
§1.1 Definitions. When
used in this Agreement, the following terms shall have the
meanings assigned to them in this Section 1.1.
Acquisition Amount means the value of
any corporate acquisition by Target or any of its Subsidiaries
approved by Parent in writing.
Affiliate means, with respect to any
Person, any other Person directly or indirectly controlling,
controlled by, or under common control with, such Person;
provided that, for the purposes of this definition,
control (including, with correlative meanings, the
terms controlled by and under common control
with), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise; and,
A-6
provided, further, that, for purposes of
Sections 4.13 and 4.23, an Affiliate of any Person shall
also include (i) any Person that directly or indirectly
owns more than five percent (5%) of any class of capital stock
or other equity interest of such Person, (ii) any current
officer or director of such Person, and (iii) any spouse,
parent or child of any Person described in clauses (i) or
(ii) above.
Ancillary Agreements means the Escrow
Agreement, the Stockholders Agreement, the Joinder Agreement,
the Certificate of Designation, the Certificate of Incorporation
Amendment and any other agreement, instrument and document
delivered in connection with the transactions contemplated by
this Agreement including, without limitation, any letter of
transmittal.
Business Day means any day, other than
a Saturday, Sunday or other day on which banks located in
New York City, New York or Tempe, Arizona are authorized or
required by Law to close.
CapEx Budget means that certain
Adjusted Capital Expenditures Budget of Target for the calendar
year ended December 31, 2008 included in
Section 4.7(d) of the Target Disclosure Letter.
Capital Expenditures means new
additions of storage containers, steel offices and other similar
units to the lease fleet, including transportation,
manufacturing and refurbishment costs incurred in bringing such
units to rent ready status that are properly capitalizable in
accordance with GAAP. For the avoidance of doubt, Capital
Expenditures will be (A) increased
(i) expenditures related to refurbishing or transporting
units (during January and February, 2008)already in service or
acquired through business acquisitions and purchases of
non-fleet property, plant and equipment subject to a maximum
limitation of $2,000,000; (ii) expenditures resulting from
the transfer of units from inventory to the lease fleet, subject
to a maximum limitation of $4,000,000; and (iii)expenditures
related to the purchase of storage containers, steel offices and
other similar units into inventory; and (B) will be reduced
by (iv) the net book value of any unit sales from the lease
fleet; and (v) the cost basis of any unit sales from
inventory of lease fleet units or any item in inventory of a
nature similar to the products in lease fleet (but not of other
property, plant and equipment).
Cash and Cash Equivalents means all
cash on hand in the Targets or any of its
Subsidiaries bank, lock box or other accounts and all
marketable securities (but excluding restricted cash),
calculated in each case in accordance with GAAP applied on a
basis consistent with the preparation of the Balance Sheet.
Certificate of Designation means the
Certificate of Designation of Parents Series A
Convertible Redeemable Participating Preferred Stock, in the
form of Exhibit D hereto.
Certificate of Incorporation Amendment
means the Amendment to the Amended and Restated Certificate of
Incorporation of Parent in the form attached hereto as
Exhibit E.
Code means the United States Internal
Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
Contract means any note, bond,
mortgage, indenture, guarantee, license, franchise, permit,
agreement, understanding, arrangement, contract, commitment,
lease, franchise agreement or other legally binding instrument
or obligation and all amendments thereto.
Cumulative Adjusted Capex Budget
Amount means, for any period, the amount shown on,
or derived from, the CapEx Budget for the period commencing on
January 1, 2008 and ending on the date of such
determination; provided, that in the event the Closing
Date is a date other than the last day of a calendar month, the
Cumulative Adjusted Capex Budget Amount as of the Closing Date
shall equal the sum of (i) the Cumulative Adjusted Capex
Budget Amount shown on, or derived from, the CapEx Budget for
the period commencing on January 1, 2008 and ending on last
day of the month immediately preceding the month in which the
Closing occurs (the Prior Month Cumulative Adjusted
Capex Budget Amount), plus (ii) the
product of (a) the excess of the Cumulative Adjusted CapEx
Budget Amount shown on, or derived from, the CapEx Budget for
the period commencing on January 1, 2008 and ending on last
day of the month in which the Closing occurs (the
Closing Month Cumulative Adjusted CapEx Budget
Amount) over the Prior Month Cumulative Adjusted Capex
Budget Amount and (b) the fraction derived by dividing
(x) the total number of days from and including the first
day of the month in which the Closing occurs to and including
the Closing Date by (y) the total number of days in the
month in which the Closing occurs.
A-7
Draft Financial Statements means the
draft unaudited consolidated balance sheet of Mobile Services
Group Inc. and its consolidated Subsidiaries as at
December 31, 2007 and the related draft unaudited
consolidated statements of operations and cash flows for the
period then ended.
Environmental Law means any Law, Order
or other requirement of law, including any principle of common
law, relating to the protection of human health or the
environment, including the regulation of the manufacture, use,
transport, treatment, storage, disposal, release or threatened
release of petroleum products, asbestos, urea formaldehyde
insulation, polychlorinated biphenyls or any substance listed,
classified or regulated as hazardous or toxic, or any similar
term, under such Environmental Law.
ERA means the United Kingdoms
Employment Rights Act 1996.
Escrow Agent means the Person selected
by Parent and the Target Stockholder Representative to serve as
the escrow agent under the Escrow Agreement.
Escrow Agreement means the Escrow
Agreement, to be dated as of the Closing Date, by and among
Parent, the Target Stockholder Representative and the Escrow
Agent, substantially in the form attached hereto as
Exhibit B.
Escrow Amount means $15,000,000.
Escrowed Cash means an amount in cash
which is equal to the Estimated Merger Consideration
minus $154,000,000 but in no event shall the Escrowed
Cash exceed $15,000,000; provided, that if the Estimated
Merger Consideration is equal to or less than $154,000,000, than
the Escrowed Cash shall be $0.00.
Escrowed Parent Preferred Stock means
a number of shares of Parent Preferred Stock equal to the
Escrowed Parent Preferred Stock Value divided by
$18.00 (as adjusted for stock splits and combinations).
Escrowed Parent Preferred Stock Value
means the Escrow Amount less the Escrowed Cash.
Estimated Merger Consideration means
an amount equal to the sum of (i) $701,500,000, (ii)
minus the Target Net Debt, (iii) plus or
minus, as the case may be, the Estimated Net Debt
Adjustment, (iv) plus or minus, as the case may
be, the Estimated Working Capital Adjustment, (v) plus or
minus, as the case may be, the Estimated CapEx
Expenditures Adjustment, (vi) minus the Estimated
Transaction Expenses, and (vii) plus the Acquisition
Amount.
Exchange Act means the United States
Securities and Exchange Act of 1934, as amended.
Fair Market Value means, for purposes
of valuing the Parent Preferred Stock for purposes of the
indemnification provisions of this Agreement, the as-converted
value of Parent Preferred Stock based on the average of the
closing prices of the Parent Common Stock on the NASDAQ
reporting system or on the principal exchange on which the
Parent Common Stock is traded (as reported in the Wall Street
Journal) over a period of thirty (30) days consisting of
the day the final amount of indemnifiable Losses has been agreed
to or otherwise determined pursuant to the provisions of this
Agreement and the twenty nine (29) consecutive trading days
prior to such day the final amount of indemnifiable Losses has
been agreed or otherwise determined pursuant to the provisions
of this Agreement; provided, that if the Parent Common
Stock is not traded on any exchange or the over-the-counter
market, then Market Price shall be determined in
good faith by the Surviving Corporation and the Target
Stockholder Representative.
Governmental Entity means any
instrumentality, subdivision, court, administrative agency,
commission, official or other authority of the United States or
any other country or any state, province, prefect, municipality,
locality or other government or political subdivision thereof,
or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or
quasi-governmental authority.
Indebtedness means, with respect to
any Person, (without duplication) such Persons and its
Subsidiaries (i) indebtedness for borrowed money or
indebtedness issued or incurred in substitution or exchange for
indebtedness for borrowed money and all amounts owing as
deferred purchase price for property or services; (ii) all
seller notes, acquisition holdbacks, earn-out
payments and cash deposits provided by the selling party in
connection with acquisitions by such Person or any of its
Subsidiaries completed prior to date of this Agreement (but only
to the extent that such deposits are held or controlled by such
Person or any of its Subsidiaries); (iii) indebtedness
A-8
evidenced by any note, bond, debenture, mortgage or other debt
instrument or debt security; (iv) commitments or
obligations by which such Person assures a creditor against loss
including contingent reimbursement obligations with respect to
letters of credit (excluding stand-by letters of credit
supporting workers compensation and self-insurance
obligations of such Person and its Subsidiaries not to exceed an
amount of $7,000,000); (v) indebtedness secured by a Lien
on assets or properties of such Person; (vi) obligations
under any interest rate, currency or other hedging agreement;
(vii) capitalized lease obligations; (viii) accrued
interest, (ix) obligations created or arising under any
conditional sale or other title retention agreement not entered
into in the ordinary course of business consistent with past
practice, or (x) any prepayment penalties or premiums and
any breakage costs incurred in connection with the payment of
Indebtedness prior to the stated maturity thereof, but only to
the extent that such indebtedness is being repaid in connection
with the Merger. For the avoidance of doubt,
Indebtedness does not include customer deposits,
accounts payable, purchase commitments for capital expenditures,
or other items included in the calculation of Net Working
Capital. For illustrative purposes, attached as
Exhibit F hereto is a list of Indebtedness of Target
and its Subsidiaries as of December 31, 2007.
Intellectual Property means any of the
following: (i) U.S. and
non-U.S. patents,
and applications for either; (ii) registered and
unregistered trademarks, service marks, trade dress, corporate
and business names and other indicia of origin, and pending
applications for the same, including intent-to-use registrations
or similar reservations of marks; (iii) registered and
unregistered copyrights and applications for registration of
either; and (iv) Trade Secrets.
Knowledge or any similar phrase, with
respect to Target, means the actual knowledge of the following
persons: Douglas Waugaman, Jerry Vaughn, Allan Villegas, William
Armstead, Jody Miller and Ron Halchishak, and, with respect to
Parent, means the actual knowledge of the following persons:
Steve Bunger, Larry Trachtenberg and Deborah Keeley.
Law means any statute, law, common
law, order, ordinance, rule or regulation of any Governmental
Entity.
Lehman means Lehman Brothers Inc.
Lenders means Deutsche Bank Securities
Inc., Deutsche Bank AG New York Branch, Banc of America
Securities LLC, J.P. Morgan Securities Inc. and JPMorgan
Chase Bank, N.A., including the syndicate of banks, financial
institutions and other entities providing debt financing to
Parent pursuant to the Debt Commitment Letter, or any such other
Person providing alternative financing pursuant to
Section 7.2 hereof.
Liabilities means liabilities,
obligations or commitments of any nature whatsoever, asserted or
unasserted, known or unknown, absolute or contingent, accrued or
unaccrued, matured or unmatured or otherwise.
Lien means liens, security interests,
options, pre-emption rights, rights of first refusal, easements,
mortgages, charges, pledges, debentures, hypothecation, deeds of
trust, rights of way, restrictions on the use of real property,
encroachments, or any other encumbrances.
Material Adverse Effect means, with
respect to any Person, any event, circumstance, fact, change or
effect that, individually or in the aggregate, is or would be
reasonably expected to be materially adverse (a) to the
business, assets, liabilities, results of operation or financial
condition of such Person and its Subsidiaries taken as a whole,
other than any such event, circumstance, fact, change or effect
resulting from (i) changes in general political, economic,
financial, banking, capital market or industry-wide conditions,
other than any changes that have a disproportionately negative
effect on such Person and its Subsidiaries (taken as a whole),
as compared to other companies in the industries in which such
Person or its Subsidiaries operate, (ii) the announcement
or other disclosure of this Agreement or the transactions
contemplated hereby, (iii) changes in Laws or GAAP, other
than any such change that has a disproportionately negative
effect on such Person and its Subsidiaries (taken as a whole),
as compared to other companies in the industries in which such
Person or its Subsidiaries operate, (iv) acts of war
(whether or not declared), political unrest or terrorism or
escalation of hostilities, other than any such acts or
escalations that have a disproportionately negative effect on
such Person and its Subsidiaries (taken as a whole), as compared
to other companies in the industries in which such Person or its
Subsidiaries operate, or (v) any action taken by a party
hereto as expressly required by this Agreement, or (b) on
the ability (including any material delay) of such Person to
perform its respective material obligations hereunder.
A-9
Mezzanine Notes means the notes issued
pursuant to the Note Purchase Agreement, dated as of
August 1, 2006, by and among Target, as issuer, and WCAS
Capital Partners IV, L.P. and Foxkirk, LLC, as purchasers.
Net Debt of Target means the
consolidated Indebtedness of Target and its Subsidiaries
minus the consolidated Cash and Cash Equivalents of
Target and its Subsidiaries.
Order means any judgment, order,
injunction, decree, writ, permit or license of any Governmental
Entity or any arbitrator.
Organizational Documents means, with
respect to any entity, the certificate of incorporation, the
articles of incorporation, by-laws, articles of organization,
certificate of limited partnership, certificate of formation,
partnership agreement, limited liability company agreement,
formation agreement, joint venture agreement or other similar
organizational documents of such entity (in each case, as
amended through the date of this Agreement).
Parent Common Stock means the shares
of common stock of Parent, par value $0.01 per share.
Parent Credit Agreement means the
Second Amended and Restated Loan and Security Agreement, dated
as of February 17, 2006, by and among the financial
institutions parties thereto, Deutsche Bank AG, New York Branch,
as Agent, JPMorgan Chase Bank, N.A. and National City Bank, as
Co-Documentation Agents, and Bank of America, N.A., as
Syndication Agent.
Parent Indenture means that certain
indenture by and among Parent, as issuer, Law Debenture
Trust Company of New York as trustee, Deutsche Bank
Trust Company Americas, as paying agent and registrar, and
the guarantors named therein, dated May 7, 2007.
Parent SEC Filings means,
collectively, the
Form 10-K
for the fiscal year ended December 31, 2006 and the
Forms 10-Q
for the quarterly periods ended March 31, 2007,
June 30, 2007 and September 30, 2007, each as filed by
Parent with the SEC.
Parent Stockholder Approval means, at
the meeting of the Stockholders of Parent duly called and held
for such purpose, the approval of this Agreement, the Merger and
the issuance of the Parent Preferred Stock to Target
Stockholders in connection therewith by the affirmative vote of
the holders of a majority of the outstanding shares of Parent
Common Stock.
Permitted Liens means, with respect to
any Person, (i) Liens reflected in the unaudited balance
sheet of such Person as at September 30, 2007,
(ii) Liens consisting of zoning or planning restrictions or
regulations, easements, Permits, restrictive covenants,
encroachments and other restrictions or limitations on the use
of real property or irregularities in, or exceptions to, title
thereto which, individually or in the aggregate, do not
materially detract from the value of, or impair the use of, such
real property by such Person or its Subsidiaries,
(iii) statutory Liens of landlords and workers,
carriers, materialmens, suppliers and
mechanics Liens and similar Liens for labor, materials or
supplies provided with respect to such real property incurred in
the ordinary course of business, which amounts related thereto
are not yet due and payable or for which appropriate reserves
have been established in accordance with GAAP, and
(iv) Liens for Taxes not yet due and payable or being
contested in good faith and by appropriate proceedings.
Person means and includes an
individual, a partnership, a joint venture, a corporation, a
limited liability company, a limited liability partnership, a
trust, an incorporated organization or any other entity or
organization, including a Governmental Entity.
Pro Rata Portion means, with respect
to each Target Stockholder, the percentage set forth opposite
each such Target Stockholders name on
Section 1.1(a) of the Target Disclosure Letter under
the column Pro Rata Portion.
Qualified Representations and
Warranties means those representations and
warranties set forth in (A) Sections 4.7(b) and (c)
(Financial Statements), clauses (x), (xi) and (xv) of
Section 4.13 (Material Contracts), the first sentence of
Section 4.16 (Insurance), and the first sentence of
Section 4.25 (Absence of Changes) and
(B) Section 5.7 (Financial Statements; No Material
Adverse Effect).
A-10
Remaining Indebtedness means,
collectively, the Indebtedness set forth on
Section 1.1(b) to the Target Disclosure Letter.
SEC means the United States Securities
and Exchange Commission.
Securities Act means the United States
Securities Act of 1933, as amended.
Senior Notes means the
9.75% Senior Notes due 2015 issued pursuant to the Target
Indenture.
Significant Subsidiary has the meaning
set forth in
Regulation S-X
under the Securities Act, except that for purposes of this
Agreement all references to 10 percent therein
shall be replaced with 5 percent.
Specified Option means any option
subject to (i) the Nonqualified Stock Option Agreement made
and entered into, as of August 1, 2006, by and between
Target and William Armstead; (ii) the Nonqualified Stock
Option Agreement made and entered into, as of August 1,
2006, by and between Target and Jeffrey Kluckman; (iii) the
Nonqualified Stock Option Agreement made and entered into, as of
August 1, 2006, by and between Target and Jody Miller; and
(iv) the Nonqualified Stock Option Agreement made and
entered into, as of August 1, 2006, by and between Target
and Allan Villegas.
Sponsor Management Agreement means
that certain management agreement between WCAS Management
Corporation, Mobile Services Group, Inc. and Target dated
August 1, 2006.
Sponsor Merger Agreement means that
certain agreement and plan of merger by and among Target, MSG WC
Acquisition Corp., Mobile Services Group, Inc. and Windward
Capital Management, LLC as Target Stockholder Representative,
dated May 24, 2006.
Sponsor Stockholders Agreement means
that certain stockholders agreement by and among Target,
WCAS Stockholders, de Nicola Holdings, L.P. and other
co-investors and additional stockholders named therein, dated
August 1, 2006.
Subsidiary or
Subsidiaries means, with respect to any
Person, (i) any corporation more than 50% of whose stock of
any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is owned by
such Person directly or indirectly through one or more
Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person
directly or indirectly through one or more Subsidiaries of such
Person has more than a 50% equity interest.
Target Common Stock means the shares
of common stock, par value $0.01 per share, of Target.
Target Credit Agreements means the
U.S. Credit Agreement and the U.K. Credit Agreement.
Target Indenture means that certain
indenture by and among Mobile Services Group, Inc. and Mobile
Storage Group, Inc., as issuers, Wells Fargo Bank, N.A., as
trustee, and the subsidiary guarantors named therein, dated
August 1, 2006.
Target Net Debt means $535,000,000.
Target Option Plans means the MSG WC
Holdings Corp. 2006 Stock Option Plan, the 2006 Stock Incentive
Plan and the MSG WC Holdings Corp. 2006 Employee Stock Option
Plan, in each case adopted by the board of directors of Target
on August 1, 2006.
Target Property means any real
property and improvements owned (directly, indirectly, or
beneficially), leased, used, operated or occupied by Target or
its Subsidiaries.
Target Stockholders means all the
stockholders of Target at Closing.
Target Working Capital means $0.00.
Tax or Taxes
means all taxes, assessments, charges, duties, fees, levies or
other similar governmental charges, including all United States,
federal, state or local,
non-United
States and other income, franchise, profits, gross receipts,
capital gains, capital stock, transfer, sales, use, occupation,
property, excise, severance, windfall
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profits, stamp, license, payroll, social security, withholding
and other taxes, assessments, charges, duties, fees, levies or
other similar governmental charges of any kind whatsoever
(whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return (as defined below)), all
estimated taxes, deficiency assessments, additions to tax,
penalties and interest, and shall include any liability for such
amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual
obligation to indemnify any Person or other entity.
Trade Secrets means any trade secrets
or other proprietary and confidential information including
unpatented inventions, invention disclosures, technical data,
customer lists, know-how, formulae, methods (whether or not
patentable), designs, processes, procedures, source code, object
code, and data collections.
Transaction Expenses means, without
duplication, the collective amount payable by Target or any of
its Subsidiaries for all out-of-pocket costs and expenses
incurred by Target or any of its Subsidiaries or on behalf of
the Target Stockholders in connection with the sale of Target or
any of its Subsidiaries (whether pursuant to this Agreement or
any alternative transaction Target or the Target Stockholders
have considered or any auction process related thereto) that
have not been paid prior to the Effective Time,
(1) including (A) all brokers or finders
fees, (B) fees and expenses of counsel, advisors,
consultants, investment bankers, accountants, and auditors and
experts, (C) consent payments required to be made in
connection with obtaining the applicable landlord consents in
connection with the transactions contemplated hereby or consents
under capitalized lease obligations, and (D) all sale,
stay-around, retention, or similar bonuses or
payments to current or former directors, officers, employees and
consultants paid as a result of or in connection with the
transactions contemplated hereby other than payments under the
Transaction Retention Program, but (2) excluding all
Transfer Taxes.
Transaction Retention Program means a
transaction retention program as mutually agreed to by Parent
and Target, as annexed to Section 1.1(c) of the
Target Disclosure Letter, to provide transaction bonuses to
employees of Target as mutually chosen, and in amounts mutually
agreed, by Parent and Target, which shall not exceed $3,352,500
in the aggregate.
Transfer Regulations means the United
Kingdoms Transfer of Undertakings (Protection of
Employment) Regulations 2006 or any applicable law implementing
the provisions of the Council Directive 2001/23/EC dated
12 March 2001 and the United Kingdoms Transfer of
Undertakings (Protection of Employment) Regulations 1981 or any
applicable law implementing the provisions of the Council
Directive 77/187/EEC dated 14 February 1977.
Transfer Taxes means all stamp,
transfer, recording, stock transfer, documentary, sales and use,
value added, registration, real property transfer and any other
similar taxes and fees (including any penalties and interest)
incurred in connection with this Agreement or any other
transaction contemplated hereby.
TULRCA means the United Kingdoms
Trade Unions and Labour Relations (Consolidation) Act 1992.
U.K. Credit Agreement means the U.K.
Credit Agreement, dated as of August 1, 2006, by and among
the financial institutions parties thereto, The CIT
Group/Business Credit, Inc., as administrative agent, Mobile
Storage Group, Inc., Mobile Services Group, Inc., MSG WC
Intermediary Co., MSC WC Holdings Corp., The CIT Group/Business
Credit, Inc., as the fronting lender of the U.K. Revolving
Participants (as defined therein) and as security trustee and
Ravenstock MSG Limited.
U.S. Credit Agreement means the
Credit Agreement, dated as of August 1, 2006, among the
financial institutions parties from time to time parties
thereto, The CIT Group/Business Credit, Inc., as administrative
agent, Mobile Storage Group, Inc., Mobile Services Group, Inc.,
MSG WC Intermediary Co. and Target.
VAT means the Tax imposed by the
United Kingdom Value Added Tax Act 1994 and legislation
supplemental thereto.
WCAS means Welsh, Carson,
Anderson & Stowe X, L.P.
WCAS Stockholders means, collectively,
WCAS, WCAS Capital Partners IV, L.P. and WCAS Management
Corporation.
Working Capital means the
Adjusted Net Working Capital at Closing calculated
in accordance with the methodology and definitions set forth on
Section 1.1(d) of the Target Disclosure Letter.
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Working Capital Lower Limit means
$(1,500,000.00).
Working Capital Upper Limit means
$1,500,000.00.
$ means United States dollars.
§1.2 Other Defined
Terms. In addition to the terms defined in
Section 1.1, additional defined terms used herein shall
have the respective meanings assigned thereto in the Sections
indicated on Annex A.
§1.3 Construction. In
this Agreement, unless the context otherwise requires:
(a) any reference in this Agreement to writing
or comparable expressions includes a reference to facsimile
transmission or comparable means of communication;
(b) words expressed in the singular number shall include
the plural and vice versa, words expressed in the masculine
shall include the feminine and neuter gender and vice versa;
(c) references to Articles, Sections, Exhibits and Recitals
are references to articles, sections, exhibits, schedules and
recitals of this Agreement;
(d) reference to day or days are to
calendar days;
(e) this Agreement or any other agreement or
document shall be construed as a reference to this Agreement or,
as the case may be, such other agreement or document as the same
may have been, or may from time to time be, amended, varied,
novated or supplemented; and
(f) include, includes, and
including are deemed to be followed by without
limitation whether or not they are in fact followed by
such words or words of similar import.
ARTICLE II
THE
MERGER AND SUBSEQUENT MERGERS
§2.1 The
Merger. (a) Upon the terms and subject
to the conditions of this Agreement, at the Closing, Parent,
Merger Sub and Target shall duly prepare, execute and
acknowledge a certificate of merger (the Certificate of
Merger) in accordance with Section 251 of the
DGCL that shall be filed with the Secretary of State of the
State of Delaware on the Closing Date, in accordance with the
provisions of the DGCL. The Merger shall become effective upon
the acceptance of the filing of the Certificate of Merger by the
Secretary of State of the State of Delaware (or at such later
time set forth in the Certificate of Merger as shall be agreed
to by Parent, Merger Sub and Target). The date and time when the
Merger shall become effective is hereinafter referred to as the
Effective Time.
(b) On the terms and subject to the conditions set forth in
this Agreement and in accordance with the DGCL, at the Effective
Time, Merger Sub shall be merged with and into Target, and the
separate corporate existence of Merger Sub shall cease, and
Target shall continue as the surviving corporation under the
laws of the State of Delaware (the Surviving
Corporation).
(c) From and after the Effective Time, the Merger shall
have the effects set forth in Section 259(a) of the DGCL.
§2.2 Certificate of Incorporation of the
Surviving Corporation. At the Effective Time
and without any further action on the part of Target or Parent
the certificate of incorporation of Target, as in effect
immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation as of
the Effective Time, until duly amended in accordance with
applicable law.
§2.3 By-laws of the Surviving
Corporation. At the Effective Time and
without any further action on the part of Target or Parent, the
by-laws of Target, as in effect immediately prior to the
Effective Time, shall be the
by-laws of
the Surviving Corporation as of the Effective Time, until duly
amended in accordance with applicable law.
§2.4 Directors and Officers of the
Surviving Corporation. At the Effective Time
and subject to Section 7.3, the directors of Target
immediately prior to the Effective Time shall be the directors
of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the certificate
of incorporation and by-laws of
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the Surviving Corporation. At the Effective Time, the officers
of Target immediately prior to the Effective Time shall be
officers of the Surviving Corporation, each of such officers to
hold office, subject to the applicable provisions of the
certificate of incorporation and by-laws of the Surviving
Corporation.
§2.5 The Subsequent
Mergers. (a) Upon the terms and subject
to the conditions of this Agreement, on the Closing Date and
immediately following the Merger, Parent shall cause the
Surviving Corporation and each of MSG WC Intermediary Co. and
Mobile Services Group, Inc. to duly prepare, execute and
acknowledge certain certificates of merger in accordance with
Section 253 of the DGCL that shall be filed with the
Secretary of State of the State of Delaware immediately
following the Effective Time, in accordance with the provisions
of the DGCL, so that the following mergers (collectively, the
Subsequent Mergers) occur in the order
described below:
(i) The Surviving Corporation shall be merged with and into
Parent, and the separate corporate existence of the Surviving
Corporation shall cease, and Parent shall continue as the
surviving corporation under the laws of the State of Delaware.
(ii) MSG WC Intermediary Co. shall be merged with and into
Parent, and the separate corporate existence of MSG WC
Intermediary Co. shall cease, and Parent shall continue as the
surviving corporation under the laws of the State of Delaware.
(iii) Mobile Services Group, Inc. shall be merged with and
into Parent, and the separate corporate existence of Mobile
Services Group, Inc. shall cease, and Parent shall continue as
the surviving corporation under the laws of the State of
Delaware.
(b) Each Subsequent Merger shall become effective upon the
acceptance of the filing of the applicable certificate of merger
by the Secretary of State of the State of Delaware in the order
described above.
(c) From and after the effective time of each Subsequent
Merger, such Subsequent Merger shall have the effects set forth
in Section 259(a) of the DGCL.
ARTICLE III
EFFECT OF
THE MERGER ON CAPITAL STOCK
§3.1 Conversion of
Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any party, each
share of Merger Subs common stock issued and outstanding
immediately prior to the Effective Time will be converted into
and exchanged for one validly issued, fully paid, and
nonassessable share of the Surviving Corporations common
stock. Each stock certificate of Merger Sub evidencing ownership
of any such shares will from and after the Effective Time
evidence ownership of shares of the Surviving Corporations
common stock, so that, after the Effective Time, Parent shall be
the holder of all of the issued and outstanding shares of the
Surviving Corporations common stock. Each share of Target
Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Target Common Stock
that are held in the treasury of Target or held by Parent or any
of its Subsidiaries, all of which shall cease to be outstanding
and be canceled and none of which shall receive any payment with
respect thereto) and all rights in respect thereof shall, by
virtue of the Merger and without any action on the part of the
holder thereof, forthwith cease to exist and be converted into
and represent the right to receive an amount, in cash and shares
of Parent Preferred Stock, equal to (x) $701,500,000,
minus Actual Net Debt, plus or minus, as
the case may be, the Actual Closing Working Capital Adjustment,
plus or minus as the case may be, the Actual
Closing CapEx Adjustment, minus the amount of Actual
Closing Transaction Expenses (collectively, the Merger
Consideration) divided by (y) the
number of shares of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares
of Target Common Stock which are held in the treasury of Target
or held by Parent or any of its Subsidiaries, all of which shall
cease to be outstanding and be canceled and none of which shall
receive any payment with respect thereto).
§3.2 Effect on
Options. Immediately prior to the Effective
Time, all options issued under the Target Option Plans (other
than the Specified Options) that are outstanding on such date
will be cancelled and will cease to exist, and the holder of
such option will cease to have any rights with respect thereto,
except the right to receive a pro rata portion of the Merger
Consideration. For the avoidance of the doubt, for purposes of
this Agreement, the Pro Rata Portion of the Target Stockholders
shall be calculated as if the Specified Options were exercised
for cash
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immediately prior to the Effective Time such that shares of
Target Common Stock issuable upon the exercise thereof shall be
deemed issued and outstanding as of the Effective Time and the
Target Stockholders and the Specified Option holders shall
receive a pro rata portion of the Merger Consideration;
provided, that in determining the Pro Rata Portion of any
Specified Option holder the aggregate exercise price for all
such options shall be taken into consideration.
§3.3 Delivery of Funds; Surrender of
Certificates; Payments. (a) At least
three (3) Business Days, but not more than five
(5) Business Days, prior to the Closing Date, Target shall
deliver to Parent a statement (the Closing Estimate
Statement) setting forth Targets good faith
estimate of (i) the amount of Net Debt of Target as of the
Closing Date (the Estimated Net Debt),
(ii) the amount, if any, by which the Estimated Net Debt is
greater or less than the Target Net Debt (the Estimated
Net Debt Adjustment), (iii) the Working Capital
as of the Closing Date (the Estimated Working
Capital), (iv) the amount, if any, by which the
Estimated Working Capital exceeds the Working Capital Upper
Limit or is less than the Working Capital Lower Limit, as the
case may be (the Estimated Working Capital
Adjustment, which, if the Estimated Working Capital is
less than the Working Capital Lower Limit, the Estimated Working
Capital Adjustment shall be deemed a negative amount, and if
Estimated Working Capital is between the Working Capital Upper
Limit and the Working Capital Lower Limit, the Estimated Working
Capital Adjustment shall be $0.00), (v) its consolidated
Capital Expenditures for the period commencing on
January 1, 2008 and ending on the Closing Date (the
Estimated CapEx Expenditures), (vi) the
amount, if any, by which the Estimated CapEx Expenditures is
greater or less than the Cumulative Adjusted Capex Budget Amount
for the period commencing on January 1, 2008 and ending on
the Closing Date (the Estimated CapEx Expenditures
Adjustment), (vii) the amount of Transaction
Expenses as of the Closing Date (the Estimated
Transaction Expenses), (viii) the total number of
outstanding shares of Target Common Stock, and
(ix) Estimated Merger Consideration, which shall quantify
in reasonable detail the foregoing amounts and calculations, and
in each case shall be calculated in accordance with
Section 1.1(d) of the Target Disclosure Letter.
(b) On the Closing Date (or at such later date when a
Target Stockholder surrenders such Target Stockholders
Certificate(s)), upon surrender by a Target Stockholder to
Parent of the certificate(s) representing the shares of Target
Common Stock held by such Target Stockholder immediately prior
to the Effective Time (each, a Certificate)
and delivery of a letter of transmittal in form and substance
reasonably satisfactory to Parent and the Target Stockholders
Representative from each Target Stockholder who did not sign the
Joinder Agreement containing the appropriate provisions of the
Joinder Agreement, Parent shall pay to the Target Stockholders
the Estimated Merger Consideration as follows:
(i) if the Estimated Merger Consideration is equal to or
less than $154,000,000, then each such Target Stockholder who
has surrendered a Certificate shall receive a number of shares
of Parent Preferred Stock equal to (w) the Estimated Merger
Consideration, (x) minus the Escrow Amount, (y)
divided by $18.00 (as adjusted for stock splits
and combinations), and (z) multiplied by the Pro
Rata Portion of such Target Stockholder (rounded to the nearest
whole share); or
(ii) if the Estimated Merger Consideration is greater than
$154,000,000, then each such Target Stockholder who has
surrendered a Certificate shall receive (x) a number of
shares of Parent Preferred Stock equal to (I) $154,000,000
minus the Escrowed Parent Preferred Stock Value, (II)
divided by $18.00 (as adjusted for stock splits
and combinations), and (III) multiplied by the Pro
Rata Portion of such Target Stockholder (rounded to the nearest
whole share), and (y) an amount in cash equal to
(I) the Estimated Merger Consideration minus
$154,000,000 minus the Escrowed Cash, and (II)
multiplied by the Pro Rata Portion of such Target
Stockholder.
(c) Until so surrendered, each Certificate shall be deemed,
for all corporate purposes, to evidence only the right to
receive upon such surrender the Merger Consideration deliverable
in respect thereof to which such Person is entitled pursuant to
this Article III. No interest shall be paid or accrued in
respect of such cash payments. If the Merger Consideration (or
any portion thereof) is to be delivered to a Person other than
the Person in whose name the Certificates surrendered in
exchange therefor are registered, it shall be a condition to the
payment of such portion of the Merger Consideration that the
Certificates so surrendered shall be properly endorsed or
accompanied by appropriate stock powers and otherwise in proper
form for transfer and that the Person requesting such transfer
pay to the Surviving Corporation any Transfer Taxes payable by
reason of the foregoing or establish to the satisfaction of
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the Surviving Corporation that such Transfer Taxes have been
paid or are not required to be paid. In the event any
Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed, the Surviving
Corporation will issue in exchange for such lost, stolen or
destroyed Certificate the portion of the Merger Consideration
deliverable in respect thereof as determined in accordance with
this Article III; provided, that the Person to whom
such portion of the Merger Consideration is paid shall, as a
condition precedent to the payment thereof, indemnify the
Surviving Corporation in a manner reasonably satisfactory to
them against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been
lost, stolen or destroyed.
(d) At the Closing, the Escrowed Cash and Escrowed Parent
Preferred Stock shall be deposited with the Escrow Agent to be
held by the Escrow Agent in accordance with the terms of the
Escrow Agreement.
(e) At the Closing, Parent shall pay or purchase, on behalf
of Target and its Subsidiaries, to or from the holders of the
Indebtedness of Target included in the calculation of Estimated
Net Debt (including the Mezzanine Notes and the Target Credit
Agreements), other than to the holders of the Remaining
Indebtedness, reflected in the Payoff Letters an amount
sufficient to repay all such Indebtedness, with the result that
immediately following the Closing there will be no further
monetary obligations of the Surviving Corporation or any of its
Subsidiaries with respect to such Indebtedness.
(f) At the Closing, Parent shall pay, on behalf of Target
and its Subsidiaries, the Estimated Transaction Expenses as set
forth in the Closing Estimate Statement, by wire transfer of
immediately available funds pursuant to written instructions
provided to Parent by Target concurrently with the delivery of
the Closing Estimate Statement.
§3.4 Determination of Merger Consideration
Adjustment. (a) Promptly after the
Closing Date, and in any event not later than ninety
(90) days following the Closing Date, the Surviving
Corporation shall prepare and deliver to the Target Stockholder
Representative a statement (the Closing
Statement) setting forth the Surviving
Corporations good faith calculation of (i) the amount
of Net Debt of Target as of the Closing Date (the
Closing Net Debt), (ii) the amount, if
any, by which the Closing Net Debt is greater or less than the
Target Net Debt (the Closing Net Debt
Adjustment), (iii) the Working Capital as of the
Closing Date (the Closing Working Capital),
(iv) the amount, if any, by which the Closing Working
Capital exceeds the Working Capital Upper Limit or is less than
the Working Capital Lower Limit, as the case may be (the
Closing Working Capital Adjustment, which, if
the Closing Working Capital is less than the Working Capital
Lower Limit, the Closing Working Capital Adjustment shall be
deemed a negative amount, and if Closing Working Capital is
between the Working Capital Upper Limit and the Working Capital
Lower Limit, the Closing Working Capital Adjustment shall be
$0.00), (v) the consolidated Capital Expenditures for the
period commencing on January 1, 2008 and ending on the
Closing Date (the Closing CapEx
Expenditures), (vi) the amount, if any, by which
the Closing CapEx Expenditures is greater or less than the
Cumulative Adjusted Capex Budget Amount for the period
commencing on January 1, 2008 and ending on the Closing
Date (the Closing CapEx Expenditures
Adjustment), (vii) the Transaction Expenses as of
the Closing Date (the Closing Transaction
Expenses), (viii) the total number of outstanding
shares of Target Common Stock, and (ix) the Estimated
Merger Consideration based on foregoing amounts (the
Closing Merger Consideration), which shall
quantify in reasonable detail the foregoing amounts and
calculations, and in each case shall be calculated in accordance
with Section 1.1(d) of the Target Disclosure Letter.
Upon delivery of the Closing Statement by the Surviving
Corporation, the Surviving Corporation shall provide the Target
Stockholder Representative with reasonable access to the books
and records of the Surviving Corporation and Target, as the case
may be, and any other document or information reasonably
requested by the Target Stockholder Representative, in order to
allow the Target Stockholder Representative to verify the
accuracy of determination by the Surviving Corporation of the
Closing Merger Consideration.
(b) In the event that the Target Stockholder Representative
does not object to any amounts set forth on the Closing
Statement by written notice of objection (the Notice of
Objection) delivered to the Surviving Corporation
within fifteen (15) Business Days after the Target
Stockholder Representatives receipt of the Closing
Statement, such Notice of Objection to set forth in reasonable
detail the Target Stockholder Representatives alternative
calculations of (i) the amount of Closing Net Debt,
(ii) the Closing Net Debt Adjustment, (iii) the
Closing Working Capital, (iv) the Closing Working Capital
Adjustment, (v) the Closing CapEx Expenditures,
(vi) the Closing CapEx Expenditures Adjustment,
(vii) the amount of Closing Transaction Expenses,
(viii) the total number of outstanding
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shares of Target Common Stock, or (ix) the Closing Merger
Consideration based on such amounts, the Closing Merger
Consideration shall be deemed final and binding and shall be the
Merger Consideration for all purposes of this Agreement.
(c) If the Target Stockholder Representative delivers a
Notice of Objection to the Surviving Corporation within the
fifteen (15) Business Day period referred to in
Section 3.4(b), then (A) any amount included in the
Surviving Corporations calculation of Closing Merger
Consideration that is not in dispute on the date such Notice of
Objection is given shall be treated as final and binding and
(B) any dispute (all such disputed amounts, the
Disputed Amounts) shall be resolved as
follows:
(i) the Target Stockholder Representative and the Surviving
Corporation shall promptly endeavor in good faith to resolve the
Disputed Amounts listed in the Notice of Objection. In the event
that a written agreement determining the Disputed Amounts has
not been reached within ten (10) Business Days after the
date of receipt by the Surviving Corporation from the Target
Stockholder Representative of the Notice of Objection, the
resolution of such Disputed Amounts shall be submitted to
PriceWaterhouseCoopers (other than its New York office) (the
Arbitrator);
(ii) the Arbitrator shall conduct its own review and
verification of the Closing Statement and shall select either
the Target Stockholder Representatives calculations of the
Disputed Amounts or the Surviving Corporations
calculations of the Disputed Amounts or an amount in between the
two;
(iii) the Target Stockholder Representative and the
Surviving Corporation shall use all commercially reasonable
efforts to cause the Arbitrator to render a decision in
accordance with this Section 3.4(c) along with a statement
of reasons therefor within thirty (30) days of the
submission of the Disputed Amounts, or a reasonable time
thereafter, to the Arbitrator. The decision of the Arbitrator
shall be final and binding upon each party hereto and the
decision of the Arbitrator shall constitute an arbitral award
that is final, binding and non-appealable and upon which a
judgment may be entered by a court having jurisdiction thereover;
(iv) in the event the Target Stockholder Representative and
the Surviving Corporation submit any Disputed Amounts to the
Arbitrator for resolution, the Surviving Corporation and the
Target Stockholders shall each pay their own costs and expenses
incurred under this Section 3.4(c). The Target Stockholders
shall be responsible for that fraction of the fees and costs of
the Arbitrator equal to (A) the Arbitrators final
determination with respect to the Disputed Amounts, over
(B) the absolute value of the difference between the Target
Stockholder Representatives aggregate position with
respect to the Disputed Amounts and the Surviving
Corporations aggregate position with respect to the
Disputed Amounts, and the Surviving Corporation shall be
responsible for the remainder of such fees and costs; and
(v) the Arbitrator shall act as an arbitrator to determine,
based upon the provisions of this Section 3.4(c), only the
Disputed Amounts and the determination of each amount of the
Disputed Amounts shall be made in accordance with the procedures
set forth in Section 3.4(a) and, in any event shall be no
less than the lesser of the amount claimed by either the
Surviving Corporation or the Target Stockholder Representative,
and shall be no greater than the greater of the amount claimed
by either the Surviving Corporation or the Target Stockholder
Representative.
(d) Upon the determination, in accordance with
Sections 3.4(b) or 3.4(c), of the final calculations of the
amounts of (i) Closing Net Debt, (ii) the Closing Net
Debt Adjustment, (iii) Closing Working Capital,
(iv) the Closing Working Capital Adjustment,
(v) Closing CapEx Expenditures, (vi) the Closing CapEx
Expenditures Adjustment, (vii) Closing Transaction
Expenses, (viii) the total number of outstanding shares of
Target Common Stock, and (ix) the Closing Merger
Consideration, then, the Closing Merger Consideration shall be
recalculated using such finally determined amounts in lieu of
the amounts set forth on the Closing Merger Statement and such
amounts as so recomputed in accordance with Sections 3.4(b)
or 3.4(c) are referred to herein as (I) Actual Net
Debt, (II) the Actual Net Debt
Adjustment, (III) Actual Closing Working
Capital, (IV) the Actual Closing Working
Capital Adjustment, (V) Actual Closing
CapEx Expenditures, (VI) the Actual
Closing CapEx Expenditures Adjustment, and
(VII) Actual Closing Transaction
Expenses, and the determination of the Merger
Consideration based on such amounts shall be final and binding
and shall be the Merger Consideration for all purposes of this
Agreement. If the Merger Consideration is greater than the
Estimated Merger Consideration, then
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the Surviving Corporation shall be obligated to pay to the
Target Stockholders in accordance with Section 3.4(e) such
deficiency within three (3) Business Days of the
determination of the Merger Consideration. If the Merger
Consideration as finally determined is less than the Estimated
Merger Consideration, then the Target Stockholders shall be
obligated to pay the Surviving Corporation such deficiency in
accordance with Section 3.4(f) within three
(3) Business Days after the determination of the Merger
Consideration. The amount payable by the Surviving Corporation
or the Target Stockholders pursuant to this Section 3.4(d)
is referred to herein as the Merger Consideration
Adjustment.
(e) If the Merger Consideration as finally determined is
greater than the Estimated Merger Consideration and:
(i) if the Merger Consideration is less than or equal to
$154,000,000, then Parent shall issue to the Target Stockholder
Representative (for further distribution to the Target
Stockholders based on their respective Pro Rata Portions) a
number of shares of Parent Preferred Stock equal to the Merger
Consideration Adjustment divided by $18.00 (as
adjusted for stock splits and combinations); or
(ii) if the Merger Consideration is greater than
$154,000,000, and then if the Estimated Merger Consideration was
(x) less than $154,000,000, then Parent will issue to the
Target Stockholders a number of shares of Parent Preferred Stock
equal to (i) $154,000,000 minus the Estimated Merger
Consideration divided by (ii) $18.00 (as
adjusted for stock splits and combinations) and pay to the
Target Stockholders an amount in cash equal to the Merger
Consideration minus $154,000,000, or (y) greater
than $154,000,000, then Parent will pay to the Target
Stockholders an amount in cash equal to the Merger Consideration
Adjustment.
(f) If the Merger Consideration as finally determined is
less than the Estimated Merger Consideration and:
(i) if the Merger Consideration Adjustment exceeds the
Escrow Amount, then the Surviving Corporation and the Target
Stockholder Representative shall instruct the Escrow Agent to
release to the Surviving Corporation the Escrowed Cash, if any,
and the Escrowed Parent Preferred Stock, and each Target
Stockholder shall be required to, at its option, (A) pay to
the Surviving Corporation an amount in cash in immediately
available funds equal to its Pro Rata Portion of the excess of
the Merger Consideration Adjustment over the Escrow Amount then
held by the Escrow Agent or (B) return to the Surviving
Corporation a number of shares of Parent Preferred Stock equal
to its Pro Rata Portion of the amount by which the Merger
Consideration Adjustment exceeds the Escrow Amount then held by
the Escrow Agent divided by $18.00 (as adjusted
for stock splits and combinations), which shares shall be
canceled by the Surviving Corporation and deemed authorized but
unissued shares of Parent Preferred Stock; or
(ii) if the Escrow Amount then held by the Escrow Agent
equals or exceeds the Merger Consideration Adjustment, then the
Surviving Corporation and the Target Stockholder Representative
shall instruct the Escrow Agent to release to the Surviving
Corporation (A) if the Escrowed Cash then held by the
Escrow Agent exceeds the Merger Consideration Adjustment, then
an amount in cash equal to the Merger Consideration Adjustment,
or (B) if the Merger Consideration Adjustment exceeds the
Escrowed Cash then held by the Escrow Agent, then the Escrowed
Cash then held by the Escrow Agent plus a number of shares of
Parent Preferred Stock equal to the excess of the Merger
Consideration Adjustment or the Escrowed Cash then held by the
Escrow Agent multiplied by $18.00 (as adjusted for
stock splits and combinations) the Merger Consideration
Adjustment over the Escrowed Cash.
Notwithstanding the foregoing, in the event that the foregoing
provisions of this Section 3.4 require the release
of Parent Preferred Stock to Parent, the Stockholders
Representative may elect upon the final determination of the
Merger Consideration Adjustment to substitute a cash payment in
an amount equal to the number of shares of Parent Preferred
Stock, or any portion thereof, that would otherwise be released
to Parent, multiplied by $18.00 (as adjusted for stock splits
and combinations) and upon such payment those shares for which
cash was so substituted shall instead be released to the
Stockholders Representative.
§3.5 No Further Rights of
Transfers. At and after the Effective Time,
each Target Stockholder shall cease to have any rights as a
stockholder of Target, except as otherwise required by
applicable Law and except for the right of each Target
Stockholder to surrender his or her Certificate or lost
Certificate affidavit in exchange for payment of the applicable
merger consideration, and no transfer of Target Common Stock
shall be made on the stock transfer
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books of the Surviving Corporation. At the close of business on
the day of the Effective Time, the stock ledger of Target shall
be closed.
§3.6 Withholding
Rights. Each of Target, Parent, Merger Sub
and the Surviving Corporation will be entitled to deduct and
withhold from the amounts otherwise payable pursuant to this
Agreement to any Person such amounts as it is required to deduct
and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law.
To the extent that amounts are so deducted and withheld and
properly and timely remitted to the applicable taxing authority,
such withheld amounts will be treated for all purposes of this
Agreement as having been paid to the Person in respect of which
such deduction and withholding was made.
§3.7 Closing. Unless
this Agreement shall have been terminated and the transactions
contemplated hereby shall have been abandoned, and subject to
the satisfaction or waiver of all of the conditions set forth in
herein, the closing of the Merger (the
Closing) shall take place at 10:00 A.M.
at the offices of White & Case LLP, 1155 Avenue of the
Americas, New York, New York
10036-2787,
as soon as practicable, but in any event, within three
(3) Business Days after the last of the conditions set
forth in Article IX is satisfied or waived, other than
those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those
conditions, or at such other date, time or place as the parties
hereto shall agree in writing. Such date is herein referred to
as the Closing Date.
§3.8 Further
Assurances. At and after the Effective Time,
the officers and managers of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of
Target or Parent, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of
Target or Parent, any other actions and things to vest, perfect
or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of
the rights, properties or assets acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with,
the Merger. Parent shall, and shall cause the Surviving
Corporation, MSG WC Intermediary Co. and Mobile Services Group,
Inc. to authorize and approve the Subsequent Mergers and to take
all commercially reasonable efforts to do all things necessary
and desirable to effectuate the Subsequent Mergers.
§3.9 Target Stockholder
Representative. (a) WCAS has been
appointed as and constitutes the Target Stockholder
Representative and as such shall serve as and have all
powers as agent and attorney-in-fact of each Target Stockholder,
for and on behalf of such Target Stockholders for purposes of
this Agreement, including, to give and receive notices and
communications; to have the authority to calculate, negotiate
and agree to the Merger Consideration (including the components
thereof) in accordance with the adjustments procedures set forth
in this Agreement; to sign receipts, consents or other documents
and to effect the transactions contemplated hereby; to make (or
cause to be made) distributions to the Target Stockholders and
to take all actions it deems necessary or appropriate for the
accomplishment of the foregoing, including retaining any
attorneys, accountants or other advisors as the Target
Stockholder Representative sees fit. The Target Stockholder
Representative may resign such position for any reason upon at
least thirty (30) days prior written notice delivered to
Parent and the Target Stockholders. In such event, the Target
Stockholders who held at least a majority of Target Common Stock
as of the Closing shall, by written notice to Parent, appoint a
successor Target Stockholder Representative within such thirty
(30) day period. Notice or communications to or from the
Target Stockholder Representative shall constitute notice to or
from the Target Stockholders.
(b) The Target Stockholder Representative shall only be
liable for any action taken or not taken as a Target Stockholder
Representative solely to the extent such Target Stockholder
Representatives action constitutes gross negligence, fraud
or willful misconduct. No bond shall be required of the Target
Stockholder Representative, and the Target Stockholder
Representative shall not receive compensation for its services.
The Target Stockholder Representative shall incur no liability
with respect to any action taken or suffered by it in reliance
upon any notice, direction, instruction, consent, statement or
other document reasonably believed by it to be genuine and to
have been signed by the proper person, nor for any other action
or inaction, except to the extent caused by its own gross
negligence, fraud or willful misconduct.
(c) A decision, act, consent or instruction of the Target
Stockholder Representative shall constitute a decision of all
Target Stockholders, and shall be final, binding and conclusive
upon each of the Target Stockholders, and Parent, Surviving
Corporation and Target may rely upon any decision, act, consent
or instruction of the Target
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Stockholder Representative as being the decision, act, consent
or instruction of each and all of the Target Stockholders.
Parent and Surviving Corporation are relieved from any liability
to any Target Stockholder or any other Person for any acts done
by them in accordance with such decision, act, consent or
instruction of the Target Stockholder Representative.
(d) The Target Stockholders agree to take any and all
action as may be reasonably required by the Target Stockholder
Representative (including, the execution of certificates,
transfer documents, receipts, instruments, consents or similar
documents) to effectuate the purposes of this Agreement.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF TARGET
Except as disclosed in writing in the disclosure letter supplied
by Target to Parent, dated as of the date hereof and as may be
updated by Target (for informational purposes) pursuant to
Section 6.4 (the Target Disclosure
Letter), Target represents and warrants to Parent as
follows:
§4.1 Authority and
Enforceability. Target has the corporate
power and authority to execute and deliver this Agreement and
the Ancillary Agreements to be executed and delivered by Target
as contemplated hereby. Target has the corporate power and
authority to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this
Agreement, and the Ancillary Agreements executed and delivered
by Target as contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by Targets board of directors and by the Target
Stockholders and no other corporate or stockholder action on the
part of Target or its stockholders is necessary to authorize the
execution, delivery and performance of this Agreement and the
Ancillary Agreements by Target and the consummation of the
transactions contemplated hereby and thereby. This Agreement and
the Ancillary Agreements to be executed and delivered by Target
as contemplated hereby, when delivered in accordance with the
terms hereof and thereof, assuming the due execution and
delivery of this Agreement and each other Ancillary Agreement by
the other parties hereto and thereto, shall have been duly
executed and delivered by Target and shall be valid and binding
obligations of Target, enforceable against Target in accordance
with their terms, except to the extent that their enforceability
may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and to general
equitable principles.
§4.2 Consents and Approvals; No
Violations. (a) Other than as set forth
on Section 4.2(a) of the Target Disclosure Letter,
the execution and delivery of this Agreement by Target do not,
the execution and delivery by Target of the Ancillary Agreements
to be executed and delivered by Target as contemplated hereby
will not and the consummation by Target of the transactions
contemplated hereby and thereby will not result in a violation
or breach of, conflict with, constitute (with or without due
notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Lien on any of the
properties or assets of Target or any of its Subsidiaries (taken
as a whole), except for Permitted Liens, under: (i) any
provision of the Organizational Documents of Target or any of
its Subsidiaries; (ii) subject to obtaining and making any
of the approvals, consents, notices and filings referred to in
paragraph (b) below, any Law or Order applicable to Target
or any of its Subsidiaries or by which any of their respective
properties or assets may be bound; (iii) any of the terms,
conditions or provisions of any Material Contract to which
Target or any of its Subsidiaries is a party, or by which they
or any of their respective properties or assets is bound except
in the case of clauses (ii) and (iii) above, for such
violations, filings, permits, consents, approvals, notices,
breaches or conflicts which would not individually or in the
aggregate be reasonably expected to have a Material Adverse
Effect with respect to Target.
(b) Except for such filings and approvals as may be
required pursuant to the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, and the rules and
regulations thereunder (the HSR Act) and as
set forth on Section 4.2(b) of the Target Disclosure
Letter, no consent, approval or action of, filing with or notice
to any Governmental Entity or private third party is necessary
or required under any of the terms, conditions or provisions of
any Law or Order applicable to Target or any of its Subsidiaries
or by which any of their respective properties or assets may be
bound, any Material Contract to which Target or any of its
Subsidiaries is a party or by which any of them or any of their
respective assets or properties may be bound, for the execution
and delivery of this Agreement
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by Target, the performance by Target of its obligations
hereunder or the consummation of the transactions contemplated
hereby other than those which, the failure to obtain or make,
would not individually or in the aggregate be reasonably
expected to have a Material Adverse Effect with respect to
Target.
§4.3 Existence and Good Standing of
Target. Target is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. Target has all requisite corporate
power and authority to own its property and to carry on its
business as now being conducted. Target is duly qualified to do
business and is in good standing in each jurisdiction in which
the character or location of the properties owned, leased or
operated by Target or the nature of the business conducted by
Target makes such qualification necessary, except for such
jurisdictions where the failure to be so qualified or licensed
and in good standing would not individually or in the aggregate
be reasonably expected to have a Material Adverse Effect with
respect to Target.
§4.4 Capitalization of
Target. Target has an authorized
capitalization consisting of (x) 215,000 shares of
Target Common Stock of which 147,177.19 shares of Target
Common Stock are issued and outstanding, 34,787 shares of
Target Common Stock are reserved for issuance and none of which
are held in Targets treasury and
(y) 20,000 shares of preferred stock, par value $0.01
per share, none of which are outstanding; provided, that
the share numbers set forth in the foregoing clause (x)do not
take into account any issuances of capital stock of Target after
the date hereof upon the exercise of any options outstanding on
the date hereof. All such outstanding shares of capital stock
have been duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive
rights. Except as described above, no shares of capital stock of
Target are authorized, issued, outstanding or reserved for
issuance. Except as set forth on Section 4.4 of the
Target Disclosure Letter, there are no outstanding or authorized
options, warrants, rights, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise,
relating to the capital stock of, or other equity or voting
interest in, Target, pursuant to which Target or any of its
Subsidiaries is or may become obligated to issue, deliver or
sell or cause to be issued, delivered or sold, shares of Target
Common Stock, any other shares of the capital stock of or other
equity or voting interest in, Target or any securities
convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any shares of the capital stock of or
other equity or voting interest in, Target. There are no
outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to the
capital stock of, or other equity or voting interest in, Target.
Neither Target nor any of its Subsidiaries has any authorized or
outstanding bonds, debentures, notes or other Indebtedness the
holders of which have the right to vote (or convertible into,
exchangeable for, or evidencing the right to subscribe for or
acquire securities having the right to vote) with the Target
Stockholders on any matter. Except as set forth on
Section 4.4 of the Target Disclosure Letter, there
are no Contracts to which Target or any of its Subsidiaries is a
party or by which they are bound to (i) repurchase, redeem
or otherwise acquire any shares of capital stock of, or other
equity or voting interest in, Target or any other Person or
(ii) vote or dispose of any shares of capital stock of, or
other equity or voting interest in, Target. Except as set forth
on Section 4.4 of the Target Disclosure Letter,
there are no irrevocable proxies and no voting agreements with
respect to any membership interests of, or other equity or
voting interest in, Target.
§4.5 Target
Subsidiaries. (a) Set forth on
Section 4.5(a) of the Target Disclosure Letter is a
complete and accurate list of each Subsidiary of Target and the
jurisdiction of organization of such Subsidiaries. Each
Subsidiary of Target is duly organized, validly existing and in
good standing (or, if applicable, in a foreign jurisdiction,
enjoys the equivalent status under the Laws of any jurisdiction
of organization outside of the United States) under the laws of
the jurisdiction of its organization and has all requisite
corporate power and authority to own its material property and
to carry on its business as now being conducted.
(b) Set forth on Section 4.5(b) of the Target
Disclosure Letter is a complete and accurate list of
jurisdictions in which each Subsidiary of Target is qualified or
licensed to do business. Each Subsidiary of Target is duly
qualified or licensed to do business and is in good standing in
each jurisdiction in which the character or location of the
properties owned, leased or operated by such Subsidiary or the
nature of the business conducted by such Subsidiary make such
qualification or licensing necessary, except for such
jurisdictions where the failure to be so qualified or licensed
and in good standing would not individually or in the aggregate
be reasonably expected to have a Material Adverse Effect with
respect to Target.
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(c) Each Subsidiary of Target has the capitalization set
forth on Section 4.5(c) of the Target Disclosure
Letter. All of the outstanding capital stock or other equity
securities or voting interests, as the case may be, of each
Subsidiary of Target have been duly authorized and validly
issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights, and, except as set forth on
Section 4.5(c) of the Target Disclosure Letter are
owned, of record and beneficially, by Target or a Subsidiary of
Target, free and clear of all Liens, other than a Permitted
Lien. There are no outstanding or authorized options, warrants,
rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise relating to the capital
stock of, or other equity or voting interest in, any Subsidiary
of Target or any securities convertible into, exchangeable for,
or evidencing the right to subscribe for or acquire any capital
stock of, or other equity or voting interest in, such
Subsidiary, other than such rights granted to Target or a
Subsidiary of Target. There is no outstanding or authorized
stock appreciation, phantom stock, profit participation or
similar rights with respect to the capital stock of, or other
equity or voting interest in, any Subsidiary of Target. No
Subsidiary of Target has any authorized or outstanding bonds,
debentures, notes or other Indebtedness, the holders of which
have the right to vote (or convertible into, exchangeable for,
or evidencing the right to subscribe for or acquire securities
having the right to vote) with the equityholders of any
Subsidiary of Target on any matter. There are no Contracts to
which any Subsidiary of Target is a party or by which they are
bound to (i) repurchase, redeem or otherwise acquire any
shares of the capital stock of, or other equity or voting
interest in, any Subsidiary of Target or any other Person or
(ii) vote or dispose of any shares of the capital stock of,
or other equity or voting interest in, any Subsidiary of Target.
There are no irrevocable proxies and no voting agreements with
respect to any shares of the capital stock of, or other equity
or voting interest in, any Subsidiary of Target.
(d) Neither Target nor any of its Subsidiaries owns,
directly or indirectly, any capital stock of, or other equity,
ownership, proprietary or voting interest in, any Person except
as set forth on Section 4.5(a) of the Target
Disclosure Letter.
(e) Except as set forth on Section 4.5(e) of
the Target Disclosure Letter, there are no restrictions of any
kind which prevent or restrict the payment of dividends or other
distributions by Target or any of Targets Subsidiaries
other than those imposed by the Laws of general applicability of
their respective jurisdictions of organization.
(f) Neither Target nor any of its Subsidiaries (i) is
resident within the United Kingdom, the Channel Islands or the
Isle of Man and (ii) at any time during the ten
(10) years prior to the date of this agreement has
(w) equity share capital which has been admitted to the
Official List of the UK Listing Authority, (x) published
dealings in their equity share capital in a newspaper on a
regular basis for a continuous period of at least six
(6) months, (y) equity share capital which has been
subject to a marketing arrangement as described in
Section 163(2)(b) of the Companies Act 1985 (e.g.,
their shares have been dealt in on AIM, PLUS or the Professional
Securities Market), or (z) filed a prospectus for the issue
of equity share capital with the UK Registrar.
(g) Target has made available to Parent complete and
correct copies of the Organizational Documents of the Target and
each of the Subsidiaries (including copies of all the
resolutions and any other documents required under the laws of
any applicable jurisdiction to be annexed or incorporated to
such Organizational Documents).
§4.6 SEC
Filings. (a) Since October 31,
2007, Mobile Services Group, Inc. and Mobile Storage Group, Inc.
have timely filed or otherwise transmitted all forms, reports
and documents required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively with any
amendments thereto, the Target SEC Reports).
Each of the Target SEC Reports, as amended prior to the date
hereof, has complied, or in the case of the Target SEC Reports
filed after the date hereof will comply, as to form in all
material respects with the applicable requirements of the
Securities Act and the Exchange Act. None of the Target SEC
Reports, as amended prior to the date hereof, contained, and in
the case of the Target SEC Reports filed after the date hereof
will contain, any untrue statement of a material fact or omitted
or will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein at
the time they were filed or will be filed, in the light of the
circumstances under which they were made, not misleading, except
for those statements (if any) as had been modified by subsequent
filings with the SEC prior to the date hereof. Other than Mobile
Services Group, Inc. and Mobile Storage Group, Inc., neither
Target nor any Subsidiary of Target is required to file any
forms, reports or other documents with the SEC.
(b) Mobile Services Group, Inc. and Mobile Storage Group,
Inc. have established and maintain disclosure controls and
procedures (as such term is defined in
Rule 13a-15(e)
under the Exchange Act) as required by
A-22
Rule 13a-15(a)
under the Exchange Act. Mobile Services Group, Inc. and Mobile
Storage Group, Inc. and each of their Subsidiaries maintain a
system of internal controls over financial reporting sufficient
to comply in all material respects with all legal and accounting
requirements applicable to Mobile Services Group, Inc. and
Mobile Storage Group, Inc. and such Subsidiary (as such term is
defined in
Rule 13a-15(f)
under the Exchange Act) as required by
Rule 13a-15(a)
under the Exchange Act. Mobile Services Group, Inc. and Mobile
Storage Group, Inc. have disclosed, based on their most recent
evaluation of internal controls prior to the date hereof, to
their auditors and audit committee (x) any significant
deficiencies and material weaknesses in the design or operation
of internal controls that are reasonably likely to adversely
affect Mobile Services Group, Inc. and Mobile Storage Group,
Inc.s ability to record, process, summarize and report
financial information and (y) any known fraud, whether or
not material, that involves management or other employees who
have a significant role in internal controls. Except as set
forth on Section 4.6(b) of the Target Disclosure
Letter, Mobile Services Group, Inc. and Mobile Storage Group,
Inc. are in material compliance with all applicable provisions
of the Sarbanes-Oxley Act of 2002.
(c) None of the information supplied or to be supplied by
Target or the Target Stockholders specifically for inclusion or
incorporation by reference in the proxy statement relating to
the Parent Stockholders Meeting (together with any amendments
thereof or supplements thereto, in each case in the form or
forms distributed to the Parents stockholders, the
Proxy Statement) will, at the date the Proxy
Statement is first distributed to the stockholders of the Parent
and at the time of the Parent Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
§4.7 Financial
Statements. (a) Target has made
available to Parent the audited consolidated balance sheets of
each of Mobile Services Group, Inc. and its Subsidiaries as at
December 31, 2006, 2005 and 2004, and the related audited
consolidated statements of operations, stockholders equity
and cash flows for the years then ended, all certified by
Ernst & Young LLP, and the unaudited consolidated
balance sheet of such Persons as at September 30, 2007 and
the related unaudited consolidated statements of operations,
stockholders equity and cash flows for the nine months
then ended unaudited consolidated balance sheet of Mobile
Services Group, Inc. and its Subsidiaries as at
September 30, 2007 (the Balance Sheet
Date) is hereinafter referred to as the
Balance Sheet. The financial statements
referred to above, including the footnotes thereto, except as
described therein, have been prepared from, and in accordance
with, the books and records of Mobile Services Group, Inc. and
its Subsidiaries (which books and records have been maintained
in all material respects in a manner consistent with historical
practice and are true and complete in all material respects),
and, in accordance with U.S. generally accepted accounting
principles (GAAP) consistently followed
throughout the periods indicated except, in the case of the
unaudited financial statements, for the absence of notes thereto
and subject to normal recurring year-end audit adjustments.
(b) The audited balance sheets referred to in
(a) above fairly present, in all material respects, the
financial condition of Mobile Services Group, Inc. and its
Subsidiaries at the date thereof and the related statements of
operations, stockholders equity and cash flows fairly
present, in all material respects, the results of operations,
stockholders equity, and cash flows of Mobile Services
Group, Inc. and its Subsidiaries for the periods indicated.
(c) The Balance Sheet and such other unaudited balance
sheets referred to in (a) above fairly present, in all
material respects, the financial condition of Mobile Services
Group, Inc. and its Subsidiaries as of the date thereof and the
related statements of operations, stockholders equity and
cash flows fairly present in all material respects, the results
of operations, stockholders equity and cash flows of
Mobile Services Group, Inc. and its Subsidiaries for the periods
indicated (except for the absence of notes thereto and subject
to normal and recurring year-end audit adjustments).
(d) A true and complete copy of the CapEx Budget is
included in Section 4.7(d) of the Target Disclosure
Letter.
(e) Included in Section 4.7(e) of the Target
Disclosure Letter is a true and complete copy of the Draft
Financial Statements. The Draft Financial Statements were
prepared from, and in accordance with, the books and records of
Mobile Services Group, Inc. and its Subsidiaries and, in
accordance with GAAP on a consistent basis. The Draft Financial
Statements were prepared in good faith by Mobile Services Group,
Inc.s management based upon information available to
management at the time of preparation and upon assumptions that
management believed to be reasonable at the time made. To the
Knowledge of the Target, as of the date hereof the balance sheet
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included in the Draft Financial Statements fairly
presents, in all material respects, the financial condition
of Mobile Services Group, Inc. and its consolidated Subsidiaries
at the date thereof and the related statements of operations and
cash flows included in the Draft Financial Statements fairly
present, in all material respects, the results of operations and
cash flows, as applicable, of Mobile Services Group, Inc. and
its consolidated Subsidiaries for the relevant period. For
purposes of this Section 4.7(e) only, Knowledge of
the Target means the actual knowledge of Douglas
Waugaman and Allan Villegas after asking representatives of the
Targets auditors whether they are aware of any actual or
potential audit adjustments. To the Knowledge of the Target, as
of the date hereof no audit adjustments to the Draft Financial
Statements are being considered or have been proposed. Except as
set forth in this Section 4.7(e), the Target makes no other
representation or warranty whatsoever concerning the Draft
Financial Statements.
§4.8 Liabilities. Except
as set forth on Section 4.8 of the Target Disclosure
Letter, neither Target nor any of its Subsidiaries has any
Liabilities except for (i) Liabilities set forth in the
Balance Sheet or specifically disclosed in the footnotes
thereto, (ii) accounts payable to trade creditors and
accrued expenses incurred subsequent to the Balance Sheet Date
in the ordinary course of business consistent with past
practice, (iii) Liabilities that would not individually or
in the aggregate be reasonably expected to have a Material
Adverse Effect with respect to Target, (iv) Liabilities
under Material Contracts (none of which is a result of any
breach of Contract, breach of warranty, tort, infringement, or
violation of applicable Law or Order by Target or any of its
Subsidiaries, in each case, except as incurred in the ordinary
course of business consistent with past practice), and
(v) Liabilities under this Agreement and the Ancillary
Documents.
§4.9 Books and
Records. Except as would not individually or
in the aggregate be reasonably expected to have a Material
Adverse Effect with respect to Target, the respective minute
books of Target and its Subsidiaries, as previously made
available to Parent and its representatives, contain accurate
records of all meetings of, and corporate action taken by
(including action taken by written consent) the respective
members and boards of directors of Target and each of its
Subsidiaries. Except as set forth on Section 4.9 of
the Target Disclosure Letter, neither Target nor any Subsidiary
has any of its material records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including
any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and
direct control of Target or a Subsidiary.
§4.10 Properties;
Containers. (a) Except as disclosed on
Section 4.10 of the Target Disclosure Letter, Target
or one of its Subsidiaries has good title to or, in the case of
leased assets, a valid leasehold interest in, free and clear of
all Liens, except for Permitted Liens, all material tangible
personal property and assets reflected in the Balance Sheet or
thereafter acquired, except for properties and assets disposed
of in the ordinary course of business consistent with past
practice, since the Balance Sheet Date in accordance with the
terms of this Agreement. Target and its Subsidiaries own or have
the exclusive right to use all of the tangible personal
properties and assets that are material for the conduct of their
business. Except as disclosed on Section 4.10 of the
Target Disclosure Letter, all of the tangible personal property
that is material for the conduct of the business of Target and
its Subsidiaries is in reasonably good operating condition and
repair, ordinary wear and tear excepted.
(b) Target has made available to Parent an accurate and
complete list (except for clerical errors which are not
material), showing Targets rental fleet of storage
trailers, storage containers and portable offices as of
January 31, 2008, classified by branch.
§4.11 Owned Real
Property. Section 4.11 of the
Target Disclosure Letter contains an accurate and complete list
of all real property owned in whole or in part by Target or any
of its Subsidiaries and includes the name of the record title
holder thereof. Target and each of its Subsidiaries has good and
marketable title in fee simple to all the real property owned by
it, free and clear of all Liens except for Permitted Liens. All
of the material buildings, structures and appurtenances situated
on the real property owned in whole or in part by Target or any
of its Subsidiaries are in good operating condition and in a
reasonable state of maintenance and repair (ordinary wear and
tear excepted), are adequate and suitable in all material
respects for the purposes for which they are presently being
used and with respect to each, Target or one of its Subsidiaries
has adequate rights of ingress and egress for operation of the
business of Target or such Subsidiary in the ordinary course as
currently conducted, except as would not individually or in the
aggregate be reasonably expected to have a Material Adverse
Effect with respect to Target.
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None of such buildings, structures or appurtenances (or any
equipment therein), nor the operation or maintenance thereof,
violates any restrictive covenant or any provision of any Law or
Order, or encroaches on any property owned by others, except as
would not individually or in the aggregate be reasonably
expected to have a Material Adverse Effect with respect to
Target. No condemnation proceeding is pending or, to the
Knowledge of Target, threatened which would preclude the use of
any such property by Target or such Subsidiary for the purposes
for which it is currently used.
§4.12 Leased Real
Property. Section 4.12 of the
Target Disclosure Letter contains an accurate and complete list
of all leases or subleases of real property to which Target or
any of its Subsidiaries is a party (as lessee or lessor) and
involving an annual rental payment in excess of $50,000 (the
Real Property Leases). Target or one of its
Subsidiaries has valid leasehold interests in all leased real
property described in each lease set forth on
Section 4.12 of the Target Disclosure Letter (or
required to be set forth on Section 4.12 of the
Target Disclosure Letter), free and clear of any and all Liens,
except for Permitted Liens. Each lease set forth on
Section 4.12 of the Target Disclosure Letter (or
required to be set forth on Section 4.12 of the
Target Disclosure Letter) is in full force and effect; all rents
and additional rents due to date on each such lease have been
paid; in each case, the lessee has been in peaceable possession
since the commencement of the original term of such lease and is
not in material default thereunder and, since January 1,
2006, no waiver, indulgence or postponement of the lessees
obligations thereunder has been granted by the lessor; and there
exists no default or event, occurrence, condition or act
(including the purchase of the Shares hereunder) which, with the
giving of notice or the lapse of time would become a default
under such lease, other than defaults which, would not
individually or in the aggregate be reasonably expected to have
a Material Adverse Effect with respect to Target. Neither Target
nor any of its Subsidiaries has violated any of the terms or
conditions under any such lease except as would not individually
or in the aggregate be reasonably expected to have a Material
Adverse Effect with respect to Target, and, to the Knowledge of
Target, all of the covenants to be performed by any other party
under any such lease have been fully performed.
§4.13 Material
Contracts. (a) Section 4.13(a) of
the Target Disclosure Letter, and with respect to
clause (xvi) below, Section 4.12 of the Target
Disclosure Letter, sets forth an accurate and complete list of
the following Contracts to which Target or any of its
Subsidiaries is a party or by which any of them is bound as of
the date hereof (collectively, the Material
Contracts):
(i) all Contracts which contain restrictions with respect
to payment of dividends or any other distribution in respect of
the capital stock or other equity interests of Target or any of
its Subsidiaries;
(ii) all Contracts relating to capital expenditures or
other purchases of material, supplies, equipment (including all
Contracts to purchase containers, trailers or portable offices)
or other assets or properties in excess of $250,000
individually, or $500,000 in the aggregate on an annual basis;
(iii) all Contracts involving a loan (other than accounts
receivable in the ordinary course of business) or advance to
(other than advances and allowances to the employees of Target
and any of its Subsidiaries extended in the ordinary course of
business), or investment in, any Person or any Contract relating
to the making of any such loan, advance or investment, in each
case, in excess of $100,000 individually or $500,000 in the
aggregate;
(iv) all Contracts involving Indebtedness of Target or any
of its Subsidiaries;
(v) all Contracts with customers pursuant to which a
customer leases or otherwise has possession of a container,
trailer or portable office to the extent such Contract evidences
quarterly revenue in excess of $500,000;
(vi) all Contracts granting or evidencing a Lien on any
material properties or assets of Target or any of its
Subsidiaries, other than a Permitted Lien;
(vii) any management service, consulting, financial
advisory or any other similar type Contract and any Contracts
with any investment or commercial bank and involving an annual
amount in excess of $250,000;
(viii) all Contracts limiting the ability of Target or any
of its Subsidiaries to engage in any line of business or to
compete with any Person and, to the Knowledge of Target, any
Contracts that would limit the ability of
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Parent or any of its Affiliates to engage in any line of
business or to compete with any Person after the Effective Time;
(ix) all Contracts (other than this Agreement and any
agreement or instrument entered into pursuant to this Agreement)
with (A) any Affiliate of Target, or (B) any current
or former officer or director of Target or any of its
Subsidiaries, but not including any Contracts with any former
officer or director of Target or any of its Subsidiaries to the
extent that Target and such Subsidiaries do not have any ongoing
Liabilities under such Contracts;
(x) all Contracts (including letters of intent) involving
the future disposition or acquisition of material assets or
properties (including acquisitions or dispositions of
containers, trailers or portable offices for a purchase price in
excess of $100,000), or any merger, consolidation or similar
business combination transaction, whether or not enforceable;
(xi) all Contracts involving any material joint venture,
partnership, strategic alliance, shareholders agreement,
co-marketing, co-promotion, co-packaging, joint development or
similar arrangement;
(xii) all Contracts involving any material resolution or
settlement of any actual or threatened litigation, arbitration,
claim or other dispute and involving an amount in excess of
$100,000 (other than payments, discharges or satisfactions of
workers compensation, auto insurance and general liability
insurance claims);
(xiii) all Contracts involving a confidentiality,
standstill or similar agreement or arrangement other than
confidentiality agreements entered into in the ordinary course
of business which would not limit the ability of Parent and its
Subsidiaries to receive such information after the Effective
Time;
(xiv) all Contracts involving payments of $250,000 or more,
individually, to or from Target or any of its Subsidiaries which
are not cancelable by Target or any of its Subsidiaries without
penalty on ninety (90) days or less notice;
(xv) any material licenses of Intellectual Property to or
from Target or its Subsidiaries (except for licenses of
mass-marketed or shrink-wrap software available on
non-discriminatory terms);
(xvi) any Real Property Lease; or
(xvii) any Contract pursuant to which any amount may become
due and payable as a result of the transactions contemplated
hereby, including without limitation, any change of control
payments or severance arrangements.
(b) Each Contract set forth on Section 4.13(a)
of the Target Disclosure Letter other than the Real Property
Leases (or required to be set forth on
Section 4.13(a) of the Target Disclosure Letter) is
in full force and effect and there exists no (i) material
default or event of default by Target or any of its Subsidiaries
or, to the Knowledge of Target, any other party to any such
Material Contract with respect to any material term or provision
of any such Material Contract, (ii) to the Knowledge of
Target, event, occurrence, condition or act (including the
consummation of the transactions contemplated hereby) which,
with the giving of notice, the lapse of time or the happening of
any other event or condition, would become a material default or
event of default by Target or any of its Subsidiaries or, to the
Knowledge of Target, any other party thereto, with respect to
any material term or provision of any such Material Contract.
Target has made available to Parent true and complete copies,
including all amendments, of each Contract set forth on
Section 4.13(a) of the Target Disclosure Letter.
(c) As of the date hereof, Target has not made any
indemnification claim under the Sponsor Merger Agreement.
§4.14 Litigation. Except
as set forth on Section 4.14 of the Target
Disclosure Letter and except for open insurance claims for
workers compensation, automobile liability and general liability
which have been incurred in the ordinary course of business and
reported to Targets insurance carriers for which a
liability accrual in accordance with GAAP has been recorded in
the Balance Sheet, there is no material action, suit, charge,
complaint, proceeding at law or in equity, arbitration,
mediation, investigation, or administrative or other proceeding
(each, a Proceeding) by or before any
Governmental Entity or any other Person, nor, to the Knowledge
of Target, is any such Proceeding threatened, against or
affecting Target or any of its Subsidiaries, or any of their
material
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properties, assets or rights. Except as set forth on
Section 4.14 of the Target Disclosure Letter,
neither Target nor any of its Subsidiaries is subject to any
material Order.
§4.15 Taxes. Except as
set forth on Section 4.15 of the Target Disclosure
Letter:
(a) Tax Returns. Target and each
of its Subsidiaries have timely filed or caused to be timely
filed with the appropriate taxing authorities all material tax
returns, statements, forms and reports (including elections,
declarations, disclosures, schedules, estimates and information
returns) for Taxes (Tax Returns) that are
required to be filed by, or with respect to, Target
and/or any
of its Subsidiaries. The Tax Returns in all material respects
accurately reflect all liability for Taxes of Target and its
Subsidiaries for the periods covered thereby.
(b) Payment of Taxes. All Taxes
due by or with respect to the income, assets or operations of
Target
and/or its
Subsidiaries for all past taxable years or periods have been
timely paid in full on or prior to the Closing Date or accrued
and adequately disclosed and provided for on the books and
records of Target in accordance with GAAP.
(c) Other Tax
Matters. (i) Neither Target nor any of
its Subsidiaries is currently the subject of an audit, judicial
proceeding or other examination in respect of Taxes by the tax
authorities of any nation, state or locality (and, to the
Knowledge of Target, no such audit, judicial proceeding or other
examination is contemplated) nor has Target or any of its
Subsidiaries received any written notices from any taxing
authority in the past three years relating to any issue that
could affect the Tax liability of Target or any of its
Subsidiaries.
(ii) Neither Target nor any of its Subsidiaries has or will
have, as of the Closing Date, entered into an agreement or
waiver or been requested in writing to enter into an agreement
or waiver extending any statute of limitations relating to the
payment or collection of Taxes of Target or any of its
Subsidiaries that is currently in effect.
(iii) Since August 1, 2006, and to the Knowledge of
Target, since January 1, 2004, neither Target nor any of
its Subsidiaries has been a member of an affiliated group filing
a consolidated, combined or unitary income Tax Return under
United States federal, state or local law (other than an
affiliated group, the common parent of which was Target or
Mobile Services Group Inc.).
(iv) All material Taxes that Target
and/or any
of its Subsidiaries is (or was) required by law to withhold or
collect in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
third party have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and
payable.
(v) To the Knowledge of Target, during the last three
years, no claim has been made by any taxing authority in a
jurisdiction where Target or any of its Subsidiaries does not
file Tax Returns that Target or any of its Subsidiaries is or
may be subject to taxation by that jurisdiction.
(vi) Neither Target nor any of its Subsidiaries has been a
United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code, at any
time during the five-year period ending on the Closing Date.
(vii) Neither Target nor any of its Subsidiaries is party
to any Tax allocation or sharing agreement and to the Knowledge
of Target, since January 1, 2004, neither Target nor any of
its Subsidiaries nor any predecessor thereof was a party to any
Tax allocation or sharing agreement.
(viii) The execution of this Agreement and the consummation
of the transactions contemplated hereby do not constitute a
triggering event under any Employee Benefit Plan, policy,
arrangement, statement, commitment or agreement, which (either
alone or upon the occurrence of any additional or subsequent
event) will result in any parachute payment (as such
term is defined in Section 280G of the Code).
(ix) Correct and complete copies of all adjustments to the
tax items of, or deficiencies assessed against or agreed to by,
Target or any of its Subsidiaries filed or received since
August 1, 2006 have been made available to Parent.
A-27
(x) There are no material security interests on any of the
assets of the Target or any Subsidiary that arose in connection
with any failure (or alleged failure) to pay any Taxes.
(xi) The reserves set forth on the balance sheet of Target
as at the Balance Sheet Date for unpaid Taxes of Target and its
Subsidiaries have been established in a manner consistent with
the past practices of Target in all material respects.
(xii) Neither Target nor any of its Subsidiaries has
distributed stock of another Person, or has had its stock
distributed by another Person, in a transaction that was
purported or intended to be governed, in whole or in part, by
Section 355 of the Code.
(xiii) Neither Target nor any of its Subsidiaries has
engaged in any listed transaction, or any reportable
transaction the principal purpose of which was tax avoidance,
within the meaning of Section 6011, Section 6111 and
Section 6112 of the Code.
(xiv) Each of the Subsidiaries that is a United Kingdom
resident for tax purposes is duly registered for value added tax
in the United Kingdom, and in respect of any value added tax
each has complied with all statutory provisions, rules,
regulations, orders and directions, has promptly submitted
accurate returns, maintains full and accurate records, and has
not within the three years prior to the Closing Date been
subject to any interest, forfeiture, surcharge or penalty charge
by a Tax authority. None of the United Kingdom resident
Subsidiaries is a member of a group for value added tax purposes
and none has made any election to waive the exemption from value
added tax in relation to any interest in real estate.
(xv) Neither the execution and delivery of this Agreement
by Target nor the consummation of the Merger will result in any
income, profit or gain being deemed to accrue to any Subsidiary
that is resident in the United Kingdom for tax purposes whether
pursuant to Section 179 Taxation of Chargeable Gains Tax
Act 1992, Section 82 and Schedule 10 Finance Act 2006
or otherwise.
For the avoidance of doubt, neither Target nor any of its
Subsidiaries is making any representation or warranty regarding
the Tax treatment and consequences of the transactions
contemplated by this Agreement.
