Registration No. 333-34413
As filed with the Securities and Exchange Commission on October 3, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 2
to
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
mobile mini, inc.
(Exact name of Registrant as specified in its charter)
Delaware 7519 86-0748362
- ------------------------ ---------------------------- -------------------
(State of Incorporation) (Primary Standard Industrial I.R.S. Employer
Classification Code Number) Identification No.)
1834 West Third Street
Tempe, Arizona 85281
(602) 894-6311
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------
Lawrence Trachtenberg
Executive Vice President
1834 West Third Street
Tempe, Arizona 85281
(602) 894-6311
(Name, address including zip code, and telephone number,
including area code, of agent for service)
---------------
with copies to:
Joseph P. Richardson, Esq. Christopher D. Johnson, Esq.
Bryan Cave LLP Squire, Sanders & Dempsey L.L.P.
2800 North Central Avenue, 21st Floor Two Renaissance Square
Phoenix, Arizona 85004 40 North Central Avenue, Suite 2700
(602) 280-8454 Phoenix, Arizona 85004
(602) 258-4000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11 (a)(1) of this form, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_]______________________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]_________________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities To Be Amount To Be Offering Price Aggregate Offering
Registered Registered Per Unit Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one
____% Senior Subordinated Note Due $6,900,000(2)(3) 100% $6,900,000 $2,091.00*
2002 in the original principal
amount of $5,000
and 125 Redeemable Common Stock
Purchase Warrants
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per 317,370(4) $5.00(5) $1,586,850 $598.00*
share, issuable upon exercise of the
Redeemable Warrants
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</TABLE>
* This registration fee was previously paid by the Registrant upon its
initial filing of this Registration Statement.
(1) Estimated solely for the purpose of calculating the registration
fee.
(2) Includes $900,000 of principal amount of the Notes which may be
sold to cover over-allotments, if any.
(3) Includes (a) Redeemable Warrants to purchase 150,000 shares of
Common, (b) Redeemable Warrants to purchase 22,500 shares of Common Stock, which
Warrants may be issued to cover over allotments, if any, and (c) up to 144,870
which may be issued to the Underwriter.
(4) Pursuant to Rule 416, there are also being registered such
indeterminate number of additional shares of Common Stock as may be required for
issuance pursuant to the anti-dilution provisions of the Redeemable Warrants.
(5) Reflects the exercise price of a Redeemable Warrant, payment of
which entitles the holder thereof to purchase one share of Common Stock, which
exercise price is estimated solely for purposes of calculating the registration
fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine. ii
<PAGE>
mobile mini, inc.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-2 Item Number and Caption Location in Prospectus
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<S> <C> <C>
1. Forepart of the Registration Facing Page of Registration Statement; Outside Front
Statement and Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover Page
Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; Risk Factors
Factors and Ratio of Earnings to
Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover of Prospectus; Underwriting
9. Description of Securities to be Description of the Notes; Description of the Redeemable
Registered Warrants
10. Interests of Named Experts and *
Counsel
11. Information With Respect to the Risk Factors; Dividends; Selected Consolidated Financial
Registrant Information Data; Management's Discussion and Analysis
of Results of Operations and Financial Condition;
Business; Management; Description of the Notes; Description
of the Redeemable Warrants; Index to Consolidated Financial
Statements; Consolidated Financial Statements
12. Incorporation of Certain Information Incorporation of Certain Documents by Reference
by Reference
13. Disclosure of Commission *
Position on Indemnification for
Securities Act Liabilities
</TABLE>
- ----------------------
* Not applicable.
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
$6,000,000
mobile mini, inc.
___% Senior Subordinated Notes Due 2002 and
Redeemable Warrants to Purchase 150,000 Shares of Common Stock
-----------------------------
Mobile Mini, Inc. (the "Company") is hereby offering $6,000,000 in
original principal amount of its ___% Senior Subordinated Notes Due 2002 (the
"Notes") and redeemable warrants (the "Redeemable Warrants") to purchase 150,000
shares of the common stock, $.01 par value, of the Company (the "Common Stock").
The Notes and the Redeemable Warrants must be purchased together in this
Offering as a unit (a "Unit") on the basis of one Note in the original principal
amount of $5,000 and 125 Redeemable Warrants, each to purchase one share of
Common Stock at an initial exercise price of $________ per share, subject to
adjustment in certain circumstances. After issuance, the Notes and Redeemable
Warrants will trade separately. The Notes will mature on November 1, 2002,
unless previously redeemed. Interest is payable semi-annually on May 1 and
November 1 of each year, commencing May 1, 1998.
The Company has applied to The Nasdaq Stock Market to have the
Redeemable Warrants listed on the Nasdaq SmallCap Market under the symbol
"____". The Common Stock is traded on the Nasdaq National Market under the
symbol "MINI". On August 22, 1997, the last reported sale price of the Common
Stock as reported by the Nasdaq National Market was $4.625 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time after November 1, 1999, at a price equal to the then
outstanding principal amount of the Notes redeemed plus accrued interest to the
redemption date. The Notes will constitute unsecured obligations of the Company
and will be subordinated in right of payment to all existing and future Senior
Debt (as herein defined) of the Company.
See "Risk Factors" beginning on page 10 for certain information that
should be considered by prospective investors.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Underwriting Proceeds to the
Public Discount (1) Company(2)(3)
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<S> <C> <C> <C>
Per Unit (4) $ $ $
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Total $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriter, as defined below,
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$150,000.
(3) The Company has granted to the Underwriter an option, exercisable within 45
days of the date hereof, to purchase Units comprised of up to $900,000 in
principal amount of additional Notes (together with additional Redeemable
Warrants to purchase an aggregate of up to 22,500 shares of Common Stock)
at the Price to Public less the Underwriting Discount for the purpose of
covering over-allotments, if any. If the Underwriter exercises this option
in full, the Price to Public will total $_________, the Underwriting
Discount will total $_______, and the Proceeds to the Company will total
$_________. See "Underwriting."
(4) Each consisting of a Note in the original principal amount of $5,000 and
Redeemable Warrants to purchase 125 shares of Common Stock. The Company
will allocate $_____ of the initial Unit purchase price to each Note and
$_____ to each Redeemable Warrant.
The Notes and the Redeemable Warrants are offered hereby by Peacock,
Hislop, Staley & Given, Inc. (the "Underwriter"), subject to prior sale, when,
as and if issued to and accepted by it, subject to approval of certain legal
matters by counsel for the Underwriter and certain other conditions (the
"Offering"). The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes and the Redeemable Warrants will be made at the offices of
the Underwriter in Phoenix, Arizona on or about __________________, 1997.
Peacock, Hislop, Staley & Given, Inc.
____________, 1997
<PAGE>
PROSPECTUS INSIDE FRONT COVER
Mobile Mini, Inc.
National Presence
Mobile Mini currently markets its products through eight company branch
locations and 51 dealers located throughout the United States and Canada. Each
branch and dealer location sells, rents and lease storage containers and custom
structures to a diverse market.
[map of the U.S. depicting branch, dealer and manufacturing plant locations]
[photograph depicting multiple containers installed at customer location]
Sales and Leasing
Mobile Mini's storage units are a highly effective alternative for fixed- and
mini-storage users in terms of both security and access. The Company also
selectively manufacturers and sells versatile and innovatively designed steel
and concrete communications shelters and cabinets based on its proprietary
manufacturing techniques.
Manufacturing Plant
Mobile Mini's Maricopa manufacturing plant currently spans 44.8 acres. With 400
full-time employees and 130,000 square feet of manufacturing buildings, this
facility is the center of product design, manufacturing, assembly and research
and development, purchasing over 20 million pounds of steel each year.
[aerial photograph of the Company's manufacturing plant]
- --------------------------------------------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OR THE WARRANTS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE NOTES AND WARRANTS ON NASDAQ IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
contained in this Prospectus to which reference is made for a complete statement
of matters discussed below. Unless otherwise indicated, all financial and share
information set forth in this Prospectus assumes (i) no issuance of an aggregate
of 823,750 shares of Common Stock reserved for issuance pursuant to outstanding
options and warrants (other than the IPO Warrants as defined herein), (ii) no
exercise of the outstanding warrants to purchase an aggregate of 1,067,500
shares of Common Stock issued in connection with the Company's 1994 initial
public offering (the "IPO Warrants"), and (iii) that the Underwriter's
over-allotment option will not be exercised. All references to fiscal years
refer to the fiscal year of the Company ending December 31. Unless the context
otherwise requires, all references in this Prospectus to the "Company" refer to
Mobile Mini, Inc. and its subsidiaries.
The Company
Established in 1983, Mobile Mini, Inc., a Delaware corporation
headquartered in Phoenix, Arizona, leases and sells portable steel storage
containers and telecommunication shelters. The Company manufactures its own
steel storage containers and acquires, refurbishes, and modifies used
ocean-going shipping containers for use as inland portable storage units.
Operating income for the fiscal year ended December 31, 1996 was $4.5 million
and $3.5 million for the six months ended June 30, 1997.
The Company sells and leases its products to a wide variety of
individual, business and governmental users. Clients include retail and
wholesale distributors such as Sears(R), K-Mart(R) and Wal-Mart(R); and
institutional customers such as Motorola(R), CellularOne(R) and Southwestern
Bell(R) Communications.
The Company's lease activities include both on-site and off-site
leasing. "Off-site" leasing occurs when the Company leases a portable storage
container which is then located at the customer's place of use. "On-site"
leasing occurs when the Company stores the portable container containing the
customer's goods at one of the Company's facilities, which are similar to a
standard mini-storage facility, but with increased security, ease of access and
container delivery and pick-up service. For the six months ended June 30, 1997,
on-site and off-site leasing represented 51% of the Company's revenues with
approximately 13,000 units under lease.
The Company pioneered the use of ocean-going shipping containers for
domestic storage. Since 1993, the Company has expanded its operations and now
directly serves eight markets in three southwestern states. During that period,
the Company's lease fleet has grown by 282%. Although other companies have
followed the Company's lead in developing the domestic market for used ocean
going containers, the Company believes that it remains the nation's leading
lessor of these containers. Through its innovative marketing program, the
Company has expanded the demand for its products in each market it has entered,
and continues to grow those markets, with same store leasing activities
increasing by 28% during the twelve months ended June 30, 1997. The Company
intends to continue to grow its existing markets and to expand into additional
cities where it believes it can establish substantial market share.
The Company also markets its storage products on a national basis
through its national dealer network, which at August 1, 1997 provided the
Company's manufactured containers to 51 dealers for retail sale and lease. Such
dealers are in 78 separate locations in 30 states and one Canadian province.
Marketing to dealers and potential dealers is primarily through direct
solicitation, trade shows, trade magazine advertising and referrals.
To complement its storage container business, diversify its product
line and target the domestic and international markets, Mobile Mini established
a telecommunication shelter division in mid-1995. The Company's modular
telecommunication shelters, marketed under the name "Mobile Telestructures," can
be built in a variety of designs, sizes, strengths, exterior appearances and
configurations. The Company markets its Mobile Telestructure products directly
to telecommunication companies as well as to companies providing turn-key
installations of shelters and towers. For the six months ended June 30, 1997,
Mobile Telestructure represented approximately 5% of the Company's revenues.
3
<PAGE>
In March 1996, the Company refinanced its business, repaying the
majority of its indebtedness and entering into a credit agreement which provided
a $35.0 million line of credit and a $6.0 million term loan (as amended,
restated or otherwise modified from time to time, and including any
restatements, renewals, refundings or refinancings thereof, the "Senior Credit
Agreement"). The revolving line of credit portion of the Senior Credit Agreement
has since been expanded to $40.0 million. Previously, the Company financed most
of its container lease fleet with debt with a five-year amortization schedule.
Under the Senior Credit Agreement, the Company's lenders permit the Company to
take advantage of the long useful life and durability of its container lease
fleet by providing financing that requires interest-only payments during the
term of the revolving line of credit. The 1996 refinancing provided the
liquidity that permits the Company to focus on the most profitable part of its
business, the leasing of portable storage containers and portable offices.
The Company's principal executive office is located at 1834 West Third
Street, Tempe, Arizona 85281, and its telephone number is (602) 894-6311.
The Offering
The Notes $6,000,000 aggregate principal amount of
___% Senior Subordinated Notes Due 2002 to
be issued under an indenture (the
"Indenture") between the Company and Harris
Trust and Savings Bank, as trustee (the
"Trustee"). See "Description of the Notes."
Denomination $5,000 per Note and integral multiples
thereof.
Use of Proceeds Net proceeds from the sale of the Notes
offered hereby, estimated to be
approximately $5.7 million, will be used to
repay $3.0 million of senior subordinated
indebtedness outstanding under the Company's
bridge notes issued in July 1997 (the
"Bridge Notes"), plus accrued interest
thereon, and a portion of the proceeds equal
in amount to one scheduled semi-annual
interest payment on the Notes outstanding
will be deposited in an interest reserve
account to secure the Company's obligation
to pay scheduled interest payments. The
remaining net proceeds will be used to repay
a portion of the amount outstanding under
the revolving line of credit portion of the
Senior Credit Agreement. See "Use of
Proceeds."
Maturity Date November 1, 2002.
Interest Payment Dates May 1 and November 1 of each year,
commencing on May 1, 1998.
Original Issue Discount For federal income tax purposes, the Notes
will be treated as having been issued with
"original issue discount" equal to the value
of the Warrants as determined by applicable
regulations of the Internal Revenue Service.
See "Certain Federal Income Tax
Considerations."
4
<PAGE>
Interest Reserve The Company will deposit in an interest
reserve account (the "Reserve Account") for
the benefit of the holders of the Notes an
amount equal to one semi-annual scheduled
interest payment on the Notes, which amount
may be distributed to such holders to pay an
interest payment in the event that the
Company fails to make a scheduled interest
payment. If any amounts are paid from the
Reserve Account, the account must be
replenished not later than the next
scheduled interest payment date for the
Notes, subject to the right of the lenders
under the Senior Credit Agreement to issue a
Payment Blockage Notice (as defined herein)
following the occurrence of a default
thereunder. See "Description of the Notes -
Interest Reserve Account."
Ranking The Notes will constitute general unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Debt (as defined
herein) of the Company. As of June 30, 1997,
the Company had approximately $46.5 million
of Senior Debt outstanding and $9.8 million
of debt outstanding that is pari passu with
the Notes. As long as the Company complies
with certain financial ratios set forth in
the Indenture, the Indenture will not limit
the amount of additional Senior Debt or
other indebtedness that the Company can
create, incur, assume or guarantee, nor will
the Indenture limit the amount of
indebtedness which any subsidiary can
create, incur, assume or guarantee. See
"Description of the Notes - Subordination"
and "- Certain Covenants."
Optional Redemption The Notes will be redeemable, at the option
of the Company, at any time, in whole or in
part, on or after November 1, 1999, at 100%
of the principal amount of the Notes
redeemed, plus accrued and unpaid interest
thereon. See "Description of the Notes -
Optional Redemption."
Change in Control Refinancing If a Change in Control Refinancing (as
defined in the Indenture) shall occur prior
to November 1, 1999, each holder of the
Notes will have the right to require the
Company to repurchase all or any part of
such holder's Notes at 101% of the principal
amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase.
No repurchase right will exist if a Change
in Control Refinancing should occur after
November 1, 1999. A "Change in Control
Refinancing" is defined in the Indenture to
mean the refinancing, refunding or
restructuring of the Company's Senior Credit
Agreement upon the occurrence of specified
events, including (i) the
5
<PAGE>
Company's founder or persons directly or
indirectly controlled by the founder and
members of the Company's management ceasing
to own at least 20% of the voting power of
the Company's securities, (ii) any person
(other than members of the Company's
management) acquiring securities
representing more than 20% of the voting
power of the Company's securities, or (iii)
existing directors (or persons nominated for
election by at least 75% of the Company's
existing directors and directors so
nominated) of the Company ceasing to
constitute at least 75% of the Company's
board of directors. See "Description of the
Notes - Repurchase at the Option of Holders
Upon a Change in Control Refinancing."
Certain Covenants The Indenture will contain certain covenants
which, among other things, will require the
Company to maintain a specified Tangible Net
Worth, a specified maximum Total Funded
Indebtedness Ratio, and a specified maximum
Senior Indebtedness Ratio (all as defined
herein), and will restrict the ability of
the Company to enter into transactions with
affiliates or related persons, or
consolidate, merge or sell all or
substantially all of its assets. These
covenants are subject to important
exceptions and qualifications. See
"Description of the Notes - Certain
Covenants."
Payment Blockage Periods Upon the occurrence of a default under the
Senior Credit Agreement, the Company may not
make any payment upon or in respect of the
Notes (including any deposit by the Company
of any amount into the Reserve Account) if
the Trustee receives a notice (a "Payment
Blockage Notice") of such default from any
person permitted to give such notice under
the Indenture. Payments (including deposits
into the Reserve Account) shall be resumed
(i) upon the date such default is cured or
waived, or (ii) 180 days after the date on
which the applicable Payment Blockage Notice
is given. Only one such period of payment
blockage may be given in any 360-day period,
unless the default that is the subject of a
Payment Blockage Notice has been cured or
waived within the 90 days after such notice
has been given, in which case one additional
Payment Blockage Notice (covering a period
of up to 180 days) may be given within such
360-day period. Notwithstanding delivery of
a Payment Blockage Notice, interest may be
paid from amounts in the Reserve Account.
See "Description of the Notes -
Subordination." Events of default under the
Senior Credit Agreement include any failure
to make payment thereunder when due, any
failure to comply with any covenant set
forth therein, a Change of Control of the
Company (defined substantially identically
to Change in Control Refinancing under the
Indenture), any default under any agreement
(including the Indenture) evidencing
indebtedness of the Company in an amount in
excess of $200,000, and the occurrence of
certain events that adversely affect the
lender's security interest collaterlizing
the Company's obligations under the Senior
Credit Agreement.
6
<PAGE>
Limited Noteholder Remedies
Upon an Event of Default Upon an occurrence and during the
continuance of an Event of Default under the
Indenture, the principal of, interest and
other amounts due under the Notes shall bear
interest at a rate of 2% per month (the
"Default Rate"). In the event that the
Company fails to make any payment of
principal or interest on a Note on or before
the date due, or fails to pay any other
amount due under the Indenture within 10
days after receipt of notice from the
Trustee, the Notes shall automatically
become due and payable; provided, that
payment of interest on the Notes from
amounts on deposit in the Reserve Account
will not constitute an Event of Default
under the Indenture. If any other Event of
Default under the Indenture shall exist and
if the Company's indebtedness under the
Senior Credit Agreement has been declared
due and payable prior to its stated
maturity, the Trustee may declare the unpaid
principal of and accrued interest on the
outstanding Notes to be due and payable. Any
default or event of default under the
Indenture will constitute an event of
default under the Senior Credit Agreement
and the Lenders thereunder will thereupon
have the right to exercise remedies under
the Senior Credit Agreement, including the
issuance of a Payment Blockage Notice. See
"Description of the Notes - Events of
Default and Remedies."
The Redeemable Warrants The Notes will be issued with Redeemable
Warrants which, when exercised, will entitle
the holders thereof to purchase, in the
aggregate, 150,000 shares of Common Stock,
on the basis of 125 Redeemable Warrants for
each Note purchased. See "Description of the
Redeemable Warrants."
Exercise Each Redeemable Warrant entitles the holder
thereof to purchase one share of Common
Stock for $_____ per share (subject to
adjustment as described herein). The
Redeemable Warrants first become exercisable
on March 1, 1998.
Expiration of Redeemable Warrants November 1, 2002 (the "Expiration Date").
Redemption of Redeemable Warrants After ________, the Company has the right to
redeem the Redeemable Warrants at any time
after the date that the closing price of the
Common Stock has equaled or exceeded $____
per share for a period of 20 consecutive
trading days. The redemption price is $.05
per Redeemable Warrant.
7
<PAGE>
Adjustments The number of shares of Common Stock for
which a Redeemable Warrant is exercisable
and the purchase price thereof are subject
to adjustment from time to time upon the
occurrence of certain events, including,
among other things, certain dividends and
distributions and issuances of shares of
Common Stock at a price below the market
price. See "Description of the Redeemable
Warrants - Adjustment of Exercise Price and
Change in Number of Shares Issuable Upon
Exercise." A Redeemable Warrant does not
entitle the holder thereof to receive any
dividends paid on Common Stock nor does a
holder of Redeemable Warrants, as such, have
any rights of a stockholder of the Company.