§4.16 Insurance. Set
forth on Section 4.16 of the Target Disclosure
Letter is an accurate and complete list of each material
insurance policy of Target and its Subsidiaries which covers
Target and its Subsidiaries or their businesses, properties,
assets, employees or directors. Except as would not individually
or the aggregate be reasonably expected to have a Material
Adverse Effect with respect to Target, such policies are in full
force and effect, all premiums thereon have been paid, and
Target and its Subsidiaries are otherwise in compliance with the
terms and provisions of such policies. Neither Target nor any of
its Subsidiaries is in material default under any of the
insurance policies set forth on Section 4.16 of the
Target Disclosure Letter (or required to be set forth on
Section 4.16 of the Target Disclosure Letter). and
as of the date hereof, to the Knowledge of Target there exists
no event, occurrence, condition or act which, with the giving of
notice, the lapse of time or the happening of any other event or
condition, would become a material default by Target or any of
its Subsidiaries thereunder. Neither Target nor any of its
Subsidiaries has received any written notice of cancellation or
non-renewal of any such policy or arrangement nor has the
termination of any such policies or arrangements been threatened.
§4.17 Intellectual Property
(a) Target or one of its Subsidiaries owns, or has a
license or other right to use all material Intellectual Property
currently used to conduct the business of Target and its
Subsidiaries as currently conducted (collectively, the
Target Intellectual Property).
(b) All Intellectual Property that is owned by Target or
any of its Subsidiaries, and that is the subject of an issuance,
registration or application for registration, has been duly
registered, issued or applied for with the appropriate
Governmental Entity such that all such registrations or
issuances are valid and enforceable and Target or its
Subsidiaries have paid all fees due prior to the date hereof
that are necessary to obtain or maintain such Intellectual
Property in force. Except for Permitted Liens, the material
Intellectual Property owned by Target or any of its Subsidiaries
is held free and clear of any Liens, or Orders restricting the
use thereof.
A-28
(c) To the Knowledge of Target, Target and its Subsidiaries
have taken all commercially reasonable steps to protect and
preserve the confidentiality of all Trade Secrets and all use by
or disclosure to any third party of any material Trade Secret
has been pursuant to the terms of a valid, written
confidentiality agreement with such third party that is legally
enforceable by Target or one of its Subsidiaries.
(d) Target and its Subsidiaries have not received any
written notice or claim from any third party challenging the
right of Target or any of its Subsidiaries to use any material
Intellectual Property or the validity of any material Target
Intellectual Property owned by Target or any of its
Subsidiaries. To the Knowledge of Target, the conduct of the
business of Target and its Subsidiaries as currently conducted
does not infringe or misappropriate the Intellectual Property of
any third party. To the Knowledge of Target, no third party is
infringing the Target Intellectual Property.
§4.18 Compliance with
Laws. Target and each of its Subsidiaries has
complied since January 1, 2005, and is in compliance, with
all applicable Laws and Orders, except as would not individually
or in the aggregate be reasonably expected to have a Material
Adverse Effect. Neither Target nor any of its Subsidiaries has
received any written notice that any material violation of any
Law or Order is being alleged. This Section 4.18 does not
relate to matters with respect to Taxes, which are the subject
of Section 4.15, Employment Relations, which are the
subject of Section 4.20, Employee Benefit Plans, which are
the subject of Section 4.21, and Environmental Laws and
Regulations, which are the subject of Section 4.22.
§4.19 Customers. Section 4.19
of the Target Disclosure Letter sets forth a list of the top
twenty (20) customers of Target and its Subsidiaries, taken
as a whole, based on consolidated rental income, respectively,
for the twelve (12) month period ended as of the Balance
Sheet Date (such customers are herein referred to as the
Material Customers). The relationships of
Target and its Subsidiaries with the Material Customer are good
commercial working relationships, and as of the date hereof,
except as set forth on Section 4.19 of the Target
Disclosure Letter, no Material Customer has canceled or
otherwise terminated or, to the Knowledge of Target, threatened
in writing to cancel or otherwise terminate, its relationship
with Target or any of its Subsidiaries. Since January 1,
2007, Target has not received any written notice that any
Material Customer may cancel or otherwise materially and
adversely modify its relationship with Target or any of its
Subsidiaries, or limit its usage or purchase of the services and
products of Target and its Subsidiaries either as a result of
the transactions contemplated hereby or otherwise, except for
such notice of cancellation or limitation would not individually
or in the aggregate be reasonably expected to have a Material
Adverse Effect with respect to Target.
§4.20 Employment
Relations. Except as set forth in
Section 4.20 of the Target Disclosure Letter:
(a) Since January 1, 2005, Target and each of its
Subsidiaries has been and is in compliance with all applicable
Laws respecting the employment of labor, except as would not
individually or in the aggregate be reasonably expected to have
a Material Adverse Effect and, to the Knowledge of Target, has
not and is not engaged in any unfair, wrongful, unlawful or
discriminatory labor practice.
(b) Neither Target nor any of its Subsidiaries has
Knowledge of any unfair labor practice charge or complaint,
pending or threatened, against Target or any of its Subsidiaries
before the National Labor Relations Board.
(c) During the last three (3) years there has been no
labor strike, dispute, slowdown or stoppage or other material
labor dispute actually pending or, to the Knowledge of Target,
threatened against or involving Target or any of its
Subsidiaries.
(d) Except as set forth on Section 4.20(d) of
the Target Disclosure Letter, no union or works council is
currently certified or recognized, and, to the Knowledge of
Target, there is no union or work council representation
question and no union or other organizational or decertification
activity, or special negotiating body or representative body
that would be subject to the National Labor Relations Act
(20 U.S.C. §151 et. seq.) or any
applicable law implementing the provisions of Council Directive
94/45/EC dated September 22, 1994 or the Information and
Consultation of Employees Regulations of 2004, existing or
threatened with respect to the operations of Target or any of
its Subsidiaries.
(e) Neither Target nor any of its Subsidiaries is subject
to or bound by any collective bargaining, information and
consultation agreement or labor union or works council agreement
applicable to any Person employed by Target
A-29
or any of its Subsidiaries and no collective bargaining,
information and consultation agreement or labor union or works
council agreement is currently being negotiated by Target or any
of its Subsidiaries.
(f) No Person employed by Target or any of its Subsidiaries
on other than an at will basis will be entitled to
terminate their employment or trigger an entitlement to a
termination payment or liquidated damages or enhanced terms and
conditions of employment solely as a result of the transactions
contemplated by this Agreement.
(g) Neither Target nor any of its Subsidiaries has any
Equal Employment Opportunity Commission, Equality or Human
Rights Commission, Equal Opportunities Commission, Commission
for Racial Equality and Disability Rights Commission charges,
enquiries or investigations or other claims of employment
discrimination, equal pay or treatment or other less favorable
treatment, harassment or victimization on protected grounds
pending or, to the Knowledge of Target, threatened against it,
except for such claims that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse
Effect with respect to Target.
(h) Since January 1, 2005, no material wage and hour
department or working time or national minimum wage
investigation has been made of Target or any of its Subsidiaries.
(i) There are no occupational health and safety claims
against Target or any of its Subsidiaries other than claims that
would not individually or in the aggregate be reasonably
expected to have a Material Adverse Effect with respect to
Target.
(j) During the last three (3) years, neither Target
nor any of its Subsidiaries has effectuated any plant
closing or mass layoff (as such terms are
defined in the Worker Adjustment and Retraining Notification Act
(WARN) and any similar state Law) without
complying with its obligations under the WARN Act and any
similar state Law. Neither Target nor any of its Subsidiaries
has been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger
application of any information and consultation requirements
under the Trade Union and Labour Relations (Consolidation) Act
1992 or the Transfer of Undertakings (Protection of Employment)
Regulations 2006 during the last three (3) years. None of
the Persons employed in the U.S. by Target or any of its
Subsidiaries has suffered an employment loss (as
defined in WARN and any similar state Law) during the
90 days prior to the date hereof.
§4.21 Employee Benefit
Plans. (a) Set forth on
Section 4.21(a) of the Target Disclosure Letter is
an accurate and complete list of all U.S. and
non-U.S. :
(i) employee benefit plans, within the meaning
of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations
thereunder (ERISA); (ii) bonus, stock
option, stock purchase, restricted stock, incentive, fringe
benefit, voluntary employees beneficiary
associations (VEBAs), under
Section 501(c)(9) of the Code, profit- sharing, pension, or
retirement, deferred compensation, medical, life, disability,
accident, salary continuation, severance, accrued leave,
vacation, sick pay, sick leave, supplemental retirement and
unemployment benefit plans, programs, arrangements, commitments
and/or
practices (whether or not insured); and (iii) employment,
consulting, termination, and severance contracts or agreements
for active, retired or former employees or directors that (in
the case of (i), (ii), or (iii)) are sponsored, maintained or
contributed to by Target or any of its Subsidiaries or with
respect to which Target or any of its Subsidiaries has any
material Liabilities (Employee Benefit Plans).
(b) Except as would not individually or in the aggregate be
reasonably expected to result in any material and adverse impact
on Target and its Subsidiaries taken as a whole, each Employee
Benefit Plan (including any related trust) complies in form with
the requirements of all applicable Laws, including ERISA and the
Code, and has at all times been maintained and operated in
compliance with its terms and the requirements of all applicable
Laws, including ERISA and the Code. Except as set forth on
Section 4.21(b) of the Target Disclosure Letter,
with respect to each Employee Benefit Plan which provides for
the grant of options to purchase stock of Target or any
Subsidiary, each such stock option has been granted at an
exercise price equal to no less than the fair market value of
Target stock or Subsidiary stock, as applicable, at the date of
grant and there has been no backdating of any such
stock options. Neither Target nor any of its Subsidiaries has
filed, or is considering filing, an application under the IRS
Employee Plans Compliance Resolution System or the Department of
Labors Voluntary Fiduciary Correction Program with respect
to any Employee Benefit Plan. No Employee Benefit Plan is a plan
described in Section 4063(a) of ERISA.
A-30
(c) No Employee Benefit Plan is an employee pension
benefit plan (within the meaning of Section 3(2) of
ERISA) subject to Section 412 of the Code or
Section 302 or Title IV of ERISA and neither Target
nor any of its Subsidiaries has any material Liabilities with
respect to any such plan or otherwise under Title IV of
ERISA or Section 412 of the Code; and neither Target nor
any of its Subsidiaries has any material Liability with respect
to any multiemployer plan (as defined in
Section 3(37) of ERISA).
(d) Except as would not individually or in the aggregate be
reasonably expected to result in any material and adverse impact
on Target and its Subsidiaries taken as a whole, neither Target
nor any of its Subsidiaries maintains any Employee Benefit Plan
which is a group health plan (as such term is
defined in Section 5000(b)(1) of the Code or
Section 607(1) of ERISA) that has not been administered and
operated in compliance with the applicable requirements of
Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code and any similar state Laws
(COBRA). No Employee Benefit Plan which is
such a group health plan is a multiple employer welfare
arrangement, within the meaning of Section 3(40) of
ERISA.
(e) Except as set forth on Section 4.21(e) of
the Target Disclosure Letter and except as required by COBRA,
neither Target nor any of its Subsidiaries maintains any
Employee Benefit Plan (whether qualified or non-qualified under
Section 401(a) of the Code) providing for post-employment
or retiree health, life insurance
and/or other
welfare benefits and having unfunded liabilities, and, except as
required by applicable Laws or for death benefits or retirement
benefits under any employee benefit pension plan (as
such term is defined in Section 3(2) of ERISA), neither
Target nor any of its Subsidiaries has any obligation to provide
any such benefits to any retired or former employees or active
employees following such employees retirement or
termination of service. Except as would not individually or in
the aggregate be reasonably expected to result in any material
and adverse impact on Target and its Subsidiaries taken as a
whole, neither Target nor any of its Subsidiaries has any
unfunded liabilities pursuant to any Employee Benefit Plan that
is not intended to be qualified under Section 401(a) of the
Code.
(f) Except as would not individually or in the aggregate be
reasonably expected to result in any material and adverse impact
on Target and its Subsidiaries taken as a whole; there are no
actions, suits, claims or disputes pending, or, to the Knowledge
of Target, threatened, anticipated or expected to be asserted
against or with respect to any Employee Benefit Plan or the
assets of any such plan (other than routine claims for benefits
and appeals of denied routine claims); no civil or criminal
action brought pursuant to the provisions of Title I,
Subtitle B, Part 5 of ERISA is pending, or, to the
Knowledge of Target, threatened, anticipated, or expected to be
asserted against Target or any of its Subsidiaries or any
fiduciary of any Employee Benefit Plan, in any case with respect
to any Employee Benefit Plan; and no Employee Benefit Plan or
any fiduciary thereof has been the subject of an audit,
investigation or examination by any Governmental Entity.
(g) Except as would not individually or in the aggregate be
reasonably expected to result in any material and adverse impact
on Target and its Subsidiaries taken as a whole, full payment
has been timely made of all amounts which Target or any of its
Subsidiaries is required, under applicable Law or under any
Employee Benefit Plan, to have paid as contributions or premiums
thereto as at Closing.
(h) Each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service or is
comprised of a master or prototype plan that has received a
favorable opinion letter from the Internal Revenue Service.
Since the date of each most recent determination letter referred
to in this paragraph (h), to the Knowledge of Target no event
has occurred and no condition or circumstance has existed that
resulted or is reasonably likely to result in the revocation of
any such determination letter or that would be reasonably likely
to adversely affect the qualified status of any such Employee
Benefit Plan.
(i) Except as would not individually or in the aggregate be
reasonably expected to result in any material and adverse impact
on Target and its Subsidiaries taken as a whole, neither Target
nor any of its Subsidiaries nor, to the Knowledge of Target, any
of their respective directors, officers, employees or, other
persons who participate in the operation of any Employee Benefit
Plan or related trust or funding vehicle, has engaged in any
transaction with respect to any Employee Benefit Plan or
breached any applicable fiduciary responsibilities or
obligations under Title I of ERISA that would subject any
of them to Liabilities for prohibited transactions or breach of
any fiduciary obligations under ERISA or the Code.
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(j) Except as set forth on Section 4.21(j) of
the Target Disclosure Letter, the execution of this Agreement
and the consummation of the transactions contemplated hereby, do
not constitute a triggering event under any Employee Benefit
Plan which (either alone or upon the occurrence of any
additional or subsequent event) will result in any material
payment (whether of severance pay or otherwise), or
acceleration, vesting or material increase in benefits to any
employee or former employee or director of Target or any of its
Subsidiaries. Except as set forth on Section 4.21(j)
of the Target Disclosure Letter, no Employee Benefit Plan
provides for the payment of severance, termination, change in
control or similar-type payments or benefits.
(k) With respect to each Employee Benefit Plan (where
applicable), Target has made available to Parent true and
complete copies of: (i) the plan document as in effect on
the date hereof, together with all amendments thereto;
(ii) all current summary plan descriptions and summaries of
material modifications; (iii) all current trust agreements
and all amendments thereto; (iv) the most recent IRS
determination letter, if any, obtained with respect to each
Employee Benefit Plan intended to be qualified under
Section 401(a) of the Code; (v) the annual report on
IRS
Form 5500-series
for each of the last three years for each Employee Benefit Plan
required to file such form; and (vi) the most recently
prepared financial statements for each Employee Benefit Plan for
which such statements are required.
(l) To the Knowledge of Target, Target and its Subsidiaries
have classified all individuals who perform services for them
correctly for purposes of each Employee Benefit Plan as common
law employees, independent contractors or leased employees.
§4.22 Environmental Laws and
Regulations. Except as set forth on
Section 4.22 of the Target Disclosure Letter,
(i) Target and each of its Subsidiaries are in compliance
in all material respects with all applicable Environmental Laws,
and have obtained, and are in compliance in all material respect
with, all material Permits required of them under applicable
Environmental Laws; (ii) there are no material claims,
proceedings, investigations or actions by any Governmental
Entity or other Person or entity pending, or to the Knowledge of
Target, threatened against Target or any of its Subsidiaries
under any Environmental Law; and (iii) to the Knowledge of
Target, there are no facts, circumstances or conditions relating
to the past or present business or operations of Target or any
of its Subsidiaries (including the disposal of any wastes,
hazardous substances or other materials), or to any past or
present Target Property, that could reasonably be expected to
give rise to any material claim, proceeding or action, or to any
material liability, under any Environmental Law.
§4.23 Affiliate
Transactions. Except as set forth on
Section 4.23 of the Target Disclosure Letter
(i) there are no, and since August 1, 2006, there have
not been any, Contracts, Liabilities, transactions or business
arrangements or relationships between Target or any of its
Subsidiaries, on the one hand, and any Affiliate of Target on
the other hand and (ii) to the Knowledge of Target, neither
Target nor any Affiliate of Target possesses, directly or
indirectly, any financial interest in, is a director, officer,
employee of, or is a consultant, advisor or lender to, any
Person which is a Material Customer, landlord, lessor, lessee,
or competitor of Target or any of its Subsidiaries. Ownership of
securities of such Person whose securities are registered under
the Securities Exchange Act of 1934, as amended, of 5% or less
of any class of such securities shall not be deemed to be a
financial interest for purposes of this Section 4.23.
§4.24 Permits. Target
has delivered or made available to Parent for inspection a true
and correct copy of each material permit (including occupancy
permit), certificate, license, consent or authorization of any
Governmental Entity (each, a Permit) obtained
or possessed by Target and its Subsidiaries. Target and each of
its Subsidiaries have obtained and possess all Permits and have
made all registrations and filings with and notices to any
Governmental Entity necessary for the lawful conduct of their
businesses as presently conducted or necessary for the lawful
ownership of their properties and assets or the operation of
their businesses as presently conducted, except as the failure
to obtain such Permits or make such registration filings and
notices would not individually or in the aggregate be reasonably
expected to have a Material Adverse Effect with respect to
Target. Except as would not individually or in the aggregate be
reasonably expected to have a Material Adverse Effect with
respect to Target, all such Permits are in full force and
effect, and, to the Knowledge of Target, there are no grounds
for the revocation or non-renewal of any such Permits. Target
and each of its Subsidiaries are in compliance in all material
respects with all such Permits.
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§4.25 Absence of
Changes. Except as set forth on
Section 4.25 of the Target Disclosure Letter, since
the Balance Sheet Date there has been no events, facts,
circumstances, changes or effects, individually or in the
aggregate, constituting a Material Adverse Effect with respect
to Target. Except as set forth on Section 4.25 of
the Target Disclosure Letter, since September 30, 2007,
neither Target nor any of its Subsidiaries has:
(i) amended or restated its charter or by-laws (or
comparable organizational or governing documents);
(ii) authorized for issuance, issued, sold, delivered or
agreed or committed to issue, sell or deliver (A) any
capital stock of, or other equity or voting interest in, Target
or any of its Subsidiaries or (B) any securities
convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire either (1) any Target Common Stock
of, or other equity or voting interest in, Target or any of its
Subsidiaries, or (2) any securities convertible into,
exchangeable for, or evidencing the right to subscribe for or
acquire, any shares of the capital stock of, or other equity or
voting interest in, Target or any of its Subsidiaries (in each
case, except for the issuance of compensatory options or other
securities of Target as a result of the exercise of such
options);
(iii) increased the compensation payable (including, but
not limited to, wages, salaries, bonuses or any other
remuneration) or to become payable to any officer, employee or
agent being paid an annual base salary of $150,000 or more
except pursuant to an existing Contract set forth on
Section 4.13(a) of the Target Disclosure Letter;
(iv) made any bonus, profit sharing, pension, retirement or
insurance payment, distribution or arrangement to or with any
officer, employee or agent being paid an annual base salary of
$150,000 or more, or any director of Target, except for payments
that were already accrued prior to the Balance Sheet Date or
were required by the terms of any Employee Benefit Plan set
forth on Section 4.21(a) of the Target Disclosure
Letter;
(v) entered into, materially amended or become subject to
or allowed to be terminated any Material Contract except in the
ordinary course of business;
(vi) incurred, assumed or modified any Indebtedness, except
for revolving Indebtedness incurred pursuant to the existing
credit agreement disclosed on Section 4.13(a) of the
Target Disclosure Letter;
(vii) permitted any of its properties or assets to be
subject to any Lien not set forth on Section 4.13(a)
of the Target Disclosure Letter (other than Permitted Liens);
(viii) become subject to any collective bargaining
relationship or similar relationship that has not resulted in
the negotiation of a collective bargaining agreement;
(ix) sold, transferred, leased, licensed or otherwise
disposed of any assets or properties in excess of $50,000
individually or $250,000 in the aggregate, taken as a whole
except for (A) sales of equipment in the ordinary course of
business consistent with past practice, (B) leases or
licenses entered into in the ordinary course of business
consistent with past practice and (C) sales of trailers in
the United States and timber cabins in the United Kingdom;
(x) acquired any business or Person, by merger or
consolidation, purchase of substantial assets or equity
interests, or by any other manner, in a single transaction or a
series of related transactions;
(xi) made any capital expenditure or commitment therefor in
excess of $250,000 individually or $500,000 in the aggregate or
otherwise acquired any assets or properties in excess of $50,000
individually or $100,000 in the aggregate (other than inventory
in the ordinary course of business consistent with past
practice) or leased any property, as Lessor, in excess of
$50,000;
(xii) entered into, materially amended or become subject to
any joint venture, partnership, strategic alliance,
members agreement, co-marketing, co-promotion,
co-packaging, joint development or similar arrangement that is
material to Target and its Subsidiaries taken as a whole;
(xiii) written-off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business
consistent with past practice;
(xiv) canceled or waived any claims or rights of
substantial value;
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(xv) made any material change in any method of accounting
or auditing practice except as required by Law or GAAP;
(xvi) made any material Tax election or settled
and/or
compromised any material Tax liability; prepared any Tax Returns
in a manner that is materially inconsistent with the past
practices of Target or such Subsidiary, as the case may be, with
respect to the treatment of items on such Tax Returns; or filed
any material amended Tax Return or claim for refund of Taxes
with respect to the income, operations or property of Target or
its Subsidiaries, in each case, except as required by any Law or
Order;
(xvii) paid, discharged, settled or satisfied any claims,
Liabilities or obligations in excess of $100,000, other than
payments, discharges or satisfactions of workers
compensation, auto insurance and general liability insurance
claims and other claims in the ordinary course of business and
consistent with past practice;
(xviii) established, adopted, entered into, amended or
terminated any material Employee Benefits Plan or any collective
bargaining, thrift, compensation or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(xix) conducted its cash management practices (including
the collection of receivables and payment of payables) in the
ordinary course of business consistent with past
practices; or
(xx) entered into any Contract or letter of intent with
respect to (whether or not binding), or otherwise committed or
agreed, whether or not in writing, to do any of the foregoing.
§4.26 Brokers or Finders
Fees. Except with respect to the fees payable
to Lehman (whose fees and expenses shall be included in the
Transaction Expenses) and except as se set forth in
Section 4.26 of the Target Disclosure Letter, no
agent, broker, person or firm acting on behalf of Target is, or
will be, entitled to any commission or brokers or
finders fees from Target or Parent, or from any of their
Affiliates, in connection with any of the transactions
contemplated by this Agreement.
§4.27 Certain Business
Practices. To the Knowledge of Target,
neither Target nor any of its Subsidiaries, nor any directors,
officers, agents, or employees of Target or any of its
Subsidiaries has (i) used any funds of Target or any such
Subsidiary for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity or
(ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the
United States Foreign Corrupt Practices Act of 1977, as amended.
§4.28 Special Purpose
Representations. None of Target, MSG WC
Intermediary Co. or Mobile Services Group, Inc. has conducted
any business or has any outstanding Indebtedness, other than the
Mezzanine Notes and the Senior Notes, or own or hold any assets,
other than the equity interest of its respective Subsidiary.
§4.29 Due Diligence by
Target. The representations and warranties
set forth in this Agreement and the Ancillary Agreements and in
any document, certificate or instrument delivered pursuant
hereto or thereto constitute the sole and exclusive
representations and warranties of Parent to Target and Target
Stockholders in connection with the transactions contemplated
hereby and Target and Target Stockholders acknowledge and agree
that Parent is not making any representation or warranty
whatsoever, express or implied, beyond those expressly given in
this Agreement and the Ancillary Agreements and in any
documents, certificate or instrument delivered pursuant hereto
or thereto, including any implied warranty as to condition,
merchantability, or suitability as to Parent and it is
understood that Target takes the stock of Surviving Corporation
as is and where is (subject to the benefit of the
representations and warranties set forth in this Agreement and
the Ancillary Agreements and in any document, certificate or
instrument delivered pursuant hereto or thereto).
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ARTICLE V
REPRESENTATIONS
AND WARRANTIES OF PARENT
Except as disclosed in writing in the disclosure letter supplied
by Parent to Target dated as of the date hereof (the
Parent Disclosure Letter), Parent represents
and warrants to Target as follows:
§5.1 Authority and
Enforceability. Parent has the corporate
power and authority to execute and deliver this Agreement and
the Ancillary Agreements to be executed and delivered by Parent
as contemplated hereby. Subject to the Parent Stockholders
Approval, Parent has the corporate power and authority to
consummate the transactions contemplated hereby and by the
Ancillary Agreements to be executed and delivered by Parent as
contemplated hereby. The execution, delivery and performance of
this Agreement and all Ancillary Agreements to be executed and
delivered by Parent as contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby, have been
duly authorized by Parents board of directors and subject
to the Parent Stockholders Approval no other corporate or
stockholder action on the part of Parent or its stockholders is
necessary to authorize the execution, delivery and performance
of this Agreement and such Ancillary Agreements by Parent and
the consummation of the transactions contemplated hereby and
thereby. This Agreement and all Ancillary Agreements to be
executed and delivered by Parent as contemplated hereby, when
delivered in accordance with the terms hereof and thereof,
assuming the due execution and delivery of this Agreement and
each other Ancillary Agreement by the other parties hereto and
thereto, shall have been duly executed and delivered by Parent
and shall be valid and binding obligations of Parent,
enforceable against Parent in accordance with their terms,
except to the extent that their enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights
generally and to general equitable principles.
§5.2 Consents and Approvals; No
Violations. (a) Other than as set forth
on Section 5.2(a) of the Parent Disclosure Letter,
the execution and delivery of this Agreement by Parent do not,
the execution and delivery by Parent of the Ancillary Agreements
to be executed and delivered by Parent as contemplated hereby
will not and the consummation by Parent of the transactions
contemplated hereby and thereby will not result in a violation
or breach of, conflict with, constitute (with or without due
notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Lien upon any of the
properties or assets of Parent or any of its Subsidiaries (taken
as a whole), except for Permitted Liens, under: (1) any
provision of the Organizational Documents of Parent or any of
its Subsidiaries; (2) subject to obtaining and making any
of the approvals, consents, notices and filings referred to in
paragraph (b) below, any Law or Order applicable to Parent
or any of its Subsidiaries or by which any of their respective
properties or assets may be bound; (3) any material
Contract to which Parent or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets
is bound except in the case of clauses (2) and
(3) above, for such violations, filings, permits, consents,
approvals, notices, breaches or conflicts which would not
individually or in the aggregate be reasonably expected to have
a Material Adverse Effect with respect to Parent.
(b) Except for such filings and approvals as may be
required pursuant to the HSR Act and as set forth on
Section 5.2(b) of the Parent Disclosure Letter no
consent, approval or action of, filing with or notice to any
Governmental Entity or private third party is necessary or
required under any of the terms, conditions or provisions of any
Law or Order, any material Contract to which Parent or any of
its Subsidiaries is a party or by which any of their respective
properties or assets may be bound, for the execution and
delivery of this Agreement by Parent, the performance by Parent
of its obligations hereunder or the consummation of the
transactions contemplated hereby other than those, the failure
to obtain or make which, would not individually or in the
aggregate be reasonably expected to have a Material Adverse
Effect with respect to Parent.
§5.3 Existence and Good
Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. Parent has all requisite corporate
power and authority to own its property and to carry on its
business as now being conducted. Parent is duly qualified to do
business and is in good standing in each jurisdiction in which
the character or location of the properties owned, leased or
operated by Parent or the nature of the business conducted by
Parent makes such qualification necessary, except for such
jurisdictions where the failure to be so qualified or licensed
and in good standing would not individually or in the aggregate
be reasonably expected to have a Material Adverse Effect with
respect to Parent.
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§5.4 Capitalization of
Parent. (a) As of the date hereof,
Parent has an authorized capitalization consisting of
(x) 95,000,000 shares of common stock, of which as of
December 31, 2007, 34,572,614 shares are issued and
outstanding, 2,027,503 shares of Parent Common Stock are
reserved for issuance and 2,174,828 shares are held in
Parents treasury, and (y) 5,000,000 shares of
preferred stock, par value $.01 per share, of which no shares
are issued and outstanding. All such outstanding shares of
common stock of Parent have been duly authorized and validly
issued, are fully paid and nonassessable and were not issued in
violation of, any preemptive rights. Except as described above,
no shares of common stock of Parent are authorized, issued,
outstanding or reserved for issuance. Except as set forth on
Section 5.4(a) of the Parent Disclosure Letter,
there are no outstanding or authorized options, warrants,
rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to the capital
stock of, or other equity or voting interest in, Parent,
pursuant to which Parent or any of its Subsidiaries is or may
become obligated to issue, deliver or sell or cause to be
issued, delivered or sold, common stock of Parent, any other
equity of or other voting interest in, Parent or any securities
convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any shares of the capital stock of or
other equity or voting interest in, Parent. There is no
outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to the
capital stock of, or other equity or voting interest in, Parent.
Neither Parent nor any of its Subsidiaries has any authorized or
outstanding bonds, debentures, notes or other Indebtedness the
holders of which have the right to vote (or convertible into,
exchangeable for, or evidencing the right to subscribe for or
acquire securities having the right to vote) with the
stockholders of Parent on any matter. There are no Contracts to
which Parent or any of its Subsidiaries is a party or by which
they are bound to (i) repurchase, redeem or otherwise
acquire any shares of capital stock of, or other equity or
voting interest in, Parent or any other Person or (ii) vote
or dispose of any shares of capital stock of, or other equity or
voting interest in, Parent. There are no irrevocable proxies and
no voting agreements with respect to any membership interests
of, or other equity or voting interest in, Parent.
(b) At the Effective Time (but subject to receipt of the
Parent Stockholders Approval and upon the filing of the
Certificate of Incorporation Amendment and Certificate of
Designation with the Secretary of State of the State of
Delaware), the Parent Preferred Stock will be duly authorized
and validly issued, fully paid and nonassessable, and not
subject to, or issued in violation of, any preemptive rights.
The shares of common stock of Parent to be issued upon
conversion of the Parent Preferred Stock, when issued in
accordance with the terms of the Certificate of Designation,
will be duly authorized and validly issued, fully paid and
nonassessable, and not subject to, or issued in violation, of
any preemptive right.
§5.5 Parent
Subsidiaries. (a) To the extent not
previously disclosed in the Parent SEC Filings, set forth on
Section 5.5(a) of the Parent Disclosure Letter is a
complete and accurate list of each Significant Subsidiary of
Parent and the jurisdiction of organization of such Significant
Subsidiaries. Each Significant Subsidiary of Parent is duly
organized, validly existing and in good standing (or, if
applicable, in a foreign jurisdiction, enjoys the equivalent
status under the Laws of any jurisdiction of organization
outside of the United States) under the laws of the jurisdiction
of its organization and has all requisite corporate power and
authority to own its material property and to carry on its
business as now being conducted.
(b) To the extent not previously disclosed in the Parent
SEC Filings, each Significant Subsidiary of Parent has the
capitalization set forth on Section 5.5(b) of the
Parent Disclosure Letter. To the extent not previously disclosed
in the Parent SEC Filings, all of the outstanding capital stock
or other equity securities or voting interests, as the case may
be, of each Significant Subsidiary of Parent are owned, of
record and beneficially, by Parent or a Significant Subsidiary
of Parent, free and clear of all Liens, other than a Permitted
Lien. To the extent not previously disclosed in the Parent SEC
Filings, there are no outstanding or authorized options,
warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities,
or other commitments, contingent or otherwise relating to the
capital stock of, or other equity or voting interest in, any
Significant Subsidiary of Parent or any securities convertible
into, exchangeable for, or evidencing the right to subscribe for
or acquire any capital stock of, or other equity or voting
interest in, such Significant Subsidiary, other than such rights
granted to Parent or a Significant Subsidiary of Parent. To the
extent not previously disclosed in the Parent SEC Filings, there
are no Contracts to which any Significant Subsidiary of Parent
is a party or by which they are bound to (i) repurchase,
redeem or otherwise acquire any shares of the capital stock of,
or other equity or voting interest in, any Significant
A-36
Subsidiary of Parent or any other Person or (ii) vote or
dispose of any shares of the capital stock of, or other equity
or voting interest in, any Significant Subsidiary of Parent.
(c) Neither Parent nor any of its Significant Subsidiaries
owns, directly or indirectly, any capital stock of, or other
equity, ownership, proprietary or voting interest in, any Person
except as disclosed in the Parent SEC Filings.
(d) Except as disclosed in the Parent SEC Filings, there
are no restrictions of any kind which prevent or restrict the
payment of dividends or other distributions by Parent or any of
Parents Significant Subsidiaries other than those imposed
by the Laws of general applicability of their respective
jurisdictions of organization.
§5.6 SEC
Filings. (a) Since January 1, 2006,
Parent has timely filed or otherwise transmitted all forms,
reports and documents required to be filed with the SEC under
the Securities Act and the Exchange Act (collectively with any
amendments thereto, the Parent SEC Reports).
Each of the Parent SEC Reports, as amended prior to the date
hereof, has complied, or in the case of the Parent SEC Reports
made after the date hereof, will comply, as to form in all
material respects with the applicable requirements of the
Securities Act and the Exchange Act. None of the Parent SEC
Reports, as amended prior to the date hereof, contained, and in
the case of the Parent SEC Reports made after the date hereof
will not contain, at the time they were filed any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, except for those
statements (if any) as had been modified by subsequent filings
with the SEC prior to the date hereof. No Subsidiary of Parent
is required to file any forms, reports or other documents with
the SEC.
(b) Parent has established and maintains disclosure
controls and procedures (as such term is defined in
Rule 13a-15(e)
under the Exchange Act) as required by
Rule 13a-15(a)
under the Exchange Act. Parent and each of its Subsidiaries
maintains a system of internal controls over financial reporting
sufficient to comply with all legal and accounting requirements
applicable to Parent and such Subsidiary (as such term is
defined in
Rule 13a-15(f)
under the Exchange Act) as required by
Rule 13a-15(a)
under the Exchange Act. Parent has disclosed, based on its most
recent evaluation of internal controls prior to the date hereof,
to Parents auditors and audit committee (x) any
significant deficiencies and material weaknesses in the design
or operation of internal controls that are reasonably likely to
adversely affect Parents ability to record, process,
summarize and report financial information and (y) any
known fraud, whether or not material, that involves management
or other employees who have a significant role in internal
controls. Parent is in material compliance with all applicable
provisions of the Sarbanes-Oxley Act of 2002.
(c) None of the information supplied or to be supplied by
Parent specifically for inclusion or incorporation by reference
in the Proxy Statement will, at the date the Proxy Statement is
first distributed to the stockholders of Parent and at the time
of the Parent Stockholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply
as to form in all material respects with the requirements of the
Exchange Act.
§5.7 Financial Statements; No Material
Adverse Effect. (a) The audited
consolidated financial statements (including the related notes
and schedules) included in Parents Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 filed with the
SEC (i) complied, or financial statements filed after the
date hereof and prior to the Effective Time will comply, in all
material respects with applicable accounting requirements and
the published regulations of the SEC, (ii) have been
prepared or will be prepared in all material respects in
accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes
thereto) and (iii) on that basis, fairly present or will
fairly present, in all material respects, the consolidated
financial condition, results of operations and cash flows of
Parent and its Subsidiaries as of the indicated dates and for
the indicated periods.
(b) The unaudited consolidated financial statements
(including the related notes and schedules) included in
Parents Quarterly Reports on
Form 10-Q
filed with the SEC since January 1, 2007 (i) complied,
or financial statements filed after the date hereof and prior to
the Effective Time will comply, in all material respects with
applicable accounting requirements and the published regulations
of the SEC, (ii) have been prepared or will be prepared in
all material respects in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may
be indicated in the notes thereto) and (iii) on that basis,
fairly present or will fairly present,
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in all material respects, the consolidated financial condition,
results of operations and cash flows of Parent and its
Subsidiaries as of the indicated dates and for the indicated
periods subject to normal year-end audit adjustments in amounts
that are immaterial in nature and amounts consistent with past
experience and the absence of full footnote disclosure.
(c) Except as previously disclosed in the Parent SEC
Filings or as set forth on Section 5.7(c) of the
Parent Disclosure Letter, since December 31, 2007, there
has been no events, facts, circumstances, changes or effects,
individually or in the aggregate, constituting a Material
Adverse Effect with respect to Parent.
§5.8 Liabilities. Except
as set forth on Section 5.8 of the Parent Disclosure
Letter, neither Parent nor any of its Subsidiaries has any
Liabilities or Indebtedness, except for (i) Liabilities set
forth in the unaudited consolidated balance sheets of each of
Parent and its Subsidiaries as at December 31, 2007 or
specifically disclosed in the footnotes thereto,
(ii) accounts payable to trade creditors and accrued
expenses, incurred subsequent to December 31, 2007 in the
ordinary course of business consistent with past practice,
(iii) Liabilities that would not individually or in the
aggregate be reasonably expected to have a Material Adverse
Effect with respect to Parent, (iv) Liabilities under
material Contracts (none of which is a result of any breach of
Contract, breach of warranty, tort, infringement or violation of
applicable Law or Order by Parent or any of its Subsidiaries, in
each case, except as incurred in the ordinary course of business
consistent with past practice), and (v) Liabilities under
this Agreement and the Ancillary Documents.
§5.9 Properties;
Containers. Parent has made available to
Target an accurate and complete list (except for clerical errors
which are not material), showing Parents rental fleet of
storage trailers, storage containers and portable offices as of
January 31, 2008, classified by branch.
§5.10 Litigation. To
the extent not previously disclosed in the Parent SEC Filings,
except as set forth on Section 5.10 of the Parent
Disclosure Letter and except for open insurance claims for
workers compensation, automobile liability and general liability
which have been incurred in the ordinary course of business and
reported to Parents insurance carriers for which a
liability accrual in accordance with GAAP has been recorded in
the books and records of Parent,, there is no material
Proceeding by or before any Governmental Entity or any other
Person, nor, to the Knowledge of Parent, is any such Proceeding
threatened, against or affecting Parent or any of its
Subsidiaries, or any of their material properties, assets or
rights.
§5.11 Taxes. Except as
set forth on Section 5.11 of the Parent Disclosure
Letter:
(a) Tax Returns. Parent and each
of its Subsidiaries have timely filed or caused to be timely
filed with the appropriate taxing authorities all material Tax
Returns that are required to be filed by, or with respect to,
Parent
and/or any
of its Subsidiaries. The Tax Returns in all material respects
accurately reflect all liability for Taxes of Parent and its
Subsidiaries for the periods covered thereby.
(b) Payment of Taxes. All Taxes
due by or with respect to the income, assets or operations of
Parent
and/or its
Subsidiaries for all past taxable years or periods have been
timely paid in full on or prior to the Closing Date or accrued
and adequately disclosed and provided for on the books and
records of Parent in accordance with GAAP.
(c) Other Tax Matters.
(i) Neither Parent nor any of its Subsidiaries is currently
the subject of an audit, judicial proceeding or other
examination in respect of Taxes by the tax authorities of any
nation, state or locality (and, to the Knowledge of Parent, no
such audit, judicial proceeding or other examination is
contemplated) nor has Parent or any of its Subsidiaries received
any written notices from any taxing authority in the past three
years relating to any issue that could affect the Tax liability
of Parent or any of its Subsidiaries.
(ii) All material Taxes that Parent
and/or any
of its Subsidiaries is (or was) required by law to withhold or
collect in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
third party have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and
payable.
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(iii) Neither Parent nor any of its Subsidiaries has
engaged in any listed transaction, or any reportable
transaction the principal purpose of which was tax avoidance,
within the meaning of Section 6011, Section 6111 and
Section 6112 of the Code.
(iv) Each of the Parents Subsidiaries that is a
United Kingdom or Netherlands resident for tax purposes is duly
registered for value added tax in the United Kingdom or The
Netherlands, and in respect of any value added tax each has
complied with all statutory provisions, rules, regulations,
orders and directions, has promptly submitted accurate returns,
maintains full and accurate records, and has not within the
three years prior to the Closing Date been subject to any
interest, forfeiture, surcharge or penalty charge by a Tax
authority. None of the United Kingdom or Netherlands resident
Subsidiaries is a member of a group for value added tax purposes
and none has made any election to waive the exemption from value
added tax in relation to any interest in real estate.
For the avoidance of doubt, neither Parent nor Merger Sub nor
any of their Subsidiaries is making any representation or
warranty regarding the Tax treatment and consequences of the
transactions contemplated by this Agreement.
§5.12 Compliance with
Laws. Parent and each of its Subsidiaries has
complied since January 1, 2005, and is in compliance, with
all applicable Laws and Orders, except as would not individually
or in the aggregate be reasonably expected to have a Material
Adverse Effect. Neither Parent nor any of its Subsidiaries has
received any written notice that any material violation of any
Law or Order is being alleged. This Section 5.12 does not
relate to matters with respect to SEC Filings, which is the
subject of Section 5.6, Taxes, which are the subject of
Section 5.11, Employee Benefits, which are the subject of
Section 5.13, and Certain Business Practices, which are the
subject of Section 5.14.
§5.13 Employee
Benefits. Section 5.13 of the
Parent Disclosure Letter lists each benefit or compensation
plan, program, agreement or arrangement, other than employment
agreements, maintained, sponsored, or contributed to by Parent
or any of its Subsidiaries or with respect to which Parent or
any of its Subsidiaries has any material Liability (each, a
Parent Plan). Except as would not
individually or in the aggregate be reasonably expected to
result in any material and adverse impact on Parent and its
Subsidiaries taken as a whole, each Parent Plan (including any
related trust) complies in form with the requirements of all
applicable Laws, including ERISA and the Code, and has at all
times been maintained and operated in compliance with its terms
and the requirements of all applicable Laws, including ERISA and
the Code. Except as would not individually or in the aggregate
be reasonably expected to result in any material and adverse
impact on Parent and its Subsidiaries taken as a whole, neither
Parent nor any of its Subsidiaries nor, to the Knowledge of
Parent, any of their respective directors, officers, employees
or, other persons who participate in the operation of any Parent
Plan or related trust or funding vehicle, has engaged in any
transaction with respect to any Parent Plan or breached any
applicable fiduciary responsibilities or obligations under
Title I of ERISA that would subject any of them to
Liabilities for prohibited transactions or breach of any
fiduciary obligations under ERISA or the Code. Neither Parent
nor any of its Subsidiaries has any material Liability under
Section 412 of the Code or Title IV of ERISA,
including any material Liability with respect to any
multiemployer plan as defined in Section 3(37)
of ERISA. Except as would not individually or in the aggregate
be reasonably expected to result in any material and adverse
impact on Parent and its Subsidiaries taken as a whole, there
are no actions, suits, claims, proceedings, audits or
investigations pending or, to the Knowledge of Parent,
threatened with respect to any Parent Plan.
§5.14 Certain Business
Practices. Except as previously disclosed in
the Parent SEC Filings, to the Knowledge of Parent, neither
Parent nor any of its Subsidiaries, nor any directors, officers,
agents, or employees of Parent or any of its Subsidiaries has
(i) used any funds of Parent or any such Subsidiary for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity or (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns or violated any provision of the United States Foreign
Corrupt Practices Act of 1977, as amended.
§5.15 Brokers or Finders
Fees. Except with respect to the fees payable
to Oppenheimer & Co. Inc. and Deutsche Bank Securities
Inc., whose fees and expenses shall be paid by Surviving
Corporation, no agent, broker, person or firm acting on behalf
of Parent is, or will be, entitled to any commission or
brokers or finders fees from Target or from any
Affiliate of Target, in connection with any of the transactions
contemplated by this Agreement.
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§5.16 Financing. Parent
has obtained a commitment letter dated as of the date hereof,
from the Lenders (the Debt Commitment Letter)
providing for, subject to certain conditions set forth therein,
commitments to provide debt financing in amount up to
$1,000,000,000.00 (the Debt Financing) which,
together with funds available to Parent, is sufficient to
consummate the transactions contemplated hereby and pay all
related fees and expenses for which Parent will be responsible.
A true and correct copy of the Debt Commitment Letter has been
provided to Target. The Debt Commitment Letter has been duly
executed by Parent and is in full force and effect. All
commitment fees required to be paid thereunder have been paid in
full or will be duly paid in full when due. As of the date
hereof, the Debt Commitment Letter has not been amended or
terminated, and there is no breach existing thereunder. As of
the date hereof, to the Knowledge of Parent, there is no
existing fact, occurrence or condition that would cause the
commitments provided in the Debt Commitment Letter to be
terminated or ineffective, any of the conditions contained
therein not to be met or the financing contemplated by the Debt
Commitment Letter not to be consummated. Except for the
conditions described in the Debt Commitment Letter, there are no
other conditions precedent to the Debt Financing. Upon the
consummation of such transactions and assuming the accuracy of
all representations and warranties of Target contained herein,
(a) Parent will not be insolvent, (b) Parent will not
be left with unreasonably small capital, (c) Parent will
not have incurred debts beyond its ability to pay such debts as
they mature, and (d) the capital of Parent will not be
impaired.
§5.17 Due Diligence by
Parent. The representations and warranties
set forth in this Agreement and the Ancillary Agreements and in
any document, certificate or instrument delivered pursuant
hereto or thereto constitute the sole and exclusive
representations and warranties of Target to Parent in connection
with the transactions contemplated hereby and Parent
acknowledges and agrees that Target is not making any
representation or warranty whatsoever, express or implied,
beyond those expressly given in this Agreement and the Ancillary
Agreements and in any document, certificate or instrument
delivered pursuant hereto or thereto, including any implied
warranty as to condition, merchantability, or suitability as to
any of the assets of Target and it is understood that Parent
takes Target as is and where is (subject to the benefit of the
representations and warranties set forth in this Agreement and
the Ancillary Agreements and in any document, certificate or
instrument delivered pursuant hereto or thereto).
ARTICLE VI
COVENANTS
OF TARGET
§6.1 Conduct of Business of
Target. (a) During the period from the
date of this Agreement to the earlier to occur of: the Closing
Date and the date of termination of the Agreement in accordance
with its terms, Target shall and shall cause each of its
Subsidiaries to, conduct their respective operations (including
their working capital, capital expenditures and cash management
practices) only according to their ordinary and usual course of
business and to use all commercially reasonable efforts to
preserve intact their respective business organizations, keep
available the services of their officers and employees and
maintain satisfactory relationships with licensors, suppliers,
distributors, customers and others having business relationships
with them, except, in each case, as otherwise required by this
Agreement. Notwithstanding the immediately preceding sentence,
prior to the Closing Date, except as may be first approved in
writing by Parent (which approval shall not be unreasonably
withheld, delayed or conditioned) or as is otherwise expressly
permitted or required by this Agreement, Target shall, and shall
cause its Subsidiaries to refrain from the following:
(i) amending or restating its charter or by-laws (or
comparable organizational or governing documents);
(ii) authorizing for issuance, issuing, selling or
delivering (A) any capital stock of, or other equity or
voting interest in, Target or any of its Subsidiaries or
(B) any securities convertible into, exchangeable for, or
evidencing the right to subscribe for or acquire either
(1) any shares of capital stock of, or other equity or
voting interest in, Target or any of its Subsidiaries, or
(2) any securities convertible into, exchangeable for, or
evidencing the right to subscribe for or acquire, any shares of
the capital stock of, or other equity or voting interest in,
Target or any of its Subsidiaries, except for issuances of
capital stock of Target or a Subsidiary of Target upon the
exercise of any options or warrants outstanding on the date
hereof;
(iii) declaring, paying or setting aside any dividend or
making any distribution other than dividends or distributions by
any Subsidiary of Target to Target or any other wholly owned
subsidiary of Target or splitting,
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combining, redeeming, reclassifying, purchasing or otherwise
acquiring directly, or indirectly, any shares of capital stock
of, or other equity or voting interest in, Target or any of its
Subsidiaries, except for purchases of equity of Target held by
management of Target or any of its Subsidiaries, or making any
other change in the capital structure of Target or any of its
Subsidiaries;
(iv) increasing the compensation payable (including, but
not limited to, wages, salaries, bonuses or any other
remuneration) or to become payable to any employee or agent
being paid an annual base salary of $150,000 or more or to any
officer or director of Target, except pursuant to an existing
Contract set forth on Section 4.13(a) of the Target
Disclosure Letter or as otherwise required by applicable Law;
(v) making any bonus, profit sharing, pension, retirement
or insurance payment, distribution or arrangement to or with any
officer, employee or agent being paid an annual base salary of
$150,000 or more or any director of Target except for payments
in connection with the Transaction Retention Program, that were
already accrued prior to the date hereof, are required by the
terms of any Employee Benefit Plan set forth on
Section 4.21(a) of the Target Disclosure Letter, or
are made in the ordinary course of business consistent with past
practice, or as otherwise required by applicable Law;
(vi) establishing, adopting, entering into, amending or
terminating any material Employee Benefit Plan or any collective
bargaining, thrift, compensation or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any
directors, officers or employees other than the implementation
of the Transaction Retention Program;
(vii) entering into any Material Contract or materially
amending or terminating any Material Contract (except as such
Material Contract may expire by its terms);
(viii) incurring, assuming or modifying any Indebtedness,
except revolving Indebtedness incurred pursuant to the existing
credit agreement disclosed on Section 4.13(a) of the
Target Disclosure Letter or capitalized lease obligations not to
exceed $4,000,000 in the aggregate, in each case, in the
ordinary course of business consistent with past practice;
(ix) subjecting any of its material properties or assets or
any capital stock, or other equity or voting interests to any
Lien (other than Permitted Liens);
(x) selling, transferring, leasing, licensing or otherwise
disposing of any assets or properties in excess of $50,000
individually or $200,000 in the aggregate, except for
(A) sales of equipment in the ordinary course of business
consistent with past practice, (B) leases or licenses
entered into in the ordinary course of business consistent with
past practice, and (C) sales of trailers, containers and
wood offices and other units in the ordinary course of business
consistent with past practice solely as part of the normal
course of retail sales;
(xi) acquiring any business or Person, by merger or
consolidation, purchase of substantial assets or equity
interests, or by any other manner, in a single transaction or a
series of related transactions, other than the acquisitions set
forth on Section 4.13(a) of the Target Disclosure
Letter;
(xii) making any capital expenditure or commitment therefor
not contemplated by the CapEx Budget or otherwise acquiring any
assets or properties other than supplies or inventory in the
ordinary course of business consistent with past practice or
making any change to the CapEx Budget;
(xiii) writing-off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business
consistent with past practice;
(xiv) canceling or waiving any claims or rights of
substantial value;
(xv) making any change in any method of accounting or
auditing practice other than those required by GAAP or except as
required by Law;
(xvi) making any material Tax election or settling
and/or
compromising any material Tax liability (except for settlements
in connection with Tax audits in the ordinary course of
business); preparing any Tax Returns in a manner that is
materially inconsistent with the past practices of Target or
such Subsidiary, as the case may be, with respect to the
treatment of items on such Tax Returns; or filing any material
amended Tax
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Return or claim for refund of Taxes with respect to the income,
operations or property of Target or its Subsidiaries, in each
case, except as required by any Law or Order;
(xvii) paying, discharging, settling or satisfying any
claims, Liabilities, Proceedings or obligations in excess of
$100,000, other than payments, discharges or satisfactions of
workers compensation, auto insurance and general liability
insurance claims and other claims in the ordinary course of
business and consistent with past practice of Liabilities to the
extent reflected or reserved against in the Balance Sheet;
(xviii) planning, announcing, implementing or effecting any
reduction in force, lay-off, early retirement program, severance
program or other program or effort concerning the termination of
employment of employees of Target or any of its Subsidiaries
(other than individual employee terminations in the ordinary
course of business);
(xix) making any loans, advances or capital contributions
to, or investments in, any other Person other than loans,
advances or capital contributions by Target or any of its
Subsidiaries to any direct or indirect wholly owned Subsidiary
of Target;
(xx) entering into any Contract or letter of intent
(whether or not binding) with respect to, or committing or
agreeing to do, whether or not in writing, any of the foregoing;
(xxi) taking any action which may cause Parent and its
Subsidiaries to incur or suffer Losses as a consequence of any
breach by Target or its Subsidiaries of their obligations under
the ERA, the Transfer Regulations, TULRCA or any other
applicable UK Law concerned with employment rights in
circumstances where such breaches may reasonably be avoided in
relation to any actions taken at the request of Parent, Parent
provides timely and sufficiently detailed proposals regarding
any reorganization that it intends to implement after Closing
such that Target or its Subsidiaries are able to comply with
such obligations; or
(xxii) will not finance Capital Expenditures through
entering into operating leases in a manner inconsistent with
past practice.
(b) During the period from the date of this Agreement to
the Closing Date, Target shall, and shall cause its Subsidiaries
to, use all commercially reasonable efforts to confer on a
monthly basis with one or more designated representatives of
Parent regarding operational matters (including employee and
human resources related matters) and the general status of
ongoing operations.
(c) Target shall use all commercially reasonable efforts to
keep, or cause Target and its Subsidiaries to keep, all
insurance policies currently maintained with respect to Target
and its Subsidiaries and their respective assets and properties,
or suitable replacements or renewals, in full force and effect
through the close of business on the Closing Date.
(d) Notwithstanding anything in this Agreement to the
contrary, no provision contained in this Agreement shall be
construed to give to Parent, directly or indirectly, right to
control or direct Targets or its Subsidiaries
businesses and operations prior to the Effective Time. Prior to
the Effective Time, Target shall exercise, consistent with the
terms and conditions of this Agreement, complete control and
supervision of its and its Subsidiaries businesses and
operations.
(e) None of Target, MSG WC Intermediary Co. or Mobile
Services Group, Inc. will conduct any business or incur any new
Indebtedness, or own or hold any assets, other than the equity
interest of its respective Subsidiary.
(f) Promptly following their availability in the ordinary
course of Targets business, Target shall provide Parent
with a monthly consolidated balance sheet of Target and its
Subsidiaries for the preceding month and the related profit and
loss statement, and shall cause Targets Chief Executive
Officer and the Chief Financial Officer to be available to
discuss such financial statements and the financial and
operating performance of Target as reasonably requested by
Parent. In addition, promptly after it is received from
Targets auditors, Target will provide Parent with its
final audited 2007 financial statements and will promptly notify
Parent upon obtaining any Knowledge of any proposed audit
adjustments to the Draft Financial Statements.
§6.2 Exclusive
Dealing. During the period from the date of
this Agreement to the earlier of (i) the Closing Date and
(ii) the date this Agreement is terminated in accordance
with its terms, Target shall not, and shall cause its
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Affiliates and each of its and their officers, directors,
employees, agents, representatives, consultants, financial
advisors, attorneys, accountants and other agents to refrain
from taking any action to, directly or indirectly, encourage,
initiate, solicit or engage in discussions or negotiations with,
or provide any information to, any Person, other than Parent
(and its Affiliates and representatives), concerning any
purchase of any capital stock of Target or any of its
Subsidiaries (other than in connection with the exercise of any
options or warrants outstanding on the date hereof) or any
merger, consolidation or other business combination, asset sale,
recapitalization or similar transaction involving Target or any
of its Subsidiaries other than asset sales in the ordinary
course of business. Target will notify Parent as soon as
practicable after Target has Knowledge of any Person making any
proposal, offer, inquiry to, or contact with, Target, as the
case may be, with respect to the foregoing and shall describe in
reasonable detail the identity of any such Person and, the
substance and material terms of any such contact and the
material terms of any such proposal.
§6.3 Review of
Target. Parent may, prior to the Closing
Date, directly or through its representatives including
Parents lenders and potential financing sources, review
the properties, books and records of Target and each of its
Subsidiaries and their financial and legal condition to the
extent it reasonably believes necessary or advisable to
familiarize itself with such properties and other matters. Such
review shall not, however, affect the representations and
warranties made by Target in this Agreement or the remedies of
Parent for breaches of those representations and warranties.
Target shall and shall cause its Subsidiaries to permit Parent
and its representatives to have, after the date of execution of
this Agreement, reasonable access during normal business hours,
and on reasonable written advance notice, to the premises and to
all the properties, books and records of Target and each of its
Subsidiaries and Target shall cause the officers, employees,
counsel, accountants, consultants and other representatives of
Target and each of its Subsidiaries to furnish Parent with such
financial and operating data and other information with respect
to the business and properties of Target and its Subsidiaries as
Parent shall from time to time reasonably request;
provided, that such investigation and assistance shall
not unreasonably disrupt the operations of Target and its
Subsidiaries, or cause the loss of attorney/client privilege.
Any information provided, or caused to be provided, by Target or
its Subsidiaries pursuant to this Section 6.3 shall be
subject to the terms of the Mutual Confidentiality Agreement
dated as of December 14, 2007, between Target and Parent
(the Confidentiality Agreement).
§6.4 Notification of Certain Matters;
Amendments to Target Disclosure
Letter. Target shall give prompt written
notice to Parent of any of the following which occurs, or of
which it becomes aware, following the date hereof: (i) any
notice of, or other communication relating to, a default or
event of default under any Contract disclosed (or required to be
disclosed) on Section 4.13(a) of the Target
Disclosure Letter; (ii) any representation or warranty made
by Target in this Agreement or in any instrument delivered
pursuant to this Agreement becoming untrue or inaccurate in any
material respect; (iii) the failure of any condition
precedent to either partys obligations; and (iv) any
notice or other communication from any third party alleging that
the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
Such notice shall amend the Target Disclosure Letter for
informational purposes only; provided, that no such
amendment shall limit or otherwise affect the remedies available
hereunder to the Parent and shall not be deemed to cure any
breach of any covenant or any breach or inaccuracy of any
representation or warranty made in this Agreement or any of the
Ancillary Agreement for any purpose, including for purposes of
determining satisfaction of the conditions set forth in
Article IX hereof or the rights to indemnification under
Article XI hereof.
§6.5 Assistance with Debt
Financing. Target shall use all commercially
reasonable efforts to assist, and shall cause its Subsidiaries
to use all commercially reasonable efforts to assist, in
connection with the arrangement of the Debt Financing as may be
reasonably requested by Parent including by
(i) participating in meetings (including lender meetings),
presentations, road shows, due diligence and drafting sessions
and sessions with rating agencies, in each case, as required to
consummate the Debt Financing; (ii) assisting with the
preparation of materials for rating agency presentations,
offering documents, private placement memoranda, bank
information memoranda, prospectuses and similar documents
required in connection with the Debt Financing;
(iii) subject to Section 6.3 of this Agreement,
furnishing Parent and its financing sources financial and other
pertinent information regarding Target and its Subsidiaries as
may be reasonably requested by Parent to consummate the Debt
Financing; (iv) requesting of the appropriate Person, and
using all commercially reasonable efforts to obtain, such
consents, legal opinions, surveys and title insurance as
reasonably requested by Parent, in each case, as required to
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consummate the Debt Financing; (v) subject to
Section 6.3 of this Agreement, cooperate with prospective
lenders involved in the Debt Financing to provide access to
Targets and its Subsidiaries respective properties,
assets, and cash management and accounting systems (including
cooperating in and facilitating the completion of field
examinations, collateral audits, asset appraisals, surveys, and
engineering/property condition reports); (vi) subject to
the occurrence of the Effective Time: taking all corporate
actions reasonably requested by Parent to permit consummation of
the Debt Financing and any direct borrowing or incurrence of
debt by Target or any of its Subsidiaries in connection with the
Closing, entering into one or more credit or other agreements or
instruments on terms satisfactory to Parent immediately prior to
the Closing with respect to any such direct borrowing or debt
incurrence, and lending all or part of the proceeds thereof to
Parent, as and to the extent directed by Parent, to permit
Parent to pay a portion of the Merger Consideration; and
(vii) otherwise reasonably cooperating in the Parents
efforts to obtain the Debt Financing (including requesting of
the appropriate Persons, and using all commercially reasonable
efforts to obtain, customary officers certificates and
other documents and instruments as may reasonably be requested
by Parent, facilitating the pledge of, and granting of security
interests in, the stock and assets of Target and its
Subsidiaries, establishing bank accounts, blocked account
agreements and lock box arrangements, executing and delivering
deeds and other conveyance instruments to one or more designees
of Parent); provided, that Target shall not be required to
provide, or cause any of its Subsidiaries to provide,
cooperation under this Section 6.5 that:
(x) unreasonably interferes with the ongoing business of
Target or any of its Subsidiaries; (y) causes any
representation, warranty or covenant in this Agreement to be
breached; or (z) causes any closing condition set forth in
Article IX to fail to be satisfied or otherwise causes the
breach of this Agreement. Parent shall (A) promptly after
this Agreement is terminated in accordance with
Section 12.1, reimburse Target for all reasonable,
documented out-of-pocket costs and expenses incurred by Target
or any of its Subsidiaries in connection with their compliance
with this Section 6.5 and (B) indemnify and hold
Target and its Subsidiaries harmless against any Losses suffered
by Target or any of its Subsidiaries as a result or in
connection with its cooperation under this Section 6.5 if
the Effective Time does not occur.
§6.6 Resignation of Officers and
Directors. At the written request of Parent,
Target shall cause each officer and member of its board of
directors and the boards of directors (or comparable governing
bodies) of each of its Subsidiaries to tender his resignation
from such position effective as of the Effective Time.
§6.7 Affiliate
Agreements. Target shall, and shall cause its
Subsidiaries to, terminate at or prior to the Effective Time,
without payment or penalty as set forth on
Section 6.7 of the Target Disclosure Letter, each
Contract between Target or a Subsidiary of Target, on the one
hand, and any of their respective Affiliates (other than Target
or any other Subsidiary of Target), on the other hand, including
the Sponsor Management Agreement and the Sponsor Stockholders
Agreement.
§6.8 Target Option
Plans. Prior to the Effective Time, Target
shall take all actions necessary to (i) terminate, as of
the Effective Time, the MSG WC Holdings Corp. 2006 Stock Option
Plan, the MSG WC Holdings Corp. 2006 Stock Incentive Plan, and
the MSG WC Holdings Corp. 2006 Employee Stock Option Plan and
any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the
capital stock of the Target or any Subsidiary thereof (the
Stock Plans), (ii) provide for the
cancellation, termination, and forfeiture, effective at the
Effective Time, of all outstanding stock options, shares of
restricted stock, or other awards in respect of the capital
stock of Target or any Subsidiary thereof granted pursuant to
the Stock Plans (each an Equity Award), such
that no holder of an Equity Award shall be entitled to receive
from the Surviving Company or any of its Subsidiaries any cash
payment or any stock options, shares of stock, or other awards
of any kind or nature under any equity incentive program of the
Surviving Corporation or its Subsidiaries in respect of such
Equity Award, and (iii) amend, as of the Effective Time,
the provisions of any other Employee Benefit Plan providing for
the issuance, transfer or grant of any capital stock of the
Target or any such Subsidiary, or any interest in respect of any
capital stock of the Target or any such Subsidiary, to provide
no continuing rights to acquire, hold, transfer or grant any
capital stock of the Surviving Corporation or any of its
Subsidiaries or any interest in the capital stock of the
Surviving Corporation or any of its Subsidiaries. Except with
respect to the Specified Options, the Target shall take no
action that would otherwise accelerate the vesting, or payment
in respect, of any Equity Award prior to the Effective Time. At
the Closing, Target shall furnish to Parent all documentation,
including any required consents from the holders of Equity
Awards, reasonably requested by Parent confirming Targets
compliance with this Section 6.8.
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§6.9 WARN. Target shall
be liable for any obligations of Target and its Subsidiaries
with respect to the Employees arising under WARN and similar
applicable state Laws to the extent arising from the actions
taken by Target or its Subsidiaries (not at the direction of
Parent) on or prior to the Closing. In addition, Target shall
cooperate as reasonably requested in preparing and distributing
any notices that Parent may desire to provide prior to the
Closing, in connection with any actions after the Closing that
may result in a notice requirement under WARN or any similar
applicable state Law. In connection therewith, Target shall also
notify Parent prior to announcing, implementing or effecting any
employment losses (as defined in WARN and any
similar state Law) on or prior to the Closing Date. Furthermore,
on the Closing Date, Target shall provide Parent with a list, by
date and location, of all employment losses (as
defined in WARN and any similar state Law) that occurred within
ninety (90) days preceding the Closing Date or that are
scheduled to occur on or after the Closing Date.
§6.10 Parents Requests Regarding
Employees. (a) During the period from
the date of this Agreement to the earlier to occur of the
Closing Date and the date of termination of the Agreement in
accordance with its terms, Target and its Subsidiaries may
consider written requests that may be suggested by the Parent
(provided they are in reasonable detail) with respect to any and
all obligations relating to the employees of Targets UK
Subsidiaries arising under applicable UK Law including the ERA,
the Transfer Regulations and TULRCA in respect of Targets
UK Subsidiaries arising out of the Merger or Parents
intended conduct of business thereafter (including, without
limitation, any obligations to inform and consult with employees
or employee representatives and taking reasonable steps to
effect fair dismissals as contemplated by the ERA).
(b) If Target and its Subsidiaries decide (in their
absolute discretion) to implement at any time Parents
written requests that are made in accordance with
Section 6.9(a) above, Parent shall indemnify Target
Indemnitees, and shall pay Target Indemnitees an amount equal to
any and all Losses incurred or suffered by Target Indemnitees
arising out of such implementation including any claim by or on
behalf of any employees, former employees, trade union, works
council, staff association, worker representative, persons or
bodies (whether elected or not) arising out of any failure or
alleged failure on the part of Target
and/or its
Subsidiaries (including the UK Subsidiaries) to comply with
their legal obligations to inform and consult under the transfer
Regulations and TULRCA or any other failure or alleged failure
to comply with the Transfer Regulations, TULRCA or the ERA or
any other breach or alleged breach whatsoever under applicable
UK Law, provided that such Losses arise from Target and its
Subsidiaries following Parents instructions in accordance
with Section 6.9(a).
ARTICLE VII
COVENANTS
OF PARENT
§7.1 Conduct of Business of
Parent. (a) During the period from the
date of this Agreement to the Closing Date, Parent shall refrain
from:
(i) except as set forth in Section 7.4, amending or
restating its charter or by-laws (or comparable organizational
or governing documents);
(ii) declaring, paying or setting aside any dividend or
making any distribution other than dividends or distributions by
any Subsidiary of Parent to Parent or any other wholly owned
subsidiary of Parent, or splitting, combining, redeeming,
reclassifying, purchasing or otherwise acquiring directly, or
indirectly (other than pursuant to previously announced share
buyback program), any shares of capital stock of, or other
equity or voting interest in, Parent or any of its Subsidiaries
except for purchases of equity held by management of Target or
any of its Subsidiaries; or
(iii) incurring any Indebtedness for borrowed money which
would reasonably be expected to cause the conditions to the Debt
Financing not to be satisfied.
(b) During the period from the date of this Agreement to
the Closing Date, Parent shall, and shall cause its Subsidiaries
to, use all commercially reasonable efforts to, confer on a
monthly basis with one or more designated representatives of
Target regarding operational matters (including employee and
human resources related matters) and the general status of
ongoing operations.
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§7.2 Debt
Financing. Parent will use all commercially
reasonable efforts to (i) maintain the Debt Commitment
Letter in full force and effect, and will not amend, terminate
or waive any provisions under such Debt Commitment Letter, and
(ii) comply, to the extent within Parents control,
with all of the covenants of Parent in the Debt Commitment
Letter and take all actions, to the extent within Parents
control, necessary or desirable to cause all of the conditions
to the funding of the financing contemplated in the Debt
Commitment Letter to be satisfied as promptly as practicable
following the date hereof and in coordination with the
satisfaction of the other closing conditions set forth herein,
including obtaining any opinions of legal counsel required by
the Lenders thereunder and, to the extent within Parents
control, assuring that there is no breach or default or event of
default under any of its existing financing agreements and
(iii) accept any changes in the terms and conditions of the
proposed financing contemplated in the market flex
provision of the Debt Commitment Letter or fee letter related
thereto. Parent agrees to notify the Target following its
receipt of notification by any financing source under the Debt
Commitment Letter or in connection with any substitute debt or
other financing of such sources indications that it does
not intend to provide, questions its requirement to provide or
asserts its inability or refusal to provide the financing
described in the applicable Debt Commitment Letter. If the
funding of the indebtedness contemplated by the Debt Commitment
Letter becomes unavailable or Parent reasonably believes that
such funding may not occur for any reason other than a breach by
Target or Target Stockholders of any of its representations,
warranties, covenants or agreements contained herein or in any
Ancillary Agreement, Parent will use all commercially reasonable
efforts to obtain alternative financing on terms that are no
less favorable to Parent (as determined in the reasonable
judgment of Parent) than to those contained in the Debt
Commitment Letter or fee letter related thereto including, for
the avoidance of doubt, the market flex. Parent
shall keep the Target reasonably informed of any material
adverse developments relating to the proposed debt financing.
Without limiting the generality of the foregoing, Parent shall
use all commercially reasonable efforts to satisfy the closing
conditions to the debt financing contemplated by the Debt
Commitment Letter (or, if applicable, the alternative financing)
that are within its control.
§7.3 Indemnification of Directors and
Officers. The Organizational Documents of
Parent shall contain provisions no less favorable with respect
to the limitation or elimination of liability and
indemnification than are set forth in the Organizational
Documents of Target as of the date of this Agreement (it being
understood that the existing bylaws of Parent and the Second
Amended and Restated Certificate of Incorporation satisfy this
requirement), which provisions shall not be amended, repealed or
otherwise modified for a period of six (6) years after the
Closing Date in any manner that would materially adversely
affect the rights thereunder of individuals who at or prior to
the Effective Time were directors or officers of Target or any
of its Subsidiaries. Contemporaneously with the Closing, Parent
shall purchase tail insurance (the premiums of which shall be
paid by Parent) covering each Person currently covered by the
Targets or its Subsidiaries directors and
officers liability insurance policies, with respect to
matters or circumstances occurring at or prior to the Closing
Date, on coverage terms that are equivalent in all material
respects to the coverage terms of such current insurance
policies in effect for the Target and its Subsidiaries on the
date of this Agreement. The provisions of this Section 7.3
are (i) intended to be for the benefit of, and shall be
enforceable by, each Person entitled to indemnification under
this Section 7.3, and each such Persons heirs,
legatees, representatives, successors and assigns, it being
expressly agreed that such Persons shall be third-party
beneficiaries of this Section 7.3 and (ii) in addition
to, and not in substitution for, any other rights to
indemnification that any such Person may have by contract or
otherwise.
§7.4 Parent Organizational
Documents. Immediately prior to the Effective
Time and assuming the receipt of the Parent Stockholders
Approval, Parent shall file with Secretary of State of the State
of Delaware the Certificate of Incorporation Amendment and the
Certificate of Designation to be effective immediately prior to
the Effective Time.
§7.5 Review of
Parent. Target may, prior to the Closing
Date, directly or through its representatives, review the
properties, books and records of Parent and each of its
Subsidiaries and their financial and legal condition to the
extent it reasonably believes necessary or advisable to
familiarize itself with such properties and other matters. Such
review shall not, however, affect the representations and
warranties made by Parent in this Agreement or the remedies of
Target for breaches of those representations and warranties.
Parent shall and shall cause its Subsidiaries to permit Target
and its representatives to have, after the date of execution of
this Agreement, reasonable access during normal business hours,
and on reasonable written advance notice, to the premises and to
all the properties, books and records of Parent and each of its
Subsidiaries and Parent shall cause the officers, employees,
counsel,
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accountants, consultants and other representatives of Parent and
each of its Subsidiaries to furnish Target with such financial
and operating data and other information with respect to the
business and properties of Parent and its Subsidiaries as Target
shall from time to time reasonably request; provided,
that such investigation and assistance shall not unreasonably
disrupt the operations of Parent and its Subsidiaries, or cause
the loss of attorney/client privilege, Parent and its
Subsidiaries shall have no obligation to provide the foregoing
to Target. Any information provided, or caused to be provided,
by Parent or its Subsidiaries pursuant to this Section 7.5
shall be subject to the terms of the Confidentiality Agreement.
§7.6 Parent Stockholders Approval.
(a) As soon as reasonably practicable following the date of
this Agreement, Parent shall prepare and file with the SEC the
Proxy Statement. Parent shall respond promptly to any comments
from the SEC or the staff of the SEC on the Proxy Statement.
Parent shall use all commercially reasonable efforts to cause
the Proxy Statement to be cleared by the SEC as promptly as
practicable after its filing and thereafter cause the Proxy
Statement to be distributed to stockholders of Parent as
promptly as reasonably practicable after the Proxy Statement has
been cleared by the SEC. No filing of, or amendment or
supplement to, the Proxy Statement will be made by Parent,
without providing Target and its counsel a reasonable
opportunity to review and comment thereon. If at any time prior
to Parent Stockholders Meeting any information relating to
Parent or Target, or any of their respective Affiliates,
directors or officers, should be discovered by Parent or Target
that should be set forth in an amendment or supplement to the
Proxy Statement, so that it would not include any misstatement
of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party that
discovers such information shall promptly notify the other
parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC
by Parent and, to the extent required by Law, disseminated to
the stockholders of Parent. Parent shall notify Target promptly
of the receipt of any comments from the SEC or the staff of the
SEC and of any request by the SEC or the staff of the SEC for
amendments or supplements to the Proxy Statement for additional
information and shall supply Target with copies of all
correspondence between Parent or any of its Representatives, on
the one hand, and the SEC or the staff of the SEC, on the other
hand, with respect to the Proxy Statement or the Merger. Target
shall, and shall cause its officers, directors and stockholders
to, cooperate with Parent in connection with the preparation of
the Proxy Statement, including promptly furnishing Parent upon
request with any and all information as may be required to be
set forth in the Proxy Statement under applicable Law.
(b) Parent shall, as soon as practicable following the date
of this Agreement, establish a record date for and promptly take
any and all actions in connection therewith, and duly call, give
notice of, convene and hold as soon as practicable (and, in any
event, no more than forty (40) days following the
distribution of the Proxy Statement to the stockholders of
Parent), a meeting of its stockholders (the Parent
Stockholders Meeting) solely for the purpose of
obtaining the Parent Stockholders Approval. Subject to its
fiduciary duties under applicable law, Parent shall
(i) through its board of directors, recommend to its
stockholders adoption of this Agreement, the Merger, the
adoption of the Second Amended and Restated Certificate of
Incorporation, and the approval of the other transactions
contemplated by this Agreement and (ii) use all
commercially reasonable efforts to solicit and obtain Parent
Stockholders Approval.
§7.7 Waiver of
Standstill. Notwithstanding anything to the
contrary contained in Section 6 of the Confidentiality
Agreement, Parent hereby agrees that after the Proxy Statement
has been mailed to the stockholders of Parent, WCAS shall be
permitted to purchase up to 2,000,000 shares of Parent
Common Stock in the aggregate (but in any event, subject to
applicable Law). At the Closing, WCAS will execute the
Stockholders Agreement substantially in the form attached hereto
as Exhibit C (the Stockholders
Agreement). WCAS represents that all such purchases
shall be made in accordance with applicable law, shall not be
permitted to be made in the event WCAS is in possession of
material inside information, WCAS shall continue to and shall
comply with all other provisions of the Confidentiality
Agreement (including the confidentiality provisions). Such
purchases may be effectuated through market trades or private
purchases. Two (2) Business Days prior to the Closing,
Target shall deliver a certificate to Parent containing a list
of each such purchase that includes the name of the acquiring
Person, the number of shares acquired, the means by which such
shares were acquired, the date of each such purchase, and the
purchase prices paid by such Persons. After the Closing, WCAS
shall notify Parent in writing within two (2) Business Days
after the purchase of any securities under this
Section 7.7, which notice shall contain the same
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information described in the immediately preceding sentence. For
the avoidance of doubt, any shares acquired pursuant to this
Section 7.7 shall not be counted in determining whether
WCAS is entitled to nominate its directors pursuant to the
Stockholders Agreement. In no event will the purchase of such
shares or any damages incurred by WCAS in connection therewith
be considered for purposes of the indemnification provisions of
this Agreement; provided that the foregoing is not intended to
limit in any manner WCASs rights and remedies as they
exist under applicable Law or otherwise unrelated to this
Agreement.
§7.8 Financial
Reports. Promptly following their
availability in the ordinary course of Parents business,
Parent shall provide Target with a monthly consolidated balance
sheet of Parent and its Subsidiaries for the preceding month and
the related profit and loss statement, and shall cause
Parents Chief Executive Officer and the Chief Financial
Officer to be available to discuss such financial statements and
the financial and operating performance of Parent as reasonably
requested by Target.
§7.9 Compensation and Benefits.
(a) Parent shall and shall cause the Surviving Corporation
for a period from and after the Closing Date until at least
through the nine (9) month anniversary of the Closing, to
continue to provide compensation and benefits to individuals who
are current employees of Target or any of its Subsidiaries as of
the Closing Date (Employees) that are
substantially equivalent, in the aggregate, to either the
compensation and employee benefits provided to the Employees by
Target or any of its Subsidiaries immediately prior to the
Closing Date or the compensation and employee benefits provided
to similarly situated employees of Parent and its Subsidiaries;
provided that, the foregoing shall not be construed to
limit the ability of the Surviving Corporation or any of its
Subsidiaries to terminate the employment of any employee
(including the Employees) at any time or for any reason or no
reason.
(b) In the event that any Employee is at any time after the
Closing Date transferred to Parent or any Affiliate of Parent or
becomes a participant in any benefit or compensation plan,
program, agreement or arrangement of Parent or any of its
Affiliates, Parent shall, to the extent permitted by Law and by
the applicable plan, program, agreement or arrangement, cause
such plan, program, agreement or arrangement to treat, for
purposes of eligibility and vesting only, the prior service of
such Employee with Target or any of its Subsidiaries, to the
extent such prior service is recognized under the comparable
plan, program, agreement or arrangement of Target or any of its
Subsidiaries, as service rendered to Parent or its Affiliates,
as the case may be; provided, that in administering such plans,
programs, agreements or arrangements of Parent or any of its
Affiliates, Parent may cause a reduction of benefits under any
such plans, programs, agreements or arrangements to the extent
necessary to avoid duplication of benefits with respect to the
same covered matter or years of service; and provided, further,
that no credit shall be required under this sentence to the
extent that such credit would require any increased benefits or
other more favorable provisions to be given or made applicable
to any other employees in order for any plan to satisfy any
applicable law or satisfy any requirements for any intended
favorable tax treatment.
(c) Each of Parent and the Surviving Corporation shall
cause its medical, dental and other welfare plans in which
Employees or their dependants commence to participate after the
Closing Date to (i) waive any preexisting condition
limitations to the extent waived or satisfied by such Employee
(or dependant) under similar plans of Target or any of its
Subsidiaries for the plan year in which such participation
begins, and (ii) take into account any deductible and
out-of-pocket expenses incurred by such Employees and dependants
under similar plans of Target or any of its Subsidiaries for the
plan year in which such participation begins. To the extent
permitted by Law and by the applicable plan, Parent will cause
to be waived any medical certification for such Employees up to
the amount of coverage such Employees had under any life
insurance plan of Target or any of its Subsidiaries.
(d) Parent agrees that Parent and its Affiliates shall be
solely responsible for satisfying the continuation coverage
requirements under COBRA for all M&A qualified
beneficiaries as such term is defined in Treasury Regulation
§54.4980B-9.
(e) Nothing in this Agreement, express or implied, shall:
(i) confer upon any Employee any rights or remedies,
including any right to employment or continued employment for
any period or terms of employment, of any nature whatsoever, or
(ii) except as otherwise required for Parent and the
Surviving Corporation to satisfy their obligations under the
other provisions of this Section 7.9, be interpreted to
prevent or restrict Parent or its Affiliates from modifying or
terminating the employment or terms of employment of any
Employee, including the amendment or
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termination of any employee benefit or compensation plan,
program or arrangement, after the Closing Date, or
(iii) without limiting the generality of
Section 13.11, confer upon any Employee any rights as a
third-party beneficiary of this Section 7.9.
(f) Unless Parent requests otherwise in writing, the Board
of Directors of the Target shall adopt resolutions terminating,
effective no later than the day prior to the Closing Date, any
Employee Benefit Plan which is intended to meet the requirements
of Section 401(k) of the Code, and which is sponsored, or
contributed to, by the Target or any of its Subsidiaries (each,
a 401(k) Plan). At the Closing, the Target shall
provide to Parent executed resolutions of the Board of Directors
of the Target authorizing such termination. Notwithstanding the
foregoing, Parent shall cause the 401(k) Plan to permit
continued repayment of participant loan balances under the
401(k) Plan following the plan termination date but prior to the
date distributions from the 401(k) Plan are permitted, or
Parents 401(k) plan to permit the rollover to
Parents 401(k) plan of all 401(k) Plan account balances
that include loan promissory notes prior to the receipt of the
IRS determination letter.
(g) Prior to the Closing, Target shall use commercially
reasonable efforts to obtain a waiver from any disqualified
persons (within the meaning of Section 280G(c) of the Code)
of the amount of any payments contingent upon the execution of
this Agreement or the consummation of the transactions
contemplated hereby that have been, or may be, made or paid to
such person (the Payments) sufficient to cause none
of the Payments (or a portion thereof) to be, or become, subject
to the deduction disallowance rules under Section 280G of
the Code. Following the receipt of such waivers, Target shall
submit the Payments for approval by Targets shareholders,
and provide shareholders with disclosure of such Payments, each
in accordance with Section 280G(b)(5) of the Code and
Treas. Reg. 1.280G-1 Q&A 7. Prior to submitting the
Payments for approval by Targets shareholders, Target
shall disclose the documentation necessary to effect this
Section 7.9(h), including the applicable shareholder
consent, disclosure letter, and waivers, to Parent.
§7.10 Exclusivity. Parent
will not knowingly solicit during the period commencing on the
date hereof and ending on the earlier of the date that is four
(4) months from the date hereof and the Closing Date any
proposals to acquire Parent.
§7.11 Escrowed
Shares. At all times while Escrowed Shares
are held by the Escrow Agent pursuant to the Escrow Agreement,
the Target Stockholders shall have the right to
(i) exercise any voting rights with respect to the Escrowed
Shares, and (ii) receive all products and proceeds of any
of the Escrowed Shares, including all dividends, whether in the
form of cash, stock or any other form, and any other rights and
other property which the Target Stockholders are, from time to
time, entitled to receive in respect of or in exchange for any
or all of the Escrowed Shares. In addition, in the event of the
issuance of shares of capital stock or other property as a
result of a stock split, merger, consolidation, combination of
shares or similar recapitalization, a reorganization or a
mandatory conversion with respect to or affecting the Escrowed
Shares that becomes effective during the term of this Escrow
Agreement, the additional shares of capital stock or other
property so issued, paid, exchanged or substituted (if any) with
respect to the Escrowed Shares shall be added to or substituted
or exchanged for the Escrowed Shares as Escrowed Shares
hereunder.
ARTICLE VIII
COVENANTS
OF PARENT AND TARGET
§8.1 Regulatory and Other Approvals
(a) Each of Parent and Target will, as promptly as
practicable and before the expiration of any relevant legal
deadline, but in no event later than ten (10) Business Days
following the execution and delivery of this Agreement, file
with (i) the United States Federal Trade Commission (the
FTC) and the United States Department of
Justice (the DOJ) the notification and report
form required for the transactions contemplated by this
Agreement and any information required to be provided therewith
pursuant to the HSR Act, and (ii) any other Governmental
Entity, any other filings, reports, information and
documentation required or deemed warranted for the transactions
contemplated hereby pursuant to any other antitrust Laws or any
other applicable Laws. Each of Parent and Target will furnish to
each others counsel such necessary information and
reasonable assistance as the other may require in
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connection with its preparation of any filing or submission that
is necessary under the HSR Act, any other antitrust Laws and any
other applicable Laws.