Risk Factors
See "Risk Factors" for certain factors relating to an investment in the
Notes and Redeemable Warrants that should be considered by prospective
investors.
Summary Consolidated Financial Data
The following summary of financial data is derived from the
consolidated financial statements of the Company, included elsewhere herein, and
should be read in conjunction with such consolidated financial statements and
the notes thereto. The consolidated financial statements of the Company as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, whose report thereon appears elsewhere in this Prospectus. The
consolidated financial statements for the six months ended June 30, 1996 and
1997 are unaudited.
Consolidated Statements of Operations Data
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------ -----------------
(unaudited)
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts):
<S> <C> <C> <C> <C> <C>
Revenues $ 28,182 $ 39,905 $ 42,210 $ 19,201 $ 21,843
Income from operations 2,791 4,306 4,527 2,318 3,539
Income before extraordinary
item 956 777 481 209 723
Extraordinary item -- -- (410) (410) --
Preferred stock dividend(1) -- 1,250 -- -- --
Net income (loss) available to common shareholders 956 (473) 70 (201) 723
Earnings per common and common equivalent share:
Income (loss) available to common shareholders
before extraordinary item $ 0.21 $ (0.09) $ 0.07 $ 0.03 $ 0.11
Extraordinary item -- -- (0.06) (0.06) --
-------- -------- -------- -------- --------
Net income (loss) available to common shareholders $ 0.21 $ (0.09) $ 0.01 $ (0.03) $ 0.11
======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
Consolidated Balance Sheet Data
<TABLE>
<CAPTION>
At December 31, At June 30,
---------------------------------- --------------------
(unaudited)
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(dollars in thousands):
<S> <C> <C> <C> <C> <C>
Total assets $40,764 $54,342 $64,816 $57,001 $73,217
Long term line of credit -- 4,099 26,406 18,379 33,776
Long term debt and obligations
under capital leases,
including current portion 16,140 24,533 13,742 15,209 12,676
Total stockholders' equity 11,275 16,160 16,209 15,937 16,932
</TABLE>
Other Data
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------- -------------------------
(unaudited)
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(dollars in thousands):
<S> <C> <C> <C> <C> <C>
EBITDA(2) $3,620 $5,917 $6,466 $3,071 $4,541
Ratio of EBITDA to interest
expense(2) 2.8:1(4) 1.8:1 1.7:1 1.6:1 2.0:1
Ratio of earnings to fixed
charges(3) 2.2:1(4) 1.4:1 1.2:1 1.2:1 1.5:1
</TABLE>
<TABLE>
<CAPTION>
Net cash provided by (used in):
<S> <C> <C> <C> <C> <C>
Operating activities $ 1,301 $ (165) $ 1,390 $ (1,795) $ (491)
Investing activities (14,431) (10,778) (10,751) (1,215) (6,064)
Financing activities 13,847 11,527 8,667 2,263 6,305
------------------------------------- ---------------------
Total $ 717 $ 584 $ (694) $ (747) $ (250)
===================================== =====================
</TABLE>
(1) In accordance with the accounting treatment announced by the staff of
the Securities and Exchange Commission ("SEC") at the March 13, 1997
meeting of the Emerging Issues Task Force ("EITF"), the Company
recorded a prefered stock dividend at December 31, 1995. See note 10 of
Notes to Consolidated Financial Statements.
(2) EBITDA is defined as earnings before interest expense, income tax
expense (benefit), depreciation and amortization. The Company has
included information concerning EBITDA and the ratio of EBITDA to
interest expense because they are used by certain investors as a
measure of the ability of issuers of debt securities to service their
debt. EBITDA is not required by generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to
net income or any other measure of performance required by GAAP or as
an indicator of the Company's operating performance. In considering
EBITDA, investors should consider that certain of those expenses
excluded in calculating EBITDA (such as interest expense and
depreciation and amortization) have a material impact upon net income
and, because those factors may differ materially among companies
reporting EBITDA data, the EBITDA measures presented may not be
comparable to similarly titled measures of other companies. Management
believes that net income is generally a more important indicator of the
Company's financial performance than is EBITDA.
(3) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose, "earnings" means net
income (loss) from continuing operations before income taxes plus fixed
charges minus capitalized interest. "Fixed charges" means total
interest, whether capitalized or expensed, plus amortization of
deferred financing costs and the interest portion of rental expense.
(4) The Company completed its initial public offering in February 1994,
receiving approximately $7.0 million of net proceeds, which materially
affected the ratio.
9
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. Such forward-looking statements involve risks and uncertainties
and include, but are not limited to, statements regarding future events and the
Company's plans and expectations. The Company's actual results may differ
materially from such statements. Factors that cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus and the documents
incorporated herein by reference. Although the Company believes that the
assumptions underlying its forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in such forward-looking statements will be
realized. In addition, as disclosed under "Risk Factors," the business and
operations of the Company are subject to substantial risks which increase the
uncertainties inherent in the forward-looking statements included in this
Prospectus. The inclusion of such forward-looking information should not be
regarded as a representation by the Company or any other person that the future
events, plans or expectations contemplated by the Company will be achieved.
RISK FACTORS
In considering the matters set forth in this Prospectus, prospective
purchasers of the Notes and Redeemable Warrants should carefully consider the
matters set forth below as well as other information set forth in this
Prospectus.
Substantial Leverage
The Company leases containers under operating leases with its
customers. The operating lease business is a capital intensive business. The
typical operating lease transaction requires a cash investment by the Company of
a percentage of the original cost of acquiring and refurbishing used containers
or manufacturing new containers or other structures in its lease fleet. This
cash investment, commonly known in the equipment leasing industry as an "equity
investment," is typically 10% to 20% of the cost of a finished container. The
Company's equity investment is typically financed with either the proceeds of
the sale of equity or debt securities or internally generated funds. The other
80% to 90% of the cost of a finished container is typically financed with
borrowings. Consequently, the Company generally carries a high outstanding
indebtedness amount. As of June 30, 1997, on a pro forma basis, after giving
effect to the sale of the Notes and Redeemable Warrants and the application of
the estimated proceeds therefrom, the aggregate amount of indebtedness of the
Company would have been approximately $56.7 million, of which $41.3 million
would have been Senior Debt. See "Capitalization." The Company may incur
additional indebtedness in the future, subject to certain limitations contained
in the Senior Credit Agreement. The Indenture does not limit the Company's
ability to incur additional debt, other than requiring that the Company maintain
a specified minimum Tangible Net Worth, maximum Total Funded Indebtedness Ratio
and maximum Senior Indebtedness Ratio, all as defined therein. Accordingly,
following the sale of the Notes, the Company will have significant debt service
obligations. The Company's ability to satisfy its annual interest and principal
payments on its indebtedness or to refinance its obligations with respect to its
indebtedness or sell assets or raise equity capital to satisfy such obligations
will depend largely upon its performance, which, in turn, is subject to
prevailing economic conditions and to financial, business and other factors
beyond its control. See "Business-Financing" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Subordination of Notes
The indebtedness evidenced by the Notes is subordinate to the prior
payment in full of all Senior Debt (as defined herein). As of June 30, 1997, the
Company had approximately $46.5 million of Senior Debt outstanding. The
Indenture will not limit the amount of additional debt, including Senior Debt
and pari passu indebtedness,
10
<PAGE>
that the Company can create, incur, assume or guarantee, except to the extent,
if any, that the incurrence of such debt would violate certain financial
covenants set forth in the Indenture. During the continuance of any default
(beyond 9 any applicable grace period) in the payment of principal, premium,
interest or any other payment due on the Senior Debt, no payment of principal or
interest on the Notes may be made by the Company. In addition, upon any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal and interest on the
Notes is subordinated to the extent provided in the Indenture to the prior
payment in full of all Senior Debt. By reason of this subordination, in the
event of the Company's dissolution, holders of Senior Debt may receive more,
ratably, and the holders of the Notes may receive less, ratably, than the other
creditors of the Company. See "Description of the Notes--Subordination."
Effect of Payment Blockage Periods on Notes
Upon the occurrence of a default under the Senior Credit Agreement, the
Company may not make any payment upon or in respect of the Notes (including any
deposit by the Company of any amount into the Reserve Account) if the Trustee
receives a notice (a "Payment Blockage Notice") of such default from any person
permitted to give such notice under the Indenture. Payments (including deposits
into the Reserve Account) shall be resumed (i) upon the date such default is
cured or waived, or (ii) 180 days after the date on which the applicable Payment
Blockage Notice is given. Only one such period of payment blockage may be given
in any 360-day period, unless the default that is the subject of a Payment
Blockage Notice has been cured or waived within the 90 days after such notice
has been given, in which case one additional Payment Blockage Notice (covering a
period of up to 180 days) may be given within such 360-day period. See
"Description of the Notes - Subordination."
Limited Remedies Upon an Event of Default under the Indenture
Upon an occurrence and during the continuance of an Event of Default
under the Indenture, the principal of, interest and other amounts due under the
Notes shall bear interest at a rate of 2% per month (the "Default Rate"). In the
event that the Company fails to make any payment of principal or interest on a
Note on or before the date due, or fails to pay any other amount due under the
Indenture within 10 days after receipt of notice from the Trustee, the Notes
shall automatically become due and payable; provided, that payment of interest
on the Notes from amounts on deposit in the Reserve Account will not constitute
an Event of Default under the Indenture. If any other Event of Default under the
Indenture shall exist and if the Company's indebtedness under the Senior Credit
Agreement has been declared due and payable prior to its stated maturity, the
Trustee may declare the unpaid principal of and accrued interest on the
outstanding Notes to be due and payable; provided, that absent acceleration of
the Company's indebtedness under the Senior Credit Agreement, neither the
Trustee nor any holders of the Notes shall have any right to accelerate the
maturity of the Notes or the right to pursue any other remedies under the
Indenture. Accordingly, holders of the Notes shall have only limited remedies
upon the occurrence of an Event of Default under the Notes, other than the
accrual of interest at the Default Rate. See "Description of the Notes - Events
of Default and Remedies."
Uncertainty in Supply and Price of Used Containers
The Company purchases used ocean-going shipping containers which
comprise a majority of the storage containers which the Company leases. The
Company's ability to obtain used containers for its lease fleet is subject in
large part to the availability of these containers in the market. The
availability to the Company of used cargo containers is in part subject to
international trade issues and the demand for containers in the ocean cargo
shipping business. Should there be a shortage in supply of used containers, the
Company could supplement its lease fleet with new manufactured containers.
However, should there be an overabundance of these used containers available, it
is likely that prices would fall. This could result in a reduction in the lease
rates the Company could obtain from its container leasing operations. It could
also cause the appraised orderly liquidation value of the containers in the
lease fleet to decline.
Uncertainty of Additional Financing to Sustain Growth
The Company believes that its current capitalization, together with
borrowings available under the Senior Credit Agreement, is sufficient to
maintain its current level of operations. However, the Company's ability to
sustain recent-period financial and operating results is materially dependent
upon the
11
<PAGE>
availability of credit and equity to support continued increase in the size of
its container lease fleet. At July 31, 1997, the Company had borrowings of
approximately $32.9 million outstanding under the Senior Credit Agreement. While
the Company believes that the net proceeds from the sale of the Notes together
with borrowings under the Senior Credit Agreement provide sufficient capital to
permit continued growth at recent levels, there can be no assurance that such
financial resources will be sufficient to sustain recent growth levels
throughout the Company's fiscal year beginning January 1, 1998. During fiscal
1996, the cost of used ocean-going containers, which the Company purchases and
refurbishes, increased materially as compared to prior periods. Although used
container prices stabilized and then decreased during the first six months of
1997, there can be no assurance that current price levels will continue, and if
the cost of used containers increases over existing levels, the Company would be
required to secure additional financing through debt or equity offerings,
additional borrowings or a combination of these sources (in addition to any net
proceeds of this Offering) in order to sustain recent-period growth levels.
However, there is no assurance that any such financings will be obtained or
obtained on terms acceptable to the Company. The availability of borrowings
under the Senior Credit Agreement is dependent upon the orderly liquidation
value of the Company's container lease fleet. A significant reduction in such
values may adversely affect the Company's ability to finance its business
through the Senior Credit Agreement. See "Business-Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Container Fleet Utilization
Historically, the Company has maintained container fleet utilization
levels in the 85-to-92% range. During 1996, the Company's container fleet
utilization level was 90% and at June 30, 1997 was 87%. Should the Company
experience an unexpected decline in demand for its lease units due to economic
conditions, an increase in competition, an increase in supply of used containers
or any other reason, the Company would expect to dispose of containers in order
to maintain acceptable utilization levels. If this were to occur at a time when
the market price of used containers has declined, it could result in losses on
the sale of these containers. In addition, the Company's operating results would
be adversely affected because it would continue to be subject to the high fixed
costs of its branch operations but it would have reduced lease revenues.
Risk of Senior Debt Covenant Defaults
The Company's obligations under the Senior Credit Agreement are secured
by a lien in favor of its lenders covering substantially all of the assets of
the Company. The Company is required to comply with certain covenants and
restrictions, including covenants relating to the Company's financial condition
and results of operations. If the Company is unable or fails to comply with the
covenants and restrictions of the Senior Credit Agreement, the lenders would
have the right not to make loans under the Senior Credit Agreement and to
require early payment of outstanding loans. The lack of availability of loans or
the requirement to make early repayment of loans would have a material adverse
effect on the Company. See "Management's Discussion and Analysis Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Uncertainty of Future Financial Performance, Fluctuations in Operating Results
The Company's results of operations may vary from period to period due
to a variety of factors which affect demand for the Company's products and
influence the Company's operating costs and margins, including general economic
and industry conditions, availability of and cost increases of used containers
from which the Company builds its container fleet, changes in marketing and
sales expenditures, pricing pressures, market acceptance of the Company's
products, particularly in new market areas in which the Company may expand,
expenditures to acquire or start-up and integrate into the Company's operations
new businesses which the Company seeks to acquire as part of its expansion
strategy, and the introduction of new products by the Company or its
competitors.
Fluctuations in Raw Materials Costs and Supply
The Company purchases used ocean-going shipping containers, steel,
vinyl, wood, glass and other raw materials from various suppliers. While all
such materials are available from numerous independent
12
<PAGE>
suppliers, commodity raw materials are subject to fluctuations in price. Because
such materials in the aggregate constitute significant components of the
Company's cost of goods sold, such price fluctuations could have a material
adverse effect on the Company's results of operations. Although the Company
believes that it can pass on gradual increases in raw material prices, there can
be no assurance that the Company will continue to be able to do so in the
future. In addition, sharp increases in material prices are more difficult to
pass through to the customer in short a period of time and may negatively impact
the short-term financial performance of the Company.
Potential Adverse Effects of Government Regulation
The Company's manufacturing and storage facilities are subject to
regulation by a number of governmental authorities, including regulations
relating to occupational health and safety and to environmental issues as well
as federal and state laws governing such matters as overtime and minimum wages.
The Company believes that its operations comply in all material respects with
all applicable regulatory requirements. However, any failure to comply with
applicable regulations, or the adoption of new regulations or changes in
existing regulations, could impose additional compliance costs on the Company,
require a cessation of certain activities or otherwise have a material adverse
impact on the Company's business and results of operations.
Limitations on Repurchase Upon a Change in Control Refinancing
In the event of a Change in Control Refinancing prior to November 1,
1999, each Note holder may under certain circumstances require the Company to
repurchase all or a portion of such holder's Notes at 101% of the principal
amount thereof plus accrued and unpaid interest to the repurchase date. If a
Change in Control Refinancing were to occur, there can be no assurance that the
Company would have sufficient funds to pay the repurchase price for all Notes
tendered by the holders thereof. It is expected that the Company's repurchase of
Notes, absent a waiver, would constitute a default under the terms of the Senior
Credit Facility. In addition, the Company's repurchase of Notes as a result of
the occurrence of a Change in Control Refinancing may be prohibited or limited
by the holders of Senior Debt under the subordination provisions applicable to
the Notes, or be prohibited or limited by or create an event of default under,
the terms of other agreements relating to borrowings which constitute Senior
Debt as may be entered into, amended, supplemented or replaced from time to
time. Failure of the Company to repurchase Notes at the option of the Note
holder upon a Change in Control Refinancing would result in an Event of Default
under the Indenture. See "Description of the Notes - Redemption of Notes at the
Option of Holders Upon a Change in Control Refinancing."
Absence of Trading Market
There is no public market for the Notes and the Company does not intend
to apply for listing of the Notes on Nasdaq or any national securities exchange.
The Company has been advised by the Underwriters that they presently intend to
make a market in the Notes after the consummation of the Offering, although they
are under no obligation to do so and may discontinue any market-making
activities at any time. Accordingly, no assurance can be given as to the
liquidity of the trading market for the Notes or that an active public market
for the Notes will develop. If an active public market for the Notes does not
develop, the market price and liquidity of the Notes may be adversely affected.
It is not expected that the Notes will be assigned a credit rating by any of the
nationally recognized rating agencies.
Although the Company's Common Stock and IPO warrants are quoted on the
Nasdaq National Market and the Nasdaq Small Cap Market, respectively, there can
be no assurance that a trading market for the Redeemable Warrants will develop
or, if one does develop, of its liquidity or whether it will be maintained. To
the extent that an active market does not develop for the Redeemable Warrants,
the market price and a holder's ability to sell the Redeemable Warrants could be
materially adversely affected.
Original Issue Discount
Because the Notes are being offered as part of a Unit with the
Redeemable Warrants, a portion of the offering price for a Unit will be
allocated to the Notes and a portion to the Redeemable Warrants. Since the
portion allocable to a Note will be less than the Note's prinicpal amount, a
Note will likely be issued at a discount from its face amount. If the discount
(generally referred to as "original issue discount" or "OID") exceeds a
statutory de minimis amount (1/4 of 1% of an obligation's stated redemption
price at maturity multiplied by the number of complete years to its maturity),
the Notes will be considered to be issued with original issue discount. In
addition to including in income the amount of stated interest received or
accrued, a holder will be required to include a portion of any such OID as
ordinary income for federal income tax purposes each year over the term of the
Notes so as to provide a constant yield to maturity. The Company intends to
allocate the issue price on a per Note and per the Redeemable Warrant basis. A
holder of Notes and Redeemable Warrants may not adopt a different allocation
unless such holder properly discloses such a different allocation on the
holder's federal income tax return for the year in which the Notes and Warrants
were acquired. See "Certain Federal Income Tax Considerations -- The Notes."
Competition
The Company believes that its products, services, pricing and
manufacturing capabilities allow it to compete favorably in each of the on-site
leasing, off-site leasing and sales segments of the Company's markets in the
areas it currently operates. However, the Company's ability to continue to
compete favorably in each of its markets is dependent upon many factors,
including the market for used ocean-going shipping containers and the cost of
steel.
The Company believes that competition in each of its markets may
increase significantly in the future. It is possible that some such competitors
will have greater marketing and financial resources than the Company. As
competition increases, significant pricing pressure and reduced profit margins
may result.
13
<PAGE>
Prolonged price competition, along with other forms of competition, could have a
material adverse affect on the Company's business and results of operations. See
"Business-Competition."
Reliance on Key Employees
The Company is substantially dependent on the personal efforts and
abilities of Richard E. Bunger, the Company's founder and its Chairman, Steven
G. Bunger, the Company's President and Chief Executive Officer, and Lawrence
Trachtenberg, the Company's Executive Vice President and Chief Financial
Officer. The loss or unavailability of any of these officers or certain other
key employees for any significant period of time could have a material adverse
effect on the Company's business prospects or earning capacity.
Management Control
The Company's executive officers and directors as at August 15, 1997
own an aggregate of approximately 2,643,150 shares, or 38.2% of the outstanding
Common Stock. Richard E. Bunger, the Company's Chairman, beneficially owns
approximately 34.6% of the Common Stock outstanding. Consequently, the executive
officers and directors of the Company collectively, and Mr. Bunger individually,
have substantial influence in the election of all members of the Board of
Directors and therefor on the direction of the Company's business and affairs.
Anti-Takeover Considerations
The Company's Board of Directors intends to propose that the Company's
shareholders adopt at the Company's 1997 annual meeting a group of proposals,
including amendments to the Company's Certificate of Incorporation which could,
together or separately, discourage potential acquisition proposals, delay or
prevent a change in control of the Company, and limit the price that certain
investors might be willing to pay in the future for the Company's Common Stock.
These proposals include a classified board of directors and a provision barring
shareholder action by written consent. The Company is also subject to Section
203 of the Delaware General Corporation Law, which may also inhibit a change in
control of the Company. In addition, the provisions of certain executive
employment agreements and stock option agreements may result in economic
benefits to the holders thereof upon the occurrence of a change in control.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes and the
Redeemable Warrants offered hereby are estimated to be $5.7 million ($6.6
million if the Underwriter's over-allotment option is exercised in full), after
deducting underwriting discounts and estimated expenses of this Offering. The
Company intends to use the net proceeds as follows: (i) to repay the $3.0
million outstanding principal amount of the outstanding Bridge Notes, plus
accrued interest thereon; (ii) to deposit approximately $____________ (or
approximately $_________ if the Underwriter's over-allotment option is exercised
in full) in the Reserve Account; and (iii) to use the remaining proceeds to
repay a portion of borrowings outstanding under the revolving credit line
portion of the Senior Credit Agreement, which borrowings totaled approximately
$32.9 million at July 31, 1997.
The Company will have the ability to reborrow all or a portion of any
amount it repays under the Senior Credit Agreement. Interest accrues under the
Bridge Notes at the rate of 12% per annum, and approximately $16,000 of such
interest was accrued as of August 15, 1997 (interest accrues under the Bridge
Notes at the rate of approximately $1,000 per day). Borrowings to be repaid
under the Senior Credit Agreement accrue interest at the Company's option at
either prime plus 1.5% (10.0% per annum at August 15, 1997) or the Eurodollar
rate (as defined) plus 3% per annum. See "Business-Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources."
The Bridge Notes were issued by the Company on July 29, 1997 to Arizona
Land Income Corporation, a publicly-held real estate investment trust which is
unaffiliated with the Company or the Underwriter or any of their respective
affiliates. The Bridge Notes are payable upon the earlier of the date the
Company completes the issuance of at least $3 million of the Notes on July 29,
2002. The Bridge Notes bear interest at the rate of 12% annum, and the other
terms of the Bridge Notes are substantially indentical to the terms of the
Notes, except that the Bridge Notes were issued pursuant to a purchase agreement
rather than an indenture. The purchaser of the Bridge Notes received warrants to
purchase 50,000 shares of Common Stock at an exercise price of $5.00 per share.
The warrants include terms and conditions substantially indentical to those of
the Redeemable Warrants. Upon repayment of the Bridge Notes, the Bridge Note
holder will have the opportunity to exchange Bridge Note warrants for warrants
which will have terms and provisions identical to those of the Redeemable
Warrants offered hereby.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock trades on the Nasdaq National Market under the symbol
"MINI." Prior to December 26, 1995, the Common Stock was traded on the Nasdaq
SmallCap Market. The following table sets forth, for the indicated periods, the
high and low sale prices for the Common Stock as reported by the Nasdaq Market.
The quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
High Low
Fiscal 1995
First Quarter..................... $4.500 $3.500
Second Quarter.................... $5.000 $3.625
Third Quarter..................... $6.125 $4.750
Fourth Quarter.................... $5.875 $3.625
Fiscal 1996
First Quarter..................... $4.375 $2.875
Second Quarter.................... $4.437 $3.375
Third Quarter..................... $4.375 $2.812
Fourth Quarter.................... $4.500 $3.000
Fiscal 1997
First Quarter..................... $3.625 $3.000
Second Quarter.................... $4.500 $3.000
Third Quarter(1).................. $5.375 $4.437
- ---------------------
(1) Through August 22, 1997.
The Company has approximately 67 holders of record of its Common Stock.
The Company believes it has in excess of 400 beneficial owners of its Common
Stock. Holders of the Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors of the Company. To date, the Company has
neither declared nor paid any cash dividends on its Common Stock, nor does the
Company anticipate that cash dividends will be paid in the foreseeable future.
Additionally, the Senior Credit Agreement prohibits the payment of dividends.
DIVIDEND POLICY
Cash dividends have not been paid on the Common Stock. The Company
presently intends to retain earnings to finance the development and growth of
its business. Accordingly, the Company does not anticipate that any dividends
will be declared on the Common Stock for the foreseeable future. Future payment
of cash dividends, if any, will depend upon the Company's financial condition,
results of operations, business conditions, capital requirements, future
prospects and other factors deemed relevant by the Company's Board of Directors.
The Senior Credit Agreement prohibits the payment of dividends on any class of
the Company's capital stock.
In connection with the issuance of its Series A Convertible Preferred
Stock, the Company recorded a preferred stock dividend of $1,250,000 at December
31, 1995 in accordance with the accounting treatment announced by the staff of
the SEC at the March 13, 1997 meeting of the EITF, as the Series A Convertible
Preferred Stock had "beneficial conversion" features which permitted the holders
to convert their holdings to common shares at a fixed discount off of the market
price of the common shares when converted. The effect of the dividend resulted
in a decrease in earnings per share applicable to common shareholders of $.25.
See note 10 of Notes to Consolidated Financial Statements.
15
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1997, the short-term debt
and capitalization of the Company as adjusted to give effect to (i) the sale of
the Bridge Notes and warrants and the application of the net proceeds of
approximately $2.8 million therefrom, and (ii) the sale of the Notes and the
Redeemable Warrants and the application of the estimated net proceeds of
approximately $5.7 million therefrom. This table should be read in conjunction
with "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere herein.
<TABLE>
<CAPTION>
June 30, 1997
--------------------------------
Actual As adjusted
------------ ------------
<S> <C> <C>
Short-term debt:
Current portion of long-term debt $ 1,494,925 $ 1,494,925
Current portion of obligations under capital leases 1,993,239 1,993,239
------------ ------------
Total short-term debt 3,488,164 3,488,164
------------ ------------
Long-term debt:
Senior Credit Agreement(1) 33,776,461 28,616,461
Bridge Notes - -
Senior Subordinated Notes due 2002(2) - 5,583,238
Other long-term debt, excluding current portion 5,101,700 5,101,700
Obligations under capital leases, excluding current portion 4,086,298 4,086,298
------------ ------------
Total long-term debt 42,964,459 43,387,697
------------ ------------
Stockholders' equity:
Common Stock, $.01 par value; 17,000,000 shares authorized,
6,739,324 issued and outstanding 67,393 67,393
Additional paid-in-capital(3) 15,588,873 16,077,196
Retained earnings 1,275,354 1,275,354
------------ ------------
Total stockholders' equity 16,931,620 17,419,943
------------ ------------
Total capitalization $ 63,384,243 $ 64,295,804
============ ============
</TABLE>
(1) Interest accrues at the Company's option at either prime plus 1.5% or the
Eurodollar rate plus 3% and is payable monthly.
(2) Includes an adjustment related to the estimated fair value ascribed to all
Warrants issued in connection with the Notes.
(3) Includes an increase of $488,323 related to the estimated fair value
ascribed to all warrants issued in connection with the Bridge Notes and the
Notes. The fair value has been estimated using the Black-Scholes
option-pricing model with the following average assumptions: fair market
value per share on the date of issuance of $4.8125 and $4.75 for the
warrants issued in connection with the Bridge Notes and Notes,
respectively; dividend yield of 0%; expected volatility of 48.6%; risk-free
interest rate of 5.74%; and expected lives of two years.
16
<PAGE>
BUSINESS
General
Mobile Mini, Inc. designs and manufactures portable steel storage
containers, portable offices and telecommunication shelters and acquires,
refurbishes, and modifies ocean-going shipping containers for sales and leasing
as inland portable storage units. The Company also produces certain steel
products, such as portable offices, built to special order specifications. The
Company has patented, proprietary or trade secret rights in all products it has
designed and manufactured. The locking system for the Company's containers is
patented and provides virtually impenetrable security to the storage container.
The Company's main product in its storage market segment is the
portable steel storage container. The Company acquires used ocean-going cargo
containers which it reconditions and retrofits with its patented locking system.
To compensate for supply and price fluctuations associated with acquiring used
ocean-going containers, the Company also manufactures various lines of new
containers, featuring the Company's proprietary "W" or "stud wall" panels.
Storage container units may be significantly modified and turned into portable
offices, portable storage facilities, open-sided storage and retail facilities,
as well as a large variety of other applications.
The Company sells and leases its storage containers to a wide variety
of individual, business and governmental users. The Company's lease activities
include both on-site and off-site leasing. "Off-site" leasing occurs when the
Company leases a portable storage container which is then located at the
customer's place of use. "On-site" leasing occurs when the Company stores the
portable container containing the customer's goods at one of the Company's
facilities, which are similar to a standard mini-storage facility, but with
increased security, ease of access and container delivery and pick-up service.
In mid-1995, the Company established a telecommunication shelter
division targeted at both the domestic and international markets to complement
its storage container business and diversify its product line. The Company's
modular telecommunication shelters, marketed under the name "Mobile
Telestructures," can be built in a variety of designs, sizes, strengths,
exterior appearances and configurations. The Company has developed proprietary
technology that makes these units very portable, lightweight, highly secure and
virtually weather proof. The Company intends to devote additional resources
toward marketing this product.
The Company has developed technology to add a stucco finish to the
exterior of its all steel buildings, making them more aesthetically appealing
while retaining the strength and durability afforded by steel. This attribute is
especially important to the Mobile Telestructures operations, where
telecommunication companies are under pressure to use shelters and towers that
blend in with their locale. In addition, in 1996, the Company introduced its
ArmorKoat(TM) line of telecommunication shelters which feature a specially
formulated concrete exterior coat to its steel shelters. This formulation
increases the strength of the building and can meet the needs of customers that
require concrete buildings.
The Company also designs, develops and manufactures a complete
proprietary line of truck trailers and other delivery systems utilized in
connection with its storage container sales and leasing activities. The Company
provides delivery and pick-up services for customers at their places of
business, homes or other locations.
From 1983 through 1993, the business operations of the Company were
conducted as a sole proprietorship by Richard E. Bunger under the trade name
"mobile mini storage systems" ("MMSS"). The business operations transferred to
the Company were comprised of MMSS and a related corporation, Delivery Design
Systems, Inc. ("DDS"). The Company's subsidiaries include DDS, which formerly
engaged in the business of designing, developing and manufacturing truck
trailers and other delivery systems for the Company's portable storage
containers and Mobile Mini I, Inc. which engages in the business of acquiring
and maintaining certain of the Company's facilities. The business and assets of
DDS were transferred to the Company in 1996.
Marketing
The Company markets its storage containers both directly to end-users
and through its national dealer network. The Company also sells and leases its
storage containers directly to end users through its
17
<PAGE>
branches in Phoenix and Tucson, Arizona, San Diego and Rialto, California and
Houston, Dallas, San Antonio and Austin, Texas. The Company services Phoenix and
Tucson from its Maricopa, Arizona plant, the greater Los Angeles, California
area from its Rialto hub and its Texas operations from its Houston and
Dallas/Fort Worth hubs. Marketing for individual consumer sales and rentals is
primarily through Yellow Page ads, direct mailings and customer referrals.
The Company markets its Mobile Telestructure products directly to
telecommunication companies as well as to companies providing turn-key
installations of shelters and towers.
Sales are also made through the Company's national dealer network which
at August 1, 1997 provided the Company's manufactured containers to 51 dealers
for retail sale. Such dealers are in 78 separate locations in 30 states and one
Canadian province. Marketing to dealers and potential dealers is primarily
through direct solicitation, trade shows, trade magazine advertising and
referrals. The dealers receive containers which they assemble and paint. The
Company provides training in assembly and marketing to its dealers. None of the
dealers are employed by the Company, nor does any dealer have a long term
requirements contract for the supply of unassembled containers or any contract
for training in assembly and marketing with the Company. The Company does,
however, benefit from the use of its name by several dealers on the containers
once they are constructed.
Leasing Operations
The Company's primary goal is to grow the container leasing segment of
its business. This business, which involves the short-term leasing of a product
with a long useful life and relatively low depreciation, offers higher margins
than the Company's other products and services.
The Company has sought to grow this business by opening branch
facilities in several cities in the Southwestern United States. When the Company
opens a facility, it devotes substantial resources, including a sizable
advertising budget, to the location. The new location therefore generates losses
in early years until cash flow generated at the new location is sufficient to
cover fixed costs associated with the location. Historically, profitability is
not expected until approximately one to three years after the new location is
opened. The actual time to profitability depends upon numerous factors,
including differences in container costs compared to historic cost levels, the
level of competition in the new market, the development of additional storage
containers in the market by competitors and other factors which are generally
beyond the Company's control.
The Company plans to continue adding leased containers to existing
locations in order to increase its profitability. During 1996, the Company
entered into the Senior Credit Agreement which has enabled the Company to expand
its container leasing operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." The Company increased containers on lease at its branch locations at
June 30, 1997 by 28% from June 30, 1996.
The Company's plan is to continue increasing its lease fleet at
existing locations at a rate in line with historical increases. Management
anticipates that such an increase will positively impact profitability in fiscal
1997 and 1998, particularly if the cost of used ocean-going containers remains
constant at levels prevailing during the first half of 1997. See "Risk Factors -
Uncertainty in Supply and Price of Used Containers."
The Company also intends to expand its operations into additional
cities on a controlled basis. Such expansion could be through new start-up
operations by the Company or through acquisitions of existing operations.
Expansion through start-up operations would have the effect of reducing net
income during the early years of operations while the Company increased its
lease fleet at these locations. The Company has identified several potential new
markets, and is investigating start-up and acquisition possibilities in those
markets. As of the date of this Prospectus, the Company is not a party to any
binding agreement respecting new sites or material acquisition transactions.
Financing
The Company in recent periods has required increasing amounts of
financing to support the growth of its business. This financing was required
primarily to fund the acquisition of containers for the Company's lease fleet
and to fund the acquisition of property, plant and equipment to support both the
Company's container leasing and manufacturing operations.
18
<PAGE>
The Company finances its operations and growth primarily through the
Senior Credit Agreement. The Company first entered into the Senior Credit
Agreement in March 1996, in order to improve its cash flow, increase its
borrowing availability and fund its continued growth. Prior to 1996, the
Company's growth was financed in part through financing of containers pursuant
to capital leases or secured borrowings. These financings generally required
repayment in full over a five year period and provided for interest at a fixed
rate. Since the Company's containers have a useful life far in excess of five
years, these financings required the Company to pay in full the debt related to
a capital expenditure well in advance of the related asset's useful life. The
repayment terms of these financings adversely affected cash flow and were
refinanced with borrowings under the Senior Credit Agreement.
Under the terms of the Senior Credit Agreement, the lenders originally
provided the Company with a $35.0 million revolving line of credit (subsequently
increased to $40.0 million) and a $6.0 million term loan. Borrowings under the
Senior Credit Agreement are secured by substantially all of the Company's
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Available borrowings under the revolving line of credit portion of the
Senior Credit Agreement are based upon the level of the Company's inventories,
receivables and container lease fleet. The container lease fleet is appraised at
least annually for purposes of the Senior Credit Agreement, and up to 90% of the
lesser of cost or appraised orderly liquidation value may be included in the
borrowing base. Interest accrues at the Company's option at either the prime
rate plus 1.5% or the Eurodollar rate plus 3% and is payable monthly or at the
end of the term of any Eurodollar borrowing. The term of this line of credit is
three years, with a one-year extension option.
The Senior Credit Agreement contains several financial covenants,
requires minimum utilization rates for the Company's lease fleet, limits capital
expenditures, acquisitions, changes in control, the incurrence of additional
debt and the repurchase of common stock, and prohibits the payment of dividends.
Patents, Trade Names and Trade Secrets
The Company has eight patents issued by and four patents pending with
the U.S. Patent and Trademark Office related to the design and application of
its products. The Company may process other patent applications for additional
products if and when developed, to the extent the Company deems such
applications appropriate. "mobile mini" and "mobile mini storage systems" are
registered trade names and service marks in the United States and Canada. The
Company has applied to have "mobile telestructures" registered as a trade name
and service mark in the U.S. and Canada.
The patents as well as the various state trade secret laws afford
proprietary protection to the Company's products, including the unique locking
system and design of its manufactured products. The Company has in place several
access control and proprietary procedure policies implemented to meet the
requirements of protecting its trade secrets under applicable law. The Company
follows a policy of aggressively pursuing claims of patent, trade name, service
mark and trade secret infringement. The Company does not believe that its
products and trademarks or other confidential and proprietary rights infringe
upon the proprietary rights of third parties. There can be no assurance,
however, that third parties will not assert infringement claims against the
Company in the future.
Customers
The market for the Company's products can generally be divided into
four distinct areas - retail, residential, commercial and
institutional/governmental. Revenues are derived from either rentals or sales
directly to customers or through sales to the Company's dealers.
The Company's customer profile is diverse and does not rely on one
industry. Instead, the Company targets several different markets within various
geographic areas. For the year ended December 31, 1996, the Company's customers
fall into the following categories and approximate percentages of units
leased/sold: (i) with respect to leasing: retail and wholesale businesses, 52%;
homeowners, 17%; construction, 22%; institutions, 4%; government, industrial and
other, 5%; (ii) with respect to sales: retail and wholesale businesses, 54%;
homeowners, 5%; construction, 12%; institutions, 14%; government, industrial and
other, 15%.
19
<PAGE>
Customers utilize the Company's storage units in a variety of ways. For
example, retail companies use the Company's storage units for extra warehousing;
real estate development companies utilize the Company's products to securely
store equipment, tools and materials; and governmental agencies such as the U.S.
Armed Forces and the U.S. Drug Enforcement Agency lease and buy the Company's
high-security, portable storage units to store equipment and other goods.
Competition
Because the Company competes in several market segments, no one entity
is known to be in direct competition with the Company in all its market
segments. With respect to its on-site leasing activities, the Company competes
directly with conventional mini-storage warehouse facilities in the localities
in which it operates. The Company's on-site leasing competitors include U-Haul,
Public Storage and Shurgard Storage Centers. With respect to off-site leasing
and sales, the Company has several competitors, which include Haulaway, Mobile
Storage, National Security Containers, and a large number of smaller
competitors. The Company believes that its products, services, pricing and
manufacturing capabilities allow it to compete favorably in each of the on-site
leasing, off-site leasing and sales segments of the Company's markets in the
areas it currently operates.
The Company's Mobile Telestructures division competes against several
competitors that supply shelters, the largest of which the Company believes to
be Fibrebond Corporation, the Rohn division of UNR Industries and the Andrew
Corporation.
Management believes that the Company has a number of competitive
advantages both in terms of products and operations. Among its products'
patented features is the locking system which serves to meet the customer's
primary concern, security. Based on reports from customers who have suffered
burglary attempts, the Company's locking system is extremely difficult to
defeat. The Company's delivery trailers have largely been designed and built by
the Company and certain key features have patent potential which the Company may
pursue. These proprietary delivery systems, which are specifically designed to
transport, load and unload containers, allow the Company to deliver containers
economically in otherwise inaccessible locations.
Operationally, the Company manufactures containers from raw steel as an
alternative to using ocean-going containers. In the event ocean-going containers
are in short supply or become uneconomical to retrofit to the needs of the
Company, the Company can manufacture its own container product. The Company will
continue to manufacture new storage units for inclusion primarily in its sales
inventory and also in its lease fleet.
The Company's ability to continue to compete favorably in each of its
markets is dependent upon many factors, including the market for used
ocean-going containers and the costs of steel. During 1996, the price of used
steel cargo containers increased by approximately 20%, although prices declined
somewhat during the first six months of 1997. Management believes that the
Company's container manufacturing capabilities makes the Company less
susceptible than its competitors to ocean-going container price fluctuations,
particularly since the cost of used containers is affected by many factors, only
one of which is the cost of steel from which the Company can manufacture new
containers.
The Company believes that competition in each of its markets may
increase significantly in the future. It is possible that some such competitors
will have greater marketing and financial resources than the Company. As
competition increases, significant pricing pressure and reduced profit margins
may result. Prolonged price competition, along with other forms of competition,
could have a material adverse affect on the Company's business and results of
operations. Additionally, as the Company continues to expand its operations into
new markets, start-up costs incurred reduce the Company's overall profit
margins.