(b) Each of Parent and Target will use all commercially
reasonable efforts to obtain promptly any clearance required
under the HSR Act, any other antitrust Laws and any other
applicable Laws and will keep each other apprised of the status
of any material communications with, and any inquiries or
requests for additional information from any Governmental Entity
and will comply promptly with any reasonable inquiry or request
from any such Governmental Entity; provided,
however, that nothing in this Agreement will require or
be deemed to require Parent in order to obtain any regulatory
approvals or consents, (i) to agree to, or effect, any
material divestiture, or (ii) to take any other action(s),
including agreeing to any requirements, conditions or any
limitations on its business, if in the aggregate all actions so
taken by Parent would collectively reasonably be expected to
have an impact on Parent and its Subsidiaries, taken as a whole,
that is equivalent to or greater than the impact that would
reasonably be expected to be experienced by them in the event
that Parent were to make a material divestiture (a
Material Negative Regulatory Impact), it
being understood that in assessing whether there would be a
Material Negative Regulatory Impact the expected impacts on
Parent and its Subsidiaries from any agreed to divestiture
(whether material or not) will be taken into consideration for
purposes of this clause (ii).
(c) Each of Parent and Target agrees to instruct their
respective counsel to cooperate with each other and use all
commercially reasonable efforts to facilitate and expedite the
identification and resolution of any issues arising under the
HSR Act and any other antitrust Laws at the earliest practicable
dates. Such commercially reasonable efforts and cooperation will
include causing its counsel (i) to inform promptly the
other of any oral communication with, and provide (as permitted)
copies of written communications (excluding competitively
sensitive information) with, any Governmental Entity regarding
any such filings or applications or any such transaction, and
(ii) to confer with each other regarding appropriate
contacts with and response to personnel of such Governmental
Entity. None of Parent, Target nor any of their respective
Affiliates will independently contact any Governmental Entity or
participate in any meeting or discussion with any Governmental
Entity in respect of any such filings, applications,
investigation or other inquiry without giving, in the case of
Parent and its Affiliates, Target, and in the case of Target and
its Affiliates, Parent, prior notice of the meeting and, to the
extent permitted by the relevant Governmental Entity, the
opportunity to attend and participate (which, at the request of
Parent or Target, as applicable, will be limited to outside
antitrust counsel only).
§8.2 All Commercially Reasonable
Efforts. Subject to the terms and conditions
contained herein, Parent and Target shall, and Target shall
cause each of its Subsidiaries to, cooperate and, subject to the
limitations contained in Section 8.1, use all commercially
reasonable efforts to take, or cause to be taken, all
appropriate action, and to make, or cause to be made, all
filings necessary, proper or advisable under applicable laws and
regulations and to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary
Agreements, including all commercially reasonable efforts to
obtain, prior to the Closing Date, all Permits, consents,
approvals, authorizations, qualifications and Orders and parties
to Material Contracts with Target or any of its Subsidiaries
(including landlords in respect of the leases set forth on
Section 4.2(a) of the Parent Disclosure Letter) as are
necessary for consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements and to fulfill the
conditions to consummation of the transactions contemplated
hereby set forth in Article IX of this Agreement; provided,
that no Indebtedness for borrowed money shall be repaid, except
as otherwise required pursuant to the terms of the applicable
loan agreement and no Material Contract shall be amended to
increase the amount payable thereunder or otherwise to be
materially more burdensome to Target or any of its Subsidiaries,
to obtain any such consent, approval or authorization, without
first obtaining the written approval of Parent.
§8.3 Public
Announcements. Neither Target nor Parent
shall, nor shall any of their respective Affiliates, without the
approval of the other party, issue any press releases or
otherwise make any public statements with respect to the
transactions contemplated by this Agreement, except as may be
required by applicable Law or by obligations pursuant to any
listing agreement with any national securities exchange so long
as such party has used all commercially reasonable efforts to
obtain the approval of the other party prior to issuing such
press release or making such public disclosure.
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§8.4 Litigation
Support. In the event and for so long as
either party is actively contesting or defending against any
Proceeding brought by a third party in connection with any fact,
situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act or
transaction involving the Target or any of its Subsidiaries, the
other party shall reasonably cooperate with the contesting or
defending party and its counsel in the contest or defense, make
available its personnel and provide such access to its
non-privileged books and records as may be reasonably requested
in connection with the contest or defense, at the sole cost and
expense of the contesting or defending party (unless such
contesting or defending party is entitled to indemnification
therefor under Article XI, in which case, the costs and
expense shall be borne by the Indemnifying Party in accordance
with Article XI). Notwithstanding the foregoing, this
Section 8.4 shall not apply to Proceedings with respect to
which the parties are in dispute as to whether one of the
parties has an obligation to provide indemnification under
Article XI.
ARTICLE IX
CONDITIONS
TO CLOSING
§9.1 Conditions to Obligations of Parent
and Target. The obligations of Parent and
Target to consummate the transactions contemplated by this
Agreement are subject to the satisfaction or mutual waiver on or
prior to the Closing Date of the following conditions:
(a) HSR Waiting Period. All
applicable waiting periods under the HSR Act with respect to the
transactions contemplated by this Agreement shall have expired
or been terminated.
(b) Statutes; Orders. No Law or
Order of any kind shall have been enacted, entered, promulgated
or enforced by any court or Governmental Entity which would
prohibit or delay beyond the date set forth in
Section 12.1(b) hereof the consummation of the transactions
contemplated by this Agreement or has the effect of making them
illegal.
(c) Parent Stockholders
Approval. The Parent Stockholders Approval
shall have been obtained. Parent has informed Target that it may
seek its stockholders approval for certain of the matters
at the special meeting to be held in connection with the Parent
Stockholders Approval, however obtaining such additional
approval will not be a condition to the consummation of the
transactions contemplated by this Agreement and any such matter
will be voted upon separately.
§9.2 Conditions to Obligation of
Parent. The obligation of Parent to
consummate the transactions contemplated by this Agreement is
subject to the satisfaction (or waiver in writing by Parent in
its sole discretion) of the following further conditions:
(a) Representations and
Warranties. The representations and
warranties of Target (i) contained in Sections 4.1,
4.3, 4.4 and 4.5(c) and in the first sentence of
Section 4.25 shall be true and correct in all respects
(other than, with respect to Section 4.4, de
minimis variations in the number of outstanding shares of
Target Common Stock shall be permitted) on and as of the Closing
Date with the same effect as though such representations and
warranties had been made on and as of such date and
(ii) all other representations and warranties of Target
contained in Article IV shall be true and correct (without
giving effect to any materiality, Material
Adverse Effect or similar qualifiers contained in any of
such representations and warranties) as of the Closing Date with
the same effect as though such representations and warranties
had been made on and as of such date (other than those made as
of a specified date, which shall be true and correct in all
respects as of such specified date), except for such failures to
be true and correct that do not have and would not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect.
(b) Compliance with Covenants. All
of the agreements and covenants of Target to be performed prior
to the Closing pursuant to this Agreement shall have been duly
performed in all material respects, and Target shall have
delivered to Parent a certificate of a senior executive officer
of Target, dated the Closing Date, to such effect.
(c) No Material Adverse
Effect. Since the date of this Agreement,
there shall have been no events, facts, circumstances, changes
or effects, individually or in the aggregate, constituting a
Material Adverse Effect with
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respect to Target, and Target shall have delivered to Parent a
certificate of a senior executive officer of the Target, dated
the Closing Date, to such effect.
(d) Escrow Agreement. The Escrow
Agreement substantially in the form of Exhibit B,
shall have been duly executed and delivered by Target.
(e) Financing. Parent shall have
received the proceeds of the Debt Financing described in the
Debt Commitment Letter (or, if applicable, the alternative debt
financing) referred to in Section 7.2 pursuant to a
definitive credit agreement and other documentation on terms and
conditions that are no less favorable to Parent than those set
forth in the Debt Commitment Letter (or, if applicable, the
alternative debt financing), including, for the avoidance of
doubt, the market flex.
(f) Pay-off Letters. All
Indebtedness of Target as of the Closing Date other than the
Remaining Indebtedness shall have been repaid (as evidenced by
customary pay-off letters and other releases and filings as may
be reasonably requested by the lenders under the Debt Financing
(or, if applicable, the alternative debt financing) for
transactions of this type from the holders of such Indebtedness).
(g) Other Consents and
Approvals. Parent shall have received copies
of all governmental and third party consents, waivers and
approvals set forth on Section 9.2(g) of the Target
Disclosure Letter and Section 9.2(g) of the Parent
Disclosure Letter.
(h) FIRPTA Compliance. Parent
shall have received a
non-United
States real property holding corporation affidavit from Target
dated the Closing Date as required by Section 1445 of the
Code.
(i) Contracts with
Affiliates. Parent shall have received copies
of the termination agreements, in form and substance reasonably
satisfactory to Parent, for each Contract set forth on
Section 9.2(i) of the Target Disclosure Letter.
(j) Stockholders Agreement. The
Stockholders Agreement shall have been executed and delivered by
the WCAS Stockholders.
§9.3 Conditions to Obligations of
Target. The obligation of Target to
consummate the transactions contemplated by this Agreement is
subject to the satisfaction (or waiver in writing by Target in
its sole discretion) of the following further conditions:
(a) Representations and
Warranties. The representations and
warranties of Parent (i) contained in Sections 5.1,
5.3, 5.4, 5.5(b) and 5.7(c) shall be true and correct in all
respects (other than, with respect to Section 5.4, de
minimis variations in the number of outstanding shares of Parent
Common Stock shall be permitted) on and as of the Closing Date
with the same effect as though such representations and
warranties had been made on and as of such date and
(ii) all other representations and warranties of Parent
contained in Article V shall be true and correct (without
giving effect to any materiality, Material
Adverse Effect or similar qualifiers contained in any of
such representations and warranties) as of the Closing Date with
the same effect as though such representations and warranties
had been made on and as of such date (other than those made as
of a specified date, which shall be true and correct in all
respects as of such specified date), except for such failures to
be true and correct that do not have and would not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect.
(b) No Material Adverse
Effect. Since the date of this Agreement,
there shall have been no events, facts, circumstances, changes
or effects, individually or in the aggregate, constituting a
Material Adverse Effect with respect to Parent, and Parent shall
have delivered to Target a certificate of a senior executive
officer of the Parent, dated the Closing Date, to such effect.
(c) Compliance with Covenants. All
of the agreements and covenants of Parent to be performed prior
to the Closing pursuant to this Agreement shall have been duly
performed in all material respects, and Parent shall have
delivered to Target a certificate of a senior executive officer,
dated the Closing Date, to such effect.
(d) Stockholders Agreement. The
Stockholders Agreement shall have been executed and delivered by
Parent.
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ARTICLE X
TAX
MATTERS
§10.1 Tax Return
Preparation. Parent shall prepare or cause to
be prepared and file or cause to be filed all Tax Returns for
Target and its Subsidiaries for all taxable periods ending on or
prior to the Closing Date that are filed after the Closing Date.
Parent shall permit the Target Stockholder Representative to
review and approve each such Tax Return prior to filing (such
approval not to be unreasonably withheld, delayed or
conditioned) and Parent and Target and its Subsidiaries shall
cooperate in the filing of all such Tax Returns. Parent or
Target shall prepare or cause to be prepared all other Tax
Returns for Target and its Subsidiaries. All Taxes owed by
Target or any of its Subsidiaries shall be paid by Target or the
applicable Subsidiary.
§10.2 Cooperation. The
Target Stockholders, Parent, the Surviving Corporation and
Target and its Subsidiaries shall cooperate fully, as and to the
extent reasonably requested by any other party, in connection
with the filing of any Tax Return or any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall
include retention and (upon another partys request) the
provision of records and information which are reasonably
relevant to any such filing, audit, litigation or other
proceeding and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. The Surviving
Corporation and its Subsidiaries, Parent and the Target
Stockholders agree to retain all books and records with respect
to Tax matters pertinent to Target and its Subsidiaries for any
Tax period or portion thereof ending on or before the Closing
Date until the expiration of the relevant statute of limitations
(and, to the extent notified by Parent, the Surviving
Corporation or the Target Stockholders, any extensions thereof)
and to abide by all record retention agreements entered into
with any taxing authority.
§10.3 Tax-Free
Reorganization. Each of Parent, Merger Sub,
Target, MSG WC Intermediary Co. and Mobile Services Group, Inc.
shall treat the Merger and the Subsequent Mergers as tax-free
reorganizations within the meaning of Section 368(a) of the
Code for all Tax purposes, except if required by applicable Law.
Parent shall not, and shall cause its Subsidiaries not to, take
any action that could reasonably be expected to prevent the
Merger and the Subsequent Mergers from being treated as tax-free
reorganizations, within the meaning of Section 368(a) of
the Code, except if required by applicable Law.
ARTICLE XI
SURVIVAL
§11.1 Representations and
Warranties. The representations and
warranties of Target and Parent contained in this Agreement or
in any instrument, certificate or writing delivered pursuant to
this Agreement or any other agreement contemplated hereby shall
survive until the date that is twelve (12) months after the
Closing Date. The covenants shall survive in accordance with
their terms. The representations, warranties and covenants
contained in this Agreement or in any instrument, certificate or
other writing delivered in connection with this Agreement or any
other agreement contemplated thereby shall in no event be
affected by any investigation, inquiry or examination made for
or on behalf of any party, or the Knowledge of any partys
representatives or the acceptance by any party of any
certificate or other writing delivered hereunder.
§11.2 Indemnification. (a) Target
Stockholders agree to indemnify and hold Parent and its
Affiliates (including Target and its Subsidiaries) and their
respective affiliates, stockholders, officers, directors,
employees, agents, successors and assigns (each, a
Parent Indemnitee), harmless on an after tax
basis (taking into account benefits arising from the Loss) from
and against any damages, losses, Liabilities, actions, costs,
Taxes, deficiencies, assessments, judgments, obligations, claims
of any kind, interest, penalties, fines or expenses (including
reasonable attorneys, consultants and experts fees
and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing but excluding punitive
damages other than punitive damages actually paid to a third
party), whether or not arising out of any claims by or on behalf
of any party to this Agreement or any third-party claims
(collectively, Losses), suffered, incurred or
paid, directly or indirectly, through application of
Targets or Parents assets or otherwise, as a result
of, in connection with or arising out of (i) the failure of
any representation or warranty made by Target or any Target
Stockholder in this Agreement (whether or not contained in
Article IV) or in any Ancillary Agreement or in any
instrument, certificate or writing delivered pursuant to this
Agreement or any
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Ancillary Agreement to be true and correct in all respects as of
the date of this Agreement and as of the Closing Date (without
giving effect to any materiality, Material Adverse Effect or
similar qualifiers contained therein, other than with respect to
any materiality, Material Adverse Effect or similar qualifier
contained in the Qualified Representations and Warranties);
(ii) any breach by Target or any Target Stockholder of any
of their respective covenants or agreements contained herein or
in any Ancillary Agreement; and (iii) any claim by any
third party (including Governmental Entities) against or
affecting Target or any of its Subsidiaries which, if
successful, would give rise to or relate to a breach of
(x) any of the representations or warranties on the part of
Target or any of its Subsidiaries referred to in clause (i)
above, or (y) any of the covenants or agreements of Target
or any of its Subsidiaries referred to in clause (ii)
above. The amount of any indemnification due hereunder to Parent
Indemnitee for any Losses shall be reduced to take into account
any Tax benefit actually realized by Parent Indemnitee arising
from the incurrence or payment of, or otherwise in respect of,
such Losses. If any Parent Indemnitee actually receives any Tax
benefit subsequent to an indemnification payment by a Target
Stockholder hereunder, then such Parent Indemnitee shall
promptly reimburse the Target Stockholder for any payment made
or expense incurred by such Target Stockholder in connection
with providing such indemnification up to the amount received by
the Parent Indemnitee.
(b) Parent agrees to indemnify and hold Target Stockholders
and their Affiliates and their respective stockholders,
officers, directors, employees, agents, successors and assigns
(other than Target and its Subsidiaries) (each, a
Target Indemnitee) harmless from and against
Losses suffered, incurred or paid, directly or indirectly, as a
result of, in connection with or arising out of (i) the
failure of any representation or warranty made by Parent in this
Agreement (whether or not contained in Article V) or
in any instrument or other writing delivered pursuant to this
Agreement to be true and correct in all respects as of the date
of this Agreement and as of the Closing Date (without giving
effect to any materiality, Material Adverse Effect or similar
qualifiers contained therein) and (ii) any breach by Parent
of any of the covenants or agreements contained herein or in any
Ancillary Agreement. For the avoidance of doubt and not
withstanding the representations and warranties of Parent
contained in this Agreement (including Section 5.6),
indemnifiable Losses of the Target Indemnitees shall not include
any losses of any type of Target or any Target Stockholder
relating to the purchase of Parent securities other than the
Parent Preferred Shares received as Merger Consideration.
(c) The obligations to indemnify and hold harmless pursuant
to this Section 11.2 shall survive the consummation of the
transactions contemplated by this Agreement for the time periods
set forth in Section 11.1, except for claims for
indemnification asserted prior to the end of such periods, which
claims shall survive until final resolution thereof.
(d) The obligations to indemnify and hold harmless pursuant
to Section 11.2(a) and Section 11.2(b) shall be
limited to an aggregate amount of $30,000,000 and no Person
shall be entitled to recovery for Losses pursuant to such
sections unless each individual indemnifiable Loss under such
Sections exceeds $50,000 (the Mini-basket),
it being understood that for purposes of determining whether an
individual loss exceeds the Mini-basket, all Losses based on
claims or a series of related claims arising out of similar
facts or circumstances, shall be aggregated, including all
indemnification claims under Section 11.2(a)(i) or
11.2(b)(i) as a result of, in connection with, or arising out of
damage to units or missing units that is not disclosed in any
section of the Target Disclosure Letter or Parent Disclosure
Letter, respectively, or otherwise based on any other failure of
the representations and warranties in Section 4.10 or
Section 5.9, respectively (but, in connection with any
breach of Section 4.10(b) or 5.9(b), respectively,
excluding up to 500 damaged or missing units with a value not to
exceed $1,500,000), and until the total amount of Losses exceeds
$3,000,000 (the Basket Amount);
provided, that to the extent the amount of Losses exceeds
the Basket Amount, the Indemnified Party shall be entitled to
recover the entire amount of Losses in excess of $1,500,000.
(e) All claims for indemnification by Parent Indemnitees
pursuant to Section 11.2(a) shall first be satisfied from
the Escrow Amount and once the Escrow Amount has been paid to
satisfy Parent Indemnitees indemnification claims or
released to Target Stockholders pursuant to the Escrow
Agreement, the Parent Indemnitees shall be entitled to pursue
all claims for indemnification under Section 11.2(a)
directly against Target Stockholders in accordance with the
Joinder Agreement or letter of transmittal, as the case may be.
Except as otherwise provided in the Joinder Agreement between
the WCAS Stockholders and Parent, the indemnification
obligations of Target Stockholders pursuant to this
Article XI are several and not joint, it being understood
that the receipt of each Target
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Stockholders Pro Rata Portion of the Merger Consideration
is conditioned on such Target Stockholders execution and
delivery to Parent of the letter of transmittal or counterpart
to Joinder Agreement, as applicable.
(f) All amounts paid to Parent pursuant to
Section 11.2(a) above shall, to the extent permitted by
applicable Law, be treated as adjustments to the Purchase Price
for all Tax purposes.
§11.3 Indemnification
Procedure. (a) Within a reasonable
period of time after the incurrence of any Losses by any Person
entitled to indemnification pursuant to Section 11.2 hereof
(an Indemnified Party), including, any claim
by a third party described in Section 11.4, which might
give rise to indemnification hereunder, the Indemnified Party
shall deliver to the party from which indemnification is sought
(the Indemnifying Party) and to the Escrow
Agent, if applicable, a certificate (the Claim
Certificate), which shall:
(i) state that the Indemnified Party has paid or properly
accrued Losses or anticipates that it may incur liability for
Losses for which such Indemnified Party believes it is entitled
to indemnification pursuant to this Agreement; and
(ii) specify in reasonable detail (to the extent
practicable) each individual item of Loss included in the amount
so stated, the date such item was paid or properly accrued, the
basis for any anticipated liability and the nature of the
misrepresentation, breach of warranty, breach of covenant or
claim to which each such item is related and the computation of
the amount to which such Indemnified Party claims to be entitled
hereunder.
(b) In the event that the Indemnifying Party shall object
to the indemnification of an Indemnified Party in respect of any
claim or claims specified in any Claim Certificate, the
Indemnifying Party shall, within ten (10) days after
receipt by the Indemnifying Party of such Claim Certificate,
deliver to the Indemnified Party a notice to such effect and the
Indemnifying Party and the Indemnified Party shall, within the
thirty (30) day period beginning on the date of receipt by
the Indemnified Party of such objection, attempt in good faith
to agree upon the rights of the respective parties with respect
to each of such claims to which the Indemnifying Party shall
have so objected. If the Indemnified Party and the Indemnifying
Party shall succeed in reaching agreement on their respective
rights with respect to any of such claims, the Indemnified Party
and the Indemnifying Party shall promptly prepare and sign a
memorandum setting forth such agreement. Should the Indemnified
Party and the Indemnifying Party be unable to agree as to any
particular item or items or amount or amounts, then the
Indemnified Party and the Indemnifying Party shall submit such
dispute to a court of competent jurisdiction. The party which
receives a final judgment in such dispute shall be indemnified
and held harmless for all reasonable attorney and
consultants fees or expenses by the other party.
(c) Claims for Losses specified in any Claim Certificate to
which an Indemnifying Party shall not object in writing within
ten (10) days of receipt of such Claim Certificate, claims
for Losses covered by a memorandum of agreement of the nature
described in Section 11.3(b), claims for Losses the
validity and amount of which have been the subject of judicial
determination as described in Section 11.3(b) and claims
for Losses the validity and amount of which shall have been the
subject of a final judicial determination, or shall have been
settled with the consent of the Indemnifying Party, as described
in Section 11.4, are hereinafter referred to, collectively,
as Agreed Claims. Within ten (10) days
of the determination of the amount of any Agreed Claims, subject
to the limitations set forth in Section 11.2(d),
(i) if the Indemnified Party is a Parent Indemnitee, then
the Target Stockholder Representative and Parent shall execute
and deliver to the Escrow Agent a joint written instruction
instructing the Escrow Agent to release to Parent (A) if
the Escrowed Cash exceeds the amount of the Agreed Claim, an
amount in cash equal to such Agreed Claim, or (B) if the
Agreed Claim exceeds the Escrowed Cash but is lower than the
Escrow Amount, the Escrowed Cash plus a number of shares of
Parent Preferred Stock equal to the amount of the excess of the
Agreed Claim over the Escrowed Cash, divided by the Fair Market
Value, or (C) if the Agreed Claim exceeds the Escrow
Amount, then the Target Stockholders shall, at the Target
Stockholders option, (x) the number of shares of
Parent Preferred Stock that divided by the Fair Market Value
equals the excess of the Agreed Claim over the Escrow Amount, or
(y) pay to the Parent Indemnitee in accordance with the
Joinder Agreement the amount of the excess of the Agreed Claim
over the Escrow Amount by wire transfer in immediately available
funds to the bank account or accounts designated by the Parent
Indemnitee in a notice to the Target Stockholders not less than
two (2) Business Days prior to such payment or (ii) if
the Indemnified Party is a Target Indemnitee, then Parent shall
pay to the Target Indemnitee an amount equal to the Agreed Claim
by wire transfer in immediately available funds to the bank
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account or accounts designated by the Target Indemnitee in a
notice to Parent not less than two (2) Business Days prior
to such payment.
§11.4 Third Party
Claims. If a claim by a third party is made
against any Indemnified Party, and if such party intends to seek
indemnity with respect thereto under this Article XI, such
Indemnified Party shall promptly notify the Indemnifying Party
of such claims; provided, that the failure to so notify
shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent that the Indemnifying Party is
actually and materially prejudiced thereby. The Indemnifying
Party shall have thirty (30) days after receipt of such
notice to assume the conduct and control, through counsel
reasonably acceptable to the Indemnified Party at the expense of
the Indemnifying Party, of the settlement or defense thereof and
the Indemnified Party shall cooperate with it in connection
therewith; provided, that (i) the Indemnifying Party
shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified
Party, provided that the fees and expenses of such counsel shall
be borne by such Indemnified Party and (ii) the
Indemnifying Party shall promptly be entitled to assume the
defense of such action only to the extent the Indemnifying Party
acknowledges its indemnity obligation and assumes and holds such
Indemnified Party harmless from and against the full amount of
any Loss resulting therefrom; provided, further,
that the Indemnifying Party shall not be entitled to assume
control of such defense and shall pay the fees and expenses of
counsel retained by the Indemnified Party if (1) the claim
for indemnification relates to or arises in connection with any
criminal proceeding, action, indictment, allegation or
investigation; (2) the claim seeks an injunction or
equitable relief against the Indemnified Party; (3) the
Indemnified Party has been advised in writing by counsel that a
reasonable likelihood exists of a conflict of interest between
the Indemnifying Party and the Indemnified Party; (4) the
Indemnified Party reasonably believes an adverse determination
with respect to the action, lawsuit, investigation, proceeding
or other claim giving rise to such claim for indemnification
would be detrimental to or injure the Indemnified Partys
reputation or future business prospects; (5) the amount
claimed by the Indemnified Party (if such Indemnified Party is a
Parent Indemnitee) exceeds the value of the shares of Parent
Preferred Stock then held by the Escrow Agent or (6) upon
petition by the Indemnified Party, the appropriate court rules
that the Indemnifying Party failed or is failing to vigorously
prosecute or defend such claim. Any Indemnified Party shall have
the right to employ separate counsel in any such action or claim
and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the
Indemnifying Party unless (x) the Indemnifying Party shall
have failed, within a reasonable time after having been notified
by the Indemnified Party of the existence of such claim as
provided in the preceding sentence, to assume the defense of
such claim, (y) the employment of such counsel has been
specifically authorized in writing by the Indemnifying Party,
which authorization shall not be unreasonably withheld, or
(z) the named parties to any such action (including any
impleaded parties) include both such Indemnified Party and the
Indemnifying Party and such Indemnified Party shall have been
advised in writing by such counsel that there may be one or more
legal defenses available to the Indemnified Party which are not
available to the Indemnifying Party, or available to the
Indemnifying Party the assertion of which would be adverse to
the interests of the Indemnified Party. So long as the
Indemnifying Party is reasonably contesting any such claim in
good faith, the Indemnified Party shall not pay or settle any
such claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such claim, provided
that in such event it shall waive any right to indemnity
therefor by the Indemnifying Party for such claim unless the
Indemnifying Party shall have consented to such payment or
settlement. If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after the receipt
of the Indemnified Partys notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof, the
Indemnified Party shall have the right to contest, settle or
compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. The Indemnifying
Party shall not, except with the consent of the Indemnified
Party, enter into any settlement that is not entirely
indemnifiable by the Indemnifying Party pursuant to this
Article XI and does not include as an unconditional term
thereof the giving by the Person or Persons asserting such claim
to all Indemnified Parties of an unconditional release from all
liability with respect to such claim or consent to entry of any
judgment.
§11.5 Calculation of Indemnity
Payments. Any Person seeking indemnification
under this Article XI (the Indemnitee)
agrees to use all commercially reasonable efforts to pursue and
collect on any material recovery available under any insurance
policies; provided, however, that the Indemnitee
shall not be obligated to make such insurance claim if the cost
of pursuing such insurance claim together with any corresponding
increase in insurance premiums or other chargebacks would exceed
the value of the claim for which the Indemnitee is seeking
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indemnification. The amount of Losses payable under this
Article XI by any Person from which any Indemnitee is
seeking indemnification pursuant to this Article XI (the
Indemnitor) shall be reduced by any and all
amounts actually received by the Indemnitee under applicable
insurance policies or from any other Person alleged to be
responsible therefor. If the Indemnitee actually receives any
amounts under applicable insurance policies or from any other
Person alleged to be responsible for any Losses, subsequent to
an indemnification payment by the Indemnitor, then such
Indemnitee shall promptly reimburse the Indemnitor for any
payment made or expense incurred by such Indemnitor in
connection with providing such indemnification up to the amount
received by the Indemnitee, net of any expenses incurred by such
Indemnitee in collecting such amount.
ARTICLE XII
TERMINATION
AND ABANDONMENT
§12.1 Termination. This
Agreement may be terminated and the transactions contemplated
hereby may be abandoned, at any time prior to the Effective Time:
(a) by mutual written consent of Target, on the one hand,
and of Parent, on the other hand;
(b) by any Party if the Effective Time shall not have
occurred by August 15, 2008; provided, that the
right to terminate this Agreement under this
Section 12.1(b) shall not be available to any Party whose
failure to fulfill any obligation under this Agreement shall be
the cause of the failure of the Closing to occur on or before
such date;
(c) by either Target, on the one hand, or Parent, on the
other hand, if there has been a breach of any covenant or a
breach of any representation or warranty of Parent or Target,
respectively, which breach would cause the failure of any
condition precedent set forth in Sections 9.2 or 9.3, as
the case may be, provided, that any such breach of a
covenant or representation or warranty has not been cured within
ten (10) Business Days following receipt by the breaching
party of written notice of such breach;
(d) by any Party, if there shall be any Law of any
competent authority that makes consummation of the transactions
contemplated hereby, illegal or otherwise prohibited or if any
Order of any competent authority prohibiting such transactions
is entered and such Order shall become final and
non-appealable; or
(e) by any party, if the Parent Stockholders Approval is
not obtained.
§12.2 Effect of
Termination. (a) If this Agreement is
terminated pursuant to Section 12.1 by Parent, on the one
hand, or Target, on the other hand, written notice thereof shall
be given to the other party specifying the provision of
Section 12.1 pursuant to which such termination is made,
and this Agreement shall be terminated and there shall be no
liability hereunder on the part of Parent or Target, except that
the provisions of Section 8.3 (Public Announcements),
Section 12.1 (Termination), this Section 12.2(a),
Section 13.1 (Expenses; Transfer Taxes), Section 13.2
(Governing Law) and Section 13.3 (Jurisdiction; Agents for
Service of Process) shall survive any termination of this
Agreement. Nothing in this Section 12.2(a) shall relieve
any party of liability for any willful breach of this Agreement.
(b) In the event this Agreement is terminated pursuant to
Section 12.1(e) and at the time of such termination Target
and Target Stockholders are in compliance with all of their
representations, warranties, covenants and agreements contained
herein and in the Ancillary Agreements and, other than the
failure of any condition to Targets closing under this
Agreement caused by Parents breach of its obligations
hereunder, all of the conditions to Targets closing
hereunder have been satisfied or would be capable of
satisfaction at or prior to the Effective Time assuming the
Effective Time were to occur at any time up to and including the
date specified in Section 12.1(b) but the Parent
Stockholders Approval is not obtained and, there exists at any
time prior to the special stockholders meeting a bona-fide
acquisition proposal to acquire all or substantially all of the
common stock or assets of Parent, then within three
(3) Business days of the date of such termination Parent
shall reimburse Target for all reasonable, documented
out-of-pocket
costs and expenses of Target incurred in connection with the
negotiation and execution of this Agreement and the evaluation
of the transactions contemplated hereby; provided that in
no event shall such reimbursement exceed $3,000,000.00.
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ARTICLE XIII
MISCELLANEOUS
§13.1 Expenses; Transfer
Taxes. Except as set forth in
Section 6.5 and Section 12.2(b), whether or not the
Merger is consummated, the parties hereto shall pay all of their
own expenses relating to the transactions contemplated by this
Agreement, including the fees and expenses of their respective
counsel and financial advisers. All Transfer Taxes shall be paid
by Parent.
§13.2 Governing
Law. The interpretation and construction of
this Agreement, and all matters relating hereto, shall be
governed by the laws of the State of Delaware, without regard to
the principles of conflicts of laws thereof.
§13.3 Jurisdiction; Agents for Service of
Process. Any judicial proceeding brought
against any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related hereto may
be brought in the courts of the State of New York, or in the
United States District Court for the Southern District of New
York, and, by execution and delivery of this Agreement, each of
the parties to this Agreement accepts the exclusive jurisdiction
of such courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. The
foregoing consents to jurisdiction and appointments of agents to
receive service of process shall not constitute general consents
to service of process in the State of New York for any purpose
except as provided above and shall not be deemed to confer
rights on any Person other than the respective parties to this
Agreement. The prevailing party or parties in any such
litigation shall be entitled to receive from the losing party or
parties all costs and expenses, including reasonable counsel
fees, incurred by the prevailing party or parties. Each of
Target, Parent, the Target Stockholders and the Target
Stockholder Representative agree that service of any process,
summons, notice or document by U.S. registered mail to such
partys address set forth above shall be effective service
of process for any action, suit or proceeding in New York with
respect to any matters for which it has submitted to
jurisdiction pursuant to this Section 13.3.
§13.4 Table of Contents;
Captions. The table of contents and the
Article and Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
§13.5 Notices. Any
notice or other communication required or permitted under this
Agreement shall be deemed to have been duly given (i) five
(5) Business Days following deposit in the mails if sent by
registered or certified mail, postage prepaid, (ii) when
sent, if sent by facsimile transmission, if receipt thereof is
confirmed by telephone, (iii) when delivered, if delivered
personally to the intended recipient and (iv) two
(2) Business Days following deposit with a nationally
recognized overnight courier service, in each case addressed as
follows:
If to Parent, to:
Mobile Mini, Inc.
7420 South Kyrene Road, Suite 101
Tempe, AZ 85283
Fax:
(480) 894-6433
Attn: Larry Trachtenberg
With a copy (which shall not constitute notice) to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Fax:
(212) 354-8113
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Attn:
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John M. Reiss, Esq.
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Daniel M. Latham, Esq
A-58
If to Target, to:
MSG WC Holdings Corp.
c/o Mobile
Storage Group, Inc.
700 N. Brand Blvd, 10th Floor
Glendale, CA 91203
Fax
(818) 253-3154
Attn: Douglas Waugaman
With a required copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
153 East 53rd Street
New York, NY 10022
Fax:
(212) 446-6460
Attn: Michael Movsovich, Esq.
If to the Target Stockholder Representative, to:
Welsh, Carson, Anderson & Stowe X, L.P.
320 Park Avenue
Suite 2500
New York, NY 10022
Fax:
(212) 893-9575
Michael Donovan
With a copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
153 East 53rd Street
New York, NY 10022
Fax:
(212) 446-6460
Attn: Michael Movsovich, Esq.
or such other addresses or number as shall be furnished in
writing by any such party.
§13.6 Assignment; Parties in
Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party
hereto without the express written consent of the other party
hereto, other than by operation of law; provided, that
Parent may assign its rights, interests and obligations
hereunder (i) to any direct or indirect wholly owned
Subsidiary or to any Affiliate of which Parent is a direct or
indirect wholly owned Subsidiary, (ii) in connection with
the transfer by Parent of all or substantially all of the
capital stock
and/or
assets of Target
and/or its
Subsidiaries and (iii) for the purpose of securing any
financing of the transactions contemplated hereby;
provided, further, that if Parent makes any
assignment referred to in (i) or (iii) above, Parent
shall remain liable under this Agreement. This Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
§13.7 Counterparts. This
Agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
§13.8 Entire
Agreement. This Agreement, including the
Parent Disclosure Letter, the Target Disclosure Letter, Exhibits
and any other documents referred to herein which form a part
hereof, contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject
matter. If an Exhibit is a form of agreement, such agreement,
when executed and delivered by the parties thereto, shall
constitute a document independent of this Agreement.
A-59
§13.9 Amendments. This
Agreement may not be changed, and any of the terms, covenants,
representations, warranties and conditions cannot be waived,
except pursuant to an instrument in writing signed by Parent and
Target or, in the case of a waiver, by the party waiving
compliance.
§13.10 Severability. If
any term, provision, agreement, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, agreements, covenants and restrictions of
this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any
party hereto. Upon such a determination, the parties shall
negotiate in good faith to modify this Agreement so as to affect
the original intent of the parties as closely as possible in a
reasonably acceptable manner in order that the transactions
contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
§13.11 Third Party
Beneficiaries. Except as contemplated by
Articles X and XI, each party hereto intends that this
Agreement shall not, and this Agreement shall not, benefit or
create any right or cause of action in or on behalf of any
Person other than the parties hereto.
§13.12 No Strict
Construction. The parties hereto have
participated jointly in the negotiation and drafting of this
Agreement. In the event any ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if
drafted jointly by all parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement.
§13.13 Waiver of Jury
Trial. Each of Parent and Target hereby
waives, to the fullest extent permitted by applicable Law, any
right it may have to a trial by jury in respect of any
litigation as between the parties directly or indirectly arising
out of, under or in connection with this Agreement or the
transactions contemplated hereby or disputes relating hereto.
Each of Parent and Target (i) certifies that no
representative, agent or attorney of the 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 (ii) acknowledges that it and the other party
have been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications in this
Section 13.13.
§13.14 Specific
Performance. Each party agree that
irreparable damages would occur to the other parties if any of
the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached
by such party. It is accordingly agreed that a party shall be
entitled to an injunction or injunctions to prevent actual
breaches of this Agreement by the other parties and to enforce
specifically the terms and provisions hereof in the courts
referenced in Section 13.3 (or, on a preliminary basis in
order to preserve the status quo pending a decision of the
courts referenced in Section 13.3, or in order to enforce a
judgment of the courts referenced in Section 13.3, in any
court of competent jurisdiction), in addition to having any
other remedies to which a party is entitled at law or in equity
and without the necessity of proving damages or posting a bond
or other security
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
A-60
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the date first above written.
PARENT:
Name: Steven G. Bunger
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Title:
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President and Chief Executive Officer
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MERGER SUB:
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By:
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/s/ Lawrence
Trachtenberg
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Name: Lawrence Trachtenberg
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Title:
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Chief Financial Officer
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TARGET:
Name: Sanjay Swani
TARGET STOCKHOLDER REPRESENTATIVE:
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WELSH, CARSON, ANDERSON & STOWE X, L.P.
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Name: Sanjay Swani
[Signature
Page to Merger Agreement]
A-61
Annex A
Other
Defined Terms
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Section
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401(k) Plan
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7.9(f)
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Actual Closing CapEx Expenditures
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3.4(d)
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Actual Closing CapEx Expenditures Adjustment
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3.4(d)
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Actual Closing Transaction Expenses
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3.4(d)
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Actual Closing Working Capital
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3.4(d)
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Actual Closing Working Capital Adjustment
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3.4(d)
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Actual Net Debt
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3.4(d)
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Actual Net Debt Adjustment
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3.4(d)
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Agreed Claims
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11.3(c)
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Agreement
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Preamble
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Arbitrator
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3.4(c)(i)
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Balance Sheet
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4.7(a)
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Balance Sheet Date
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4.7(a)
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Basket Amount
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11.2(d)
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Certificate
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3.3(b)
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Certificate of Merger
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2.1(a)
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Claim Certificate
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11.3(a)
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Closing
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3.7
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Closing CapEx Expenditures
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3.4(a)
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Closing CapEx Expenditures Adjustment
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3.4(a)
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Closing Date
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3.7
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Closing Estimate Statement
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3.3(a)
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Closing Merger Consideration
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3.4(a)
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Closing Net Debt
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3.4(a)
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Closing Net Debt Adjustment
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3.4(a)
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Closing Statement
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3.4(a)
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Closing Transaction Expenses
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3.4(a)
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Closing Working Capital
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3.4(a)
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Closing Working Capital Adjustment
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3.4(a)
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COBRA
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4.21(d)
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Confidentiality Agreement
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6.3
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Debt Commitment Letter
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5.16
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Debt Financing
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5.16
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DGCL
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Recitals
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Disputed Amounts
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3.4(c)
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DOJ
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8.1(a)
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Effective Time
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2.1(a)
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Employee Benefit Plans
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4.21(a)
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Employees
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7.9(a)
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Equity Award
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6.8
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ERISA
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4.21(a)
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Estimated CapEx Expenditures
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3.3(a)
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Estimated CapEx Expenditures Adjustment
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3.3(a)
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Estimated Net Debt
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3.3(a)
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Estimated Net Debt Adjustment
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3.3(a)
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Estimated Working Capital
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3.3(a)
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Estimated Working Capital Adjustment
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3.3(a)
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Estimated Transaction Expenses
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3.3(a)
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sFTC
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8.1(a)
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A-62
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Section
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GAAP
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4.7(a)
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HSR Act
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4.2(b)
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Indemnified Party
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11.3(a)
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Indemnifying Party
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11.3(a)
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Indemnitee
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11.5
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Indemnitor
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11.5
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Joinder Agreement
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Recitals
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Losses
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11.2(a)
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Material Contracts
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4.13(a)
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Material Customers
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4.19
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Material Negative Regulatory Impact
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8.1(b)
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Merger
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Recitals
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Merger Consideration
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3.1
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Merger Consideration Adjustment
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3.4(d)
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Merger Sub
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Preamble
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Mini-basket
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11.2(d)
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Notice of Objection
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3.4(b)
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Parent
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Preamble
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Parent Disclosure Letter
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Article V Preamble
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Parent Indemnitee
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11.2(a)
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Parent Plan
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5.13
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Parent Preferred Stock
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Recitals
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Parent SEC Reports
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5.6(a)
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Parent Stockholders Approval
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5.1
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Parent Stockholders Meeting
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7.6(b)
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Party
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Recitals
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Parties
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Recitals
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Payments
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7.9(g)
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Permit
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4.24
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Proceeding
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4.14
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Proxy Statement
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4.6(c)
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Real Property Leases
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4.12
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Stock Plans
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6.8
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Stockholders Agreement
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7.7
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Subsequent Mergers
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2.5(a)
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Surviving Corporation
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2.1(b)
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Target
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Preamble
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Target Disclosure Letter
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Article IV Preamble
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Target Indemnitee
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11.2(b)
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Target Intellectual Property
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4.17(a)
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Target SEC Reports
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4.6(a)
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Target Stockholder Representative
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3.9(a)
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Tax Returns
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4.15(a)
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VEBAs
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4.21(a)
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WARN
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4.20(j)
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A-63
EXHIBIT A
JOINDER
TO MERGER AGREEMENT
This JOINDER (this Joinder), dated as of
February 22, 2008, by the undersigned stockholders of MSG
WC Holdings Corp., a Delaware corporation (the
Target), to that certain Agreement and Plan
of Merger (the Merger Agreement), dated as of
the date hereof, by and among the Target, Mobile Mini, Inc., a
Delaware corporation (the Parent), Cactus
Merger Sub, Inc., a Delaware corporation, and Welsh, Carson,
Anderson & Stowe X, L.P., a Delaware limited
partnership (the Target Stockholder
Representative).
WITNESSETH
WHEREAS, each of the undersigned stockholders of Target (each, a
Target Stockholder) desires to receive its
portion of the Merger Consideration provided for in the Merger
Agreement;
WHEREAS, the Parent is unwilling to enter into the Merger
Agreement unless each of the Target Stockholders provides the
representations, warranties, covenants and agreements
(including, without limitation, the indemnification,
non-competition, and non-solicitation provisions) set forth in
this Joinder; and
WHEREAS, in order to induce the Parent to enter into the Merger
Agreement, each Target Stockholder has, after due and careful
consideration, determined to execute and deliver this Joinder.
NOW, THEREFORE, in consideration of the foregoing and
representations, warranties, covenants and agreements set forth
in this Joinder and in the Merger Agreement, and other valuable
consideration, the sufficiency and receipt of which is hereby
acknowledged, and intending to be legally bound hereby, each
Target Stockholder hereby agrees as follows:
ARTICLE I
DEFINITIONS
§1.1 Definitions. Capitalized
Terms used herein without definition shall have the respective
meanings set forth in the Merger Agreement. In addition, the
following terms shall have the respective meanings set forth
below:
Applicable Stockholders shall mean the
stockholders of Target immediately prior to the Effective Time
(other than WCAS).
Competitive Business shall mean any
business of the type and character engaged in and competitive
with that conducted by the Surviving Corporation from time to
time (which constitutes at least 20% of its gross revenues on a
consolidated basis), including, without limitation, the rental,
acquisition, refurbishment, renovation, or resale of shipping
containers and other similar portable storage solutions.
Controlled Affiliate shall mean any
Affiliate of a Target Stockholder (other than
(x) Affiliates of a portfolio company who are not otherwise
an Affiliate of the Target Stockholder and (y) a portfolio
company of a Target Stockholder, except the following portfolio
companies shall be deemed a Controlled Affiliate:
any portfolio company (i) in which such Target Stockholder
and its other Affiliates (other than another portfolio company
of such Target Stockholder) has the power or right to nominate
at least 50% of the board of directors or other similar
governing body of such portfolio company or owns at least 50% of
the outstanding voting equity securities of such portfolio
company, (ii) that has received confidential information
concerning the Surviving Corporation and its Subsidiaries
(provided that possession or knowledge of such confidential
information by any Affiliate of a Target Stockholder serving on
the board of directors or other similar governing body of any
entity without more shall not be imputed to such entity), or
(iii) has taken any action at the direction of the Target
Stockholder or another Affiliate of the Target Stockholder that
is otherwise prohibited or restricted by the terms of this
Agreement).
Pro Rata Cap shall mean, with respect
to each Target Stockholder, the product of (a) such Target
Stockholders Pro Rata Portion times
(b) fifteen million dollars ($15,000,000), plus the
amount (including
A-64
Preferred Stock valued at $18 per share), if any, paid from the
Escrow Indemnification Amount to satisfy any purchase price
adjustment in favor of Parent under the Merger Agreement.
Restricted Period shall mean the
period (x) commencing at the Effective Time and
(y) ending on the date that is one (1) year after the
WCAS Directorship Term End Date (as defined in the Stockholders
Agreement).
Restricted Territory shall mean any
jurisdiction within any marketing area in which the Surviving
Corporation or any of its Subsidiaries is doing a substantial
amount of business.
WCAS shall mean Welsh, Carson,
Anderson & Stowe X, L.P., a Delaware limited
partnership.
WCAS Management shall mean WCAS
Management Corporation, a Delaware corporation.
ARTICLE II
MERGER
AGREEMENT
§2.1 Joinder to Merger
Agreement. Each Target Stockholder hereby
agrees that such Target Stockholder is bound by all provisions
in the Merger Agreement that provide for any liability or
obligation of any Target Stockholder. For the avoidance of
doubt, the parties hereto acknowledge and agree that the Target
Stockholders are not making the representations and warranties
set forth in Article IV of the Merger Agreement or
otherwise. In particular and without limitation, from and after
the date hereof, each Target Stockholder agrees that each
provision of the Merger Agreement requiring the Target
Stockholders to take any action (including, without limitation,
(i) the obligation to return shares of Parent Preferred
Stock pursuant to Section 3.4(f)(i) and 3.4(f)(ii) of the
Merger Agreement, if applicable or pay its Pro Rata Portion of
any adjustment to the Merger Consideration in accordance with
the Merger Agreement, and (ii) the obligation to pay any
indemnity claims of the Parent Indemnitees under Article XI
of the Merger Agreement) shall constitute a direct obligation of
such Target Stockholder, and such Target Stockholder agrees to
do each such act and thing required to be done by it pursuant to
the Merger Agreement, as if such Target Stockholder were an
original party to the Merger Agreement for such purpose;
provided that each Target Stockholders obligations
in respect of Article XI of the Merger Agreement shall be
subject to the limitations set forth therein and in
Sections 2.3 and 2.5 of this Joinder.
§2.2 Waiver of Appraisal
Rights. Each Target Stockholder hereby waives
any and all rights such Target Stockholder may have under
applicable Law (including, without limitation, under
Section 262 of the DGCL) to require an appraisal of the
Target or such Target Stockholders interest therein, or to
demand any alternative or additional consideration other than
the Merger Consideration provided for in the Merger Agreement.
§2.3 Indemnification Under Merger
Agreement; Limitations. The parties hereby
acknowledge and agree that the indemnification obligations of
the Target Stockholders set forth in Section 11.2(a) of the
Merger Agreement shall be on a several basis subject to the
terms and conditions of this Joinder, and that each Target
Stockholder shall be responsible for his, her or its Pro Rata
Portion of any Losses described in Section 11.2(a) of the
Merger Agreement, in each case subject to the limitations set
forth in Section 11.2(d). Notwithstanding the foregoing or
anything in the Merger Agreement to the contrary:
(a) the obligation of each Target Stockholder (other than
WCAS) to indemnify and hold harmless pursuant to
Section 11.2(a) of the Merger Agreement and
Section 2.4(a) of this Joinder shall be limited to an
aggregate amount equal to such Target Stockholders Pro
Rata Cap; and
(b) the obligation of WCAS to indemnify and hold harmless
pursuant to Section 11.2(a) of the Merger Agreement and
Section 2.4(a) of this Joinder shall be limited to an
aggregate amount equal to the greater of (i) WCASs
Pro Rata Cap or (ii) fifteen million dollars ($15,000,000)
plus the amount (including Preferred Stock valued at $18
per share), if any, paid from the Escrow Indemnification Amount
to satisfy any purchase price adjustment in favor of Parent
under the Merger Agreement (provided that the amount subject to
this clause (ii) in excess of WCASs Pro Rata Cap
shall be available only to the extent that the Applicable
Stockholders do not honor their indemnification obligations
under the Merger Agreement).
A-65
§2.4 Indemnification Under This
Joinder. Each Target Stockholder hereby
agrees, on a several (and not joint) basis, to indemnify and
hold harmless the Parent Indemnitees on an after Tax basis from
and against any and all Losses arising out of or relating to:
(a) the failure of any representation or warranty made by
such Target Stockholder in this Agreement to be true and correct
in all material respects as of the date of this Joinder and as
of the Closing Date; and
(b) any breach by such Target Stockholder of its covenants
or agreements contained in this Joinder.
§2.5 Additional Indemnification by
WCAS. WCAS hereby agrees to indemnify and
hold harmless the Parent Indemnitees on an after Tax basis from
and against all Losses:
(a) for which the Parent Indemnitees would be entitled to
indemnification from any Applicable Stockholder under
Section 11.2(a) of the Merger Agreement subject to the
limits set forth in Section 2.3(a) of this Joinder, to the
extent that the Parent Indemnitees are unsuccessful after using
all commercially reasonable efforts to collect from the
Applicable Stockholders (it being understood that in no event
shall any Parent Indemnitee be required to initiate any
litigation or take any similar actions against any Applicable
Stockholder); and
(b) arising out of the failure of any Applicable
Stockholder to comply with its obligation to return Parent
Preferred Stock pursuant to Section 3.4 (f)(i) of the
Merger Agreement (if applicable) or pursuant to
Section 3.4(f)(ii) of the Merger Agreement, or otherwise
fails to pay its Pro Rata Portion of any adjustment to the
Merger Consideration in accordance with the Merger Agreement, if
applicable, or to satisfy any of its indemnification obligations
under this Joinder or the Merger Agreement (as applicable).
§2.6 Escrow Indemnification
Amount. All claims for indemnification
against the Target Stockholders pursuant to the terms of this
Joinder
and/or the
Merger Agreement shall first be satisfied from the Escrow
Indemnification Amount, and once the Escrow Indemnification
Amount has been paid to satisfy Parent Indemnitees
indemnification claims or released to Target Stockholders
pursuant to the Escrow Agreement, the Parent Indemnitees shall
be entitled to pursue all claims for indemnification under this
Joinder and the Merger Agreement directly against the Applicable
Stockholders and WCAS (in its capacity as a Target Stockholder).
§2.7 Termination of Target Stockholders
Agreement. Each Target Stockholder hereby
consents to the termination, immediately prior to the Effective
Time, of the Sponsor Stockholders Agreement. For the avoidance
of doubt, the consummation of the transactions contemplated by
the Merger Agreement shall constitute an Approved Sale (as
defined in the Sponsor Stockholders Agreement) for all purposes
under the Sponsor Stockholders Agreement (including
Section 14 thereof), and accordingly at the Effective Time
the Sponsor Stockholders Agreement shall terminate and be of no
further force or effect.
§2.8 Termination of Sponsor Management
Agreement. By its execution below, WCAS
Management hereby agrees that, effective immediately at the
Effective Time, that certain Management Services Agreement,
dated as of August 1, 2006, among the Target, WCAS
Management and Mobile Services Group, Inc. (the Sponsor
Management Agreement) shall be terminated and be of no
further force or effect.
§2.9 Appointment of Target Stockholder
Representative. Each Target Stockholder
hereby confirms the appointment of WCAS as Target Stockholder
Representative for all purposes under the Merger Agreement.
Without limitation of the foregoing, each Target Stockholder
hereby confirms the grant by such Target Stockholder to WCAS of
a power of attorney on the terms set forth in Section 3.9
of the Merger Agreement.
§2.10 Parent Rights
Agreement. Parent hereby confirms that its
execution of the Merger Agreement shall constitute Prior
Written Approval of the Company (as defined under that
certain Rights Agreement, dated as of December 9, 1999,
between Parent and Norwest Bank Minnesota, N.A. (the
Rights Agreement)) solely with respect to the
Applicable Stockholders and WCAS (in its capacity as
a Target Stockholder) acquisition of the Parent Preferred Stock
(and the conversion of the Common Stock in respect thereof)
constituting the Merger Consideration in accordance with the
Merger Agreement and the purchase by WCAS of up to
2,000,000 shares (as adjusted for stock splits,
combinations and the like) of Common Stock in accordance with
Section 7.7 of the Merger Agreement. It is understood and
agreed that the execution of the Merger Agreement or this
Joinder by the Parent
A-66
does not constitute a Prior Written Approval of the
Company under the Rights Agreement with respect to any
other securities of the Parent acquired by the Target
Stockholders or their Controlled Affiliates from time to time.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF STOCKHOLDER
Each Target Stockholder hereby severally represents and warrants
to the Parent that:
§3.1 Authority and
Enforceability. (a) Such Target
Stockholder has the requisite power and authority to execute and
deliver this Joinder. Such Target Stockholder has the requisite
power and authority to consummate the transactions contemplated
hereby and by the Merger Agreement and the Ancillary Agreements.
(b) The execution, delivery and performance of this
Joinder, and the Ancillary Agreements to be executed and
delivered by such Target Stockholder as contemplated by this
Joinder and the Merger Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by such Target Stockholders board of directors
or other comparable governing body and by the requisite holders
of capital stock or other equity interests in such Target
Stockholder and no other action on the part of such Target
Stockholder or any of its directors, managers, stockholders,
members, partners or other Persons holding governing authority
or equity interests in such Target Stockholder is necessary to
authorize the execution, delivery and performance of this
Joinder and the Ancillary Agreements by such Target Stockholder
and the consummation of the transactions contemplated hereby and
thereby.
(c) This Joinder and the Ancillary Agreements to be
executed and delivered by such Target Stockholder as
contemplated hereby and by the Merger Agreement, when delivered
in accordance with the terms hereof and thereof, assuming the
due execution and delivery of this Agreement and each other
Ancillary Agreement by the other parties hereto and thereto,
shall have been duly executed and delivered by such Target
Stockholder and shall be valid and binding obligations of such
Target Stockholder, enforceable against such Target Stockholder
in accordance with their terms, except to the extent that their
enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors rights generally and to
general equitable principles.
§3.2 Consents and Approvals; No
Violations. The execution and delivery of
this Joinder by such Target Stockholder do not, the execution
and delivery by such Target Stockholder of the Ancillary
Agreements to be executed and delivered by such Target
Stockholder as contemplated hereby and by the Merger Agreement
will not, and the consummation by such Target Stockholder of the
transactions contemplated hereby and thereby will not, result in
a violation or breach of, conflict with, constitute (with or
without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any Lien on
any of the properties or assets of such Target Stockholder,
under: (i) any provision of the Organizational Documents of
such Target Stockholder; (ii) any Law or Order applicable
to such Target Stockholder or by which any of such Target
Stockholders properties or assets may be bound; or
(iii) any Contract to which such Target Stockholder is a
party or by which such Target Stockholder or any of its assets
may be bound, except in the case of clauses (ii) and
(iii) above, for such violations, breaches, conflicts or
defaults which would not, individually or in the aggregate, be
reasonably expected to have a material adverse effect on such
Target Stockholders ability to perform its obligations
under this Agreement.
§3.3 Existence and Good
Standing. Such Target Stockholder is validly
existing and in good standing under the laws of the jurisdiction
of its incorporation, formation or organization (as applicable).
§3.4 Title to
Shares. Such Target Stockholder is the record
and beneficial owner of all shares of Target Common Stock listed
opposite such Target Stockholders name on
Annex A to this Joinder, free and clear of all Liens
(other than any restrictions under the Sponsor Stockholders
Agreement and any transfer restrictions pursuant to applicable
securities laws).
§3.5 Understanding of Agreements;
Non-Reliance. Such Target Stockholder has
carefully read and fully understands the meaning of all of the
provisions of this Joinder and the Merger Agreement and the
Exhibits thereto (including all of the representations,
warranties, covenants and agreements set forth therein). Such
Target
A-67
Stockholder has had the opportunity to request all of the
information it considers necessary or appropriate for deciding
whether or not to enter into this Joinder, including all such
information about the Target and the Parent necessary to
determine whether the Merger Consideration constitutes fair
consideration for such Target Stockholders interest in the
Target. Such Target Stockholder has such knowledge and
experience in financial, tax and business matters and in making
investments of this type that it is capable of evaluating the
merits and risks of entering into this Joinder and making an
investment in the Parent, and has not been induced by, and has
not relied upon, any representation, warranty, statement or
agreement, whether express or implied, and whether made in
writing or orally, of the Parent or any of its directors,
officers, employees, Affiliates, advisors or representatives,
other than those expressly set forth in the Merger Agreement.
Such Target Stockholder understands that neither the SEC nor any
other federal or state agency has recommended, approved or
endorsed the acquisition of Parent Preferred Stock or passed on
the accuracy or adequacy of any of the information provided to
such Target Stockholder in connection with the issuance of
Parent Preferred Stock.
§3.6 Accredited Investor; Qualified
Purchaser. Such Target Stockholder is
(i) an accredited investor within the meaning
of Rule 501 of Regulation D under the Securities Act
and (ii) a qualified purchaser within the
meaning of Section 2(a)(51)(A) of the Investment Company
Act of 1940, as amended, and the rules promulgated thereunder.
§3.7 Investment for Own
Account. Such Target Stockholder is acquiring
the Merger Consideration (including any and all Parent Preferred
Stock issued to such Target Stockholder as part of such Merger
Consideration) for such Target Stockholders own account,
for investment, and not with a view to the distribution or
resale of any portion of such Merger Consideration.
§3.8 Restrictions on Parent Preferred
Stock. Such Target Stockholder understands
that (i) there are substantial restrictions on the
transferability of the Parent Preferred Stock that such Target
Stockholder will receive as Merger Consideration; (ii) the
Parent Preferred Stock will not be registered pursuant to the
Securities Act or the Laws of any state; and (iii) the
transferability of Parent Preferred Stock will be limited by
applicable Law and by the Stockholders Agreement.
ARTICLE IV
ADDITIONAL
COVENANTS
§4.1
Non-Competition. Each Target Stockholder
agrees that, during the Restricted Period, such Target
Stockholder and its Controlled Affiliates will not, within the
Restricted Territory, directly or indirectly own any interest
in, manage, operate, control, be employed by or participate in
the ownership, management, operation or control of (in each
case, whether as a partner, limited partner, employee, officer,
director, stockholder, lender, consultant, advisor or
representative of), or in any manner engage in, any Competitive
Business (it being understood that for these purposes, ownership
of securities of a public company not in excess of 5% of any
class of such securities shall not be considered to be ownership
of an interest in a Competing Business).
§4.2
Non-Solicitation. Each Target Stockholder
agrees, during the Restricted Period, to, and to cause its
Controlled Affiliates to, refrain from:
(a) soliciting or encouraging any individual who is an
employee of the Surviving Corporation or any of its Subsidiaries
in the position of branch manager or higher as of
the WCAS Directorship Term End Date to terminate his or her
employment relationship with the Surviving Corporation or any
such Subsidiary;
(b) soliciting, hiring or retaining any individual who is
an employee of the Surviving Corporation or any of its
Subsidiaries in the position of branch manager or
higher as of the WCAS Directorship Term End Date to become an
employee of, or provide services to, any Person other than the
Surviving Corporation or any such Subsidiary; and
(c) soliciting business for the benefit of any Competitive
Business from any Person that is a customer of the Surviving
Corporation or any of its Subsidiaries as of the WCAS
Directorship Term End Date that accounts for at least $500,000
of the Surviving Corporations gross revenues (on a
consolidated basis) for the applicable fiscal year.
A-68
The parties hereto acknowledge and agree that nothing herein
shall preclude (i) generalized searches by such Target
Stockholder for employees through the use of advertisement in
the media or through engagement of firms to conduct searches
that are not targeted or focused on the applicable employees of
the Surviving Corporation or any of its Subsidiaries,
(ii) any solicitation or hiring of any employee of the
Surviving Corporation or any of its Subsidiaries who has been
terminated by the Surviving Corporation or any of its
Subsidiaries at least six (6) months prior to such
solicitation or hiring, and (iii) any hiring of any
employee of the Surviving Corporation or any of its Subsidiaries
who approaches such Target Stockholder on his or her own
volition.
§4.3 Interpretation of
Covenants. It is the desire and intent of
each Target Stockholder that the provisions of Sections 4.1
and 4.2 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction
in which enforcement is sought. If any particular provisions or
portion of Section 4.1 or 4.2 shall be adjudicated to be
invalid or unenforceable in any jurisdiction, then such Section
shall: (a) be deemed amended in such jurisdiction only by
replacing such invalid or unenforceable provision with a valid
and enforceable provision that effects, as nearly as possible,
the substantive terms of the covenants set forth in
Section 4.1 and 4.2 and (b) remain unaltered and in
effect in accordance with its terms in all other jurisdictions
where such provision is valid and enforceable.
ARTICLE V
MISCELLANEOUS
§5.1 Governing
Law. The interpretation and construction of
this Joinder, and all matters relating hereto, shall be governed
by the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
§5.2 Jurisdiction; Agents for Service of
Process. Any judicial proceeding brought
against any of the parties hereto on any dispute arising out of
this Joinder, the Merger Agreement, any Ancillary Agreement or
any matter related hereto or thereto may be brought in the
courts of the State of New York, or in the United States
District Court for the Southern District of New York, and, by
execution and delivery of this Agreement, each party hereto
accepts the exclusive jurisdiction of such courts, and
irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Joinder, the Merger Agreement and the
Ancillary Agreements. The foregoing consents to jurisdiction and
appointments of agents to receive service of process shall not
constitute general consents to service of process in the State
of New York for any purpose except as provided above and shall
not be deemed to confer rights on any Person other than the
parties to this Agreement. The prevailing party or parties in
any such litigation shall be entitled to receive from the losing
party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties. Each
party hereto agrees that service of any process, summons, notice
or document by U.S. registered mail to such partys
address set forth on its signature page shall be effective
service of process for any action, suit or proceeding in New
York with respect to any matters for which it has submitted to
jurisdiction pursuant to this Section 5.2.
§5.3 Captions. The
Article and Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
§5.4 Notices. Any
notice or other communication required or permitted under this
Joinder or the Merger Agreement shall be deemed to have been
duly given (i) five (5) Business Days following
deposit in the mails if sent by registered or certified mail,
postage prepaid, (ii) when sent, if sent by facsimile
transmission, if receipt thereof is confirmed by telephone,
(iii) when delivered, if delivered personally to the
intended recipient and (iv) two (2) Business Days
following deposit with a nationally recognized overnight courier
service, in each case addressed as set forth on the signature
page of the applicable Target Stockholder, or such other
addresses or number as shall be furnished in writing by such
Target Stockholder to the Parent from time to time.
§5.5 Assignment; Parties in
Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by Parent without
the express written consent of WCAS, other than by operation of
law. This Agreement may not be transferred, assigned, pledged or
hypothecated by any Target Stockholder without the express
written consent of Parent, other than by operation of law. This
Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
A-69
§5.6
Counterparts. This Joinder may be executed in
two or more counterparts, all of which taken together shall
constitute one instrument.
§5.7 Amendments. This
Joinder may not be changed, and any of the terms, covenants,
representations, warranties and conditions cannot be waived,
except pursuant to an instrument in writing signed by Parent and
each Target Stockholder or, in the case of a waiver, by the
party waiving compliance.
§5.8 Severability. If
any term, provision, agreement, covenant or restriction of this
Joinder is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, agreements, covenants and restrictions of
this Joinder shall remain in full force and effect and shall in
no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any
party hereto. Upon such a determination, the Target Stockholders
and the Parent shall negotiate in good faith to modify this
Joinder so as to affect the original intent of the parties as
closely as possible in a reasonably acceptable manner in order
that the transactions contemplated hereby may be consummated as
originally contemplated to the fullest extent possible.
§5.9 No Strict
Construction. The Target Stockholders and the
Parent have participated jointly in the negotiation and drafting
of this Agreement. In the event any ambiguity or question of
intent or interpretation arises, this Joinder shall be construed
as if drafted jointly by all parties hereto, and no presumption
or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provision of this Joinder.
§5.10 Waiver of Jury
Trial. Each party hereto hereby waives, to
the fullest extent permitted by applicable Law, any right it may
have to a trial by jury in respect of any litigation as between
the parties directly or indirectly arising out of, under or in
connection with this Joinder, the Merger Agreement, the
Ancillary Agreements or the transactions contemplated hereby or
thereby or disputes relating hereto or thereto. Each of the
Parent and each Target Stockholder (i) certifies that no
representative, agent or attorney of the Parent or such Target
Stockholder, as the case may be, has represented, expressly or
otherwise that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and
(ii) acknowledges that the Parent and such Target
Stockholder, as the case may be, has been induced to enter into
the Merger Agreement by, among other things, the waivers and
certifications of the Parent and such Target Stockholders set
forth in this Section 5.10.
§5.11
Termination. Immediately upon the
effectiveness of any termination of the Merger Agreement
pursuant to Section 12.1 thereof, this Joinder shall be
terminated and there shall be no liability hereunder on the part
of Parent, WCAS Management or any Target Stockholder;
provided that (in addition to the provisions of the
Merger Agreement specified in Section 12.2(a) thereof) the
provisions of Section 5.1 (Governing Law), 5.2
(Jurisdiction; Agents for the Service of Process) and this
Section 5.11 shall survive any termination of this Joinder.
Nothing in this Section 5.11 shall relieve any party of
liability for any willful breach of this Joinder or the Merger
Agreement.
§5.12 Specific
Performance. The Target Stockholders agree
that irreparable damages would occur to Parent if any of the
provisions of this Joinder and the Merger Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Parent shall
be entitled to an injunction or injunctions to prevent actual
breaches of this Agreement or the Merger Agreement by any Target
Stockholder and to enforce specifically the terms and provisions
hereof in the courts referenced in Section 5.2 (or, on a
preliminary basis in order to preserve the status quo pending a
decision of the courts referenced in Section 5.2, or in
order to enforce a judgment of the courts referenced in
Section 5.2, in any court of competent jurisdiction), in
addition to having any other remedies to which Parent is
entitled at law or in equity and without the necessity of
proving damages or posting a bond or other security.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
A-70
IN WITNESS WHEREOF, the undersigned Target Stockholder has
executed and delivered this Joinder on the date set forth below.
WELSH, CARSON, ANDERSON & STOWE X, L.P.
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By:
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WCAS X Associates LLC, its General Partner
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Name: Sanjay Swani
Title: Managing Member
Acknowledged and Accepted as of
the date first written above:
MOBILE MINI, INC.
Name: Steven G. Bunger
Title: President and
Chief Executive Officer
Signature
Page to joinder Agreement
A-71
IN WITNESS WHEREOF, the undersigned Target Stockholder has
executed and delivered this Joinder on the date set forth below.
WCAS CAPITAL PARTNERS IV, L.P.
By: WCAS CP IV Associates LLC, its General Partner
Name: Sanjay Swani
Title: Managing Member
Acknowledged and Accepted as of
the date first written above:
MOBILE MINI, INC.
Name: Steven G. Bunger
Title: President and
Chief Executive Officer
Signature
Page to joinder Agreement
A-72
IN WITNESS WHEREOF, the undersigned Target Stockholder has
executed and delivered this Joinder on the date set forth below.
WCAS MANAGEMENT CORPORATION
Name: Sanjay Swani
Title: Vice President
Acknowledged and Accepted as of
the date first written above:
MOBILE MINI, INC.
Name: Steven G. Bunger
Title: President and
Chief Executive Officer
Signature
Page to joinder Agreement
A-73
IN WITNESS WHEREOF, the undersigned Target Stockholder has
executed and delivered this Joinder on the date set forth below.
DE NICOLA HOLDINGS, LP
Name: Anthony deNicola
Title: General Partner
Acknowledged and Accepted as of
the date first written above:
MOBILE MINI, INC.
Name: Steven G. Bunger
Title: President and
Chief Executive Officer
Signature
Page to joinder Agreement
A-74
ANNEX A
Schedule
of Target Stockholders
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Shares of Target
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Target Stockholder
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Common Stock Owned
|
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Welsh, Carson, Anderson & Stowe X, L.P.
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110,097.4500
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WCAS Capital Partners IV, L.P.
|
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5,325.000
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WCAS Management Corporation
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95.5700
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De Nicola Holdings, LP
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15.9300
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A-75
EXHIBIT B
ESCROW
AGREEMENT
This Escrow Agreement (this Escrow
Agreement), dated as of
[ ],
2008, is entered into by and among [Cactus], a Delaware
corporation (Parent),
[ ],
as Target Stockholder Representative (the Stockholder
Representative, together with Parent, the
Other Parties), and
[ ],
as escrow agent (the Escrow Agent).
WITNESSETH:
WHEREAS, reference is hereby made to that certain Agreement and
Plan of Merger dated February [ ],
2008 (the Merger Agreement), entered into by
and among Parent, [Redwood], a Delaware corporation
(Target), and the Stockholder Representative,
solely for the purposes of representing the Target Stockholders
in accordance with the Merger Agreement, that provides for,
among other transactions, the merger of Target with and into the
Parent, with the Parent continuing as the surviving company, as
more fully set forth in the Merger Agreement. Capitalized terms
used but not otherwise defined herein shall have respective the
meanings given to such terms in the Merger Agreement, a copy of
which is attached hereto as Exhibit C;
WHEREAS, Section 3.3 of the Merger Agreement provides that
the Merger Consideration is subject to certain post-Closing
adjustments;
WHEREAS, Article XI of the Merger Agreement provides that
the Target Stockholders are obligated to indemnify Parent
Indemnitee under certain circumstances;
WHEREAS, pursuant to Section [3.2(d)] of the Merger
Agreement, (i) an amount of
$[ ] in cash (the Escrow
Amount, and together with all interest and other
amounts from time to time held by the Escrow Agent under this
Escrow Agreement, the Escrow Funds)) and (ii)
[ ]
shares of Series A Convertible Redeemable Participating
Preferred Stock, par value $0.01 per share, of Parent (the
Shares, and together with all other shares
issued on, in respect of, upon conversion of, or in substitution
of the Shares according to Section 4.4, the
Escrowed
Shares))1
are being delivered to the Escrow Agent on the date of this
Escrow Agreement;
WHEREAS, the Escrow Funds and the Escrowed Shares, collectively,
are referred to herein as the Escrowed
Property; and
WHEREAS, the Other Parties have requested the Escrow Agent to
act in the capacity of escrow agent under this Escrow Agreement,
and the Escrow Agent, subject to the terms and conditions
hereof, has agreed so to do.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained herein, the parties hereto
hereby agree as follows:
ARTICLE I
RECEIPT AND
RETENTION OF THE ESCROW PROPERTY
Section 1.1 The
Other Parties each hereby appoints the Escrow Agent to act as
agent and custodian for the Escrowed Property for their
respective benefit pursuant to the terms of this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment
pursuant to such terms.
Section 1.2 The
Escrow Agent hereby acknowledges receipt of the Escrowed
Property.
Section 1.3 The
Escrowed Property shall be retained, managed and disbursed by
the Escrow Agent strictly in accordance with the terms and
conditions of this Escrow Agreement. The Escrow Agent shall not
transfer, assign,
1 NOTE TO
DRAFT: If, at the Closing, $15,000,000 is entirely funded in
cash, all references to Shares and treatment of the Shares will
be excluded from this Escrow Agreement.
A-76
loan, convert, reinvest, or otherwise dispose of any Escrowed
Property but shall hold the Escrowed Property in accordance with
this Escrow Agreement until the disbursement thereof pursuant to
Article IV or Section 5.6.
ARTICLE II
INVESTMENT
Section 2.1 At
the written direction of the Stockholder Representative, the
Escrow Agent will invest (and reinvest) the Escrow Funds in one
or more of: (i) direct obligations of and obligations fully
guaranteed by the United States of America, or any agency
thereof, the principal and interest of which are guaranteed by
the United States of America or its agencies;
(ii) participation under a revolving repurchase agreement
maintained by the Escrow Agent with other entities relative to
an agreement for the sale and repurchase of obligations listed
in item (i) above; (iii) any time deposit which is
fully insured by the Federal Deposit Insurance Corporation;
(iv) commercial paper notes which, at the time of
investment, are rated in one of the two highest credit ratings
by Moodys Investors Service, Inc.
and/or
Standard & Poors Corporation;
(v) certificates of deposit of any bank organized under the
laws of the United States; or (vi) any money market fund
(including money market funds for which the Escrow Agent serves
in an advisory capacity
and/or other
money market funds with which the Escrow Agent has an existing
relationship), the assets of which are any of those obligations
listed in items (i) through (vi) above (collectively,
the Permitted Investments).
Section 2.2 The
Escrow Agent is hereby authorized to execute the purchase and
sale of Permitted Investments as directed by the Stockholder
Representative, in writing, through the facilities of its own
trading or capital markets operations or those of any affiliated
entity. In the event that the Escrow Agent does not receive
investment instructions to invest the Escrow Funds, the Escrow
Agent shall invest such funds in direct obligations of and
obligations fully guaranteed by the United States of America, or
any agency thereof, the principal and interest of which are
guaranteed by the United States of America or its agencies. The
Escrow Agent can liquidate any investment in order to comply
with disbursement instructions without any liability for any
resulting loss. Any loss incurred from an investment will be
borne by the Escrow Funds.
Section 2.3 All
income earned with respect to any Permitted Investment shall be
delivered from time to time to the Stockholder Representative
for distribution to the Target Stockholders.
ARTICLE III
TAXES
Section 3.1 The
Other Parties agree that, for United States federal, state,
local and other tax purposes, all taxable interest, dividends
and other income, if any, attributable to the Escrowed Property
or any other amount held in escrow by the Escrow Agent pursuant
to this Escrow Agreement shall be allocable to the Target
Stockholders.
Section 3.2 The
Escrow Agent shall report to the United States Internal Revenue
Service (the IRS) and to each Target
Stockholder, as of each calendar year-end, all income, if any,
attributable to the Escrowed Property or any other amount held
in escrow by the Escrow Agent pursuant to this Escrow Agreement,
as and to the extent required under the provisions of the
Internal Revenue Code of 1986, as amended on IRS Form 1099
or other applicable form.
Section 3.3 The
Escrow Agent shall make payments of income earned on the Escrow
Funds as provided for in this Escrow Agreement. Each such payee
shall provide to the Escrow Agent an appropriate IRS
Form W-9
for tax identification number certification or a
Form W-8
for non resident alien certification, as applicable.
Section 3.4 The
Other Parties intend that the Target Stockholders shall be
treated as the owners of the Escrowed Shares for all United
States federal, state and local tax purposes (except to the
extent that any such Escrowed Shares are disbursed to Parent
pursuant to Article IV), and none of the parties
shall take any actions or positions that are inconsistent with
such treatment.
A-77
ARTICLE IV
DISBURSEMENT
OF THE ESCROW PROPERTY; SUBSTITUTION
Section 4.1 The
Escrow Agent shall make disbursements of the Escrowed Property
upon receipt of and in accordance with (a) a joint written
instruction (Joint Instruction) signed by
authorized signers of both Parent and the Stockholder
Representative evidenced in
Exhibits B-1
and B-2, respectively, directing delivery of all or a portion of
the Escrowed Property, or (b) an order from a court of
competent jurisdiction that orders such disbursement, together
with an opinion of counsel to the effect that such order is
final and not subject to further appeal (collectively, the
Court Order).
Section 4.2 Notwithstanding
anything herein to the contrary:
(a) To the extent the Escrowed Property has not been fully
disbursed on or prior to the date that is twelve
(12) months from the date of this Escrow Agreement (the
Escrow Release Date), the Escrow Agent shall
disburse within two (2) Business Days after such date to
the Stockholder Representative the remaining Escrowed Property
minus the Retained Property. The Escrow Agent shall
retain the Retained Property and shall only release the Retained
Property in accordance with Section 4.1 above.
(b) For purposes of this Article IV, the
following terms shall have the following meanings:
Retained Property means the amount of
cash and/or
the number Shares set forth in a certificate of the Chief
Financial Officer of Parent delivered to the Escrow Agent and
the Target Shareholder Representative at least two
(2) Business Days prior to the Escrow Release Date, which
certificate shall set forth Parents good faith estimate of
the aggregate amount of all pending indemnification claims of
Parent under the Merger Agreement as of the date of such
certificate. Such certificate shall contain Parents good
faith calculation of the Fair Market Value (as defined in the
Merger Agreement) of the Shares as of the date of such
certificate.
Section 4.3 Whenever
a partial release of the Escrowed Shares is anticipated, Parent
shall, upon request by the Escrow Agent, promptly cause the
Parents Secretary to reissue the stock certificates of the
Escrowed Shares in the number of certificates necessary so as to
enable such partial release.
ARTICLE V
PROVISIONS
RELATING TO THE ESCROW AGENT
Section 5.1 The
Escrow Agent shall have no duties or responsibilities whatsoever
with respect to the Escrowed Property except as are specifically
set forth herein. The Escrow Agent shall neither be responsible
for or under, nor chargeable with knowledge of the terms and
conditions of, any other agreement, instrument or document in
connection herewith, including without limitation the Merger
Agreement. The Escrow Agent may conclusively rely upon, and
shall be fully protected from all liability, loss, cost, damage
or expense in acting or omitting to act pursuant to any written
notice, instrument, request, consent, certificate, document,
letter, opinion, order, resolution or other writing hereunder
that is in a form and manner consistent with the requirements
set forth in this Escrow Agreement without being required to
determine the authenticity of such document, the correctness of
any fact stated therein, the propriety of the service thereof or
the capacity, identity or authority of any party purporting to
sign or deliver such document. The Escrow Agent shall have no
responsibility for the contents of any such writing contemplated
herein and may rely without any liability upon the contents
thereof. Concurrently with the execution of this Escrow
Agreement, the Other Parties shall deliver to the Escrow Agent
authorized signers forms in the form of
Exhibit B-1
and
Exhibit B-2
to this Escrow Agreement.
Section 5.2 The
Escrow Agent shall not be liable for any action taken or omitted
by it in good faith and reasonably believed by it to be
authorized hereby or within the rights or powers conferred upon
it hereunder, nor for action taken or omitted by it in good
faith, and in accordance with advice of counsel (which counsel
may be of the Escrow Agents own choosing), and shall not
be liable for any mistake of fact or error of judgment or for
any acts or omissions of any kind except for its own willful
misconduct or gross negligence. IN NO EVENT SHALL THE ESCROW
AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY SPECIAL,
INDIRECT OR
A-78
CONSEQUENTIAL LOSSES OR DAMAGES OF ANY KIND WHATSOEVER
(INCLUDING WITHOUT LIMITATION LOST PROFITS), EVEN IF THE ESCROW
AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR
DAMAGES AND REGARDLESS OF THE FORM OF ACTION.
Section 5.3 The
Other Parties agree, severally but not jointly, to indemnify the
Escrow Agent and its employees, directors, officers and agents
and hold each harmless against any and all liabilities incurred
by it hereunder as a consequence of an action by either of the
Other Parties, and each of the Other Parties agree, severally
but not jointly, to indemnify the Escrow Agent and hold it
harmless against 50% of any and all other claims, costs,
payments, and expenses (including the reasonable fees and
expenses of counsel) and all other liabilities incurred by it in
connection with the acceptance of this Escrow Agreement and the
performance of its duties hereunder, except in either case for
claims, costs, payments and expenses (including the fees and
expenses of counsel) and liabilities incurred by the Escrow
Agent resulting from its own willful misconduct or gross
negligence. The obligations of the other Parties under this
Section 5.3 shall survive the termination of this
Escrow Agreement and the resignation or removal of the Escrow
Agent and the disbursement of the Escrowed Property.
Section 5.4 The
Escrow Agent may resign as such following the giving of sixty
(60) days prior written notice to each of the Other
Parties. Similarly, the Escrow Agent may be removed and replaced
following the giving of sixty (60) days prior written
notice to the Escrow Agent jointly by the Other Parties. In
either event, the duties of the Escrow Agent shall terminate
sixty (60) days after the date of such notice (or at such
earlier date as may be mutually agreeable), except for its
obligations to hold and deliver the Escrowed Property to the
successor Escrow Agent; and the Escrow Agent shall then deliver
the balance of the Escrowed Property then in its possession to
such a successor Escrow Agent as shall be appointed by the Other
Parties as evidenced by Joint Instructions delivered to the
Escrow Agent. Upon acknowledgment by any successor Escrow Agent
of the receipt of the then remaining Escrowed Property (or the
deposit or delivery of the Escrowed Property by the Escrow Agent
pursuant to Section 5.6 below), the then acting
Escrow Agent shall be fully released and relieved of all duties,
responsibilities and obligations under this Escrow Agreement.
Section 5.5 The
Escrow Agent shall be under no duty to institute or defend any
arbitration or legal proceeding with respect to the Escrowed
Property or under this Escrow Agreement and none of the costs or
expenses of any such proceeding shall be borne by the Escrow
Agent. The costs and expenses of any such proceeding shall be
borne as decided by the arbitrators or court and shall be direct
obligations of the Other Parties, as the case may be, and shall
not be satisfied in any way by the Escrowed Property.
Section 5.6 Should
any controversy arise involving the parties hereto or any of
them or any other person with respect to this Escrow Agreement
or the Escrowed Property, or should a substitute escrow agent
fail to be designated as provided in Section 5.4
hereof, or if the Escrow Agent should be in doubt as to what
action to take, the Escrow Agent shall have the right, but not
the obligation, either to (a) withhold delivery of the
Escrowed Property until the controversy is resolved, the
conflicting demands are withdrawn or its doubt is resolved or
(b) deposit all Escrowed Property into the registry of any
court of competent jurisdiction and notify the Other Parties of
such deposit, and thereupon the Escrow Agent shall be discharged
from all further duties and responsibilities as Escrow Agent
under this Escrow Agreement.
ARTICLE VI
NOTICES
Section 6.1
All notices, consents, requests, demands, waivers and other
communications required or permitted to be given under this
Escrow Agreement shall be in writing and shall be deemed to have
been duly given if delivered in person or mailed, certified or
registered mail with postage prepaid, or sent by reputable
overnight courier or facsimile (upon confirmation of receipt),
as follows:
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If to the Escrow Agent:
[ ]
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with a copy (which shall not constitute notice) to:
[ ]
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(c)
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If to the Stockholder Representative:
[ ]
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with a copy (which shall not constitute notice) to:
[ ]
or to such other person or address as any party shall specify by
notice in writing in accordance with this
Section 6.1 to each of the other parties. All such
notices, requests, demands, waivers and communications shall be
deemed to have been received on the date of delivery unless if
mailed, in which case on the third (3rd) Business Day after the
mailing thereof, except for a notice of a change of address,
which shall be effective only upon receipt thereof.
ARTICLE VII
COMPENSATION;
EXPENSES
Section 7.1 The
Escrow Agent shall be entitled to payment of customary fees and
expenses for all services rendered by it hereunder in accordance
with Exhibit A attached hereto (as such schedule may
be amended from time to time), payable on the Closing Date.
After the Closing Date, the Escrow Agent shall be entitled to
annual fees in accordance with Exhibit A. All fees
and expenses owed to the Escrow Agent pursuant to this
Article VII shall be paid 50% by Parent and 50% by
the Stockholder Representative.