Employees
As of August 1, 1997, the Company had approximately 750 full time
employees at all of its locations. The Company believes that its continued
success depends on its ability to attract and retain highly qualified personnel.
The Company's employees are not represented by a labor union and the Company has
no knowledge of any current organization activities. The Company has never
suffered a work stoppage and considers its relations with employees to be good.
20
<PAGE>
Properties
The Company has four manufacturing centers located in Maricopa,
Arizona, Rialto, California, and Houston and Dallas/Fort Worth, Texas. Sales and
leasing are conducted from Phoenix, Rialto, Houston and Dallas/Fort Worth in
addition to four other locations.
The Company's primary manufacturing center is located in a
heavy-industry zoned industrial park near Maricopa, Arizona, approximately 30
miles south of Phoenix. The facility is seven years old and is located on an
approximately 45 acre industrial site. Twenty-three acres of this site were
purchased from Richard E. Bunger in 1996. See, "Certain Relationships and
Related Transactions." The facility includes nine manufacturing buildings,
totaling approximately 130,000 square feet, which house manufacturing, assembly,
construction, painting and vehicle maintenance operations.
The Phoenix, Arizona sales and leasing branch services the Phoenix
metropolitan area from its approximately 10.7 acre facility. All Phoenix
marketing and any on-site storage is conducted from this site. Approximately 3.4
acres are owned by the Company, approximately 5.8 acres are leased from
non-affiliated parties and the remaining 1.5 acres are owned by members of the
Bunger family and are under lease at what management believes to be competitive
market rates. See "Certain Relationships and Related Transactions."
The Rialto, California sales and leasing hub is approximately 10 acres
in size, with three industrial shops used for modification of ocean-going
containers, assembly of the Company's manufactured containers and on-site
leases. The Rialto facility serves as the Company's southern California hub and
supports the San Diego branch. The Rialto site is owned by a corporation owned
by Richard E. Bunger, and is leased to the Company at what management believes
to be competitive market rates. See "Certain Relationships and Related
Transactions."
The Texas operations are supported by hub facilities in Houston and
Dallas/Fort Worth. Both facilities contain manufacturing centers, sales and
leasing operations and on-site storage facilities. The Houston facility is
located on seven acres with six buildings totaling approximately 34,400 square
feet. The Dallas/Fort Worth facility, which is owned by the Company, is located
on 17 acres with six buildings totaling approximately 36,600 square feet.
The Company's administrative and sales offices are located in Tempe,
Arizona. The facilities are leased by the Company from an unaffiliated third
party and have approximately 28,800 square feet of space which the Company
anticipates will meet its needs for the near-term. The Company's lease term is
through December 2000.
21
<PAGE>
In addition to its administrative offices and manufacturing facilities,
the Company has facilities used for sales, leasing and onsite storage. The major
properties owned or leased by the Company are listed in the table below:
<TABLE>
<CAPTION>
Location Use Area Title
-------- --- ---- -----
<S> <C> <C> <C>
Tempe, Arizona Sales and administration 28,800 sq. ft. Leased
Maricopa, Arizona Manufacturing 44.8 acres Owned(1)
Rialto, California Sales, leasing, manufacturing and 10 acres Leased(2)
on-site storage
Houston, Texas Sales, leasing, manufacturing and 7.0 acres Leased
on-site storage
Phoenix, Arizona Sales, leasing and on-site storage 10.7 acres Owned(1)/leased(3)
Tucson, Arizona Sales, leasing and on-site storage 2.7 acres Leased(4)
San Diego, California Sales, leasing and on-site storage 5.0 acres Leased
Dallas, Texas Sales, leasing, manufacturing and 17 acres Owned(1)
on-site storage
San Antonio, Texas Sales, leasing and on-site storage 3.0 acres Leased
Round Rock, Texas(5) Sales, leasing and on-site storage 5.0 acres Leased
</TABLE>
- -------------------------------
(1) Pledged pursuant to the Senior Credit Agreement. See "The Company -
Financing."
(2) Leased by the Company from an affiliate of Richard E. Bunger. See
"Certain Relationships and Related Transactions."
(3) Of the 10.7 acres comprising these sites, 3.4 acres are owned by the
Company and 1.5 acres are subject to long-term leases from members of
the Bunger family. See "Certain Relationships and Related
Transactions."
(4) This property is leased by the Company from members of the Bunger
family. See "Certain Relationships and Related Transactions."
(5) A community of the Austin, Texas metropolitan area.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996 has been
derived from the audited consolidated financial statements of the Company
included herein. The selected financial data as of December 31, 1992, 1993 and
1994 and for the years ended December 31, 1992 and 1993 has been derived from
audited financial statements not included herein. The selected consolidated
financial data presented as of and for the six month periods ended June 30, 1996
and 1997 have been derived from the unaudited interim consolidated financial
statements of the Company and has been prepared on the same basis as the audited
financial statements and, in the opinion of management, contain all adjustments
necessary for a fair presentation of the results of operations and financial
condition for such periods.
Consolidated Statement of Operations Data
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------------------------ -----------------
(unaudited)
1992(1)(2) 1993(1) 1994 1995 1996 1996 1997
---------- ------- ---- ---- ---- ---- ----
(dollars in thousands, except per share amounts):
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $12,001 $17,122 $28,182 $39,905 $42,210 $19,201 $21,843
Income from 710 1,514 2,791 4,306 4,527 2,318 3,539
operations
Income before
extraordinary 116 276 956 777 481 209 723
item
Extraordinary item 185 -- -- -- (410) (410) --
Preferred stock dividend(3) -- -- -- 1,250 -- -- --
Net income (loss) available
to common shareholders 301 276 956 (473) 70 (201) 723
Earnings per common and common equivalent share:
Income (loss) available to
common shareholders
before $0.04 $0.10 $ 0.21 $(0.09) $0.07 $ 0.03 $0.11
extraordinary
item
Extraordinary item 0.07 -- -- -- (0.06) (0.06) --
------- ------- ------- ------- ------- ------- -------
Net income (loss) available
to common shareholders $ 0.11 $ 0.10 $ 0.21 $ (0.09) $ 0.01 $(0.03) $ 0.11
======= ======= ======= ======= ======= ======= =======
</TABLE>
Consolidated Balance Sheet Data
<TABLE>
<CAPTION>
At December 31, At June 30,
---------------------------------------------------------------- ---------------------
(unaudited)
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(dollars in thousands):
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $14,773 $20,082 $40,764 $54,342 $64,816 $57,001 $73,217
Long term lines of
credit -- -- -- 4,099 26,406 18,379 33,776
Long term debt and
obligations
under capital
leases, including
current portion 6,622 9,334 16,140 24,533 13,742 15,209 12,676
Total stockholders' equity 5,713 3,292(4) 11,275 16,160 16,209 15,937 16,932
</TABLE>
Other Data
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------------------------------- -------------------------
(unaudited)
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(dollars in thousands):
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA(5) $1,103 $1,957 $3,620 $5,917 $6,466 $3,071 $4,541
Ratio of EBITDA to
interest 1.7:1 1.8:1 2.8:1(7) 1.8:1 1.7:1 1.6:1 2.0:1
expense(5)
Ratio of earnings
to fixed 1.3:1 1.4:1 2.2:1(7) 1.4:1 1.2:1 1.2:1 1.5:1
changes(6)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 438 $ 1,642 $ 1,301 $ (165) $ 1,390 $ (1,795) $ (491)
Investing activities (232) (1,976) (14,431) (10,778) (10,751) (1,215) (6,064)
Financing activities (357) 363 13,847 11,527 8,667 2,263 6,305
---------------------------------------------------------------- ----------------------
Total $ (151) $ 29 $ 717 $ 584 $ (694) $ (747) $ (250)
================================================================ ======================
</TABLE>
(Footnotes for the table on next page)
23
<PAGE>
(Footnotes for the table on previous page)
- -------------------------
(1) Prior to 1994, the Company's predecessor was operated as a sole
proprietorship. Per share information are therefore calculated on a pro
forma basis assuming that the only common stock outstanding was that
issued to Richard E. Bunger at the time the Company was capitalized and
all significant transactions for the transfer of assets to the Company
have been eliminated for the pro forma statements.
(2) Certain amounts have been restated to conform with subsequent years'
presentation.
(3) In accordance with the accounting treatment announced by the staff of
the SEC at the March 13, 1997 meeting of the EITF, the Company recorded
a prefered stock dividend at December 31, 1995. See note 10 of Notes to
Consolidated Financial Statements.
(4) The capitalization of the Company effective on December 31, 1993
resulted in a change in tax status from a sole proprietorship to a
C-corporation, which resulted in the Company recognizing a net deferred
tax liability of approximately $2,393,000.
(5) EBITDA is defined as earnings before interest expense, income tax
expense (benefit), depreciation and amortization. The Company has
included information concerning EBITDA and the ratio of EBITDA to
interest expense because they are used by certain investors as a
measure of the ability of issuers of debt securities to service their
debt. EBITDA is not required by GAAP and should not be considered as an
alternative to net income or any other measure of performance required
by GAAP or as an indicator of the Company's operating performance. In
considering EBITDA, investors should consider that certain of those
expenses excluded in calculating EBITDA (such as interest expense and
depreciation and amortization) have a material impact upon net income
and, because those factors may differ materially among companies
reporting EBITDA data, the EBITDA measures presented may not be
comparable to similarly titled measures of other companies. Management
believes that net income is generally a more important indicator of the
Company's financial performance than is EBITDA.
(6) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose, "earnings" means net
income (loss) from continuing operations before income taxes plus fixed
charges minus capitalized interest. "Fixed charges" means total
interest, whether capitalized or expensed, plus amortization of
deferred financing costs and the interest portion of rental expense.
(7) The Company completed its initial public offering in February 1994,
receiving approximately $7.0 million of net proceeds, which materially
affected the ratio.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company designs and manufactures portable steel storage containers,
portable office and other modular buildings, and telecommunication's equipment
shelters and modifies ocean-going shipping containers which it sells and leases
as inland portable storage units. The Company also designs and manufactures a
variety of delivery systems to complement its storage container sales and
leasing business. The Company's manufacturing, sales and leasing facilities are
located in the states of Arizona, Texas and southern California, and are
supplemented by the Company's national dealer network. The Company has increased
its revenues from $12.0 million in the fiscal year ended December 31, 1992 to
$42.2 million in the fiscal year ended December 31, 1996, and increased its
total assets from $14.8 million at December 31, 1992 to $64.8 million at
December 31, 1996. At June 30, 1997, total assets were $73.2 million.
The leasing of containers stored on-site at the Company's locations
(similar to traditional mini-storage warehouses) as well as the leasing of
containers stored off-site is becoming a more significant portion of the
Company's business and is contributing to the Company's growth. Between December
31, 1992 and June 30, 1997, the number of units at the Company's leasing
locations increased by 282%.
As the leasing operations are the most profitable of the Company's
operations, management plans to increase the level of these operations,
especially at existing locations. In addition, the Company expects to open
additional facilities on a controlled basis at locations which management
believes can become profitable over a relatively short period of time,
consistent with the Company's historical experience.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenue represented certain items in the Consolidated
Financial Statements of the Company included elsewhere herein. The table and the
discussion below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Container and modular building
sales 65.6% 60.8% 56.0% 55.5% 49.2%
Leasing 25.5 30.6 32.3 33.0 36.6
Other 8.9 8.6 11.7 11.5 14.2
----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of container and modular
building sales 49.3 47.9 47.2 47.1 36.7
Leasing, selling and general
expenses 38.5 38.0 36.3 36.9 42.5
Depreciation and amortization 2.2 3.3 4.1 3.9 4.6
Restructuring charge --.- --.- 1.7 --.- --.-
----- ----- ----- ----- -----
Income from operations 10.0 10.8 10.7 12.1 16.2
Other income (expenses):
Interest income and other 0.6 0.7 0.5 --.- --.-
Interest expense (4.5) (8.0) (9.2) (10.2) (10.3)
----- ----- ----- ----- -----
Income before provision for
income taxes and
extraordinary item 6.1 3.5 2.0 1.9 5.9
Provision for income taxes 2.7 1.5 0.9 0.9 2.6
----- ----- ----- ----- -----
Income before extraordinary item 3.4 2.0 1.1 1.0 3.3
Extraordinary item --.- --.- (1.0) (2.1) --.-
----- ----- ----- ----- -----
Net income (loss) 3.4 2.0 0.1 (1.1) 3.3
Preferred stock dividend -- (3.1) -- -- --
----- ----- ----- ----- -----
Net income (loss) available
to common shareholders 3.4% (1.1%) 0.1% (1.1%) 3.3%
===== ===== ===== ===== =====
</TABLE>
25
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 were $21,843,000 which
represents a 13.8% increase over revenues of $19,201,000 for the six months
ended June 30, 1996. Revenues from the sales of the Company's products increased
0.7%, while the revenues from the leasing of portable storage containers and
from the Company's trucking and other related leasing activities increased 30.0%
and represented 50.8% of total revenue compared to 44.5% for the same period in
1996. This increase in lease and lease related revenues primarily is a result of
a 20.0% increase in the average number of containers on lease, an increase in
the average container rental rate, yielding 3.1%, and an increase in other
income, including trucking services income and loss limitation waiver income.
Cost of container and other sales as a percentage of container and
other sales for the six months ended June 30, 1997 was 74.6% compared to 84.8%
for the same period in 1996. This decrease primarily resulted from an increase
in sales of the Company's higher margin telecommunication shelters, and the
discontinuation of the Company's modular building line, which produced lower
margins during fiscal 1996.
Leasing, selling and general expenses were 42.5% of total revenue for
the six months ended June 30, 1997 compared to 36.9% in the six months ended
June 30, 1996. The increase is primarily related to additional operating costs
to support the increased leasing operations. These additional costs included
higher maintenance costs associated with a larger trucking fleet, additional
equipment to maintain, service and transport a larger container lease fleet, and
increased personnel costs and related benefits to support the growth of the
leasing operations.
Interest expense was 10.3% of revenues during the six months ended June
30, 1997 compared to 10.2% of revenues during the six months ended June 30,
1996. This increase is related to financing the Company's growth in its
container lease fleet and equipment which permitted the Company to substantially
increase its leasing revenue. This increase is partially offset by a 1.9%
decrease in the Company's weighted average borrowing rate as a result of lower
interest rates under the Senior Credit Agreement (including the effect of
amortization of additional debt issuance costs in connection with the Senior
Credit Agreement).
Depreciation and amortization increased from 3.9% of revenues for the
six month period ended June 30, 1996 to 4.6% for the six month period ended June
30, 1997. This increase is related to the increase in the Company's lease fleet
and the acquisition of additional equipment at the Company's various locations.
The Company posted a net income of $723,000, or $0.11 per share for the
six months ended June 30, 1997 compared to net income before extraordinary item
of $209,000 or $0.03 per share during the prior year. This increase is primarily
a result of increased revenues and the higher profit margins on sales partially
offset by higher administrative costs. The Company's effective tax rate remained
unchanged at 44.0%. During the quarter ended March 31, 1996, the Company prepaid
certain debt and capital leases in connection with entering into the Senior
Credit Agreement. The Company recognized an extraordinary charge to earnings of
$410,000 or $.06 per share, net of the benefit for income taxes, as a result of
this early extinguishment of debt.
Fiscal 1996 Compared to Fiscal 1995
Revenues for the year ended December 31, 1996 increased to $42,210,000
from $39,905,000 during 1995. Revenues during 1995 included $3,645,000 of
container sale revenue recorded under sale-leaseback transactions. The revenue
from sale-leaseback transactions was offset by an equal cost of container sales
and did not produce any gross margin. The Company did not enter into
sale-leaseback transactions during 1996. Excluding the effect of these
sale-leaseback transactions, revenues increased by 16.4% from 1995 to 1996,
primarily the result of increases in both sales and leasing revenues generated
from existing branch locations and the sale of certain used modular buildings
that had been previously leased. The Texas operations, which commenced in late
1994, sustained growth and contributed 8.5% to the Company's container sale
revenues and 15.8% to its leasing revenues during 1996 as compared to 7.0% and
9.6%, respectively, in 1995. The dealer and telecommunication shelter division
contributed 25.5% and 4.1%, respectively, of the sales revenues in 1996 as
compared to 27.2% and 5.8%, respectively, in 1995. Revenues
26
<PAGE>
related to container and modular building sales and leasing activities increased
14.5% and 11.7%, respectively, from the prior year, exclusive of container sale
revenue recorded under sale-leaseback transactions.
Excluding the effect of sale-leaseback transactions, cost of container
and modular building sales as a percentage of container and modular building
sales increased to 84.4% compared to 74.8% for the prior year. This increase is
attributable to the mix of products sold, a shortage in supply of used
containers, which caused an increase in the acquisition cost of these
containers, in addition to an increase in sales of manufactured new containers
which typically result in lower margins to the Company, and a refinement in the
Company's allocation of certain indirect manufacturing costs.
Excluding the effect of sale-leaseback transactions, leasing, selling
and general expenses were 36.3% of total revenue in 1996, compared to 41.8% in
1995. The decrease primarily results from the continued efficiencies obtained by
the Company's Texas operations, which were in their start-up phase during 1995,
and to the Company passing certain property tax expenses on to customers.
The Company recorded a restructuring charge of $700,000, or 1.7% of
total revenue in 1996. There was no similar charge in 1995. The Company
previously was involved in the manufacture, sale and leasing of modular steel
buildings in the State of Arizona. These buildings were used primarily as
portable schools, but could be used for a variety of purposes. Although the
Company believes its modular buildings were superior to the wood-framed
buildings offered by its competitors, the Company was not able to generate
acceptable margins on this product line, and implemented a strategic
restructuring program designed to concentrate management effort and resources
and better position itself to achieve its strategic growth objectives. As a
result of this program, the 1996 fiscal year results includes the restructuring
charge which was comprised of the write-down of assets used in the Company's
discontinued modular building operations and related severance obligations of
$300,000, and the write-down of other fixed assets of $400,000.
Income from operations was $4,527,000 in 1996 compared to $4,345,000 in
1995. Excluding the restructuring charge, income from operations would have been
12.4% of total revenue in 1996 as compared to 12.0% in 1995.
Interest expense increased to $3,894,000 in 1996 compared to $3,212,000
in 1995. This increase in interest expense was primarily the result of an
increase in the average balance of debt outstanding of 51.4% compared to 1995
(incurred in order to finance the substantial increase in the Company's
equipment and container lease fleet), along with the related amortization of
debt issuance costs, partially offset by a decrease of 3.0% in the Company's
weighted average borrowing rate resulting from lower interest rates under the
Senior Credit Agreement.
Depreciation and amortization increased to 4.1% of revenues in 1996,
from 3.3% in 1995, and is directly related to the expansion of the Company's
manufacturing facility along with the substantial growth in the Company's lease
fleet and additional support equipment at the Company's sales and leasing
locations.
The Company had income before extraordinary item of $481,000, or $.07
per share in 1996, compared to net income of $777,000, or $.16 per share in 1995
before the effect of dividends on the Company's Series A Convertible Preferred
Stock of $(.25) per share (see note 10 of Notes to Consolidated Financial
Statements). This decrease primarily resulted from the $700,000 restructuring
charge recorded by the Company in the fourth quarter of 1996 discussed above.
Excluding this charge, 1996 earnings before extraordinary item were
approximately $873,000, or $.13 per share. The weighted average common shares
outstanding at the end of 1996 increased by 34% from the prior year due to the
issuance of additional common stock in 1996 pursuant to the conversion of the
Series A Convertible Preferred Stock, issued during the fourth quarter of 1995,
which was converted to common stock in 1996.
The Company prepaid approximately $14.1 million of debt and capital
leases in connection with entering into the Senior Credit Agreement in March
1996. As a result of this early extinguishment of debt, the Company recognized
an extraordinary charge to earnings of $410,000, or $.06 per share, net of the
benefit for income taxes. The Company also incurred financing costs of
$2,000,000 in connection with the Senior Credit Agreement, which have been
deferred and are being amortized over the term of the Senior Credit Agreement.
27
<PAGE>
Fiscal 1995 Compared to Fiscal 1994
Revenues for the year ended December 31, 1995 increased to $39,905,000
from $28,182,000 in 1994. This 41.6% increase was primarily the result of
increases in both sales and leasing revenues generated from the new branch
locations in Texas, coupled with increased demand for the Company's products at
its existing locations. The Texas operation contributed 7.0% to the Company's
container sale revenues and 9.6% to its leasing revenues. Additionally, the
telecommunication shelter division comprised 5.8% of sales revenues. Revenues
related to container and modular building sales and leasing activities increased
31.3% and 70.2%, respectively, from the prior year. Additional revenues,
primarily related to delivery operations, increased 35.6% from 1994 levels.
Cost of sales increased to 78.7% of sales and leasing revenues from
75.2% of sales and leasing revenues in 1994. The increase was primarily
attributable to the modular division which contracted for the construction of
more sophisticated units requiring substantially more interior build-out than in
previous years and the start up of the new telecommunication shelter division,
which generated lower profit margins during the start-up phase.
Leasing, selling and general expenses were 38.0% of total revenues in
1995, which approximated their 1994 level of 38.5% of total revenues. The
Company's new branch locations incurred higher administrative and advertising
costs than in 1994, which were offset by the increased revenues from the
existing locations where a large portion of the leasing, selling and general
expenses are fixed or semi-variable. Depreciation and amortization expense
increased to $1,318,000 from $625,000 in 1994 as a result of the increase in the
container lease fleet and the increase in support equipment required for the
delivery operations and manufacturing facilities.
Interest expense increased to $3,212,000 in 1995 compared to $1,274,000
in 1994. The Company utilized its line of credit availability more extensively
in 1995, and also increased borrowings during the year to finance the
substantial growth in its container lease fleet. The average outstanding balance
on the line of credit was approximately $4.2 million and $1.1 million for 1995
and 1994, respectively.
Net income for fiscal 1995 was $777,000, or $.16 per share before the
effect of the dividend on the Company's Series A Convertible Preferred Stock
compared to $956,000, or $.21 per share for 1994. The effective tax rate was
44.0% for both years. Earnings (loss) available to common shareholders was
$(.09) per share after the effect of dividends on the Company's Series A
Convertible Preferred Stock for 1995. The weighted average number of common and
common equivalent shares outstanding increased to 5,004,817 in 1995 compared to
4,496,904 in 1994. This increase was a result of the shares issued in the
Company's initial public offering in 1994 being outstanding for the entire year
in 1995 and a private placement of 50,000 shares of Series A Convertible
Preferred Stock in 1995. In connection with the issuance of the Series A
Convertible Preferred Stock, the Company recorded a preferred stock dividend of
$1,250,000 at December 31, 1995 in accordance with the accounting treatment
announced by the staff of the SEC at the March 13, 1997 meeting of the EITF, as
the Series A Convertible Preferred Stock had "beneficial conversion" features
which permitted the holders to convert their holdings to common shares at a
fixed discount off of the market price of the common shares when converted. The
effect of the dividend resulted in a decrease in earnings per share applicable
to common shareholders of $.25. See note 10 of Notes to Consolidated Financial
Statements.
28
<PAGE>
Quarterly Results of Operations
The following table reflects certain selected unaudited quarterly
operating results of the Company for each of the ten quarters through the
quarter ended June 30, 1997. The Company believes that all necessary adjustments
have been included to present fairly the quarterly information when read in
conjunction with the Consolidated Financial Statements included elsewhere
herein. The operating results for any quarter are not necessarily indicative of
the results for any future period.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------- ------------------------------------ ----------------
Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30
------ ------- ------- ------ ------ ------- ------- ------ ------ -------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Container and modular
building sales $5,448 $ 6,313 $ 7,555 $4,948 $4,916 $ 5,746 $ 6,376 $ 6,581 $ 4,543 $ 6,197
Leasing 2,521 2,959 3,259 3,475 3,171 3,171 3,433 3,863 3,899 4,106
Other 706 1,118 702 901 770 1,344 1,348 1,491 1,207 1,891
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
8,675 10,390 11,516 9,324 8,857 10,261 11,157 11,935 9,649 12,194
Costs and expenses:
Cost of container and
modular building sales 4,347 4,887 5,949 3,924 3,926 5,120 5,380 5,500 3,446 4,564
Leasing, selling and general
expenses 3,466 4,141 3,942 3,625 3,874 3,215 3,680 4,575 4,281 5,011
Depreciation and amortization
238 312 359 409 368 380 452 513 472 530
Restructuring charge -- -- -- -- -- -- -- 700 -- --
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Income from operations 624 1,050 1,266 1,366 689 1,546 1,645 647 1,450 2,089
Other income (expense):
Interest income 115 7 73 98 56 31 23 115 -- --
Interest expense (650) (723) (846) (993) (948) (1,001) (974) (971) (1,090) (1,159)
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Income (loss)before
provision for income
tax (benefit) and
extraordinary item 89 334 493 471 (203) 576 694 (209) 360 930
Provision for (benefit of)
income taxes 39 147 217 207 (89) 253 305 (92) 158 409
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Income (loss) before
extraordinary item 50 187 276 264 (114) 323 389 (117) 202 521
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------- ------------------------------------ ----------------
Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30
------ ------- ------- ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Extraordinary item -- -- -- -- (410) -- --
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Net income (loss) 50 187 276 264 (524) 323 389 (117) 202 521
Preferred stock dividend -- -- -- 1,250 -- -- -- -- -- --
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Net income (loss)
available to common
shareholders $ 50 $ 187 $ 276 $ (986) $ (524) $ 323 $ 389 $ (117) $ 202 $ 521
====== ======= ======= ====== ====== ======= ======= ======= ======= =======
Earnings (loss) per common
and common equivalent
share:
Income (loss)
available to common
shareholders
before
extraordinary item $ 0.01 $ 0.04 $ 0.06 $(0.20) $(0.02) $ 0.05 $ 0.06 $ (0.02) $ 0.03 $ 0.08
Extraordinary item -- -- -- -- (0.06) -- -- -- -- --
------ ------- ------- ------ ------ ------- ------- ------- ------- -------
Net income (loss) available
to common shareholders$ 0.01 $ 0.04 $ 0.06 $(0.20) $(0.08) $ 0.05 $ 0.06 $ (0.02) $ 0.03 $ 0.08
====== ======= ======= ====== ====== ======= ======= ======= ======= =======
</TABLE>
Quarterly results can be affected by a number of factors, including the
timing of orders, customer delivery requirements, production delays,
inefficiencies, the mix of product sales and leases, raw material availability
and general economic conditions.
29
<PAGE>
Seasonality
There is little seasonality inherent in the Company's operations.
However, sales of custom built units can be dependent on the purchasers' timing
needs to place the units into service. In addition, demand for off-site
container leases is stronger from September through December due to increased
needs for storing inventory for the holiday season by the Company's retail
customers. Containers used by these customers are often returned early in the
following year, causing a lower than normal occupancy rate for the Company
during the first quarter. The occupancy levels have historically ranged from a
low of 82% to a high of 95%. These seasonal fluctuations created a marginal
decrease in cash flow for each of the first quarters during the past several
years. On-site storage is not as subject to seasonal fluctuation, and the
Company anticipates that as on-site storage becomes a larger percentage of its
storage operations, the Company will experience less seasonality.
Liquidity and Capital Resources
Due to the capital-intensive nature of its business, the Company
required increased amounts of financing to support the growth of its business
during the last several years. This financing has been required primarily to
fund the acquisition and manufacture of containers for the Company's lease
fleet, to fund the acquisition of property, plant and equipment and to support
the Company's container leasing and manufacturing operations. The Company
continues to require increasing amounts of financing to sustain the growth of
its business. In order to improve its cash flow, increase its borrowing
availability and fund continued growth of its container fleet, in March 1996 the
Company entered into the Senior Credit Agreement. Under the terms of the Senior
Credit Agreement as amended to the date of this Prospectus, the lenders provide
the Company with a $40.0 million revolving line of credit. Borrowings under the
Senior Credit Agreement are secured by substantially all of the Company's
assets.
Available borrowings under the revolving line of credit portion of the
Senior Credit Agreement are based upon the level of the Company's inventories,
receivables and container lease fleet. The container lease fleet is appraised at
least annually for purposes of the Senior Credit Agreement, and up to 90% of the
lesser of cost or appraised orderly liquidation value may be included in the
borrowing base. Interest accrues at the Company's option at either prime plus
1.5% or the Eurodollar rate plus 3% and is payable monthly or at the end of the
term of any Eurodollar borrowing period. The term of this line of credit is
three years, with a one-year extension option. As of December 31, 1996 and June
30, 1997, $26.4 million and $33.8 million, respectively, of borrowings were
outstanding under the line of credit and approximately $0.9 million and $1.2
million respectively, of additional borrowing was available under the line of
credit. On July 31, 1997, the Company sold $3.0 million of Bridge Notes in a
private placement, and the maximum borrowing availability under the Credit
Agreement was increased from $35.0 million to $40.0 million. The net proceeds of
the sale of the Bridge Notes were used to repay a portion of outstanding
borrowings under the line of credit. The Bridge Notes will be repaid with a
portion of the proceeds of this Offering. See "Use of Proceeds." In connection
with the sale of the Bridge Notes, the Company issued to the noteholder warrants
to purchase 50,000 shares of Common Stock at an exercise price of $5.00 per
share. See "Description of the Warrants." At August 8, 1997, approximately $4.6
million of additional borrowings were available under the line of credit.
The Senior Credit Agreement also provided for a $6.0 million term loan,
which has been fully drawn and which amounted to $4.9 million at August 1, 1997.
Borrowings under the Senior Credit Agreement term loan are to be repaid over a
five-year period ending in March 2001. Interest accrues on the term loan at the
Company's option at either prime plus 1.75% or the Eurodollar rate plus 3.25%.
Borrowings under the term loan are payable monthly as follows (plus interest):
Months 1 through 12 (April 1996 - March 1997) $ 62,500
Months 13 through 24 (April 1997 - March 1998) 83,333
Months 25 through 60 (April 1998 - March 2001) 118,056
Additional principal payments equal to 75% of Excess Cash Flow, as defined in
the term loan documents, are required annually. To date, no additional principal
payments have been required. The term loan borrowings were used by the Company
to refinance and consolidate existing term indebtedness and capital leases.
30
<PAGE>
The Senior Credit Agreement contains several financial covenants
including a minimum tangible net worth requirement, a minimum fixed charge
coverage ratio, a maximum ratio of debt-to-equity, minimum operating income
levels and minimum required utilization rates. In addition, the Senior Credit
Agreement contains limits on capital expenditures, acquisitions, change in
control, the incurrence of additional debt, and the repurchase of common stock,
and prohibits the payment of dividends. The Company has been in compliance with
such financial covenants at all determination dates.
In connection with the closing of the Senior Credit Agreement in March
1996, the Company terminated its line of credit with its previous lender,
repaying all indebtedness under that line. In addition, the Company repaid other
long-term debt and obligations under capital leases totaling $14.1 million.
During 1996, the Company's operations provided cash flow of $1.4
million compared to utilizing $166,000 in 1995. The improvement in cash flow
primarily resulted from the improved financing terms under the Senior Credit
Agreement which permitted a reduction of accounts payable, partially offset by
an increase in accrued liabilities and an increase in receivables. During the
six months ended June 30, 1997, the Company utilized cash from operations of
$491,000. Cash was invested in higher inventory levels and higher outstanding
receivables which were partially offset by an increase in accounts payable,
accrued liabilities and deferred taxes.
During 1996, the Company invested $10.7 million in equipment and the
container lease fleet. This amount is net of $2.7 million in related sales and
financing. The Company invested $6.1 million in its container lease fleet and
other equipment during the six months ended June 30, 1997. This amount is net of
$1.0 million in sales of containers from the lease fleet.
Cash flow from financing activities totaled $8.7 million during 1996.
This was the result of increased borrowings to finance container lease fleet and
equipment acquisitions and the restructuring of the Company's debt under the
Senior Credit Agreement, partially offset by the principal payments on
indebtedness and an increase in other assets associated with deferred financing
costs incurred in connection with the closing of the Senior Credit Agreement.
Cash flow from financing activities provided $6.3 million for the six months
ended June 30, 1997. This financing was utilized to fund the increase in the
lease fleet and related equipment and was partially offset by principal payments
on long-term debt and capitalized leases.
The Company believes that its current capitalization, together with
borrowings available under the Senior Credit Agreement and the estimated net
proceeds of this Offering, is sufficient to maintain its current level of
operations and permit controlled growth, consistent with the Company's growth
rate since January 1, 1996, during the next 12 months. However, should demand
for the Company's products materially exceed the Company's current expectations,
or should the Company expand its operations to several additional cities, the
Company would be required to secure additional financing through debt or equity
offerings, additional borrowings, or a combination of these sources to meet such
demand. The Company has neither sought nor received commitments from any sources
for such financing and there can be no assurance that such financing, if needed,
will be available to the Company or could be obtained on terms acceptable to the
Company.
31
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning each of the
directors and executive officers of the Company:
Name Age Positions
- ---- --- ---------
Richard E. Bunger 59 Chairman of the Board of Directors
and Director of Product Research and
Market Development
Steven G. Bunger 36 President, Chief Executive Officer and
Director
Lawrence Trachtenberg 41 Executive Vice President, Chief Financial
Officer and Director
George E. Berkner 63 Director
Ronald J. Marusiak 49 Director
Burton K. Kennedy Jr. 49 Senior Vice President of Sales and Marketing
Richard E. Bunger has served as the Chairman of the Board and a
Director since the Company's inception in 1983. He also served as the Company's
Chief Executive Officer and President from inception through April 1997. Since
April 1997, Mr. Bunger has served as the Company's Director of Product Research
and Market Development. Mr. Bunger has been awarded approximately 70 patents,
many related to portable storage technology. For a period of approximately 25
years prior to founding the Company, Mr. Bunger owned and operated Corral
Industries Incorporated, a worldwide designer/builder of integrated animal
production facilities, and a designer/builder of mini storage facilities.
Steven G. Bunger has served as Chief Executive Officer, President and a
Director since April 1997. Prior to April 1997, Mr. Bunger served as the
Company's Chief Operating Officer and was responsible for overseeing all of the
Company's operations and sales activities with overall responsibility for
advertising, marketing and pricing. Mr. Bunger graduated from Arizona State
University in 1986 with a B.A.-Business Administration. He is the son of Richard
E. Bunger.
Lawrence Trachtenberg has served as its Executive Vice President and
Chief Financial Officer, General Counsel, Secretary, Treasurer and a Director
since December 1995. Mr. Trachtenberg is primarily responsible for all
accounting, banking and related financial matters for the Company. Mr.
Trachtenberg is admitted to practice law in the States of Arizona and New York
and is a Certified Public Accountant in New York. Prior to joining the Company,
Mr. Trachtenberg served as Vice President and General Counsel at Express America
Mortgage Corporation, a mortgage banking company, from February 1994 through
September 1995 and as Vice President and Chief Financial Officer of Pacific
International Services Corporation, a corporation engaged in car rentals and
sales, from March 1990 through January 1994. Mr. Trachtenberg received his Juris
Doctorate from Harvard Law School in 1981 and his B.A. - Accounting/Economics
from Queens College City University of New York in 1977.
George E. Berkner has served as a Director since December, 1993. From
August 1992 to present, Mr. Berkner has served as Vice President of AdGraphics,
Inc., a computer graphics company. From May 1990 to August 1992, Mr. Berkner was
a private investor. From February 1972 until May 1990, Mr. Berkner was the
President and Chief Executive Officer of Gila River Products, a plastics
manufacturer with 155 employees. Mr. Berkner graduated from St. Johns University
with a B.A.-Economics/Business in 1956.
Ronald J. Marusiak has served as a Director since February 1996. From
January 1988 to present, Mr. Marusiak has been the Division President of
Micro-Tronics, Inc., a corporation engaged in precision machining and tool and
die building for companies throughout the United States. Mr. Marusiak is the
co-owner of R2B2 Systems, Inc., a computer hardware and software company. Mr.
Marusiak received a Masters of Science in Management from LaVerne University in
1979 and graduated from the United States Air Force Academy in 1971.
Burton K. Kennedy Jr. has served as Senior Vice President of Sales and
Marketing since July 1996, and served with the Company's predecessor from March
1986 until September 1991. Mr. Kennedy has the
32
<PAGE>
overall responsibility for all branch lease and sale operations and also directs
the acquisition of container inventory. From September 1993 through June 1996,
Mr. Kennedy served in various executive positions with National Security
Containers, a division of Cavco, Inc. From April 1992 through August 1993 he was
a working partner in American Bonsai.
Executive Compensation
In 1997, the Company changed the method by which its executive officers
are compensated, by increasing base salary and terminating annual bonuses based
upon a percentage of gross profit. The 1997 annual base salaries of Mr. Richard
Bunger is $175,000, of Mr. Steven Bunger is $175,000, and Mr. Trachtenberg is
$150,000. Executive officers also participate in the Company's incentive
compensation programs, and any incentive compensation amounts and bonuses paid
are determined by the Company's Board of Directors based upon the Company's
operating results.
The following table sets forth certain compensation paid or accrued by
the Company during the fiscal year ended December 31, 1996 to the Chief
Executive Officer ("CEO") and executive officers of the Company whose salary and
bonus exceeded $100,000 (collectively with the CEO, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-
Term
Compen-
Annual Compensation sation
----------------------------------------------------------------------
Other Securities All
Name and Fiscal Annual Underlying Other
Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Bunger, 1996 $100,000 $107,873 -- -- $20,999(2)
Chief Executive
Officer(1) 1995 104,167 77,808 -- -- 20,358(2)
1994 125,000 -- -- 75,000 18,238(2)
Steven G. Bunger, 1996 50,000 95,887 -- 25,000 5,000(3)
Chief Operating Officer, 1995 42,500 94,128 -- 50,000 4,375(3)
Executive Vice
President(1) 1994 20,000 103,988 -- -- --
Lawrence Trachtenberg, 1996 50,000 95,887 -- 25,000 5,000(3)
Chief Financial Officer, 1995 -- -- -- 50,000 --
Executive Vice President 1994 -- -- -- -- --
</TABLE>
- ---------------------------
(1) The Named Officers served in these capacities through fiscal year ended
1996. In April 1997, Steven G. Bunger succeeded Mr. Richard E. Bunger
as the Company's Chief Executive Officer and President.
(2) The Company provides Mr. Bunger with the use of a Company-owned vehicle
and a $2 million life insurance policy. The amount shown represents the
Company's estimate of costs borne by it in connection with the vehicle,
including fuel, maintenance, license fees and other operating costs
($4,100 for such year) and the life insurance premiums paid by the
Company.
(3) Mr. Trachtenberg and Mr. Steven Bunger are each paid $5,000 per year in
consideration of their respective non-compete agreements. Mr. Bunger
entered into such agreement after the commencement of the 1995 fiscal
year.
33
<PAGE>
Option Grants
The following table sets forth certain information regarding individual
grants of stock options to the Named Officers in 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Value at Assumed
- --------------------------------------------------------------------------------------------- Annual Rates of
Number of Stock Price
Securities Percent of Total Appreciation for
Underlying Options Granted Exercise or Option Term (1)
Options to Employees in Base Price Expiration -------------------
Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Bunger -- -- -- -- -- --
Steven G. Bunger 25,000 25% $3.85 April 2001 $26,592 $58,762
Lawrence Trachtenberg 25,000 25% $3.50 April 2006 $55,028 $139,452
</TABLE>
- ------------------------
(1) This disclosure is provided pursuant to Item 402(c) of Regulation S-K
and assumes that the actual stock price appreciation over the maximum
remaining option terms (10 and 5 years for Mr. Trachtenberg's and Mr.
Bunger's options, respectively) will be at the assumed 5% and 10%
levels.
During 1997, each Named Officer was granted options to purchase 40,000
shares of Common Stock under the Company's employee stock option plan. Such
options are subject to vesting, and are exercisable (when vested) at $3.25 to
$4.50 per share, which was equal to the fair market value of the Common Stock on
the dates of grant. The options expire on the tenth anniversary of the grant
date.
Option Exercises and Values
The following table sets forth certain information regarding the
exercise and values of options held by the Named Officers as of December 31,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at December 31, December 1996(1)
Acquired on Value 1996 Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Bunger -- -- 45,000/30,000 $0/$0
Steven G. Bunger -- -- 25,000/50,000 0/0
Lawrence Trachtenberg -- -- 25,000/50,000 0/0
</TABLE>
- ---------------------------
(1) All the exercisable options were exercisable at a price greater than
the last reported sale price of the Common Stock ($3.125) on the Nasdaq
National Market on December 31, 1996.