ARTICLE VIII
TERM
Section 8.1 This
Escrow Agreement shall terminate upon the disbursement, in
accordance with Article IV or
Section 5.6 hereof, of the Escrowed Property in
full; provided, however, that the rights of the
Escrow Agent and the obligations of the other parties hereto
under Article V and Article VII shall
survive the termination thereof and the resignation or removal
of the Escrow Agent.
ARTICLE IX
DESIGNEES
FOR INSTRUCTIONS
Section 9.1 An
Other Party may, by notice to the Escrow Agent and the other
Other Party, designate one or more persons who will execute
notices and from whom the Escrow Agent may take instructions
hereunder. Such designations may be changed from time to time
upon written notice to the Escrow Agent from such Other Party.
The Escrow Agent will be entitled to rely conclusively on any
notices or instructions from any person so designated by an
Other Party.
ARTICLE X
MISCELLANEOUS
Section 10.1 No
amendment, modification or waiver in respect of this Escrow
Agreement shall be effective unless it shall be in writing and
signed by all parties hereto.
Section 10.2 This
Escrow Agreement and the rights and obligations hereunder shall
not be assignable or transferable by a party hereto without the
prior written consent of the other parties hereto;
provided, however, that any banking association or
corporation into which the Escrow Agent may be merged, converted
or with which the Escrow Agent may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent shall be a party, or any
banking association or corporation to which all or substantially
all of the corporate trust business of the Escrow Agent shall be
transferred, shall succeed to all the Escrow Agents
rights, obligations and immunities hereunder without the
execution or filing of any paper or any further act on the
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part of any of the parties hereto, anything herein to the
contrary notwithstanding. Any attempted assignment in violation
of this Section 10.2 shall be void ab initio.
Section 10.3 If
any term, provision, covenant or restriction contained in this
Escrow Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions contained in this Escrow Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and this Escrow Agreement
shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable term, provision,
covenant or restriction or any portion thereof had never been
contained herein.
Section 10.4 This
Escrow Agreement, including the Exhibits hereto and the
documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, contains the
entire understanding of the parties hereto with respect to the
subject matter contained herein and supersedes all prior
agreements and understandings, oral and written, with respect
thereto. The Escrow Agent is bound only by the terms of this
Escrow Agreement.
Section 10.5 THIS
ESCROW AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES
HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. THE STATE OR FEDERAL COURTS
LOCATED WITHIN THE STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE PARTIES
HERETO, WHETHER IN LAW OR EQUITY, ARISING OUT OF OR RELATING TO
THIS ESCROW AGREEMENT AND THE PARTIES CONSENT TO AND AGREE TO
SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE
PARTIES HEREBY WAIVES AND AGREES NOT TO ASSERT IN ANY SUCH
DISPUTE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT (I) SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, (II) SUCH PARTY AND SUCH
PARTYS PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY
SUCH COURTS OR (III) ANY LITIGATION OR OTHER PROCEEDING
COMMENCED IN SUCH COURTS IS BROUGHT IN AN INCONVENIENT FORUM.
THE PARTIES HEREBY AGREE THAT MAILING OF PROCESS OR OTHER PAPERS
IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER
PROVIDED IN SECTION 6.1, OR IN SUCH OTHER MANNER AS
MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE
THEREOF AND HEREBY WAIVE ANY OBJECTIONS TO SERVICE ACCOMPLISHED
IN THE MANNER HEREIN PROVIDED.
Section 10.6 Each
of the parties to this Escrow Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Escrow Agreement
or the transactions contemplated hereby.
Section 10.7 This
Escrow Agreement shall be binding on and shall inure to the
benefit of the parties hereto and their successors and permitted
assigns. This Escrow Agreement is for the sole benefit of the
parties hereto and their successors and permitted assigns and
nothing herein expressed or implied shall give or be construed
to give to any person, other than the parties hereto and such
successors and assigns, any legal or equitable rights hereunder.
Nothing herein is intended or shall be construed to give any
other person (including, without limitation, any creditors of
the Escrow Agent or the Other Parties) any right, remedy or
claim under, in or with respect to the Escrowed Property held
hereunder.
Section 10.8 This
Escrow Agreement may be executed in one or more counterparts
(including by facsimile or electronic means), all of which shall
be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
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Section 10.9 Construction.
In this Escrow Agreement, unless the context otherwise requires:
(a) any reference in this Agreement to writing
or comparable expressions includes a reference to facsimile
transmission or comparable means of communication;
(b) words expressed in the singular number shall include
the plural and vice versa, words expressed in the masculine
shall include the feminine and neuter gender and vice versa;
(c) references to Articles, Sections, Exhibits and Recitals
are references to articles, sections, exhibits, schedules and
recitals of this Agreement;
(d) reference to day or days are to
calendar days;
(e) this Escrow Agreement or any other
agreement or document shall be construed as a reference to this
Agreement or, as the case may be, such other agreement or
document as the same may have been, or may from time to time be,
amended, varied, novated or supplemented; and
(f) include, includes, and
including are deemed to be followed by without
limitation whether or not they are in fact followed by
such words or words of similar import.
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IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Escrow Agreement as of the day and year first
above written.
ESCROW AGENT:
Name:
Title:
PARENT:
Name:
Title:
STOCKHOLDER REPRESENTATIVE:
Name:
Title:
[SIGNATURE
PAGE TO ESCROW AGREEMENT]
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EXHIBIT A
Escrow Agents Fee Schedule
[To Be Provided]
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EXHIBIT B-1
CERTIFICATE AS TO AUTHORIZED SIGNATURES OF PARENT
Account Name:
The specimen signatures shown below are the specimen signatures
of the individuals who have been designated as Authorized
Representatives of
[ ]
and are authorized to initiate and approve transactions of all
types for the above-mentioned account on behalf of
[ ].
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EXHIBIT B-2
CERTIFICATE AS TO AUTHORIZED SIGNATURES
OF STOCKHOLDER REPRESENTATIVE
Account Name:
The specimen signatures shown below are the specimen signatures
of the individuals who have been designated as Authorized
Representatives of
[ ]
and are authorized to initiate and approve transactions of all
types for the above-mentioned account on behalf of
[ ].
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EXHIBIT C
STOCKHOLDERS
AGREEMENT
Dated
[ ],
2008
By and Among
[CACTUS]
and
THE STOCKHOLDERS SIGNATORY HERETO
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TABLE
OF CONTENTS
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Page
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ARTICLE I CERTAIN DEFINITIONS
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Section 1.1 Certain
Definitions
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ARTICLE II TRANSFER OF EQUITY SECURITIES
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Section 2.1 Restrictions
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Section 2.2 Permitted
Transfers
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Section 2.3 Standstill
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ARTICLE III REGISTRATION RIGHTS
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Section 3.1 Required
Registrations
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Section 3.2 Incidental
Registration
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Section 3.3 Registration
Procedures
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Section 3.4 Registration
Expenses
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Section 3.5 Indemnification;
Contribution
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Section 3.6 Holdback
Agreements
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Section 3.7 Availability
of Information
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Section 3.8 Information
Concerning Stockholders
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ARTICLE IV BOARD OF DIRECTORS OF THE COMPANY
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Section 4.1 Composition
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Section 4.2 Vacancy
and Removal
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Section 4.3 Board
Observation Rights
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Section 4.4 Transfer
of Preferred Stock by WCAS
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ARTICLE V MISCELLANEOUS
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Section 5.1 Entire
Agreement
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Section 5.2 Table
of Contents; Captions
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Section 5.3 Counterparts
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Section 5.4 Notices
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Section 5.5 Successors
and Assigns
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Section 5.6 Governing
Law
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Section 5.7 Submission
to Jurisdiction
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Section 5.8 Waiver
of Jury Trial
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Section 5.9 Third
Party Beneficiaries
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Section 5.10 Confidentiality
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Section 5.11 Expenses
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Section 5.12 Amendments;
Waivers
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Section 5.13 No
Strict Construction
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Section 5.14 Specific
Performance
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STOCKHOLDERS
AGREEMENT
STOCKHOLDERS AGREEMENT (this Agreement),
dated
[ ],
2008, by and among [CACTUS], a Delaware corporation (the
Company) and the Persons listed on
Schedule I attached hereto (each, a
Stockholder and collectively, the
Stockholders).
WITNESSETH:
WHEREAS, on the date hereof, in connection with the consummation
of the transactions contemplated by that certain Agreement and
Plan of Merger, dated February [ ], 2008, by and
among the Company, [Redwood] and [Target Stockholder
Representative] (the Merger Agreement), each
Stockholder became the record and beneficial owner of that
number of shares of Series A Convertible Redeemable
Participating Preferred Stock of the Company, par value $0.01
per share (Preferred Stock), listed opposite
such Stockholders name on Schedule I attached hereto;
WHEREAS, [WCAS] has the right in accordance with
Section 7.7 of the Merger Agreement to acquire up to an
additional 2,000,000 shares of Common Stock;
WHEREAS, it is a condition to the consummation of the
transactions contemplated by the Merger Agreement that,
simultaneously with such consummation, the Company and the
Stockholders enter into this Agreement; and
WHEREAS, the Company and the Stockholders each desire to enter
into this Agreement to, inter alia, regulate and
limit certain rights relating to any Securities which may be
held by any of the Stockholders from time to time and to limit
the sale, assignment, transfer, encumbrance or other disposition
of such Securities and to provide for certain arrangements
regarding the management of the Company as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
CERTAIN
DEFINITIONS
Section 1.1 Certain
Definitions. For purposes of this Agreement,
the following terms shall have the following meanings:
Affiliate shall mean, with respect to
any Person, any other Person directly or indirectly controlling,
controlled by, or under common control with, such Person;
provided that, for the purposes of this definition,
control (including, with correlative meanings, the
terms controlled by and under common control
with), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
Agreement shall have the meaning set
forth in the preamble to this Agreement.
Approved Sale of the Company shall
mean a Sale of the Company that has been approved by the Board
and the Board has not withdrawn or modified its recommendation
(to the extent it is obligated to recommend the approval of such
transaction to the Companys stockholders under applicable
Law) of such Sale of the Company.
Board shall mean the Board of
Directors of the Company.
Business Day means any day, other than
a Saturday, Sunday or other day on which banks located in
New York City, New York or Tempe, Arizona are authorized or
required by Law to close.
Certificate of Designation shall mean
that certain Certificate of Designation of the Company with
respect to Preferred Stock, filed with the Secretary of State of
the State of Delaware on the date hereof.
Common Stock shall mean the common
stock of the Company, par value $0.01 per share.
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Company shall have the meaning set
forth in the preamble to this Agreement.
Competitive Business shall mean any
business of the type and character engaged in and competitive
with that conducted by the Company from time to time (which
constitutes at least 20% of its gross revenues on a consolidated
basis), including, without limitation, the rental, acquisition,
refurbishment, renovation, or resale of shipping containers and
other similar portable storage solutions.
Confidentiality Agreement shall mean
that certain Mutual Confidentiality Agreement dated as of
December 14, 2007, between Target and Parent.
Confidential Information shall have
the meaning set forth in the Confidentiality Agreement.
Controlled Affiliate shall mean any
Affiliate of a Stockholder (other than (x) Affiliates of a
portfolio company who are not otherwise an Affiliate of such
Stockholder and (y) a portfolio company of such
Stockholder, except the following portfolio companies shall be
deemed a Controlled Affiliate: any portfolio company
(i) in which such Stockholder and its other Affiliates
(other than another portfolio company of such Stockholder) has
the power or right to nominate at least 50% of the board of
directors or other similar governing body of such portfolio
company or owns at least 50% of the outstanding voting equity
securities of such portfolio company, (ii) that has
received confidential information concerning the Company and its
Subsidiaries (provided that possession or knowledge of such
confidential information by any Affiliate of such Stockholder
serving on the board of directors or other similar governing
body of any entity without more shall not be imputed to such
entity), or (iii) has taken any action at the direction of
such Stockholder or another Affiliate of such Stockholder that
is otherwise prohibited or restricted by the terms of
Section 2.3 of this Agreement).
Debt Securities shall mean all bonds,
debentures, notes and other instruments evidencing indebtedness
for borrowed money of the Company or any of its Subsidiaries
from time to time (including, without limitation, those certain
93/4% Senior
Notes of [Redwood Subs] due 2014 and those certain
67/8% Senior
Notes of [Cactus] due 2015 and any participation in senior
secured, second lien, asset-backed or other credit facilities of
the Company or any of its Subsidiaries), and any other
instruments exchangeable or convertible therefor.
Demand Notice shall have the meaning
set forth in Section 3.1(b) of this Agreement.
Demand Registration Statement shall
have the meaning set forth in Section 3.1(b) of this
Agreement.
Demand Request shall have the meaning
set forth in Section 3.1(b) of this Agreement.
Equity Securities shall mean all
shares of Common Stock of the Company, all securities, directly
or indirectly, convertible into or exchangeable for shares of
Common Stock of the Company (including, without limitation, the
Preferred Stock) and all options, warrants, and other rights to
purchase or otherwise, directly or indirectly, acquire from the
Company shares of Common Stock, or securities convertible into
or exchangeable for shares of Common Stock, whether at the time
of issuance or upon the passage of time or the occurrence of
some future event.
Exchange Act shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
of the SEC promulgated thereunder.
GAAP shall mean United States
generally accepted accounting principles consistently applied by
the Company and its Subsidiaries throughout the periods
indicated.
Governmental Entity shall mean any
instrumentality, subdivision, court, administrative agency,
commission, official or other authority of the United States or
any other country or any state, province, prefect, municipality,
locality or other government or political subdivision thereof,
or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or
quasi-governmental authority.
Holders Counsel shall have the
meaning set forth in the definition of Registration
Expenses.
Incidental Registration shall have the
meaning set forth in Section 3.2(a) of this Agreement.
Law means any statute, law, common
law, order, ordinance, rule or regulation of any Governmental
Entity.
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Majority Holders shall mean the
holders of Registrable Securities representing at least a
majority of the outstanding Registrable Securities from time to
time.
Merger Agreement shall have the
meaning set forth in the first recital to this Agreement.
NASDAQ shall mean The Nasdaq Stock
Market, Inc.
Non-Qualified Person shall mean any
Person who is (i) directly or indirectly engaged in any
business which the Board determines, in good faith, to be a
Competitive Business, (ii) an adverse party in any material
legal proceeding or material arbitration proceeding or other
significant dispute (as determined in good faith by the Board),
or (iii) an Affiliate of any Person described in
clauses (i) and (ii).
Original Stockholder shall mean each
Person that is either (a) a Stockholder as of the date
hereof or (b) a Permitted Transferee pursuant to a Transfer
effected in accordance with clause (i), (ii) or
(iii) of Section 2.2(a) of this Agreement.
Permitted Transfer shall have the
meaning set forth in Section 2.2(a) of this Agreement.
Permitted Transferee shall have the
meaning set forth in Section 2.2(a) of this Agreement.
Person shall mean and include an
individual, a partnership, a joint venture, a corporation, a
limited liability company, a limited liability partnership, a
trust, an incorporated organization or any other entity or
organization, including a Governmental Entity.
Preferred Stock shall have the meaning
set forth in the first recital to this Agreement.
Qualifying Securities shall mean the
Preferred Stock and any Equity Securities issued upon conversion
or exchange for the Preferred Stock pursuant to the Certificate
of Designation.
Registrable Securities shall mean
shares of Common Stock issued upon the conversion of Preferred
Stock pursuant to the Certificate of Designation and any Common
Stock acquired by WCAS] as permitted by Section 7.7
of the Merger Agreement to the extent such shares have not been
previously registered and sold pursuant to an effective
registration statement and any other shares of Common Stock that
may be received in respect of any of the foregoing securities;
provided, that any Registrable Securities shall cease to be
Registrable Securities:
(i) when a registration statement with respect to the sale
of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of
in accordance with such registration statement;
(ii) when such securities shall have been distributed by
the holder thereof to the public pursuant to Rule 144 under
the Securities Act (or any successor provision); or
(iii) when such securities shall have ceased to be
outstanding.
Registration shall mean the Shelf
Registration, each Required Registration and each Incidental
Registration.
Registration Expenses shall mean all
expenses incident to the Companys performance of or
compliance with Article III including, without limitation,
all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with
blue sky qualifications of any Registrable Securities), expenses
of printing certificates for any Registrable Securities in a
form eligible for deposit with the Depository
Trust Company, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or
accounting duties), and fees and disbursements of counsel for
the Company and its independent certified public accountants
(including the expenses of any management review, cold comfort
letters or any special audits required by or incident to such
performance and compliance), securities acts liability insurance
(if the Company elects to obtain such insurance), the reasonable
fees and expenses of any special experts retained by the Company
in connection with such registration, fees and expenses of other
Persons retained by the Company, the fees and expenses of one
(1) counsel not to exceed $50,000 (the
Holders Counsel) and applicable local
counsel for the holders of Registrable Securities to be included
in the relevant Registration, selected by the holders of a
majority of
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the Registrable Securities to be included in such Registration;
but not including any underwriting fees, discounts or
commissions attributable to the sale of securities or fees and
expenses of counsel representing the holders of Registrable
Securities included in such Registration (other than the
Holders Counsel and applicable local counsel) incurred in
connection with the sale of Registrable Securities.
Required Registration shall have the
meaning set forth in Section 3.1(b) of this Agreement.
Sale of the Company shall mean
(i) any consolidation or merger of the Company or a
Subsidiary of the Company in which the shares of Common Stock
are converted into cash, securities or other property;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company and its
Subsidiaries; or
(iii) any Person has become the beneficial owner (within
the meaning of
Rule 13d-3
promulgated under the Exchange Act) of shares of the capital
stock of the Company representing greater than 50% of the
outstanding voting power of the Company.
SEC shall mean, at any time, the
Securities and Exchange Commission or any other federal agency
at such time administering the Securities Act.
Securities shall mean, collectively,
the Equity Securities and the Debt Securities held by a
Stockholder from time to time.
Securities Act shall mean the
Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Selection Date shall mean the date
that is sixty (60) days prior to the date on which the
Company distributes to its stockholders the proxy statement
relating to each applicable annual meeting.
Shelf Registration shall have the
meaning set forth in Section 3.1(a) of this Agreement.
Shelf Registration Lapse Date shall
mean the date, if any, that (x) the Company is not
permitted to file or maintain a
Form S-3
in connection with the Shelf Registration in accordance with
Section 3.1(a), or (y) the Shelf Registration expired
in accordance with Section 3.1(a)(i) and not all
Registrable Securities registered in such Shelf Registration
have been sold.
Shelf Registration Statement shall
have the meaning set forth in Section 3.1(a) of this
Agreement.
Standstill Period shall have the
meaning set forth in Section 2.3(a) of this Agreement.
Standstill Securities shall mean any
Equity Securities of the Company or any of its Subsidiaries (in
each case, other than Qualifying Securities), and Debt
Securities of the Company or any of its Subsidiaries.
Stockholder shall have the meaning set
forth in the preamble to this Agreement, subject to
Section 2.2 hereof.
Subject Stockholder shall mean [WCAS]
and each Permitted Transferee of [WCAS] pursuant to a Transfer
described in clause (iii) of Section 2.2(a).
Subsidiary or
Subsidiaries shall mean, with respect
to any Person, (i) any corporation more than 50% of whose
stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time
stock of any class or classes of such corporation shall have or
might have voting power by reason of the happening of any
contingency) is owned by such Person directly or indirectly
through one or more Subsidiaries of such Person and
(ii) any partnership, association, joint venture or other
entity in which such Person directly or indirectly through one
or more Subsidiaries of such Person has more than a 50% equity
interest.
Transaction Documents shall mean,
collectively, (i) this Agreement, (ii) the Merger
Agreement, (iii) that certain Joinder to the Merger
Agreement executed by the Stockholders and WCAS Management
Corporation, (iv) that certain Escrow Agreement, dated as
of the date hereof, among the Company, [Redwood] and
[ ],
A-92
as escrow agent, and (v) each other agreement, instrument
and document delivered pursuant to or in connection with any of
the transactions contemplated by the documents described in
clauses (i) through (iv) of this definition.
Transfer shall have the meaning set
forth in Section 2.1(a) of this Agreement.
WCAS shall mean
[ ].
WCAS Directorship Term End Date shall
have the meaning set forth in Section 4.4 of this Agreement.
WCAS Observer shall have the meaning
set forth in Section 4.3(a) of this Agreement.
WCAS Permanent Director shall have the
meaning set forth in Section 4.1(a) of this Agreement.
WCAS Temporary Director shall have the
meaning set forth in Section 4.1(a) of this Agreement.
ARTICLE II
TRANSFER
OF EQUITY SECURITIES
Section 2.1 Restrictions.
(a) No Stockholder shall, voluntarily or involuntarily,
directly or indirectly, sell, assign, donate, hypothecate,
pledge, encumber, grant a security interest in or in any other
manner transfer, any Securities, in whole or in part, or any
other right or interest therein, or enter into any transaction
which results in the economic equivalent of a transfer to any
Person (each such action, a Transfer) except
pursuant to a Permitted Transfer.
(b) From and after the date hereof, all certificates or
other instruments representing Securities held by each
Stockholder shall bear a legend which shall state:
The sale, transfer, hypothecation, assignment, pledge,
encumbrance or other disposition of this [note and the
obligations of the issuer] [share certificate and the shares of
[Preferred] [Common] Stock] represented hereby are restricted by
and are subject to all of the terms, conditions and provisions
of that certain Stockholders Agreement, dated as of
[ ],
2008, as amended from time to time, by and between the Company
and the investors party thereto, which agreement is on file at
the principal office of the Company.
(c) In addition to the legend required by
Section 2.1(b) above, all certificates representing Equity
Securities held by each Stockholder (other than Equity
Securities acquired pursuant to Section 7.7 of the Merger
Agreement or that have otherwise been previously registered and
sold pursuant to an effective registration statement under the
Securities Act) shall bear a legend which shall state:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or
pursuant to any state securities laws. The securities have been
acquired for investment and may not be sold or transferred
except in compliance with the registration requirements of the
Securities Act of 1933, as amended, and applicable state
securities laws or pursuant to an exemption therefrom.
(d) Any attempt to transfer any Security which is not in
accordance with this Agreement shall be null and void and the
Company agrees that it will not cause, permit or give any effect
to any Transfer of any Securities to be made on its books and
records unless such Transfer is permitted by this Agreement and
has been made in accordance with the terms hereof.
(e) Each Stockholder agrees that it will not effect any
Transfer of Securities unless such Transfer is a Permitted
Transfer and is made (i) pursuant to an effective
registration statement under the Securities Act or pursuant to
an exemption from the registration requirements of the
Securities Act or pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act and (ii) in accordance
with all applicable Laws (including, without limitation, all
securities laws).
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Section 2.2 Permitted
Transfers.
(a) Notwithstanding anything to the contrary contained
herein and subject to Sections 2.2(b) and 2.2(c), a
Stockholder may at any time effect any of the following
Transfers (each a Permitted Transfer, and
each transferee of such Stockholder in respect of such Transfer,
a Permitted Transferee):
(i) any Transfer of any or all Securities held by a
Stockholder who is a natural Person following such
Stockholders death by will or intestacy to such
Stockholders legal representative, heir or legatee;
(ii) any Transfer of any or all Securities held by a
Stockholder who is a natural Person as a gift or gifts during
such Stockholders lifetime to such Stockholders
spouse, children, grandchildren or a trust or other legal entity
for the exclusive benefit of such Stockholder or any one or more
of the foregoing;
(iii) any Transfer of any or all Securities held by a
Stockholder to any Affiliate of such Stockholder;
provided that such Affiliate is a Person who is not a
Non-Qualified Person; provided, further that any such
Affiliate shall Transfer such Securities to the Stockholder from
whom the Securities were originally received or acquired within
five (5) calendar days after ceasing to be an Affiliate of
such Stockholder;
(iv) any Transfer, occurring on or after the first (1st)
anniversary of the date hereof, of any or all Common Stock or
Debt Securities or other securities, other than the Preferred
Stock held by a Stockholder provided that if any such Transfer
is a private sale and not in connection with an underwritten
offering or a block trade to a financial intermediary or other
public sale (including any Rule 144 sale in a brokered
transaction) then such sale may not be made if (A) the
transferee (or any group (as defined in Rule 13(d)(3) of
the Exchange Act) of transferees) would purchase in that
transaction, (or pursuant to all transactions with that
Stockholder or group (as defined in Rule 13(d)(3) of the
Exchange Act) of Stockholders) more than three percent (3%) of
the fully diluted Common Stock (as of the relevant time of
determination), which will be provided promptly upon the written
request of any Stockholder to the Companys Secretary or
Chief Financial Officer determined either by reference to the
Companys most recently filed
Form 10-K
or
Form 10-Q
or upon information provided by the Company, or (B) the
transferee with respect to such Transfer is a Non-Qualified
Person; and
(v) any Transfer, occurring on or after the first (1st)
anniversary of the date hereof, of the Preferred Stock if
(A) the transferee with respect to such Transfer is not a
Non-Qualified Person, (B) the transferee (or any group (as
defined in Rule 13(d)(3) of the Exchange Act) of
transferees) would purchase in that transaction, (or pursuant to
all transactions with that Stockholder or group (as defined in
Rule 13(d)(3) of the Exchange Act) of Stockholders) more
than three percent (3%) of the fully diluted Common Stock (as of
the relevant time of determination), which will be provided
promptly upon the written request of any Stockholder to the
Companys Secretary or Chief Financial Officer determined
either by reference to the Companys most recently filed
Form 10-K
or
Form 10-Q
or upon information provided by the Company, and (C) the
aggregate number of Permitted Transferees in connection with all
Transfers of Equity Securities by (i) any single
Stockholder (other than WCAS, Lehman or Calsters) pursuant to
this clause (v) does not exceed one (1) person; and
(ii) with respect to WCAS, Lehman and Calsters pursuant to
this clause (v) does not exceed five (5), two (2) and
two (2) Persons, respectively; provided, that prior
to effecting any Transfer pursuant to this clause (v), the
transferee(s) with respect to a Transfer pursuant to this
clause (v) shall agree in writing not to Transfer any of
the Preferred Stock to a Non-Qualified Person pursuant to a
private sale.
(b) In any Transfer referred to above in clauses (i),
(ii) or (iii) of Section 2.2(a), the Permitted
Transferee shall agree in writing to be bound by all of the
provisions of this Agreement, shall execute and deliver to the
Company a counterpart to this Agreement, and shall hold all such
Securities as a Stockholder hereunder as if such
Permitted Transferee was an original signatory hereto and shall
be deemed to be a party to this Agreement. In addition, each
Permitted Transferee (A) pursuant to a Transfer by a
Stockholder other than [WCAS] referred to in clause (i),
(ii) or (iii) of Section 2.2(a) shall hold all
Equity Securities an Original Stockholder hereunder,
and (B) pursuant to a Transfer by [WCAS] referred to in
clause (iii) of Section 2.2(a) shall hold all Equity
Securities as a Subject Stockholder and an
Original Stockholder hereunder.
(c) Notwithstanding anything to the contrary contained in
this Agreement, prior to the WCAS Directorship Term End Date, at
all times during the Companys customary black-out periods
(i.e., relating to the public release of quarterly or annual
financial information) neither [WCAS] nor any of its Controlled
Affiliates shall sell any
A-94
Securities other than during any period when the directors and
officers of the Company and its Subsidiaries are not prohibited
from selling Securities pursuant to the written policies and
procedures of the Company governing transfers of Securities by
such officers and directors during such ordinary black-out
periods as may be in effect from time to time; provided,
however, that (i) the foregoing limitation shall not
apply to [WCAS] or any of its Controlled Affiliates if the
black-out period imposed by the Company results from the
occurrence of an extraordinary event affecting the Company or
any of its Subsidiaries, and (ii) if circumstances exist
such that the Company would have the right to take the actions
specified in Section 3.1(e) of this Agreement, then
(notwithstanding anything to the contrary set forth in clause
(i)) the foregoing prohibition may be imposed by the Company
under the circumstances described in Section 3.1(e) of this
Agreement, for the periods and subject to the limitations set
forth in such Section.
Section 2.3 Standstill.
For the period (the Standstill Period)
commencing on the date hereof and ending on the date on which
the Subject Stockholders, in the aggregate, no longer hold
Equity Securities constituting (or representing upon the
conversion thereof) five percent (5%) or more of the outstanding
shares of Common Stock, no Subject Stockholder shall, and each
Subject Stockholder shall cause its respective Controlled
Affiliates, unless expressly agreed in writing, in advance, by
the Company, directly or indirectly, in any manner whatsoever:
(a) acquire, announce an intention to acquire, offer or
propose to acquire, solicit an offer to sell or agree to
acquire, or enter into any arrangement or undertaking to
acquire, directly or indirectly, by purchase, or otherwise,
record or direct or indirect beneficial ownership interest in
any Standstill Securities or any assets (other than purchases of
assets in the ordinary course of business) or other securities
of the Company or any of its Subsidiaries or any direct or
indirect rights, warrants or options to acquire record or direct
or indirect beneficial ownership of any securities or assets of
the Company or any of its Subsidiaries;
(b) make, effect, initiate, cause or participate in any
take-over bid, tender offer, exchange offer, merger,
consolidation, business combination, recapitalization,
restructuring, liquidation, dissolution or other extraordinary
transaction involving the Company or any of its Subsidiaries;
(c) solicit, make, effect, initiate, cause, or in any way
participate in, directly or indirectly, any solicitation of
proxies or consents from any holders of any securities of the
Company or any of its Subsidiaries or call or seek to have
called any meeting of stockholders of the Company or any of its
Subsidiaries;
(d) form, join or participate in, or otherwise encourage
the formation of, any group (within the meaning of
Section 13(d)(3) of the Exchange Act) with respect to any
securities of the Company or any of its Subsidiaries that are
not Standstill Securities;
(e) arrange, facilitate, or in any way participate,
directly or indirectly, in any financing for the purchase of any
securities or assets of the Company or any of its Subsidiaries
that are not Standstill Securities;
(f) (i) act, directly or indirectly, to seek control
or direct the board of directors, stockholders, policies or
affairs of the Company or any of its Subsidiaries;
(ii) solicit, propose, seek to effect or negotiate with any
other Person with respect to any form of business combination
transaction involving the Company or any take-over bid, tender,
exchange offer, merger, consolidation, recapitalization,
restructuring, liquidation, dissolution, or other extraordinary
transaction involving the Company or any of its Subsidiaries; or
(iii) disclose an intent, purpose, plan or proposal with
respect to the Company, or any securities or assets of the
Company or any of its Subsidiaries that are not Standstill
Securities;
(g) take any action that is intended to or reasonably
expected to require the Company or any of its Subsidiaries to
make a public announcement regarding any of the types of matters
set forth in clauses (a) through (f), inclusive, of this
Section 2.3;
(h) agree or offer to take, or encourage or propose
(publicly or privately) the taking of, or announce an intention
to take, or otherwise make any public announcement with respect
to, any action referred to in clauses (a) through (g),
inclusive, of this Section 2.3; and
(i) request of, or propose to the Company, or any of its
representatives that the Company amend or waive or consider the
amendment or waiver of any provision of this Section 2.3.
A-95
Notwithstanding anything to the contrary in this
Section 2.3, (i) any pooled investment vehicle managed
or under the control of [WCAS] or any of its Affiliates that
primarily invests on a passive basis in debt securities or debt
instruments shall be permitted to acquire up to $50 million
in the aggregate of all classes or types of Debt Securities that
are not convertible into Equity Securities or otherwise have
voting features permitting the holders thereof to vote with the
holders of any Equity Security on any matter, (ii) this
Section 2.3 shall not apply to any indirect interest held
by any Controlled Affiliate of a Person if such Controlled
Affiliate is an individual or trust or other investment vehicle
formed for the benefit of individuals or charitable concerns and
such interest is held through another entity that is not
controlled by such Controlled Affiliate (e.g. a publicly traded
mutual fund, a blind trust or investment account or
a private equity or other private investment fund with respect
to which such Controlled Affiliate is not affiliated) and
(iii) nothing herein shall limit in anyway the conduct of
any person who is serving on the Board and who is affiliated
with WCAS or any of its Controlled Affiliates from taking any
actions in his or her capacity as such, nor prohibit any such
person or WCAS or any of its Controlled Affiliates from taking
any action in furtherance of or in order to assure that any
person who may be designated by them to serve on the Board as
contemplated by this Agreement is elected to serve on the Board.
In addition, notwithstanding anything to the contrary in this
Section 2.3, each Subject Stockholder shall be permitted to
sell its Equity Securities in any Approved Sale of the Company.
ARTICLE III
REGISTRATION
RIGHTS
Section 3.1 Required
Registrations.
(a) Shelf Registration
Statement. Subject to each Stockholders
compliance with Section 3.8, the Company shall use all
commercially reasonable efforts to file a registration statement
under the Securities Act on or about
[ , , ]1
covering all of the Registrable Securities then held by the
Stockholders on
Form S-3
or such other available forms (the Shelf
Registration) and to have such Registration Statement
declared effective to enable the resale of such Registrable
Securities after the first (1st) anniversary of the date hereof
on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act (the Shelf Registration
Statement) through NASDAQ or such other market as may
be the principal market on which the Registrable Securities are
then quoted or listed. The Company will use all commercially
reasonable efforts to cause the Shelf Registration Statement to
remain continuously effective under the Securities Act until the
earlier of (i) the date that is two (2) years (or such
longer period as may be permitted under applicable Law) after
the initial effectiveness thereof and (ii) the earliest
date on which all Registrable Securities held by the
Stockholders shall have either (A) been sold in accordance
with this Section 3.1(a) or (B) ceased to be
outstanding.
(b) Required Registrations. If, at
any time after the Shelf Registration Lapse Date, the Company
shall be requested in writing, which writing shall specify the
Registrable Securities to be sold and the intended method of
disposition thereof (a Demand Request), by
the Majority Holders, to effect a registration under the
Securities Act of Registrable Securities held by such
Stockholders (each, a Required Registration),
then the Company shall promptly use all commercially reasonable
efforts to effect such Required Registration by filing, at the
Companys option, either a
Form S-1
or
Form S-3
registration statement (a Demand Registration
Statement); provided the Company shall not be
required to comply with more than one (1) Demand Request
during any six (6) month period and shall only be obligated
to comply with four (4) Demand Requests in total;
provided, that if a Shelf Registration Lapse Date occurs
during the period beginning on the date that the Shelf
Registration contemplated by Section 3.1(a) is declared
effective and ending on the second anniversary of the date
thereof, then the limit for Demand Requests shall be increased
by one (1). Upon receipt by the Company of a Demand Request, the
Company shall deliver a written notice (a Demand
Notice) to each Stockholder who did not make such
Demand Request stating that the Company intends to comply with a
Demand Request and informing each such Stockholder of its right
to include Registrable Securities in such Required Registration.
Within ten (10) Business Days after receipt of a Demand
Notice, each Stockholder shall have the right to request in
writing that the Company include all or a specific portion of
the Registrable Securities held by such Stockholder in such
Required Registration. Notwithstanding anything to the contrary
set forth herein, the Company shall be obligated to effect any
one or more of such
1 Insert
date that is
10-month
anniversary of the closing date.
A-96
Required Registrations pursuant to a Shelf Registration
Statement if the Majority Holders so request in connection with
any Demand Request.
(c) Selection of Underwriters. In the event that the
Registrable Securities to be registered pursuant to a Required
Registration are to be disposed of in an underwritten public
offering, the underwriters of such public offering shall be one
or more underwriting firms of nationally recognized standing
selected by the Majority Holders and shall be reasonably
acceptable to the Company. In the event the Company elects to
file a Demand Registration Statement on
Form S-3
and the underwriters, if any, in such public offering or the
Majority Holders request that the Company provide disclosures
otherwise required in connection with a
Form S-1
registration statement, then the Company shall include in such
Demand Registration Statement such long form
disclosures.
(d) Priority on Required Registrations. In the event that,
in the case of any Required Registration, the managing
underwriter for the public offering contemplated by Section
3.1(b) shall advise the Company in writing (with a copy to each
holder of Registrable Securities requesting sale) that, in such
underwriters opinion, the amount of securities requested
to be included in such Required Registration would adversely
affect the public offering and sale (including pricing) of such
Registrable Securities (such writing to state the basis of such
opinion and the approximate number of Registrable Securities
that may be included in such public offering without such
effect), the Company will include in such Required Registration
the number of Registrable Securities that the Company is so
advised can be sold in such public offering, in the following
amounts:
(i) first, all Registrable Securities
requested to be sold by holders of Registrable Securities
pursuant to Section 3.1(b) pro rata among
such holders on the basis of the number of Registrable
Securities owned by each such holders; and
(ii) second, securities proposed to be sold
by the Company for its own account.
(e) Black Out
Period. Notwithstanding any other provision
of this Agreement to the contrary, if the Board reasonably
determines that the registration and distribution of Registrable
Securities (i) would reasonably be expected to impede,
delay or interfere with, or require premature disclosure of, any
material financing, offering, acquisition, merger, corporate
reorganization, segment reclassification or discontinuation of
operations, or other significant transaction or any
negotiations, discussions or pending proposals with respect
thereto, involving the Company or any of its Subsidiaries, or
(ii) would require disclosure of non-public material
information, the disclosure of which would reasonably be
expected to adversely affect the Company, the Company shall
(x) be entitled to postpone the filing or effectiveness or
suspend the effectiveness of a registration statement
and/or the
use of any prospectus for a period of time not to exceed sixty
(60) days and (y) promptly give the Stockholders
written notice of such postponement or suspension (which notice
need not specify the nature of the event giving rise to such
suspension); provided, that the Company shall not utilize
the right described in Section 3.1(b) more than once in any
six (6) month period and provided further that the Company
may extend such period to be up to ninety (90) days in the
aggregate, but if it elects to do so it shall not be permitted
to impose a subsequent black out period until a time that is
more than six (6) months after the end of such extended
black out period. Notwithstanding anything to the contrary set
forth herein, any application of the provisions of
Section 2.2(c) of this Agreement that results in a
postponement of the effectiveness of a registration statement
pursuant to this Section 3.1(e) shall not be included in
calculating the
60-day
period or
90-day
period above.
Section 3.2 Incidental
Registration.
(a) Filing of Registration
Statement. If, at any time after the first
(1st) anniversary of the date hereof the Company proposes to
register, for its own account or for the account of any other
Person any of its securities (an Incidental
Registration) under the Securities Act (other than
pursuant to a registration statement on Form S-4 or
Form S 8 or any successor forms thereto) for sale to the
public, it will at each such time give prompt written notice to
all Stockholders of its intention to do so, which notice shall
be given at least thirty (30) days prior to the date that a
registration statement relating to such registration is proposed
to be filed with the SEC. Upon the written request of any
Stockholder to include Registrable Securities held by it that
are not otherwise covered by the Shelf Registration Statement or
a Demand Registration Statement in such Incidental Registration
statement (which request shall (i) be made within fifteen
(15) days after the receipt of any such notice, and
(ii) specify the Registrable Securities intended to be
included by such holder), the Company will use all commercially
reasonable efforts to effect the registration of
A-97
all Registrable Securities that the Company has been so
requested to register by such Stockholder; provided,
however, that if, at any time after giving written notice
of its intention to register any securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any
reason to terminate such registration statement and not to
register such securities, the Company may, at its election, give
written notice of such determination to each such holder and,
thereupon, shall be relieved of its obligation to register any
Registrable Securities of such Persons in connection with such
registration.
(b) Selection and Use of
Underwriters. Underwriters, if any, in
connection with any offering pursuant to this Section 3.2
shall be selected at the sole and exclusive discretion of the
Company. No Stockholder shall Transfer any Registrable
Securities included in the Incidental Registration other than
through the underwriter or underwriters so selected by the
Company.
(c) Priority on Incidental
Registrations. If the managing underwriter
for the offering contemplated by this Section 3.2 shall
advise the Company in writing that, in such underwriters
opinion, the number of securities requested to be included in
such Incidental Registration would adversely affect the offering
and sale (including pricing) of such securities, the Company
shall include in such Incidental Registration the number of
securities that the Company is so advised can be sold in such
offering, in the following amounts and order of priority:
(i) first, securities proposed to be sold by
the Company for its own account or for the account of any other
Person not a party hereto; and
(ii) second, the Registrable Securities
requested to be registered by Stockholders pro rata among such
Stockholders on the basis of the number of Registrable
Securities owned by each such Stockholders.
Section 3.3 Registration
Procedures.
The Company will use all commercially reasonable efforts to
effect the Shelf Registration and Required Registration pursuant
to Section 3.1 and each Incidental Registration pursuant to
Section 3.2, and to cooperate with the sale of such
Registrable Securities in accordance with the intended method of
disposition thereof as quickly as reasonably practicable, and
the Company will as expeditiously as reasonably practicable:
(a) subject, in the case of an Incidental Registration, to
the proviso to Section 3.2(a), prepare and file with the
SEC the registration statement and use all commercially
reasonable efforts to cause the Registration to become effective;
(b) subject, in the case of an Incidental Registration, to
the proviso to Section 3.2(a), prepare and file with the
SEC such amendments and post-effective amendments to any
registration statement and any prospectus used in connection
therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement
until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
registration statement and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) furnish, upon request, to each holder of Registrable
Securities to be included in such Registration and the
underwriter or underwriters, without charge, at least one copy
of the signed registration statement and any post-effective
amendment thereto, and such number of conformed copies thereof
and such number of copies of the prospectus (including each
preliminary prospectus and each prospectus filed under
Rule 424 under the Securities Act), any amendments or
supplements thereto and any documents incorporated by reference
therein, as such holder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable
Securities being sold by such holder (it being understood that
the Company consents to the use of the prospectus and any
amendment or supplement thereto by each holder of Registrable
Securities covered by such registration statement and the
underwriter or underwriters, in connection with the offering and
sale of the Registrable Securities covered by the prospectus or
any amendment or supplement thereto);
A-98
(d) notify each holder of the Registrable Securities to be
included in such Registration and the underwriter or
underwriters:
(i) of any stop order or other order suspending the
effectiveness of any registration statement, issued or
threatened by the SEC in connection therewith, and take all
commercially reasonable actions required to prevent the entry of
such stop order or to remove it or obtain withdrawal of it at
the earliest possible moment if entered;
(ii) when such registration statement or any prospectus
used in connection therewith, or any amendment or supplement
thereto, has been filed and, with respect to such registration
statement or any post-effective amendment thereto, when the same
has become effective;
(iii) of any written request by the SEC for amendments or
supplements to such registration statement or
prospectus; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any
Registrable Securities for sale under the applicable securities
or blue sky laws of any jurisdiction;
(e) if requested by the managing underwriter or
underwriters, promptly incorporate in a prospectus supplement or
post-effective amendment such information relating to such
underwriting as the managing underwriter or underwriters
reasonably request to be included therein; and make all required
filings of such prospectus supplement or post-effective
amendment as soon as practicable after being notified of the
matters incorporated in such prospectus supplement or
post-effective amendment; provided, however, that
the Company shall not be required to take any action pursuant to
this Section 3.3(e) that would, in the opinion of counsel
to the Company, violate applicable Law;
(f) on or prior to the date on which a Registration is
declared effective, use all commercially reasonable efforts to
register or qualify, and cooperate with the holders of
Registrable Securities to be included in such Registration, the
underwriter or underwriters, if any, and their counsel, in
connection with the registration or qualification of the
Registrable Securities covered by such Registration for offer
and sale under the securities or blue sky laws of
each state and other jurisdiction of the United States as any
such holder or underwriter reasonably requests in writing; use
all commercially reasonable efforts to keep each such
registration or qualification effective, including through new
filings, or amendments or renewals, during the period such
registration statement is required to be kept effective; and do
any and all other acts or things reasonably necessary or
advisable to enable the disposition of the Registrable
Securities in all such jurisdictions reasonably requested to be
covered by such Registration; provided, however, that the
Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified
or to take any action which would subject it to general service
of process in any such jurisdiction where it is not then so
subject;
(g) in connection with any sale pursuant to a Registration,
cooperate with the holders of Registrable Securities to be
included in such Registration and the managing underwriter or
underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends including,
without limitation, those set forth in Section 2.1)
representing securities to be sold under such Registration, and
enable such securities to be in such denominations and
registered in such names as the managing underwriter or
underwriters, if any, or such holders may request;
(h) use all commercially reasonable efforts to cause the
Registrable Securities to be registered with or approved by such
other governmental agencies or authorities within the United
States and having jurisdiction over the Company or any
Subsidiary as may be necessary to enable the seller or sellers
thereof or the underwriter or underwriters, as applicable, to
consummate the disposition of such securities;
(i) use all commercially reasonable efforts to obtain such
legal opinions and auditors consents as may be required by
applicable Law;
(j) otherwise comply with all applicable rules and
regulations of the SEC, and make generally available to its
security holders (as contemplated by Section 11(a) under
the Securities Act) an earnings statement
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satisfying the provisions of Rule 158 under the Securities
Act no later than ninety (90) days after the end of the
twelve (12) month period beginning with the first month of
the Companys first fiscal quarter commencing after the
effective date of the registration statement, which statement
shall cover said twelve (12) month period; and
(k) use all commercially reasonable efforts to cause its
senior executive officers to participate in road
shows at the request of the underwriters in connection
with a Required Registration; provided, that such senior
executive officers shall not be required to participate in
road shows for more than two (2) Required
Registrations.
Section 3.4 Registration
Expenses.
The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities, including,
without limitation, any such registration not effected by the
Company. [WCAS] shall promptly reimburse the Company for any
incremental Registration Expenses incurred by the Company in
connection with the registration of any shares of Common Stock
acquired by [WCAS] in accordance with Section 7.7 of the
Merger Agreement as reasonably agreed by the Company and [WCAS].
Section 3.5 Indemnification;
Contribution.
(a) The Company shall indemnify, to the fullest extent
permitted by applicable Law, each holder of Registrable
Securities, its officers, directors, partners, employees and
agents, if any, and each Person, if any, who controls such
holder within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several,
resulting from any violation by the Company of the provisions of
the Securities Act or any untrue statement or alleged untrue
statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if
amended or supplemented) or any preliminary prospectus 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 (in the case of any prospectus, in light of
the circumstances under which they were made) not misleading,
except to the extent that such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses are
caused by any untrue statement or alleged untrue statement
contained in or by any omission or alleged omission from
information concerning any holder of Registrable Securities
furnished in writing to the Company by such holder expressly for
use therein. No action or failure to act on the part of the
underwriters (whether or not such underwriter is an Affiliate of
any holder of Registrable Securities) shall affect the
obligations of the Company to indemnify any holder of
Registrable Securities or any other Person pursuant to the
preceding sentence. In connection with any underwritten offering
pursuant to Section 3.2, the Company agrees to enter into
an underwriting agreement in customary form with the applicable
underwriters, and the Company agrees to indemnify such
underwriters, their officers, directors, employees and agents,
if any, and each Person, if any, who controls such underwriters
within the meaning of Section 15 of the Securities Act to
the same extent as herein before provided with respect to the
indemnification of the holders of Registrable Securities;
provided that the Company shall not be required to
indemnify any such underwriter, or any officer, director or
employee of such underwriter or any Person who controls such
underwriter within the meaning of Section 15 of the
Securities Act, to the extent that the loss, claim, damage,
liability (or proceedings in respect thereof) or expense for
which indemnification is claimed results from such
underwriters failure to send or give a copy of an amended
or supplemented final prospectus to the Person asserting an
untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such Person if such statement
or omission was corrected in such amended or supplemented final
prospectus prior to such written confirmation and the
underwriter was provided with such amended or supplemented final
prospectus.
(b) In connection with any registration statement in
connection with an offering in which a holder of Registrable
Securities is participating, each such holder, severally and not
jointly, shall indemnify, to the fullest extent permitted by
applicable Law, the Company, each underwriter and their
respective officers, directors, employees and agents, if any,
and each Person, if any, who controls the Company or such
underwriter within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages, liabilities
(or proceedings in respect thereof) and expenses resulting from
any untrue statement or alleged untrue statement of a material
fact, or any omission or alleged omission of a material fact
required to be stated in the registration statement or
prospectus
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or preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in the case
of any prospectus, in light of the circumstances under which
they were made) not misleading, but only to the extent that such
untrue statement is contained in or such omission is from
information so concerning a holder furnished in writing by such
holder expressly for use therein; provided that such
holders obligations hereunder shall be limited to an
amount equal to the net proceeds to such holder of the
Registrable Securities sold pursuant to such registration
statement.
(c) Any Person entitled to indemnification under the
provisions of this Section 3.5 shall (i) give prompt
notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim, with
counsel reasonably satisfactory to the indemnified party; and if
such defense is so assumed, such indemnifying party shall not
enter into any settlement without the consent of the indemnified
party if such settlement attributes liability to the indemnified
party and such indemnifying party shall not be subject to any
liability for any settlement made without its consent (which
shall not be unreasonably withheld); and any underwriting
agreement entered into with respect to any registration
statement provided for under this Article III shall so
provide. In the event an indemnifying party shall elect not to
assume the defense of a claim, such indemnifying party shall not
be obligated to pay the fees and expenses of more than one
counsel or firm of counsel for all parties indemnified by such
indemnifying party in respect of such claim.
(d) If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of
such losses, claims, damages, liabilities or expenses
(i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable Law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received
by the indemnifying party on the one hand and the indemnified
party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any
other relevant equitable considerations. Notwithstanding the
foregoing, no holder of Registrable Securities shall be required
to contribute any amount in excess of the amount such holder
would have been required to pay to an indemnified party if the
indemnity under Section 3.5(b) were available. 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 obligation of any Person to
contribute pursuant to this Section 3.5 shall be several
and not joint.
(e) An indemnifying party shall make payments of all
amounts required to be made pursuant to the foregoing provisions
of this Section 3.5 to or for the account of the
indemnified party from time to time promptly upon receipt of
bills or invoices relating thereto or when otherwise due or
payable.
(f) The indemnity and contribution agreements contained in
this Section 3.5 shall remain in full force and effect
regardless of any investigation made by or on behalf of a
participating holder of Registrable Securities, its officers,
directors, agents or any Person, if any, who controls such
holder as aforesaid, and shall survive the Transfer of Equity
Securities by such holder and the termination of this Agreement
for any reason.
Section 3.6 Holdback
Agreements.
Each Stockholder agrees not to sell, make any short sale of,
grant any option for the purchase of, or otherwise dispose of
any securities, other than those Registrable Securities included
in such Registration pursuant to Section 3.1 or 3.2(a) for
the seven (7) days prior to and the ninety (90) days
after the effectiveness of the registration statement pursuant
to which such offering shall be made (or such longer periods as
may be advised by the underwriter with respect to the applicable
offering but in any event not to exceed thirty (30) days
prior to and ninety (90) days after the effectiveness of
such registration statement). The Company agrees that it and its
executive officers will be subject to the holdback period
requested by the underwriters of a Required Registration, if
any, pursuant to this Section 3.6 to the extent that such
underwriters determine such holdback by the Company and its
executive officers is reasonably necessary for the successful
offering and sale of all Registrable Securities in connection
with such registration.
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Section 3.7 Availability
of Information.
The Company shall cooperate with each Stockholder who is a
holder of any Registrable Securities in supplying such
information as may be reasonably necessary for such holder to
complete and file any information reporting forms presently or
hereafter required by the SEC as a condition to the availability
of an exemption from the Securities Act for the sale of any
Registrable Securities.
Section 3.8 Information
Concerning Stockholders.
It shall be a condition precedent to the obligations of the
Company to include the Registrable Securities of any selling
Stockholder in any registration statement or prospectus, as the
case may be, that such selling Stockholder shall take the
actions described in this Section 3.8:
(a) each selling Stockholder that has requested inclusion
of its Registrable Securities in any registration statement
shall furnish to the Company in writing all information as may
be necessary to make the information previously furnished to the
Company by such Stockholder, in light of the circumstances under
which it was made, not misleading, any other information
regarding such Stockholder and the distribution of such
Registrable Securities as may be required to be disclosed in the
prospectus or registration statement under applicable Law or
pursuant to SEC comments and any information otherwise
reasonably requested from time to time by the Company to comply
with applicable Law or regulations, including, without
limitation, (i) the then current name and address of such
Stockholder(s), (ii) the aggregate number of Registrable
Securities requested to be registered, (iii) the total
number of Registrable Securities then held by such
Stockholder(s), (iv) the intended means of distribution,
and (v) any other information required to be disclosed with
respect to such Stockholder or such Stockholders
Registrable Securities in the registration statement or related
prospectus by the Securities Act;
(b) each selling Stockholder shall promptly
(i) following it becoming aware thereof, notify the Company
of the occurrence of any event that makes any statement made in
a registration statement or prospectus regarding such selling
Stockholder untrue in any material respect or that requires the
making of any changes in a registration statement or prospectus
so that, in such regard, it shall not contain any untrue
statement of a material fact or omit any material fact required
to be stated therein or necessary to make the statements (in the
case of a prospectus, in light of the circumstances under which
they were made), not misleading and (ii) in connection with
providing such notice, provide the Company with such information
in its possession as may be required to enable the Company to
prepare a supplement or post-effective amendment to any such
registration statement or a supplement to such prospectus;
(c) with respect to any registration statement for an
underwritten offering, the inclusion of a Stockholders
Registrable Securities therein shall be conditioned, at the
managing underwriters request, upon the execution and
delivery by such Stockholder of an underwriting agreement as may
be negotiated by the Company;
(d) any sale of any Registrable Securities by any
Stockholder shall constitute a representation and warranty by
such Stockholder that the prospectus delivered by such
Stockholder does not as of the time of such sale contain any
untrue statement of a material fact relating to the information
expressly provided in writing by such Stockholder for inclusion
in such prospectus and that such prospectus does not as of the
time of such sale omit to state any material fact relating to
the information expressly provided in writing by such
Stockholder for inclusion in such prospectus necessary to make
the statements in such prospectus, in light of the circumstances
under which they were made, not misleading; and
(e) no Stockholder shall use, distribute or otherwise
disseminate any free writing prospectus, as defined
in Rule 405 under the Securities Act, in connection with
the sale of Registrable Shares under the Shelf Registration
Statement, without the prior written consent of the Company.
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ARTICLE IV
BOARD OF
DIRECTORS OF THE COMPANY
Section 4.1 Composition.
(a) At the Effective Time (as defined in the Merger
Agreement), the Company shall expand the size of the Board so
that the number of members on the Board is equal to eight
(8) and shall appoint (i) one individual designated by
WCAS (the WCAS Permanent Director), whose
term ends in [2010] [2011] and (ii) another individual
designated by WCAS (the WCAS Temporary
Director), whose term ends in 2009. WCAS hereby
designates
[ ]
as the initial WCAS Permanent Director and
[ ]
as the initial WCAS Temporary Director.
(b) From and after the date hereof, the Company shall use
all commercially reasonable efforts to take all necessary and
desirable actions within its control (including calling special
board meetings) so that:
(i) the number of members on the Board will not exceed
eight (8) or such larger number as may be required to
comply with any Laws, rules or regulations including rules and
regulations concerning director independence; and
(ii) the WCAS Permanent Director will be elected to a seat
as a director of the class whose term ends in [2010] [2011]
and the WCAS Temporary Director will be elected to a seat as a
director of the class whose term ends in 2009.
(c) At the next annual meeting of the Company, and
thereafter each time the applicable class of directors comes up
for re-election, until the WCAS Directorship Term End Date, the
Board shall recommend that the stockholders of the Company elect
to the Board one (1) individual selected by WCAS to fill
the seat of the WCAS Permanent Director. WCAS shall, as promptly
as practicable (and in any event no later than the Selection
Date, provided that the Company shall provide WCAS with written
confirmation of the Selection Date 30 days prior to such
date), provide the Board with written notice of the name of the
individual so selected by it, together with such biographical
information regarding such individual as the Nominating and
Corporate Governance Committee of the Board may request.
Notwithstanding the foregoing provisions of this
Section 4.1(b), if the Nominating and Corporate Governance
Committee of the Board shall determine in its good faith and
reasonable judgment (including, without limitation, any failure
of WCASs designee to satisfy all legal and regulatory
requirements as well as any and all requirements that may be set
forth in the Companys Code of Business Conduct and Ethics
or any other governing instruments or policies of the Company)
to disqualify any designee of WCAS from service on the Board,
then the Board shall not be required to recommend the election
of such individual, and WCAS shall promptly designate a
different individual. Nothwithstanding anything to the contrary
set forth herein, if the individual selected by WCAS in
accordance with this Section 4.1(c) is not able to serve on
the Board or ceases to be affiliated with WCAS, then WCAS shall
have right to select another individual so long as WCAS provides
the Company with written notice of the name of the individual so
selected by it (together with such biographical information
regarding such individual as the Nominating and Corporate
Governance Committee of the Board may request) at least
5 days prior to the date on which the Company distributes
to its stockholders the proxy statement relating to the
applicable annual meeting.
(d) The WCAS Temporary Director shall resign from his or
her seat as director of the Company effective as of the close of
business on the earlier of the WCAS Directorship Term End Date
and December 31, 2009 (it being understood that such seat
may be filled by the remaining directors on the Board in
accordance with Section 5.4(a) of the By-Laws of the
Company). WCAS shall cause the WCAS Temporary Director to comply
with this Section 4.1(c).
(e) The WCAS Permanent Director shall resign from his or
her seat as director of the Company effective immediately on the
WCAS Directorship Term End Date (it being understood that such
seat may be filled by the remaining directors on the Board in
accordance with Section 5.4(a) of the By-Laws of the
Company). WCAS shall cause the WCAS Permanent Director to comply
with this Section 4.1(d).
(f) Notwithstanding any other provision of this
Section 4.1, the Company shall be entitled to
(i) excuse the WCAS Permanent Director and the WCAS
Temporary Director from any portion of any meeting of the Board,
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(A) when the Board discusses any matters directly relating
to the Securities or the Transaction Documents that could, in
the Boards good faith determination, present a conflict
for the WCAS Permanent Director or the WCAS Temporary Director;
or (B) if participation by the WCAS Permanent Director or
the WCAS Temporary Director in such meeting would, in the
Boards good faith determination, reasonably be expected to
waive the attorney/client privilege relating to communications
between the Company and its legal advisors with respect to such
matters and (ii) withhold information from the WCAS
Permanent Director and the WCAS Temporary Director delivered to
the Board prior to any meeting of the Board if the Company
believes there is a reasonable likelihood that the receipt of
such information by the WCAS Permanent Director or the WCAS
Temporary Director would, in the Boards good faith
determination, create a conflict of interest for the WCAS
Permanent Director of the WCAS Temporary Director in respect of
the Securities or the Transaction Documents or, if privileged,
would, in the Boards good faith determination, reasonably
be expected to effectively waive the attorney/client privilege
of the Company with respect thereto.
Section 4.2 Vacancy
and Removal.
If, during the period commencing on the date hereof and ending
on the WCAS Directorship Term End Date, a vacancy of the Board
seat occupied by the WCAS Permanent Director or the WCAS
Temporary Director occurs for any reason (including death,
resignation or removal) the remaining directors on the Board
shall fill such vacancy pursuant to Section 5.4(a) of the
By-Laws of the Company with an individual nominated by WCAS who
satisfies the requirements of the Nominating and Corporate
Governance Committee of the Board, to hold such seat (subject to
Section 4.1(d)) until the next annual meeting of the
Company at which such seat is up for re-election.
Section 4.3 Board
Observation Rights.
(a) From and after January 1, 2010 until the WCAS
Directorship Term End Date, WCAS shall be entitled to designate
one (1) observer (the WCAS Observer) to
attend, as a non-voting observer, all meetings (including
participation in telephonic meetings) of the Board. The Company
shall reimburse the WCAS Observer for his or her reasonable
out-of-pocket costs incurred in attending such meetings in
person in accordance with the Companys expense
reimbursement policy applicable to directors in effect from time
to time.
(b) The Company shall provide the WCAS Observer with
(i) notice of all meetings of the Board and (ii) all
information delivered to the Directors at the same time such
information is distributed to the Board.
(c) Notwithstanding any other provision of this
Section 4.3, the Company shall be entitled to
(i) excuse the WCAS Observer from any portion of any
meeting of the Board, (A) when the Board discusses any
matters directly relating to the Securities or the Transaction
Documents that could, in the Boards good faith
determination, present a conflict for the WCAS Observer; or
(B) if the WCAS Observers participation in such
meeting would, in the Boards good faith determination,
reasonably be expected to waive the attorney/client privilege
related to communications between the Company and its legal
advisors and (ii) withhold information from the WCAS
Observer delivered to the Board prior to any meeting of the
Board if the Company believes there is a reasonable likelihood
that the receipt of such information by the WCAS Observer would,
in the Boards good faith determination, create a conflict
of interest for the WCAS Observer in respect of the Securities
or the Transaction Documents or, if privileged, would, in the
Boards good faith determination, reasonably be expected to
effectively waive the attorney/client privilege of the Company
with respect thereto.
Section 4.4 Transfer
of Preferred Stock by WCAS.
WCASs rights under this Article IV (including,
without limitation, any right WCAS may have to designate a WCAS
Permanent Director, WCAS Temporary Director, or WCAS Observer
pursuant to the applicable provisions of this
Article IV) shall immediately terminate and expire on
the date on which the Original Stockholders cease to hold, in
the aggregate, at least two million (2,000,000) shares of
Qualifying Securities (as adjusted to reflect stock splits,
stock dividends, stock combinations, recapitalizations and like
occurrences) (the WCAS Directorship Term End
Date).
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ARTICLE V
MISCELLANEOUS
Section 5.1 Entire
Agreement.
This Agreement, including the schedules hereto and any other
documents referred to herein which form a part hereof, contains
the entire understanding of the parties hereto with respect to
the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
Section 5.2 Table
of Contents; Captions.
The table of contents and the Article and Section captions used
herein are for reference purposes only, and shall not in any way
affect the meaning or interpretation of this Agreement.
Section 5.3 Counterparts.
This Agreement may be executed in two or more counterparts, all
of which taken together shall constitute one instrument.
Section 5.4 Notices.
Any notice or other communication required or permitted under
this Agreement shall be deemed to have been duly given
(i) five (5) Business Days following deposit in the
mails if sent by registered or certified mail, postage prepaid,
(ii) when sent, if sent by facsimile transmission, if
receipt thereof is confirmed by telephone, (iii) when
delivered, if delivered personally to the intended recipient and
(iv) two (2) Business Days following deposit with a
nationally recognized overnight courier service, in each case
addressed as follows:
If to the Company, to:
[Name]
[Address]
Attention:
[ ]
Telephone:
[ ]
Facsimile:
[ ]
and if to any of the Stockholders, to the addresses or facsimile
numbers set forth opposite each of their names on
Schedule I attached hereto; or such other addresses or
number as shall be furnished in writing by any such party.
Section 5.5 Successors
and Assigns.
This Agreement shall be binding upon and inure to the benefit of
the Company, the Stockholders and their respective successors
and Permitted Transferees. Any or all of the rights of a
Stockholder under this Agreement may be assigned or otherwise
conveyed by any Stockholder only in connection with a Transfer
of Equity Securities which is in compliance with this Agreement;
provided, that notwithstanding any Permitted Transfer, the
rights of WCAS pursuant to Article IV of this Agreement
shall not be assignable to any Person (whether or not a
Permitted Transferee).
Section 5.6 Governing
Law.
The interpretation and construction of this Agreement, and all
matters relating hereto, shall be governed by the laws of the
State of Delaware, without regard to the principles of conflicts
of laws thereof.
Section 5.7 Submission
to Jurisdiction.
(a) Each of the parties hereto hereby irrevocably
acknowledges and consents that any legal action or proceeding
brought with respect to any of the obligations arising under or
relating to this Agreement may be brought in the courts of the
State of New York, County of New York or in the United States
District Court for the Southern District of New York and each of
the parties hereto hereby irrevocably submits to and accepts
with regard to any such action or proceeding, for itself and in
respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts. Each party
hereby further irrevocably waives any claim that any such
A-105
courts lack jurisdiction over such party, and agrees not to
plead or claim, in any legal action or proceeding with respect
to this Agreement or the transactions contemplated hereby
brought in any of the aforesaid courts, that any such court
lacks jurisdiction over such party. Each party irrevocably
consents to the service of process in any such action or
proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party, at its address
for notices set forth in Section 5.4, such service to
become effective ten (10) days after such mailing. Each
party hereby irrevocably waives any objection to such service of
process and further irrevocably waives and agrees not to plead
or claim in any action or proceeding commenced hereunder or
under any other documents contemplated hereby that service of
process was in any way invalid or ineffective. Subject to
Section 5.7(b), the foregoing shall not limit the rights of
any party to serve process in any other manner permitted by law.
The foregoing consents to jurisdiction shall not constitute
general consents to service of process in the State of New York
for any purpose except as provided above and shall not be deemed
to confer rights on any Person other than the respective parties
to this Agreement.
(b) Each of the parties hereto hereby waives any right it
may have under the laws of any jurisdiction to commence by
publication any legal action or proceeding with respect to this
Agreement. To the fullest extent permitted by applicable Law,
each of the parties hereto hereby irrevocably waives the
objection which it may now or hereafter have to the laying of
the venue of any suit, action or proceeding arising out of or
relating to this Agreement in any of the courts referred to in
Section 5.7(a) and hereby further irrevocably waives and
agrees not to plead or claim that any such court is not a
convenient forum for any such suit, action or proceeding.
(c) The parties hereto agree that any judgment obtained by
any party hereto or its successors or assigns in any action,
suit or proceeding referred to above may, in the discretion of
such party (or its successors or assigns), be enforced in any
jurisdiction, to the extent permitted by applicable Law.
(d) The parties hereto agree that the remedy at law for any
breach of this Agreement may be inadequate and that should any
dispute arise concerning any matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a
decree of specific performance. Such remedies shall, however, be
cumulative and nonexclusive, and shall be in addition to any
other remedies which the parties hereto may have.
(e) The prevailing party or parties in any legal action or
proceeding brought with respect to any of the obligations
arising under or relating to this Agreement shall be entitled to
receive from the losing party or parties all costs and expenses,
including reasonable counsel fees, incurred by the prevailing
party or parties.
Section 5.8 Waiver
of Jury Trial.
Each of the Company and each Stockholder hereby waives, to the
fullest extent permitted by applicable Law, any right it may
have to a trial by jury in respect of any litigation as between
the parties directly or indirectly arising out of, under or in
connection with this Agreement or the transactions contemplated
hereby or disputes relating hereto. Each of the Company and each
Stockholder (i) certifies that no representative, agent or
attorney of the Company or such Stockholder has represented,
expressly or otherwise that the Company or such Stockholder, as
the case may be, would not, in the event of litigation, seek to
enforce the foregoing waiver and (ii) acknowledges that it,
the other Stockholders and the Company have been induced to
enter into this Agreement by, among other things, the mutual
waivers and certifications in this Section 5.8.
Section 5.9 Third
Party Beneficiaries.
Each party hereto intends that this Agreement shall not benefit
or create any right or cause of action in or on behalf of any
Person other than the parties hereto.
Section 5.10 Confidentiality.
Each Stockholder hereby agrees that throughout the term of this
Agreement it shall keep (and shall use all commercially
reasonable efforts to cause its directors, officers, general and
limited partners, employees, representatives and outside
advisors and its Affiliates to keep) all non-public information
received by it relating to the Company (including any such
information received prior to the date hereof) confidential
except information which (a) becomes known to such
Stockholder from a source, other than the Company, its
directors, officers, employees, representatives or outside
advisors, which source, to the actual knowledge of such
Stockholder, is not obligated to the Company to keep such
information confidential or (b) is or becomes generally
available to the public through no
A-106
breach of this Agreement by such Stockholder. Each of the
Company and each Stockholder agrees that (i) such
non-public information may be communicated to the directors,
officers, general and limited partners, employees,
representatives, outside advisors and Affiliates of such
Stockholder and (ii) such Stockholder will use all
commercially reasonable to cause its directors, officers,
general and limited partners, employees, representatives,
outside advisors or Affiliates to keep such non-public
information confidential. Notwithstanding the foregoing, a
Stockholder may disclose non-public information if required to
do so upon request for disclosure pursuant to a federal or state
freedom of information statute or by a court of competent
jurisdiction or by any governmental agency; provided
however, that, to the extent permitted by law, prompt
notice of such required disclosure be given to the Company prior
to the making of such disclosure so that the Company may seek a
protective order or other appropriate remedy. In the event that
such protective order or other remedy is not obtained, the
Stockholder required to disclose the non-public information will
disclose only that portion which such party is legally required
to be disclosed and will request that confidential treatment be
accorded such portion of the non-public information.
Section 5.11 Expenses.
The Company shall reimburse each of the respective members of
its Board who are not employees of the Company for their
reasonable travel and out-of-pocket expenses incurred in
connection with their serving on the Board. Employees of the
Company who incur expenses in connection with their attendance
of meetings of the Board in the performance of their duties
shall also be reimbursed in accordance with the Companys
usual expense reimbursement policies.
Section 5.12 Amendments;
Waivers.
No provision of this Agreement may be amended, modified or
waived without the prior written consent of the holders of more
than fifty percent (50%) of the issued and outstanding
[Qualifying] Securities, collectively. Notwithstanding the
foregoing, the addition of parties to this Agreement in
accordance with its terms shall not be deemed to be an
amendment, modification or waiver requiring the consent of any
Stockholder.
Section 5.13 No
Strict Construction.
The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by all parties hereto,
and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any
provision of this Agreement.
Section 5.14 Specific
Performance.
Each of the Company and each Stockholder agrees that irreparable
damages would occur to the Company or such Stockholder, as the
case may be, if any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that each of the
Company and each Stockholder shall be entitled to seek an
injunction or injunctions to prevent actual breaches of this
Agreement by the Company or the Stockholders, as the case may
be, and to enforce specifically the terms and provisions hereof
in the courts referenced in Section 5.7 (or, on a
preliminary basis in order to preserve the status quo pending a
decision of the courts referenced in Section 5.7, or in
order to enforce a judgment of the courts referenced in
Section 5.7, in any court of competent jurisdiction), in
addition to having any other remedies to which the Company or
such Stockholder is entitled at law or in equity and without the
necessity of proving damages or posting a bond or other security.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
[COMPANY]
Name:
[WCAS]
Name:
[STOCKHOLDER]
Name:
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Schedule I
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A-109
EXHIBIT D
CERTIFICATE
OF DESIGNATION
OF
[CACTUS]
Pursuant
to Section 151 of the General
Corporation Law of the State of Delaware
SERIES A
CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK
[CACTUS], a Delaware corporation (the
Corporation), hereby certifies that the
following resolution has been duly adopted by the Board of
Directors of the Corporation (the Board):
WHEREAS, pursuant to the amended and restated certificate of
incorporation of the Corporation (the Amended and
Restated Certificate of Incorporation), the
Corporation is authorized to issue up to 20,000,000 shares
of preferred stock, par value $.01 per share (the
Preferred Stock), with such designations,
preferences, rights and qualifications, limitations or
restrictions as may be determined by the Board from time to
time; and
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board by the provisions of the Amended and
Restated Certificate of Incorporation, there hereby is created,
out of the 20,000,000 shares of Preferred Stock authorized
by Article IV of the Amended and Restated Certificate of
Incorporation, a series of the Preferred Stock consisting of
8,555,556 shares, which series shall have the following
powers, designations, preferences and relative, participating,
optional and other special rights, and the following
qualifications, limitations and restrictions:
1. Designation. This series
of Preferred Stock shall be designated as the
Series A Convertible Redeemable Participating
Preferred Stock.
2. Authorization. The
Corporation shall have the authority to issue
8,555,556 shares of the Series A Convertible
Redeemable Participating Preferred Stock, par value $.01 per
share, of the Corporation (the Series A Preferred
Stock).
3. Rank. The Series A
Preferred Stock shall, with respect to dividend rights, rights
upon a Liquidity Event, rights to any other distributions or
payments with respect to capital stock, voting rights and all
other rights and preferences, rank junior to each other class or
series of capital stock of the Corporation (including, without
limitation, any class or series of capital stock created after
the date hereof which by its terms ranks senior to the
Series A Preferred Stock), other than (i) in all
respects all classes or series of common stock existing or
created after the date hereof, (ii) with respect to any
other class or series of capital stock (including, without
limitation, each class or series of capital stock created after
the date hereof) which by its terms ranks junior to the
Series A Preferred Stock, it shall rank senior to each such
series of capital stock, (iii) with respect to dividends
and voting rights, it shall rank pari passu with the
Common Stock, and (iv) with respect to a distribution upon
the occurrence of a Liquidity Event it shall rank senior to the
Common Stock.
4. Dividends.
(a) Holders of record of shares of Series A Preferred
Stock shall be entitled to receive when, as and if declared by
the Board, out of funds legally available therefor, cash
dividends payable on shares of the Series A Preferred Stock
at the same time as cash dividends are paid on shares of Common
Stock (and in the same manner and amount as if such shares of
the Series A Preferred Stock had been converted at the
Conversion Rate then in effect into shares of Common Stock at
the time of such cash dividends). All dividends described in
this Section 4(a) shall be payable on the date determined
by the Board (a Dividend Payment Date). Such
dividends shall be paid to the holders of record of shares of
Series A Preferred Stock at the close of business on the
date specified by the Board at the time such dividend is
declared; provided, that such date shall not be more than
sixty (60) days nor less than ten (10) days prior to
the respective Dividend Payment Date.
A-110
(b) All dividends paid with respect to the shares of
Series A Preferred Stock pursuant to this Section 4
shall be paid pro rata to the holders of Series A
Preferred Stock.
(c) The shares of Series A Preferred Stock are subject
to the same restrictions on the payment of dividends that are
applicable to the shares of Common Stock, as set forth in the
Senior Credit Agreement.
5. Preference Upon a Liquidity Event.
(a) Upon the occurrence of a Liquidity Event, each holder
of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the
Corporation legally available for distribution to its
stockholders, whether such assets are stated capital or surplus
of any nature, a per share amount (such amount being herein
referred to as the Series A Liquidation
Preference) on such date equal to the greater of
(i) the Original Liquidation Preference plus all
declared and unpaid dividends per each share of Series A
Preferred Stock and (ii) the amount such holder would be
entitled to receive if each share of Series A Preferred
Stock held by it were converted at the Conversion Rate then in
effect into shares of Common Stock immediately prior to the
occurrence of such Liquidity Event, before any payment is made
to the holders of Common Stock or any other class or series of
capital stock of the Corporation ranking on liquidation junior
to the Series A Preferred Stock in connection with such
Liquidity Event. If, upon the occurrence of any such Liquidity
Event, the remaining assets of the Corporation legally available
for distribution to its stockholders shall be insufficient to
pay such holders the aggregate Series A Liquidation
Preference then the entire remaining assets and funds of the
Corporation legally available for distribution to the holders of
the Series A Preferred Stock shall be allocated among, and
distributed to, such holders pro rata based on the number
of shares of Series A Preferred Stock then held by each
such holder.
(b) The amount distributed to the holders of the
Series A Preferred Stock in connection with a transaction
referred to in this Section 5 shall be the cash or the fair
market value of the property, rights or other securities
distributed to such holders by the Corporation or acquiring
Person, as the case may be. The fair market value of property,
rights or other securities shall (i) in the case of
publicly traded securities, be equal to the value as calculated
in accordance with the definitive agreement(s) giving effect to
the Liquidity Event and, if the agreement(s) do not prescribe a
means for calculating such value the value shall be equal to the
volume weighted average of the securities on their principal
exchange over the thirty (30) trading days immediately
preceding the effective date of the Liquidity Event, or
(ii) in all other cases, be determined by and in the good
faith discretion of the Board; provided, however,
that (x) if the Majority Holders (the Disputing
Party) dispute in writing the Boards
determination of fair market value within ten (10) days of
the Boards determination of fair market value and the
Disputing Party and the Board are unable to reach agreement as
to the fair market value within twenty (20) days after the
date the Board receives the Disputing Partys written
dispute of the Boards determination of fair market value,
the Corporation and the Disputing Party shall seek an
independent appraisal of such fair market value by an
independent appraiser experienced in valuing the property,
rights or other securities in question and mutually agreeable to
the Corporation and the Disputing Party, and the determination
of such appraiser shall be final and binding upon the
Corporation and the Disputing Party and (y) in connection
with such appraisal, the cost and expense of such appraisal
shall be borne 50% by the Corporation and 50% by the Disputing
Party. Payment of all amounts (including, without limitation the
amounts payable pursuant to Section 5(a) hereunder)
required to be paid to the holders of the Series A
Preferred Stock shall constitute a redemption in full of such
Series A Preferred Stock and after the payment of such
amounts, all such shares of Series A Preferred Stock shall
cease to be outstanding for all purposes.
(c) The amounts set forth above and throughout this
Section 5 shall be subject to equitable adjustment whenever
there shall occur a stock dividend, stock split or combination
involving the Series A Preferred Stock.
6. Voting.
(a) Holders of record of shares of Series A Preferred
Stock shall be entitled to vote, voting together with the
holders of Common Stock as a single class, on all matters on
which the holders of Common Stock are entitled to vote as if
such shares of Series A Preferred Stock had been converted
to Common Stock at the time of such vote at the Conversion Rate
then in effect as set forth in Section 7(a).
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(b) In addition to the rights set forth in
Section 6(a) hereof, without the affirmative vote of the
Majority Holders, the Corporation may not amend this Certificate
of Designation.
7. Optional Conversion. The
holders of the Series A Preferred Stock shall have
conversion rights as follows (the Conversion
Rights):
(a) Right to Convert. Each
share of the Series A Preferred Stock shall be convertible,
at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by
the holder thereof, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing the Original Liquidation Preference by the Conversion
Price (as defined below) in effect at the time of conversion.
The Conversion Price shall initially be
$18.00 and shall be subject to adjustment from time to time as
described below.
(b) Fractional Shares. No
fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred Stock. For purposes of
determining the number of fractional shares of Common Stock that
would be issued upon conversion of Series A Preferred
Stock, the following calculation shall be performed: the
aggregate number of shares of Series A Preferred Stock that
a holder proposes to convert into shares of Common Stock shall
be multiplied by the Conversion Rate then in effect. In lieu of
issuing any fractional shares to which the holder would
otherwise be entitled based on the result of the foregoing
calculation, the Corporation shall pay cash equal to such
fraction multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock
to convert shares of Series A Preferred Stock into shares
of Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series A Preferred Stock at
the office of the transfer agent for Series A Preferred
Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any
number of the shares of Series A Preferred Stock
represented by such certificate or certificates. Such notice
shall state such holders name or the names of the nominees
in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments
of transfer, in form reasonably satisfactory to the Corporation,
duly executed by the registered holder or his, her or its
attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent)
shall be the conversion date (Conversion
Date). The Corporation shall, as soon as practicable
after the Conversion Date, issue and deliver to such holder of
Series A Preferred Stock, or to his, her or its nominees, a
certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash
in lieu of any fraction of a share.
(ii) The Corporation shall at all times when Series A
Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued Common Stock, for the purpose
of effecting the conversion of Series A Preferred Stock,
such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series A Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
applicable Conversion Price shall be made for any declared but
unpaid dividends on Series A Preferred Stock surrendered
for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock which
shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with
respect to such shares shall immediately cease and terminate on
the date that such holder of Series A Preferred Stock
becomes the record holder of the shares of Common Stock received
upon conversion, except only the right of the holders thereof to
receive shares of Common Stock in exchange therefor and the
payment of any dividends declared but unpaid thereon. Any shares
of Series A Preferred Stock so converted shall be retired
and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder
A-112
action) may from time to time take such appropriate action as
may be necessary to reduce the authorized number of shares of
Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery
of shares of Common Stock upon conversion of shares of
Series A Preferred Stock pursuant to this Section 7.
The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock
so converted were registered.
(d) Adjustment for Stock Splits and
Combinations. If the Corporation shall at any
time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the applicable
Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common
Stock, the applicable Conversion Price then in effect
immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision
or combination becomes effective.
(e) Adjustment for Certain Dividends and
Distributions. In the event the Corporation
at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination
of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock,
then and in each such event the applicable Conversion Price then
in effect immediately before such event shall be decreased as of
the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such
record date, to the amount obtained by multiplying the
applicable Conversion Price then in effect by a fraction:
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date (calculated assuming conversion of issued and
outstanding shares of Series A Preferred Stock, and the
exercise, exchange or conversion of all then outstanding
options, warrants, or exchange or subscription rights), and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date (calculated assuming conversion of issued and
outstanding shares of Series A Preferred Stock, and the
exercise, exchange or conversion of all then outstanding
options, warrants, or exchange or subscription rights)
plus the number of shares of Common Stock issuable in
payment of such dividend or distribution; provided, that
if such record date shall have been fixed and such dividend is
not fully paid or if such distribution is not fully made on the
date fixed therefor, the applicable Conversion Price shall be
recomputed accordingly as of the close of business on such
record date and thereafter and the applicable Conversion Price
shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions; and
provided, further, that no such adjustment shall
be made if, at the election of the Corporation, the holders of
shares of Series A Preferred Stock simultaneously receive a
dividend or other distribution of shares of Common Stock in a
number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series A
Preferred Stock had been converted into Common Stock on the date
of such event.
(f) Adjustments for Other Dividends and
Distributions. In the event the Corporation
at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination
of holders of shares of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of shares
of Series A Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series A
Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the
date of such event to and including the conversion date,
retained such securities receivable by
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them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph
with respect to the rights of the holders of Series A
Preferred Stock; provided, that no such adjustment shall
be made if, at the election of the Corporation, the holders of
shares of Series A Preferred Stock simultaneously receive a
dividend or other distribution of such securities in an amount
equal to the amount of such securities as they would have
received if all outstanding shares of Series A Preferred
Stock had been converted into Common Stock on the date of such
event.
(g) Adjustment for Reclassification, Exchange,
or Substitution. If the shares of Common
Stock issuable upon the conversion of shares of Series A
Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend
provided for above), then and in each such event the holder of
each such share of Series A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable,
upon such reorganization, reclassification, or other change, by
holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment
as provided herein.
(i) Certificate as to
Adjustments. Upon the occurrence of each
adjustment of the applicable Conversion Price pursuant to this
Section 7, the Corporation, at its expense, shall compute
such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of shares of Series A
Preferred Stock a statement setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A
Preferred Stock, furnish or cause to be furnished to such holder
a similar statement setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price then in
effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which then would be
received upon the conversion of such Series A Preferred
Stock.
(j) Notice of Record
Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its shares of Common Stock payable in shares of
Common Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the shares of Common Stock
of the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend or
stock distribution thereon);
(iv) of the occurrence of a Liquidity Event or the
consummation of a Sale of the Company; or
(v) that the Corporation receives a Holder Optional
Redemption written election or a Holder Corporation Sale
Optional Redemption written election in accordance with
Section 8(a) or 8(c),
then the Corporation shall use its commercially reasonable
efforts to cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred
Stock, and shall cause to be mailed to the holders of
Series A Preferred Stock at their last addresses as shown
on the records of the Corporation or such transfer agent, at
least ten (10) days prior to the date specified in
(A) below or thirty (30) days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or
combination are to be determined or the date upon which the
Holder Optional Redemption is expected to be consummated; or
(B) the date on which such Liquidity Event is expected to
occur or the date on which such Sale of the Company is expected
to be consummated, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for
A-114
securities or other property deliverable upon such Liquidity
Event or Sale of the Company; provided, that the
Corporations failure to provide any notice required under
this Section 7(j) after using commercially reasonable
efforts shall not be deemed a default, breach or violation of
this Section 7(j).