Employment Agreements
Although the Company has not entered into any long-term employment
contracts with any of its employees, the Company has entered into numerous
agreements with key employees which are terminable at will, with or without
cause, including agreements with Lawrence Trachtenberg and Steven G. Bunger.
Each of these agreements contains a covenant not to compete for a period of two
years after termination of employment and a covenant not to disclose
confidential information of a proprietary nature to third parties.
Compensation of Directors
The Company's directors (other than officers of the Company) received
cash compensation for service on the Board of Directors and committees thereof
in the amount of $500 per quarterly meeting.
34
<PAGE>
Mr. Berkner and Mr. Marusiak each have the right to receive options to acquire
3,000 shares of Common Stock on each August 1 while serving as members of the
compensation committee of the Board of Directors, up to a maximum of 15,000
options per person.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective December 31, 1993, Richard E. Bunger, an executive officer,
director and founder of the Company, contributed substantially all of the assets
and liabilities of MMSS and the stock of DDS to the Company in exchange for
2,700,000 shares of Common Stock and the assumption of certain liabilities by
the Company. Such liabilities include liabilities associated with the MMSS
assets and operations and certain income tax liabilities of Mr. Bunger and an
affiliate arising from the MMSS operations occurring prior to January 1, 1994.
Such income tax liabilities were estimated at $428,000. Deferred income tax
liabilities associated with the assets contributed, established at $2,393,000,
were also required to be recognized by the Company in connection with such
capitalization. The Company will indemnify and defend Mr. Bunger against loss or
expense related to all liabilities assumed by the Company and for any contingent
liabilities arising from past operations. Prior to the capitalization of the
Company, Mr. Bunger personally guaranteed the Company's lines of credit and
other material debts. These obligations have subsequently been extinguished by
payment of the debts by the Company.
The Company leases certain of its business locations from affiliates of
Mr. Bunger, including his children. The Company entered into an agreement,
effective January 1, 1994, to lease a portion of the property comprising its
Phoenix location and the property comprising its Tucson location from Richard E.
Bunger's five children. Total annual base lease payments under these leases
currently equal $66,000, with annual adjustment based on the consumer price
index. Lease payments in fiscal year 1996 equaled $69,702. The term of each of
these leases will expire on December 31, 2003. Prior to 1994, these properties
were leased by the Company's predecessor at annual rental payments equaling
$14,000. Additionally, the Company entered into an agreement effective January
1, 1994 to lease its Rialto facility from a corporation wholly owned by Richard
E. Bunger for total annual base lease payments of $204,000 with annual
adjustments based on the consumer price index. This lease agreement was extended
for an additional five years during 1996. Lease payments in fiscal year 1996
equaled $215,442. Prior to 1994, the Rialto site was leased to the Company's
predecessor at an annual rate of $132,000. Management believes the increase in
rental rates reflect the fair market rental value of these properties. Prior to
the effectiveness of the written leases, the terms were approved by the
Company's independent and disinterested directors.
In March 1994 the Company's manufacturing facility in Maricopa, Arizona
needed additional acreage to expand its manufacturing capabilities and began
using approximately 22 acres of property owned by Richard E. Bunger. The Company
leased this property from Mr. Bunger with annual payments of $40,000 with an
annual adjustment based on the Consumer Price Index. The Company purchased the
property from Mr. Bunger on March 29, 1996 for a purchase price of $335,000,
which management believes reflects the fair market value of the property.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 15,
1997, with respect to the beneficial ownership of the Company's Common Stock by
each shareholder known by the Company to be the beneficial owner of more than
five percent of its outstanding Common Stock, by each director and executive
officer who owns shares of the Company's Common Stock, and by all executive
officers and directors as a group. Each person named has sole voting and
investment power with respect to all of the shares indicated, except as
otherwise noted. The address of each person named is 1834 West Third Street,
Tempe, Arizona 85281, unless otherwise noted.
<TABLE>
<CAPTION>
Common Stock
Name and Address of Beneficial Owner Beneficially Owned(1) Percent(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard E. Bunger 2,358,000(3) 34.6%
Steven G. Bunger 283,479(4) 4.2%
Lawrence Trachtenberg 39,395(5) *
Ronald J. Marusiak 109,950 (6) 1.6%
George Berkner 18,500(7) *
REB/BMB Family Limited Partnership(8) 2,290,000 34.0%
Bunger Holdings, L.L.C.(9) 410,000 6.1%
Kennedy Capital Management, Inc.(10) 344,425 5.1%
10829 Olive Boulevard
St. Louis, Missouri 63141
All Directors and Executive Officers as a group 2,643,150 38.2%
(5 persons)(3)(4)(5)(6)(7)
</TABLE>
- -------------------------------
* Less than 1%.
(1) The inclusion herein of any shares of Common Stock does not constitute
an admission of beneficial ownership of such shares, but are included
in accordance with rules of the Securities and Exchange Commission.
(2) Includes shares of Common Stock subject to options or warrants which
are presently exercisable or which may become exercisable within 60
days of August 15, 1997.
(3) Includes 2,290,000 shares owned by REB/BMB Family Limited Partnership
and 68,000 shares subject to exercisable options. Mr. Bunger disclaims
any beneficial ownership of shares held by REB/BMB Family Limited
Partnership in excess of 1,640,430. All shares held by Mr. Bunger are
held as community property.
(4) Includes 82,000 shares owned by Bunger Holdings, L.L.C., 166,174 shares
owned by REB/BMB Family Limited Partnership and 34,000 shares subject
to exercisable options. Of the 166,174 shares owned by REB/BMB Family
Limited Partnership, 130,942 are held for members of Mr. Bunger's
immediate family.
(5) Includes 40,000 shares subject to exercisable options.
(6) Includes: (a) 7,700 shares and warrants to acquire 2,500 shares at
$5.00 per share held by Mr. Marusiak's children; (b) 8,750 shares and
warrants to acquire 1,500 shares at $5.00 per share held by Mr.
Marusiak and his wife; (c) 66,000 shares and warrants to acquire 20,000
shares at $5.00 per share held by Micro-Tronics, Inc.'s Profit Sharing
Plan and Trust (the "Plan") of which Mr. Marusiak is Trustee and Plan
Administrator. Mr. Marusiak disclaims any beneficial ownership of 80%
of the shares held by the Plan, as his pro rata ownership interest is
limited to 20% of the Plan's assets; and (d) 3,500 shares subject to
exercisable options.
(7) Includes 6,000 shares, warrants to acquire 3,000 shares at $5.00 per
share and 9,500 shares subject to exercisable options.
(8) Richard E. Bunger and his wife, Barbara M. Bunger, are the general
partners of REB/BMB Family Limited Partnership.
(9) The members of Bunger Holdings, L.L.C. are Steven G. Bunger, Carolyn
Clawson, Michael Bunger, Jennifer Blackwell and Susan Keating, each a
child of Richard E. Bunger.
(10) Furnished in reliance upon information set forth in a Schedule 13G
dated February 10, 1997 and filed by Kennedy Capital Management, Inc.
("KCMI") with the Securities and Exchange Commission. KCMI is an
Investment Advisor registered under the Investment Advisors Act of 1940
according to information set forth in its Schedule 13G.
36
<PAGE>
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, dated as of ________ __,
1997 (the "Indenture"), between the Company and Harris Trust and Savings Bank,
as trustee (the "Trustee"). A copy of the proposed form of the Indenture has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all provisions of the Indenture, including the definitions therein
of certain terms. Whenever particular sections, articles or defined terms of the
Indenture are referred to herein, such sections, articles or defined terms shall
be as specified in the Indenture.
General
The Notes, designated as ____% Senior Subordinated Notes due 2002, will
be issued pursuant to the Indenture. The aggregate principal amount of the Notes
permitted by the Indenture is limited to $6,900,000. The scheduled maturity date
of the Notes is November 1, 2002. The Notes will be general unsecured
obligations of the Company and will be issued in denominations of $5,000 and
integral multiples of $5,000.
Interest Payments; Maturity
The Notes will bear interest at the rate of ____% per annum, payable
semi-annually on May 1 and November 1 of each year, commencing on May 1, 1998,
to Note holders of record at the close of business on each April 15 and October
15 prior to an interest payment date. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Payment of the full amount of principal
will be made on November 1, 2002, unless the Notes are redeemed earlier in
accordance with the provision of the Indenture.
Optional Redemption
The Company may at its option redeem Notes, in whole at any time on or
after November 1, 1999, or in part on any Interest Payment Date on or after
November 1, 1999, in either case upon not less than 30 days' notice by mail, at
a redemption price equal to 100% of the principal amount of the Notes being
redeemed (together with accrued interest to the Redemption Date). In the event
of redemption of the Notes in part only, one or more new Notes of like tenor
will be issued in the name of the holder thereof for the unredeemed portion upon
cancellation of the original Note.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, by such method as the Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of a portion of the
principal amount of any Note, provided that the unredeemed portion of the
principal amount of any Note shall be in denominations of $5,000 and any
integral multiple thereof.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 45 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at his address appearing in the
Note Register. All notices of redemption shall identify the Notes to be redeemed
(including CUSIP number) and shall state: (i) the Redemption Date; (ii) the
Redemption Price; (iii) if less than all the Outstanding Notes are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Notes to be redeemed and that, on or after
the Redemption Date, upon surrender of any Note to be redeemed in part, a new
Note in principal amount equal to the unredeemed portion thereof will be issued;
(iv) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Note to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date; and (v) the place or places
where each such Note is to be surrendered for payment of the Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent an amount of money sufficient to pay the
Redemption Price of, and any accrued interest on, all the Notes
37
<PAGE>
which are to be redeemed on that date. The Notes so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price, and from and
after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Notes shall cease to bear interest
and the holders thereof will have no rights in respect to the Notes so to be
redeemed except to receive payment of the Redemption Price thereof, without
interest accrued on any funds held after the Redemption Date to pay such
Redemption Price.
Any Note which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes of like tenor, of any denomination of $5,000 or any
integral multiple thereof, as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
Repurchase at the Option of Holders Upon a Change in Control Refinancing
In the event that, at any time prior to November 1, 1999, a Change in
Control Refinancing shall occur, or the Company enters into a letter of intent
with respect to a transaction or series of transactions that could reasonably be
expected to result in a Change in Control Refinancing, or any written agreement
is executed which, when fully performed by the parties thereto, would result in
a Change of Control Refinancing, the Company will, within five (5) Business Days
of the occurrence of any such event (or, in the case of any such event the
consummation or finalization of which would involve any action of the Company,
at least thirty (30) days prior to such consummation), give written notice of
such Change in Control Refinancing to the Trustee. Such written notice shall
contain, and such written notice shall constitute, an irrevocable offer (subject
to the successful closing of the transaction giving rise to such notice) to
prepay all, but not less than all, of the principal amount of the Notes
Outstanding at such time, at one-hundred one percent (101%) of the outstanding
principal amount, together with interest accrued through the date of prepayment
and any other amounts due thereunder (the "Control Prepayment Amount"), on a
date specified in such notice (the "Control Prepayment Date") that is not less
than thirty (30) days and not more than sixty (60) days after the date of such
notice. For purposes hereof, "Change in Control Refinancing" shall mean the
refinancing, refunding or restructuring of the Senior Credit Agreement upon the
occurrence of any of the following: (i) Richard E. Bunger, persons directly or
indirectly controlled by Richard E. Bunger, and members of the Company's
management shall cease to have record and beneficial ownership of at least
twenty percent (20%) of the Company's outstanding capital stock entitled to vote
on all matters submitted to the stockholders of the Company; (ii) other than
members of the Company's management, any "person" (as such terms is used in
subsections 13(d) and 14(d) of the Exchange Act) on and after the date hereof is
or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's
then-outstanding securities; or (iii) the existing directors for any reason
cease to constitute at least seventy-five percent (75%) of the Company's board
of directors. For purposes of clause (iii) of the preceding sentence, "existing
directors" means individuals constituting the Company's board of directors on
the date hereof, and any subsequent director whose election to the Company's
board of directors or nomination for election by the Company's shareholders was
approved by at least seventy-five percent (75%) of the directors then in office
which directors either were directors on the date hereof or whose election or
nomination for election was previously so approved.
Notice of Change in Control Refinancing shall be given by first-class
mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Control Prepayment Date, to each Holder of Notes, at his address appearing
in the Note Register. Such notice shall identify the Control Prepayment Date and
the place or places where Notes are to be surrendered for prepayment. Not less
than 10 days prior to the Control Prepayment Date, each Holder electing to
surrender Notes for prepayment shall provide written notice thereof to the
Trustee (in such form as the Trustee may prescribe) and shall surrender physical
38
<PAGE>
possession of such Notes to the Trustee; provided, that the Company shall not be
required to prepay any Notes as to which such notice and physical surrender is
not received by the Trustee at least 10 days prior to the Control Prepayment
Date.
Prior to any Control Prepayment Date, the Company shall deposit with
the Trustee or with a Paying Agent an amount of money sufficient to pay the
Control Prepayment Amount with respect to all outstanding Notes that have been
surrendered to the Trustee for prepayment. The Notes so to be prepaid shall, on
the Control Prepayment Date, become due and payable at the Control Prepayment
Amount, and from and after such date (unless the Company shall default in the
payment of the Control Prepayment Amount) such Notes shall cease to bear
interest and the holders thereof will have no rights in respect to the Notes so
to be prepaid except to receive payment of the Control Prepayment Amount
therefor, without interest accrued on any funds held after the Control
Prepayment Date to pay such Control Prepayment Amount.
Interest Reserve Account
The Indenture requires the Company to use a portion of the net proceeds
of the issuance of the Notes to establish an interest reserve escrow account
(the "Reserve Account") and to deposit therein, and maintain therein at all
times while any of the Notes are outstanding, an amount equal to six months'
interest on the Notes based on the principal amount outstanding from time to
time. If the Company fails to make any payment of interest as and when due,
funds on deposit in the Reserve Account shall be used to make such interest
payment. In the event that any funds are used to make any interest payment, or
if the amount on deposit in the Reserve Account is at any time less than six
months' interest, the Indenture requires the Company to immediately deposit cash
into the Reserve Account in an amount sufficient to increase the amount on
deposit to six months' interest on the Notes; provided, that the Company is not
required or permitted to make any deposits into the Reserve Account during any
period in which the Company is in default in the payment of any principal of, or
interest on, any Senior Debt, or during any period in which a Blockage Notice
shall be in effect. The Company has executed a security agreement (the "Reserve
Account Security Agreement"), the form of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part, pursuant to which
funds on deposit in the Reserve Account from time to time will be pledged to the
Trustee, on behalf of the holders from time to time of the Notes. See
"Description of the Notes - Subordination."
Subordination
The indebtedness evidenced by the Notes will constitute general
unsecured obligations of the Company and will be subordinate and junior in right
of payment to all existing and future Senior Debt to the extent provided in the
Indenture. Pursuant to the Indenture, "Senior Debt" means and includes, at any
date, any of the following: (a) the principal of, premium, if any, interest on
and any other payment due pursuant to any agreements or instruments creating
indebtedness of the Company and its Subsidiaries which are now existing and
which are secured by any mortgage, lien, pledge, charge, or encumbrance upon
property or assets of the Company, and all modifications and amendments thereof;
(b) all substitutions and refinancings of the indebtedness described in
subparagraph (a) hereof, whether secured or unsecured, and which by its terms is
defined as senior indebtedness; (c) all obligations of the Company and its
Subsidiaries for the payment of money hereafter arising, to any other financial
institution, bank, or insurance company providing financing to the Company or
its Subsidiaries, whether secured or unsecured, and which by its terms is
defined as senior indebtedness; (d) all lease obligations of the Company and its
Subsidiaries required under generally accepted accounting principles to be
capitalized and reflected as a liability on the balance sheet of the Company;
and (e) any indebtedness of any special purpose subsidiary of the Company or its
Subsidiaries and any corporation, partnership, company, joint venture, trust,
association, or joint-stock company in which more than fifty percent (50%) of
the outstanding voting stock or voting interest is owned, directly or
indirectly, by the Company or its Subsidiaries and which was formed for the
purpose of facilitating any asset securitization program of the Company or any
Subsidiary. Notwithstanding anything to the contrary herein, Senior Debt shall
not include (i) any indebtedness of the Company or any Subsidiary to any
affiliate thereof; (ii) any trade payables of the Company or any Subsidiary; or
(iii) any indebtedness made in violation of this Indenture. The Company shall,
upon the incurrence of any indebtedness in excess of $1,000,000 within the scope
of subparagraphs (b) and (c) above (and giving effect thereto), deliver to the
Trustee an Officers' Certificate, certifying that the Company is in compliance
with all of the terms, provisions and conditions of the Indenture (without
regard to any period of grace or requirement of notice provided thereunder). No
indebtedness of the Company or any Subsidiary shall be Senior Debt or superior
in right of payment to the Notes if the instrument or instruments creating or
evidencing such indebtedness provides by its or their terms that such
indebtedness is pari passu or subordinate or junior in right of payment to any
other indebtedness of the Company or such Subsidiary.
In the event that the Company defaults in the payment of any principal
of, or interest on, any Senior Debt, then unless and until such default has been
cured or waived or has ceased to exist, the Company is not permitted to make or
agree to make any direct or indirect payment (in cash, property or securities or
by set-off or otherwise) on account of any Notes, or as a sinking fund for any
Notes, or in respect of any redemption, retirement, purchase, prepayment or
other acquisition of any Notes (including without limitation any deposit by the
Company into the Reserve Account); provided, that payments of interest on the
Notes from funds available in the Reserve Account will continue to be permitted.
Upon the occurrence of any Default (as defined in the Senior Credit
Agreement), then, unless and until such Default has been cured or waived in
writing or has ceased to exist, the Company is not permitted to make or agree to
make any direct or indirect payment (in cash, property or securities or by
set-off or otherwise) on account of any Notes, or as a sinking fund for any
Notes, or in respect of any redemption, retirement, purchase, prepayment or
other acquisition of any Notes (including without limitation any deposit by the
Company into the Reserve Account) during any period of one-hundred
39
<PAGE>
eighty (180) days after the time a "Blockage Notice" has been given to the
Company by or on behalf of the holders of Senior Debt; provided, that payments
of interest on the Notes from funds available in the Reserve Account will
continue to be permitted. Only one such period of up to one-hundred eighty (180)
days may be commenced within any three-hundred sixty (360) day period; provided,
that if the Default which is the subject of a Blockage Notice has been cured or
waived in writing or has ceased to exist within ninety (90) days after such
Blockage Notice shall have been given, then one (1) additional Blockage Notice
may be given, covering a period of up to one-hundred eighty (180) days, during
such three-hundred sixty (360) day period. No Blockage Notice may be given with
respect to a Default which existed and was known to the holders of the Senior
Debt at the time the most recent Blockage Notice was given (unless such Default
has been cured or waived in writing for a period in the interim equal to the
greater of (i) thirty (30) days, or (ii) the number of days from the date of
such cure or waiver through and including the date of the next scheduled payment
of interest on the Notes). In the event that the holders of Senior Debt deliver
any Blockage Notice, any payment of principal, interest or other amounts that,
but for such Blockage Notice, would have been payable by the Company on account
of the Notes during the period covered by such Blockage Notice shall be
immediately due and payable in full upon the expiration of the period covered by
such Blockage Notice.
In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding which relates to the Company or its property, (ii) any proceeding for
the liquidation, dissolution or other winding-up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors, or (iv) any
other marshaling of the assets of the Company: (a) all Senior Debt shall first
be paid in full, in cash, before any payment or distribution, whether in cash,
securities or other property (other than payments of interest on the Notes from
funds available in the Reserve Account) shall be made on account of any Notes;
(b) any payment or distribution, whether in cash, securities or other property
(other than certain subordinated securities of the Company or any other
corporation provided for by a plan or reorganization or readjustment that would
otherwise be payable or deliverable in respect of any Notes) shall be paid or
delivered directly to the holders of Senior Debt, in accordance with the
priorities then existing among such holders of Senior Debt, until all Senior
Debt shall have been paid in full, in cash; and (c) if any holder of Notes fails
to file a claim or proof of debt in respect of such Notes in such proceedings at
least thirty (30) business days prior to the latest date permitted by rule of
law or court order for such filing, then the holders of Senior Debt shall be
authorized (but not obligated) to file such claim or proof on behalf of such
holder. Although each holder of Notes retains the right to vote its claim and
otherwise act in any bankruptcy, insolvency or similar proceeding related to the
Company, no such holder is permitted to take any act or vote in any way so as to
contest the enforceability of the subordination provisions set forth in the
Indenture.
In the event that the Senior Debt has been declared due and payable as
the result of the occurrence of any one or more defaults in respect thereof,
under circumstances when the terms of Section 1405 of the Indenture do not
prohibit payment on the Notes, the Company is not permitted to make or agree to
make any direct or indirect payment (in cash, securities, other property or by
set-off or otherwise) on account of any Note, or as a sinking fund for any Note,
or in respect of any redemption, retirement, purchase, prepayment or other
acquisition of any Note, unless and until all Senior Debt shall have been paid
in full, in cash, or such declaration of default and its consequences has been
rescinded and all such defaults have been remedied or waived in writing or have
ceased to exist.
As a result of such subordination of the Notes, holders of the Notes
may recover less, ratably, than holders of Senior Debt. At June 30, 1997, the
amount of indebtedness outstanding which would have constituted Senior Debt
under the provisions of the Indenture was approximately $46.5 million (provided,
that this amount is subject to increase or decrease from time to time). The
Indenture does not, however, directly limit the amount of Senior Debt or other
debt that the Company may have outstanding or incur from time to time.
Certain Covenants
The Indenture contains certain affirmative and negative Covenants on
behalf of the Company. The affirmative covenants set forth in the Indenture
require the Company to, among other things, subject to
40
<PAGE>
certain important exceptions and qualifications set forth therein: pay the
principal, premium (if any) and interest on the Notes in accordance with their
terms; maintain an office or agency where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served; maintain
its corporate existence and qualification; maintain all properties used in the
conduct of its business in good condition and make such necessary repairs,
renewals replacements, betterments and improvements thereof as in the judgment
of the Company may be reasonably necessary connection with the conduct of the
Company's business; pay or discharge all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company and all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company
(provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings or if the failure to pay such tax, assessment, charge or
claim is not likely to have a Material Adverse Effect); provide the Trustee with
quarterly and annual financial statements and certain other periodic reports;
carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted; comply
with all laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject and obtain all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of its properties and the conduct of its business,
the failure to comply with which or obtain which could reasonably be expected to
have a Material Adverse Effect; maintain insurance on its property in such
amounts and covering such risks as is consistent with sound business practice;
keep true and correct books, records and accounts pursuant to a system of
accounting established and administered in accordance with generally accepted
accounting principles, consistently applied; provide the Trustee with notice of
events or conditions which constitute an Event of Default or which could
reasonably be expected to have a Material Adverse Effect; comply in all material
respects with applicable environmental laws and regulations and promptly take
any and all necessary remedial actions in response to the presence, storage,
use, disposal, transportation or release of any hazardous materials on, under or
about any real property owned, or, to the extent permitted by the property
owner, leased or operated by the Company; provide the Trustee with prompt
written notice of any amendment or modification of the Senior Credit Agreement
or any other document, instrument or agreement governing or relating to any
Senior Debt, or any waiver of any term or provision thereof; use its best
efforts to cause all payments of interest on the Notes to be made utilizing cash
generated by the Company's operations prior to using any funds on deposit in the
Reserve Account to make all or any portion of any such payment; and cause each
Material Subsidiary (defined in the Indenture to include any subsidiary which
accounts for five percent or more of the Company's consolidated annual net
revenues or consolidated net assets) to execute a Subsidiary Guarantee pursuant
to which such subsidiary shall agree to unconditionally guarantee the full
payment and performance as and when due of all obligations under the Indenture
and the Notes. The Company has no Material Subsidiary as of the date of this
Prospectus.
Pursuant to the Indenture, the Company has agreed that so long as any
Note shall be outstanding, it will not, among other things, and subject to
certain important exceptions and qualifications set forth therein: permit any
amendment or modification to be made to its certificate or articles of
incorporation or by-laws which is materially adverse to the interests of the
Holders as the holders of the Notes; enter into any indenture, agreement,
instrument or other arrangement which directly or indirectly prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence and maintenance of the
indebtedness evidenced by any Note, or the execution and delivery of any
Subsidiary Guarantee any provision of any Subsidiary Guarantee, or contains any
provision which would be violated or breached by the Company's performance of
any of its obligations under the Indenture or the Notes; merge or consolidate
with or acquire a majority of the voting shares of any other entity unless the
primary business conducted by such entity is substantially similar to, or is
otherwise in the same general business as, the business of the Company and its
Subsidiaries as presently conducted; lease, sell or otherwise transfer any
property, to any other person or entity, except for (i) sales and leases of
inventory in the ordinary course of business, (ii) leases, sales, transfers or
other dispositions of property that, together with all other property of the
Company previously so leased, sold or transferred (other than inventory sold or
leased in the ordinary course of business) since the date of the Indenture do
not constitute a substantial portion of the property of the Company, and (iii)
sales, transfers and other
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dispositions of property that is unrelated to the Company's primary business of
designing and manufacturing, and selling and leasing for its own account,
portable storage containers; or file or consent to the filing of any
consolidated, combined or unitary income tax return with any person or entity
other than the Company and its subsidiaries, or enter into any tax sharing
agreement or similar arrangement.
The Indenture also requires the Company to comply with the following
financial covenants (subject to normal year-end and closing audit adjustments
for calculations or determinations made in accordance with generally accepted
accounting principles, consistently applied for all relevant periods):
(i) The Company shall at all times while any Note is
Outstanding maintain a Tangible Net Worth of not less than the amount
set forth in the table below for the applicable fiscal year of the
Company:
Fiscal Year ending Minimum Tangible
December 31, Net Worth
------------ ---------
1997 $12,000,000
1998 13,500,000
1999 and thereafter 15,000,000
For purposes of this Indenture covenant, "Tangible Net Worth" means, as
of any date, the total of: consolidated assets of the Company and its
Subsidiaries, minus their consolidated liabilities, minus (A) patents,
copyrights, trademarks, trade names, franchises, licenses, customer and
subscription lists, goodwill and other similar intangibles (excluding
net reorganization value), (B) leasehold improvements, (C) organization
expenses, (D) obligations due to the Company from affiliates (including
any officer, director or shareholder thereof) and (E) security deposits
and prepaid costs and expenses and other deferred assets. For purposes
of calculating Tangible Net Worth, the terms "consolidated assets" and
"consolidated liabilities" shall include, in addition to assets and
liabilities of the Company and its Subsidiaries reflected in the
Company's consolidated balance sheet in accordance with generally
accepted accounting principles, any assets and liabilities not so
reflected of any special purpose subsidiary of the Company or its
Subsidiaries and any corporation, partnership, company, joint venture,
trust association, or joint-stock company in which more than fifty
percent (50%) of the outstanding voting stock or voting interest is
owned, directly or indirectly, by the Company or its Subsidiaries and
which was formed for the purpose of facilitating any asset
securitization program of the Company or any Subsidiary.
(ii) The Company shall at all times while any Note is
Outstanding maintain a Total Funded Indebtedness Ratio of not greater
than the ratio set forth in the table below for the applicable fiscal
year of the Company:
Fiscal Year ending Maximum Total Funded
December 31, Indebtedness Ratio
------------ ------------------
1997 0.80 to 1
1998 0.79 to 1
1999 and thereafter 0.78 to 1
For purposes of this Indenture covenant, "Total Funded Indebtedness
Ratio" means, as of any date, a ratio, the numerator of which shall be
an amount equal to the total consolidated indebtedness of the Company
and its Subsidiaries (whether secured, unsecured, assumed, or
otherwise) which has a scheduled maturity date of more than one (1)
year from the date of determination, including any capitalized lease
obligations and guaranteed indebtedness of any other person ("Total
Consolidated Indebtedness"), and the denominator of which shall be the
sum of Total Consolidated Indebtedness plus Tangible Net Worth of the
Company and its Subsidiaries at such date determined in accordance with
generally accepted accounting principles on a consolidated basis
(excluding treasury stock and excluding the effects of any foreign
currency translation adjustments). For purposes of calculating Total
Consolidated Indebtedness, the term "consolidated indebtedness" shall
include, in addition to indebtedness of the Company and its
Subsidiaries reflected in the Company's consolidated balance sheet in
accordance with generally accepted accounting principles, any
indebtedness not so reflected of any special purpose subsidiary of the
Company or its Subsidiaries and any corporation, partnership, company,
joint venture, trust, association, or joint-stock company in which more
than fifty percent (50%) of the outstanding voting stock or voting
interest is owned, directly or indirectly, by the Company or its
Subsidiaries and which was formed for the purpose of facilitating any
asset securitization program of the Company or any Subsidiary.
(iii) The Company shall at all times while any Note is
Outstanding maintain a Senior Funded Indebtedness Ratio of not greater
than the ratio set forth in the table below for the applicable fiscal
year of the Company:
Fiscal Year ending Maximum Senior Funded
December 31, Indebtedness Ratio
------------ ------------------
1997 0.74 to 1
1998 0.73 to 1
1999 and thereafter 0.72 to 1
provided, however, that if at any time the Company or any Subsidiary
shall incur Senior Unsecured Indebtedness, the Company shall at all
times while any Note is Outstanding maintain a Senior Funded
Indebtedness Ratio of not greater than the ratio set forth in the table
below (in lieu of the ratios set forth above) for the applicable fiscal
year of the Company:
Fiscal Year ending Maximum Senior Funded
December 31, Indebtedness Ratio
------------ ------------------
1997 0.72 to 1
1998 0.71 to 1
1999 and thereafter 0.70 to 1
For purposes of this Indenture covenant, "Senior Unsecured
Indebtedness" means any Senior Debt of the Company or its Subsidiaries
that is not secured by any mortgage, lien, pledge, charge, or
encumbrance upon property or assets of the Company or any Subsidiary
and which has a scheduled maturity date of more than one (1) year from
the date of determination.
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For purposes of this Indenture covenant, "Senior Funded Indebtedness
Ratio" means, as of any date, a ratio, the numerator of which shall be
an amount equal to the total outstanding Senior Debt of the Company and
its Subsidiaries which has a scheduled maturity date of more than one
(1) year from the date of determination, and the denominator of which
shall be the sum of Total Consolidated Indebtedness plus Tangible Net
Worth of the Company and its Subsidiaries at such date determined in
accordance with generally accepted accounting principles on a
consolidated basis (excluding treasury stock and excluding the effects
of any foreign currency translation adjustments).
Without limiting any other provision of the Indenture, and without
prejudice to any other remedies which the Trustee or the Holders may have in
respect of any matured or unmatured Event of Default thereunder, the Indenture
provides that during such time as the Company shall fail to comply fully with
each of the financial covenants described in subparagraphs (i), (ii) and (iii)
above, the Company shall not:
(i) incur any indebtedness (whether secured, unsecured,
funded, unfunded, assumed, or otherwise), including any capitalized
lease obligations and guaranteed indebtedness of any other person
(provided, that this provision shall not prohibit the Company from
issuing preferred stock or other equity securities; and provided,
further, that this provision shall not prohibit the Company from
borrowing under the Senior Credit Agreement so long as the total
indebtedness outstanding under the Senior Credit Agreement, at all
times during the period in which the Company fails to comply with the
provisions of such subparagraph(s), does not exceed the total amount
outstanding under the Senior Credit Agreement as of the initial date
that the Company shall have failed to comply with the provisions of
such subparagraph(s);
(ii) enter into a transaction (including, without limitation,
the purchase or sale of any property or service) with, or make any
payment or transfer to, any director, officer or other affiliate
(including without limitation any holder of five percent (5%) or more
of any class of the Company's equity securities) except in the ordinary
course of business and pursuant to the reasonable requirements of the
Company's business and upon fair and reasonable terms no less favorable
to the Company than the Company would obtain in a comparable
arms-length transaction; or
(iii) engage in or consummate any transaction or series of
transactions that would otherwise be permitted pursuant to the negative
covenants set forth in Section 1019 the Indenture.
Events of Default and Remedies
Pursuant to the Indenture, each of the following constitutes an Event
of Default thereunder: (a) the Company fails to make any payment of principal or
interest on a Note on or before the date such payment is due (provided, that the
Company shall not be deemed to have failed to make an interest payment if such
payment is made with funds on deposit in the Reserve Account), or the Company
shall fail to pay any other amount due on account of the Notes (other than
principal or interest) within ten (10) days of receipt of written notice from
the Trustee; (b) the Company fails to deposit into the Reserve Account on or
before the date that is six (6) months after the date of any disbursement
therefrom any amount necessary to cause the amount on deposit in the Reserve
Account at such time to equal six (6) months' interest under the Notes, based on
the principal amount outstanding under the Notes at such time; (c) the Company
fails to comply with any other provision of the Indenture, and such failure
continues for more than thirty (30) days after the earlier of the date upon
which (i) the Company shall have become aware of such failure or (ii) written
notice of such failure shall first have been given to the Company by the
Trustee; (d) any warranty, representation or other statement by or on behalf of
the Company contained in the Indenture shall have been false or misleading in
any material respect when made; (e) any event shall occur or any condition shall
exist in respect of the indebtedness of the Company under the Senior Credit
Agreement or under any agreement securing or relating to such indebtedness, that
immediately or with any one or more of the passage of time or the giving of
notice causes such indebtedness, or a portion thereof, to become due prior to
its stated maturity or prior to its regularly scheduled date or dates of payment
or causes any one or more of the holders thereof or a trustee therefor to
require the Company
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or any Subsidiary to repurchase such indebtedness from the holders thereof; (f)
a receiver, liquidator, custodian or trustee of the Company or any Subsidiary,
or of all or any substantial part of the property of either, shall be appointed
by court order and such order remains in effect for more than sixty (60) days,
or an order for relief shall be entered with respect to the Company or any
Subsidiary, or the Company or any Subsidiary shall be adjudicated a bankrupt or
insolvent, or all or any substantial part of the property of the Company or any
Subsidiary shall be sequestered by court order and such order shall remain in
effect for more than sixty (60) days; (g) a petition shall be filed against the
Company or any Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and shall not be dismissed
within sixty (60) days after such filing; (h) the Company or any Subsidiary
shall file a petition in voluntary bankruptcy or seeking relief under any
provision of any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, or shall consent to the filing of any
petition against it under any such law; (i) the Company or a Subsidiary shall
make an assignment for the benefit of its creditors, or admit in writing its
inability, or fail, to pay its debts generally as they become due, or shall
consent to the appointment of a receiver, liquidator or trustee of the Company
or a Subsidiary or of all or a substantial part of its property; (j) a final,
non-appealable judgment or judgments in the aggregate for the payment of money
in excess of Two-Hundred Fifty Thousand Dollars ($250,000) is or are outstanding
against one or more of the Company and the Subsidiaries and any one of such
judgments shall have been outstanding for more than sixty (60) days from the
date of its entry and shall not have been discharged in full or stayed; (k) the
Reserve Account Security Agreement shall fail to remain in full force or effect
or any action shall be taken to discontinue or to assert the invalidity of the
Reserve Account Security Agreement, or the Company or any Subsidiary shall fail
to comply with any of the terms and provisions of the Reserve Account Security
Agreement, or the Company denies the enforceability of the Reserve Account
Security Agreement or gives notice (written or otherwise) to such effect; or (l)
any Subsidiary Guarantee shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Subsidiary Guarantee, or any Subsidiary shall fail to
comply with any of the terms or provisions of a Subsidiary Guarantee, or any
Subsidiary denies that it has any further liability under a Subsidiary Guarantee
or gives notice (written or otherwise) to such effect.
If any Event of Default of the type specified in clause (a) of the
foregoing paragraph shall exist, the Notes shall automatically become
immediately due and payable together with interest accrued thereon, without
presentment, demand, protest or notice of any kind. If an Event of Default other
than those of the type specified in clause (a) of the foregoing paragraph shall
exist and the indebtedness of the Company under the Senior Credit Agreement
shall have been declared due and payable prior to its stated maturity or prior
to its regularly scheduled date or dates of payment pursuant to Section 9.2(a)
thereof (or any successor section having similar effect), the Trustee by notice
in writing to the Company, or the holders of at least 25% in aggregate principal
amount of the outstanding Notes, may (i) declare the unpaid principal of and
accrued interest on the outstanding Notes to be due and payable immediately and,
upon any such declaration, the outstanding Notes shall become immediately due
and payable, or (ii) exercise any other right, power or remedy permitted to the
Trustee or such holders by law. Notwithstanding the foregoing, the rights of the
Trustee and the Holders to exercise rights upon the occurrence of an Event of
Default under the Indenture are limited by, and subject in all respects to, the
subordination provisions set forth in the Indenture. See "Description of the
Notes - Subordination."
Upon the occurrence and during the continuation of an Event of Default,
all outstanding principal, interest and other amounts due under the Notes shall
bear interest at the Default Rate. No course of dealing on the part of any
holder of the Note nor any delay or failure on the part of any holder of the
Note to exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. Within 30 days after the
occurrence of any Event of Default or any event which is, or after notice or
lapse of time or both would become, an Event of Default, the Trustee shall give
the Holders of Notes notice thereof as and to the extent provided by the Trust
Indenture Act. The Indenture requires the Company to deliver to the Trustee,
within 90 days after the end of each fiscal year, an officer's certificate
specifying whether the Company is in default in the performance or observance of
any of the provisions of the Indenture and, if so, a description of the nature
and status thereof.
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Successor Company
The Company shall not consolidate with or merge into, or transfer or
lease its assets substantially as an entirety to any other corporation or other
entity unless the successor assumes the due and punctual payment of the
principal of and any premium and interest on all the Notes and the performance
or observance of every covenant of the Indenture on the part of the Company to
be performed or observed.
Modification of the Indenture
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than 66-2/3% in principal
amount of the outstanding Notes, to enter into one or more supplemental
indentures for the purpose of adding any provisions to or changing in any manner
or eliminating any of the existing provisions of the Indenture or of modifying
in any manner the rights of the holders of Notes under the Indenture, except
that no such supplemental indenture shall, without the consent of the holder of
each outstanding Note affected thereby, (i) change the stated maturity date of
the principal of, or any installment of principal of or interest on, any Note,
or reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or reduce the amount of the
principal of any Note which would be due and payable upon a declaration of
acceleration of the maturity thereof, or change any place of payment where, or
the coin or currency in which, any Note or any premium or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the stated maturity thereof, or (ii) reduce the percentage
in principal amount of the outstanding Notes, the consent of whose holders is
required for any such supplemental indenture, or the consent of whose holders is
required for any waiver (of compliance with certain provisions of this Indenture
or certain defaults hereunder and their consequences) provided for in this
Indenture. Without the consent of the holders of the Notes, the Company may
amend or supplement the Indenture or the Notes to cure any ambiguity, omission,
defect or inconsistency or to make any change that would not adversely affect
the rights of any Noteholder.
DESCRIPTION OF THE REDEEMABLE WARRANTS
The Redeemable Warrants are to be issued under a Warrant Agreement,
dated as of ________ __, 1997 (the "Warrant Agreement"), between the Company,
and Harris Trust and Savings Bank, as warrant agent (the "Warrant Agent"). A
copy of the proposed form of the Warrant Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The following
summary of certain provisions of the Warrant Agreement and the Redeemable
Warrants does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Warrant Agreement and the
Redeemable Warrants, including the definitions therein of certain terms.
Whenever particular sections, articles or defined terms of the Warrant Agreement
or the Redeemable Warrants are referred to herein, such sections, articles or
defined terms shall be as specified in the Warrant Agreement or the Redeemable
Warrants, as applicable.
General
Each Redeemable Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $___ per share at any
time commencing on March 1, 1998 and ending at 5:00 p.m., Phoenix, Arizona time,
on November 1, 2002. The exercise price of the Redeemable Warrants was
determined by negotiation between the Company and the Underwriter and should not
be construed to be predictive of or to imply that any price increases in the
Company's securities will occur. The Redeemable Warrants will be issued pursuant
to a warrant agreement (the "Warrant Agreement") among the Company, and Harris
Trust and Savings Bank, as warrant agent (the "Warrant Agent"), and will be
evidenced by warrant certificates in registered form. Redeemable Warrants to
purchase 150,000 shares (or 172,500 shares if the Underwriter's over-allotment
option is exercised in full) of Common Stock will be issued in this Offering to
the initial purchasers of the Notes. Redeemable Warrants to purchase an
additional 144,870 shares will be issued to the Underwriter as additional
underwriting compensation. See "Underwriting."