8. Holder Optional Redemptions.
(a) At any time after the tenth (10th) anniversary of the
Original Issue Date, at the written election of the Majority
Holders the Corporation shall redeem (the Holder
Optional Redemption) all of the shares of
Series A Preferred Stock then outstanding on the date
specified in the Majority Holders written election (which
date shall not be earlier than thirty (30) days after the
date of such written election or later than ninety
(90) days after the date of such written election) (such
date, the Holder Optional
Redemption Date) for an amount per share equal to
the Series A Liquidation Preference as of the Holder
Optional Redemption Date. If the funds of the Corporation
legally available for the redemption of shares of Series A
Preferred Stock shall be insufficient to permit the payment of
the amounts due to such holders on the Holder Optional
Redemption Date, then the holders of Series A
Preferred Stock shall share in any legally available funds
pro rata based on the number of shares of Series A
Preferred Stock held by each such holder. During the Default
Period, (i) the Corporation shall use commercially
reasonable efforts to obtain the funds
and/or make
funds legally available as necessary to make the remaining
payments required under this Section 8, (ii) the
number of directors on the Board shall be increased by one
(1) and the Majority Holders shall have the right to
appoint the one (1) additional director (with such director
holding office until the expiration of the Default Period) and
(iii) the amount of the remaining payments required under
this Section 8 shall accrue interest at a rate of ten
percent (10%) per annum, compounded quarterly, until the
remaining payments are paid in full. As soon as practicable
after the Corporation has funds legally available therefor, the
Corporation shall make the remaining payments required under
this Section 8.
(b) The closing of the Corporations redemption
pursuant to Section 8(a) shall take place at
10:00 a.m. Central Standard time on the Holder
Optional Redemption Date at the Corporations
principal executive office or place of business. At the closing
the Corporation shall pay to each holder of Series A
Preferred Stock, against the Corporations receipt from
such holder of the certificate or certificates representing the
shares of such Series A Preferred Stock then held by such
holder, an amount equal to the aggregate payment due pursuant to
Section 8(a) for all such shares, by wire transfer of
immediately available funds, or if such holder shall not have
specified wire transfer instructions to the Corporation prior to
the closing, by check made payable to the order of such holder;
provided, that if any certificate representing the shares
of Series A Preferred Stock has been lost, stolen or
destroyed, such holder will execute and deliver to the
Corporation an affidavit of loss in connection with such lost,
stolen or destroyed certificate(s), in a form reasonably
acceptable to the Corporation. If so required by the
Corporation, certificates surrendered for redemption shall be
endorsed or accompanied by written instrument or instruments of
transfer, in form reasonably satisfactory to the Corporation,
duly executed by the registered holder or by his, her or its
attorney duly authorized in writing.
(c) If the Corporation enters into a binding agreement in
respect of a Sale of the Company (x) on or prior to June
[22], 2008, (y) on or prior to the date that is ninety
(90) days after the Original Issue Date and the
negotiations in connection with such Sale of the Company
commenced prior to the Original Issue Date, or (z) after
the date which is ninety (90) days after the Original Issue
Date, and in any such case the per-share purchase price of the
Common Stock in connection with such Sale of the Company is less
than $23.00 per share (as adjusted to reflect stock splits,
stock dividends, stock combinations, recapitalizations and like
occurrences), then at the written election of the Majority
Holders made within ten (10) days of the receipt of the
Corporations notice pursuant to Section 7(j)(B) the
Corporation shall redeem (the Holder Corporation Sale
Optional Redemption) all of the shares of
Series A Preferred Stock then outstanding at a price per
share equal to (i) in the case if clauses (x) or
(y) above, $21.60 per share (as adjusted to reflect stock
splits, stock dividends, stock combinations, recapitalizations
and like occurrences), and (ii) in the case of
clause (z) above, the Original Liquidation Preference plus
declared but unpaid dividends (such price, the Holder
Corporation Sale Optional Redemption Price). If
any of the outstanding shares of Common Stock would receive any
proceeds in connection with such Sale of the Company, then the
aggregate Holder Corporation Sale Optional Redemption Price
shall be paid to the holders of Series A Preferred Stock
prior to any payment to the
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holders of Common Stock in connection with such Sale of the
Company; provided, that (A) if the assets of the
Corporation legally available for distribution shall be
insufficient to pay such holders the aggregate Holder
Corporation Sale Optional Redemption Price, then
(i) the entire assets and funds of the Corporation legally
available for distribution to the holders of the Series A
Preferred Stock, shall be allocated among, and distributed to,
such holders pro rata based on the number of shares of
Series A Preferred Stock then held by each such holder and
(ii) the acquiring entity in such Sale of the Company shall
pay to the holders of Series A Preferred Stock the
aggregate Holder Corporation Sale Optional Redemption Price
that remains outstanding after the payment contemplated by the
foregoing clause (i) has been made; or (B) if the
Holder Corporation Sale Optional Redemption is prohibited by the
application of Section 8(e), then the acquiring entity in
such Sale of the Company shall pay to the holders of
Series A Preferred Stock the aggregate Holder Corporation
Sale Optional Redemption Price that remains outstanding.
Payment of the Holder Corporation Sale Optional
Redemption Price pursuant to this Section 8(c) shall
constitute a redemption in full of such Series A Preferred
Stock and after the payment in full of such amounts, all such
shares of Series A Preferred Stock shall cease to be
outstanding for all purposes.
(d) The closing of the Holder Corporation Sale Optional
Redemption shall take place at the Corporations principal
executive office or place of business on the date the Sale of
the Company is consummated. At the closing the Corporation (or,
if applicable, the acquiring entity in such Sale of the Company)
shall pay to each holder of Series A Preferred Stock,
against the Corporations receipt from such holder of the
certificate or certificates representing the shares of such
Series A Preferred Stock then held by such holder, an
amount equal to the aggregate payment due pursuant to
Section 8(c) for all such shares, by wire transfer of
immediately available funds, or if such holder shall not have
specified wire transfer instructions to the Corporation prior to
the closing, by check made payable to the order of such holder;
provided, that if any certificate representing the
Series A Preferred Stock has been lost, stolen or
destroyed, such holder will execute and deliver to the
Corporation an affidavit of loss in connection with such lost,
stolen or destroyed certificate(s), in a form reasonably
acceptable to the Corporation. If so required by the
Corporation, certificates surrendered for redemption shall be
endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his, her or its attorney duly
authorized in writing.
(e) Notwithstanding any of the foregoing, the Corporation
shall not redeem any shares of Series A Preferred Stock
until after such time as both (i) all obligations under the
Senior Credit Agreement shall have been satisfied in full in
cash (other than contingent reimbursement obligations and
contingent indemnification obligations for which no claim has
been made) and (ii) the revolving loan commitments under
the Senior Credit Agreement have been terminated.
9. Corporation Optional Redemption.
(a) Subject to the holders Conversion Rights, in the event
the Majority Holders did not exercise their Holder Corporation
Sale Optional Redemption right, if applicable, the Corporation
may redeem (the Corporation Optional
Redemption) all of the shares of Series A
Preferred Stock then outstanding simultaneously with the
consummation of a Sale of the Company in which the per-share
purchase price of the Common Stock in connection with such Sale
of the Company is less than $23.00 per share (as adjusted to
reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) for an amount per share
equal to the Original Liquidation Preference plus declared but
unpaid dividends (the Corporation Optional
Redemption Price). If any of the outstanding
shares of Common Stock would receive any proceeds in connection
with such Sale of the Company, then the aggregate Corporation
Optional Redemption Price shall be paid to the holders of
Series A Preferred Stock prior to any payment to the
holders of Common Stock in connection with such Sale of the
Company; provided, that (A) if the assets of the
Corporation legally available for distribution shall be
insufficient to pay such holders the aggregate Corporation
Optional Redemption Price, then (i) the entire assets
and funds of the Corporation legally available for distribution
to the holders of the Series A Preferred Stock, shall be
allocated among, and distributed to, such holders pro rata
based on the number of shares of Series A Preferred
Stock then held by each such holder and (ii) the acquiring
entity in such Sale of the Company shall pay to the holders of
Series A Preferred Stock the aggregate Corporation Optional
Redemption Price that remains outstanding after the payment
contemplated by the foregoing clause (i) has
A-116
been made; or (B) if the Corporation Optional Redemption is
prohibited by the application of Section 9(c), then the
acquiring entity in such Sale of the Company shall pay to the
holders of Series A Preferred Stock the aggregate
Corporation Optional Redemption Price that remains
outstanding. Payment of the Corporation Optional
Redemption Price pursuant to this Section 9(a) shall
constitute a redemption in full of such Series A Preferred
Stock and after the payment in full of such amounts, all such
shares of Series A Preferred Stock shall cease to be
outstanding for all purposes.
(b) The closing of the Corporation Optional Redemption
shall take place at the Corporations principal executive
office or place of business on the date the Sale of the Company
is consummated. At the closing the Corporation (or, if
applicable, the acquiring entity in such Sale of the Company)
shall pay to each holder of Series A Preferred Stock,
against the Corporations receipt from such holder of the
certificate or certificates representing the shares of such
Series A Preferred Stock then held by such holder, an
amount equal to the aggregate payment due pursuant to this
Section 9 for all such shares, by wire transfer of
immediately available funds, or if such holder shall not have
specified wire transfer instructions to the Corporation prior to
the closing, by check made payable to the order of such holder;
provided, that if any certificate representing the
Series A Preferred Stock has been lost, stolen or
destroyed, such holder will execute and deliver to the
Corporation an affidavit of loss in connection with such lost,
stolen or destroyed certificate(s), in a form reasonably
acceptable to the Corporation. If so required by the
Corporation, certificates surrendered for redemption shall be
endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his, her or its attorney duly
authorized in writing.
(c) Notwithstanding any of the foregoing, the Corporation
shall not redeem any shares of Series A Preferred Stock
until after such time as both (i) all obligations under the
Senior Credit Agreement shall have been satisfied in full in
cash (other than contingent reimbursement obligations and
contingent indemnification obligations for which no claim has
been made) and (ii) the revolving loan commitments under
the Senior Credit Agreement have been terminated.
10. Mandatory Conversion.
(a) If (x) at any time after the one (1) year
anniversary of the Original Issue Date, the Market Price of the
Common Stock exceeds $23.00 per share (as adjusted to reflect
stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences), then effective as of
the close of business on the last trading day of the thirty
(30) day period in which the Market Price so exceeds $23.00
per share (as adjusted to reflect stock splits, stock dividends,
stock combinations, recapitalizations and like occurrences), or
(y) the Corporation enters into a binding agreement in
respect of a Sale of the Company in which the per-share purchase
price of the Common Stock in connection with such Sale of the
Company is less than $23.00 per share (as adjusted to reflect
stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) and the Majority Holders
did not exercise their Holder Corporation Sale Optional
Redemption right, if applicable, or the Corporation does not
exercise its Corporation Optional Redemption right, then all
outstanding shares of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the
then effective Conversion Rate as of the close of business on
the last day of such thirty day period or the day immediately
preceding the consummation of such Sale of the Company, as the
case may be (either of such date, the Mandatory
Conversion Date). The Corporation shall file a
Certificate of Elimination with the Secretary of State of the
State of Delaware terminating this Certificate of Designation as
soon as practicable after the Mandatory Conversion Date.
(b) All holders of record of shares of Series A
Preferred Stock shall be given written notice of the applicable
Mandatory Conversion Date and the place designated for mandatory
conversion of all such shares of Series A Preferred Stock
pursuant to this Section 10. Such notice shall be given
(x) in the case of Section 10 (a) (x), within five
(5) business days after the occurrence of the Market Price
exceeding $23.00 per share (as adjusted to reflect stock splits,
stock dividends, stock combinations, recapitalizations and like
occurrences), or (y) in the case of Section 10 (a)
(y), thirty (30) days prior to the consummation of such
Sale of the Company. Such notice shall be sent by overnight
courier or first class or registered mail, postage prepaid, to
each record holder of applicable Series A Preferred Stock
at such holders address last shown on the records of the
transfer
A-117
agent for Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of the applicable shares of
Series A Preferred Stock shall surrender his, her or its
certificate or certificates for all such shares to the
Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of
Common Stock to which such holder is entitled pursuant to this
Section 10; provided, that if any certificate
representing the Series A Preferred Stock has been lost,
stolen or destroyed, such holder will execute and deliver to the
Corporation an affidavit of loss in connection with such lost,
stolen or destroyed certificate(s), in a form reasonably
acceptable to the Corporation. Upon such holder of Series A
Preferred Stock becoming the record holder of the shares of
Common Stock received upon conversion, all rights with respect
to Series A Preferred Stock so converted will terminate,
except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore (or, if applicable,
upon delivery to the Corporation of the affidavit of loss), to
receive certificates for the number of shares of Common Stock
into which such Series A Preferred Stock has been
converted, and payment of any declared but unpaid dividends
thereon, if any. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered
holder or by his, her or its attorney duly authorized in
writing. As soon as practicable after the applicable Mandatory
Conversion Date and the surrender of the certificate or
certificates for the shares of Series A Preferred Stock,
the Corporation shall cause to be issued and delivered to such
holder, or on his, her or its written order, a certificate or
certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions
hereof and cash as provided in Section 7(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) Such converted Series A Preferred Stock may not be
reissued, and the Corporation may (but shall not be obligated
to) thereafter take such appropriate action (without the need
for stockholder action) as may be necessary to reduce the
authorized number of shares of Common Stock by the number of
shares of Series A Preferred Stock so converted.
(d) Any Series A Preferred Stock converted pursuant to
this Section 10 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the
Corporation may (but shall not be obligated to) from time to
time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
11. Restrictive
Legends. Each certificate representing shares
of Series A Preferred Stock (and shares of Common Stock
into which such shares of Series A Preferred Stock are
converted) shall be stamped or otherwise imprinted with legends
in substantially the following form:
The sale, transfer, hypothecation, negotiation, pledge,
assignment, encumbrance or other disposition of this share
certificate and the shares of [Preferred] [Common] Stock
represented hereby are restricted by and are subject to all of
the terms, conditions and provisions of that certain Preferred
Stockholders Agreement, dated
[ ],
2008, as amended from time to time, by and between the Company
and the investors party thereto, which agreement is on file at
the principal office of the Company.
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or
pursuant to any state securities laws. The securities have been
acquired for investment and may not be sold or transferred
except in compliance with the registration requirements of the
Securities Act of 1933, as amended, and applicable state
securities laws or pursuant to an exemption therefrom.
Upon the written request of any holder of Series A
Preferred Stock, (i) the Corporation shall remove the
portion of such legend that relates to the Stockholders
Agreement from the certificates evidencing any shares of
Series A Preferred Stock (or shares of Common Stock into
which such shares of Series A Preferred Stock are
converted) which cease to be bound by the Stockholders Agreement
and (ii) the Corporation shall remove the Securities Act
portion of such legend from such certificate or certificates
(provided, that such shares are eligible (as reasonably
determined by the Board) for sale pursuant to Rule 144 (or
any similar rule or rules then in effect) under the Securities
Act).
A-118
12. Exclusivity. Except as
expressly set forth herein and in the Stockholders Agreement,
the holders of Series A Preferred Stock shall have no
rights other than those provided by applicable law.
13. Amendments. The terms,
conditions, rights and preferences contained in this Certificate
of Designation may be amended, modified, waived, amended and
restated or replaced in its entirety upon the approval of the
Board with the consent of the Majority Holders.
14. Definitions;
Gender. (a) As used in this Certificate
of Designation, and unless the context requires a different
meaning, the following terms have the meanings indicated:
Amended and Restated Certificate of
Incorporation shall have the meaning set forth in
the recitals.
Board shall have the meaning set forth
in the preamble.
Certificate of Designation shall have
the meaning set forth in the recitals.
Common Stock shall mean, collectively,
the common stock, par value $.01, of the Corporation.
Conversion Date shall have the meaning
set forth in Section 7(c)(i).
Conversion Price shall have the
meaning set forth in Section 7(a).
Conversion Rate means the rate at
which shares of Series A Preferred Stock may be converted
into shares of Common Stock, as determined by dividing the
Original Liquidation Preference by the Conversion Price in
effect at the time of conversion.
Conversion Rights shall have the
meaning set forth in Section 7.
Corporation shall have the meaning set
forth in the preamble.
Corporation Optional Redemption shall
have the meaning set forth in Section 9.
Corporation Optional
Redemption Price shall have the meaning set
forth in Section 9.
Default Period means the period
beginning on the date that the Corporation fails to make any
required payment to the holders of Series A Preferred Stock
pursuant to Section 8(a) and ending on the date that the
amounts required to be paid by the Corporation to the holders of
Series A Preferred Stock pursuant to Section 8(a) have
been paid in full.
Disputing Party shall have the meaning
set forth in Section 5(b).
Dividend Payment Date shall have the
meaning set forth in Section 4(a).
Holder Corporation Sale Optional
Redemption shall have the meaning set forth in
Section 8(c).
Holder Corporation Sale Optional
Redemption Price shall have the meaning set
forth in
Section 8(c).
Holder Optional Redemption shall have
the meaning set forth in Section 8(a).
Holder Optional Redemption Date
shall have the meaning set forth in Section 8(a).
Liquidity Event shall mean a voluntary
or involuntary filing of bankruptcy of the Corporation, any
liquidation, dissolution or winding up of the Corporation but
shall not include a Sale of the Company.
Majority Holders means the holders of
Series A Preferred Stock representing at least a majority
of the then outstanding shares of the Series A Preferred
Stock, voting as a single class.
Mandatory Conversion Date shall have
the meaning set forth in Section 10(a).
Market Price means the average of the
closing prices of the Common Stock on the NASDAQ reporting
system or on the principal exchange on which the Common Stock is
traded (as reported in the Wall Street Journal) over a period of
thirty (30) days consisting of the day as of which
Market Price is being determined and the twenty nine
(29) consecutive trading days prior to such day (including
trading
A-119
days occurring prior to the one year anniversary of the Original
Issue Date); provided, that if the Common Stock is not
traded on any exchange or the over-the-counter market, then
Market Price shall be determined in good faith by
the Board (provided that the dispute mechanism set forth in
Section 5(b) shall apply if the Majority Holders dispute
the Boards determination of Market Price).
Original Issue Date shall be
[ ],
2008.
Original Liquidation Preference shall
mean $18.00 per share of the Series A Preferred Stock (as
adjusted to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences).
Person shall mean any individual,
corporation, limited partnership, general partnership, limited
liability company, joint stock company, joint venture,
association, company, trust, or any governmental or political
subdivision or any agency, department or instrumentality thereof.
Preferred Stock shall have the meaning
set forth in the recitals.
Sale of the Company shall mean
(i) any consolidation or merger of the Corporation or a
subsidiary of the Corporation in which the shares of Common
Stock are converted into cash, securities or other property
other than any consolidation or merger of the Corporation in
which holders of the Corporations capital stock
immediately prior to the consolidation or merger own greater
than 50% of the voting stock and voting power of the surviving
corporation immediately after the consolidation or merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation and its
subsidiaries other than any sale, lease, exchange or other
transfer to an entity where the Corporation owns, directly or
indirectly, greater than 50% of the outstanding voting
securities of such entity after the transfer or series of
transfers as the case may be; or
(iii) any Person has become the beneficial owner (within
the meaning of
Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as
amended) of shares of the capital stock of the Corporation
representing greater than 50% of the outstanding voting power of
the Corporation.
Securities Act means the Securities
Act of 1933, as amended.
Senior Credit Agreement means that
certain Senior Credit Agreement, by and among the Corporation,
Deutsche Bank AG New York Branch, as administrative agent, the
lenders party from time to time thereto, and the agents named
therein providing for up to $1.0 billion of revolving
credit borrowings, including any related notes, guarantees,
collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated,
modified, renewed, refunded or extended in whole or in part from
time to time under the same or any other agent, lender or group
of lenders.
Stockholders Agreement means that
certain Stockholders Agreement, dated as of
[ ],
2008 by and the Corporation and the holders of Series A
Preferred Stock party thereto, or the same may be amended,
modified or waived from time to time.
subsidiary shall mean, with respect to
any Person, any corporation, association or other business
entity of which more than fifty percent (50%) of the total
voting power of shares of capital stock or other equity
interests entitled (without regard to occurrence of any
contingency) to vote in the election of directors or other
managing authority thereof is at the time owned or controlled,
directly or indirectly, by such Person or its subsidiaries.
(b) Words expressed in the masculine shall include the
feminine and neuter gender and vice versa.
* * * * *
A-120
IN WITNESS WHEREOF the foregoing Certificate of Designation has
been duly executed on behalf of the Corporation by the
undersigned on this day
of ,
2008.
[CACTUS]
Title:
Name:
[Signature Page for Certificate of Designation]
A-121
EXHIBIT E
CERTIFICATE
OF AMENDMENT OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MOBILE MINI, INC.
MOBILE MINI, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the
Corporation) does hereby certify:
FIRST: That at a meeting of the Board of
Directors of the Corporation a resolution was duly adopted
setting forth a proposed amendment to the Amended and Restated
Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and calling a meeting of the
stockholders of the Corporation for consideration thereof. The
resolution setting forth the proposed amendments is as follows:
RESOLVED, that Article IV of the Amended and Restated
Certificate of Incorporation is amended in its entirety to read
as follows:
FOURTH: The total number of shares of all classes
of stock which the Corporation shall have authority to issue is
one hundred fifteen million (115,000,000) of which ninety five
million (95,000,000) shares shall be common stock of the par
value of one cent ($0.01) per share and twenty million
(20,000,000) shares shall be preferred stock with the par value
of one cent ($0.01) per share.
As to preferred stock, the power to issue any shares of stock of
any class or any series of any class and to designate the voting
powers, designations, preferences, and relative participating,
optional or other rights, if any, or the qualifications,
limitations, or restrictions thereof, shall be vested in the
Board of Directors.
Cumulative voting as provided for by Section 214 of
Title 8 of the Delaware Code shall not apply to the
Corporation. Preemptive rights as provided for by
Section 102(b)(3) of Title 8 of the Delaware Code
shall not be granted and are hereby expressly denied.
SECOND: That thereafter, pursuant to a
resolution of the Board of Directors, a special meeting of the
stockholders of the Corporation was duly called and held, upon
notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in
favor of the amendment.
THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
The Corporation has caused this Certificate to be executed by
Steven G. Bunger, its President, and by Lawrence Trachtenberg,
its Secretary, as
of
2008.
MOBILE MINI, INC.
ATTEST:
A-122
Annex B
February 21,
2008
The Board of
Directors
Mobile Mini, Inc.
7420 S. Kyrene
Road, Suite 101
Tempe, Arizona 85283
Members of the Board:
You have asked
Oppenheimer & Co. Inc. (Oppenheimer) to
render a written opinion (Opinion) to the Board of
Directors of Mobile Mini, Inc. (Mobile Mini) as to
the fairness, from a financial point of view, to Mobile Mini of
the Aggregate Consideration (as defined below) provided for in
an Agreement and Plan of Merger to be entered into among Mobile
Mini, its wholly owned subsidiary, Cactus Merger Sub, Inc.
(Merger Sub), MSG WC Holdings Corp. (MSG
and, together with its subsidiaries, Mobile Storage
Group) and the stockholders representative named
therein (such agreement, the Agreement). The
Agreement provides for, among other things, the merger of Merger
Sub with and into MSG and subsequent mergers of MSG and certain
of its subsidiaries with and into Mobile Mini as a result of
which Mobile Mini will acquire Mobile Services Group
(collectively, the Merger). As more fully described
in the Agreement, all outstanding shares of the common stock,
par value $0.01 per share, of MSG will be converted in the
Merger into the right to receive in the aggregate (i) a
number of shares of convertible redeemable participating
preferred stock, par value $0.01 per share, of Mobile Mini
(Mobile Mini Preferred Stock) having an aggregate
liquidation preference of $154 million (such number of
shares of Mobile Mini Preferred Stock issuable in the Merger,
the Preferred Stock Consideration) and
(ii) $12.5 million in cash (the Cash
Consideration and, together with the Preferred Stock
Consideration, the Aggregate Consideration), subject
to adjustment as more fully specified in the Agreement. A
portion of the Aggregate Consideration will be subject to an
escrow arrangement as more fully described in the Agreement and
related escrow agreement.
In arriving at our
Opinion, we:
|
|
(a)
|
reviewed a draft
dated February 20, 2008 of the Agreement and certain
related documents;
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(b)
|
reviewed audited
financial statements of Mobile Services Group, Inc., the
principal operating subsidiary of MSG (Mobile
Services), for fiscal years ended December 31, 2006,
December 31, 2005 and December 31, 2004, and draft
unaudited financial statements of Mobile Services and Mobile
Storage Group for fiscal year ended December 31, 2007
prepared by the management of Mobile Storage Group (as adjusted
by the management of Mobile Mini in the case of the draft
unaudited financial statements of Mobile Services);
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(c)
|
held discussions
with the senior managements of Mobile Mini and Mobile Storage
Group with respect to the businesses and prospects of Mobile
Mini and Mobile Storage Group;
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(d)
|
reviewed estimates
prepared by the management of Mobile Mini as to the potential
synergies and strategic benefits anticipated by the management
of Mobile Mini to result from the Merger;
|
B-1
The Board of
Directors
Mobile Mini, Inc.
February 21,
2008
Page 2
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(e)
|
reviewed and
analyzed certain publicly available financial data for companies
that we deemed relevant in evaluating Mobile Storage Group;
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(f)
|
reviewed and
analyzed certain publicly available information for transactions
that we deemed relevant in evaluating the Merger;
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(g)
|
reviewed the
financial terms of Mobile Mini Preferred Stock, including the
conversion and redemption features thereof;
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(h)
|
reviewed historical
market prices of the common stock, par value $0.01 per share, of
Mobile Mini (Mobile Mini Common Stock);
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(i)
|
reviewed certain
potential pro forma financial effects of the Merger on Mobile
Mini based on financial forecasts and estimates relating to
Mobile Mini and Mobile Storage Group on a combined basis for
calendar years 2008 through 2010 (including estimates as to the
potential synergies and strategic benefits anticipated by the
management of Mobile Mini to result from the Merger) prepared by
the management of Mobile Mini;
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(j)
|
reviewed other
public information concerning Mobile Mini and Mobile Storage
Group; and
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(k)
|
performed such other
analyses, reviewed such other information and considered such
other factors as we deemed appropriate.
|
In rendering our
Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of
all of the financial and other information provided to or
discussed with us by Mobile Mini, Mobile Storage Group and their
respective employees, representatives and affiliates or
otherwise reviewed by us. As you are aware, Mobile Mini was not
provided with financial forecasts for Mobile Services or Mobile
Storage Group prepared by the management of Mobile Storage Group
beyond calendar year 2008. In addition, based on the assessments
of the management of Mobile Mini as to the likelihood of
achieving the financial results reflected in the financial
forecasts provided by the management of Mobile Storage Group for
calendar year 2008, we were directed by the management of Mobile
Mini not to rely upon such financial forecasts for purposes of
our analyses, and further have been advised by the management of
Mobile Mini that financial forecasts for Mobile Services or
Mobile Storage Group on a standalone basis have not been
prepared by the management of Mobile Mini. Accordingly, with the
consent of Mobile Mini, we have not undertaken an analysis of
the financial performance of Mobile Storage Group on a
standalone basis beyond calendar year 2007. With respect to the
draft unaudited financial statements of Mobile Services and
Mobile Storage Group for fiscal year ended December 31,
2007 prepared by the management of Mobile Storage Group (as
adjusted by the management of Mobile Mini in the case of the
draft unaudited financial statements of Mobile Services), we
have been advised and, at the direction of Mobile Mini, have
assumed, without independent verification or investigation, that
such financial statements (including adjustments thereto) were
reasonably prepared on bases reflecting the best available
information, estimates and judgments of the managements of
Mobile Storage Group and Mobile Mini, as the case may be, and
further have assumed that the audited financial statements of
Mobile Services and Mobile Storage Group for fiscal year ended
December 31, 2007, when completed, will not vary materially
from the unaudited financial statements for such fiscal year
reviewed by us. With respect to the financial forecasts and
estimates relating to Mobile Mini and Mobile Storage Group on a
combined basis utilized by us in evaluating certain potential
pro forma financial effects of the
B-2
The Board of
Directors
Mobile Mini, Inc.
February 21,
2008
Page 3
Merger on Mobile
Mini (including estimates prepared by the management of Mobile
Mini as to the potential synergies and strategic benefits
anticipated by the management of Mobile Mini to result from the
Merger), we have assumed, at the direction of Mobile Mini,
without independent verification or investigation, that such
forecasts and estimates were reasonably prepared on bases
reflecting the best available information, estimates and
judgments of the management of Mobile Mini as to the future
financial condition and operating results of the combined
company and such synergies and strategic benefits. We also have
relied, at the direction of Mobile Mini, without independent
verification or investigation, on the assessments of the
management of Mobile Mini as to the ability of Mobile Mini to
integrate the businesses of Mobile Mini and Mobile Storage
Group. We have assumed, with the consent of Mobile Mini, that
the Merger will be treated as a reorganization for federal
income tax purposes. Representatives of Mobile Mini have advised
us, and we therefore also have assumed, that the final terms of
the Agreement will not vary materially from those set forth in
the draft reviewed by us. We have assumed, with the consent of
Mobile Mini, that the Merger will be consummated in accordance
with its terms without waiver, modification or amendment of any
material term, condition or agreement and in compliance with all
applicable laws and other requirements and that, in the course
of obtaining the necessary regulatory or third party approvals,
consents and releases with respect to the Merger, no delay,
limitation, restriction or condition will be imposed, that would
have an adverse effect on Mobile Mini, Mobile Storage Group or
the Merger (including the contemplated benefits to Mobile Mini
of the Merger). We have neither made nor obtained any
independent evaluations or appraisals of the assets or
liabilities, contingent or otherwise, of Mobile Mini or Mobile
Storage Group.
We are not
expressing any opinion as to the underlying valuation, future
performance or long-term viability of Mobile Mini or Mobile
Storage Group, the actual value of Mobile Mini Preferred Stock
(or the shares of Mobile Mini Common Stock into which shares of
Mobile Mini Preferred Stock are convertible) when issued or the
prices at which Mobile Mini Preferred Stock or Mobile Mini
Common Stock will trade or otherwise be transferable at any
time. We express no view as to, and our Opinion does not
address, any terms or other aspects or implications of the
Merger (other than the Aggregate Consideration to the extent
expressly specified herein) or any aspect or implication of any
other agreement, arrangement or understanding entered into in
connection with the Merger or otherwise, including, without
limitation, the form or structure of the Merger or the Aggregate
Consideration, any adjustments to the Aggregate Consideration or
the terms of Mobile Mini Preferred Stock. In addition, we
express no view as to, and our Opinion does not address, the
fairness of the amount or nature of, or any other aspect
relating to, the compensation to be received by any individual
officers, directors or employees of any parties to the Merger,
or any class of such persons, relative to the Aggregate
Consideration. We also express no view as to, and our Opinion
does not address, the underlying business decision of Mobile
Mini to effect the Merger nor does our Opinion address the
relative merits of the Merger as compared to any alternative
business strategies that might exist for Mobile Mini or the
effect of any other transaction in which Mobile Mini might
engage. Our Opinion is necessarily based on the information
available to us and general economic, financial and stock market
conditions and circumstances as they exist and can be evaluated
by us on the date hereof. It should be understood that, although
subsequent developments may affect this Opinion, we do not have
any obligation to update, revise or reaffirm the Opinion.
The issuance of this
Opinion was approved by an authorized committee of Oppenheimer.
As part of our investment banking business, we are regularly
engaged in valuations of businesses
B-3
The Board of
Directors
Mobile Mini, Inc.
February 21,
2008
Page 4
and securities in
connection with acquisitions and mergers, underwritings,
secondary distributions of securities, private placements and
valuations for other purposes.
We have acted as
financial advisor to Mobile Mini in connection with the Merger
and will receive a fee for our services, a portion of which will
be payable upon delivery of this Opinion and a significant
portion of which is contingent upon consummation of the Merger.
In addition, the assignor of certain investment banking assets
of Oppenheimer in the past performed investment banking and
other services for Mobile Mini unrelated to the Merger, for
which services such assignor received compensation, including
having acted as joint bookrunner for an offering of senior notes
of Mobile Mini in May 2007 and as joint bookrunner for an
offering of Mobile Mini Common Stock in March 2006. In the
ordinary course of business, we and our affiliates may actively
trade securities of Mobile Mini and debt securities of Mobile
Services for our and our affiliates own accounts and for
the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Based upon and
subject to the foregoing, and such other factors as we deemed
relevant, it is our opinion that, as of the date hereof, the
Aggregate Consideration to be paid by Mobile Mini pursuant to
the Agreement is fair, from a financial point of view, to Mobile
Mini. This Opinion is for the use of the Board of Directors of
Mobile Mini in its evaluation of the Merger and does not
constitute a recommendation to any stockholder as to how such
stockholder should vote or act with respect to any matters
relating to the Merger.
Very truly yours,
OPPENHEIMER &
CO. INC.
B-4
Annex
C
TABLE OF
CONTENTS
ANNEX
C
The following has been extracted from Mobile Mini, Inc.s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, filed with the
SEC on February 29, 2008 and its
Form 10-K/A
dated March 18, 2008 and filed that same day with the SEC.
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CE-1
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C-i
BUSINESS.
Merger
with Mobile Storage Group
On February 22, 2008, we entered into a definitive merger
agreement with Mobile Storage Group, Inc. of Glendale,
California. Mobile Storage Group will merge into Mobile Mini in
a transaction valued at approximately $701.5 million.
Pursuant to the merger, we will assume approximately
$535.0 million of Mobile Storage Groups outstanding
indebtedness and will acquire all outstanding shares of Mobile
Storage Group for $12.5 million in cash and shares of newly
issued Mobile Mini convertible preferred stock with a
liquidation preference of $154.0 million, which will be
initially convertible into approximately 8.55 million
shares of our common stock, and is redeemable at the
holders option following the tenth year after the issue
date.
The merger is expected to generate cost synergies of at least
$25.0 million on an annualized basis, which we expect to be
fully realized by the end of fiscal 2009. The cost synergies are
a result of the significant overlap in corporate functions and
branch infrastructure. We believe that the combination with
Mobile Storage Group will add 21 new locations in the
U.S. and 14 locations in the U.K.
Closing of the transaction is subject to approval by our
stockholders, obtaining required governmental approvals, receipt
of a new $1.0 billion asset-based revolving credit facility
and customary closing conditions. No closing date has been set
at this time. Depending on the timing of various disclosure
requirements, the stockholder meeting and regulatory approvals,
the transaction is expected to close as early as June 2008. Our
discussion of our business, financial conditions and results of
operations in this Report does not include the anticipated
effects of the combination with Mobile Storage Group.
Mobile
Mini, Inc.
We were founded in 1983 and we believe we are one of the largest
providers of portable storage solutions in the
United States through our total lease fleet of 160,100
portable storage and portable office units at December 31,
2007. We offer a wide range of portable storage products in
varying lengths and widths with an assortment of differentiated
features such as our proprietary security systems, multiple
doors, electrical wiring and shelving. At December 31,
2007, we operated through a network of 56 branches located in
the United States, three in Canada, six in the United Kingdom,
and one in The Netherlands. Our portable units provide secure,
accessible temporary storage for a diversified client base of
approximately 93,000 customers, including large and small
retailers, construction companies, medical centers, schools,
utilities, distributors, the U.S. and U.K. military,
hotels, restaurants, entertainment complexes and households. Our
customers use our products for a wide variety of storage
applications, including retail and manufacturing inventory,
construction materials and equipment, documents and records and
household goods. Based on an independent market study, we
believe our customers are engaged in a vast majority of the
industries identified in the four-digit SIC (Standard Industrial
Classification) manual published by the U.S. Bureau of the
Census. During the twelve months ended December 31, 2007,
we generated revenues of approximately $318.3 million.
Since 1996, we have followed a strategy of focusing on leasing
rather than selling our portable storage units. We believe this
leasing model is highly attractive because the vast majority of
our fleet (determined by unit count) consists of steel portable
storage units which:
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provide predictable, recurring revenues from leases with an
average duration of approximately 27 months;
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have average monthly lease rates that recoup our current unit
investment within an average of 34 months;
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have long useful lives exceeding 25 years, low maintenance
and high residual values; and
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produce incremental leasing operating margins of approximately
54%.
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Since 1996, we have increased our total lease fleet from
13,600 units to 160,100 units as of December 31,
2007, for a compound annual growth rate, or CAGR, of 25.1%. As a
result of our focus on leasing, we have achieved substantial
increases in our revenues, margins and profitability. Our annual
leasing revenues have increased from $17.9 million in 1996
to $284.6 million in 2007, representing a CAGR of 28.6%. In
addition to our leasing
CA-1
operations, we sell new and used portable storage units and
provide delivery, installation and other ancillary products and
services.
Our fleet is primarily comprised of refurbished and customized
steel portable storage containers, which were built according to
the standards developed by the International Organization for
Standardization (ISO), other steel containers that
we manufacture and mobile offices. We refurbish and customize
our purchased ISO containers by adding our proprietary locking
and easy-opening door systems. These assets are characterized by
low risk of obsolescence, extreme durability, long useful lives
and a history of high-value retention. In 2000, we began adding
wood mobile office units to the lease fleet to complement our
core steel portable storage products. We maintain our steel
containers and mobile offices on a regular basis. This
maintenance of our steel products consists primarily of
repainting units every two to three years, essentially keeping
them in the same condition as when they entered our fleet.
Repair and maintenance of our wood mobile offices primarily
consists of replacing the interior flooring which could be
either tile or carpeting. Repair and maintenance expense for our
fleet has averaged 4.3% of lease revenues over the past three
fiscal years and is expensed as incurred. We believe our
historical experience with leasing rates and sales prices for
these assets demonstrates their high-value retention. We are
able to lease our portable storage containers at similar rates,
without regard to the age of the container. In addition, we have
sold containers and steel offices from our lease fleet at an
average of 148% of original cost from 1997 through 2007.
Appraisals on our fleet are conducted on a regular basis by an
independent appraiser selected by our banks, and the appraiser
does not differentiate in value based upon the age of the
container or the length of time it has been in our fleet. Our
most recent fair market value and orderly liquidation value
appraisals were conducted in December 2007. This fair market
value appraisal appraised our fleet at a value in excess of net
book value. At December 31, 2007, based on these
appraisals, the fair market value of our lease fleet was
approximately 114.0% of our lease fleet net book value; and the
orderly liquidation value appraisal, on which our borrowings
under our revolving credit facility are based, appraised our
lease fleet at approximately $656.3 million, which equates
to 81.7% of the lease fleet net book value.
Industry
Overview
The storage industry includes two principal segments, fixed
self-storage and portable storage. The fixed self-storage
segment consists of permanent structures located away from
customer locations used primarily by consumers to temporarily
store excess household goods. We do not participate in the fixed
self-storage segment.
The portable storage segment, in which our business operates,
differs from the fixed self-storage segment in that it brings
the storage solution to the customers location and
addresses the need for secure, temporary storage with immediate
access to the storage unit. The advantages of portable storage
include convenience, immediate accessibility, better security
and lower price. In contrast to fixed self-storage, the portable
storage segment is primarily used by businesses. This segment of
the storage industry is highly fragmented and remains primarily
local in nature. We believe the portable storage business in the
United States exceeds $1.5 billion in revenue annually.
Historically, portable storage solutions included containers,
van trailers and roll-off units. We believe portable storage
containers are achieving increased market share compared to the
other options because of an increasing awareness that only
containers provide ground level access and protect against
damage caused by wind or water. As a result, containers can meet
the needs of a diverse range of customers. Portable storage
containers such as ours provide ground level access, higher
security and improved aesthetics compared with certain other
portable storage alternatives such as van trailers. Although
there are no published estimates of the size of the portable
storage segment, we believe the size of the segment is expanding
due to increasing awareness of the advantages of portable
storage.
Our products also serve the mobile office industry. This
industry provides mobile offices and other modular structures
and is estimated by the Modular Building Institute to be
approximately $5 billion in revenue annually in North
America. We offer combined storage/office units and mobile
offices in varying lengths and widths, with lease terms in North
America averaging approximately 13 months.
We also offer portable record storage units and many of our
regular storage units are used for document and record storage.
The documents and records storage industry is experiencing
significant growth as businesses continue to generate
substantial paper records that must be kept for extended periods.
CA-2
Our goal is to continue to be the leading U.S. nationwide
provider of portable storage solutions and to successfully
continue our operating methods in the United Kingdom. We believe
our competitive strengths and business strategy will enable us
to achieve these goals.
Competitive
Strengths
Our competitive strengths include the following:
Market Leadership. At December 31, 2007,
we maintained a total fleet of approximately 162,800 units,
which are held for lease and for sale, and we are the largest
provider of portable storage solutions in a majority of our
United States markets. At December 31, 2007, our lease
fleet was comprised of approximately 160,100 units and our
sales fleet was comprised of approximately 2,700 units. We
believe we are creating brand awareness and the name
Mobile Mini is associated with high quality portable
storage products, superior customer service and value-added
storage solutions. We have achieved significant growth in new
and existing markets by capturing market share from competitors
and by creating demand among businesses and consumers who were
previously unaware of the availability of our products to meet
their storage needs.
Superior, Differentiated Products. We offer
the industrys broadest range of portable storage products,
with many customized features that differentiate our products
from those of our competition. We design and manufacture our own
portable storage units in addition to restoring and modifying
used ocean-going containers. These capabilities allow us to
offer a wide range of products and proprietary features to
better meet our customers needs, charge premium lease
rates and gain market share from our competitors, who offer more
limited product selections. Our portable storage units vary in
size from 5 to 48 feet in length and 8 to 10 feet in
width. The 10-foot wide units we manufacture provide 40% more
usable storage space than the standard eight-foot-wide
ocean-going containers offered by our competitors. The vast
majority of our products have a proprietary locking system and
multiple door options. In addition, we offer portable storage
units with electrical wiring, shelving and other customized
features.
Geographic and Customer Diversification. From
our 66 branches of which 56 are located in 32 states in the
United States, three in Canada, six in the United Kingdom, and
one in The Netherlands, we served approximately 93,000 customers
from a wide range of industries in 2007. Our customers include
large and small retailers, construction companies, medical
centers, schools, utilities, distributors, the U.S. and
U.K. militaries, government agencies, hotels, restaurants,
entertainment complexes and households. Our diverse customer
base demonstrates the broad applications for our products and
our opportunity to create future demand through targeted
marketing. In 2007, our largest and our second-largest customers
accounted for 1.8% and 0.9% of our leasing revenues,
respectively, and our twenty largest customers accounted for
approximately 4.9% of our leasing revenues. During 2007,
approximately 65.3% of our customers rented a single unit. We
believe this diversity also reduces our susceptibility to
economic downturns in our markets or in any of the industries in
which our customers operate. The fact that our business
continued to grow during the economic downturn of 2002 and 2003,
although at a slower than historic pace, demonstrates a measure
of resistance to recession in our business model.
Customer Service Focus. We believe the
portable storage industry is particularly service intensive and
essentially local. Our entire organization is focused on
providing high levels of customer service, and our salespeople
work out of our branch locations to better understand local
market needs. We have trained our sales force to focus on all
aspects of customer service from the sales call onward. We
differentiate ourselves by providing flexible lease terms,
security, convenience, product quality, broad product selection
and availability, and competitive lease rates. We conduct
on-going training programs for our sales force to assure high
levels of customer service and awareness of local market
competitive conditions. Our customized enterprise resource
planning system also increases our responsiveness to customer
inquiries and enables us to efficiently monitor our sales
forces performance. Due to our orientation towards
customer service, 47.8% of our 2007 leasing revenues was derived
from repeat customers.
Sales and Marketing Emphasis. We target a
diverse customer base and, unlike most of our competitors, we
have developed sophisticated sales and marketing programs
enabling us to expand market awareness of our products and
generate strong internal growth. We have over 400 dedicated
commissioned salespeople, and we
CA-3
assist them by providing them with our highly customized contact
management system and intensive sales training programs. We
monitor our salespersons effectiveness through our
extensive sales monitoring programs. Yellow pages and
direct-mail advertising are integral parts of our sales and
marketing approach. In 2007, our total advertising costs were
$10.1 million, and we mailed approximately 7.4 million
product brochures to existing and prospective customers as well
as our website, which was enhanced in 2007 to include value
added features such as product video tours, online payment
capabilities and online real time sales inquiries
enabling customers to chat live with our salespeople.
Customized Enterprise Resource Planning
System. We made significant investments in
improving and developing a new (ERP) Enterprise Resource
Planning system. In 2006, we underwent a conversion from our
then existing ERP system in North America to a more
sophisticated and robust technology that enhanced our reporting
processes obtained under our previous environment. These
investments and the subsequent conversion of our ERP system
enable us to further optimize fleet utilization, control
pricing, capture detailed customer data, easily control credit
approval while approving it quickly, audit by exception reports,
gain efficiencies in internal control compliance and support our
growth by projecting near-term capital needs. Our ERP system
allow us to carefully monitor, on a daily basis, the size, mix,
utilization and lease rates of our lease fleet by branch on a
real time basis. Our systems also capture relevant customer
demographic and usage information, which we use to target new
customers within our existing and new markets. Our Tempe,
Arizona corporate headquarters and each North America branch are
linked through a scaleable Windows-based wide area network that
provides real-time transaction processing and detailed reports
on a
branch-by-branch
basis. In 2007, we brought our European operations onto the same
ERP system making available to them all the enhancements and
reporting capabilities we have in the U.S. We intend to
continue this investment during 2008 to further optimize the
reporting features of this new system and to further develop our
European operations to take advantage of our sophisticated
reporting environment.
Business
Strategy
Our business strategy consists of the following:
Focus on Core Portable Storage Leasing
Business. We focus on growing our core leasing
business because it provides predictable, recurring revenue and
high margins. We believe that we can generate substantial demand
for our portable storage units throughout North America and in
Europe. Our leasing revenues have grown from $17.9 million
in 1996 to $284.6 million in 2007, reflecting a CAGR of
28.6%.
Generate Strong Internal Growth. We focus on
increasing the number of portable storage units we lease from
our existing branches to both new and repeat customers. Our
growth rate is dependent in part upon general economic
conditions, and during periods of slow economic growth we are
more likely to focus on growth by acquisitions in order to
leverage our cost structure and to maintain our growth and
profitability. Historically, we have been able to generate
strong internal growth within our existing markets through
sophisticated sales and marketing programs aimed to increase
brand recognition, expand market awareness of the uses of
portable storage and differentiate our superior products from
our competitors. We define internal growth as growth in lease
revenues on a
year-over-year
basis at our branch locations in operation for at least one
year, without inclusion of leasing revenue attributed to
same-market acquisitions. The internal growth rate has remained
positive every quarter, but in 2002 and 2003 had fallen to
single digits, from over 20% prior to 2002. In 2005, our
internal growth rate accelerated to an average of 25.3% for the
year, reflecting a continued improvement in both economic and
market conditions. During 2007, our internal growth rate
averaged 11.8% for the year. In our eight oldest markets, all of
which we have operated in for at least twelve years, we achieved
an internal growth rate of 4.1% in 2007, demonstrating the
growth we believe that we can continue to achieve in our most
mature markets.
Branch Expansion. We believe we have an
attractive geographic expansion opportunity, and we have
developed a new market entry strategy, which we replicate in
each new market in the United States. We typically enter a new
market by acquiring the lease fleet assets of a small local
portable storage business to minimize
start-up
costs and then overlay our business model onto the new branch.
Our business model consists of significantly expanding the fleet
inventory with our differentiated products, introducing our
sophisticated
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sales and marketing program supported by increased advertising
and direct marketing expenditures, adding experienced Mobile
Mini personnel and implementing our customized ERP system. As a
result of implementing our business model, our new branches
typically achieve very strong organic growth during their first
several years.
We have identified many markets where we believe demand for
portable storage units is underdeveloped. Typically, these
markets are being served by small, local competitors. We
established our eight original branches between our founding in
1983 and 1995. In 1998, we began entering new markets through
our expansion strategy as illustrated in the following table:
New
Market Expansion
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Year Established
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Acquisition
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Start Up
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Total
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1998
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3
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1
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4
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1999
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6
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1
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7
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2000
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9
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1
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10
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2001
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6
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0
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6
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2002
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10
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1
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11
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2003
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1
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0
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1
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2004
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1
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0
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1
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2005
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0
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3
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3
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2006
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11
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0
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11
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2007
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3
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1
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4
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Total
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50
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8
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58
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Our expansion program and other factors can affect our overall
lease fleet asset utilization rate. During the last five years,
our annual utilization levels averaged 80.8%, and ranged from a
low of 78.7% in 2003 to a high of 82.9% in 2005. Our utilization
rate averaged 79.6% during 2007.
Continue to Enhance Product Offering. We
continue to enhance our existing products to meet our
customers needs and requirements. We have historically
been able to introduce new products and features that expand the
applications and overall market for our storage products. For
example, in 1998 we introduced a 10-foot wide storage unit that
has proven to be a popular product with our customers. In 1999,
we completed the design of a records storage unit, which
provides highly secure,
on-site,
easily accessible storage. We market this unit as a records
storage solution for customers who require easy access to
archived business records close at hand. In 2000, we added wood
mobile offices as a complementary product to better serve our
customers. In 2001, we redesigned and improved our security
locking system, making it easier to use, especially in colder
climates. In 2003, we were issued patents in connection with the
new locking system design and other improvements made. One
patent application was extended and issued in 2006. In 2006, we
applied for several patents for improvements or modifications to
our locking systems. These applications, all of which are still
pending, were filed in the United States, Europe and China. In
2002, we added a 10-by-30-foot steel combination storage/office
unit to complement the various other sizes we have in our fleet.
Currently, the 10-foot-wide unit, the record storage unit and
the 10-by-30-foot steel combination storage/office unit are
exclusively offered by Mobile Mini. We believe our design and
manufacturing capabilities increase our ability to service our
customers needs and expand demand for our portable storage
solutions.
CA-5
Products
We provide a broad range of portable storage products to meet
our customers varying needs. Our products are managed and
our customers are serviced locally by our employee team at each
of our branches, including management, sales personnel and yard
facility employees. Some features of our different products are
listed below:
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Refurbished and Modified Storage Units. We
purchase used ocean-going containers from leasing companies,
shipping lines or brokers. These containers are eight feet wide,
86 to 96 high and 20, 40 or 45 feet
long. After acquisition, we refurbish and modify the ocean-going
containers. Refurbishment typically involves cleaning, removing
rust and dents, repairing floors and sidewalls, painting, adding
our signs and installing new doors and our proprietary locking
system. Modification typically involves splitting those
containers into 5-, 10-, 15-, 20- or 25-foot lengths.
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Manufactured Storage Units. We manufacture
portable steel storage units for our lease fleet and for sale.
We do this at our manufacturing facility in Maricopa, Arizona.
We can manufacture units up to 12 feet wide and
50 feet long and can add doors, windows, locks and other
customized features. We also offer a 10-foot-wide unit, which
provides 40% more usable storage space than a standard
eight-foot-wide unit. Typically, we manufacture
knock-down units, which we ship to our branches.
These units are then assembled by our branches that have
assembly capabilities or by third-party assemblers. This method
of shipment is less expensive than shipping fully assembled
storage units.
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Steel Combination Mobile Office and Storage/Office
Units. We buy and manufacture steel combination
storage/office and mobile office units that range from 10 to
40 feet in length. We offer these units in various
configurations, including office and storage combination units
that provide a 10- or 15-foot office with the remaining area
available for storage. We believe our office units provide the
advantage of ground accessibility for ease of access and high
security in an all-steel design. Europe also offers canteen
units and drying rooms for the construction industry. In Europe,
where space is limited, the office/canteen units can also be
stacked two high with stairs for access to the top unit. These
office units are equipped with electrical wiring, heating and
air conditioning, phone jacks, carpet or tile, high security
doors and windows with security bars or shutters. In Europe,
some of the offices are also equipped with sinks, hot water
heaters, cabinets and restrooms.
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Wood Mobile Office Units. We added wood office
units to our product line in 2000. We purchase these units,
which range from eight to 24 feet in width and 20 to
60 feet in length, from manufacturers. These units have a
wide range of exterior and interior options, including exterior
stairs or ramps, awnings and skirting. These units are equipped
with electrical wiring, heating and air conditioning, phone
jacks, carpet or tile and windows with security bars. Many of
these units contain restrooms.
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Records Storage Units. We market and
manufacture proprietary portable records storage units that
enable customers to store documents at their location for easy
access, or at one of our facilities. Our units are
10.5 feet wide and are available in
12-and
23-foot lengths. The units feature high-security doors and
locks, electrical wiring, shelving, folding work tables and air
filtration systems. We believe our product is a cost-effective
alternative to mass warehouse storage, with a high level of fire
and water damage protection.
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Van Trailers and Other Non-Core Storage
Units. Our acquisitions typically entail the
purchase of small companies with lease fleets primarily
comprised of standard ISO containers. However, many of these
companies also have van trailers and other manufactured storage
products that are inferior to standard containers. It is our
goal to dispose of these
sub-standard
units from our fleet either as their initial rental period ends
or within a few years. We do not refurbish these products. See
Product Lives and Durability Van Trailers and
Other Non-Core Storage Products below. At
December 31, 2007, van trailers comprised less than 0.2% of
our fleet, measured by unit count and by book cost basis.
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We purchase used ocean-going containers and refurbish and modify
them at our manufacturing facility in Arizona and at our other
branch locations. At certain branches, we also contract with
third parties to refurbish and modify our units. We believe we
are able to purchase used ocean-going containers at competitive
prices because of our volume purchasing power. The used
ocean-going containers we purchase are typically about eight to
12 years old. We believe our steel portable storage units,
steel offices, and wood modular offices have estimated useful
lives
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of 25 years, 25 years, and 20 years,
respectively, from the date we build or acquire and refurbish
them, with residual values of our
per-unit
investment ranging from 50% for our mobile offices to 62.5% for
our core steel products. Van trailers, which comprised less than
0.2% of the gross book value of our lease fleet at
December 31, 2007, are depreciated over seven years to a
20% residual value. For the past three fiscal years, our cost to
repair and maintain our lease fleet units averaged approximately
4.3% of our lease revenues. Repainting the outside of storage
units is the most frequent maintenance item.
Product
Lives and Durability
Core Portable Storage Products. Most of our
fleet is comprised of refurbished and customized ISO containers,
manufactured steel containers and record storage units, along
with our combined storage/office and mobile office units. These
products are built to last a long period of time with proper
maintenance.
We generally purchase used ISO containers when they are eight to
12 years old, a time at which their useful life as
ocean-going shipping containers is over according to the
standards promulgated by the International Organization for
Standardization. Because we do not have the same stacking and
strength requirements that apply in the ocean-going shipping
industry, we have no need for these containers to meet ISO
standards. We purchase these containers in large quantities,
truck them to our locations, refurbish them by removing any
rust, paint them with a rust inhibiting paint, and further
customize them, typically by adding our proprietary,
easy-opening door system and our proprietary locking system.
We maintain our steel containers on a regular basis by painting
them on average once every two to three years, removing rust,
and occasionally replacing the wooden floor or a rusted panel.
This periodic maintenance keeps the container in essentially the
same condition as after we initially refurbished it and is
designed to maintain the units value and rental rates
comparable to new units.
Pursuant to our revolving credit agreement, we have our
containers appraised on a periodic basis. Because of the uniform
quality of our containers, the appraiser does not differentiate
value based upon the age of the container or the length of time
it has been in our fleet. Our manufactured containers and steel
offices are not built to ISO standards, but are built in a
similar manner so that, like the ISO containers, they will
maintain their utility and value as long as they are maintained
in accordance with our maintenance program. As with our
refurbished and customized ISO containers, our lenders
appraiser does not differentiate the value of manufactured units
based upon the age of the unit. Our most recent fair market
value appraisal appraised our fleet at a value in excess of net
book value. At December 31, 2007, the net book value of our
fleet was approximately $802.9 million.
Approximately 9.9% of our 2007 revenue was derived from sales of
portable storage and mobile office units. Because the containers
in our lease fleet do not significantly depreciate in value, we
have no program in place to sell lease fleet containers as they
reach a certain age. Instead, most of our U.S. container
sales involve either highly customized containers that would be
difficult to lease on a recurring basis, or unrefurbished and
refurbished containers that we had recently acquired but not yet
leased. In addition, due primarily to availability of inventory
at various locations at certain times of the year, we sell a
certain portion of containers and offices from the lease fleet.
Our gross margins increase for containers in the lease fleet for
greater lengths of time prior to sale, because although these
units have been depreciated based upon a 25 year useful
life and 62.5% residual value (1.5% per year), in most cases
fair value may not decline by nearly that amount due to the
nature of the assets and our stringent maintenance policy.
CA-7
The following table shows the gross margin on containers and
steel offices sold from inventory (which we call our sales
fleet) and from our lease fleet from 1998 through 2007 based on
the length of time in the lease fleet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue as a
|
|
|
Revenue as a
|
|
|
|
Number of
|
|
|
Sales
|
|
|
Original
|
|
|
Percentage of
|
|
|
Percentage of
|
|
|
|
Units Sold
|
|
|
Revenue
|
|
|
Cost(1)
|
|
|
Original Cost
|
|
|
Net Book Value
|
|
|
|
(Dollars in thousands)
|
|
|
Sales fleet(2)
|
|
|
33,679
|
|
|
$
|
108,107
|
|
|
$
|
70,658
|
|
|
|
153
|
%
|
|
|
153
|
%
|
Lease fleet, by period held before sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 5 years
|
|
|
11,537
|
|
|
$
|
44,875
|
|
|
$
|
30,248
|
|
|
|
148
|
%
|
|
|
152
|
%
|
5 to 10 years
|
|
|
3,622
|
|
|
$
|
15,146
|
|
|
$
|
10,278
|
|
|
|
147
|
%
|
|
|
162
|
%
|
10 to 15 years
|
|
|
738
|
|
|
$
|
2,438
|
|
|
$
|
1,716
|
|
|
|
142
|
%
|
|
|
168
|
%
|
15 to 20 years
|
|
|
109
|
|
|
$
|
374
|
|
|
$
|
264
|
|
|
|
142
|
%
|
|
|
174
|
%
|
20+ years
|
|
|
4
|
|
|
$
|
14
|
|
|
$
|
11
|
|
|
|
123
|
%
|
|
|
175
|
%
|
|
|
|
(1) |
|
Original cost for purposes of this table includes
(i) the price we paid for the unit, plus (ii) the cost
of our manufacturing, which includes both the cost of
customizing units and refurbishment costs incurred, plus
(iii) the freight charges to our branch where the unit is
first placed in service. For manufactured units, cost includes
our manufacturing cost and the freight charges to the branch
location. |
|
(2) |
|
Includes sales of unrefurbished ISO containers. |
Because steel storage containers keep their value when properly
maintained, we are able to lease containers that have been in
our lease fleet for various lengths of time at similar rates,
without regard to the age of the container. Our lease rates vary
by the size and type of unit leased, length of contractual term,
custom features and the geographic location of our branch at
which the lease is originated. To a degree, competition, market
conditions and other factors can influence our leasing rates.
CA-8
The following chart shows, for containers that have been in our
lease fleet for various periods of time, the average monthly
lease rate that we currently receive for various types of
containers. We have added our 10-foot-wide containers and
security offices to the fleet only in the last several years and
those types of units are not included in this chart. This chart
includes the eight major types of containers in the fleet for at
least 10 years (we have been in business for over
23 years), and specific details of such type of unit are
not provided due to competitive considerations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age of Containers
|
|
|
|
|
|
|
|
|
(By Number of Years in Our Lease Fleet)
|
|
|
Total Number/
|
|
|
|
|
|
0 5
|
|
|
6 10
|
|
|
11 15
|
|
|
16 20
|
|
|
Over 21
|
|
|
Average Dollar
|
|
|
Type 1
|
|
Number of units
|
|
|
3,843
|
|
|
|
3,793
|
|
|
|
1,142
|
|
|
|
42
|
|
|
|
3
|
|
|
|
8,823
|
|
|
|
Average rent
|
|
$
|
80.75
|
|
|
$
|
81.94
|
|
|
$
|
82.14
|
|
|
$
|
76.71
|
|
|
$
|
77.64
|
|
|
$
|
81.42
|
|
Type 2
|
|
Number of units
|
|
|
1,192
|
|
|
|
1,153
|
|
|
|
388
|
|
|
|
53
|
|
|
|
1
|
|
|
|
2,787
|
|
|
|
Average rent
|
|
$
|
87.63
|
|
|
$
|
82.68
|
|
|
$
|
83.12
|
|
|
$
|
81.55
|
|
|
$
|
70.41
|
|
|
$
|
84.83
|
|
Type 3
|
|
Number of units
|
|
|
13,051
|
|
|
|
4,113
|
|
|
|
2,253
|
|
|
|
296
|
|
|
|
3
|
|
|
|
19,716
|
|
|
|
Average rent
|
|
$
|
68.43
|
|
|
$
|
82.18
|
|
|
$
|
81.89
|
|
|
$
|
81.42
|
|
|
$
|
68.61
|
|
|
$
|
73.03
|
|
Type 4
|
|
Number of units
|
|
|
232
|
|
|
|
639
|
|
|
|
255
|
|
|
|
11
|
|
|
|
1
|
|
|
|
1,138
|
|
|
|
Average rent
|
|
$
|
119.02
|
|
|
$
|
112.95
|
|
|
$
|
103.41
|
|
|
$
|
94.69
|
|
|
$
|
108.33
|
|
|
$
|
111.87
|
|
Type 5
|
|
Number of units
|
|
|
425
|
|
|
|
1,394
|
|
|
|
150
|
|
|
|
16
|
|
|
|
|
|
|
|
1,985
|
|
|
|
Average rent
|
|
$
|
107.71
|
|
|
$
|
121.62
|
|
|
$
|
123.20
|
|
|
$
|
121.53
|
|
|
$
|
|
|
|
$
|
118.76
|
|
Type 6
|
|
Number of units
|
|
|
4,127
|
|
|
|
5,048
|
|
|
|
775
|
|
|
|
51
|
|
|
|
7
|
|
|
|
10,008
|
|
|
|
Average rent
|
|
$
|
122.21
|
|
|
$
|
128.22
|
|
|
$
|
129.62
|
|
|
$
|
125.90
|
|
|
$
|
127.67
|
|
|
$
|
125.84
|
|
Type 7
|
|
Number of units
|
|
|
15,195
|
|
|
|
7,397
|
|
|
|
623
|
|
|
|
69
|
|
|
|
8
|
|
|
|
23,292
|
|
|
|
Average rent
|
|
$
|
108.95
|
|
|
$
|
114.02
|
|
|
$
|
124.23
|
|
|
$
|
124.26
|
|
|
$
|
123.02
|
|
|
$
|
111.02
|
|
Type 8
|
|
Number of units
|
|
|
345
|
|
|
|
507
|
|
|
|
194
|
|
|
|
12
|
|
|
|
3
|
|
|
|
1,061
|
|
|
|
Average rent
|
|
$
|
162.46
|
|
|
$
|
158.56
|
|
|
$
|
158.48
|
|
|
$
|
137.85
|
|
|
$
|
216.66
|
|
|
$
|
159.74
|
|
We believe fluctuations in rental rates based on container age
are primarily a function of the location of the branch from
which the container was leased rather than age of the container.
Some of the units added to our lease fleet during recent years
through our acquisitions program have lower lease rates than the
rates we typically obtain because the units remain on lease
under terms (including lower rental rates) that were in place
when we obtained the units in acquisitions.
We periodically review our depreciation policy against various
factors, including the following:
|
|
|
|
|
results of our lenders independent appraisal of our lease
fleet;
|
|
|
|
practices of the major competitors in our industry;
|
|
|
|
our experience concerning useful life of the units;
|
|
|
|
profit margins we are achieving on sales of depreciated
units; and
|
|
|
|
lease rates we obtain on older units.
|
Our depreciation policy for our lease fleet uses the
straight-line method over the units estimated useful life,
after the date we put the unit in service, and the units are
depreciated down to their estimated residual values.
Wood Mobile Office Units. We began adding wood
mobile office units to the lease fleet in 2000 as a complement
to our core portable storage products. These units are
manufactured by third parties and are very similar to the units
in the lease fleets of other mobile office rental companies.
Because of the wood structure of these units, they are more
susceptible to wear and tear than steel units. We depreciate
these units over 20 years down to a 50% residual value
(2.5% per year) which we believe to be consistent with most of
our major competitors in this industry. Wood mobile office units
lose value over time and we may sell older units from time to
time. At the end of 2007, our wood mobile offices were all less
than eight years old. These units are also more expensive than
our storage units, causing an increase in the average carrying
value per unit in the lease fleet over the last seven years.
CA-9
Although, the operating margins on mobile offices are high, they
are lower than the margins on portable storage. However, these
mobile offices are rented using our existing infrastructure and
therefore provide incremental returns far in excess of our fixed
expenses. This adds to our overall profitability and operating
margins.
Van Trailers and Other Non-Core Storage
Products. At December 31, 2007, van trailers
made up less than 0.2% of the gross book value of our lease
fleet. When we acquire businesses in our industry, the acquired
businesses often have van trailers and other manufactured
storage products that are
sub-standard
compared to our core steel container storage product. We attempt
to purge most of these inferior units from our fleet as they
come off rent or within a few years after we acquire them. We do
not utilize our resources to refurbish these products and
instead resell them.
Van trailers are initially manufactured to be attached to trucks
to move merchandise in interstate commerce. The initial cost of
these units can be $19,000 or more. They are leased to, or
purchased by, cross country truckers and other companies
involved in cross country transportation of merchandise. They
are made of light weight material in order to make them ideal
for transport and have wheels and brakes. They are typically
made of aluminum, but have steel base frames to maintain some
structural integrity. Because of their light weight, moving
parts, the heavy loads they carry and the wear and tear involved
in hundreds of thousands of miles of transport, these units
depreciate quite rapidly. This business and the cartage business
described below are also very economically cyclical.
Once van trailers become too old to use in interstate commerce
without frequent maintenance and downtime, they are sold to
companies that use them as cartage trailers. At this
point, they may have a depreciated cost of approximately $5,000.
As cartage trailers, they are used to move loads of merchandise
much shorter distances and may be used to store goods for some
period of time and then to move them from one part of a facility
or a city to another part. They continue to depreciate quite
rapidly until they reach the point where they are not considered
safe or cost effective to move loaded with merchandise.
At this point, near the end of the life cycle of a van trailer,
it may be used for storage. Unlike a storage container, however,
van trailers are much less secure, can fairly easily be stolen
(as they are on wheels) and many customers feel they are
unsightly. Most importantly, they are not ground level and,
under the Occupational Safety and Health Administration (OSHA)
regulations, must be attached to approved stairs or ramps to
prevent accidents when they are accessed.
A large part of our leasing effort involves demonstrating to our
customers the superiority of our containers to van trailers.
Mobile Mini has found that when it markets steel storage
containers against storage van trailers, customers recognize the
superiority of containers. As a result, we believe that
eventually the use of van trailers will primarily be limited to
dock height storage and to customers who must frequently move
storage units.
The average initial unit value given to the van trailers we have
purchased in acquisitions that are remaining in our fleet is
approximately $900 (excluding refrigerated units which are
valued higher), and we depreciate these units over seven years
down to a 20% residual value. As noted above, we sell these
units as soon as practicable. During 2006 and 2007, we disposed
of approximately 1,000 and 875 van trailers, respectively,
representing approximately 32% and 31% of our van trailer fleet,
respectively.
Lease
Fleet Configuration
Our lease fleet is comprised of over 100 different
configurations of units. Throughout the year we add units to our
fleet through purchases of used ISO containers and containers
obtained through acquisitions, both of which we refurbish and
customize. We also purchase new manufactured mobile offices in
various configurations and sizes, and manufacture our own custom
steel units. Our initial cost basis of an ISO container includes
the purchase price from the seller, the cost of refurbishment,
which can include removing rust and dents, repairing floors,
sidewalls and ceilings, painting, signage, installing new doors,
seals and a locking system. Additional modification may involve
the splitting of a unit to create several smaller units and
adding customized features. The restoring and modification
processes do not necessarily occur in the same year the units
are purchased or acquired. We procure larger containers,
typically 40-foot units, and split them into two 20-foot units
or one 25-foot and one 15-foot unit, or other configurations as
needed, and then add new doors along with our proprietary
locking system and sometimes we add custom features. We also
will sell units from our lease fleet to our customers.
CA-10
The table below outlines those transactions that effectively
increased the net asset value of our lease fleet from
$697.4 million at December 31, 2006 to
$802.9 million at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Units
|
|
|
|
(In thousands)
|
|
|
Lease fleet at December 31, 2006, net
|
|
$
|
697,439
|
|
|
|
149,615
|
|
Purchases:
|
|
|
|
|
|
|
|
|
Container purchases and containers obtained through
acquisitions, including freight
|
|
|
15,853
|
|
|
|
5,295
|
|
Non-core units obtained through acquisitions, primarily van
trailers
|
|
|
218
|
|
|
|
540
|
|
Manufactured units:
|
|
|
|
|
|
|
|
|
Steel containers, combination storage/office combo units and
steel security offices
|
|
|
46,229
|
|
|
|
4,184
|
|
New wood mobile offices
|
|
|
38,832
|
|
|
|
1,409
|
|
Refurbishment and customization:(3)
|
|
|
|
|
|
|
|
|
Refurbishment or customization of units purchased or acquired in
the current year
|
|
|
9,471
|
|
|
|
2,452
|
(1)
|
Refurbishment or customization of 3,272 units purchased in
a prior year
|
|
|
16,834
|
|
|
|
1,136
|
(1)
|
Refurbishment or customization of 2,808 units obtained
through acquisition in a prior year
|
|
|
2,366
|
|
|
|
381
|
(2)
|
Other
|
|
|
(736
|
)
|
|
|
(811
|
)
|
Cost of sales from lease fleet
|
|
|
(10,621
|
)
|
|
|
(4,085
|
)
|
Depreciation
|
|
|
(12,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease fleet at December 31, 2007, net
|
|
$
|
802,923
|
|
|
|
160,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These units include the net additional units that were the
result of splitting steel containers into one or more shorter
units, such as splitting a 40-foot container into two 20-foot
units, or one 25-foot unit and one 15-foot unit. |
|
(2) |
|
Includes units moved from finished goods to lease fleet. |
|
(3) |
|
Does not include any routine maintenance, which is expensed as
incurred. |
The table below outlines the composition of our lease fleet at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Lease Fleet
|
|
|
Number of Units
|
|
|
|
(In thousands)
|
|
|
|
|
|
Steel storage containers
|
|
$
|
459,665
|
|
|
|
131,172
|
|
Offices
|
|
|
402,640
|
|
|
|
27,018
|
|
Van trailers
|
|
|
2,330
|
|
|
|
1,926
|
|
Other
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
865,591
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(62,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
802,923
|
|
|
|
160,116
|
|
|
|
|
|
|
|
|
|
|
Branch
Operations
We locate our branches in markets with attractive demographics
and strong growth prospects. Within each market, we have located
our branches in areas that allow for easy delivery of portable
storage units to our customers over a wide geographic area. In
addition, when cost effective, we seek locations that are
visible from high traffic roads in order to advertise our
products and our name. Our branches maintain an inventory of
portable storage units available for lease, and some of our
older branches also provide storage of units under lease at the
branch
(on-site
CA-11
storage). We own our branch locations in Dallas, Texas,
Oklahoma City, Oklahoma and a portion of our Phoenix, Arizona
location. The rest of
our branch locations are leased. The following table shows
information about our branches by geographic area (U.S., Canada,
U.K. and the Netherlands), sorted by date established.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Location
|
|
Functions/Uses
|
|
Approximate Size
|
|
|
Established
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
Phoenix, Arizona
|
|
Leasing, on-site storage and sales
|
|
|
14 acres
|
|
|
|
1983
|
|
Tucson, Arizona
|
|
Leasing, on-site storage and sales
|
|
|
5 acres
|
|
|
|
1986
|
|
Los Angeles, California
|
|
Leasing, on-site storage and sales
|
|
|
15 acres
|
|
|
|
1988
|
|
San Diego, California
|
|
Leasing, on-site storage and sales
|
|
|
6 acres
|
|
|
|
1994
|
|
Dallas, Texas
|
|
Leasing, on-site storage and sales
|
|
|
17 acres
|
|
|
|
1994
|
|
Houston, Texas
|
|
Leasing, on-site storage and sales
|
|
|
9 acres
|
|
|
|
1994
|
|
San Antonio, Texas
|
|
Leasing, on-site storage and sales
|
|
|
7 acres
|
|
|
|
1995
|
|
Austin, Texas
|
|
Leasing, on-site storage and sales
|
|
|
7 acres
|
|
|
|
1995
|
|
Las Vegas, Nevada
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
1998
|
|
Oklahoma City, Oklahoma
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
1998
|
|
Albuquerque, New Mexico
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
1998
|
|
Denver, Colorado
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
1998
|
|
Tulsa, Oklahoma
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
1999
|
|
Colorado Springs, Colorado
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
1999
|
|
New Orleans, Louisiana
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
1999
|
|
Memphis, Tennessee
|
|
Leasing and sales
|
|
|
9 acres
|
|
|
|
1999
|
|
Salt Lake City, Utah
|
|
Leasing, on-site storage and sales
|
|
|
3 acres
|
|
|
|
1999
|
|
Chicago, Illinois
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
1999
|
|
Knoxville, Tennessee
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
1999
|
|
Seattle, Washington
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2000
|
|
El Paso, Texas
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2000
|
|
Harlingen, Texas
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2000
|
|
Corpus Christi, Texas
|
|
Leasing and sales
|
|
|
3 acres
|
|
|
|
2000
|
|
Jacksonville, Florida
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2000
|
|
Miami/Ft. Lauderdale, Florida
|
|
Leasing and sales
|
|
|
8 acres
|
|
|
|
2000
|
|
Ft. Myers, Florida
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2000
|
|
Tampa, Florida
|
|
Leasing and sales
|
|
|
8 acres
|
|
|
|
2000
|
|
Orlando, Florida
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
2000
|
|
Atlanta, Georgia
|
|
Leasing and sales
|
|
|
15 acres
|
|
|
|
2000
|
|
Kansas City, Kansas/Missouri
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2001
|
|
Milwaukee, Wisconsin
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2001
|
|
Charlotte, North Carolina
|
|
Leasing and sales
|
|
|
8 acres
|
|
|
|
2001
|
|
Nashville, Tennessee
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
2001
|
|
San Francisco, California
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
2001
|
|
Raleigh, North Carolina
|
|
Leasing and sales
|
|
|
8 acres
|
|
|
|
2001
|
|
Columbus, Ohio
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
2002
|
|
Little Rock, Arkansas
|
|
Leasing and sales
|
|
|
12 acres
|
|
|
|
2002
|
|
St. Louis, Missouri
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
2002
|
|
Ft. Worth, Texas
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2002
|
|
CA-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Location
|
|
Functions/Uses
|
|
Approximate Size
|
|
|
Established
|
|
|
Louisville, Kentucky
|
|
Leasing and sales
|
|
|
7 acres
|
|
|
|
2002
|
|
Columbia, South Carolina
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2002
|
|
Baltimore, Maryland
|
|
Leasing and sales
|
|
|
9 acres
|
|
|
|
2002
|
|
Philadelphia, Pennsylvania
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2002
|
|
Richmond, Virginia
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2002
|
|
Boston, Massachusetts
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2002
|
|
Portland, Oregon
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
2003
|
|
Detroit, Michigan
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
2004
|
|
Minneapolis, Minnesota
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2005
|
|
Indianapolis, Indiana
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
2005
|
|
Pensacola, Florida
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2005
|
|
Oakland, California
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2006
|
|
Fresno, California
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2006
|
|
Utica, New York
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2006
|
|
Wichita, Kansas
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2006
|
|
Worcester, Vermont
|
|
Leasing and sales
|
|
|
12 acres
|
|
|
|
2007
|
|
Pittsburgh, Pennsylvania
|
|
Leasing and sales
|
|
|
6 acres
|
|
|
|
2007
|
|
Canada:
|
|
|
|
|
|
|
|
|
|
|
Toronto, Ontario
|
|
Leasing and sales
|
|
|
4 acres
|
|
|
|
2002
|
|
Vancouver, British Columbia
|
|
Leasing and sales
|
|
|
3 acres
|
|
|
|
2007
|
|
Windsor, Ontario
|
|
Leasing and sales
|
|
|
2 acres
|
|
|
|
2007
|
|
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
London
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2006
|
|
Bristol
|
|
Leasing and sales
|
|
|
2 acres
|
|
|
|
2006
|
|
Birmingham
|
|
Leasing and sales
|
|
|
2 acres
|
|
|
|
2006
|
|
Liverpool
|
|
Leasing and sales
|
|
|
5 acres
|
|
|
|
2006
|
|
Leeds
|
|
Leasing and sales
|
|
|
2 acres
|
|
|
|
2006
|
|
Edinburgh
|
|
Leasing and sales
|
|
|
3 acres
|
|
|
|
2006
|
|
The Netherlands:
|
|
|
|
|
|
|
|
|
|
|
Rotterdam
|
|
Leasing and sales
|
|
|
2 acres
|
|
|
|
2006
|
|
Each branch has a branch manager who has overall supervisory
responsibility for all activities of the branch. Branch managers
report to one of our fifteen regional managers. Our regional
managers, in turn, report to one of our senior or executive vice
presidents. Performance based incentive bonuses are a
substantial portion of the compensation for these senior vice
presidents, regional and branch managers.
In North America, each branch has its own sales force and a
transportation department that delivers and picks up portable
storage units from customers. Each branch has delivery trucks
and forklifts to load, transport and unload units and a storage
yard staff responsible for unloading and stacking units. Steel
units can be stored by stacking them three high to maximize
usable ground area. Our larger branches also have a fleet
maintenance department to maintain the branchs trucks,
forklifts and other equipment. Our smaller branches perform
preventative maintenance tasks and outsource major repairs.
During 2007, we introduced this organizational structure in our
U.K. branches and acquired branch properties and transportation
equipment.
CA-13
Sales and
Marketing
We have 434 dedicated sales people at our branches and
26 people in sales management at our headquarters and other
locations that conduct sales and marketing on a full-time basis.
We believe that by locating most of our sales and marketing
staff in our branches, we can better understand the portable
storage needs of our customers and provide higher levels of
customer service. Our sales force handles all of our products
and we do not maintain separate sales forces for our various
product lines. Our sales and marketing force provides
information about our products to prospective customers by
handling inbound calls and by initiating cold calls. We have
on-going sales and marketing training programs covering all
aspects of leasing and customer service. Our branches
communicate with one another and with corporate headquarters
through our enterprise resource planning system. This enables
the sales and marketing team to share leads and other
information and permits the staff at headquarters to monitor and
review sales and leasing productivity on a
branch-by-branch
basis. Our sales and marketing employees are compensated
primarily on a commission basis.
Our nationwide presence in the United States allows us to offer
our products to larger customers who wish to centralize the
procurement of portable storage on a multi-regional or national
basis. We are well equipped to meet multi-regional
customers needs through our National Account Program,
which simplifies the procurement, rental and billing process for
those customers. Approximately 1,100 U.S. customers
currently participate in our National Account Program. We also
provide our national account customers with service guarantees
which assure them they will receive the same high level of
customer service from any of our branch locations. This program
has helped us succeed in leveraging customer relationships
developed at one branch throughout our branch system.
We advertise our products in the yellow pages and use a targeted
direct mail program. In 2007, we mailed approximately
7.4 million product brochures to existing and prospective
customers. These brochures describe our products and features
and highlight the advantages of portable storage. Our total
advertising costs were approximately $10.1 million in 2007,
$8.6 million in 2006, and $7.6 million in 2005. During
2007, we began to focus an increasing portion of our marketing
expenditures on internet-based initiatives with web-based
products and services for both existing customers and potential
customers.
Customers
During 2007, approximately 93,000 customers leased our portable
storage, combination storage/office and mobile office units,
compared to approximately 91,000 in 2006. Our customer base is
diverse and consists of businesses in a broad range of
industries. Our largest single leasing customer accounted for
2.1% and 1.8% of our leasing revenues in 2006 and 2007,
respectively. Our next largest customer accounted for
approximately 0.5% and 0.9% of our leasing revenues in 2006 and
2007, respectively. Our twenty largest customers combined
accounted for approximately 5.3% of our lease revenues in 2006
and approximately 4.9% of our lease revenues in 2007.
Approximately 65.3% of our customers rented a single unit during
2007.
CA-14
We target customers who can benefit from our portable storage
solutions either for seasonal, temporary or long-term storage
needs. Customers use our portable storage units for a wide range
of purposes. The following table provides an overview of our
customers and how they use our portable storage, combination
storage/office and mobile office units as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Representative
|
|
|
Business
|
|
Units on Lease
|
|
|
Customers
|
|
Typical Application
|
|
Consumer service and retail businesses
|
|
|
31
|
%
|
|
Department, drug, grocery and strip mall stores, hotels,
restaurants, dry cleaners and service stations
|
|
Inventory storage, record storage and seasonal needs
|
Construction
|
|
|
43
|
%
|
|
General, electrical, plumbing and mechanical contractors,
landscapers, residential homebuilders and equipment rental
companies
|
|
Equipment and materials storage and job offices
|
Consumers
|
|
|
7
|
%
|
|
Homeowners
|
|
Backyard storage and storage of household goods during
relocation or renovation; storage at our location
|
Industrial and commercial
|
|
|
7
|
%
|
|
Distributors, trucking and utility companies, finance and
insurance companies and film production companies
|
|
Raw materials, equipment, record storage, in-plant office and
seasonal needs
|
Institutions, government agencies and others
|
|
|
12
|
%
|
|
Schools, hospitals, medical centers, military, Native American
tribal governments and reservations and national, state, county
and local governmental agencies
|
|
Athletic equipment, military storage, disaster preparedness,
supplier, record storage, security office, supplies, equipment
storage, temporary office space and seasonal needs
|
Manufacturing
We build new steel portable storage units, steel mobile offices
and other custom-designed steel structures as well as refurbish
used ocean-going containers at our Maricopa, Arizona
manufacturing plant. We also refurbish used ocean-going
containers at our branch locations. Our manufacturing
capabilities allow us to differentiate our products from our
competitors and enable us to provide a broader product selection
to our customers. Our manufacturing process includes cutting,
shaping and welding raw steel, installing customized features
and painting the newly constructed units. Typically, we
manufacture knock-down units, which we ship to our
branches. These units are then assembled at our branches that
have assembly capabilities or by third-party assemblers. We can
ship up to twelve knock-down 20-foot containers on a
single flat-bed trailer. By comparison, only two or three
assembled 20-foot ocean-going containers can be shipped on a
flat-bed trailer. This reduces our cost of transporting units to
our branches and permits us to economically ship our
manufactured units to any city in the continental United States
or Canada. At December 31, 2007, we had 144 manufacturing
workers at our Maricopa facility, and an additional 363 workers
who participate in manufacturing and repair activities in our
branch facilities. We believe we can expand the capacity of our
Maricopa facility at a relatively low cost, and that numerous
third parties have the facilities needed to perform
refurbishment and assembly services for us on a contract basis.
We purchase raw materials such as steel, vinyl, wood, glass and
paint, which we use in our manufacturing and restoring
operations. We typically buy these raw materials on a purchase
order basis. We do not have long-term contracts with vendors for
the supply of any raw materials.
Our manufacturing capacity protects us to some extent from
shortages of and price increases for used ocean-going
containers. Used ocean-going containers vary in availability and
price from time to time based on market
CA-15
conditions. Should the price of used ocean-going containers
increase substantially, or should they become temporarily
unavailable, we can increase our manufacturing volume and reduce
the number of used steel containers we buy and refurbish.
Vehicles
At December 31, 2007, we had a fleet of 521 delivery
trucks, of which 388 were owned and 133 were leased. We use
these trucks to deliver and pick up containers at customer
locations. We supplement our delivery fleet by outsourcing
delivery services to independent haulers when appropriate.
Enterprise
Resource Planning System
In 2006, we implemented our new customized ERP system in North
America to improve and optimize lease fleet utilization, improve
the effectiveness of our sales and marketing programs and to
allow international growth using the same ERP system throughout
the company. This system consists of a wide-area network that
connects our headquarters and all of our North American
branches. Our Tempe, Arizona corporate headquarters and each
North American branch can enter data into the system and access
data on a real-time basis. We generate weekly management reports
by branch with leasing volume, fleet utilization, lease rates
and fleet movement as well as monthly profit and loss statements
on a consolidated and branch basis. These reports allow
management to monitor each branchs performance on a daily,
weekly and monthly basis. We track each portable storage unit by
its serial number. Lease fleet and sales information are entered
in the system daily at the branch level and verified through
monthly physical inventories by branch or corporate employees.
Branch salespeople also use the system to track customer leads
and other sales data, including information about current and
prospective customers. In 2007, our European operations were
converted from their existing systems onto the same ERP
customized platform under which we operate in North America to
gain further efficiencies. We have made significant investments
to our ERP system during the past three years, and we intend to
continue that investment in 2008 to further optimize the
features of this new system for both the North American and our
European operations.
Lease
Terms
Based on the composition of our North America leases at the end
of 2007, our North America steel portable storage unit leases
initially have an average intended term of approximately
10 months but then provide for the leases to continue on a
month-to-month
basis until the customer cancels the term. In Europe, our
customers historically had leased on a
month-to-month
basis. Our Europe operations have been transitioning to our
business leasing model, and as a result, approximately 40% of
our European leases at December 31, 2007 have intended
lease terms at lease inception of approximately 7 months
for portable storage units. Under either agreement, the lease
continues
month-to-month
until cancelled by the customer. During 2007, the company-wide
average duration of all portable storage leases was
27 months and the average monthly rental rate was
approximately $100. Most of our steel portable storage units
rent for between approximately $50 and $300 per month. Our van
trailers normally lease for substantially lower amounts than our
portable storage units. Our North America combination
storage/office and mobile office units typically have an average
intended lease term of approximately 13 months. The initial
lease term in Europe has historically been on a
month-to-month
basis. The average company-wide duration of all mobile office
and combo unit leases has been 22 months. Our combination
storage/office and mobile office units typically rent for $100
to over $1,100 per month. Our leases provide that the customer
is responsible for the cost of delivery and pickup at lease
inception. Our leases specify that the customer is liable for
any damage done to the unit beyond ordinary wear and tear.
However, our customers may purchase a damage waiver from us to
avoid some of this liability. This provides us with an
additional source of recurring revenue. The customers
possessions stored within the portable storage unit are
typically the responsibility of the customer.
Competition
We face competition from several local and regional companies,
as well as from national companies, in all of our current
markets. We compete with several large national and
international companies in our mobile office product line. Our
competitors include lessors of storage units, mobile offices,
used van trailers and other structures used for portable
storage. We also compete with conventional fixed self-storage
facilities. We compete primarily in
CA-16
terms of security, convenience, product quality, broad product
selection and availability, lease rates and customer service. In
our core portable storage business, we typically compete with
Mobile Storage Group, Williams Scotsman, Elliot Hire,
Ravenstock, PODS, 1-800-PAC-RAT, LLC., Haulaway Storage
Containers, Inc., Speedy Hire, and a number of other national,
regional and local competitors. In the mobile office business,
we typically compete with ModSpace, Williams Scotsman, McGrath
RentCorp and other national, regional and local companies.
Employees
As of December 31, 2007, we employed approximately
2,095 full-time employees in the following major categories:
|
|
|
|
|
Management
|
|
|
120
|
|
Administrative
|
|
|
364
|
|
Sales and marketing
|
|
|
434
|
|
Manufacturing
|
|
|
507
|
|
Drivers and storage unit handling
|
|
|
670
|
|
Access to
Information
Our Internet address is www.mobilemini.com. We make
available at this address, free of charge, our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and
Exchange Commission. In addition to this
Form 10-K,
we incorporate by reference certain information from parts of
our proxy statement for the 2008 Annual Meeting of Stockholders,
which we expect to file with the SEC on or about April 29,
2008, which will also be available free of charge on our
website. Reports of our executive officers, directors and any
other persons required to file securities ownership reports
under Section 16(a) of the Securities Exchange Act of 1934
are also available through our web site. Information contained
on our web site is not part of this Report.
CA-17
RISK
FACTORS.
Cautionary
Statement about Forward Looking Statements
Our discussion and analysis in this Report, in other reports
that we file with the Securities and Exchange Commission, in our
press releases and in public statements of our officers and
corporate spokespersons contain forward-looking statements.
Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by
the fact that they do not relate strictly to historical or
current events. They include words such as
anticipate, estimate,
expect, intend, plan,
believe and other words of similar meaning in
connection with discussion of future operating or financial
performance. These include statements relating to future
actions, acquisition and growth strategy, synergies and cost
savings anticipated from acquisitions and mergers, future
performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies such as
legal proceedings and financial results.
Forward-looking statements may turn out to be wrong. They
can be affected by inaccurate assumptions or by known or unknown
risks and uncertainties. We undertake no obligation to update or
revise any forward-looking statements whether as a result of new
information, future events or otherwise. We provide the
following discussion of risks and uncertainties relevant to our
business. These are factors that we think could cause our actual
results to differ materially from expected and historical
results. Mobile Mini could also be adversely affected by other
factors besides those listed here.
A
slowdown in the non-residential construction sector of the
economy could reduce demand from some of our customers, which
could result in lower demand for our products.
At the end of 2006 and 2007, customers in the construction
industry, primarily in non-residential construction, accounted
for approximately 40% and 43%, respectively, of our leased
units. This industry tends to be cyclical. In 2002 and 2003 this
industry sector suffered a sustained economic slowdown which
resulted in much slower growth in demand for leases and sales of
our products. If another sustained economic slowdown in the
non-residential construction sector were to occur, it is likely
that we would again experience less demand for leases and sales
of our products. Also, because most of our cost of leasing is
either fixed or semi variable, this would cause our margins to
contract and the adverse affect on operating results would be
more pronounced. Our internal growth rate slowed to 7.5% in 2002
and 7.4% in 2003 due to a slowdown in the economy, particularly
in this sector. During these years, our profitability declined.
We may
fail to realize the anticipated benefits of the merger with
Mobile Storage Group, and the integration process could
adversely impact our ongoing operations.
The Company and the Mobile Storage Group entered into the merger
agreement with the expectation that the merger would result in
various benefits, including, among other things, an expanded
customer base and ongoing cost savings and operating
efficiencies. The success of the merger will depend, in part, on
our ability to realize such anticipated benefits from combining
the businesses of our company and Mobile Storage Group. The
anticipated benefits and cost savings of the merger may not be
realized fully, or at all, or may take longer to realize than
expected. Failure to achieve anticipated benefits could result
in increased costs and decreases in the amounts of expected
revenues of the combined company.
Mobile Mini and Mobile Storage Group have operated independently
and until the completion of the merger will continue to operate
independently. It is possible that the integration process could
result in the loss of key employees, the disruption of each
companys ongoing businesses or inconsistencies in
standards, controls, procedures or policies that adversely
affect our ability to maintain relationships with customers and
employees or to achieve the anticipated benefits of the merger.
Integration efforts between the two companies will also divert
management attention and resources. These integration matters
could have an adverse effect on each of the companies during the
transition period. The integration may take longer than
anticipated and may have unanticipated adverse results relating
to Mobile Minis or Mobile Storage Groups existing
business.
CB-1
We
will take on substantial additional indebtedness to finance the
merger and this additional indebtedness could significantly
impact Mobile Minis ability to operate its
business.
In connection with the merger, Mobile Mini expects to enter into
a $1.0 billion asset asset-based revolving loan. The
security for the credit facility will include a lien on
substantially all of the combined companys present and
future assets. Mobile Mini plans to use a portion of the
proceeds from the credit facility to pay a portion of the
approximately $535.0 million indebtedness of Mobile Storage
Group, $12.5 million cash component of the merger
consideration and the $25.0 million estimated amount of
transaction costs related to the merger. The indebtedness that
we will assume includes $200 million of Mobile Storage
Group senior notes. Such increased indebtedness could limit the
Mobile Minis financial and operating flexibility,
including by requiring Mobile Mini to dedicate a substantial
portion of its cash flow from operations to the interest on its
debt, making it more difficult to obtain additional financing on
favorable terms, limiting its ability to capitalize on
significant business opportunities and making it more vulnerable
to economic downturns. In addition, the significant level of
indebtedness could limit Mobile Minis flexibility to react
to changes in the industry and economic conditions and divert
financial resources away from the expansion and improvement of
its business.
Our
planned growth could strain our management resources, which
could disrupt our development of our new branch
locations.
Our future performance will depend in large part on our ability
to manage our planned growth, which in 2006 included our
commencement of operations in the United Kingdom and The
Netherlands. On February 22, 2008, we entered into a
definitive merger agreement under which Mobile Storage Group
will merge into Mobile Mini in a transaction valued at
approximately $701.5 million. Our growth could strain our
management, human and other resources. To successfully manage
this growth, we must continue to add managers and employees and
improve our operating, financial and other internal procedures
and controls. We also must effectively motivate, train and
manage our employees. If we do not manage our growth
effectively, some of our new branches and acquisitions may lose
money or fail, and we may have to close unprofitable locations.
Closing a branch in such circumstances would likely result in
additional expenses that would cause our operating results to
suffer.
Our
expansion may divert our resources from other aspects of our
business and require that we incur additional debt, and may
subject us to additional and different regulations. Failure to
manage these economic, financial, business and regulatory risks
may adversely impact our growth and results of
operations.
We regularly review and evaluate expansion opportunities. Our
expansion into markets in the United Kingdom and The
Netherlands, which commenced in 2006, requires us to make
substantial investments, which could divert resources from other
aspects of our business. We may also be required to raise
additional debt or equity capital to fund our expansion. In
addition, we may incur difficulties in staffing and managing our
new operations. In connection with expansion outside of the
U.S., we face fluctuations in currency exchange rates, exposure
to additional regulatory requirements, including certain trade
barriers, changes in political and economic conditions, and
exposure to additional and potentially adverse tax regimes. Our
success in Europe will depend, in part, on our ability to
anticipate and effectively manage these and other risks. Our
failure to manage these risks may adversely affect our growth,
in Europe and elsewhere, and lead to increased administrative
costs.
Covenants
in our debt instruments restrict or prohibit our ability to
engage in or enter into a variety of transactions.
The indenture governing our 6.875% Senior Notes and, to a
lesser extent, our revolving credit facility agreement contain
various covenants that may limit our discretion in operating our
business. In particular, we are limited in our ability to merge,
consolidate or transfer substantially all of our assets, issue
preferred stock of subsidiaries and create liens on our assets
to secure debt. In addition, if there is default, and we do not
maintain certain financial covenants or we do not maintain
borrowing availability in excess of certain pre-determined
levels, we may be unable to incur additional indebtedness, make
restricted payments (including paying cash dividends on our
capital stock) and redeem or repurchase our capital stock.
CB-2
Our revolving credit facility requires us, under certain limited
circumstances, to maintain certain financial ratios and limits
our ability to make capital expenditures. These covenants and
ratios could have an adverse effect on our business by limiting
our ability to take advantage of financing, merger and
acquisition or other corporate opportunities and to fund our
operations. Breach of a covenant in our debt instruments could
cause acceleration of a significant portion of our outstanding
indebtedness. Any future debt could also contain financial and
other covenants more restrictive than those imposed under the
indenture governing the Senior Notes, and the revolving credit
facility.
A breach of a covenant or other provision in any debt instrument
governing our current or future indebtedness could result in a
default under that instrument and, due to cross-default and
cross-acceleration provisions, could result in a default under
our other debt instruments. Upon the occurrence of an event of
default under the revolving credit facility or any other debt
instrument, the lenders could elect to declare all amounts
outstanding to be immediately due and payable and terminate all
commitments to extend further credit. If we were unable to repay
those amounts, the lenders could proceed against the collateral
granted to them, if any, to secure the indebtedness. If the
lenders under our current or future indebtedness accelerate the
payment of the indebtedness, we cannot assure you that our
assets or cash flow would be sufficient to repay in full our
outstanding indebtedness, including the Senior Notes.
The amount we can borrow under our revolving credit facility
depends in part on the value of the portable storage units in
our lease fleet. If the value of our lease fleet declines, we
cannot borrow as much. We are required to satisfy several
covenants with our lenders that are affected by changes in the
value of our lease fleet. We would breach some of these
covenants if the value of our lease fleet drops below specified
levels. If this happens, we may not be able to borrow the
amounts we need to expand our business, and we may be forced to
liquidate a portion of our existing fleet. We anticipate that
our new revolving credit facility, which we will enter into in
connection with our merger with Mobile Storage Group, will
include covenants similar to those in our existing credit
agreement.
We
operate with a high amount of debt and we may incur significant
additional indebtedness.
Our operations are capital intensive, and we operate with a high
amount of debt relative to our size. In May 2007, we issued
$150.0 million in aggregate principal amount of
6.875% Senior Notes. These notes were issued at 99.548% of
par value. In May 2007, we entered into the First Amendment of
the Second Amended and Restated Loan and Security Agreement,
under which we may borrow up to $425.0 million on a
revolving loan basis, which means that amounts repaid may be
reborrowed. As of February 22, 2008, we had outstanding
borrowings of approximately $234.9 million and letters of
credit of approximately $3.3 million under the credit
facility, leaving approximately $186.8 million available
for further borrowing and immediately available. In connection
with our merger with Mobile Storage Group, we anticipate that we
will assume approximately $535.0 million of Mobile Storage
Groups indebtedness. Our substantial indebtedness could
have consequences. For example, it could:
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|
require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, which could
reduce the availability of our cash flow to fund future working
capital, capital expenditures, acquisitions and other general
corporate purposes;
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|
make it more difficult for us to satisfy our obligations with
respect to our Senior Notes;
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|
expose us to the risk of increased interest rates, as certain of
our borrowings will be at variable rates of interest;
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|
require us to sell assets to reduce indebtedness or influence
our decisions about whether to do so;
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increase our vulnerability to general adverse economic and
industry conditions;
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|
limit our flexibility in planning for, or reacting to, changes
in our business and our industry;
|
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|
restrict us from making strategic acquisitions or pursuing
business opportunities; and
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|
limit, along with the financial and other restrictive covenants
in our indebtedness, among other things, our ability to borrow
additional funds. Failing to comply with those covenants could
result in an event of default which, if not cured or waived,
could have a material adverse effect on our business, financial
condition and results of operations.
|
CB-3
We may
need additional debt or equity to sustain our growth, but we do
not have commitments for such funds beyond financing commitments
related to our merger with Mobile Storage Group.
We finance our growth through a combination of borrowings, cash
flow from operations, and equity financing. Our ability to
continue growing at the pace we have historically grown will
depend in part on our ability to obtain either additional debt
or equity financing. The terms on which debt and equity
financing is available to us varies from time to time and is
influenced by our performance and by external factors, such as
the economy generally and developments in the market, that are
beyond our control. Also, additional debt financing or the sale
of additional equity securities may cause the market price of
our common stock to decline. If we are unable to obtain
additional debt or equity financing on acceptable terms, we may
have to curtail our growth by delaying new branch openings, or,
under certain circumstances, lease fleet expansion.
Fluctuations
between the British pound and U.S. dollar could adversely affect
our results of operations.
We derived approximately 8.0% of our total revenues in 2007 from
our operations in the U.K. We expect that percentage will
increase materially on an annualized basis following the closing
of our merger with Mobile Storage Group. The financial position
and results of operations of our U.K. subsidiaries are measured
using the British pound as the functional currency. As a result,
we are exposed to currency fluctuations both in receiving cash
from our U.K. operations and in translating our financial
results back into U.S. dollars. We believe the impact of
currency fluctuations on us from an operations perspective is
mitigated by the fact that the majority of our expenses, capital
expenditures and revenues in the U.K. are in British pounds. We
do, however, have significant currency exposure as a result of
translating our financial results from British pounds into
U.S. dollars for purposes of financial reporting. Assets
and liabilities of our U.K. subsidiary are translated at the
period end exchange rate in effect at each balance sheet date.
Our income statement accounts are translated at the average rate
of exchange prevailing during each month. Translation
adjustments arising from differences in exchange rates from
period to period are included in the accumulated other
comprehensive income (loss) in stockholders equity. A
strengthening of the U.S. dollar against the British pound
reduces the amount of income we recognize from our U.K.
business. The British pound is currently at or near a multi-year
high against the U.S. dollar, and we cannot predict the
effects of further exchange rate fluctuations on our future
operating results. We are also exposed to additional currency
transaction risk when our U.S. operations incur purchase
obligations in a currency other than in U.S. dollars and
our U.K. operations incur purchase obligations in a currency
other than in British pounds. As exchange rates vary, our
results of operations and profitability may be harmed. We do not
currently hedge our currency transaction or translation
exposure, nor do we have any current plans to do so. The risks
we face in foreign currency transactions and translation may
continue to increase as we further develop and expand our U.K.
operations. F Furthermore, to the extent we expand our business
into other countries, we anticipate we will face similar market
risks related to foreign currency translation caused by exchange
rate fluctuations between the U.S. dollar and the
currencies of those countries.
The
supply and cost of used ocean-going containers fluctuates, and
this can affect our pricing and our ability to
grow.
We purchase, refurbish and modify used ocean-going containers in
order to expand our lease fleet. If used ocean-going container
prices increase substantially, we may not be able to manufacture
enough new units to grow our fleet. These price increases also
could increase our expenses and reduce our earnings,
particularly if we are not able (due to competitive reasons or
otherwise) to raise our rental rates to absorb this increase
cost. Conversely, an oversupply of used ocean-going containers
may cause container prices to fall. Our competitors may then
lower the lease rates on their storage units. As a result, we
may need to lower our lease rates to remain competitive. This
would cause our revenues and our earnings to decline.
The
supply and cost of raw materials we use in manufacturing
fluctuates and could increase our operating costs.
We manufacture portable storage units to add to our lease fleet
and for sale. In our manufacturing process, we purchase steel,
vinyl, wood, glass and other raw materials from various
suppliers. We cannot be sure that an adequate supply of these
materials will continue to be available on terms acceptable to
us. The raw materials we use are subject to price fluctuations
that we cannot control. Changes in the cost of raw materials can
have a significant
CB-4
effect on our operations and earnings. Rapid increases in raw
material prices are often difficult to pass through to
customers, particularly to leasing customers. If we are unable
to pass on these higher costs, our profitability could decline.
If raw material prices decline significantly, we may have to
write down our raw materials inventory values. If this happens,
our results of operations and financial condition will decline.
Some
zoning laws in the United States and Canada and temporary
planning permission regulations in Europe restrict the use of
our portable storage and office units and therefore limit our
ability to offer our products in all markets.
Most of our customers use our storage units to store their goods
on their own properties. Local zoning laws and temporary
planning permission regulations in some of our markets do not
allow some of our customers to keep portable storage and office
units on their properties or do not permit portable storage
units unless located out of sight from the street. If local
zoning laws or planning permission regulations in one or more of
our markets no longer allow our units to be stored on
customers sites, our business in that market will suffer.
Unionization
by some or all of our employees could cause increases in
operating costs.
None of our employees are presently covered by collective
bargaining agreements. However, from time to time various unions
have attempted to organize some of our employees. We cannot
predict the outcome of any continuing or future efforts to
organize our employees, the terms of any future labor
agreements, or the effect, if any, those agreements might have
on our operations or financial performance.
We
depend on a few key management persons.
We are substantially dependent on the personal efforts and
abilities of Steven G. Bunger, our Chairman, President and Chief
Executive Officer, Lawrence Trachtenberg, our Executive Vice
President and Chief Financial Officer, and Russ Lemley, our
Executive Vice President and Chief Operating Officer. The loss
of any of these officers or our other key management persons
could harm our business and prospects for growth.
The
market price of our common stock has been volatile and may
continue to be volatile and the value of your investment may
decline.
The market price of our common stock has been volatile and may
continue to be volatile. This volatility may cause wide
fluctuations in the price of our common stock on the Nasdaq
Global Select Market. The market price of our common stock is
likely to be affected by:
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changes in general conditions in the economy, geopolitical
events or the financial markets;
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variations in our quarterly operating results;
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|
changes in financial estimates by securities analysts;
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other developments affecting us, our industry, customers or
competitors;
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the operating and stock price performance of companies that
investors deem comparable to us; and
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the number of shares available for resale in the public markets
under applicable securities laws.
|
CB-5
PROPERTIES.
We own our branch locations in Dallas, Texas, Oklahoma City,
Oklahoma and a portion of our Phoenix, Arizona location. We
lease all of our other branch locations. All of our major leased
properties have remaining lease terms of between 1 and
11 years, and we believe that satisfactory alternative
properties can be found in all of our markets, if we do not
renew these existing leased properties.
Some of the lease properties with lease terms expiring in 2008
are with related persons and we anticipate renewing those leases
for terms of approximately five years.
We own our manufacturing facility in Maricopa, Arizona,
approximately 30 miles south of Phoenix. This facility is
16 years old and is on approximately 43 acres. The
facility includes nine manufacturing buildings, totaling
approximately 171,300 square feet. These buildings house
our manufacturing, assembly, restoring, painting and vehicle
maintenance operations.
We lease our corporate and administrative offices in Tempe,
Arizona. These offices have approximately 35,000 square
feet of office space. The lease term is through December 2014.
Our European headquarters is located in Loudwater,
Buckinghamshire, where we lease approximately 4,000 square
feet of office space. The term on this lease is through December
2012.
CC-1
LEGAL
PROCEEDINGS.
We are party from time to time to various claims and lawsuits
which arise in the ordinary course of business. Although the
specific allegations in the lawsuits differ, most of them
involve claims pertaining to goods allegedly damaged while
stored in one of our containers. We do not believe that the
ultimate resolution of these claims or lawsuits will have a
material adverse effect on our business, financial condition,
results of operations or cash flows.
CD-1
SELECTED
FINANCIAL DATA.
The following table shows our selected consolidated historical
financial data for the stated periods. Amounts include the
effect of rounding. You should read this material with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and related footnotes included elsewhere in this
Report.
On February 22, 2006, our Board of Directors approved a
two-for-one
stock split in the form of a 100 percent stock dividend
effected on March 10, 2006. Per share amounts, share
amounts and weighted numbers of shares outstanding give effect
for this
two-for-one
stock split in the Selected Financial Data tables for all
periods presented.
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|
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Year Ended December 31,
|
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2003
|
|
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2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
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(In thousands, except per share and operating data)
|
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Consolidated Statements of Income Data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
128,482
|
|
|
$
|
149,856
|
|
|
$
|
188,578
|
|
|
$
|
245,105
|
|
|
$
|
284,638
|
|
Sales
|
|
|
17,248
|
|
|
|
17,919
|
|
|
|
17,499
|
|
|
|
26,824
|
|
|
|
31,644
|
|
Other
|
|
|
838
|
|
|
|
566
|
|
|
|
1,093
|
|
|
|
1,434
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
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|
146,568
|
|
|
|
168,341
|
|
|
|
207,170
|
|
|
|
273,363
|
|
|
|
318,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Costs and expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cost of sales
|
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|
11,487
|
|
|
|
11,352
|
|
|
|
10,845
|
|
|
|
17,186
|
|
|
|
21,651
|
|
Leasing, selling and general expenses
|
|
|
80,124
|
|
|
|
90,696
|
|
|
|
109,257
|
|
|
|
139,906
|
|
|
|
166,994
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|
Florida litigation expense
|
|
|
8,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Depreciation and amortization
|
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10,026
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|
|
|
11,427
|
|
|
|
12,854
|
|
|
|
16,741
|
|
|
|
21,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total costs and expenses
|
|
|
110,139
|
|
|
|
113,475
|
|
|
|
132,956
|
|
|
|
173,833
|
|
|
|
209,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from operations
|
|
|
36,429
|
|
|
|
54,866
|
|
|
|
74,214
|
|
|
|
99,530
|
|
|
|
108,508
|
|
Other income (expense):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2
|
|
|
|
|
|
|
|
11
|
|
|
|
437
|
|
|
|
101
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
3,160
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(16,299
|
)
|
|
|
(20,434
|
)
|
|
|
(23,177
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)
|
|
|
(23,681
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)
|
|
|
(24,906
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)
|
Debt restructuring/extinguishment expense
|
|
|
(10,440
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,425
|
)
|
|
|
(11,224
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)
|
Foreign currency exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
9,692
|
|
|
|
34,432
|
|
|
|
54,208
|
|
|
|
69,927
|
|
|
|
72,586
|
|
Provision for income taxes
|
|
|
3,780
|
|
|
|
13,773
|
|
|
|
20,220
|
|
|
|
27,151
|
|
|
|
28,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
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|
$
|
5,912
|
|
|
$
|
20,659
|
|
|
$
|
33,988
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
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|
|
|
|
|
|
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|
|
|
|
|
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|
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Basic
|
|
$
|
0.21
|
|
|
$
|
0.71
|
|
|
$
|
1.14
|
|
|
$
|
1.25
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.70
|
|
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of common and common share equivalents
outstanding:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,625
|
|
|
|
28,974
|
|
|
|
29,867
|
|
|
|
34,243
|
|
|
|
35,489
|
|
Diluted
|
|
|
28,925
|
|
|
|
29,565
|
|
|
|
30,875
|
|
|
|
35,425
|
|
|
|
36,296
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
46,457
|
|
|
$
|
66,293
|
|
|
$
|
90,239
|
|
|
$
|
116,774
|
|
|
$
|
129,865
|
|
Net cash provided by operating activities
|
|
|
40,690
|
|
|
|
40,322
|
|
|
|
69,249
|
|
|
|
76,884
|
|
|
|
91,299
|
|
Net cash used in investing activities
|
|
|
(55,269
|
)
|
|
|
(80,508
|
)
|
|
|
(113,275
|
)
|
|
|
(192,763
|
)
|
|
|
(138,682
|
)
|
Net cash provided by financing activities
|
|
|
12,730
|
|
|
|
40,555
|
|
|
|
43,282
|
|
|
|
116,966
|
|
|
|
48,427
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of branches (at year end)
|
|
|
47
|
|
|
|
48
|
|
|
|
51
|
|
|
|
62
|
|
|
|
66
|
|
Lease fleet units (at year end)
|
|
|
89,542
|
|
|
|
100,727
|
|
|
|
116,317
|
|
|
|
149,615
|
|
|
|
160,116
|
|
Lease fleet covenant utilization (annual average)
|
|
|
78.7
|
%
|
|
|
80.7
|
%
|
|
|
82.9
|
%
|
|
|
82.7
|
%
|
|
|
79.6
|
%
|
Lease revenue growth from prior year
|
|
|
10.6
|
%
|
|
|
16.6
|
%
|
|
|
25.8
|
%
|
|
|
30.0
|
%
|
|
|
16.1
|
%
|
Operating margin
|
|
|
24.9
|
%
|
|
|
32.6
|
%
|
|
|
35.8
|
%
|
|
|
36.4
|
%
|
|
|
34.1
|
%
|
Net income margin
|
|
|
4.0
|
%
|
|
|
12.3
|
%
|
|
|
16.4
|
%
|
|
|
15.6
|
%
|
|
|
13.9
|
%
|
CE-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease fleet, net
|
|
$
|
383,672
|
|
|
$
|
454,106
|
|
|
$
|
550,464
|
|
|
$
|
697,439
|
|
|
$
|
802,923
|
|
Total assets
|
|
|
515,080
|
|
|
|
592,146
|
|
|
|
704,957
|
|
|
|
900,030
|
|
|
|
1,028,851
|
|
Total debt
|
|
|
240,610
|
|
|
|
277,044
|
|
|
|
308,585
|
|
|
|
302,045
|
|
|
|
387,989
|
|
Stockholders equity
|
|
|
189,293
|
|
|
|
216,369
|
|
|
|
267,975
|
|
|
|
442,004
|
|
|
|
457,890
|
|
Reconciliation of EBITDA to net cash provided by operating
activities, the most directly comparable GAAP measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
EBITDA(1)
|
|
$
|
46,457
|
|
|
$
|
66,293
|
|
|
$
|
90,239
|
|
|
$
|
116,774
|
|
|
$
|
129,865
|
|
Senior Note redemption premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,987
|
)
|
|
|
(8,926
|
)
|
Interest paid
|
|
|
(8,841
|
)
|
|
|
(19,254
|
)
|
|
|
(21,727
|
)
|
|
|
(24,770
|
)
|
|
|
(27,896
|
)
|
Income and franchise taxes paid
|
|
|
(298
|
)
|
|
|
(372
|
)
|
|
|
(495
|
)
|
|
|
(733
|
)
|
|
|
(797
|
)
|
Provision for loss from natural disasters
|
|
|
|
|
|
|
|
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
3,066
|
|
|
|
4,028
|
|
Gain on sale of lease fleet units
|
|
|
(1,601
|
)
|
|
|
(2,277
|
)
|
|
|
(3,529
|
)
|
|
|
(4,922
|
)
|
|
|
(5,560
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
44
|
|
|
|
604
|
|
|
|
704
|
|
|
|
454
|
|
|
|
203
|
|
Gain on sale of short-term investments
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in certain assets and liabilities, net of effect of
business acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
327
|
|
|
|
(3,309
|
)
|
|
|
(5,371
|
)
|
|
|
(6,580
|
)
|
|
|
(2,119
|
)
|
Inventories
|
|
|
(1,781
|
)
|
|
|
(2,178
|
)
|
|
|
(4,823
|
)
|
|
|
628
|
|
|
|
(610
|
)
|
Deposits and prepaid expenses
|
|
|
(3,132
|
)
|
|
|
(669
|
)
|
|
|
(480
|
)
|
|
|
(1,446
|
)
|
|
|
(1,754
|
)
|
Other assets and intangibles
|
|
|
(35
|
)
|
|
|
37
|
|
|
|
(19
|
)
|
|
|
(4
|
)
|
|
|
318
|
|
Accounts payable and accrued liabilities
|
|
|
9,609
|
|
|
|
1,447
|
|
|
|
13,021
|
|
|
|
(596
|
)
|
|
|
4,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
40,690
|
|
|
$
|
40,322
|
|
|
$
|
69,249
|
|
|
$
|
76,884
|
|
|
$
|
91,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands except percentages)
|
|
|
Net income
|
|
$
|
5,912
|
|
|
$
|
20,659
|
|
|
$
|
33,988
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Interest expense
|
|
|
16,299
|
|
|
|
20,434
|
|
|
|
23,177
|
|
|
|
23,681
|
|
|
|
24,906
|
|
Income taxes
|
|
|
3,780
|
|
|
|
13,773
|
|
|
|
20,220
|
|
|
|
27,151
|
|
|
|
28,410
|
|
Depreciation and amortization
|
|
|
10,026
|
|
|
|
11,427
|
|
|
|
12,854
|
|
|
|
16,741
|
|
|
|
21,149
|
|
Debt restructuring/extinguishment expense
|
|
|
10,440
|
|
|
|
|
|
|
|
|
|
|
|
6,425
|
|
|
|
11,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
46,457
|
|
|
$
|
66,293
|
|
|
$
|
90,239
|
|
|
$
|
116,774
|
|
|
$
|
129,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin(2)
|
|
|
31.7
|
%
|
|
|
39.4
|
%
|
|
|
43.6
|
%
|
|
|
42.7
|
%
|
|
|
40.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA, as further discussed below, is defined as net income
before interest expense, income taxes, depreciation and
amortization, and debt restructuring or extinguishment expense.
We present EBITDA because we believe it provides useful
information regarding our ability to meet our future debt
payment requirements, |
CE-2
|
|
|
|
|
capital expenditures and working capital requirements and that
it provides an overall evaluation of our financial condition. In
addition, EBITDA is a component of certain financial covenants
under our revolving credit facility and is used to determine our
available borrowing ability and the interest rate in effect at
any point in time. |
EBITDA has certain limitations as an analytical tool and should
not be used as a substitute for net income, cash flows, or other
consolidated income or cash flow data prepared in accordance
with generally accepted accounting principles in the United
States or as a measure of our profitability or our liquidity. In
particular, EBITDA, as defined does not include:
|
|
|
|
|
Interest expense because we borrow money to
partially finance our capital expenditures, primarily related to
the expansion of our lease fleet, interest expense is a
necessary element of our cost to secure this financing to
continue generating additional revenues.
|
|
|
|
Income taxes EBITDA, as defined, does not reflect
income taxes or the requirements for any tax payments.
|
|
|
|
Depreciation and amortization because we are a
leasing company, our business is very capital intensive and we
hold acquired assets for a period of time before they generate
revenues, cash flow and earnings; therefore, depreciation and
amortization expense is a necessary element of our business.
|
|
|
|
|
|
Debt restructuring or extinguishment expense as
defined in our revolving credit facility, debt restructuring and
extinguishment expenses are not deducted in our various
calculations made under the credit agreement and are treated no
differently than interest expense. As discussed above, interest
expense is a necessary element of our cost to finance a portion
of the capital expenditures needed for the growth of our
business.
|
When evaluating EBITDA as a performance measure, and excluding
the above-noted charges, all of which have material limitations,
investors should consider, among other factors, the following:
|
|
|
|
|
increasing or decreasing trends in EBITDA;
|
|
|
|
how EBITDA compares to levels of debt and interest
expense; and
|
|
|
|
whether EBITDA historically has remained at positive levels.
|
Because EBITDA, as defined, excludes some but not all items that
affect our cash flow from operating activities, EBITDA may not
be comparable to a similarly titled performance measure
presented by other companies.
|
|
|
(2) |
|
EBITDA margin is calculated as EBITDA divided by total revenues
expressed as a percentage. |
CE-3
Selected
Consolidated Quarterly Financial Data (unaudited):
The following table sets forth certain unaudited selected
consolidated financial information for each of the four quarters
in fiscal 2006 and 2007. Certain amounts include the effects of
rounding. You should read this material with the financial
statements and related footnotes included elsewhere in this
Report. Mobile Mini believes these comparisons of consolidated
quarterly selected financial data are not necessarily indicative
of future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
51,534
|
|
|
$
|
59,331
|
|
|
$
|
65,595
|
|
|
$
|
68,645
|
|
Sales
|
|
|
4,528
|
|
|
|
6,590
|
|
|
|
8,071
|
|
|
|
7,635
|
|
Other
|
|
|
358
|
|
|
|
377
|
|
|
|
323
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
56,420
|
|
|
|
66,298
|
|
|
|
73,989
|
|
|
|
76,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,914
|
|
|
|
4,152
|
|
|
|
5,109
|
|
|
|
5,011
|
|
Leasing, selling and general expenses
|
|
|
29,996
|
|
|
|
33,849
|
|
|
|
37,310
|
|
|
|
38,751
|
|
Depreciation and amortization
|
|
|
3,588
|
|
|
|
4,004
|
|
|
|
4,380
|
|
|
|
4,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
36,498
|
|
|
|
42,005
|
|
|
|
46,799
|
|
|
|
48,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
19,922
|
|
|
|
24,293
|
|
|
|
27,190
|
|
|
|
28,125
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
51
|
|
|
|
372
|
|
|
|
9
|
|
|
|
5
|
|
Interest expense
|
|
|
(6,446
|
)
|
|
|
(5,740
|
)
|
|
|
(5,693
|
)
|
|
|
(5,802
|
)
|
Debt extinguishment expense
|
|
|
|
|
|
|
(6,425
|
)
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
(51
|
)
|
|
|
(1
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
13,527
|
|
|
|
12,449
|
|
|
|
21,505
|
|
|
|
22,446
|
|
Provision for income tax
|
|
|
5,323
|
|
|
|
4,791
|
|
|
|
8,615
|
|
|
|
8,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,204
|
|
|
$
|
7,658
|
|
|
$
|
12,890
|
|
|
$
|
14,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
|
$
|
0.22
|
|
|
$
|
0.36
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.21
|
|
|
$
|
0.35
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CE-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
66,053
|
|
|
$
|
70,362
|
|
|
$
|
73,982
|
|
|
$
|
74,241
|
|
Sales
|
|
|
6,654
|
|
|
|
7,538
|
|
|
|
8,691
|
|
|
|
8,761
|
|
Other
|
|
|
313
|
|
|
|
350
|
|
|
|
809
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
73,020
|
|
|
|
78,250
|
|
|
|
83,482
|
|
|
|
83,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
4,459
|
|
|
|
5,160
|
|
|
|
5,975
|
|
|
|
6,057
|
|
Leasing, selling and general expenses
|
|
|
36,838
|
|
|
|
40,335
|
|
|
|
44,693
|
|
|
|
45,128
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
5,113
|
|
|
|
5,581
|
|
|
|
5,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
46,188
|
|
|
|
50,608
|
|
|
|
56,249
|
|
|
|
56,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
26,832
|
|
|
|
27,642
|
|
|
|
27,233
|
|
|
|
26,801
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
8
|
|
|
|
29
|
|
|
|
34
|
|
|
|
30
|
|
Interest expense
|
|
|
(5,953
|
)
|
|
|
(6,100
|
)
|
|
|
(6,241
|
)
|
|
|
(6,612
|
)
|
Debt extinguishment expense
|
|
|
|
|
|
|
(11,224
|
)
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
(1
|
)
|
|
|
54
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
20,887
|
|
|
|
10,346
|
|
|
|
21,080
|
|
|
|
20,273
|
|
Provision for income taxes
|
|
|
8,190
|
|
|
|
4,015
|
|
|
|
8,376
|
|
|
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
6,331
|
|
|
$
|
12,704
|
|
|
$
|
12,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.18
|
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.35
|
|
|
$
|
0.17
|
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CE-5
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion of our financial condition and
results of operations should be read together with the
consolidated financial statements and the accompanying notes
included elsewhere in this Report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated
in those forward-looking statements as a result of certain
factors, including, but not limited to, those described under
Item 1A,Risk Factors.
The following discussion takes into account our acquisition on
April 28, 2006, of the Royal Wolf Companies. The operations
acquired are included in our operating results for the twelve
months ended December 31, 2007 and 2006. Only eight months
of results of these acquired operations are included in the
operating results for the twelve months ended December 31,
2006. As a result of this acquisition, we added two new
locations in California, six locations in the United Kingdom and
a branch in The Netherlands. We also consolidated operations at
10 locations in the United States where there was branch overlap
as a result of the acquisition. The results of operations for
2007 also include the four acquisitions and one start up
location that we completed in 2007.
Overview
General
We derive most of our revenues from the leasing of portable
storage containers and portable offices. The average North
America intended lease term at lease inception is approximately
10 months for portable storage units and approximately
13 months for portable offices. In Europe, our customers
historically had been on a month to month basis. Our European
operations have been transitioning to our business leasing
model, and as a result, 40% of our European leases at
December 31, 2007 have intended lease terms at lease
inception of approximately 7 months for portable storage
units. In 2007, the company wide over-all lease term averaged
27 months for portable storage units and 22 months for
portable offices. As a result of these long average lease terms,
our leasing business tends to provide us with a recurring
revenue stream and minimizes fluctuations in revenues. However,
there is no assurance that we will maintain such lengthy overall
lease terms.
In addition to our leasing business, we also sell portable
storage containers and occasionally we sell portable office
units. Our sales revenues as a percentage of total revenues have
represented 9.9% of revenues in 2007. Our European subsidiaries,
which in 2007 derived approximately 31.6% of their revenues from
container sales, have been transitioned to our leasing business
model, but sales continue to be a large part of their revenues
for the time being.
Mobile Mini has grown through both internally generated growth
and acquisitions, which we use to gain a presence in new
markets. Typically, we enter a new market through the
acquisition of the business of a smaller local competitor and
then apply our business model, which is usually much more
customer service and marketing focused than the business we are
buying or its competitors in the market. If we cannot find a
desirable acquisition opportunity in a market we wish to enter,
we establish a new location from the ground up. As a result, a
new branch location will typically have fairly low operating
margins during its early years, but as our marketing efforts
help us penetrate the new market and we increase the number of
units on rent at the new branch, we take advantage of operating
efficiencies to improve operating margins at the branch and
typically reach company average levels after several years. When
we enter a new market, we incur certain costs in developing an
infrastructure. For example, advertising and marketing costs
will be incurred and certain minimum staffing levels and certain
minimum levels of delivery equipment will be put in place
regardless of the new markets revenue base. Once we have
achieved revenues during any period that are sufficient to cover
our fixed expenses, we generate high margins on incremental
lease revenues. Therefore, each additional unit rented in excess
of the break-even level, contributes significantly to
profitability. Conversely, additional fixed expenses that we
incur require us to achieve additional revenue as compared to
the prior period to cover the additional expense.
From 2003 through 2005, we had not entered into as many new
markets as we had in the earlier years or as we did in 2006 and
2007, resulting in less downward pressure on our operating
margins. With the entry into eleven new markets in 2006,
particularly the seven branches that operate in Europe, we added
fixed costs to develop new branch
CF-1
infrastructure in 2006 and 2007. These additional costs include
branch office and yard locations, marketing and advertising
programs, delivery equipment, Enterprise Resource Planning
system and staffing requirements. These expenses put some
pressure on our operating margins in the fourth quarter of 2006,
and more pressure in 2007. This infrastructure will enable the
new branches to complete the transition to our leasing business
model, which should lead to more revenue growth and then slowly
start increasing operating margins as we start realizing the
benefits from incremental lease revenues. We also have to staff
our European headquarters that processes and tracks all of their
leasing, sales and accounting transactions for consolidation
with our North America operations.
Among the external factors we examine to determine the direction
of our business is the level of non-residential construction
activity, especially in areas of the country where we have a
significant presence. Customers in the construction industry
represented approximately 43% and 40% of our units on rent at
December 31, 2007 and 2006, respectively, and because of
the degree of operating leverage we have, increases or declines
in non-residential construction activity can have a significant
effect on our operating margins and net income. In 2007, after
three years of very strong growth in non residential
construction activity in the U.S, the growth rate in this sector
began to moderate and the level of our construction related
business began to slowdown in certain geographic areas,
particularly in the southeast and southwest. We were able to
offset a portion of these economic effects by continuing to gain
market share for certain of our products, particularly our
manufactured containers and portable offices, and by rapidly
growing our base in Europe and certain geographic areas in the
U.S. We believe that the uncertainty and caution that is
apparent in the financial markets in the early part of 2008,
particularly as market conditions affect the availability of
credit to finance construction projects, could continue to exert
downward pressure on the levels of non-residential construction
activity. In late 2007 and early 2008, we notice a slowdown in
the southeast and southwest regions. This could have a material
effect upon our results of operations.
In managing our business, we focus on our growth in leasing
revenues, particularly in existing markets where we can take
advantage of the operating leverage inherent in our business
model. Mobile Minis goal is to maintain a high growth rate
so that revenue growth will exceed inflationary growth in
expenses.
We are a capital-intensive business, so in addition to focusing
on earnings per share, we focus on adjusted EBITDA to measure
our results. We calculate this number by first calculating
EBITDA, which we define as net income before interest expense,
debt restructuring or extinguishment expense, provision for
income taxes, depreciation and amortization. This measure
eliminates the effect of financing transactions that we enter
into on an irregular basis based on capital needs and market
opportunities, and this measure provides us with a means to
track internally generated cash from which we can fund our
interest expense and our lease fleet growth. In comparing EBITDA
from year to year, we typically further adjust EBITDA to ignore
the effect of what we consider non-recurring events not related
to our core business operations to arrive at what we define as
adjusted EBITDA. The non-recurring events reflected in the
adjusted EBITDA are the effect in 2003 of our Florida litigation
expense, which was concluded in 2003, and, in 2005, for losses
incurred related to Hurricane Katrina and the proceeds received
from a third party related to a settlement agreement in
connection with the Florida litigation. In 2006, with the
adoption of SFAS No. 123(R), when we calculated
adjusted EBITDA, we also excluded share-based compensation
expense in comparing adjusted EBITDA to other periods. Under APB
Opinion No. 25, we did not recognize compensation expense
in connection with stock option awards in years prior to 2006.
Because EBITDA is a non- GAAP financial measure, as defined by
the SEC, we include in this Report reconciliations of EBITDA to
the most directly comparable financial measures calculated and
presented in accordance with accounting principles generally
accepted in the United States. These reconciliations are
included in Item 6, Selected Financial Data.
In managing our business, we routinely compare our adjusted
EBITDA margins from year to year and based upon age of branch.
We define this margin as adjusted EBITDA divided by our total
revenues, expressed as a percentage. We use this comparison, for
example, to study internally the effect that increased costs
have on our margins. As capital is invested in our established
branch locations, we achieve higher adjusted EBITDA margins on
that capital than we achieve on capital invested to establish a
new branch, because our fixed costs are already in place in
connection with the established branches. The fixed costs are
those associated with yard and delivery equipment, as well as
advertising, sales, marketing and office expenses. With a new
market or branch, we must first fund and absorb the startup
costs for setting up the new branch facility, hiring and
developing the management and sales team and developing our
marketing and advertising programs. A new branch will have low
adjusted EBITDA margins in its early years until the number of
units on rent increases. Because of our high operating margins
on
CF-2
incremental lease revenue, which we realize on a branch by
branch basis when the branch achieves leasing revenues
sufficient to cover the branchs fixed costs, leasing
revenues in excess of the break-even amount produce large
increases in profitability. Conversely, absent significant
growth in leasing revenues, the adjusted EBITDA margin at a
branch will remain relatively flat on a period by period
comparative basis.
Accounting
and Operating Overview
Our leasing revenues include all rent and ancillary revenues we
receive for our portable storage, combination storage/office and
mobile office units. Our sales revenues include sales of these
units to customers. Our other revenues consist principally of
charges for the delivery of the units we sell. Our principal
operating expenses are (1) cost of sales; (2) leasing,
selling and general expenses; and (3) depreciation and
amortization, primarily depreciation of the portable storage
units and portable offices in our lease fleet. Cost of sales is
the cost of the units that we sold during the reported period
and includes both our cost to buy, transport, refurbish and
modify used ocean-going containers and our cost to manufacture
portable storage units and other structures. Leasing, selling
and general expenses include among other expenses, advertising
and other marketing expenses, real property lease expenses,
commissions, repair and maintenance costs of our lease fleet and
transportation equipment and corporate expenses for both our
leasing and sales activities. Annual repair and maintenance
expenses on our leased units over the last three years have
averaged approximately 4.3% of lease revenues and are included
in leasing, selling and general expenses. We expense our normal
repair and maintenance costs as incurred (including the cost of
periodically repainting units).
Our principal asset is our lease fleet, which has historically
maintained value close to its original cost. The steel units in
our lease fleet (other than van trailers) are depreciated on the
straight-line method using an estimated useful life of
25 years, after the date the unit is placed in service,
with an estimated residual value of 62.5%. The depreciation
policy is supported by our historical lease fleet data which
shows that we have been able to obtain comparable rental rates
and sales prices irrespective of the age of our container lease
fleet. Our wood mobile office units are depreciated over
20 years to 50% of original cost. Van trailers, which
constitute a small part of our fleet, are depreciated over
7 years to a 20% residual value. Van trailers, which are
only added to the fleet as a result of acquisitions of portable
storage businesses, are of much lower quality than storage
containers and consequently depreciate more rapidly. See
Item 1. Business Product Lives and
Durability.
Our expansion program and other factors can affect our overall
utilization rate. During the last five years, our annual
utilization levels averaged 80.8%, and ranged from a low of
78.7% in 2003 to a high of 82.9% in 2005. Our utilization level
averaged 79.6% during 2007. Since 1996, we have increased our
total lease fleet from 13,600 units to 160,100 units,
representing a CAGR of 25.1%.
CF-3
Results
of Operations
The following table shows the percentage of total revenues
represented by the key items that make up our statements of
income; certain amounts may not add due to rounding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
87.7
|
%
|
|
|
89.0
|
%
|
|
|
91.0
|
%
|
|
|
89.7
|
%
|
|
|
89.4
|
%
|
Sales
|
|
|
11.8
|
|
|
|
10.7
|
|
|
|
8.5
|
|
|
|
9.8
|
|
|
|
9.9
|
|
Other
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
7.8
|
|
|
|
6.7
|
|
|
|
5.2
|
|
|
|
6.3
|
|
|
|
6.8
|
|
Leasing, selling and general expenses
|
|
|
54.7
|
|
|
|
53.9
|
|
|
|
52.8
|
|
|
|
51.2
|
|
|
|
52.5
|
|
Florida litigation expense
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6.8
|
|
|
|
6.8
|
|
|
|
6.2
|
|
|
|
6.1
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
75.1
|
|
|
|
67.4
|
|
|
|
64.2
|
|
|
|
63.6
|
|
|
|
65.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
24.9
|
|
|
|
32.6
|
|
|
|
35.8
|
|
|
|
36.4
|
|
|
|
34.1
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11.1
|
)
|
|
|
(12.1
|
)
|
|
|
(11.2
|
)
|
|
|
(8.7
|
)
|
|
|
(7.8
|
)
|
Debt restructuring expense
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
(3.5
|
)
|
Foreign currency exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
6.6
|
|
|
|
20.5
|
|
|
|
26.2
|
|
|
|
25.5
|
|
|
|
22.8
|
|
Provision for income taxes
|
|
|
2.6
|
|
|
|
8.2
|
|
|
|
9.8
|
|
|
|
9.9
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.0
|
%
|
|
|
12.3
|
%
|
|
|
16.4
|
%
|
|
|
15.6
|
%
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Months Ended December 31, 2007 Compared to Twelve Months
Ended December 31, 2006
Total revenues in 2007 increased $44.9 million, or 16.4%,
to $318.3 million from $273.4 million in 2006. Leasing
of portable storage units and portable offices accounted for
approximately 89.4% of total revenues during 2007. Leasing
revenues in 2007 increased $39.5 million, or 16.1%, to
$284.6 million from $245.1 million in 2006. This
increase resulted from a 5.2% increase in the average rental
yield per unit, a 10.4% increase in the average number of units
on lease and 0.5% increase due to favorable exchange rates, in
each case as compared to the same period in 2006. The increase
in yield resulted from an increase in average rental rates over
the prior year, an increase in revenue for ancillary rental
services, such as delivery charges and continued change in the
mix of units being added to our fleet. We have added more
premium containers and portable wood offices to the lease fleet
in recent periods for which we obtain higher rental rates than
basic storage units. The portable offices we have added to our
lease fleet in recent quarters have on average been larger units
that command high rents. These higher lease rates were partially
offset by lower rental rates on units added through acquisitions
that continue on lease, including Europe, which on the average
are smaller, were not refurbished and were primarily storage
containers rather than portable offices. In 2007, our leasing
revenue growth rate was 16.1% as compared to 30.0% in 2006. The
leasing revenue growth rate during the four quarters of 2007 was
28.2%, 18.6%, 12.8% and 8.2%, respectively. The fourth quarter
growth rate was negatively impacted by several factors,
including the general slowdown in non-residential construction
during the second half of 2007 and a planned significant
reduction in our seasonal storage business compared to 2006
levels. We opened four new branches in 2007: two new locations
in the United States and two in Canada. We also completed
another acquisition in 2007 in which we consolidated the
acquired business operations
CF-4
into our existing Pensacola, Florida operations. Our sales of
portable storage and office units accounted for 9.9% in 2007 and
9.8% in 2006, of our total revenues. Other revenues, primarily
related to our sales business and principally arising from
transportation charges for the delivery of units sold and the
sale of ancillary products represented 0.7% of total revenues in
2007 and 0.5% in 2006. Our revenues from the sale of portable
storage units increased $4.8 million, or 18.0%, to
$31.6 million in 2007 from $26.8 million in 2006. This
increase is primarily related to the higher level of sales
activity at our newer locations both in the United States and
especially in Europe which only had eight months reported in
2006. Our leasing business continues to be our primary focus and
leasing revenues have become the predominant part of our revenue
mix over the past several years. We expect this trend to
continue as our European branches scale down their sales
activity and trend to our leasing business model.
Cost of sales are the costs related to our sales revenue only.
Cost of sales as a percentage of sales revenue increased to
68.4% in 2007 from 64.1% in 2006. The decrease in the
2007 gross margin results in large part from the additional
sales associated with our European operations where many of our
units are sold at wholesale and sales margins tend to be lower
than in the U.S.
Leasing, selling and general expenses increased
$27.1 million, or 19.4%, to $167.0 million in 2007
from $139.9 million in 2006. Leasing, selling and general
expenses, as a percentage of total revenues, were 52.5% and
51.2% in 2007 and 2006, respectively. In 2007, our margins were
affected by the costs associated with developing infrastructure
to support our United Kingdom operations, higher delivery and
freight costs, employee stock-based compensation expense, higher
fleet repair and maintenance expense, and expenses that vary in
relation to revenue growth. We generally anticipate that a new
branch will first achieve a positive operating margin after
approximately 12 months of operations. In the United
Kingdom, this ramp up was more pronounced than our historical
experience, because the operating model of our predecessor
featured outsourced storage yards and third-party delivery
equipment. Consequently we needed to acquire properties from
which to operate our branches, delivery equipment with which to
operate our business, and sales employees to drive demand for
our products. During 2007, delivery and freight costs, including
fuel, increased by $4.4 million over 2006, as fuel prices
increased and we used more third-party vendors for the
transportation of our units, particularly our modular office
units (increased costs were passed on to customers in the form
of higher delivery and
pick-up
charges). Included in leasing, selling and general expense is
approximately $4.0 million and $3.1 million in 2007
and 2006, respectively, of expenses related to share-based
compensation in accordance with SFAS No. 123(R), which
became effective for us on January 1, 2006. In addition,
the other major increases in leasing, selling and general
expenses for 2007 were: (1) repairs on our lease fleet,
including costs related to our office units, increased by
$5.0 million due to costs associated with repairing
hurricane damaged units and a larger number of mobile offices
maintaining our higher overall utilization and repairs and
maintenance of delivery and other equipment increased by
$1.3 million principally as a result of our preventative
maintenance programs and general repairs associated with
servicing a larger lease fleet and (2) payroll and related
expenses increased by $10.0 million and included increased
commissions paid on increased revenues as well as general wage
increases.
EBITDA increased $13.1 million, or 11.2%, to
$129.9 million in 2007 from $116.8 million in 2006.
Depreciation and amortization expenses increased
$4.4 million, or 26.3%, to $21.1 million in 2007 from
$16.7 million in 2006. The higher depreciation expense is
primarily due to the growth in our lease fleet over the prior
year to meet increased demand of our products and included the
depreciation of units acquired through acquisitions in both 2006
and 2007. It also includes the depreciation expenses associated
with the portable storage units added to the lease fleet during
2007 and the inclusion in the lease fleet of additional wood
modular offices which have a higher depreciation rate than our
steel units. Also, in 2006 and 2007, depreciation expense
includes the related depreciation on the additions to property,
plant and equipment, primarily trucks, forklifts and trailers,
to support the lease fleet growth, and the customized enterprise
resource planning system to enhance our reporting environment.
This increase in our lease fleet enabled us to achieve our
higher lease revenues. Since December 31, 2006, our lease
fleet cost basis for depreciation increased by
$118.5 million. See Critical Accounting Policies and
Estimates within this Item 7.
Interest expense increased $1.2 million, or 5.2%, to
$24.9 million in 2007 from $23.7 million in 2006. Our
monthly weighted average debt outstanding during 2007, compared
to 2006, increased 14.2% while our average borrowing rate
declined slightly in 2007, compared to the prior year level. In
2007, we redeemed $97.5 million of
CF-5
our 9.5% Senior Notes and issued $150.0 million of
6.875% Senior Notes, that were issued at 99.548% of par. In
2006, we paid down $52.5 million of our higher interest
rate 9.5% Senior Notes. During 2007, we invested
$110.6 million in net additions to our lease fleet and
$9.7 million in acquisitions. These additions were funded
through cash flow from operations and additional borrowings. The
monthly weighted average interest rate on our debt was 7.0% for
2007 compared to 7.6% for 2006, excluding amortization of debt
issuance costs. Taking into account the amortization of debt
issuance costs, the monthly weighted average interest rate was
7.3% in 2007 and 7.9% in 2006. Our weighted average interest
rate is lower, in part, because we redeemed our higher interest
rate 9.5% Senior Notes in May 2007. See Liquidity and
Capital Resources within this Item 7.
Debt extinguishment expense for the 2007 period resulted from
the write-off of the remaining unamortized deferred loan costs
and the redemption premium on $97.5 million aggregate
principal amount of outstanding 9.5% Senior Notes redeemed
in the second quarter of 2007. For the 2006 period, this expense
represents the portion of deferred loan costs and the redemption
premium on $52.5 million aggregate principal amount of the
9.5% Senior Notes redeemed in May 2006.
Provision for income taxes was based on an annual effective tax
rate of 39.1% for 2007 as compared to an annual effective tax
rate of 38.8% for 2006. Our 2007 consolidated tax provision
includes the expected tax rates for our operations in the United
States, Canada, United Kingdom and The Netherlands. The 2006 tax
provision includes a $0.3 million tax benefit due to the
recognition of certain state net operating loss carryforwards
that were previously scheduled to expire in 2006. At
December 31, 2007, we had a federal net operating loss
carryforward of approximately $78.2 million, which expires
if unused from 2018 to 2027. In addition, we had net operating
loss carryforwards in the various states in which we operate. We
believe, based on internal projections, that we will generate
sufficient taxable income needed to realize the corresponding
federal and state deferred tax assets to the extent they are
recorded as deferred tax assets in our balance sheet.
Net income in 2007 was $44.2 million, as compared to
$42.8 million in 2006. Our 2007 net income results
were primarily achieved by our 16.4% increase in revenues and
the operating leverage associated with this growth. These
increases were partially offset by the $11.2 million,
($6.9 million after tax), charge for debt extinguishment
expense related to the redemption of our outstanding
9.5% Senior Notes. Our 2006 net income was partially
offset by the $6.4 million ($3.9 million after tax),
tax debt extinguishment expenses related to the partial
redemption of our 9.5% Senior Notes and includes a
$0.3 million tax benefit due to the expected recognition of
certain state net operating loss carryforwards.
Twelve
Months Ended December 31, 2006 Compared to Twelve Months
Ended December 31, 2005
Total revenues in 2006 increased $66.2 million, or 32.0%,
to $273.4 million from $207.2 million in 2005. Leasing
of portable storage units and portable offices accounted for
approximately 89.7% of total revenues during 2006. Leasing
revenues in 2006 increased $56.5 million, or 30.0%, to
$245.1 million from $188.6 million in 2005. This
increase resulted from a 3.2% increase in the average rental
yield per unit, a 26.7% increase in the average number of units
on lease and 0.1% increase due to favorable exchange rates, in
each case as compared to the same period in 2005. The increase
in yield resulted from an increase in average rental rates over
the prior year and an increase in revenue for ancillary rental
services, such as delivery charges. An increase in the mix of
premium units having higher rental rates which we added to our
fleet was offset by lower rental rates on units added through
acquisitions, especially in Europe, which on the average are
smaller, were not refurbished and were primarily storage
containers rather than portable offices. Excluding our European
operations, our average rental yield per unit increased 5.5% in
2006 compared to 2005. In 2006, our lease revenue growth rate
was 30.0% as compared to 25.8% in 2005. We opened eleven new
branches through acquisitions in 2006: four in the United
States, six in the United Kingdom and one in The
Netherlands. We also completed another acquisition in 2006 in
which we consolidated the acquired business operations into our
existing Pensacola, Florida operations. Our sales of portable
storage and office units accounted for 9.8% and 8.5% in 2006 and
2005, respectively, of our total revenues. Other revenues,
primarily related to our sales business and principally arising
from transportation charges for the delivery of units sold and
the sale of ancillary products represented 0.5% of total
revenues in both 2006 and 2005. Our revenues from the sale of
portable storage units increased $9.3 million, or 53.3%, to
$26.8 million in 2006 from $17.5 million in 2005. This
increase is primarily related to the higher level of sales
activity at our newer locations
CF-6
both in the United States and especially in Europe. Our leasing
business continues to be our primary focus and leasing revenues
have become the predominant part of our revenue mix over the
past several years.
Cost of sales are the costs related to our sales revenue only.
Cost of sales as a percentage of sales revenue increased to
64.1% in 2006 from 62.0% in 2005. Our gross margin was at a
higher-than-typical
level during both periods. The slight decrease in the
2006 gross margin results from our European operations
where many of our units were sold at wholesale.
Leasing, selling and general expenses increased
$30.6 million, or 28.1%, to $139.9 million in 2006
from $109.3 million in 2005. Leasing, selling and general
expenses, as a percentage of total revenues, were 51.2% and
52.8% in 2006 and 2005, respectively. Included in this expense
for 2006, is approximately $3.1 million of expenses related
to share-based compensation in accordance with
SFAS No. 123(R), which became effective for us on
January 1, 2006. The 2005 expense amount includes
$1.7 million related to Hurricane Katrina. Excluding these
items, our leasing, selling and general expenses would have
increased by $29.3 million, or 27.2%, to
$136.8 million in 2006, as compared to $107.5 million
in 2005. As the markets we entered in the past few years have
continued to mature and as their revenues have increased to
cover our fixed expenses at those locations, those markets have
produced high margins on incremental lease revenues. Each
additional unit on lease in excess of the break-even level
contributes significantly to profitability. Over the next year,
we anticipate our leasing, selling and general expenses will
increase modestly as we add more infrastructure to the seven
European and four United States branches acquired in 2006, to
support their transformation to our business model. In addition
to the share-based compensation expense, the major increase in
leasing, selling and general expenses for 2006 were:
(1) payroll and related expenses increased by
$11.3 million and included the increase in commissions we
paid our sales personnel related to the $66.2 million
increase in revenues and general wage increases for over
1,900 employees who support the growth of our leasing
activities; (2) delivery and freight costs, including fuel,
increased by $8.6 million as fuel prices increased and we
used more third-party vendors for the transportation of our
units, particularly our modular office units (increased costs
were passed on to customers in the form of higher delivery and
pick-up
charges); (3) repairs on our lease fleet, including costs
related to our office units, increased by $2.6 million due
to our increased maintenance efforts associated with maintaining
our higher overall utilization rates and the higher cost
associated with maintaining mobile offices; and (4) repairs
and maintenance of delivery and other equipment increased by
$1.0 million principally as a result of our preventative
maintenance programs and general repairs associated with
servicing a larger lease fleet.
EBITDA increased $26.6 million, or 29.4%, to
$116.8 million in 2006 from $90.2 million in 2005.
EBITDA, adjusted to exclude $3.1 million of share-based
compensation expense in 2006 and Hurricane Katrina expenses of
$1.7 million and $3.2 million of other income in 2005,
increased $31.0 million, or 35.0%, to $119.8 million
in 2006 as compared to $88.8 million in 2005.
Depreciation and amortization expenses increased
$3.8 million, or 30.2%, to $16.7 million in 2006 from
$12.9 million in 2005. The higher depreciation expense is
primarily due to the growth in our lease fleet over the prior
year to meet increased demand of our products and included the
depreciation or units acquired through acquisitions in 2006. It
also includes the depreciation expenses associated with the
refurbishment of portable storage units added to the lease fleet
during 2006 and the inclusion in the lease fleet of additional
wood modular offices which have a higher depreciation rate than
our steel units. Also, in 2006, depreciation expense includes
the related depreciation on the additions to property, plant and
equipment, primarily trucks, forklifts and trailers, to support
the lease fleet growth, and the customized enterprise resource
planning system to enhance our reporting environment. This
increase in our lease fleet enabled us to achieve our higher
lease revenues. Since December 31, 2005, our lease fleet
cost basis for depreciation increased by $157.8 million.
See Critical Accounting Policies and Estimates
within this Item 7.
Other income in 2005, represents net proceeds of a settlement
agreement pursuant to which a third party reimbursed us for a
portion of losses sustained in two lawsuits that arose in
connection with the acquisition in April 2000 of a portable
storage business in Florida.
Interest expense increased $0.5 million, or 2.2%, to
$23.7 million in 2006 from $23.2 million in 2005. Our
monthly weighted average debt outstanding during 2006, compared
to 2005, was virtually unchanged due to our equity offering.
This slight increase in interest expense in 2006 resulted
primarily from higher interest rates on our
CF-7
variable rate line of credit, which was offset by the interest
savings resulting from the redemption of $52.5 million of
our 9.5% Senior Notes in May 2006. During 2006, we invested
$122.6 million in net additions to our lease fleet and
$59.5 million in acquisitions. These additions were funded
through cash flow from operations, use of a portion of the
proceeds of an equity offering, and additional borrowings. The
monthly weighted average interest rate on our debt was 7.6% for
both 2006 and 2005, excluding amortization of debt issuance
costs. Taking into account the amortization of debt issuance
costs, the monthly weighted average interest rate was 7.9% to
both 2006 and 2005. Our weighted average interest rate is
slightly higher in 2006 primarily due to higher LIBOR rates in
effect during 2006, partially offset by lower spreads from LIBOR
on our line of credit due to our improved leverage ratio. In
addition, our weighted average interest rate is reduced as a
larger percentage of our borrowing comes from our lower rate
revolving line of credit. Interest costs include interest
related to our Senior Notes that bear interest at 9.5% per
annum, which was higher than the average borrowing rate under
our revolving credit facility.
Debt extinguishment expense in the 2006 period represents the
portion of deferred loan costs and the redemption premium on 35%
of the $150.0 million aggregate principal amount of
outstanding Senior Notes that we redeemed in May 2006.
Provision for income taxes was based on an annual effective tax
rate of 38.8% for 2006 as compared to an annual effective tax
rate of 37.3% for 2005. Our 2006 consolidated tax provision
includes the expected tax rates for our operations in the United
States, Canada, United Kingdom and The Netherlands. The tax
provision rate for 2006 was slightly higher than in 2005, due to
permanent differences increasing for the expense relating to
incentive stock options as a result of the adoption of
SFAS No. 123(R). The 2006 tax provision includes a
$0.3 million tax benefit due to the recognition of certain
state net operating loss carryforwards that were previously
scheduled to expire in 2006, that management expects to recover
with 2006 taxable income. The 2005 tax provision includes a
$0.7 million tax benefit due to the recognition of certain
state net operating loss carryforwards that were previously
scheduled to expire in 2005 and 2006. At December 31, 2006,
we had a federal net operating loss carryforward of
approximately $47.0 million, which expires if unused from
2021 to 2026. In addition, we had net operating loss
carryforwards in the various states in which we operate. We
believe, based on internal projections, that we will generate
sufficient taxable income needed to realize the corresponding
federal and state deferred tax assets to the extent they are
recorded as deferred tax assets in our balance sheet.
Net income in 2006 was $42.8 million, as compared to
$34.0 million in 2005. Our 2006 net income results
were primarily achieved by our 32.0% increase in revenues and
the operating leverage associated with this growth, and includes
a $0.3 million tax benefit discussed above. These increases
were partially offset by the $3.1 million,
($2.3 million after tax), charge for share-based
compensation and the $6.4 million ($3.9 million after
tax) for debt extinguishment expense related to the partial
redemption of our Senior Notes. Our 2005 net income
includes the proceeds from a settlement agreement of
$3.2 million ($1.9 million after tax),
$1.7 million ($1.0 million after tax) expenses related
to Hurricane Katrina, and a $0.7 million tax benefit due to
the expected recognition of certain state net operating loss
carryforwards.
Liquidity
and Capital Resources
Liquidity
Summary
Most of our capital needs are discretionary and are used
principally to acquire additional units for our lease fleet.
Leasing is a capital-intensive business that requires us to
acquire assets before they generate revenues, cash flow and
earnings. The assets which we lease have very long useful lives
and require relatively little recurrent maintenance
expenditures. Most of the capital we deploy into our leasing
business has been used to expand our operations geographically,
to increase the number of units available for lease at our
leasing locations, and to add to the mix of products we offer.
During recent years our operations have generated annual cash
flow that exceeds our pre-tax earnings, particularly due to the
deferral of income taxes caused by accelerated depreciation that
is used for tax accounting.
During the second quarter of 2007, we redeemed
$97.5 million principal amount of our issued and
outstanding 9.5% Senior Notes due 2013. On May 7,
2007, we completed the offering of our $150.0 million
principal amount 6.875% Senior Notes due 2015, issued at
99.548% of par value, through a private placement to
institutional investors. Subsequently, the private placement
notes were exchanged for a like amount of Senior Notes with
CF-8
identical terms pursuant to an exchange offer registered under
the Securities Act of 1933. We received net proceeds of
approximately $146.3 million, after underwriters
discounts and commissions, from our issuance of the
$150.0 million 6.875% Senior Notes. We used these
proceeds to redeem the $97.5 million principal balance of
our 9.5% Senior Notes, and paid accrued interest,
transaction costs and the redemption premium (approximately
$8.8 million) on the 9.5% Senior Notes. We used the
remaining net proceeds of approximately $33.2 million to
repay borrowings under our revolving line of credit.
On May 7, 2007, we amended our senior secured revolving
line of credit to provide a $425.0 million revolving credit
facility, which is scheduled to mature in May 2012. We may also,
at our option and without lenders consent, increase
available borrowings under the revolving credit facility by an
additional $75.0 million during the term of the agreement.
During the past two years, our capital expenditures and
acquisitions have been funded by our operating cash flow, an
offering of shares of our common stock in March 2006, which
provided us approximately $120.3 million of net proceeds,
our May 2007 offering of Senior Notes, and borrowings under our
revolving credit facility. Our operating cash flow is, in
general, weakest during the first quarter of each fiscal year,
when customers who leased containers for holiday storage return
the units. At December 31, 2007, we had unused borrowing
availability of approximately $183.7 million under our
revolving credit facility. Our net borrowings outstanding under
our revolving credit facility increased by $34.2 million,
from $203.7 million at December 31, 2006 to
$237.9 million at December 31, 2007. The net
additional borrowings, which were offset by the
$33.2 million paydown of our revolving credit agreement in
May 2007 utilizing a portion of the proceeds of the Senior Note
issuance, were used, in conjunction with cash provided by
operating activities, to fund the $126.7 million of
additions to our lease fleet, purchase property, plant and
equipment of $18.5 million, to fund the purchase price
related to acquisitions in 2007 totaling $9.7 million and
to repurchase $39.3 million of our common stock. As of
February 22, 2008, borrowings outstanding under our
revolving credit facility were approximately $234.9 million.
Operating Activities. Our operations provided
net cash flow of $91.3 million in 2007 as compared to
$76.9 million in 2006 and $69.2 million in 2005. The
$14.4 million increase in 2007 over 2006 in cash provided
by operating activities, in addition to increased pre-tax income
and the related deferral of the income taxes, included the
increase of a non-cash charge of $1.0 million related to
share-based compensation expense, and a $0.9 million
increase in non-cash debt extinguishment expense relating to the
redemption of our 9.5% Senior Notes. In 2007, cash provided
by operating activities was negatively affected by the
$8.9 million premium paid in connection with redeeming
$97.5 million of our 9.5% Senior Notes. In 2006, cash
provided by operating activities was negatively affected by the
$5.0 million premium paid in connection with redeeming 35%
of our 9.5% Senior Notes, while in 2005 cash provided by
operating activities was positively influenced by the receipt of
$3.2 million of other income. Additionally, in 2007, cash
provided by operating activities was negatively impacted by
increases in accounts receivable which was due to the general
growth in our leasing activities by an increase in our sales
activity related to our newly acquired European operations, and
by an increase in deposits and prepaid expenses. In 2005,
accounts payable increased by $8.6 million, while in 2006,
accounts payable decreased $2.1 million primarily due to
the timing of vendor payment requirements. Cash provided by
operating activities is enhanced by the deferral of most income
taxes due to the rapid tax depreciation rate of our assets and
our federal and state net operating loss carryforwards. At
December 31, 2007, we had a federal net operating loss
carryforward of approximately $78.2 million and a net
deferred tax liability of $123.5 million.
Investing Activities. Net cash used in
investing activities was $138.7 million in 2007,
$192.8 million in 2006 and $113.3 million in 2005. In
2007, $9.7 million of cash was paid for acquisition of
businesses, compared to $59.5 million in 2006 and
$7.0 million in 2005. Capital expenditures for our lease
fleet, net of proceeds from sale of lease fleet units, were
$110.6 million in 2007, $122.6 million in 2006 and
$100.0 million in 2005. Capital expenditures decreased
almost 10% in 2007, with the decrease occurring primarily in the
fourth quarter 2007 due to the economic slow down. Additions to
the lease fleet included refurbishment of prior acquisition
units and our steel and wood offices. During the past several
years we have increased the customization of our fleet, enabling
us to differentiate our product from our competitors
product, and we have complimented our lease fleet by adding wood
mobile offices. Capital expenditures for property, plant and
equipment, net of proceeds from any sale of property, plant and
equipment, were $18.4 million in 2007, $10.7 million
in 2006 and $6.4 million in 2005. The $12.3 million
net increase for property, plant and equipment, of which
$7.3 million was spent in Europe, was primarily for new
CF-9
delivery equipment and forklifts at our newer branches and
additional hardware and software in conjunction with our
upgraded computer information systems. The amount of cash that
we use during any period in investing activities is almost
entirely within managements discretion. Mobile Mini has no
contracts or other arrangements pursuant to which we are
required to purchase a fixed or minimum amount of goods or
services in connection with any portion of our business.
Maintenance capital expenditures is the cost to replace old
forklifts, trucks and trailers that we use to move and deliver
our products to our customers, and for enhancements to our
computer information systems. Our maintenance capital
expenditures were approximately $0.8 million in 2007,
$0.8 million in 2006 and $1.9 million in 2005.
Financing Activities. Net cash provided by
financing activities was $48.4 million in 2007,
$117.0 million in 2006 and $43.3 million in 2005. In
2006, we received approximately $120.3 million in net
proceeds from the Equity Offering and we redeemed
$52.5 million (or 35% of the aggregate outstanding
principal balance) of our 9.5% Senior Notes. During 2006,
in addition to our Equity Offering, we relied on cash provided
by operations as well as our revolving credit facility to
provide the additional capital needed to fund the growth of our
lease fleet and to complete certain acquisitions. Additionally,
we received $5.6 million, $5.2 million and
$11.7 million from the exercises of employee stock options
and the related tax benefits in 2007, 2006 and 2005,
respectively. As of December 31, 2007, we had
$237.9 million of borrowings outstanding under our
revolving credit facility, and approximately $183.7 million
of additional borrowings were available to us under the
facility. As of February 22, 2008, our borrowings
outstanding under our revolving credit facility were
approximately $234.9 million.
Loans under our revolving credit facility bear interest at a
rate based, at our option and subject to our leverage ratio, on
either (1) the prime rate plus a spread ranging from -0.25%
(negative) to 0.25%, or (2) LIBOR, plus a spread ranging
from 1.25% to 2.00%. The interest rate spread from the LIBOR
rate and prime rate is measured at the end of each quarter.
Interest on outstanding borrowings is payable monthly or, with
respect to LIBOR borrowings, either quarterly or on the last day
of the applicable interest period (whichever is more frequent).
In addition to paying interest on any outstanding principal
amount, we pay an unused revolving credit facility fee to the
senior lenders equal to a range of 0.25% to 0.375% per annum on
the unused daily balance of the revolving credit commitment,
payable monthly in arrears, based upon the actual number of days
elapsed in a 360 day year. For each letter of credit we
issue, we pay (i) a per annum fee equal to the margin over
the LIBOR rate from time to time in effect, (ii) a fronting
fee on the aggregate outstanding stated amounts of such letters
of credit, plus (iii) customary administrative charges.
All of our obligations under the revolving credit facility are
guaranteed jointly and severally by each of our subsidiaries.
The revolving credit facility and the related guarantees are
secured by substantially all of our assets and all assets of
each guarantor, including but not limited to (i) a
first-priority pledge of all of the outstanding capital stock or
other ownership interest owned by us and each guarantor and
(ii) first-priority security interests in all of our
tangible and intangible assets and the tangible and intangible
assets of each guarantor (in each case, other than certain
equipment assets subject to capitalized lease obligations). As
of December 31, 2007, we had minor capital lease
obligations relating to office equipment.
Our revolving credit agreement imposes some material covenants
that restrict us in the conduct of our business, although
certain covenants are inapplicable in whole or in part as long
as we are not in default under the agreement and we maintain
borrowing availability in excess of certain pre-determined
levels. If our borrowing availability is below a specified
level, the revolving credit facility triggers covenants
restricting (or in some cases, further restricting) our ability
to, among other things: (i) declare cash dividends, or
redeem or repurchase our capital stock in excess of
$10.0 million; (ii) prepay, redeem or purchase other
debt; (iii) incur liens; (iv) make loans and
investments; (v) incur additional indebtedness;
(vi) amend or otherwise alter debt and other material
agreements; (vii) make capital expenditures;
(viii) engage in mergers, acquisitions and asset sales;
(ix) transact with affiliates; and (x) alter the
business we conduct. We also must comply with specified
financial covenants and affirmative covenants. Should we fall
below specified borrowing availability levels, then these
financial covenants would set maximum permitted values for our
leverage ratio, fixed charge coverage ratio and our minimum
required utilization rates. Our compliance with financial
covenants is measured as of the last day of each fiscal quarter.
Under the terms of the revolving credit facility agreement, we
were in compliance with all the covenants at December 31,
2007.
CF-10
Events of default under the revolving credit facility include,
but are not limited to, (i) our failure to timely pay
principal or interest under the facility when due, (ii) our
material breach of any representations or warranty,
(iii) covenant defaults, (iv) events of bankruptcy,
(v) cross default under certain other debt instruments,
(vi) certain unsatisfied final judgments over a stated
threshold amount, and (vii) a change of control.
At December 31, 2007, we had five interest rate swap
agreements for a total of $125.0 million of debt. Two of
these agreements (covering a total of $50 million of debt)
expire during February 2008. We entered into interest rate swap
agreements that effectively fixed the interest rate so that the
rate is payable based upon a spread from fixed rates, rather
than a spread from the LIBOR rate. At December 31, 2007,
$275.1 million of our outstanding indebtedness bears
interest at fixed rates (or the rate is effectively fixed due to
a swap agreement), and approximately $112.9 million of
borrowings under our credit facility are variable rate.
Accounting for these swap agreements is covered by Statement of
Financial Accounting Standard (SFAS) No. 133.
We believe we have sufficient borrowings available under the
$425.0 million revolving credit facility to provide for our
normal capital needs for the next 12 to 36 months, with the
duration dependent in large part upon the balance between the
internal growth rates achieved during 2007 and subsequent
periods and the expenses of entering into additional markets
during the period, which will be the main determinant of how
quickly we use our additional borrowing capacity under the
revolving credit facility.
With the closing of the definitive merger agreement announced in
February 2008, we will have secured a $1.0 billion
asset-based revolving credit facility to allow for increased
borrowing capability after paying merger costs and repayment of
indebtedness.
Contractual
Obligations and Commitments
Our contractual obligations primarily consist of our outstanding
balance under our secured revolving credit facility and
$97.5 million of Senior Notes, together with other
unsecured notes payable obligations and small obligations under
capital leases. We also have operating lease commitments for:
(1) real estate properties for the majority of our branches
with remaining lease terms on our major leased properties
ranging from 1 to 11 years; (2) delivery,
transportation and yard equipment, typically under a five-year
lease with purchase options at the end of the lease term at a
stated or fair market value price; and (3) other equipment,
primarily office machines.
At December 31, 2007, in connection with the issuance of
our insurance policies, we provided certain insurance carriers
with approximately $3.4 million in letters of credit and an
agreement under which we are contingently responsible for
$2.9 million in order to provide credit support for our
payment of the deductibles
and/or loss
limitation reimbursements under the insurance policies.
We currently do not have any obligations under purchase
agreements or commitments. Historically, we enter into
capitalized lease obligations from time to time to purchase
delivery, transportation and yard equipment and currently have
small commitments recorded as capital leases relating to some
office equipment.
The table below provides a summary of our contractual
commitments as of December 31, 2007. The operating lease
amounts include certain real estate leases that expire in 2008,
but have lease renewal options that we currently anticipate to
exercise in 2008 at the end of the initial lease period.
CF-11
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Payments Due by Period
|
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|
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|
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Less Than
|
|
|
|
|
|
|
|
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More Than
|
|
|
|
Total
|
|
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1 Year
|
|
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1-3 Years
|
|
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3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Revolving credit facility
|
|
$
|
237,857
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
237,857
|
|
|
$
|
|
|
Scheduled interest payment obligations under our revolving
credit facility(1)
|
|
|
64,299
|
|
|
|
14,788
|
|
|
|
29,577
|
|
|
|
19,934
|
|
|
|
|
|
Senior Notes
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
Scheduled interest payment obligations under our Senior Notes(2)
|
|
|
77,344
|
|
|
|
10,313
|
|
|
|
20,625
|
|
|
|
20,625
|
|
|
|
25,781
|
|
Other long-term debt
|
|
|
743
|
|
|
|
743
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|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled interest payment obligations under our long-term
debt(2)
|
|
|
14
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|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
10
|
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Scheduled interest payment obligations under capital leases(3)
|
|
|
1
|
|
|
|
1
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|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
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48,904
|
|
|
|
10,325
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|
|
|
16,707
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|
|
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9,442
|
|
|
|
12,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
579,172
|
|
|
$
|
36,192
|
|
|
$
|
66,911
|
|
|
$
|
287,858
|
|
|
$
|
188,211
|
|
|
|
|
|
|
|
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(1) |
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Scheduled interest rate obligations under our revolving credit
facility were calculated using our weighted average rate of 6.2%
at December 31, 2007. Our revolving credit facility is
subject to a variable rate of interest. The weighted average
interest rate is inclusive of our fixed rates swap agreements. |
|
(2) |
|
Scheduled interest rate obligations under our Senior Notes and
other long-term debt were calculated using stated rates. |
|
(3) |
|
Scheduled interest rate obligations under two capital leases
were calculated using imputed rates of 6.5% and 13.6%. |
Off-Balance
Sheet Transactions
Mobile Mini does not maintain any off-balance sheet
transactions, arrangements, obligations or other relationships
with unconsolidated entities or others that are reasonably
likely to have a material current or future effect on Mobile
Minis financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Seasonality
Demand from some of our customers is somewhat seasonal. Demand
for leases of our portable storage units by large retailers is
stronger from September through December because these retailers
need to store more inventories for the holiday season. Our
retail customers usually return these leased units to us early
in the following year. This causes lower utilization rates for
our lease fleet and a marginal decrease in cash flow during the
first quarter of the year. Over the last few years, we have
reduced the percentage of our units we reserve for this seasonal
business from the levels we allocated in earlier years,
decreasing our seasonality.
Critical
Accounting Policies, Estimates and Judgments
Our significant accounting policies are disclosed in Note 1
to our consolidated financial statements. The following
discussion addresses our most critical accounting policies, some
of which require significant judgment.
Mobile Minis consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period.
These estimates and assumptions are based upon our evaluation of
historical results and
CF-12
anticipated future events, and these estimates may change as
additional information becomes available. The Securities and
Exchange Commission defines critical accounting policies as
those that are, in managements view, most important to our
financial condition and results of operations and those that
require significant judgments and estimates. Management believes
that our most critical accounting policies relate to:
Revenue Recognition. Lease and leasing
ancillary revenues and related expenses generated under portable
storage units and office units are recognized on a straight-line
basis. Revenues and expenses from portable storage unit delivery
and hauling are recognized when these services are earned, in
accordance with SAB No. 104. We recognize revenues
from sales of containers and mobile office units upon delivery
when the risk of loss passes, the price is fixed and
determinable and collectibility is reasonably assured. We sell
our products pursuant to sales contracts stating the fixed sales
price with our customers.
Share-Based Compensation. Prior to fiscal
2007, we accounted for stock-based compensation plans under the
recognition and measurement provisions of Accounting Principles
Board (APB) Opinion No. 25. Effective January 1, 2006,
we adopted the provisions of SFAS 123(R) using the
modified-prospective-transition method. SFAS 123(R)
requires companies to recognize the fair-value of stock-based
compensation transactions in the statement of income. The fair
value of our stock-based awards is estimated at the date of
grant using the Black-Scholes option pricing model. The
Black-Scholes valuation calculation requires us to estimate key
assumptions such as future stock price volatility, expected
terms, risk-free rates and dividend yield. Expected stock price
volatility is based on the historical volatility of our stock.
We use historical data to estimate option exercises and employee
terminations within the valuation model. The expected term of
options granted is derived from an analysis of historical
exercises and remaining contractual life of stock options, and
represents the period of time that options granted are expected
to be outstanding. The risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant.
We have never paid cash dividends, and do not currently intend
to pay cash dividends, and thus have assumed a 0% dividend
yield. If our actual experience differs significantly from the
assumptions used to compute our stock-based compensation cost,
or if different assumptions had been used, we may have recorded
too much or too little stock-based compensation cost. For stock
options and nonvested share awards subject solely to service
conditions, we recognize expense using the straight-line
attribution method. For nonvested share awards subject to
service and performance conditions, we are required to assess
the probability that such performance conditions will be met. If
the likelihood of the performance condition being met is deemed
probable, we will recognize the expense using accelerated
attribution method. In addition, for both stock options and
nonvested share awards, we are required to estimate the expected
forfeiture rate of our stock grants and only recognize the
expense for those shares expected to vest. If the actual
forfeiture rate is materially different from our estimate, our
stock-based compensation expense could be materially different.
We had approximately $4.7 million of total unrecognized
compensation costs related to stock options at December 31,
2007 that are expected to be recognized over a weighted-average
period of 1.9 years and $11.5 million of total unrecognized
compensation costs related to nonvested share awards at December
31, 2007 that are expected to be recognized over a
weighted-average period of 4.0 years. See Note 9 to the
Consolidated Financial Statement for a further discussion on
stock-based compensation.
CF-13
Allowance for Doubtful Accounts. We maintain
allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.
We establish and maintain reserves against estimated losses
based upon historical loss experience and evaluation of past due
accounts agings. Management reviews the level of the allowances
for doubtful accounts on a regular basis and adjusts the level
of the allowances as needed. If we were to increase the factors
used for our reserve estimates by 25%, it would have the
following approximate effect on our net income and diluted
earnings per share at December 31, as follows:
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|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands except per share data)
|
|
|
As reported:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Diluted earnings per share
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
As adjusted for hypothetical change in reserve estimates:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
42,083
|
|
|
$
|
43,893
|
|
Diluted earnings per share
|
|
$
|
1.19
|
|
|
$
|
1.21
|
|
If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.
Impairment of Goodwill We assess the
impairment of goodwill and other identifiable intangibles on an
annual basis or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Some
factors we consider important which could trigger an impairment
review include the following:
|
|
|
|
|
significant under-performance relative to historical, expected
or projected future operating results;
|
|
|
|
significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
|
|
|
|
our market capitalization relative to net book value; and
|
|
|
|
significant negative industry or general economic trends.
|
Pursuant to SFAS No. 142, Goodwill and Other
Intangible Assets, we operate on one reportable segment,
which is comprised of three reporting units with the addition of
our European operations. We perform an annual impairment test on
goodwill using the two-step process prescribed in
SFAS No. 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. In addition, we will perform impairment
tests during any reporting period in which events or changes in
circumstances indicate that an impairment may have incurred. We
performed the required impairment tests for goodwill as of
December 31, 2007 and determined that goodwill is not
impaired and it is not necessary to record any impairment losses
related to goodwill. We will continue to perform this test in
the future as required by SFAS No. 142.
Impairment of Long-Lived Assets. We review
property, plant and equipment and intangibles with finite lives
(those assets resulting from acquisitions) for impairment when
events or circumstances indicate these assets might be impaired.
We test impairment using historical cash flows and other
relevant facts and circumstances as the primary basis for its
estimates of future cash flows. This process requires the use of
estimates and assumptions, which are subject to a high degree of
judgment. If these assumptions change in the future, whether due
to new information or other factors, we may be required to
record impairment charges for these assets.
Depreciation Policy. Our depreciation policy
for our lease fleet uses the straight-line method over our
units estimated useful life, after the date that we put
the unit in service. Our steel units are depreciated over
25 years with an estimated residual value of 62.5%. Wood
offices units are depreciated over 20 years with an
estimated residual value of 50%. Van trailers, which are a small
part of our fleet, are depreciated over 7 years to a 20%
residual value. Van trailers are only added to the fleet as a
result of acquisitions of portable storage businesses.
In 2004, we modified our depreciation policy on our steel units
to increase the useful life to 25 years (from
20 years), and to decrease the residual value to 62.5%
(from 70%), which effectively resulted in continued depreciation
on steel units for five additional years at the same annual rate
(1.5%). This change was made to reflect
CF-14
that some of our steel units have now been in our lease fleet
longer than 20 years and these units continue to be
effective income producing assets that do not show signs of
reaching the end of their useful life. The depreciation policy
is supported by our historical lease fleet data that shows we
have been able to retain comparable rental rates and sales
prices irrespective of the age of the unit in our container
lease fleet.
We periodically review our depreciation policy against various
factors, including the results of our lenders independent
appraisal of our lease fleet, practices of the larger
competitors in our industry, profit margins we are achieving on
sales of depreciated units and lease rates we obtain on older
units. If we were to change our depreciation policy on our steel
units from 62.5% residual value and a
25-year life
to a lower or higher residual and a shorter or longer useful
life, such change could have a positive, negative or neutral
effect on our earnings, with the actual effect being determined
by the change. For example, a change in our estimates used in
our residual values and useful life on our steel units would
have the following approximate effect on our net income and
diluted earnings per share as reflected in the table below.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
|
Residual
|
|
|
Life in
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Years
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands except per share data)
|
|
|
As Reported:
|
|
|
62.5
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
As adjusted for change in estimates:
|
|
|
70
|
%
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
As adjusted for change in estimates:
|
|
|
50
|
%
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
39,595
|
|
|
$
|
41,380
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.12
|
|
|
$
|
1.14
|
|
As adjusted for change in estimates:
|
|
|
40
|
%
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
As adjusted for change in estimates:
|
|
|
30
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
38,641
|
|
|
$
|
40,541
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.09
|
|
|
$
|
1.12
|
|
As adjusted for change in estimates:
|
|
|
25
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
38,004
|
|
|
$
|
39,982
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
1.07
|
|
|
$
|
1.10
|
|
Insurance Reserves. Our workers
compensation, auto and general liability insurance are purchased
under large deductible programs. Our current per incident
deductibles are: workers compensation $250,000, auto
$250,000 and general liability $100,000. We provide for the
estimated expense relating to the deductible portion of the
individual claims. However, we generally do not know the full
amount of our exposure to a deductible in connection with any
particular claim during the fiscal period in which the claim is
incurred and for which we must make an accrual for the
deductible expense. We make these accruals based on a
combination of the claims development experience of our staff
and our insurance companies, and, at year end, the accrual is
reviewed and adjusted, in part, based on an independent
actuarial review of historical loss data and using certain
actuarial assumptions followed in the insurance industry. A high
degree of judgment is required in developing these estimates of
amounts to be accrued, as well as in connection with the
underlying assumptions. In addition, our assumptions will change
as our loss experience is developed. All of these factors have
the potential for significantly impacting the amounts we have
previously reserved in respect of anticipated deductible
expenses, and we may be required in the future to increase or
decrease amounts previously accrued.
Contingencies. We are a party to various
claims and litigation in the normal course of business.
Managements current estimated range of liability related
to various claims and pending litigation is based on claims for
CF-15
which our management can determine that it is probable (as that
term is defined in SFAS No. 5) that a liability
has been incurred and the amount of loss can be reasonably
estimated. Because of the uncertainties related to both the
probability of incurred and possible range of loss on pending
claims and litigation, management must use considerable judgment
in making reasonable determination of the liability that could
result from an unfavorable outcome. As additional information
becomes available, we will assess the potential liability
related to our pending litigation and revise our estimates. Such
revisions in our estimates of the potential liability could
materially impact our results of operation. We do not anticipate
the resolution of such matters known at this time will have a
material adverse effect on our business or consolidated
financial position.
Deferred Taxes. In preparing our consolidated
financial statements, we recognize income taxes in each of the
jurisdictions in which we operate. For each jurisdiction, we
estimate the actual amount of taxes currently payable or
receivable as well as deferred tax assets and liabilities
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
A valuation allowance is provided for those deferred tax assets
for which it is more likely than not that the related benefits
will not be realized. In determining the amount of the valuation
allowance, we consider estimated future taxable income as well
as feasible tax planning strategies in each jurisdiction. If we
determine that we will not realize all or a portion of our
deferred tax assets, we will increase our valuation allowance
with a charge to income tax expense or offset goodwill if the
deferred tax asset was acquired in a business combination.
Conversely, if we determine that we will ultimately be able to
realize all or a portion of the related benefits for which a
valuation allowance has been provided, all or a portion of the
related valuation allowance will be reduced with a credit to
income tax expense except if the valuation allowance was created
in conjunction with a tax asset in a business combination.
At December 31, 2007, we have a $1.1 million valuation
allowance and have $36.7 million of deferred tax assets
included within the net deferred tax liability on our balance
sheet. The majority of deferred tax asset relates to federal net
operating loss carryforwards that have future expiration dates.
Management currently believes that adequate future taxable
income will be generated through future operations
and/or
through available tax planning strategies to recover these
assets. However, given that these loss carryforwards that give
rise to the deferred tax asset expire over 10 years
beginning in 2018, there could be changes in managements
judgment in future periods with respect to the recoverability of
these assets. As of December 31, 2007, management believes
that it is more likely than not that the unreserved portion of
these deferred tax assets will be recovered.
Recent
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB)
issued Financial Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes, which clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. The
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted this
interpretation as of January 1, 2007. Adoption of FIN 48
did not have a material effect on our results of operations or
financial condition.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007 and interim periods
within those fiscal years. We are in the process of determining
the effect, if any, that the adoption of SFAS No. 157
will have on our consolidated financial statements.
On February 15, 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
Under this Standard, we may elect to report financial
instruments and certain other items at fair value on a
contract-by-contract
basis with changes in value reported in earnings. This election
is irrevocable. SFAS No. 159 provides an opportunity
to mitigate volatility in reported earnings that is caused by
CF-16
measuring hedged assets and liabilities that were previously
required to use a different accounting method than the related
hedging contracts when the complex provisions of
SFAS No. 133 hedge accounting are not met.
SFAS No. 159 is effective for years beginning after
November 15, 2007. We are currently evaluating the
potential impact of adopting this Standard.
In June 2007, the FASB ratified the Emerging Issues Task Force
(EITF) consensus on EITF Issue
No. 06-11,
Accounting for Income Tax Benefits on Dividends on
Share-based Payment Awards. This EITF indicates tax benefits
of dividends on unvested restricted stock are to be recognized
in equity as an increase in the pool of excess tax benefits. If
the related awards are forfeited or are no longer expected to
vest, then the benefits are to be reclassified from equity to
the income statement. The EITF is effective for fiscal years
beginning after December 15, 2007. We do not expect the
adoption of EITF Issue
No. 06-11
will have a material effect on our results of operations or
financial condition.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. Under SFAS No. 141R, an acquiring entity
will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-due fair
value with limited exceptions. SFAS No. 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
This statement is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the
potential impact of the adoption of SFAS No. 141R on
our results of operations or financial condition.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements (an amendment of
Accounting Research Bulletin (ARB 51)) (SFAS No. 160).
SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.
SFAS No. 160 becomes effective beginning
January 1, 2009. Presently, there are no non-controlling
interests in any of the Companys consolidated
subsidiaries, therefore, we do not expect the adoption of
SFAS No. 160 to have a significant impact on our
results of operations or financial conditions.
CF-17
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Swap Agreement. We seek to
reduce earnings and cash flow volatility associated with changes
in interest rates through a financial arrangement intended to
provide a hedge against a portion of the risks associated with
such volatility. We continue to have exposure to such risks to
the extent they are not hedged.
Interest rate swap agreements are the only instruments we use to
manage interest rate fluctuations affecting our variable rate
debt. At December 31, 2007, we had five interest rate swap
agreements under which we pay a fixed rate and receive a
variable interest rate on $125.0 million of debt. In 2007,
in accordance with SFAS No. 133, comprehensive income
included a charge of $1.3 million, net of income tax
benefit of $0.8 million, related to the fair value of our
interest rate swap agreements. We enter into derivative
financial arrangements only to the extent that the arrangement
meets the objectives described, and we do not engage in such
transactions for speculative purposes.
The following table sets forth the scheduled maturities and the
total fair value of our debt portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at
|
|
|
Total Fair Value
|
|
|
|
At December 31,
|
|
|
December 31,
|
|
|
at December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except percentages)
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
751
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
150,753
|
|
|
$
|
137,251
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.87
|
%
|
|
|
|
|
Floating rate(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
237,857
|
|
|
$
|
|
|
|
$
|
237,857
|
|
|
$
|
237,857
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.22
|
%
|
|
|
|
|
Operating leases:
|
|
$
|
10,325
|
|
|
$
|
9,407
|
|
|
$
|
7,300
|
|
|
$
|
5,601
|
|
|
$
|
3,841
|
|
|
$
|
12,430
|
|
|
$
|
48,904
|
|
|
|
|
|
|
|
|
(1) |
|
Included in our floating rate line of credit facility are
$125.0 million of fixed-rate swap agreements with a
weighted average interest rate of 5.41% that mature between 2008
and 2010. |
Impact of Foreign Currency Rate Changes. We
currently have branch operations outside the United States and
we bill those customers primarily in their local currency which
is subject to foreign currency rate changes. Our operations in
Canada are billed in the Canadian Dollar, operations in the
United Kingdom are billed in Pound Sterling and operations in
The Netherlands are billed in the Eurodollar. We are exposed to
foreign exchange rate fluctuations as the financial results of
our
non-United
States operations are translated into U.S. Dollars. The
impact of foreign currency rate changes has historically been
insignificant with our Canadian operations, but we have more
exposure to volatility with our European operations. In order to
help minimize our exchange rate gain and loss volatility, we
finance our European entities through our revolving line of
credit which allows us to also borrow those funds in Pound
Sterling denominated debt.
CG-1
Managements
Report on Internal Control Over Financial Reporting
To the Shareholders of Mobile Mini, Inc.,
The management of Mobile Mini, Inc., is responsible for
establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
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
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of our assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in conformity with U.S. generally
accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with
authorizations of our management and directors; and
(3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on
the financial statements.
Because of its inherent limitations, our controls and procedures
may not prevent or detect misstatements. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
controls system are met. Because of the inherent limitations in
all controls systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, have been detected.
Under the supervision and with the participation of management,
with the exception as noted above, we assessed the effectiveness
of our internal control over financial reporting based on the
criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the criteria
in Internal Control Integrated Framework, we
concluded that our internal control over financial reporting was
effective as of December 31, 2007.
The effectiveness of our internal control over financial
reporting as of December 31, 2007 has been audited by Ernst
& Young LLP, an Independent Registered Public Accounting
Firm, as stated in their report which is included herein.
Steven G. Bunger
Chief Executive Officer
Mobile Mini, Inc.
/s/ Lawrence
Trachtenberg
Lawrence Trachtenberg
Executive Vice President and
Chief Financial Officer
Mobile Mini, Inc.
CH-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mobile Mini, Inc.
We have audited Mobile Mini, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Mobile Mini,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys 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 for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Mobile Mini, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Mobile Mini, Inc. as of
December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2007 of Mobile Mini, Inc. and our report dated
February 28, 2008 expressed an unqualified opinion thereon.
Phoenix, Arizona
February 28, 2008
CH-3
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mobile Mini, Inc.
We have audited the accompanying consolidated balance sheets of
Mobile Mini, Inc. as of December 31, 2007 and 2006, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2007. Our audit also included the
financial statement schedule listed in Item 15(a)(2). These
consolidated financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule 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 financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Mobile Mini, Inc. at December 31,
2007 and 2006, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, Mobile Mini, Inc. changed its method of accounting
for share-based payments in accordance with Statement of
Financial Accounting Standards No. 123 (revised
2004) on January 1, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Mobile Mini, Inc.s internal control over financial
reporting as of December 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2008 expressed
an unqualified opinion thereon.
Phoenix, Arizona
February 28, 2008
CH-4
MOBILE
MINI, INC.
(In
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
ASSETS
|
Cash
|
|
$
|
1,370
|
|
|
$
|
3,703
|
|
Receivables, net of allowance for doubtful accounts of $5,008
and $3,993, respectively
|
|
|
34,953
|
|
|
|
37,221
|
|
Inventories
|
|
|
27,863
|
|
|
|
29,431
|
|
Lease fleet, net
|
|
|
697,439
|
|
|
|
802,923
|
|
Property, plant and equipment, net
|
|
|
43,072
|
|
|
|
55,363
|
|
Deposits and prepaid expenses
|
|
|
9,553
|
|
|
|
11,334
|
|
Other assets and intangibles, net
|
|
|
9,324
|
|
|
|
9,086
|
|
Goodwill
|
|
|
76,456
|
|
|
|
79,790
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
900,030
|
|
|
$
|
1,028,851
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,928
|
|
|
$
|
20,560
|
|
Accrued liabilities
|
|
|
39,546
|
|
|
|
38,941
|
|
Line of credit
|
|
|
203,729
|
|
|
|
237,857
|
|
Notes payable
|
|
|
781
|
|
|
|
743
|
|
Obligations under capital leases
|
|
|
35
|
|
|
|
10
|
|
Senior notes, net of discount of $0 and $621 at
December 31, 2006 and December 31, 2007, respectively
|
|
|
97,500
|
|
|
|
149,379
|
|
Deferred income taxes
|
|
|
97,507
|
|
|
|
123,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
458,026
|
|
|
|
570,961
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock; $0.01 par value, 95,000 shares
authorized, 35,898 and 34,573 issued and outstanding at
December 31, 2006 and December 31, 2007, respectively
|
|
|
359
|
|
|
|
367
|
|
Additional paid-in capital
|
|
|
268,456
|
|
|
|
278,593
|
|
Retained earnings
|
|
|
169,718
|
|
|
|
213,894
|
|
Accumulated other comprehensive income
|
|
|
3,471
|
|
|
|
4,336
|
|
Treasury stock, at cost, 2,175 shares
|
|
|
|
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
442,004
|
|
|
|
457,890
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
900,030
|
|
|
$
|
1,028,851
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
CH-5
MOBILE
MINI, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
188,578
|
|
|
$
|
245,105
|
|
|
$
|
284,638
|
|
Sales
|
|
|
17,499
|
|
|
|
26,824
|
|
|
|
31,644
|
|
Other
|
|
|
1,093
|
|
|
|
1,434
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
207,170
|
|
|
|
273,363
|
|
|
|
318,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
10,845
|
|
|
|
17,186
|
|
|
|
21,651
|
|
Leasing, selling and general expenses
|
|
|
109,257
|
|
|
|
139,906
|
|
|
|
166,994
|
|
Depreciation and amortization
|
|
|
12,854
|
|
|
|
16,741
|
|
|
|
21,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
132,956
|
|
|
|
173,833
|
|
|
|
209,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
74,214
|
|
|
|
99,530
|
|
|
|
108,508
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11
|
|
|
|
437
|
|
|
|
101
|
|
Other income
|
|
|
3,160
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(23,177
|
)
|
|
|
(23,681
|
)
|
|
|
(24,906
|
)
|
Debt extinguishment expense
|
|
|
|
|
|
|
(6,425
|
)
|
|
|
(11,224
|
)
|
Foreign currency exchange gains
|
|
|
|
|
|
|
66
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
54,208
|
|
|
|
69,927
|
|
|
|
72,586
|
|
Provision for income taxes
|
|
|
20,220
|
|
|
|
27,151
|
|
|
|
28,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,988
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.14
|
|
|
$
|
1.25
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,867
|
|
|
|
34,243
|
|
|
|
35,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,875
|
|
|
|
35,425
|
|
|
|
36,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
CH-6
MOBILE
MINI, INC.
For the
years ended December 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2004
|
|
|
29,366
|
|
|
$
|
294
|
|
|
$
|
122,787
|
|
|
$
|
|
|
|
$
|
92,954
|
|
|
$
|
334
|
|
|
$
|
|
|
|
$
|
216,369
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,988
|
|
|
|
|
|
|
|
|
|
|
|
33,988
|
|
Market value change in derivatives, (net of income tax expense
of $434)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679
|
|
|
|
|
|
|
|
679
|
|
Foreign currency translation, (net of income tax expense of $75)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,784
|
|
Exercise of stock options, (including income tax benefit of
$5,061)
|
|
|
1,155
|
|
|
|
11
|
|
|
|
16,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,803
|
|
Restricted stock grants
|
|
|
97
|
|
|
|
1
|
|
|
|
2,276
|
|
|
|
(2,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
30,618
|
|
|
|
306
|
|
|
|
141,855
|
|
|
|
(2,258
|
)
|
|
|
126,942
|
|
|
|
1,130
|
|
|
|
|
|
|
|
267,975
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,776
|
|
|
|
|
|
|
|
|
|
|
|
42,776
|
|
Market value change in derivatives, (net of income tax benefit
of $86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
(123
|
)
|
Foreign currency translation, (net of income tax expense of $6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464
|
|
|
|
|
|
|
|
2,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,117
|
|
Issuance of common stock
|
|
|
4,600
|
|
|
|
46
|
|
|
|
120,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,368
|
|
Exercise of stock options
|
|
|
499
|
|
|
|
5
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,118
|
|
Tax benefit shortfall on stock option exercises
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Reclassification due to the adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
|
|
|
|
(2,258
|
)
|
|
|
2,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants
|
|
|
181
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
35,898
|
|
|
|
359
|
|
|
|
268,456
|
|
|
|
|
|
|
|
169,718
|
|
|
|
3,471
|
|
|
|
|
|
|
|
442,004
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,176
|
|
|
|
|
|
|
|
|
|
|
|
44,176
|
|
Market value change in derivatives, (net of income tax benefit
of $816)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,293
|
)
|
|
|
|
|
|
|
(1,293
|
)
|
Foreign currency translation, (net of income tax expense of $724)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
|
|
|
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,041
|
|
Exercise of stock options
|
|
|
519
|
|
|
|
5
|
|
|
|
5,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,607
|
|
Tax benefit shortfall on stock option exercises
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Purchase of treasury stock, at cost
|
|
|
(2,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,300
|
)
|
|
|
(39,300
|
)
|
Restricted stock grants
|
|
|
331
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
34,573
|
|
|
$
|
367
|
|
|
$
|
278,593
|
|
|
$
|
|
|
|
$
|
213,894
|
|
|
$
|
4,336
|
|
|
$
|
(39,300
|
)
|
|
$
|
457,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
CH-7
MOBILE
MINI, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,988
|
|
|
$
|
42,776
|
|
|
$
|
44,176
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt extinguishment expense
|
|
|
|
|
|
|
1,438
|
|
|
|
2,298
|
|
Provision for doubtful accounts
|
|
|
3,036
|
|
|
|
4,538
|
|
|
|
1,869
|
|
Provision for loss from natural disasters
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
829
|
|
|
|
840
|
|
|
|
985
|
|
Share-based compensation expense
|
|
|
19
|
|
|
|
3,066
|
|
|
|
4,028
|
|
Depreciation and amortization
|
|
|
12,854
|
|
|
|
16,741
|
|
|
|
21,149
|
|
Gain on sale of lease fleet units
|
|
|
(3,529
|
)
|
|
|
(4,922
|
)
|
|
|
(5,560
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
704
|
|
|
|
454
|
|
|
|
203
|
|
Deferred income taxes
|
|
|
20,097
|
|
|
|
26,407
|
|
|
|
27,356
|
|
Foreign currency exchange gains
|
|
|
|
|
|
|
(66
|
)
|
|
|
(107
|
)
|
Changes in certain assets and liabilities, net of effect of
businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(8,407
|
)
|
|
|
(11,118
|
)
|
|
|
(3,988
|
)
|
Inventories
|
|
|
(4,823
|
)
|
|
|
628
|
|
|
|
(610
|
)
|
Deposits and prepaid expenses
|
|
|
(480
|
)
|
|
|
(1,446
|
)
|
|
|
(1,754
|
)
|
Other assets and intangibles
|
|
|
(19
|
)
|
|
|
(4
|
)
|
|
|
318
|
|
Accounts payable
|
|
|
8,581
|
|
|
|
(2,088
|
)
|
|
|
2,691
|
|
Accrued liabilities
|
|
|
4,689
|
|
|
|
(360
|
)
|
|
|
(1,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
69,249
|
|
|
|
76,884
|
|
|
|
91,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for businesses acquired
|
|
|
(7,021
|
)
|
|
|
(59,475
|
)
|
|
|
(9,734
|
)
|
Additions to lease fleet, excluding acquisitions
|
|
|
(109,540
|
)
|
|
|
(135,883
|
)
|
|
|
(126,733
|
)
|
Proceeds from sale of lease fleet units
|
|
|
9,505
|
|
|
|
13,327
|
|
|
|
16,181
|
|
Additions to property, plant and equipment
|
|
|
(6,433
|
)
|
|
|
(10,882
|
)
|
|
|
(18,522
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
57
|
|
|
|
150
|
|
|
|
126
|
|
Change in other assets
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(113,275
|
)
|
|
|
(192,763
|
)
|
|
|
(138,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under lines of credit
|
|
|
32,026
|
|
|
|
45,539
|
|
|
|
34,128
|
|
Redemption of 9.5% Senior Notes
|
|
|
|
|
|
|
(52,500
|
)
|
|
|
(97,500
|
)
|
Proceeds from issuance of 6.875% Senior Notes
|
|
|
|
|
|
|
|
|
|
|
149,322
|
|
Deferred financing costs
|
|
|
|
|
|
|
(1,664
|
)
|
|
|
(3,768
|
)
|
Proceeds from issuance of notes payable
|
|
|
934
|
|
|
|
1,230
|
|
|
|
1,216
|
|
Principal payments on notes payable
|
|
|
(1,420
|
)
|
|
|
(1,108
|
)
|
|
|
(1,254
|
)
|
Principal payments on capital lease obligations
|
|
|
|
|
|
|
(17
|
)
|
|
|
(24
|
)
|
Issuance of common stock, net
|
|
|
11,742
|
|
|
|
125,486
|
|
|
|
5,607
|
|
Purchase of treasury stock, at cost
|
|
|
|
|
|
|
|
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
43,282
|
|
|
|
116,966
|
|
|
|
48,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
192
|
|
|
|
76
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(552
|
)
|
|
|
1,163
|
|
|
|
2,333
|
|
Cash at beginning of year
|
|
|
759
|
|
|
|
207
|
|
|
|
1,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
207
|
|
|
$
|
1,370
|
|
|
$
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
21,727
|
|
|
$
|
24,770
|
|
|
$
|
27,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income and franchise taxes
|
|
$
|
495
|
|
|
$
|
733
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap changes in value (credited) charged to equity
|
|
$
|
(679
|
)
|
|
$
|
123
|
|
|
$
|
1,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
CH-8
MOBILE
MINI, INC.
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(1)
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Mobile
Mini, its Operations and Summary of Significant Accounting
Policies:
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Organization
and Special Considerations
Mobile Mini, Inc., a Delaware corporation, is a leading provider
of portable storage solutions. In these notes, the terms
Mobile Mini, Company, we,
us, or our, means Mobile Mini, Inc. At
December 31, 2007, we have a fleet of portable storage and
office units, and operate throughout the United States, in
Canada, the United Kingdom and The Netherlands. Our portable
storage products offer secure, temporary storage with immediate
access. We have a diversified customer base, including large and
small retailers, construction companies, medical centers,
schools, utilities, distributors, the military, hotels,
restaurants, entertainment complexes and households. Customers
use our products for a wide variety of applications, including
the storage of retail and manufacturing inventory, construction
materials and equipment, documents and records and other goods.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Mobile Mini, Inc. and its wholly owned subsidiaries, including
our European operations. We do not have any subsidiaries in
which we do not own 100% of the outstanding stock. All
significant intercompany balances and transactions have been
eliminated.
Revenue
Recognition
Lease and leasing ancillary revenues and related expenses
generated under portable storage units and office units are
recognized on a straight-line basis. Revenues and expenses from
portable storage unit delivery and hauling are recognized when
these services are earned, in accordance with
SAB No. 104, Revenue Recognition. We recognize
revenues from sales of containers and mobile office units upon
delivery when the risk of loss passes, the price is fixed and
determinable and collectibility is reasonably assured. We sell
our products pursuant to sales contracts stating the fixed sales
price with our customers.
Cost
of Sales
Cost of sales in our consolidated statements of income includes
only the costs for units we sell. Similar costs associated with
the portable storage units that we lease are capitalized on our
balance sheet under Lease fleet.
Advertising
Costs
All non direct-response advertising costs are expensed as
incurred. Direct-response advertising costs, principally yellow
page advertising, are capitalized when paid and amortized over
the period in which the benefit is derived. At December 31,
2006 and 2007, prepaid advertising costs were approximately
$3.2 million and $3.8 million, respectively. The
amortization period of the prepaid balance never exceeds
12 months. Our direct-response advertising costs are
monitored by each branch through call logs and advertising
source codes in a contact enterprise resource planning system.
Advertising expense was $7.6 million, $8.6 million and
$10.1 million in 2005, 2006 and 2007, respectively.
Cash
Our revolving credit agreement includes restrictions on excess
cash. There was no restricted cash at December 31, 2006 and
2007.
Receivables
and Allowance for Doubtful Accounts
Receivables primarily consist of amounts due from customers from
the lease or sale of containers throughout the United States,
Canada and Europe. Mobile Mini records an estimated provision
for bad debts through a charge to operations in amounts of our
estimated losses expected to be incurred in the collection of
these accounts. We review
CH-9
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the provision for adequacy monthly. The estimated losses are
based on historical collection experience, and evaluation of
past-due account agings. Specific accounts are written off
against the allowance when management determines the account is
uncollectible. We require a security deposit on most leased
office units to cover the cost of damages or unpaid balances, if
any.
Concentration
of Credit Risk
Financial instruments which potentially expose us to
concentrations of credit risk, as defined by
SFAS No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, consist
primarily of receivables. Concentration of credit risk with
respect to receivables is limited due to the large number of
customers spread over a large geographic area in many industry
segments. Receivables related to our sales operations are
generally secured by the product sold to the customer.
Receivables related to our leasing operations are primarily
small month-to-month amounts. We have the right to repossess
leased portable storage units, including any customer goods
contained in the unit, following non-payment of rent.
Inventories
Inventories are valued at the lower of cost (principally on a
standard cost basis which approximates the
first-in,
first-out (FIFO) method) or market. Market is the lower of
replacement cost or net realizable value. Inventories primarily
consist of raw materials, supplies,
work-in-process
and finished goods, all related to the manufacturing,
refurbishment and maintenance, primarily for our lease fleet and
our units held for sale. Raw materials principally consist of
raw steel, wood, glass, paint, vinyl and other assembly
components used in manufacturing and refurbishing processes.
Work-in-process
primarily represents units being built at our manufacturing
facility that are either pre-sold or being built to add to our
lease fleet upon completion. Finished portable storage units
primarily represents ISO (International Organization for
Standardization) containers held in inventory until the
containers are either sold as is, refurbished and sold, or units
in the process of being refurbished to be compliant with our
lease fleet standards before transferring the units to our lease
fleet. There is no certainty when we purchase the containers
whether they will ultimately be sold, refurbished and sold, or
refurbished and moved into our lease fleet. Units that are
determined to go into our lease fleet undergo an extensive
refurbishment process that includes installing our proprietary
locking system, signage, painting and sometimes our proprietary
security doors.
Inventories at December 31, consist of the following:
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2006
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2007
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(In thousands)
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Raw materials and supplies
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$
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18,420
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$
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21,801
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Work-in-process
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3,031
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2,819
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Finished portable storage units
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6,412
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4,811
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$
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27,863
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$
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29,431
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Property,
Plant and Equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation. Depreciation is provided using the
straight-line method over the assets estimated useful
lives. Residual values are determined when the property is
constructed or acquired and range up to 25%, depending on the
nature of the asset. In the opinion of management, estimated
residual values do not cause carrying values to exceed net
realizable value. Our depreciation expense related to property,
plant and equipment for 2005, 2006 and 2007 was
$3.2 million, $4.2 million and $5.6 million,
respectively. Normal repairs and maintenance to property, plant
and equipment are expensed as incurred. When property or
equipment is retired or sold, the net book value of the asset,
reduced by any proceeds, is charged to gain or loss on the
retirement of fixed assets.
CH-10
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2006 and 2007, we wrote off certain assets, which for the
most part were fully depreciated, that were in the process of
being replaced or were no longer required or used in our leasing
operations.
Property, plant and equipment at December 31, consist of
the following:
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Estimated
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Useful Life in
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Years
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2006
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2007
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(In thousands)
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Land
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$
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772
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$
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772
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Vehicles and machinery
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5 to 20
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45,734
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60,490
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Buildings and improvements(1)
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30
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10,645
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11,514
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Office fixtures and equipment
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5
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9,552
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11,579
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66,703
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84,355
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Less accumulated depreciation
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(23,631
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(28,992
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$
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43,072
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$
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55,363
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(1) |
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Improvements made to leased properties are depreciated over the
lesser of the estimated remaining life or the remaining term of
the respective lease. |
Other
Assets and Intangibles
Other assets and intangibles primarily represent deferred
financing costs and intangible assets from acquisitions of
$11.9 million at December 31, 2006 and
$12.5 million at December 31, 2007, excluding
accumulated amortization of $3.4 million at both
December 31, 2006 and 2007. Deferred financing costs are
amortized over the term of the agreement, and intangible assets
are amortized either on a straight-line basis, typically over a
five-year period, or on an accelerated basis for intrinsic
values assigned to customer lists and trade names. At
December 31, 2006, other assets and intangibles also
included $0.9 million for the fair value of our interest
rate swap agreements.
Income
Taxes
We utilize the liability method of accounting for income taxes
as set forth in SFAS No. 109, Accounting for Income
Taxes. Under the liability method, deferred taxes are
determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected
to be realized. Income tax expense includes both taxes payable
for the period and the change during the period in deferred tax
assets and liabilities.
Earnings
per Share
Basic earnings per common share are computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share
are determined assuming the potential dilution of the exercise
or conversion of options and nonvested share-awards into common
stock.
CH-11
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share for the years ended December 31:
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2005
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2006
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2007
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(In thousands except earnings per share)
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BASIC:
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Common shares outstanding, beginning of year
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29,366
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30,521
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35,640
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Effect of weighting shares:
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Weighted common shares issued
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501
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3,722
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302
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Weighted common shares purchased
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(453
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Weighted average number of common shares outstanding
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29,867
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34,243
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35,489
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Net income
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$
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33,988
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$
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42,776
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$
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44,176
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Earnings per share
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$
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1.14
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$
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1.25
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$
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1.24
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DILUTED:
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Common shares outstanding, beginning of year
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29,366
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30,521
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35,640
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Effect of weighting shares:
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Weighted common shares issued
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501
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3,722
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302
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Weighted common shares purchased
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(453
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Employee stock options and nonvested share-awards assumed
converted
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1,008
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1,182
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807
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Weighted average number of common and common share equivalents
outstanding
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30,875
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35,425
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36,296
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Net income
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$
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33,988
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$
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42,776
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$
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44,176
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Earnings per share
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$
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1.10
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$
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1.21
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$
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1.22
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Employee stock options to purchase 0.5 million,
0.6 million and 0.6 million shares were issued or
outstanding during 2005, 2006 and 2007, respectively, but were
not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive. The
anti-dilutive options could potentially dilute future earnings
per share. Basic weighted average number of common shares
outstanding in 2006 and 2007 does not include 0.3 million
and 0.5 million nonvested share-awards, respectively, as
the stock is not vested. During 2006 and 2007, an immaterial
amount of nonvested share-awards were not included in the
computation of diluted earnings per share because the effect
would have been anti-dilutive. The nonvested stock could
potentially dilute future earnings per share.
Long-Lived
Assets
We review long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such
assets may not be fully recoverable. If this review indicates
the carrying value of these assets will not be recoverable, as
measured based on estimated undiscounted cash flows over their
remaining life, the carrying amount would be adjusted to fair
value. The cash flow estimates contain managements best
estimates, using appropriate and customary assumptions and
projections at the time. We have not recognized any impairment
losses during the three year period ended December 31, 2007.
CH-12
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Purchase prices of acquired businesses have been allocated to
the assets and liabilities acquired based on the estimated fair
values on the respective acquisition dates. Based on these
values, the excess purchase prices over the fair value of the
net assets acquired were allocated to goodwill. In 2006, we
entered into a share purchase agreement to acquire three
companies of the Royal Wolf Group. All other acquisitions of
businesses have been transacted as asset purchases which results
in our goodwill relating to business acquisitions executed under
asset purchase agreements being deductible for income tax
purposes over 15 years even though goodwill is not
amortized for financial reporting purposes.
We evaluate goodwill periodically to determine whether events or
circumstances have occurred that would indicate goodwill might
be impaired. Pursuant to SFAS No. 142, Goodwill and
Other Intangible Assets, we operate in one reportable
segment, which is comprised of three reporting units with the
addition of our European operations. We perform an annual
impairment test on goodwill using the two-step process
prescribed in SFAS No. 142. The first step is a screen
for potential impairment, while the second step measures the
amount of the impairment, if any. In addition, we will perform
impairment tests during any reporting period in which events or
changes in circumstances indicate that an impairment may have
incurred. We performed the first step of the required impairment
tests for goodwill as of December 31, 2007 and determined
that goodwill is not impaired. At December 31, 2007, $66.2
million of our goodwill relates to the United States reporting
unit, $12.6 million relates to the United Kingdom reporting
unit, and $1.0 million relates to The Netherlands reporting
unit. Fair value has been determined for each reporting unit in
order to determine the recoverability of the recorded goodwill.
At December 31, 2007, we used a discounted cash flows
approach to determine the fair value of our United Kingdom and
The Netherlands reporting units. In the United States, we used
an allocation of market capitalization to measure potential
impairment. The fair value determined for the United Kingdom and
The Netherlands as well as the allocated market capitalization
to the U.S. exceeded the net carrying value of the
reporting units, therefore, the second step for potential
impairment was unnecessary.
The following table shows the activity and balances related to
goodwill from January 1, 2006 to December 31, 2007 (in
thousands):
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Goodwill at January 1, 2006
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$
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56,311
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Acquisitions
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19,231
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Divestitures
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Adjustments(1)
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914
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Goodwill at December 31, 2006
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76,456
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Acquisitions
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4,946
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Divestitures
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Adjustments(2)
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(1,612
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Goodwill at December 31, 2007
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$
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79,790
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(1) |
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Primarily relates to foreign currency translation adjustments on
the Royal Wolf acquisition from the date of the acquisition to
the end of December 31, 2006. |
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(2) |
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Includes $1.9 million tax related adjustments associated
with the acquisition of Royal Wolf in 2006, partially offset by
foreign currency translation adjustments. |
CH-13
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
We determine the estimated fair value of financial instruments
using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values.
Accordingly, the estimates may not be indicative of the amounts
we could realize in a current market exchange.
The carrying amounts of cash, receivables, accounts payable and
accrued liabilities approximate fair values based on the
liquidity of these financial instruments or based on their
short-term nature. The carrying amounts of our borrowings under
our credit facility and notes payable approximate fair value.
The fair values of our notes payable and credit facility are
estimated using discounted cash flow analyses, based on our
current incremental borrowing rates for similar types of
borrowing arrangements. Based on the borrowing rates currently
available to us for bank loans with similar terms and average
maturities, the fair value of fixed rate notes payable at
December 31, 2006 and 2007, approximated the book values.
The fair value of our Senior Notes at December 31, 2006
($97.5 million) and 2007 ($149.4 million), was
approximately $104.1 million and $136.5 million,
respectively. The determination for fair value is based on the
latest sales price at the end of each fiscal year obtained from
a third-party institution.
Deferred
Financing Costs
Included in other assets and intangibles are deferred financing
costs of approximately $4.2 million and $4.8 million,
net of accumulated amortization of $2.3 million and
$1.8 million, at December 31, 2006 and 2007,
respectively. Costs to obtaining long-term financing, including
our amended credit facility, are amortized over the term of the
related debt, using the straight-line method. Amortizing the
deferred financing costs using the straight-line method
approximates such costs using the effective interest method.
Derivatives
In the normal course of business, our operations are exposed to
fluctuations in interest rates. We address a portion of these
risks through a controlled program of risks management that
includes the use of derivative financial instruments. The
objective of controlling these risks is to limit the impact of
fluctuations in interest rates on earnings.
Our primary interest rate risk exposure results from changes in
short-term U.S. dollar interest rates. In an effort to
manage interest rate exposures, we may enter into interest rate
swaps, which convert our floating rate debt to a fixed-rate and
which we designate as cash flow hedges. Interest expense on the
borrowings under these agreements is accrued using the fixed
rates identified in the swap agreements.
We had interest rate swap agreements totaling $50.0 million
at December 31, 2006 and $125.0 million at
December 31, 2007. The fixed interest rate on our five swap
agreements at December 31, 2007 range from 3.66% to 4.63%,
averaging 4.16% plus the spread. Two swap agreements mature in
2008 and three swap agreements mature in 2010.
Derivative transactions resulted in a charge to comprehensive
income at December 31, 2006, of $0.1 million, net of
income tax benefit of $0.1 million. At December 31, 2007,
derivative transactions resulted in a charge to comprehensive
income of $1.3 million, net of income tax benefit of
$0.8 million. Our outstanding interest rate swaps at
December 31, 2006 had a fair-value totaling approximately
$0.9 million, and were included in other assets in our
consolidated balance sheet. Our outstanding interest rate swaps
at December 31, 2007 had a fair-value totaling
approximately $1.3 million and are included in other liabilities
in our consolidated balance sheet.
Share-Based
Compensation
At December 31, 2007, the Company had three active
share-based employee compensation plans. Stock option awards
under these plans are granted with an exercise price per share
equal to the fair market value of our common
CH-14
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock on the date of grant. Each option must expire no more than
10 years from the date it is granted and historically
options are granted with vesting over a 4.5 year period.
Prior to January 1, 2006, the Company accounted for
share-based employee compensation, including stock options,
using the method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB Opinion
No. 25). Under APB Opinion No. 25, we did not
recognize compensation cost in connection with stock options
granted at market price, and we disclosed the pro forma effect
on net earnings assuming compensation cost had been recognized
in accordance with Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. On
December 16, 2004, the Financial Accounting Standards Board
issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)), which requires
companies to measure and recognize compensation expense for all
share-based payments at fair value. SFAS No. 123(R)
eliminates the ability to account for share-based compensation
transactions using APB Opinion No. 25, and generally
requires that such transactions to be accounted for using
prescribed fair-value-based methods. SFAS No. 123(R)
permits public companies to adopt its requirements using one of
two methods: (a) a modified prospective method
in which compensation costs are recognized beginning with the
effective date based on the requirements of
SFAS No. 123(R) for all share-based payments granted
or modified after the effective date, and based on the
requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of
SFAS No. 123(R) that remain unvested on the effective
date, or (b) a modified retrospective method
which includes the requirements of the modified prospective
method described above, but also permits companies to restate
based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures
either for all periods presented, or prior interim periods of
the year of adoption. The Company adopted
SFAS No. 123(R) effective January 1, 2006, using
the modified prospective method. Other than nonvested
share-awards, no share-based employee compensation cost has been
reflected in net income prior to the adoption of
SFAS No. 123(R). Results for prior periods have not
been restated.
SFAS No. 123(R) prohibits the recognition of a
deferred tax asset for an excess tax benefit that has not been
realized related to stock-based compensation deductions. We
adopted the
with-and-without
approach with respect to the ordering of tax benefits realized.
In the
with-and-without
approach, the excess tax benefit related to stock-based
compensation deductions will be recognized in additional paid-in
capital only if an incremental tax benefit would be realized
after considering all other tax benefits presently available to
us. Therefore, our net operating loss carryforward will offset
current taxable income prior to the recognition of the tax
benefit related to stock-based compensation deductions. In 2006
and 2007, there were $3.6 million and $3.4 million,
respectively, of excess tax benefits related to stock-based
compensation, which were not realized under this approach. Once
our net operating loss carryforward is utilized, these excess
tax benefits, totaling $7.0 million, may be recognized in
additional paid-in capital.
Foreign
Currency Translation and Transactions
For our
non-United
States operations, the local currency is the functional
currency. All assets and liabilities are translated into United
States dollars at period-end exchange rates and all income
statement amounts are translated at the average exchange rate
for each month within the year.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated
financial statements and the notes to those statements. Actual
results could differ from those estimates. The most significant
estimates included within the financial statements are the
allowance for doubtful accounts, the estimated useful lives and
residual values on the lease fleet and property, plant and
equipment and goodwill and other asset impairments.
CH-15
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Impact
of Recently Issued Accounting Standards
In June 2006, the Financial Accounting Standards Board (FASB)
issued Financial Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes, which clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. The
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted this
interpretation as of January 1, 2007. Adoption of
FIN 48 did not have a material effect in our results of
operation or financial condition.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007 and interim periods
within those fiscal years. We are in the process of determining
the effect, if any, that the adoption of SFAS No. 157
will have on our consolidated financial statements.
On February 15, 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
Under this Standard, we may elect to report financial
instruments and certain other items at fair value on a
contract-by-contract
basis with changes in value reported in earnings. This election
is irrevocable. SFAS No. 159 provides an opportunity
to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously
required to use a different accounting method than the related
hedging contracts when the complex provisions of
SFAS No. 133 hedge accounting are not met.
SFAS No. 159 is effective for years beginning after
November 15, 2007. We are currently evaluating the
potential impact of adopting this Standard.
In June 2007, the FASB ratified the Emerging Issues Task Force
(EITF) consensus on EITF Issue
No. 06-11,
Accounting for Income Tax Benefits on Dividends on
Share-based Payment Awards. This EITF indicates tax benefits
of dividends on unvested restricted stock are to be recognized
in equity as an increase in the pool of excess tax benefits. If
the related awards are forfeited or are no longer expected to
vest, then the benefits are to be reclassified from equity to
the income statement. The EITF is effective for fiscal years
beginning after December 15, 2007. We do not expect the
adoption of EITF Issue
No. 06-11
will have a material effect on our results of operations or
financial condition.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. Under SFAS No. 141R, an acquiring entity
will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-due fair
value with limited exceptions. SFAS No. 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
This statement is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the
potential impact of the adoption of SFAS No. 141R on
our results of operations or financial condition.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements (an amendment of
Accounting Research Bulletin (ARB 51)) (SFAS No. 160).
SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.
SFAS No. 160 becomes effective beginning
January 1, 2009. Presently, there are no non-controlling
interests in any of the Companys consolidated
subsidiaries, therefore, we do not expect the adoption of
SFAS No. 160 to have a significant impact on our
results of operations or financial conditions.
CH-16
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our lease fleet primarily consists of refurbished, modified and
manufactured portable storage and office units that are leased
to customers under short-term operating lease agreements with
varying terms. Depreciation is provided using the straight-line
method over our units estimated useful life, after the
date we put the unit in service, and are depreciated down to
their estimated residual values. Our depreciation policy on our
steel units uses an estimated useful life of 25 years with
an estimated residual value of 62.5%. Wood mobile office units
are depreciated over 20 years down to a 50% residual value.
Van trailers, which are a small part of our fleet, are
depreciated over 7 years to a 20% residual value. Van
trailers are only added to the fleet in connection with
acquisitions of portable storage businesses. In the opinion of
management, estimated residual values do not cause carrying
values to exceed net realizable value. We continue to evaluate
these depreciation policies as more information becomes
available from other comparable sources and our own historical
experience. Our depreciation expense related to lease fleet for
2005, 2006 and 2007 was $9.5 million, $12.0 million
and $14.5 million, respectively. At December 31, 2006
and 2007, all of our lease fleet units were pledged as
collateral under the credit facility (see Note 3). Normal
repairs and maintenance to the portable storage and mobile
office units are expensed as incurred.
Lease fleet at December 31, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Steel storage containers
|
|
$
|
423,766
|
|
|
$
|
459,665
|
|
Offices
|
|
|
320,160
|
|
|
|
402,640
|
|
Van trailers
|
|
|
2,702
|
|
|
|
2,330
|
|
Other, primarily chassis
|
|
|
479
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747,107
|
|
|
|
865,591
|
|
Accumulated depreciation
|
|
|
(49,668
|
)
|
|
|
(62,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
697,439
|
|
|
$
|
802,923
|
|
|
|
|
|
|
|
|
|
|
On May 7, 2007, we amended our revolving credit facility by
increasing the facility by $75.0 million to
$425.0 million and executed a First Amendment to Second
Amended and Restated Loan and Security Agreement with our
lenders. Borrowings of up to $425.0 million are available
under this revolving facility, based on the value of our lease
fleet, property, plant, equipment, and levels of inventories and
receivables. Under the amended revolving credit facility we may
further increase the maximum borrowing limit to
$500.0 million without our lenders consent, as long
as we are in compliance with the terms of the agreement. The
Agreement provides up to $100.0 million may be borrowed in
Euros as well as Pounds Sterling. Borrowings under the facility
are, at our option, at either a spread from the prime rate or
LIBOR rates, as defined. The credit facility is scheduled to
expire in May 2012.
Our revolving credit facility has covenants that can restrict
the conduct of our business if we go into default under the
agreement or if we do not maintain borrowing availability in
excess of certain pre-determined levels (generally between
$42.0 million and $75.0 million). If our borrowing
availability is below a specified level, the revolving credit
facility triggers covenants restricting (or in some cases,
further restricting) our ability to, among other things:
(i) declare cash dividends, or redeem or repurchase our
capital stock in excess of $10.0 million; (ii) prepay,
redeem or purchase other debt; (iii) incur liens;
(iv) make loans and investments; (v) incur additional
indebtedness; (vi) amend or otherwise alter debt and other
material agreements; (vii) make capital expenditures;
(viii) engage in mergers, acquisitions and asset sales;
(ix) transact with affiliates; and (x) alter the
business we conduct. We also must comply with specified
financial covenants and affirmative covenants. Should we fall
below
CH-17
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
specified borrowing availability levels, then these financial
covenants would set maximum permitted values for our leverage
ratio (as defined), fixed charge coverage ratio and our minimum
required utilization rates. At December 31, 2006 and
December 31, 2007, we were in compliance with those
covenants.
Borrowings under this revolving credit facility are secured by a
lien on substantially all of our present and future assets. The
lease fleet is appraised at least once annually by a third-party
appraisal firm and up to 90% of the lesser of cost or appraised
orderly liquidation value, as defined, may be included in the
borrowing base to determine how much we may borrow under this
facility. The interest rate spread from LIBOR and the prime rate
can change under the facility, based on a quarterly calculation
of our ratio of funded debt to earnings before interest expense,
taxes, depreciation and amortization and certain excluded
expenses during the prior 12 month. At December 31,
2007, the prime rate was 7.25% and our weighted average LIBOR
rate, including the effect of our interest rate swap agreements,
was 6.22% on our outstanding balance of $237.9 million. We
had approximately $183.7 million of availability at
December 31, 2007, under our funded debt to EBITDA covenant.
Our revolving credit facility had outstanding balances of
$203.7 million and $237.9 million at December 31,
2006 and 2007, respectively. In 2007, we used proceeds from the
issuance of our $150.0 million 6.875% Senior Notes to
redeem $97.5 million aggregate principal amount outstanding
to our 9.5% Senior Notes plus the redemption premium and
accrued and unpaid interest. During 2006, we used proceeds from
a common stock offering, in part to redeem 35%, or
$52.5 million, of the $150.0 million aggregate
principal amount outstanding of our 9.5% Senior Notes plus
the redemption premium and accrued and unpaid interest thereon.
The weighted average interest rate under the line of credit,
including the effect of applicable interest rate swap
agreements, was approximately 6.5% in 2006 and 6.3% in 2007. The
average balance outstanding during 2006 and 2007 was
approximately $184.2 million and $210.5 million,
respectively.
We have interest rate swap agreements under which we effectively
fixed the interest rate payable on $125.0 million of
borrowings under our credit facility so that the interest rate
is based on a spread from a fixed rate rather than a spread from
the LIBOR rate. We account for the swap agreements in accordance
with SFAS No. 133 and the aggregate change in the fair
value of the interest rate swap agreements resulted in a charge
to comprehensive income for the year ended December 31,
2007 of $1.3 million, net of applicable income tax benefit
of $0.8 million.
Notes payable at December 31, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Notes payable to financial institution, interest at 5.94%,
payable in fixed monthly installments, maturing June and July
2008, unsecured
|
|
$
|
|
|
|
$
|
743
|
|
Notes payable to financial institution, interest at 8.25% and
6.3%, payable in fixed monthly installments, matured June and
July 2007, unsecured
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
781
|
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
All payments of notes payable are scheduled to mature in 2008.
|
|
(5)
|
Obligations
Under Capital Leases
|
We have two capital lease obligations for office related
equipment which had outstanding balances at December 31,
2007 of $10,000, which have terms ending in 2010.
CH-18
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6)
|
Equity
and Debt Issuances:
|
In May 2007, we received net proceeds of approximately
$146.3 million, after underwriters discounts and
commissions, from our issuance of $150.0 million of
6.875% Senior Notes. The Senior Notes were issued at a
discount of $0.7 million which is reflected as a reduction of
the balance of Senior Notes on our consolidated balance sheet at
December 31, 2007. We also incurred costs of approximately
$3.6 million which are included, net of amortization of
$0.4 million, in other assets on our consolidated balance
sheet at December 31, 2007. Included in the $3.6 million
figure is approximately $3.0 million relating to
underwriters discounts and commissions. We used these
proceeds to redeem the aggregate principal amount outstanding of
our 9.5% Senior Notes, ($97.5 million), plus we paid
accrued interest, transaction costs and the redemption premium
on the 9.5% Notes. The additional net proceeds to us of
approximately $33.2 million were used to repay borrowings
under our revolving line of credit.
In March 2006, pursuant to a public offering, we issued
4.6 million shares of our common stock at approximately
$26.22 per share, after underwriting discounts and commissions,
but before other expenses. We received net offering proceeds of
approximately $120.3 million which we used to redeem 35% of
the $150 million aggregate principle amount outstanding of
our 9.5% Senior Notes and to pay down our revolving line of
credit.
The scheduled maturity for debt obligations under our revolving
line of credit, notes payable, obligations under capital leases
and Senior Notes for balances outstanding at December 31,
2007 (in thousands) are as follows:
|
|
|
|
|
2008
|
|
$
|
751
|
|
2009
|
|
|
1
|
|
2010
|
|
|
1
|
|
2011
|
|
|
|
|
2012
|
|
|
237,857
|
|
Thereafter
|
|
|
150,000
|
|
|
|
|
|
|
|
|
$
|
388,610
|
|
|
|
|
|
|
Income (loss) before taxes for the years ended December 31,
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
U.S.
|
|
$
|
53,992
|
|
|
$
|
69,260
|
|
|
$
|
75,355
|
|
Other Nations
|
|
|
216
|
|
|
|
667
|
|
|
|
(2,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,208
|
|
|
$
|
69,927
|
|
|
$
|
72,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CH-19
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision (benefit) for income taxes for the years ended
December 31, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
106
|
|
|
$
|
250
|
|
|
$
|
|
|
State
|
|
|
17
|
|
|
|
238
|
|
|
|
413
|
|
Other Nations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
488
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
17,834
|
|
|
|
22,961
|
|
|
|
24,845
|
|
State
|
|
|
2,179
|
|
|
|
3,407
|
|
|
|
3,978
|
|
Other Nations
|
|
|
84
|
|
|
|
295
|
|
|
|
(826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,097
|
|
|
|
26,663
|
|
|
|
27,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,220
|
|
|
$
|
27,151
|
|
|
$
|
28,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred tax liability at
December 31, are approximately as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
17,399
|
|
|
$
|
24,761
|
|
Deferred revenue and expenses
|
|
|
5,155
|
|
|
|
5,845
|
|
Accrued compensation and other benefits
|
|
|
2,200
|
|
|
|
2,423
|
|
Allowance for doubtful accounts
|
|
|
1,856
|
|
|
|
1,392
|
|
Other
|
|
|
1,808
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
28,418
|
|
|
|
36,733
|
|
Valuation allowance
|
|
|
(2,326
|
)
|
|
|
(1,126
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
26,092
|
|
|
|
35,607
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated tax depreciation
|
|
|
(113,929
|
)
|
|
|
(147,042
|
)
|
Accelerated tax amortization
|
|
|
(8,365
|
)
|
|
|
(11,277
|
)
|
Other
|
|
|
(1,305
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(123,599
|
)
|
|
|
(159,078
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(97,507
|
)
|
|
$
|
(123,471
|
)
|
|
|
|
|
|
|
|
|
|
A deferred U.S. tax liability has not been provided on the
undistributed earnings of certain foreign subsidiaries because
it is our intent to permanently reinvest such earnings.
Undistributed earnings of foreign subsidiaries, which have been,
or are intended to be, permanently invested in accordance with
APB No. 23, Accounting for Income Taxes
Special Areas, aggregated approximately $0.1 million
and $0.1 million as of December 31, 2006 and 2007,
respectively. A net deferred tax asset of $1.3 million and
a net deferred tax liability of approximately $0.2 million
related to our United Kingdom and The Netherlands operations,
respectively, have been combined with the net deferred tax
liabilities of our United States operations in our consolidated
balance sheet at December 31, 2007.
CH-20
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the U.S. federal statutory rate to
Mobile Minis effective tax rate for the years ended
December 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
U.S. federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
3.5
|
|
|
|
3.5
|
|
|
|
3.5
|
|
Nondeductible expenses
|
|
|
|
|
|
|
0.4
|
|
|
|
0.6
|
|
Change in valuation allowance
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.3
|
%
|
|
|
38.8
|
%
|
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, we had a federal net operating loss
carryforward of approximately $78.2 million which expires
if unused from 2018 to 2027. At December 31, 2007, we had
net operating loss carryforwards in the various states in which
we operate totaling $47.9 million. These state net
operating losses expire if unused from 2008 to 2027. At
December 31, 2006 and 2007, our deferred tax assets do not
include $3.6 million and $7.0 million of excess tax
benefits from employee stock option exercises that are a
component of our net operating loss carryforward. Additional
paid in capital will be increased by $7.0 million if and
when such excess tax benefits are realized. Management evaluates
the ability to realize its deferred tax assets on a quarterly
basis and adjusts the amount of its valuation allowance if
necessary. As a result, in prior years we recorded a valuation
allowance relating to state loss carryforwards expected to
expire. We subsequently recorded a reduction in the valuation
allowance of $0.7 million in 2005 and $0.3 million in
2006 based upon changes in expected taxable income that caused
the assessment of recoverability to improve. Additionally, in
2006, management recorded a valuation allowance in the amount of
$2.3 million on some of the tax attribute carryforwards
acquired as a part of the Royal Wolf acquisition. This allowance
relates to a portion of the acquired loss carryforwards that may
not be eligible for use depending on certain historic and future
events. Should such allowance become recoverable, it would be
recorded as a reduction to goodwill relating to the acquisition.
In 2007, we determined that an additional $1.2 million of
the Royal Wolf loss carryforwards would be available to offset
future taxable income. Accordingly, the valuation allowance was
reduced from $2.3 million to $1.1 million as an offset
to previously recorded goodwill. Accelerated tax amortization
primarily relates to amortization of goodwill for income tax
purposes.
On January 1, 2007, we adopted the provision of
FIN 48, Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109. FIN 48
contains a two-step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes. The first step
is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation process,
if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized
upon ultimate settlement.
We file U.S. federal tax returns, U.S. state tax returns, and
foreign tax returns. We have identified our U.S. Federal tax
return as our major tax jurisdiction. For the U.S.
Federal return, years 2003 through 2006 are subject to tax
examination by the U.S. Internal Revenue Service. We do not
currently have any ongoing tax examinations with the IRS. We
believe that our income tax filing positions and deductions will
be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position.
Therefore, no reserves for uncertain income tax positions have
been recorded pursuant to FIN 48. In addition, we do not
record a cumulative effect adjustment related to the adoption of
FIN 48. We did not anticipate that the total amount of
unrecognized tax related to any particular tax benefit position
will change significantly within the next 12 months.
Our policy for recording interest and penalties associated with
audits is to record such items as a component of income before
taxes. Penalties and associated interest costs are recorded in
leasing, selling and general expenses in our consolidated
statements of income.
CH-21
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of stock ownership changes during the years
presented, it is possible that we have undergone a change in
ownership for federal income tax purposes, which can limit the
amount of net operating loss currently available as a deduction.
Management has determined that even if such an ownership change
has occurred, it would not impair the realization of the
deferred tax asset resulting from the federal net operating loss
carryover.
We paid income taxes of approximately $0.5 million,
$0.7 million and $0.8 million in 2005, 2006 and 2007,
respectively. These amounts are lower than the recorded expense
in the years due to net operating loss carryforwards and general
business credit utilization.
|
|
(8)
|
Transactions
with Related Persons:
|
When we were a private company prior to 1994, we leased some of
our properties from entities controlled by our founder, Richard
E. Bunger, and his family members. These related party leases
remain in effect. We lease a portion of the property comprising
our Phoenix location and the property comprising our Tucson
location from entities owned by Steven G. Bunger and his
siblings. Steven G. Bunger is our President and Chief Executive
Officer and has served as our Chairman of the Board since
February 2001. Annual lease payments under these leases totaled
approximately $91,000, $91,000 and $94,000 in 2005, 2006 and
2007, respectively. The term of each of these leases expires on
December 31, 2008. Mobile Mini leases its Rialto,
California facility from Mobile Mini Systems, Inc., a
corporation wholly owned by Barbara M. Bunger, the mother of
Steven G. Bunger. Annual lease payments in 2005, 2006 and 2007
under this lease were approximately $267,000, $277,000 and
$282,000 respectively. The Rialto lease expires on April 1,
2016. Management believes that the rental rates reflect the fair
market rental value of these properties. These related persons
lease agreements have been reviewed by the independent directors
who comprise a majority of the members of our Board of Directors.
It is Mobile Minis intention not to enter into any
additional related person transactions other than extensions of
lease agreements.
|
|
(9)
|
Share-Based
Compensation
|
Prior to January 1, 2006, we accounted for share-based
employee compensation, including stock options, using the method
prescribed in APB No. 25. Under APB No. 25, the stock
options granted at market price, no compensation cost was
recognized, and a disclosure was made regarding the pro forma
effect on net earnings assuming compensation cost had been
recognized in accordance with SFAS No. 123. Effective
January 1, 2006, we adopted SFAS No. 123(R) using
the modified prospective method.
The adoption of SFAS No. 123(R) and nonvested share
expense reduced income before income tax expense for the period
ended December 31, 2007, by approximately $4.0 million
and reduced net income by approximately $2.5 million. As a
result, basic and diluted earnings per share for
December 31, 2007 were reduced by approximately $0.08 and
$0.07, respectively. In 2006, we capitalized approximately
$0.4 million of compensation costs related to stock options
and nonvested share-awards to the lease fleet.
On November 10, 2005, the FASB issued FASB Staff Position
No. FAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards. We
have elected to adopt the alternative transition method provided
in the FASB Staff Position for calculating the effects of
share-based compensation pursuant to FAS 123(R). The
alternative transition method includes a simplified method to
establish the beginning balance of the additional paid in
capital pool (APIC pool) related to the tax effects of employee
share-based compensation, which is available to absorb tax
deficiencies recognized subsequent to the adoption of
FAS 123(R).
In 2005, we began awarding nonvested shares under the existing
share-based compensation plans. The majority of our nonvested
share-awards vest in equal annual installments over a five year
period. The total value of these awards is expensed on a
straight-line basis over the service period of the employees
receiving the grants. The service period is the time
during which the employees receiving grants must remain
employees for the shares granted to fully vest. In December
2007, we granted to certain of our executive officers 71,899
nonvested share-
CH-22
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
awards with vesting subject to a performance condition. Vesting
for these share-awards is dependent upon the officers fulfilling
the service period requirements, as well as our meeting certain
EBITDA targets in each of the next four years. At the date of
grant, the EBITDA targets were not known, and as such, the
measurement date for the nonvested share-awards had not yet
occurred. This target was established by our Board of Directors
on February 20, 2008, at which point, the value of each
nonvested share-award was $15.85. We are required to assess the
probability that such performance conditions will be met. If the
likelihood of the performance condition being met is deemed
probable, we will recognize the expense using accelerated
attribution method. The accelerated attribution method could
result in as much as 50% of the total value of the shares being
recognized in the first year of the service period if each of
the four future targets are assessed as probable of being met.
Share-based compensation expense related to nonvested
share-awards outstanding during the period ended
December 31, 2007, was approximately $1.8 million. As
of December 31, 2007, the total amount of unrecognized
compensation cost related to nonvested share-awards was
approximately $11.5 million, which is expected to be
recognized over a weighted-average period of approximately
4.0 years.
The total value of the stock option awards is expensed on a
straight-line basis over the service period of the employees
receiving the awards. As of December 31, 2007, total
unrecognized compensation cost related to stock option awards
was approximately $4.7 million and the related
weighted-average period over which it is expected to be
recognized is approximately 1.9 years.
Prior to the adoption of SFAS No. 123(R), we presented
all tax benefits for deductions resulting from the exercise of
stock options as operating cash flows as a change in deferred
income tax in the condensed consolidated statements of cash
flows. SFAS No. 123(R) requires the cash flows
resulting from the tax benefits arising from tax deductions in
excess of the compensation cost recognized for those options
(excess tax benefits) to be classified as financing cash flows.
As of December 31, 2007, we had no tax benefits arising
from tax deductions in excess of the compensation cost
recognized because the benefit has not been realized
given that we currently have net operating loss carryforwards
and follow the
with-and-without
approach with respect to the ordering of tax benefits realized.
The following table summarizes the activities under our stock
option plans for the years ended December 31 (number of shares
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Options outstanding, beginning of year
|
|
|
3,732
|
|
|
$
|
11.38
|
|
|
|
2,964
|
|
|
$
|
14.00
|
|
|
|
2,609
|
|
|
$
|
15.86
|
|
Granted
|
|
|
524
|
|
|
|
23.97
|
|
|
|
215
|
|
|
|
29.99
|
|
|
|
9
|
|
|
|
30.47
|
|
Canceled/Expired
|
|
|
(137
|
)
|
|
|
(13.01
|
)
|
|
|
(71
|
)
|
|
|
(20.02
|
)
|
|
|
(71
|
)
|
|
|
(21.67
|
)
|
Exercised
|
|
|
(1,155
|
)
|
|
|
(10.17
|
)
|
|
|
(499
|
)
|
|
|
(10.26
|
)
|
|
|
(519
|
)
|
|
|
(10.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of year
|
|
|
2,964
|
|
|
$
|
14.00
|
|
|
|
2,609
|
|
|
$
|
15.87
|
|
|
|
2,028
|
|
|
$
|
17.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year
|
|
|
1,457
|
|
|
$
|
12.33
|
|
|
|
1,425
|
|
|
$
|
13.95
|
|
|
|
1,344
|
|
|
$
|
15.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and awards available for grant, end of year
|
|
|
361
|
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CH-23
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of nonvested share-awards activity within our
share-based compensation plans and changes is as follows (share
amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested at January 1, 2005
|
|
|
|
|
|
$
|
|
|
Awarded
|
|
|
97
|
|
|
|
23.56
|
|
Released
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2005
|
|
|
97
|
|
|
$
|
23.56
|
|
Awarded
|
|
|
182
|
|
|
|
29.59
|
|
Released
|
|
|
(19
|
)
|
|
|
23.56
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
27.70
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006
|
|
|
259
|
|
|
$
|
27.61
|
|
Awarded
|
|
|
339
|
|
|
|
19.47
|
|
Released
|
|
|
(58
|
)
|
|
|
27.26
|
|
Forfeited
|
|
|
(8
|
)
|
|
|
27.67
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
532
|
|
|
$
|
22.46
|
|
|
|
|
|
|
|
|
|
|
The total fair value of share-awards vested in 2007 was
$1.6 million. The total fair value of share-awards vested
in 2006 was $0.5 million.
Options outstanding and exercisable by price range as of
December 31, 2007 are as follows, (number of shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 5.06 - $ 9.53
|
|
|
159
|
|
|
|
3.95
|
|
|
$
|
7.63
|
|
|
|
159
|
|
|
$
|
7.63
|
|
9.93 - 9.93
|
|
|
250
|
|
|
|
5.88
|
|
|
|
9.93
|
|
|
|
150
|
|
|
|
9.93
|
|
10.44 - 13.75
|
|
|
64
|
|
|
|
3.34
|
|
|
|
11.37
|
|
|
|
64
|
|
|
|
11.37
|
|
14.11
|
|
|
426
|
|
|
|
6.82
|
|
|
|
14.11
|
|
|
|
188
|
|
|
|
14.11
|
|
15.77
|
|
|
30
|
|
|
|
3.58
|
|
|
|
15.77
|
|
|
|
30
|
|
|
|
15.77
|
|
16.46
|
|
|
533
|
|
|
|
3.95
|
|
|
|
16.46
|
|
|
|
533
|
|
|
|
16.46
|
|
16.82 - 20.55
|
|
|
50
|
|
|
|
7.55
|
|
|
|
20.28
|
|
|
|
47
|
|
|
|
20.44
|
|
24.65
|
|
|
308
|
|
|
|
7.81
|
|
|
|
24.65
|
|
|
|
92
|
|
|
|
24.65
|
|
27.56 - 31.10
|
|
|
162
|
|
|
|
8.80
|
|
|
|
28.92
|
|
|
|
63
|
|
|
|
29.37
|
|
33.98
|
|
|
46
|
|
|
|
8.34
|
|
|
|
33.98
|
|
|
|
18
|
|
|
|
33.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,028
|
|
|
|
|
|
|
|
|
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CH-24
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option activity, as of December 31,
2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
of Shares
|
|
|
Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding
|
|
|
2,028
|
|
|
$
|
17.02
|
|
|
|
5.93
|
|
|
$
|
7,430
|
|
Vested and expected to vest
|
|
|
1,783
|
|
|
$
|
16.41
|
|
|
|
5.70
|
|
|
$
|
6,957
|
|
Exercisable
|
|
|
1,344
|
|
|
$
|
15.63
|
|
|
|
5.20
|
|
|
$
|
5,515
|
|
The aggregate intrinsic value of options exercised during the
period ended December 31, 2005, 2006 and 2007 was
$12.4 million, $9.7 million and $10.0 million,
respectively.
The fair value of each stock option award is estimated on the
date of the grant using the Black-Scholes option pricing model.
The following are the weighted average assumptions used for the
periods noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
4.40
|
%
|
|
|
4.79
|
%
|
|
|
4.59
|
%
|
Expected holding period (years)
|
|
|
5.2
|
|
|
|
3.2
|
|
|
|
3.0
|
|
Expected stock volatility
|
|
|
34.5
|
%
|
|
|
35.3
|
%
|
|
|
33.2
|
%
|
Expected dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Black-Scholes option valuation model was developed for use
in estimating the fair value of short-traded options that have
no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of assumptions
including expected stock price volatility. The risk-free
interest rate is based on the U.S. treasury security rate
in effect at the time of the grant. The expected holding period
of options and volatility rates are based on our historical
data. We do not anticipate paying a dividend, and therefore no
expected dividend yield was used.
The weighted average fair value of stock options granted was
$9.26, $9.15 and $8.56 for 2005, 2006 and 2007, respectively.
The following table illustrates the effect on net income and
earnings per share as if we had applied the fair value
recognition provisions of SFAS No. 123 to all
outstanding stock option awards prior to our adoption of
SFAS No. 123(R) for the year ended December 31:
|
|
|
|
|
|
|
2005
|
|
|
|
(In thousand except
|
|
|
|
per share data)
|
|
|
Net income, as reported
|
|
$
|
33,988
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
2,798
|
|
|
|
|
|
|
Pro-forma net income
|
|
$
|
31,190
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
Basic, as reported
|
|
$
|
1.14
|
|
Basic, pro forma
|
|
$
|
1.04
|
|
Diluted, as reported
|
|
$
|
1.10
|
|
Diluted, pro forma
|
|
$
|
1.01
|
|
CH-25
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option and Equity Incentive Plans
In August 1994, our Board of Directors adopted the Mobile Mini,
Inc. 1994 Stock Option Plan, which was amended in 1998 and
expired (with respect to granting additional options) in 2003.
At December 31, 2007, there were outstanding options to
acquire 89,000 shares under the 1994 Plan. In August 1999,
our Board of Directors approved the Mobile Mini, Inc. 1999 Stock
Option Plan. As of December 31, 2007, there were
outstanding options to acquire 1.9 million shares under the
1999 Plan. Both plans and amendments were approved by the
stockholders at annual meetings. Awards granted under the 1999
Plan may be incentive stock options, which are intended to meet
the requirements of Section 422 of the Internal Revenue
Code, nonstatutory stock options or shares of restricted stock
awards. Incentive stock options may be granted to our officers
and other employees. Nonstatutory stock options may be granted
to directors and employees, and to non-employee service
providers and share-awards may be made to officers and other
employees.
In February 2006, our Board of Directors approved the 2006
Equity Incentive Plan that was subsequently approved by the
stockholders at our 2006 Annual Meeting. The 2006 Plan is an
omnibus stock plan permitting a variety of equity
programs designed to provide flexibility in implementing equity
and cash awards, including incentive stock options, nonqualified
stock options, nonvested share-awards, restricted stock units,
stock appreciation rights, performance stock, performance units
and other stock-based awards. Participants in the 2006 Plan may
be granted any one of the equity awards or any combination of
them, as determined by the Board of Directors or the
Compensation Committee. The 2006 Plan has reserved
1.2 million shares of common stock for issuance. As of
December 31, 2007, there were outstanding options to
acquire 36,250 shares under the 2006 Plan.
The purpose of these plans is to attract and retain the best
available personnel for positions of substantial responsibility
and to provide incentives to, and to encourage ownership of
stock by, our management and other employees. The Board of
Directors believes that stock options and other share-based
awards are important to attract and to encourage the continued
employment and service of officers and other employees and
encourage them to devote their best efforts to our business,
thereby advancing the interest of our stockholders.
The option exercise price for all options granted under these
plans may not be less than 100% of the fair market value of the
common stock on the date of grant of the option (or 110% in the
case of an incentive stock option granted to an optionee
beneficially owning more than 10% of the outstanding common
stock). The maximum option term is ten years (or five years in
the case of an incentive stock option granted to an optionee
beneficially owning more than 10% of the outstanding common
stock) Payment for shares purchased under these plans is made in
cash. Options may, if permitted by the particular option
agreement, be exercised by directing that certificates for the
shares purchased be delivered to a licensed broker as agent for
the optionee, provided that the broker tenders to us cash or
cash equivalents equal to the option exercise price.
The plans are administered by the Compensation Committee of our
Board of Directors. The Compensation Committee is comprised of
independent directors. They determine whether options will be
granted, whether options will be incentive stock options,
nonstatutory option, restricted stock, or performance stock
which officers, employees and service providers will be granted
options, the vesting schedule for options and the number of
options to be granted. Each option granted must expire no more
than 10 years from the date it is granted and historically
they have vested over a 4.5 year period. Each non-employee
director serving on our Board of Directors receives an automatic
award of 2,500 shares of common stock on August 1 of each
year as part of the compensation we provide to such directors.
The Board of Directors may amend the plans at any time, except
that approval by our stockholders may be required for an
amendment that increases the aggregate number of shares which
may be issued pursuant to each plan, changes the class of
persons eligible to receive incentive stock options, modifies
the period within which options may be granted, modifies the
period within which options may be exercised or the terms upon
which options may be exercised, or increases the material
benefits accruing to the participants under each plan. The Board
of
CH-26
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Directors may terminate or suspend the plans at any time. Unless
previously terminated, the 1999 Plan will expire in August 2009
and the 2006 Plan will expire in February 2016. Any option
granted under a plan will continue until the option expiration
date, notwithstanding earlier termination of the plan under
which the option was granted.
In February 2005, the Compensation Committee of our Board of
Directors approved the accelerated vesting of a portion of our
stock options granted on December 13, 2001, at an exercise
price of $16.46 per share. All of the stock options that were
scheduled to vest on June 13, 2006, which covered
approximately 166,200 shares, were accelerated and vested
as of February 23, 2005. At the time of the
Committees action, the exercise price under the options
was less than the market value of the common stock. The
acceleration of the vesting allowed awards to vest that would
otherwise have been forfeited or become unexercisable and
established a new measurement date. At the accelerated vesting
date, no compensation expense was recorded in accordance with
FIN 44, Accounting for Certain Transactions involving
Stock Compensation-an interpretation of APB Opinion No. 25,
as the difference in the intrinsic value on the date of the
original grant and the date of the modifications was minimal,
and the majority of the employees included in the accelerated
vesting are expected to continue employment through the original
vesting date.
In 2005, we began awarding nonvested shares under the existing
share-based compensation plans. These nonvested shares vest in
equal annual installments on each of the first four or five
annual anniversaries of the award date, unless the person to
whom the award was made is not then employed by us (or one of
our subsidiaries). In 2006 and 2007, certain officers of the
Company received performance based nonvested shares. If
employment terminates, the nonvested shares are forfeited by the
former employee.
401(k)
and Retirement Plans
In 1995, we established a contributory retirement plan in the
United States, the 401(k) Plan, covering eligible employees with
at least one year of service. The 401(k) Plan is designed to
provide tax-deferred retirement benefits to employees in
accordance with the provisions of Section 401(k) of the
Internal Revenue Code.
The 401(k) Plan provides that each participant may annually
contribute a fixed amount or a percentage of his or her salary,
not to exceed the statutory limit. Mobile Mini may make a
qualified non-elective contribution in an amount it determines.
Under the terms of the 401(k) Plan, Mobile Mini may also make
discretionary profit sharing contributions. Profit sharing
contributions are allocated among participants based on their
annual compensation. Each participant has the right to direct
the investment of their funds among certain named plans. Mobile
Mini contributes 10% of employees contributions up to a
maximum of $500 per employee. We have a similar plan as governed
and regulated by Canadian law, where we make matching
contributions with the same limitations as our 401(k) plan, to
our Canadian employees.
In the United Kingdom, the Companys employees are covered
by a defined contribution program. The employees become eligible
to participate three months after they begin employment. The
plan is designed as a retirement benefit program into which we
pay a fixed 7% of the annual employees salary into the
plan. Each employee has the election to make further
contributions if they so elect. The participants have the right
to direct the investment of their funds among certain named
plans. A charge of 1% is deducted annually from each
employees fund to cover the administrative costs of this
program.
In The Netherlands, the Companys employees are covered by
a defined contribution program. All employees become eligible
after one month of employment. Contributions are based on a
pre-defined percentage of the employees earnings. The
percentage contribution is based on the employees age,
with two-thirds of the contribution made by us and one-third
made by the employee. We did not incur any administrative costs
for this plan in 2007.
We made contributions to these plans of approximately
$0.1 million, $0.2 million and $0.4 million in
2005, 2006 and 2007, respectively. Additionally, we incurred
approximately $6,000 in each of those three years for
administrative costs for these programs.
CH-27
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(11)
|
Commitments
and Contingencies:
|
Leases
As discussed more fully in Note 8, we are obligated under
noncancellable operating leases with related parties. We also
lease our corporate offices and other properties and operating
equipment from third parties under noncancellable operating
leases. Rent expense under these agreements was approximately
$6.8 million, $8.6 million and $10.2 million for
the years ended December 31, 2005, 2006 and 2007,
respectively. Total future commitments under all noncancellable
agreements for the years ended December 31, are as follows
(in thousands):
|
|
|
|
|
2008
|
|
$
|
10,325
|
|
2009
|
|
|
9,407
|
|
2010
|
|
|
7,300
|
|
2011
|
|
|
5,601
|
|
2012
|
|
|
3,841
|
|
Thereafter
|
|
|
12,430
|
|
|
|
|
|
|
|
|
$
|
48,904
|
|
|
|
|
|
|
The above table includes certain real estate leases that expire
in 2008, but have lease renewal options that we currently
anticipate to exercise in 2008 at the end of the initial lease
period.
Insurance
We maintain insurance coverage for our operations and employees
with appropriate aggregate, per occurrence and deductible limits
as we reasonably determine is necessary or prudent with current
operations and historical experience. The majority of these
coverages have large deductible programs which allow for
potential improved cash flow benefits based on our loss control
efforts.
Our employee group health insurance program is a self-insured
program with an aggregate stop loss limit. The insurance
provider is responsible for funding all claims in excess of the
calculated monthly maximum liability. This calculation is based
on a variety of factors including the number of employees
enrolled in the plan. This plan allows for some cash flow
benefits while guarantying a maximum premium liability. Actual
results may vary from estimates based on our actual experience
at the end of the plan policy periods based on the
carriers loss predictions and our historical claims data.
Our workers compensation, auto and general liability
insurance are purchased under large deductible programs. Our
current per incident deductibles are: workers compensation
$250,000, auto $250,000 and general liability $100,000. We
expense the deductible portion of the individual claims.
However, we generally do not know the full amount of our
exposure to a deductible in connection with any particular claim
during the fiscal period in which the claim is incurred and for
which we must make an accrual for the deductible expense. We
make these accruals based on a combination of the claims
development experience of our staff and our insurance companies,
and, at year end, the accrual is reviewed and adjusted, in part,
based on an independent actuarial review of historical loss data
and using certain actuarial assumptions followed in the
insurance industry. A high degree of judgment is required in
developing these estimates of amounts to be accrued, as well as
in connection with the underlying assumptions. In addition, our
assumptions will change as our loss experience is developed. All
of these factors have the potential for significantly impacting
the amounts we have previously reserved in respect of
anticipated deductible expenses, and we may be required in the
future to increase or decrease amounts previously accrued. Under
our various insurance programs, we have collective reserves
recorded in accrued liabilities of $6.8 million and
$7.5 million at December 31, 2006 and 2007,
respectively.
As of December 31, 2007, in connection with the issuance of
our insurance policies, we have provided our various insurance
carriers approximately $3.4 million in letters of credit
and an agreement under which we are
CH-28
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contingently responsible for $2.9 million to provide credit
support for our payment of the deductibles
and/or loss
limitation reimbursements under the insurance policies.
Florida
Litigation
In April 2000, we acquired the portable storage business that
was operated in Florida by
A-1 Trailer
Rental and several affiliated entities (collectively,
A-1
Trailer Rental). Two lawsuits were filed against us in the
State of Florida arising out of that acquisition.
In April 2005, we entered into a settlement agreement pursuant
to which a third party partially reimbursed us for losses we
sustained in connection with those lawsuits. The net proceeds
are included in our Consolidated Statements of Income as
Other income for the year ended December 31,
2005.
General
Litigation
We are a party to routine claims incidental to our business.
Most of these routine claims involve alleged damage to
customers property while stored in units leased from us
and damage alleged to have occurred during delivery and
pick-up of
containers. We carry insurance to protect us against loss from
these types of claims, subject to deductibles under the policy.
We do not believe that any of these incidental claims,
individually or in the aggregate, is likely to have a material
adverse effect on our business or results of operations.
|
|
(12)
|
Stockholders
Equity:
|
On August 8, 2007, our Board of Directors approved a common
stock repurchase program authorizing up to $50.0 million of
our outstanding shares to be repurchased over a six-month
period. As of December 31, 2007, we had repurchased
2,174,828 shares for approximately $39.3 million under
this authorization, and we did not repurchase any additional
shares prior to the expiration of this authorization in February
2008.
On February 22, 2006, the Board of Directors approved a
two-for-one stock split in the form of a 100 percent stock
dividend payable on March 10, 2006, to shareholders of
record as of the close of business on March 6, 2006. Per
share amounts, share amounts and the weighted average numbers of
shares outstanding give effect for this two-for-one stock split
for all periods presented.
As discussed in Note 6, in March 2006, we issued
4.6 million shares of our common stock at approximately
$26.22 per share, net of underwriting discounts and commissions,
but before other expenses. We received net offering proceeds of
approximately $120.3 million which we used to redeem 35% of
the $150.0 million aggregate principal amount outstanding
of our 9.5% Senior Notes and to temporarily pay down our
revolving line of credit.
We enter new markets in one of two ways, either by a new branch
start up or through acquiring a business consisting of the
portable storage assets and related leases of other companies.
An acquisition provides us with cash flow which enables us to
immediately cover the overhead cost at the new branch. On
occasion, we also purchase portable storage businesses in areas
where we have existing smaller branches either as part of
multi-market acquisitions or in order to increase our operating
margins at those branches.
In 2006, we entered into a share purchase agreement to acquire
three companies of Royal Wolf Group which, in addition to
increasing our operations in the U.S., gave us presence in the
United Kingdom and The Netherlands. The acquisition of their
businesses collectively did not meet the materiality threshold
established by the Securities and Exchange Commission that would
otherwise require reporting separate financial information for
these companies or performance information for periods prior to
the acquisition. In addition, we also acquired three other
businesses in 2006, L&L Surplus of Utica, Inc.,
HOC-Express, Inc. and Affordable LLC through asset purchase
agreements.
CH-29
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2007, we acquired the portable storage assets and assumed
certain liabilities of four businesses. In January we acquired
the portable storage assets of Worcester Leasing Company, Inc.,
operating in Worcester, Vermont. In May we acquired the portable
storage assets of Site Storage and Equipment, Inc. and Ace
Container & Equipment Sales, Inc., located in
Theodore, Alabama. The acquired assets from the Alabama
companies are serviced by our Pensacola branch which conducts
business in the Golf coast and surrounding regions. In October
we acquired the portable storage assets of Guest Inc., operating
in the Pittsburgh, Pennsylvania metropolitan area which also
serves eastern Ohio and northern West Virginia. In November we
acquired the portable storage and mobile office assets of
Centreline Equipment Rentals Ltd., of Windsor, Ontario, which
became our third branch in Canada. In May 2007, we also opened
our second Canadian branch by commencing operations in the
Vancouver metropolitan area by way of a new branch start up. All
acquisitions in 2006 and 2007 were for cash.
The accompanying consolidated financial statements include the
operations of the acquired businesses from the dates of
acquisition. The acquisitions were accounted for as a purchase
in accordance with SFAS No. 141, Business
Combinations, with the purchased assets and the assumed
liabilities recorded at their estimated fair values at the dates
of acquisition.
The aggregate purchase price of the assets and operations
acquired consists of the following for the years ended December
31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
59,411
|
|
|
$
|
9,687
|
|
Other acquisition costs
|
|
|
64
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,475
|
|
|
$
|
9,734
|
|
|
|
|
|
|
|
|
|
|
The fair value of the assets purchased has been allocated as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Tangible assets
|
|
$
|
34,169
|
|
|
$
|
4,154
|
|
Deferred tax asset
|
|
|
4,400
|
|
|
|
37
|
|
Receivables
|
|
|
3,474
|
|
|
|
|
|
Deposits and prepaid expenses
|
|
|
409
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
3,960
|
|
|
|
820
|
|
Trade names
|
|
|
180
|
|
|
|
|
|
Non-compete agreements
|
|
|
55
|
|
|
|
125
|
|
Goodwill
|
|
|
19,231
|
|
|
|
4,946
|
|
Liabilities and other
|
|
|
(6,403
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,475
|
|
|
$
|
9,734
|
|
|
|
|
|
|
|
|
|
|
The purchase prices for acquisitions have been allocated to the
assets acquired and liabilities assumed based upon estimated
fair values as of the acquisition dates and are subject to
adjustment when additional information concerning asset and
liability valuations are finalized. We do not believe any
adjustments to the allocation will have any material effect on
our results of operations or financial position.
Included in other assets and intangibles
are: (1) non-compete agreements that are
amortized typically over 5 years using the straight-line
method with no residual value, (2) intrinsic values
associated with trade names that are amortized on a
straight-line basis from 2 to 15 years with no residual
value and (3) intrinsic values associated with customer
lists that are amortized on an accelerated basis over
11 years with no residual value. Amortization
CH-30
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense for intangibles related to acquisitions was
approximately $0.1 million, $0.5 million and
$1.0 million in 2005, 2006 and 2007, respectively. Based on
the carrying value at December 31, 2007, and assuming no
subsequent impairment of the underlying assets, the annual
amortization expense is expected to be $0.8 million in
2008, $0.7 million in 2009, $0.6 million in 2010,
$0.5 million in 2011, $0.5 million in 2012 and
$1.0 million thereafter.
In the third quarter of 2005, as a result of assessing our
damages resulting from Hurricane Katrina, we recorded an expense
of approximately $1.7 million. This charge is included in
Leasing, selling and general expenses in our
consolidated statements of income. In 2005, we received a
limited reimbursement from our insurance company for certain
trucks that were destroyed in the storm. Although we have filed
a claim with our insurance companies for other damage to our
former New Orleans facility and rental units and equipment
located there, the insurance companies have informed us that
they do not intend to cover damage caused by flooding rather
than by the hurricane. Although we are still pursuing our
insurance claims, the insurance companies have filed a
reservation of rights regarding flood damages and there is
uncertainty as to the timing and extent of any further insurance
recovery.
|
|
(15)
|
Other
Comprehensive Income:
|
The components of accumulated other comprehensive income, net of
tax, were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Accumulated net unrealized holding gain (loss) on derivatives
|
|
$
|
523
|
|
|
$
|
(769
|
)
|
Foreign currency translation adjustment
|
|
|
2,948
|
|
|
|
5,105
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
3,471
|
|
|
$
|
4,336
|
|
|
|
|
|
|
|
|
|
|
The Financial Accounting Standards Board (FASB) issued
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes the
standards for companies to report information about operating
segments. We have operations in the United States, Canada, the
United Kingdom and The Netherlands. All of our branches operate
in their local currency and although we are exposed to foreign
exchange rate fluctuation in other foreign markets where we
lease and sell our products, we do not believe this will be a
significant impact on our results of operations. Currently, our
branch operations comprise our only segment and these operations
concentrate on our core business of leasing. Our branches have
similar economic characteristics covering all products leased or
sold, including similar customer base, sales personnel,
advertising, yard facilities, general and administrative costs
and branch management. Managements allocation of
resources, performance evaluations and operating decisions are
not dependent on the mix of a branchs products. We do not
attempt to allocate shared revenue nor general, selling and
leasing expenses to the different configurations of portable
storage and office products for lease and sale. The branch
operations include the leasing and sales of portable storage
units, portable offices and combination units configured for
both storage and office space. We lease to businesses and
consumers in the general geographic area around each branch. The
operation includes our manufacturing facilities, which is
responsible for the purchase, manufacturing and refurbishment of
products for leasing and sale, as well as for manufacturing
certain delivery equipment.
In managing our business, we focus on earnings per share and on
our internal growth rate in leasing revenue, which we define as
growth in lease revenues on a year-over-year basis at our branch
locations in operation for at least one year, without inclusion
of same market acquisitions.
Discrete financial data on each of our products is not available
and it would be impractical to collect and maintain financial
data in such a manner; therefore, based on the provisions of
SFAS No. 131, reportable segment information is the
same as contained in our consolidated financial statements.
CH-31
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tables below represent our revenue and long-lived assets as
attributed to geographic locations, at December 31:
Revenue from external customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
United States
|
|
$
|
205,599
|
|
|
$
|
257,485
|
|
|
$
|
290,161
|
|
Other Nations
|
|
|
1,571
|
|
|
|
15,878
|
|
|
|
28,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
207,170
|
|
|
$
|
273,363
|
|
|
$
|
318,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
United States
|
|
$
|
710,155
|
|
|
$
|
810,573
|
|
Other Nations
|
|
|
30,356
|
|
|
|
47,713
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
740,511
|
|
|
$
|
858,286
|
|
|
|
|
|
|
|
|
|
|
|
|
(17)
|
Selected
Consolidated Quarterly Financial Data (unaudited):
|
The following table sets forth certain unaudited selected
consolidated financial information for each of the four quarters
in the years ended December 31, 2006 and 2007. In
managements opinion, this unaudited consolidated quarterly
selected information has been prepared on the same basis as the
audited consolidated financial statements and includes all
necessary adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair
presentation when read in conjunction with the Consolidated
Financial Statements and notes. We believe these comparisons of
consolidated quarterly selected financial data are not
necessarily indicative of future performance.
Quarterly earnings per share may not total to the fiscal year
earnings per share due to the weighted average number of shares
outstanding at the end of each period reported and rounding.
CH-32
MOBILE
MINI, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
(In thousands except earnings per share)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing revenues
|
|
$
|
51,534
|
|
|
$
|
59,331
|
|
|
$
|
65,595
|
|
|
$
|
68,645
|
|
Total revenues
|
|
|
56,420
|
|
|
|
66,298
|
|
|
|
73,989
|
|
|
|
76,656
|
|
Gross profit margin on sales
|
|
|
1,614
|
|
|
|
2,438
|
|
|
|
2,962
|
|
|
|
2,624
|
|
Income from operations
|
|
|
19,922
|
|
|
|
24,293
|
|
|
|
27,190
|
|
|
|
28,125
|
|
Net income
|
|
|
8,204
|
|
|
|
7,658
|
(1)
|
|
|
12,890
|
|
|
|
14,024
|
(2)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
|
$
|
0.22
|
(1)
|
|
$
|
0.36
|
|
|
$
|
0.39
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.21
|
(1)
|
|
$
|
0.35
|
|
|
$
|
0.38
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing revenues
|
|
$
|
66,053
|
|
|
$
|
70,362
|
|
|
$
|
73,982
|
|
|
$
|
74,241
|
|
Total revenues
|
|
|
73,020
|
|
|
|
78,250
|
|
|
|
83,482
|
|
|
|
83,550
|
|
Gross profit margin on sales
|
|
|
2,195
|
|
|
|
2,378
|
|
|
|
2,716
|
|
|
|
2,704
|
|
Income from operations
|
|
|
26,832
|
|
|
|
27,642
|
|
|
|
27,233
|
|
|
|
26,801
|
|
Net income
|
|
|
12,697
|
|
|
|
6,331
|
(3)
|
|
|
12,704
|
|
|
|
12,444
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.18
|
(3)
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.35
|
|
|
$
|
0.17
|
(3)
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes debt extinguishment expense of $6.4 million
($3.9 million after tax), or $0.11 per diluted share. |
|
(2) |
|
Includes a $0.3 million income tax benefit due to the
recognition of certain state net operating loss carryforwards,
or $0.01 per diluted share. |
|
(3) |
|
Includes debt extinguishment expense of $11.2 million
($6.9 million after tax), or $0.19 per diluted share. |
On February 22, 2008 we entered into a definitive merger
agreement with Mobile Storage Group, Inc. of Glendale,
California. Mobile Storage Group will merge into Mobile Mini in
a transaction valued at approximately $701.5 million.
Pursuant to the merger, we will assume approximately
$535.0 million of Mobile Storage Groups outstanding
indebtedness and will acquire all outstanding shares of Mobile
Storage Group for $12.5 million in cash and shares of newly
issued Mobile Mini convertible preferred stock with a
liquidation preference of $154.0 million, which following
the tenth year after the issue date will be initially
convertible into approximately 8.55 million shares of our
common stock, and is redeemable at the holders option, ten
years after the date of issuance.
Closing of the transaction is subject to approval by our
stockholders, obtaining required governmental approvals, receipt
of a new $1.0 billion asset-based revolving credit facility
and customary closing conditions. No closing date has been set
at this time, pending receipt of the necessary approvals.
Mobile Mini has received a fully underwritten commitment from
Deutsche Bank AG, Bank of America and JP Morgan for a
$1.0 billion asset-based revolving line of credit facility
to fund the transaction, subject to customary conditions
including the execution of definitive documentation.
CH-33
ITEM 15
(a).
(a) Financial Statements:
(1) The financial statements required to be included in
this Report are included in Item 8 of this Report.
(2) The following financial statement schedule for the
years ended December 31, 2005, 2006 and 2007 is filed with
our annual report on
Form 10-K
for fiscal year ended December 31, 2007:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or not required.
SCHEDULE II
MOBILE
MINI, INC.
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
2,701
|
|
|
$
|
3,234
|
|
|
$
|
5,008
|
|
Provision charged to expense
|
|
|
3,036
|
|
|
|
4,538
|
|
|
|
1,869
|
|
Provision for Hurricane Katrina
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Acquired through business acquisitions
|
|
|
|
|
|
|
462
|
|
|
|
|
|
Write-offs
|
|
|
(2,553
|
)
|
|
|
(3,226
|
)
|
|
|
(2,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
3,234
|
|
|
$
|
5,008
|
|
|
$
|
3,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CI-1
U. S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
March 31, 2008
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File Number 1-12804
(Exact name of registrant as
specific in its charter)
|
|
|
Delaware
|
|
86-0748362
|
(State or other jurisdiction
of
|
|
(IRS Employer
|
incorporation or
organization)
|
|
Identification No.)
|
7420 S. Kyrene
Road, Suite 101
Tempe, Arizona 85283
(Address of principal executive
offices)
(Registrants telephone number, including area code)
(480) 894-6311
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No 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 Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the Exchange Act of
1934). Yes o No þ
At May 5, 2008, there were outstanding
34,624,220 shares of the issuers common stock.
D-1
MOBILE
MINI, INC.
INDEX TO
FORM 10-Q
FILING
FOR THE QUARTER ENDED MARCH 31, 2008
TABLE OF
CONTENTS
D-2
PART I.
FINANCIAL INFORMATION
|
|
ITEM 1.
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
MOBILE
MINI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(Note A)
|
|
|
(Unaudited)
|
|
|
|
(In thousands except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
3,703
|
|
|
$
|
7,423
|
|
Receivables, net of allowance for doubtful accounts of $3,993
and $3,849 at December 31, 2007 and March 31, 2008,
respectively
|
|
|
37,221
|
|
|
|
34,652
|
|
Inventories
|
|
|
29,431
|
|
|
|
30,011
|
|
Lease fleet, net
|
|
|
802,923
|
|
|
|
815,599
|
|
Property, plant and equipment, net
|
|
|
55,363
|
|
|
|
55,332
|
|
Deposits and prepaid expenses
|
|
|
11,334
|
|
|
|
10,799
|
|
Other assets and intangibles, net
|
|
|
9,086
|
|
|
|
13,007
|
|
Goodwill
|
|
|
79,790
|
|
|
|
79,765
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,028,851
|
|
|
$
|
1,046,588
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
20,560
|
|
|
$
|
17,019
|
|
Accrued liabilities
|
|
|
38,941
|
|
|
|
44,215
|
|
Line of credit
|
|
|
237,857
|
|
|
|
237,418
|
|
Notes payable
|
|
|
743
|
|
|
|
404
|
|
Obligations under capital leases
|
|
|
10
|
|
|
|
5
|
|
Senior notes, net
|
|
|
149,379
|
|
|
|
149,400
|
|
Deferred income taxes
|
|
|
123,471
|
|
|
|
129,332
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
570,961
|
|
|
|
577,793
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock; $.01 par value, 95,000 shares
authorized, 34,573 and 34,625 issued and outstanding at
December 31, 2007 and March 31, 2008, respectively
|
|
|
367
|
|
|
|
368
|
|
Additional paid-in capital
|
|
|
278,593
|
|
|
|
280,358
|
|
Retained earnings
|
|
|
213,894
|
|
|
|
224,552
|
|
Accumulated other comprehensive income
|
|
|
4,336
|
|
|
|
2,817
|
|
Treasury stock, at cost, 2,175 shares
|
|
|
(39,300
|
)
|
|
|
(39,300
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
457,890
|
|
|
|
468,795
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,028,851
|
|
|
$
|
1,046,588
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
D-3
MOBILE
MINI, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands except per share data)
|
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Leasing
|
|
$
|
66,053
|
|
|
$
|
70,036
|
|
Sales
|
|
|
6,654
|
|
|
|
8,098
|
|
Other
|
|
|
313
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
73,020
|
|
|
|
78,541
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
4,459
|
|
|
|
5,633
|
|
Leasing, selling and general expenses
|
|
|
36,838
|
|
|
|
43,470
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
5,669
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
46,188
|
|
|
|
54,772
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
26,832
|
|
|
|
23,769
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
8
|
|
|
|
33
|
|
Interest expense
|
|
|
(5,953
|
)
|
|
|
(6,145
|
)
|
Foreign currency exchange
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
20,887
|
|
|
|
17,646
|
|
Provision for income taxes
|
|
|
8,190
|
|
|
|
6,988
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,641
|
|
|
|
34,086
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,633
|
|
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
D-4
MOBILE
MINI, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Adjustments to reconcile income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
651
|
|
|
|
568
|
|
Amortization of deferred financing costs
|
|
|
199
|
|
|
|
218
|
|
Share-based compensation expense
|
|
|
940
|
|
|
|
988
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
5,669
|
|
Gain on sale of lease fleet units
|
|
|
(1,294
|
)
|
|
|
(1,491
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
9
|
|
|
|
29
|
|
Deferred income taxes
|
|
|
8,052
|
|
|
|
6,988
|
|
Foreign currency transaction loss
|
|
|
|
|
|
|
11
|
|
Changes in certain assets and liabilities, net of effect of
business acquired:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
1,615
|
|
|
|
2,065
|
|
Inventories
|
|
|
(4,005
|
)
|
|
|
(503
|
)
|
Deposits and prepaid expenses
|
|
|
(673
|
)
|
|
|
543
|
|
Other assets and intangibles
|
|
|
(3
|
)
|
|
|
(4,331
|
)
|
Accounts payable
|
|
|
(183
|
)
|
|
|
(3,356
|
)
|
Accrued liabilities
|
|
|
(2,198
|
)
|
|
|
2,874
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
20,698
|
|
|
|
20,930
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Cash paid for business acquired
|
|
|
(2,397
|
)
|
|
|
(18
|
)
|
Additions to lease fleet, excluding acquisitions
|
|
|
(27,330
|
)
|
|
|
(19,220
|
)
|
Proceeds from sale of lease fleet units
|
|
|
3,486
|
|
|
|
4,416
|
|
Additions to property, plant and equipment
|
|
|
(8,368
|
)
|
|
|
(1,675
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
64
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(34,545
|
)
|
|
|
(16,493
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under lines of credit
|
|
|
15,153
|
|
|
|
(438
|
)
|
Principal payments on notes payable
|
|
|
(343
|
)
|
|
|
(339
|
)
|
Principal payments on capital lease obligations
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Issuance of common stock, net
|
|
|
65
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
14,871
|
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
3
|
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,027
|
|
|
|
3,720
|
|
Cash at beginning of period
|
|
|
1,370
|
|
|
|
3,703
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
2,397
|
|
|
$
|
7,423
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest rate swap changes in value charged to equity
|
|
$
|
118
|
|
|
$
|
1,486
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
D-5
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in conformity with
U.S. generally accepted accounting principles applicable to
interim financial information and the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the
opinion of management, all adjustments (which include normal and
recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows for all periods
presented have been made. All significant inter-company balances
and transactions have been eliminated.
The condensed consolidated balance sheet at December 31,
2007, has been derived from the audited consolidated financial
statements at that date but does not include all of the
information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements.
The results of operations for the three-month period ended
March 31, 2008, are not necessarily indicative of the
operating results that may be expected for the entire year
ending December 31, 2008. Historically, Mobile Mini
experiences some seasonality each year which has caused lower
utilization rates for our lease fleet and a marginal decrease in
cash flow during the first half of the year. These condensed
consolidated financial statements should be read in conjunction
with our December 31, 2007, consolidated financial
statements and accompanying notes thereto, which are included in
our Annual Report on
Form 10-K
and on
Form 10-K/A
filed with the Securities and Exchange Commission (SEC) on
February 29, 2008 and March 18, 2008, respectively.
NOTE B Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurement
(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007 and interim periods within those
fiscal years. We adopted SFAS No. 157 on
January 1, 2008, with no effect on our consolidated
financial statements.
On February 15, 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
Under SFAS No. 159, we may elect to report financial
instruments and certain other items at fair value on a
contract-by-contract
basis with changes in value reported in earnings. This election
is irrevocable. SFAS No. 159 provides an opportunity
to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously
required to use a different accounting method than the related
hedging contracts when the complex provisions of
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, applicable to hedge accounting are
not met. The Company adopted SFAS No. 159 on
January 1, 2008. The Company chose not to elect the fair
value option for its financial assets and liabilities existing
at January 1, 2008 and did not elect the fair value option
on financial assets and liabilities transacted in the three
months ended March 31, 2008. Therefore, the adoption of
SFAS No. 159 had no impact on the Companys
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R) which establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill
acquired in a business combination. Certain forms of contingent
consideration and certain acquired contingencies will be
recorded at fair value at the acquisition date.
SFAS No. 141R also states acquisition costs will
generally be expensed as
D-6
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
incurred and restructuring costs will be expensed in periods
after the acquisition date. We will apply SFAB No. 141R
prospectively to business combinations with an acquisition date
on or after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 amends
Accounting Research Bulletin ARB No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 becomes effective beginning
January 1, 2009. Presently, there are no non-controlling
interests in any of the Companys consolidated
subsidiaries, therefore, we do not expect the adoption of
SFAS No. 160 to have a significant impact on our
results of operations or financial condition.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
data about the fair value of and gains and losses on derivative
contracts and details of credit-risk-related contingent features
in hedged positions. The statement also requires enhanced
disclosures regarding how and why entities use derivative
instruments, how derivative instruments and related hedged items
are accounted and how derivative instruments and related hedged
items affect entities financial position, financial
performance and cash flows. SFAS No. 161 is effective
for fiscal years beginning after November 15, 2008. We do
not expect the adoption of SFAS No. 161 will have a
material effect on our results of operations or financial
position.
NOTE C Fair
Value Measurements
As described in Note B, we adopted SFAS No. 157
on January 1, 2008. SFAS No. 157, among other
things, defines fair value, establishes a consistent framework
for measuring fair value and expands disclosure for each major
asset and liability category measured at fair value on either a
recurring or nonrecurring basis. SFAS No. 157
clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a
basis for considering such assumptions, SFAS No. 157
establishes a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value as follows:
|
|
|
Level 1
|
|
Observable inputs such as quoted prices in active markets;
|
Level 2
|
|
Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
|
Level 3
|
|
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
|
Assets measured at fair value on a recurring basis are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
Fair Value
|
|
|
Identical
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
March 31,
|
|
|
Assets
|
|
Inputs
|
|
|
Inputs
|
|
Valuation
|
|
|
|
2008
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Technique
|
|
|
Interest rate swap agreements
|
|
$
|
3,674
|
|
|
$
|
|
$
|
3,674
|
|
|
$
|
|
|
(1
|
)
|
|
|
|
(1) |
|
Our interest rate swap agreements are not traded on a market
exchange; therefore, the fair values are determined using
valuation models which include assumptions about the LIBOR yield
curve at the reporting dates. The Company has consistently
applied these calculation techniques to all periods presented.
At |
D-7
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
March 31, 2008, the fair value of interest rate swap
agreements is recorded in accrued liabilities in our condensed
consolidated balance sheet. |
NOTE D Basic earnings per common
share are computed by dividing net income by the weighted
average number of shares of common stock outstanding during the
period. Diluted earnings per common share are determined
assuming the potential dilution of the exercise or conversion of
options into common stock. The following table shows the
computation of earnings per share for the three-month period
ended March 31:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands except earnings per share data)
|
|
|
BASIC:
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of period
|
|
|
35,640
|
|
|
|
34,041
|
|
Effect of weighting common shares:
|
|
|
|
|
|
|
|
|
Weighted common shares issued during the period ended
March 31,
|
|
|
1
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
35,641
|
|
|
|
34,086
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.36
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
DILUTED:
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of period
|
|
|
35,640
|
|
|
|
34,041
|
|
Effect of weighting common shares:
|
|
|
|
|
|
|
|
|
Weighted common shares issued during the period ended
March 31,
|
|
|
1
|
|
|
|
45
|
|
Employee stock options and nonvested share-awards assumed
converted during the period ended March 31,
|
|
|
992
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
36,633
|
|
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2007 and 2008, options
to purchase 568,525 and 642,200 shares, respectively, of
the Companys stock were excluded from the calculation of
diluted earnings per share because they were anti-dilutive.
Basic weighted average number of common shares outstanding as of
March 31, 2007 and 2008 does not include 256,730 and
534,031, respectively, of nonvested share-awards because the
award has not vested. For the three months ended March 31,
2007 and 2008, 1,333 and 486,314, respectively, nonvested
share-awards were not included in the computation of diluted
earnings per share because the effect would have been
anti-dilutive.
|
|
NOTE E
|
Share-Based
Compensation
|
At March 31, 2008, the Company had three active share-based
employee compensation plans. Stock option awards under these
plans are granted with an exercise price per share equal to the
fair market value of our common stock on the date of grant. Each
option must expire no more than 10 years from the date it
is granted and, historically, options are granted with vesting
over a 4.5 year period.
In 2005, we began awarding nonvested shares under the existing
share-based compensation plans. These share awards vest over a
four year period for awards to an executive officer or over a
five year period for awards to employees other than executive
officers. The total value of these awards is expensed on a
straight-
D-8
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
line basis over the service period of the employees receiving
the awards. The service period is the time during
which the employees receiving awards must remain employees for
the shares granted to fully vest. Starting in December 2006, we
awarded to certain of our executive officers nonvested
share-awards with vesting subject to a performance condition.
Vesting of these share-awards is dependent upon the officers
fulfilling the service period requirements as well as the
Company achieving certain EBITDA targets in each of the next
four years. At the date of the 2007 awards, the EBITDA targets
were not known, and as such, the measurement date for the
nonvested share-awards had not yet occurred. This target was
established by our Board of Directors on February 20, 2008,
at which point, the value of each nonvested share-award was
$15.85. We are required to assess the probability that the
performance conditions will be met. If the likelihood of the
performance conditions being met is deemed probable we will
recognize the expense using the accelerated attribution method.
The accelerated attribution method could result in as much as
50% of the total value of the shares being recognized in the
first year of the service period if each of the four future
targets are assessed as probable of being met. For performance
based awards granted in 2006 and 2007, the accelerated
attribution method has been used to recognize the expense.
As of March 31, 2008, the total amount of unrecognized
compensation cost related to nonvested share awards was
approximately $12.7 million, which is expected to be
recognized over a weighted-average period of approximately
3.8 years.
The total value of the stock option grants is expensed on a
straight-line basis over the service period of the employees
receiving the grants. As of March 31, 2008, total
unrecognized compensation cost related to stock option grants
was approximately $4.1 million and the related
weighted-average period over which it is expected to be
recognized is approximately 1.7 years.
A summary of stock option activity within the Companys
stock-based compensation plans and changes for the three months
ended March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,028
|
|
|
$
|
17.02
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50
|
)
|
|
|
10.52
|
|
Terminated/expired
|
|
|
(16
|
)
|
|
|
21.89
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
1,962
|
|
|
$
|
17.15
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the three months
ended March 31, 2008 was $0.4 million.
A summary of nonvested share-awards activity within our
share-based compensation plans and changes is as follows (share
amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Nonvested at December 31, 2007
|
|
|
532
|
|
|
$
|
22.46
|
|
Awarded
|
|
|
7
|
|
|
|
16.20
|
|
Released
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
20.86
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2008
|
|
|
534
|
|
|
$
|
22.39
|
|
|
|
|
|
|
|
|
|
|
D-9
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of fully-vested stock options and stock options
expected to vest, as of March 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding
|
|
|
1,962
|
|
|
$
|
17.15
|
|
|
|
5.8
|
|
|
$
|
7,658
|
|
Vested and expected to vest
|
|
|
1,725
|
|
|
$
|
16.55
|
|
|
|
5.6
|
|
|
$
|
7,157
|
|
Exercisable
|
|
|
1,294
|
|
|
$
|
15.83
|
|
|
|
5.1
|
|
|
$
|
5,615
|
|
The fair value of each stock option award is estimated on the
date of the grant using the Black-Scholes option pricing model.
There were no stock option awards granted during the first
quarter of 2007 or 2008.
NOTE F Inventories are valued at
the lower of cost (principally on a standard cost basis which
approximates the
first-in,
first-out (FIFO) method) or market. Market is the lower of
replacement cost or net realizable value. Inventories primarily
consist of raw materials, supplies,
work-in-process
and finished goods, all related to the manufacturing,
refurbishment and maintenance of portable storage units and
office units, primarily for our lease fleet and our units held
for sale. Raw materials principally consist of raw steel, wood,
glass, paint, vinyl and other assembly components used in
manufacturing and refurbishing processes.
Work-in-process
primarily represents units being built at our manufacturing
facility that are either pre-sold or being built to add to our
lease fleet upon completion. Finished portable storage units
primarily represents ISO (the International Organization for
Standardization) containers held in inventory until the
containers are either sold as is, refurbished and sold, or units
in the process of being refurbished to be compliant with our
lease fleet standards before transferring the units to our lease
fleet. There is no certainty when we purchase the containers
whether they will ultimately be sold, refurbished and sold, or
refurbished and moved into our lease fleet. Units that we add to
our lease fleet undergo an extensive refurbishment process that
includes installing our proprietary locking system, signage,
painting and sometimes adding our proprietary security doors.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands)
|
|
|
Raw material and supplies
|
|
$
|
21,801
|
|
|
$
|
22,942
|
|
Work-in-process
|
|
|
2,819
|
|
|
|
2,938
|
|
Finished portable storage units
|
|
|
4,811
|
|
|
|
4,131
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,431
|
|
|
$
|
30,011
|
|
|
|
|
|
|
|
|
|
|
NOTE G We adopted the provision of
FIN 48, Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 on
January 1, 2007. FIN 48 contains a two-step approach
to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109, Accounting for
Income Taxes. The first step is to evaluate the tax position
for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more
than 50% likely of being realized upon ultimate settlement.
We file U.S. federal tax returns, U.S. State tax
returns, and foreign tax returns. We have identified our
U.S. Federal tax return as our major tax
jurisdiction. For the U.S. Federal return, years 2004
through 2006 are subject to tax examination by the
U.S. Internal Revenue Service. We do not currently have any
ongoing tax examinations with the IRS. We believe that our
income tax filing positions and deductions will be sustained on
audit and do not anticipate any adjustments that will result in
a material change to our financial position. Therefore, no
reserves for uncertain income tax positions have been recorded
pursuant to FIN 48. In addition, we did not record a
cumulative effect adjustment related to the adoption of
FIN 48. We do not
D-10
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
anticipate that the total amount of unrecognized tax benefit
related to any particular tax position will change significantly
within the next 12 months.
Our policy for recording interest and penalties associated with
audits is to record such items as a component of income before
taxes. Penalties and associated interest costs are recorded in
leasing, selling and general expenses in the Condensed
Consolidated Statements of Income.
NOTE H Property, plant and
equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the
assets estimated useful lives. Residual values are
determined when the property is constructed or acquired and
range up to 25%, depending on the nature of the asset. In the
opinion of management, estimated residual values do not cause
carrying values to exceed net realizable value. Normal repairs
and maintenance to property, plant and equipment are expensed as
incurred. When property or equipment is retired or sold, the net
book value of the asset, reduced by any proceeds, is charged to
gain or loss on the retirement of fixed assets. Property, plant
and equipment consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
772
|
|
|
$
|
772
|
|
Vehicles and equipment
|
|
|
60,490
|
|
|
|
61,322
|
|
Buildings and improvements
|
|
|
11,514
|
|
|
|
11,692
|
|
Office fixtures and equipment
|
|
|
11,579
|
|
|
|
12,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,355
|
|
|
|
86,038
|
|
Less accumulated depreciation
|
|
|
(28,992
|
)
|
|
|
(30,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,363
|
|
|
$
|
55,332
|
|
|
|
|
|
|
|
|
|
|
NOTE I Mobile Mini has a lease
fleet primarily consisting of refurbished, modified and
manufactured portable storage and office units that are leased
to customers under short-term operating lease agreements with
varying terms. Depreciation is provided using the straight-line
method over our units estimated useful life, after the
date that we put the unit in service, and are depreciated down
to their estimated residual values. Our steel units are
depreciated over 25 years with an estimated residual value
of 62.5%. Wood office units are depreciated over 20 years
with an estimated residual value of 50%. Van trailers, which are
a small part of our fleet, are depreciated over seven years to a
20% residual value. Van trailers are only added to the fleet in
connection with acquisitions of portable storage businesses, and
then only when van trailers are a part of the business acquired.
In the opinion of management, estimated residual values do not
cause carrying values to exceed net realizable value. We
continue to evaluate these depreciation policies as more
information becomes available from other comparable sources and
our own historical experience.
Normal repairs and maintenance to the portable storage and
mobile office units are expensed as incurred. As of
December 31, 2007, the lease fleet totaled
$865.6 million as compared to $881.7 million at
March 31, 2008, before accumulated depreciation of
$62.7 million and $66.1 million, respectively.
D-11
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Lease fleet consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands)
|
|
|
Steel storage containers
|
|
$
|
459,665
|
|
|
$
|
463,163
|
|
Offices
|
|
|
402,640
|
|
|
|
415,577
|
|
Van trailers
|
|
|
2,330
|
|
|
|
1,885
|
|
Other
|
|
|
956
|
|
|
|
1,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
865,591
|
|
|
|
881,727
|
|
Accumulated depreciation
|
|
|
(62,668
|
)
|
|
|
(66,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
802,923
|
|
|
$
|
815,599
|
|
|
|
|
|
|
|
|
|
|
NOTE J The Financial Accounting
Standards Board (FASB) issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information, which establishes the standards for companies
to report information about operating segments. We have
operations in the United States, Canada, the United Kingdom and
The Netherlands. All of our branches operate in their local
currency and although we are exposed to foreign exchange rate
fluctuation in other foreign markets where we lease and sell our
products, we do not believe this will have a significant impact
on our results of operations. Currently, our branch operation is
the only segment that concentrates on our core business of
leasing. Each branch has similar economic characteristics
covering all products leased or sold, including the same
customer base, sales personnel, advertising, yard facilities,
general and administrative costs and the branch management.
Managements allocation of resources, performance
evaluations and operating decisions are not dependent on the mix
of a branchs products. We do not attempt to allocate
shared revenue nor general, selling and leasing expenses to the
different configurations of portable storage and office products
for lease and sale. The branch operations include the leasing
and sales of portable storage units, portable offices and
combination units configured for both storage and office space.
We lease to businesses and consumers in the general geographic
area surrounding each branch. The operation includes our
manufacturing facilities, which is responsible for the purchase,
manufacturing and refurbishment of products for leasing and
sale, as well as for manufacturing certain delivery equipment.
In managing our business, we focus on growing our leasing
revenues, particularly in existing markets where we can take
advantage of the operating leverage inherent in our business
model, adjusted EBITDA and earnings per share. We calculate
adjusted EBITDA by first calculating EBITDA, which we define as
net income before interest expense, debt restructuring or
extinguishment expense, provision for income taxes, depreciation
and amortization. This measure eliminates the effect on
financing transactions that we enter into on an irregular basis
based on capital needs and market opportunities. This measure
also provides us with a means to track internally generated cash
from which we can fund our interest expense and our lease fleet
growth. In comparing EBITDA from year-to-year, we typically
further adjust EBITDA to eliminate the effect of what we
consider to be non-recurring events not related to our core
business operations to arrive at what we define as adjusted
EBITDA.
Discrete financial data on each of our products is not available
and it would be impractical to collect and maintain financial
data in such a manner; therefore, based on the provisions of
SFAS No. 131, reportable segment information is the
same as contained in our Condensed Consolidated Financial
Statements.
D-12
MOBILE
MINI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tables below represent our revenue and long-lived assets,
consisting of lease fleet and property, plant and equipment, as
attributed to geographic locations (in thousands):
Revenue from external customers:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
United States
|
|
$
|
67,120
|
|
|
$
|
70,867
|
|
Other Nations
|
|
|
5,900
|
|
|
|
7,674
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
73,020
|
|
|
$
|
78,541
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
United States
|
|
$
|
810,573
|
|
|
$
|
806,411
|
|
Other Nations
|
|
|
47,713
|
|
|
|
64,520
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
858,286
|
|
|
$
|
870,931
|
|
|
|
|
|
|
|
|
|
|
NOTE K Comprehensive income, net of tax,
consisted of the following at:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Net unrealized holding loss on derivatives
|
|
|
(118
|
)
|
|
|
(1,486
|
)
|
Foreign currency translation adjustment
|
|
|
91
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
12,670
|
|
|
$
|
9,139
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of
tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
(In thousands)
|
|
|
Accumulated net unrealized holding loss on derivatives
|
|
$
|
(769
|
)
|
|
$
|
(2,255
|
)
|
Foreign currency translation adjustment
|
|
|
5,105
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
4,336
|
|
|
$
|
2,817
|
|
|
|
|
|
|
|
|
|
|
NOTE L
Pending Merger
On February 22, 2008, we entered into a definitive merger
agreement with Mobile Storage Group, Inc., of Glendale,
California, whereby Mobile Storage Group will merge into Mobile
Mini. Pursuant to the merger, we will assume approximately
$535.0 million of Mobile Storage Groups outstanding
indebtedness and will acquire all outstanding shares of Mobile
Storage Group for approximately $12.5 million in cash and
8.55 million shares of newly issued Mobile Mini convertible
preferred stock, which, if not already converted into the same
number of shares of Mobile Mini common stock, will be redeemable
at the holders option following the tenth year after the
issue date. Closing of the transaction is subject to approval by
our stockholders, our entry into a new $1.0 billion
asset-based revolving credit facility and customary closing
conditions.
D-13
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion of our financial condition and
results of operations should be read together with our
December 31, 2007 consolidated financial statements and the
accompanying notes thereto which are included in our Annual
Report on
Form 10-K
and
Form 10-K/A,
filed with the Securities and Exchange Commission on
February 29, 2008 and March 18, 2008, respectively.
This discussion contains forward-looking statements.
Forward-looking statements are based on current expectations and
assumptions that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in those
forward-looking statements
On February 22, 2008, we entered into a definitive merger
agreement with Mobile Storage Group, Inc. of Glendale,
California whereby Mobile Storage Group will merge into Mobile
Mini. Pursuant to the merger, we will assume approximately
$535.0 million of Mobile Storage groups outstanding
indebtedness and will acquire all outstanding shares of Mobile
Storage Group for approximately $12.5 million in cash and
8.55 million shares of newly issued Mobile Mini convertible
preferred stock, which, if not already converted into the same
number of shares of Mobile Mini common stock, will be redeemable
at the holders option following the tenth year after the
issue date. Closing of the transaction is subject to approval by
our stockholders, our entry into a new $1.0 billion
asset-based revolving credit facility and customary closing
conditions. No closing date has been set at this time, depending
on the timing of various disclosure requirements and the
approval by our shareholders. Our discussion of our business,
financial conditions and results of operations in this report
does not include the anticipated effects of the combination with
Mobile Storage Group.
Overview
General
We derive most of our revenues from the leasing of portable
storage containers and portable offices. With respect to our
North America customers, the average intended lease term at
lease inception is approximately 10 months for portable
storage units and approximately 13 months for portable
offices. In Europe, our customers have historically leased on a
month-to-month basis. Our European operations are being
transitioned to our long-term leasing model, and as a result,
40% of our European leases at December 31, 2007 have
initial lease terms at lease inception of approximately
7 months for portable storage units. In 2007, the
company-wide over-all lease term averaged 27 months for
portable storage units and 22 months for portable offices.
As a result of these long average lease terms, our leasing
business tends to provide us with a recurring revenue stream and
minimizes fluctuations in revenues. However, there is no
assurance that we will maintain such lengthy overall lease terms.
In addition to our leasing business, we also sell portable
storage containers and occasionally we sell portable office
units. Our sales revenues as a percentage of total revenues have
represented 9.9% of revenues in 2007. Our European subsidiaries,
which in 2007 derived approximately 31.6% of their revenues from
container sales, are being transitioned to our leasing business
model. Sales continue to be a large part of their revenues,
representing approximately 28.1% of their revenues for the three
months ended March 31, 2008.
We have grown through both internally generated growth and
acquisitions, which we use to gain a presence in new markets.
Typically, we enter a new market through the acquisition of the
business of a smaller local competitor and then apply our
business model, which is usually much more customer service and
marketing focused than the business we are buying or its
competitors in the market. If we cannot find a desirable
acquisition opportunity in a market we wish to enter, we
establish a new location from the ground up. As a result, a new
branch location will typically have fairly low operating margins
during its early years, but as our marketing efforts help us
penetrate the new market and we increase the number of units on
rent at the new branch, we take advantage of operating
efficiencies to improve operating margins at the branch and
typically reach company average levels after several years. When
we enter a new market, we incur certain costs in developing an
infrastructure. For example, advertising and marketing costs
will be incurred and certain minimum staffing levels and certain
minimum levels of delivery equipment will be put in place
regardless of
D-14
the new markets revenue base. Once we have achieved
revenues during any period that are sufficient to cover our
fixed expenses, we generate high margins on incremental lease
revenues. Therefore, each additional unit rented in excess of
the break-even level, contributes significantly to
profitability. Conversely, additional fixed expenses that we
incur require us to achieve additional revenue as compared to
the prior period to cover the additional expense.
Among the external factors we examine to determine the direction
of our business is the level of non-residential construction
activity, especially in areas of the country where we have a
significant presence. Customers in the construction industry
represented approximately 43% and 40% of our units on rent at
December 31, 2007 and 2006, respectively, and because of
the degree of operating leverage we have, increases or declines
in non-residential construction activity can have a significant
effect on our operating margins and net income. In 2007, after
three years of very strong growth in non-residential
construction activity in the U.S., the growth rate in this
sector began to moderate and the level of our construction
related business began to slow down in certain geographic areas,
particularly in the southeast and southwest. We were able to
offset a portion of these economic effects by continuing to gain
market share for certain of our products, particularly our
manufactured containers and portable offices, and by rapidly
growing our base in Europe and certain geographic areas in the
U.S. We believe that the loss of liquidity that is apparent
in the financial markets in the early part of 2008 could
continue to adversely affect the availability of credit to
finance construction projects, which could exert downward
pressure on our growth rate. To date, we have noted economic
weakness primarily in our California, Arizona and Florida
markets.
In managing our business, we focus on our growth in leasing
revenues, particularly in existing markets where we can take
advantage of the operating leverage inherent in our business
model. Mobile Minis goal is to maintain a high growth rate
so that revenue growth will exceed inflationary growth in
expenses.
We are a capital-intensive business, so in addition to focusing
on earnings per share, we focus on adjusted EBITDA to measure
our results. We calculate this number by first calculating
EBITDA, which we define as net income before interest expense,
debt restructuring or extinguishment expense, provision for
income taxes, depreciation and amortization. This measure
eliminates the effect of financing transactions that we enter
into on an irregular basis based on capital needs and market
opportunities, and this measure provides us with a means to
track internally generated cash from which we can fund our
interest expense and our lease fleet growth. In comparing EBITDA
from year to year, we typically further adjust EBITDA to
eliminate the effect of what we consider non-recurring events
not related to our core business operations to arrive at what we
define as adjusted EBITDA. Because EBITDA is a non-GAAP
financial measure, as defined by the SEC, we include below in
this report reconciliations of EBITDA to the most directly
comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
United States.
We present EBITDA because we believe it provides useful
information regarding our ability to meet our future debt
payment requirements, capital expenditures and working capital
requirements and that it provides an overall evaluation of our
financial condition. In addition, EBITDA is a component of
certain financial covenants under our revolving credit facility
and is used to determine our available borrowing capacity and
the interest rate in effect at any point in time.
EBITDA has certain limitations as an analytical tool and should
not be used as a substitute for net income, cash flows or other
consolidated income or cash flow data prepared in accordance
with generally accepted accounting principles in the United
States or as a measure of our profitability or our liquidity. In
particular, EBITDA, as defined does not include:
|
|
|
|
|
Interest expense because we borrow money to
partially finance our capital expenditures, primarily related to
the expansion of our lease fleet, interest expense is a
necessary element of our cost to secure this financing to
continue generating additional revenues.
|
|
|
|
Debt restructuring or extinguishment expense
as defined in our revolving credit facility, debt restructuring
or debt extinguishment expenses are not deducted in our various
calculations made under the credit agreement and are treated no
differently than interest expense. As discussed above, interest
|
D-15
|
|
|
|
|
expense is a necessary element of our cost to finance a portion
of the capital expenditures needed for the growth of our
business.
|
|
|
|
|
|
Income taxes EBITDA, as defined, does not
reflect income taxes or the requirements for any tax payments.
|
|
|
|
Depreciation and amortization because we are
a leasing company, our business is very capital intensive and we
hold acquired assets for a period of time before they generate
revenues, cash flow and earnings; therefore, depreciation and
amortization expense is a necessary element of our business.
|
When evaluating EBITDA as a performance measure, and excluding
the above-noted charges, all of which have material limitations,
investors should consider, among other factors, the following:
|
|
|
|
|
increasing or decreasing trends in EBITDA;
|
|
|
|
how EBITDA compares to levels of debt and interest
expense; and
|
|
|
|
whether EBITDA historically has remained at positive levels.
|
Because EBITDA, as defined, excludes some but not all items that
affect our cash flow from operating activities, EBITDA may not
be comparable to a similarly titled performance measure
presented by other companies.
The table below is a reconciliation of EBITDA to net cash
provided by operating activities for the periods ended March 31:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
EBITDA
|
|
$
|
31,731
|
|
|
$
|
29,460
|
|
Interest paid
|
|
|
(7,976
|
)
|
|
|
(3,278
|
)
|
Income and franchise taxes paid
|
|
|
(115
|
)
|
|
|
(102
|
)
|
Share-based compensation expense
|
|
|
940
|
|
|
|
988
|
|
Gain on sale of lease fleet units
|
|
|
(1,294
|
)
|
|
|
(1,491
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
9
|
|
|
|
29
|
|
Changes in certain assets and liabilities, net of effect of
business acquired:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
2,266
|
|
|
|
2,633
|
|
Inventories
|
|
|
(4,005
|
)
|
|
|
(503
|
)
|
Deposits and prepaid expenses
|
|
|
(673
|
)
|
|
|
543
|
|
Other assets and intangibles
|
|
|
(3
|
)
|
|
|
(4,331
|
)
|
Accounts payable and accrued liabilities
|
|
|
(182
|
)
|
|
|
(3,018
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
20,698
|
|
|
$
|
20,930
|
|
|
|
|
|
|
|
|
|
|
D-16
EBITDA is calculated as follows, without further adjustment, for
the periods ended March 31:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands except percentages)
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Interest expense
|
|
|
5,953
|
|
|
|
6,145
|
|
Provision for income taxes
|
|
|
8,190
|
|
|
|
6,988
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
5,669
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
31,731
|
|
|
$
|
29,460
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin(1)
|
|
|
43.5
|
%
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA margin is calculated as EBITDA divided by total revenues
expressed as a percentage. |
In managing our business, we routinely compare our EBITDA
margins from year to year and based upon age of branch. We
define this margin as EBITDA divided by our total revenues,
expressed as a percentage. We use this comparison, for example,
to study internally the effect that increased costs have on our
margins. As capital is invested in our established branch
locations, we achieve higher EBITDA margins on that capital than
we achieve on capital invested to establish a new branch,
because our fixed costs are already in place in connection with
the established branches. The fixed costs are those associated
with yard and delivery equipment, as well as advertising, sales,
marketing and office expenses. With a new market or branch, we
must first fund and absorb the startup costs for setting up the
new branch facility, hiring and developing the management and
sales team and developing our marketing and advertising
programs. A new branch will have low EBITDA margins in its early
years until the number of units on rent increases. Because of
our high operating margins on incremental lease revenue, which
we realize on a
branch-by-branch
basis when the branch achieves leasing revenues sufficient to
cover the branchs fixed costs, leasing revenues in excess
of the break-even amount produce large increases in
profitability. Conversely, absent significant growth in leasing
revenues, the EBITDA margin at a branch will remain relatively
flat on a
period-by-period
comparative basis.
Accounting
and Operating Overview
Our leasing revenues include all rent and ancillary revenues we
receive for our portable storage, combination storage/office and
mobile office units. Our sales revenues include sales of these
units to customers. Our other revenues consist principally of
charges for the delivery of the units we sell. Our principal
operating expenses are (1) cost of sales; (2) leasing,
selling and general expenses; and (3) depreciation and
amortization, primarily depreciation of the portable storage
units and portable offices in our lease fleet. Cost of sales is
the cost of the units that we sold during the reported period
and includes both our cost to buy, transport, refurbish and
modify used ocean-going containers and our cost to manufacture
portable storage units and other structures. Leasing, selling
and general expenses include among other expenses, advertising
and other marketing expenses, real property lease expenses,
commissions, repair and maintenance costs of our lease fleet and
transportation equipment and corporate expenses for both our
leasing and sales activities. Annual repair and maintenance
expenses on our leased units over the last three fiscal years
have averaged approximately 4.3% of lease revenues and are
included in leasing, selling and general expenses. We expense
our normal repair and maintenance costs as incurred (including
the cost of periodically repainting units).
Our principal asset is our lease fleet, which has historically
maintained value close to its original cost. The steel units in
our lease fleet (other than van trailers) are depreciated on the
straight-line method over our units estimated useful life
of 25 years after the date the unit is placed in service,
with an estimated residual value of 62.5%. The depreciation
policy is supported by our historical lease fleet data which
shows that we have been able to obtain comparable rental rates
and sales prices irrespective of the age of our container lease
fleet. Our wood mobile office units are depreciated over
20 years to 50% of original cost. Van trailers, which
constitute a small part of our fleet, are depreciated over seven
years to a 20% residual value.
D-17
The table below summarizes those transactions that increased the
net value of our lease fleet from $802.9 million at
December 31, 2007, to $815.6 million at March 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Units
|
|
|
|
(In thousands)
|
|
|
|
|
|
Lease fleet at December 31, 2007, net
|
|
$
|
802,923
|
|
|
|
160,116
|
|
Purchases:
|
|
|
|
|
|
|
|
|
Container purchases
|
|
|
3,516
|
|
|
|
735
|
|
Manufactured units:
|
|
|
|
|
|
|
|
|
Steel storage containers, combination office units and steel
security offices
|
|
|
8,481
|
|
|
|
613
|
|
Wood mobile offices
|
|
|
4,545
|
|
|
|
151
|
|
Refurbishment and customization(3):
|
|
|
|
|
|
|
|
|
Refurbishment or customization of units purchased or acquired in
the current year
|
|
|
595
|
|
|
|
187
|
(1)
|
Refurbishment or customization of 1,121 units purchased in
a prior year
|
|
|
2,784
|
|
|
|
240
|
(2)
|
Refurbishment or customization of 178 units obtained
through acquisition in a prior year
|
|
|
444
|
|
|
|
53
|
(3)
|
Other
|
|
|
(1,307
|
)
|
|
|
(175
|
)
|
Cost of sales from lease fleet
|
|
|
(2,925
|
)
|
|
|
(1,003
|
)
|
Depreciation
|
|
|
(3,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease fleet at March 31, 2008, net
|
|
$
|
815,599
|
|
|
|
160,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These units represent the net additional units that were the
result of splitting steel containers into one or more shorter
units, such as splitting a 40-foot container into two 20-foot
units, or one 25-foot unit and one 15-foot unit. |
|
(2) |
|
Includes units moved from finished goods to lease fleet. |
|
(3) |
|
Does not include any routine maintenance. |
The table below outlines the composition of our lease fleet at
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Lease Fleet
|
|
|
Units
|
|
|
|
(In thousands)
|
|
|
|
|
|
Steel storage containers
|
|
$
|
463,163
|
|
|
|
131,467
|
|
Offices
|
|
|
415,577
|
|
|
|
27,695
|
|
Van trailers
|
|
|
1,885
|
|
|
|
1,755
|
|
Other
|
|
|
1,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
881,727
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(66,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
815,599
|
|
|
|
160,917
|
|
|
|
|
|
|
|
|
|
|
Our most recent fair market value and orderly liquidation value
appraisals were conducted in December 2007. At March 31,
2008, based on these appraisal values, the fair market value of
our lease fleet was approximately 113.7% of our lease fleet net
book value, and the orderly liquidation value appraisal, on
which our borrowings under our revolving credit facility are
based, was approximately $665.0 million, which equates to
81.5% of the lease fleet net book value. These are an
independent third-party appraisers estimation of value
under two sets of assumptions, and there is no certainty that
such values could in fact be achieved if any assumption were to
prove incorrect at the time of an actual sale or liquidation.
D-18
Our expansion program and other factors can affect our overall
lease fleet asset utilization rate. During the last five fiscal
years, our annual utilization levels averaged 80.8%, and ranged
from a low of 78.7% in 2003 to a high of 82.9% in 2005. Our
utilization is somewhat seasonal, with the low realized in the
first quarter and the high realized in the fourth quarter.
RESULTS
OF OPERATIONS
Three
Months Ended March 31, 2008, Compared to
Three Months Ended March 31, 2007
Total revenues for the quarter ended March 31, 2008,
increased by $5.5 million, or 7.6%, to $78.5 million
from $73.0 million for the same period in 2007. Leasing
revenues for the quarter increased by $4.0 million, or
6.0%, to $70.0 million from $66.0 million for the same
period in 2007. This increase resulted from a 3.5% increase in
the average rental yield per unit, a 2.2% increase in the
average number of units on lease and a 0.3% increase due to
exchange rates as compared to the 2007 first quarter. The
increase in yield resulted from an increase in average rental
rates in North America over the last year. An increase in the
mix of premium units having higher rental rates being added to
our fleet was offset by an increase in the portion of our
business conducted in Europe, where units are smaller and rates
are lower. Our sales of portable storage and office units for
the three months ended March 31, 2008, increased by 21.7%
to $8.1 million from $6.7 million during the same
period in 2007, with the increase primarily related to sales at
our locations in the United States where more customized units
were sold during the quarter. As a percentage of total revenues,
leasing revenues for the quarter ended March 31, 2008,
represented 89.2% as compared to 90.5% for the same period in
2007. Our leasing business continues to be our primary focus and
leasing revenues have been the predominant part of our revenue
mix for several years. We expect slower growth in sales revenues
versus lease revenues as we continue to transform our acquired
European branches to our leasing business model.
Cost of sales are the costs related to our sales revenues only.
Cost of sales for the quarter ended March 31, 2008,
increased to 69.6% of sales revenues from 67.0% of sales
revenues in the same period in 2007. This increase was partially
due to the sale of custom units and units sold from prior
acquisitions at lower than typical margins. For both periods,
our gross margin remained relatively high at 30.4% and 33.0% for
the 2008 and 2007 quarters, respectively.
Leasing, selling and general expenses increased
$6.6 million, or 18.0%, to $43.4 million for the
quarter ended March 31, 2008, from $36.8 million for
the same period in 2007. Leasing, selling and general expenses,
as a percentage of total revenues, increased to 55.3% for the
quarter ended March 31, 2008, from 50.4% for the same
period in 2007. As the markets we entered in the past few years
continue to mature and as their revenues increase to cover our
fixed expenses at those locations, those markets will begin to
contribute to higher margins on incremental lease revenues. Each
additional unit on lease in excess of the break-even level
contributes significantly to profitability. The major increases
in leasing, selling and general expenses for the quarter ended
March 31, 2008, were primarily fixed costs for payroll and
related expenses to support our leasing activities, delivery and
freight costs, including fuel. Between the first and third
quarters of 2007, we increased staffing levels at our European
branches, increased advertising, secured additional
transportation equipment and completed the move to our own
rental locations. These expense increases are in part
responsible for the increase in leasing, selling and general
expenses during the three months ended March 31, 2008 as
compared with the prior year period. In addition, results for
the three months ended March 31, 2007 had benefited from
lower professional fees and bad debt expenses. These expenses
increased by $1.0 million during the three months ended
March 31, 2008. In addition, during the three months ended
March 31, 2008, we incurred $0.7 million of additional
expenses related to picking up containers due to higher fuel
costs.
EBITDA decreased by $2.2 million, or 7.2%, to
$29.5 million for the quarter ended March 31, 2008,
compared to $31.7 million for the same period in 2007.
Depreciation and amortization expenses increased
$0.8 million, or 15.9%, to $5.7 million in the quarter
ended March 31, 2008, from $4.9 million during the
same period in 2007. The increase is primarily due to the growth
in lease fleet and related delivery equipment over the last year
in order to meet increased demand and
D-19
market expansion. Since March 31, 2007, our lease fleet
cost basis for depreciation increased by approximately
$107.1 million.
Interest expense increased $0.1 million, or 3.2%, to
$6.1 million for the quarter ended March 31, 2008 as
compared to $6.0 million for the same period in 2007. Our
average debt outstanding for the three months ended
March 31, 2008, compared to the same period in 2007,
increased by 23.0%. Our average borrowing rate decreased during
the first quarter of 2008 from the prior year level in part
because of the lower LIBOR rates in effect during the 2008
period and in part due to the redemption of certain higher
interest rate fixed debt and issuance of our 6.875% notes
in May 2007. The weighted average interest rate on our debt for
the three months ended March 31, 2008 was 6.1% compared to
7.3% for the three months ended March 31, 2007, excluding
amortization of debt issuance costs. Taking into account the
amortization of debt issuance costs, the weighted average
interest rate was 6.4% in the 2008 quarter and 7.6% in the 2007
quarter.
Provision for income taxes was based on our annual effective tax
rate of approximately 39.6% in the quarter ended March 31,
2008, as compared to 39.2% during the same period in 2007. Our
consolidated tax provision includes the expected tax rates for
our operations in the United States, Canada, United Kingdom and
The Netherlands.
Net income for the three months ended March 31, 2008, was
$10.7 million compared to net income of $12.7 million
for the same period in 2007. Our 2008 first quarter net income
results were primarily achieved through our 7.6% increase in
revenues and the operating leverage associated with this growth,
offset with increases in fixed costs and other variable cost
increases associated with leasing.
LIQUIDITY
AND CAPITAL RESOURCES
Over the past several years, we have financed an increasing
portion of our capital needs, most of which are discretionary
and are used principally to acquire additional units for the
lease fleet, through working capital and funds generated from
operations. Leasing is a capital-intensive business that
requires us to acquire assets before they generate revenues,
cash flow and earnings. The assets which we lease have very long
useful lives and require relatively little recurrent maintenance
expenditures. Most of the capital we deploy into our leasing
business has been used to expand our operations geographically,
to increase the number of units available for lease at our
leasing locations, and to add to the mix of products we offer.
During recent years, our operations have generated annual cash
flow that exceeds our pre-tax earnings, particularly due to the
deferral of income taxes caused by accelerated depreciation that
is used for tax accounting.
During the past three years, our capital expenditures and
acquisitions have been funded by our operating cash flow, a
public offering of shares of our common stock in March 2006, our
May 2007 offering of Senior Notes and through borrowings under
our revolving credit facility. Our operating cash flow is, in
general, weakest during the first quarter of each fiscal year,
when customers who leased containers for holiday storage return
the units. In addition to cash flow generated by operations, our
principal current source of liquidity is our revolving credit
facility.
During the three months ended March 31, 2008, we cut back
significantly on our capital expenditures and were able to fund
the growth of our lease fleet and fixed assets with cash
provided by operating activities. As of May 5, 2008,
borrowings outstanding under our credit facility were
approximately $237.3 million, as compared to
$237.4 million at March 31, 2008 and
$237.9 million at December 31, 2007.
Operating Activities. Our operations provided
net cash flow of $20.9 million for the three months ended
March 31, 2008, compared to $20.7 million during the
same period in 2007. The $0.2 million increase in cash
generated by operations in 2008 includes a $2.0 million
decrease in net income and a corresponding $1.1 million
decrease of deferred income taxes. In both years, cash generated
by operations benefited from a decrease in receivables. In 2008,
net cash provided by operating activities was negatively
impacted by an increase in other assets and intangibles of
$4.3 million, primarily for costs related to our pending
merger, and a decrease in accounts payable of $3.4 million,
which were partially offset with an increase in accrued
liabilities of $2.9 million. In 2007, net cash provided by
operating activities was negatively impacted by an increase in
inventory levels of $4.0 million and a decrease in accrued
liabilities of $2.2 million
D-20
Investing Activities. Net cash used in
investing activities was $16.5 million for the three months
ended March 31, 2008, compared to $34.5 million for
the same period in 2007. Capital expenditures for acquisition of
businesses were $2.4 million for the three months ended
March 31, 2007. Capital expenditures for our lease fleet,
net of proceeds from sale of lease fleet units, were
$14.8 million for the three months ended March 31,
2008, compared to $23.8 million for the same period in
2007. The capital expenditures for our lease fleet are primarily
due to demand for certain of our products, requiring us to
purchase and refurbish more containers and offices with the
growth of our business. During the past several years, we have
increased the customization of our fleet, enabling us to
differentiate our product from our competitors product.
Capital expenditures for property, plant and equipment, net of
proceeds from sales of property, plant and equipment, were
$1.7 million for the three months ended March 31, 2008
compared to the $8.3 million for the same period in 2007.
The majority of the 2007 expenditures were for additions of
delivery equipment, primarily trucks, trailers and forklifts, at
our acquired locations, primarily our European branches. The
amount of cash that we use during any period in investing
activities is almost entirely within managements
discretion. We have no contracts or other arrangements pursuant
to which we are required to purchase a fixed or minimum amount
of goods or services in connection with any portion of our
business.
Financing Activities. Net cash used in
financing activities was $0.3 million during the three
months ended March 31, 2008, as compared to
$14.9 million of net cash provided by financing activities
for the same period in 2007. In 2008, we reduced our revolving
line of credit by $0.4 million along with other debt and
received $0.5 million from exercises of employee stock
options. During the three months ended March 31, 2007, we
increased borrowings under our revolving credit facility by
$15.2 million which were used, together with cash flow
generated from operations, to fund expansion of the lease fleet
and purchase of delivery equipment.
The interest rate under our $425.0 million revolving credit
facility is based on our ratio of funded debt to earnings before
interest expenses, taxes, depreciation and amortization, debt
restructuring and extinguishment expenses, as defined, and any
extraordinary gains or non-cash extraordinary losses. The
borrowing rate under the credit facility at December 31,
2007 was LIBOR plus 1.25% per annum or the prime rate less 0.25%
per annum, whichever we elect. The interest rate spread from
LIBOR and prime rate can change based on our debt ratio measured
at the end of each quarter, as defined in our credit agreement.
The interest rate spread, based on our March 31, 2008
quarterly results remained unchanged.
We have interest rate swap agreements under which we effectively
fixed the interest rate payable on $75.0 million of
borrowings under our credit facility so that the rate is based
upon a spread from a fixed rate, rather than a spread from the
LIBOR rate. We account for the swap agreements in accordance
with SFAS No. 133 which resulted in a charge to
comprehensive income for the three months ended March 31,
2008, of $1.5 million, net of applicable income tax benefit
of $0.9 million.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
Our contractual obligations primarily consist of our outstanding
balance under our revolving credit facility and our unsecured
Senior Notes, together with other unsecured notes payable
obligations. We also have operating lease commitments for:
1) real estate properties for the majority of our branches,
2) delivery, transportation and yard equipment, typically
under a five-year lease with purchase options at the end of the
lease term at a stated or fair market value price; and
3) other equipment, primarily office machines.
In connection with the issuance of our insurance policies, we
have provided our various insurance carriers approximately
$3.3 million in letters of credit and an agreement under
which we are contingently responsible for $2.9 million to
provide credit support for our payment of the deductibles
and/or loss
limitation reimbursements under the insurance policies.
We currently do not have any obligations under purchase
agreements or commitments. Historically, we enter into
capitalized lease obligations from time to time to purchase
delivery, transportation and yard equipment. Currently, we have
small capital lease commitments related to office equipment.
D-21
OFF-BALANCE
SHEET TRANSACTIONS
We do not maintain any off-balance sheet transactions,
arrangements, obligations or other relationships with
unconsolidated entities or others that are reasonably likely to
have a material current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or
capital resources.
SEASONALITY
Demand from some of our customers is somewhat seasonal. Demand
for leases of our portable storage units by large retailers is
stronger from September through December because these retailers
need to store more inventories for the holiday season. Our
retail customers usually return these leased units to us early
in the following year. This causes lower utilization rates for
our lease fleet and a marginal decrease in cash flow during the
first quarter of the year. Over the last few years, we have
reduced the percentage of our units we reserve for this seasonal
business from the levels we allocated in earlier years,
decreasing our seasonality.
EFFECTS
OF INFLATION
Our results of operations for the periods discussed in this
report have not been significantly affected by inflation.
CRITICAL
ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The following discussion addresses our most critical accounting
policies, some of which require significant judgment.
Our consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses during the reporting period. These estimates and
assumptions are based upon our evaluation of historical results
and anticipated future events, and these estimates may change as
additional information becomes available. The Securities and
Exchange Commission defines critical accounting policies as
those that are, in managements view, most important to our
financial condition and results of operations and those that
require significant judgments and estimates. Management believes
our most critical accounting policies relate to:
Revenue Recognition. Lease and leasing
ancillary revenues and related expenses generated under portable
storage units and office units are recognized on a straight-line
basis. Revenues and expenses from portable storage unit delivery
and hauling are recognized when these services are earned, in
accordance with SAB No. 104. We recognize revenues
from sales of containers and mobile office units upon delivery
when the risk of loss passes, the price is fixed and
determinable and collectibility is reasonably assured. We sell
our products pursuant to sales contracts stating the fixed sales
price with our customers.
Share-Based Compensation. SFAS 123(R)
requires companies to recognize the fair-value of stock-based
compensation transactions in the statement of income. The fair
value of our stock-based awards is estimated at the date of
grant using the Black-Scholes option pricing model. The
Black-Scholes valuation calculation requires us to estimate key
assumptions such as future stock price volatility, expected
terms, risk-free rates and dividend yield. Expected stock price
volatility is based on the historical volatility of our stock.
We use historical data to estimate option exercises and employee
terminations within the valuation model. The expected term of
options granted is derived from an analysis of historical
exercises and remaining contractual life of stock options, and
represents the period of time that options granted are expected
to be outstanding. The risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant.
We have never paid cash dividends, and do not currently intend
to pay cash dividends, and thus have assumed a 0% dividend
yield. If our actual experience differs significantly from the
assumptions used to compute our stock-based compensation cost,
or if different assumptions had been used, we may have recorded
too much or too little stock-based compensation cost. For stock
options and nonvested share awards subject solely to service
conditions, we recognize expense using the straight-line
attribution method. For nonvested share awards subject to
service
D-22
and performance conditions, we are required to assess the
probability that such performance conditions will be met. If the
likelihood of the performance condition being met is deemed
probable, we will recognize the expense using accelerated
attribution method. For performance based awards granted in 2006
and 2007, the accelerated attribution model was used to
determine the expense of these awards. In addition, for both
stock options and nonvested share awards, we are required to
estimate the expected forfeiture rate of our stock grants and
only recognize the expense for those shares expected to vest. If
the actual forfeiture rate is materially different from our
estimate, our stock-based compensation expense could be
materially different. We had approximately $4.1 million of
total unrecognized compensation costs related to stock options
at March 31, 2008 that are expected to be recognized over a
weight-average period of 1.7 years. See Note E to the
Condensed Consolidated Financial Statements for a further
discussion on stock-based compensation.
Allowance for Doubtful Accounts. We maintain
allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.
We establish and maintain reserves against estimated losses
based upon historical loss experience and evaluation of past-due
accounts agings. Management reviews the level of allowances for
doubtful accounts on a regular basis and adjusts the level of
the allowances as needed.
If we were to increase the factors used for our reserve
estimates by 25%, it would have the following approximate effect
on our net income and diluted earnings per share as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
As Reported:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Diluted earnings per share
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
As adjusted for change in estimates:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,599
|
|
|
$
|
10,572
|
|
Diluted earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.31
|
|
If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.
Impairment of Goodwill. We assess the
impairment of goodwill and other identifiable intangibles on an
annual basis or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Some
factors we consider important which could trigger an impairment
review include the following:
|
|
|
|
|
Significant under-performance relative to historical, expected
or projected future operating results;
|
|
|
|
Significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
|
|
|
|
Our market capitalization relative to net book value; and
|
|
|
|
Significant negative industry or general economic trends.
|
Pursuant to SFAS No. 142, Goodwill and Other
Intangible Assets, we operate on one reportable segment,
which is comprised of three reporting units. We perform an
annual impairment test on goodwill using the two-step process
prescribed in SFAS No. 142. The first step is a screen
for potential impairment, while the second step measures the
amount of the impairment, if any. In addition, we will perform
impairment tests during any reporting period in which events or
changes in circumstances indicate that an impairment may have
incurred. We performed the required impairment tests for
goodwill as of December 31, 2007 and determined that
goodwill is not impaired and it is not necessary to record any
impairment losses related to goodwill. We will continue to
perform this test in the future as required by
SFAS No. 142.
D-23
Impairment Long-Lived Assets. We review
property, plant and equipment and intangibles with finite lives
(those assets resulting from acquisitions) for impairment when
events or circumstances indicate these assets might be impaired.
We test impairment using historical cash flows and other
relevant facts and circumstances as the primary basis for its
estimates of future cash flows. This process requires the use of
estimates and assumptions, which are subject to a high degree of
judgment. If these assumptions change in the future, whether due
to new information or other factors, we may be required to
record impairment charges for these assets.
Depreciation Policy. Our depreciation policy
for our lease fleet uses the straight-line method over our
units estimated useful life, after the date that we put
the unit in service. Our steel units are depreciated over
25 years with an estimated residual value of 62.5%. Wood
offices units are depreciated over 20 years with an
estimated residual value of 50%. Van trailers, which are a small
part of our fleet, are depreciated over seven years to a 20%
residual value. Van trailers are only added to the fleet as a
result of acquisitions of portable storage businesses.
We periodically review our depreciation policy against various
factors, including the results of our lenders independent
appraisal of our lease fleet, practices of the larger
competitors in our industry, profit margins we are achieving on
sales of depreciated units and lease rates we obtain on older
units. If we were to change our depreciation policy on our steel
units from 62.5% residual value and a
25-year life
to a lower or higher residual and a shorter or longer useful
life, such change could have a positive, negative or neutral
effect on our earnings, with the actual effect being determined
by the change. For example, a change in our estimates used in
our residual values and useful life would have the following
approximate effect on our net income and diluted earnings per
share as reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
Three Months Ended
|
|
|
|
Salvage
|
|
|
Life In
|
|
|
March 31,
|
|
|
|
Value
|
|
|
Years
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(In thousands except per share data)
|
|
|
As Reported:
|
|
|
62.5
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
As adjusted for change in estimates:
|
|
|
70
|
%
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
As adjusted for change in estimates:
|
|
|
50
|
%
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
11,814
|
|
|
$
|
9,664
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.32
|
|
|
$
|
0.28
|
|
As adjusted for change in estimates:
|
|
|
40
|
%
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
12,697
|
|
|
$
|
10,658
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.31
|
|
As adjusted for change in estimates:
|
|
|
30
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
11,549
|
|
|
$
|
9,366
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.32
|
|
|
$
|
0.27
|
|
As adjusted for change in estimates:
|
|
|
25
|
%
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
11,372
|
|
|
$
|
9,167
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.31
|
|
|
$
|
0.27
|
|
Insurance Reserves. Our workers
compensation, auto and general liability insurance are purchased
under large deductible programs. Our current per incident
deductibles are: workers compensation $250,000, auto
$250,000 and general liability $100,000. We provide for the
estimated expense relating to the deductible portion of the
individual claims. However, we generally do not know the full
amount of our exposure to a deductible in connection with any
particular claim during the fiscal period in which the claim is
incurred and
D-24
for which we must make an accrual for the deductible expense. We
make these accruals based on a combination of the claims
development experience of our staff and our insurance companies,
and, at year end, the accrual is reviewed and adjusted, in part,
based on an independent actuarial review of historical loss data
and using certain actuarial assumptions followed in the
insurance industry. A high degree of judgment is required in
developing these estimates of amounts to be accrued, as well as
in connection with the underlying assumptions. In addition, our
assumptions will change as our loss experience is developed. All
of these factors have the potential for significantly impacting
the amounts we have previously reserved in respect of
anticipated deductible expenses, and we may be required in the
future to increase or decrease amounts previously accrued.
Our health benefit programs are considered to be self insured
products, however, we buy excess insurance coverage that limits
our medical liability exposure. Additionally, our medical
program includes a total aggregate claim exposure and we are
currently accruing and reserving to the total projected losses.
Contingencies. We are a party to various
claims and litigations in the normal course of business. We do
not anticipate that the resolution of such matters, known at
this time, will have a material adverse effect on our business
or consolidate financial position.
Deferred Taxes. In preparing our consolidated
financial statements, we recognize income taxes in each of the
jurisdictions in which we operate. For each jurisdiction, we
estimate the actual amount of taxes currently payable or
receivable as well as deferred tax assets and liabilities
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
A valuation allowance is provided for those deferred tax assets
for which it is more likely than not that the related benefits
will not be realized. In determining the amount of the valuation
allowance, we consider estimated future taxable income as well
as feasible tax planning strategies in each jurisdiction. If we
determine that we will not realize all or a portion of our
deferred tax assets, we will increase our valuation allowance
with a charge to income tax expense or offset goodwill if the
deferred tax asset was acquired in a business combination.
Conversely, if we determine that we will ultimately be able to
realize all or a portion of the related benefits for which a
valuation allowance has been provided, all or a portion of the
related valuation allowance will be reduced with a credit to
income tax expense except if the valuation allowance was created
in conjunction with a tax asset in a business combination. We
adopted FASB Interpretation 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109, effective January 1, 2007.
There have been no other significant changes in our critical
accounting policies, estimates and judgments during the three
month period ended March 31, 2008.
RECENT
ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurement
(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007 and interim periods within those
fiscal years. We adopted SFAS No. 157 on
January 1, 2008, with no effect on our consolidated
financial statements.
On February 15, 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159).
Under SFAS No. 159, we may elect to report financial
instruments and certain other items at fair value on a
contract-by-contract
basis with changes in value reported in earnings. This election
is irrevocable. SFAS No. 159 provides an opportunity
to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously
required to use a different
D-25
accounting method than the related hedging contracts when the
complex provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, applicable to
hedge accounting are not met. The Company adopted
SFAS No. 159 on January 1, 2008. The Company
chose not to elect the fair value option for its financial
assets and liabilities existing at January 1, 2008 and did
not elect the fair value option on financial assets and
liabilities transacted in the three months ended March 31,
2008. Therefore, the adoption of SFAS No. 159 had no
impact on the Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R) which establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill
acquired in a business combination. Certain forms of contingent
consideration and certain acquired contingencies will be
recorded at fair value at the acquisition date.
SFAS No. 141R also states acquisition costs will
generally be expensed as incurred and restructuring costs will
be expensed in periods after the acquisition date. We will apply
SFAB No. 141R prospectively to business combinations with
an acquisition date on or after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 amends
Accounting Research Bulletin ARB No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 becomes effective beginning
January 1, 2009. Presently, there are no non-controlling
interests in any of the Companys consolidated
subsidiaries, therefore, we do not expect the adoption of
SFAS No. 160 to have a significant impact on our
results of operations or financial condition.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
data about the fair value of and gains and losses on derivative
contracts and details of credit-risk-related contingent features
in hedged positions. The statement also requires enhanced
disclosures regarding how and why entities use derivative
instruments, how derivative instruments and related hedged items
are accounted and how derivative instruments and related hedged
items affect entities financial position, financial
performance and cash flows. SFAS No. 161 is effective
for fiscal years beginning after November 15, 2008. We do
not expect the adoption of SAFS No. 161 will have a
material effect on our results of operations or financial
position.
SAFE
HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
This section as well as other sections of this report contains
forward-looking information about our financial results and
estimates and our business prospects that involve substantial
risks and uncertainties. From time to time, we also may provide
oral or written forward-looking statements in other materials we
release to the public. Forward-looking statements are
expressions of our current expectations or forecasts of future
events. You can identify these statements buy the fact that they
do not relate strictly to historic or current facts. They
include words such as anticipate,
estimate, expect, project,
intend, plan, believe,
will, and other words and terms of similar meaning
in connection with any discussion of future operating or
financial performance. In particular, these include statements
relating to future actions, synergies and other expected results
relating to our pending merger with Mobile Storage Group, future
performance or results, expenses, the outcome of contingencies,
such as legal proceedings and financial results. Among the
factors that could cause actual results to differ materially are
the following:
|
|
|
|
|
economic slowdown that affects any significant portion of our
customer base, including economic slowdown in areas of limited
geographic scope if markets in which we have significant
operations are impacted by such slowdown
|
|
|
|
our ability to timely and efficiently integrate the new branches
and employees that we will acquire as a result of our pending
merger and business combination with Mobile Storage Group
|
D-26
|
|
|
|
|
our ability to manage our planned growth, both internally and at
new branches
|
|
|
|
our European expansion may divert our resources from other
aspects of our business
|
|
|
|
our ability to obtain additional debt or equity financing on
acceptable terms
|
|
|
|
changes in the supply and price of used ocean-going containers
|
|
|
|
changes in the supply and cost of the raw materials we use in
manufacturing storage units, including steel
|
|
|
|
competitive developments affecting our industry, including
pricing pressures in newer markets
|
|
|
|
the timing and number of new branches that we open or acquire
|
|
|
|
our ability to protect our patents and other intellectual
property
|
|
|
|
interest rate fluctuations
|
|
|
|
governmental laws and regulations affecting domestic and foreign
operations, including tax obligations
|
|
|
|
changes in generally accepted accounting principles
|
|
|
|
any changes in business, political and economic conditions due
to the threat of future terrorist activity in the U.S. and
other parts of the world and related U.S. military action
overseas
|
|
|
|
increases in costs and expenses, including cost of raw materials
and employment costs
|
We cannot guarantee that any forward-looking statement will be
realized, although we believe we have been prudent in our plans
and assumptions. Achievement of future results is subject to
risks, uncertainties and inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary
materially from past results and those anticipated, estimated or
projected. Investors should bear this in mind as they consider
forward-looking statements. We undertake no obligation to
publicly update forward-looking statements, whether as a result
of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related
subjects in our
Form 10-Q,
8-K and
10-K reports
to the Securities and Exchange Commission. Our
Form 10-K
filing for the fiscal year ended December 31, 2007, listed
various important factors that could cause actual results to
differ materially from expected and historic results. We note
these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. Readers can find them
in Item 1A of that filing under the heading Risk
Factors. You may obtain a copy of our
Form 10-K
by requesting it from the Companys Investor Relations
Department at
(480) 894-6311
or by mail to Mobile Mini, Inc., 7420 S. Kyrene Rd.,
Suite 101, Tempe, Arizona 85283. Our filings with the SEC,
including the
Form 10-K,
may be accessed through Mobile Minis website at
www.mobilemini.com, and at the SECs website at
http:/www.sec.gov. Material on our website is not incorporated
in this report, except by express incorporation by reference
herein.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Swap Agreement. We seek to
reduce earnings and cash flow volatility associated with changes
in interest rates through a financial arrangement intended to
provide a hedge against a portion of the risks associated with
such volatility. We continue to have exposure to such risks to
the extent they are not hedged.
Interest rate swap agreements are the only instruments we use to
manage interest rate fluctuations affecting our variable rate
debt. At March 31, 2008, we had interest rate swap
agreements under which we pay a fixed rate and receive a
variable interest rate on $75.0 million of debt. For the
three months ended March 31, 2008, in accordance with
SFAS No. 133, comprehensive income included a
$1.5 million charge, net of applicable income tax benefit
of $0.9 million, related to the fair value of our interest
rate swap agreements.
Impact of Foreign Currency Rate Changes. We
currently have branch operations outside the United States and
we bill those customers primarily in their local currency which
is subject to foreign currency rate changes. Our operations in
Canada are billed in the Canadian Dollar, operations in the
United Kingdom are
D-27
billed in Pound Sterling and operations in The Netherlands are
billed in the Euro. We are exposed to foreign exchange rate
fluctuations as the financial results of our
non-United
States operations are translated into U.S. Dollars. The
impact of foreign currency rate changes has historically been
insignificant with our Canadian operations, but we have more
exposure to volatility with our European operations. In order to
help minimize our exchange rate gain and loss volatility, we
finance our European entities through our revolving line of
credit which allows us to also borrow those funds in Pound
Sterling denominated debt.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under
Rule 13a-15(e)
and
15d-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that
our disclosure controls and procedures, subject to the
limitations as noted below, were effective during the period and
as of the end of the period covered by this report.
Because of inherent limitations, our disclosure controls and
procedures may not prevent or detect misstatements. A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of
the controls system are met. Because of the inherent limitations
in all controls systems, no evaluation of controls can provide
absolute assurance that all controls issues and instances of
fraud, if any, have been detected.
Changes
in Internal Controls.
There were no changes in our internal controls over financial
reporting that occurred during our most recent fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
D-28
PART II.
OTHER INFORMATION
Exhibits (filed herewith):
|
|
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Item 601(b)(31) of
Regulation S-K.
(Filed herewith).
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Item 601(b)(31) of
Regulation S-K.
(Filed herewith).
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to item 601(b)(32) of
Regulation S-K.
(Filed herewith).
|
D-29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MOBILE MINI, INC.
|
|
|
|
|
/s/ Lawrence
Trachtenberg
|
Lawrence Trachtenberg
Chief Financial Officer &
Executive Vice President
Date: May 9, 2008
D-30
SPECIAL MEETING OF STOCKHOLDERS JUNE 26, 2008 proxy PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 26, 2008 The undersigned
appoints Steven G. Bunger and Lawrence Trachtenberg, and each of them, as proxies, each with full
power of substitution, on behalf and in the name of the undersigned, to represent the undersigned
at a special meeting of stockholders of MOBILE MINI, INC. (Mobile Mini), to be held on June 26,
2008, and at any adjournment or postponement thereof and authorizes them to vote at such meeting,
as designated on the reverse side of this form, all the shares of common stock of Mobile Mini, Inc.
held of record by the undersigned on May 19, 2008. IF NO OTHER INDICATION IS MADE ON THE REVERSE
SIDE OF THIS FORM, THE PROXIES WILL VOTE FOR ALL PROPOSALS AND, IN THEIR DISCRETION, UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. See reverse for voting instructions. |
COMPANY # There are three ways to vote your Proxy Your telephone or Internet vote
authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and
returned your proxy card. VOTE BY PHONE TOLL FREE 1-800-560-1965 QUICK #C#C#C EASY
#C#C#C IMMEDIATE Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. (CT) on June 25, 2008. Please have your proxy card and the last four
digits of your Social Security Number or Tax Identification Number available. Follow the simple
instructions the voice provides you. VOTE BY INTERNET www.eproxy.com/mini QUICK #C#C#C EASY
#C#C#C IMMEDIATE Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on June 25, 2008. Please have your proxy card and the last four digits of your
Social Security Number or Tax Identification Number available. Follow the simple instructions to
obtain your records and create an electronic ballot. VOTE BY MAIL Mark, sign and date your
proxy card and return it in the postage-paid envelope weve provided or return it to Mobile Mini,
Inc., c/o Shareowner ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873. If you vote
by Phone or Internet, please do not mail your Proxy Card Please Mark Your Votes In The Following
Manner, Using Dark Ink Only: 6 Please detach here The Board of Directors Recommends a Vote FOR
Proposals 1, 2, 3, 4, 5 and 6. 1. Approval of the Merger Agreement and the Merger For
Against Abstain 2. Approval of Amendment to Mobile Minis Certificate of Incorporation to
Authorize Additional For Against Abstain Shares of Preferred Stock 3. Approval of
Amendment to Mobile Minis Certificate of Incorporation to Authorize Designation of For
Against Abstain Series A Convertible Redeemable Participating Preferred Stock 4. Approval of
Issuance of Series A Convertible Redeemable Participating Preferred Stock For Against
Abstain 5. Approval of Adjournments or Postponements of the Special Meeting For Against
Abstain 6. Approval of Amendment to Mobile Minis Certificate of Incorporation to Authorize the
Board of For Against Abstain Directors of Mobile Mini to Determine Terms of Preferred
Stock At the proxies discretion on any other matters which may properly come before the meeting
or any adjournment or postponement thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH OF PROPOSALS 1, 2, 3, 4, 5 AND 6.
Address Change? Mark Box Indicate changes below: Date Signature(s) in Box
This proxy
should be dated, signed by the stockholder(s) exactly as his or her name appears herein,
and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property, both stockholders should
sign. |