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Adjustment of Exercise Price and Change in Number of Shares Issuable Upon
Exercise
The Redeemable Warrants provide for adjustment of the exercise price
and for a change in the number of shares issuable upon exercise to protect the
Warrantholders against dilution upon the occurrence of certain events. Upon each
adjustment of the exercise price, Warrantholders shall thereafter be entitled to
purchase, at the exercise price resulting from such adjustment, a number of
shares determined by multiplying the exercise price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
exercise price resulting from such adjustment. Subject to certain important
exceptions and qualifications set forth in the Warrant Agreement, the events
which trigger adjustments of the exercise price and changes in the number of
shares issuable upon exercise are as follows:
(i) In the event that the Company shall at any time issue or
sell, or declare any dividend payable in, additional shares of Common
Stock or securities convertible into Common Stock, and the Company
shall receive consideration in respect of such issuance, sale, dividend
or distribution in an amount less than the current market price Fair
Value of the securities so issued or sold or the securities with
respect to which such dividend or distribution relates, then, in each
such event, the exercise price in effect immediately prior to such
issuance, sale, dividend or distribution shall be reduced to a number
which shall be calculated by dividing (A) an amount equal to the sum of
(1) the number of shares of Common Stock outstanding immediately prior
to such issuance, sale, dividend or distribution, multiplied by the
then existing exercise price plus (2) the aggregate consideration, if
any, received by the Company upon such issuance, sale, dividend or
distribution, by (B) the total number of shares of Common Stock
outstanding immediately after such issuance, sale, dividend or
distribution. If the Company shall declare any dividend, or authorize
any other distribution, upon any stock of the Company of any class,
payable in additional shares of Common Stock or by the issuance of
securities convertible into Common Stock, such declaration or
distribution shall be deemed to have been issued or sold (as of the
record date) without consideration. The number of shares of Common
Stock outstanding at any given time, for purposes of this provision,
shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes hereof.
(ii) If any capital reorganization or reclassification of the
capital stock of the Company, or any or any consolidation or merger of
the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive cash, stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the Warrantholders shall thereafter
have the right to purchase and receive upon the basis and upon the
terms and conditions specified in the Warrant Agreement upon exercise
of the Redeemable Warrants and in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such cash, shares
of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of such Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented thereby, and in any such case appropriate provision shall
be made with respect to the rights and interests of the Warrantholders
to the end that the provisions of the Warrant Agreement and the
Redeemable Warrants (including, without limitation, provisions for
adjustments of the exercise price and of the number of shares
purchasable and receivable upon the exercise of the Redeemable
Warrants) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock securities or assets thereafter
deliverable upon the exercise hereof.
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(iii) In case at any time or from time to time conditions
arise by reason of action taken by the Company which are not adequately
covered by the provisions of certain of the anti-dilution provisions of
the Warrant Agreement and which might materially and adversely effect
the exercise rights of the Warrantholders thereunder, the Board of
Directors of the Company shall cause an appropriate adjustment to the
Exercise Price and the number of shares purchasable upon exercise of
the Redeemable Warrants, so as to preserve, without dilution, the
exercise rights of the Warrantholders.
(iv) In case at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, the
exercise price of the Redeemable Warrants in effect immediately prior
to such subdivision shall be proportionately reduced and the number of
shares of Common Stock purchasable upon exercise thereof immediately
prior to such subdivision shall be proportionately increased, and
conversely, in case at any time the Company shall combine its
outstanding shares of Common Stock into a smaller number of shares, the
exercise price of the Redeemable Warrants in effect immediately prior
to such combination shall be proportionately increased and the number
of shares of Common Stock purchasable upon exercise thereof immediately
prior to such combination shall be proportionately reduced.
(v) In case the Company shall, at any time prior to the
expiration of the Redeemable Warrants, dissolve, liquidate or wind up
its affairs, the Warrantholders shall be entitled, upon the exercise of
the Redeemable Warrants, to receive, in lieu of the shares of Common
Stock of the Company which such Warrantholders would have been entitled
to receive, the same kind and amount of assets as would have been
issued, distributed or paid to such Warrantholders upon any such
dissolution, liquidation or winding up with respect to such shares of
Common Stock of the Company, had such Warrantholders been the holders
of record of the shares of Common Stock issuable upon exercise of the
Redeemable Warrants on the record date for the determination of those
persons entitled to receive any such liquidating distribution. After
any such dissolution, liquidation or winding up which shall result in
any cash distribution in excess of the exercise price of the Redeemable
Warrants, the Warrantholders may, at each such holder's option,
exercise the same without making payment of the exercise price
therefor, and in such case the Company shall, upon the distribution to
said holders, consider that said exercise price has been paid in full
to it and in making settlement to said holders shall deduct from the
amount payable to such holders an amount equal to such exercise price.
(vi) In each case of an adjustment in the number of shares of
Common Stock or other stock, securities or property receivable on the
exercise of the Redeemable Warrants, the Board of Directors of the
Company and the Company's Chief Financial Officer shall compute such
adjustment in accordance with the terms of the Warrant Agreement and
the Redeemable Warrants and prepare and duly execute and deliver to the
Warrant Agent a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based.
The Redeemable Warrants do not confer upon the Warrantholders any
voting or other rights of a stockholder of the Company.
Exercise of Redeemable Warrants
A Redeemable Warrant may be exercised upon written notice to the
Company (accompanied by surrender of the Redeemable Warrant certificate) and
upon payment of the full exercise price for the number of shares with respect to
which the Redeemable Warrant is being exercised. Shares issued upon exercise of
Redeemable Warrants, upon payment in accordance with the terms of the Redeemable
Warrants, will be fully paid and non-assessable. The Redeemable Warrants may be
exercised only during the exercise period referred to above. No fractional
shares or scrip representing fractional shares shall be issued upon the exercise
of the Redeemable Warrants. With respect to any fraction of a share called for
upon exercise of a Redeemable Warrant, such fraction shall be rounded to the
nearest whole share (with a fraction of one-half rounded up to the next highest
integer).
Redemption of Redeemable Warrants
On not less than thirty (30) days notice given at any time after
______________ (the "Redemption Notice"), to the Holders of the Redeemable
Warrants being redeemed, the Redeemable Warrants may be redeemed, at the option
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of the Company, at a redemption price of $0.05 per Redeemable Warrant, provided
the Market Price of the Common Stock receivable upon exercise of such Redeemable
Warrants exceeds $______, subject to adjustment. Market Price means (i) the
average closing bid price of the Common Stock, for twenty (20) consecutive
business days, ending on the Calculation Date as reported by Nasdaq, if the
Common Stock is traded on the Nasdaq SmallCap Market, or (ii) the average last
reported sale price of the Common Stock, for twenty (20) consecutive business
days, ending on the Calculation Date, as reported by the primary exchange on
which the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, or by Nasdaq, if the Common Stock is traded on the Nasdaq
National Market. All Warrants must be redeemed if any are redeemed. Calculation
Date means a date within 15 days of the mailing of a Redemption Notice.
If the conditions for redemption are met, and the Company desires to
exercise its right to redeem the Redeemable Warrants, it shall request the
Representative to mail a Redemption Notice to each of the Registered Holders of
the Redeemable Warrants to be redeemed, first class, postage prepaid, not later
than the thirtieth day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to the Redeemable
Warrants.
The Redemption Notice will specify (i) the Redemption Price, (ii) the
Redemption Date, (iii) the place where the Redeemable Warrant Certificates shall
be delivered and the Redemption Price paid, (iv) that the Representative will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Redeemable Warrants shall
terminate at 5:00 p.m. (New York time) on the business day immediately preceding
the Redemption Date. On and after the Redemption Date, Registered Holders of the
Redeemable Warrants will have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
DESCRIPTION OF COMMON STOCK AND OTHER SECURITIES
General
The Company's Certificate of Incorporation authorizes the issuance of
22,000,000 shares, consisting of 17,000,000 shares of Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share. As of August 1, 1997, the
Company had 6,739,324 shares of Common Stock outstanding and no shares of
preferred stock outstanding. At August 1, 1997, the Company had reserved an
aggregate of 1,891,250 shares of Common Stock for issuance upon the exercise of
outstanding options, warrants and other rights to acquire shares of Common Stock
(not including the shares issuable upon exercise of the Redeemable Warrants to
be issued pursuant to this Offering). An aggregate of 150,000 shares of Common
Stock (or 172,500 shares if the Underwriters over-allotment option is exercised
in full) will be issuable upon the exercise of the Redeemable Warrants. An
additional 144,870 shares of Common Stock will be issuable upon the exercise of
warrants issued to the Underwriter as additional underwriting compensation. See
"Underwriting." An additional 50,000 shares of Common Stock will be issuable
upon exercise of the Bridge Warrants issued to the holder of the Bridge Notes.
The Bridge Note holder has the right, upon repayment of the Bridge Notes, to
exchange the Bridge Warrants for warrants to purchase 50,000 shares of Common
Stock on terms and conditions identical to those set forth in the Redeemable
Warrants. See "Use of Proceeds."
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the dissolution, liquidation or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of all liabilities of the Company. All
outstanding shares of Common Stock are fully paid and nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
Offering, persons acquiring Common Stock in this Offering would have no right to
purchase additional shares, and as a result, their percentage equity interest in
the Company would be reduced.
Pursuant to the Company's Bylaws, except for any matters which,
pursuant to the Delaware General Corporation Law ("Delaware Law"), require a
greater percentage vote for approval, the holders of one-third of the
outstanding Common Stock, if present in person or by proxy, are sufficient to
constitute a quorum for the transaction of business at meetings of the Company's
stockholders. Holders of shares of Common Stock are entitled to one vote per
share on all matters submitted to the vote of Company
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stockholders. Except as to any matters which, pursuant to Delaware Law, require
a greater percentage vote for approval, the affirmative vote of the holders of a
majority of the Common Stock present in person or by proxy at any meeting
(provided a quorum as aforesaid is present thereat) is sufficient to authorize,
affirm or ratify any act or action, including the election of directors.
The holders of Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of Common
Stock can elect all of the Directors to be elected in any election, if they
choose to do so. In such event, the holders of the remaining shares of Common
Stock would not be able to elect any Directors. The Board is empowered to fill
any vacancies on the Board created by the resignation, death or removal of
Directors.
In addition to voting at duly called meetings at which a quorum is
present in person or by proxy, Delaware Law and the Company's Bylaws provide
that stockholders may take action without the holding of a meeting by written
consent or consents signed by the holders of a majority of the outstanding
shares of the capital stock of the Company entitled to vote thereon. Prompt
notice of the taking of any action without a meeting by less than unanimous
consent of the stockholders will be given to those stockholders who do not
consent in writing to the action. The purposes of this provision are to
facilitate action by stockholders and to reduce the corporate expense associated
with annual and special meetings of stockholders. Pursuant to the rules and
regulations of the Commission, if stockholder action is taken by written
consent, the Company will be required to send to each stockholder entitled to
vote on the matter acted on, but whose consent was not solicited, an information
statement containing information substantially similar to that which would have
been contained in a proxy statement. The Board of Directors intends to place
before the Company's stockholders at the Company's 1997 annual meeting a
proposal that would amend the Company's Bylaws and Certificate of Incorporation
to prohibit shareholder action by written consent.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, $.01 par value per share ("Preferred Stock"), 50,000 of which were
designated as Series A Convertible Preferred Stock during December 1995 and
issued for consideration of $100 per share. All of the outstanding shares of the
Series A Convertible Preferred Stock were converted according to their terms
into an aggregate of 1,904,324 shares of Common Stock during the first quarter
of 1996, at which time all such shares of the Series A Convertible Preferred
Stock became authorized but unissued shares of Preferred Stock which may be
reissued.
Under the Company's Certificate of Incorporation, shares of Preferred
Stock may, without any action by the stockholders of the Company, be issued by
the Board of Directors of the Company from time to time in one or more series
for such consideration and with such relative rights, privileges and preferences
as the Board may determine. Accordingly, the Board has the power, without
stockholder approval, to fix the dividend rate and to establish the provisions,
if any, relating to voting rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of Preferred Stock issued in
the future, which could adversely affect the voting power or other rights of the
holders of the Common Stock.
It is not possible to state the actual effect of the authorization of
the Preferred Stock upon the rights of the holders of the Common Stock until the
Board determines the specific rights of the holders of any series of preferred
Stock. The Board's authority to issue Preferred Stock provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a person or group to
gain control of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
Other Warrants
In connection with its 1994 initial public offering, the Company issued
warrants (the "IPO Warrants") which entitle the holders thereof to purchase an
aggregate of 1,067,500 shares of Common Stock, at $5.00 per share. The number of
shares and the exercise price are subject to adjustment upon the occurrence of
certain specified events. The IPO Warrants expire on February 17, 1998. The
Company has the right to
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<PAGE>
redeem the IPO Warrants at $.01 per share of Common Stock subject to the IPO
Warrants at any time after the closing price of the Common Stock has been $7.00
or more for at least 20 consecutive trading days. The IPO Warrants are quoted on
the Nasdaq SmallCap Market under the symbol "MINIW."
The Company issued to the underwriters of its initial public offering
unit warrants to purchase units comprised of an aggregate of 187,500 shares of
Common Stock and warrants to purchase an additional aggregate of 93,750 shares
of Common Stock. The unit warrants are exercisable at $12.00 per unit (each unit
being comprised of two shares of Common Stock and a warrant to purchase one
share of Common Stock), and the warrants included within the units are
exercisable at $5.00 per share of Common Stock. The warrants to purchase the
units, and the warrants included therein, expire on February 17, 1998.
In connection with the sale of the Bridge Notes, the Company issued to
purchasers of the Bridge Notes warrants ("Bridge Warrants") to purchase 50,000
shares of Common Stock. The Bridge Warrants are exercisable at $5.00 per share
and include other terms substantially identical to the terms of the Warrants. As
part of this Offering, the holders of the Bridge Notes will be afforded the
opportunity to exchange all the Bridge Warrants for Redeemable Warrants to
purchase 50,000 shares of Common Stock.
Classified Board Of Directors And Related Provisions
The Company's Board of Directors intends to propose that the Company's
stockholders adopt at the Company's 1997 annual meeting of stockholders an
amendment to the Company's Certificate of Incorporation to provide for a
classified board of directors. The amendment will provide that the Board of
Directors be divided into three classes, and that the directors serve staggered
terms of three years each. The purpose of the classified board is to promote
conditions of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors, by insuring
that in the ordinary course, at least two-thirds of the directors will at all
times have at least one year's experience as directors. However, the classified
board structure may prevent stockholders who do not approve of the policies of
the Board of Directors from removing a majority of the Board of Directors at a
single annual meeting, because it will normally take two annual meetings of
stockholders to elect a majority of the Board.
Delaware Anti-Takeover Law
Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
Transfer Agent and IPO Warrant Agent
The transfer agent for the Common Stock and the Warrant Agent for the
IPO Warrants is Harris Trust and Savings Bank.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Notes
The following is a discussion of certain anticipated U.S. federal
income tax consequences of the purchase, ownership and disposition of the Notes
as of the date hereof. It deals only with Notes held as capital assets by
initial purchasers that are United States holders and does not deal with special
situations, such as those of foreign persons, dealers in securities, financial
institutions, life insurance companies,
50
<PAGE>
holders whose "functional currency" is not the U.S. dollar, or special rules
with respect to certain "straddle" or hedging transactions. The discussion below
is based upon the Internal Revenue Code of 1986, as amended, (the "Code"), and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
federal income tax consequences different from those discussed below.
PROSPECTIVE PURCHASERS CONSIDERING AN INVESTMENT IN THE NOTES SHOULD CONSULT
THEIR TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE
SPECIFIC TO THEM AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
Original Issue Discount
The issue price of the Notes will be the price at which the Notes and
the Redeemable Warrants, together, are sold to investors. In order to determine
the issue price for the Notes and the Redeemable Warrants, the aggregate issue
price must be allocated between the Notes and the Redeemable Warrants based upon
their relative fair market values on the date of issuance. If a holder purchases
Notes and the Redeemable Warrants for the issue price of the Notes, the holder's
initial tax basis for the Note and the Redeemable Warrants will equal the
portion of the issue price of the Notes allocated to each. The Company intends
to allocate the issue price on a per Note and per the Redeemable Warrant basis.
A holder of Notes and Redeemable Warrants may not adopt a different allocation
unless such holder properly discloses such a different allocation on the
holder's federal income tax return for the year in which the Notes and Warrants
were acquired.
Because the Notes are being offered together with the Redeemable
Warrants, a portion of the offering price for a Note will be allocated to the
Notes and a portion to the Redeemable Warrants. Since the portion allocable to a
Note will be less than the Note's principal amount, a Note will likely be issued
at a discount from its face amount. If the discount (generally referred to as
"original issue discount" or "OID") exceeds a statutory de minimis amount (1/4
of 1% of an obligation's stated redemption price at maturity multiplied by the
number of complete years to its maturity), the Notes will be considered to be
issued with original issue discount. In addition to including in income the
amount of stated interest received or accrued, a holder will be required to
include a portion of any such OID as ordinary income for federal income tax
purposes each year over the term of the Notes so as to provide a constant yield
to maturity.
The total amount of OID with respect to each Note will be the
difference between the issue price and the stated redemption price at maturity.
The issue price of the Notes and the Redeemable Warrants will be the price paid
by the initial purchasers of the Notes at their initial offering. This issue
price will then be allocated between the Notes and the Redeemable Warrants as
described above based on their relative fair market values. The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than "qualified stated interest" payments. Stated interest on the
Notes will constitute "qualified stated interest". Thus, the stated redemption
price at maturity of a Note will be equal to the principal amount of such Note.
The Company will report annually to the Internal Revenue Service and to
record holders of Notes information with respect to OID accruing during the
calendar year.
Disposition of Notes
A holder of a Note generally will recognize gain or loss upon the sale,
exchange, retirement or other taxable disposition of a Note equal to the
difference between the amount realized on such sale, exchange, retirement or
other taxable disposition and the holder's adjusted tax basis in the Note. A
holder's adjusted tax basis in a Note will generally be the cost of such Note,
increased by any OID previously included in income by such holder with respect
to such Note. Such gain or loss generally will be capital gain or loss. Under
recently enacted legislation, an individual U.S. Holder is generally subject to
a maximum capital gains rate of 28% for Notes held for more than one year and
the maximum capital gains rate for an individual U.S. Holder is reduced to 20%
for Notes held in excess of 18 months.
The foregoing does not discuss special rules that may affect the
treatment of purchasers that acquire Notes other than at the time of original
issuance at the issue price, including those provisions of the Code relating to
the treatment of "market discount," "market premium" or "amortizable bond
premium."
The Redeemable Warrants
A U.S. Holder will generally not recognize any gain or loss upon
exercise of any Redeemable Warrants (except with respect to any cash received in
lieu of a fractional share of Common Stock). A U.S. Holder will have an initial
tax basis in the shares of Common Stock received on exercise of the Redeemable
Warrants equal to the sum of its tax basis in the Redeemable Warrants and the
aggregate exercise price thereof. A U.S. Holder's holding period in such shares
of Holdings Common Stock will commence on the day after the Redeemable Warrants
are exercised.
If a Redeemable Warrant expires without being exercised, a U.S. Holder
will recognize a capital loss in an amount equal to its tax basis in the
Redeemable Warrant. Upon the sale or exchange of a Redeemable Warrant, a U.S.
Holder will generally recognize a capital gain or loss equal to the difference,
if any, between the amount realized on such sale or exchange and the U.S.
Holder's tax basis in such Redeemable Warrant. Such capital gain or loss will be
long-term capital gain or loss if, at the time of such sale or exchange, the
Redeemable Warrant has been held for more than one year.
Under Section 305 of the Code, a U.S. Holder of a Redeemable Warrant
may be deemed to have received a constructive distribution from the Issuer,
which may result in the inclusion of ordinary dividend income, in the event of
certain adjustments to the number of shares of Holdings Common Stock to be
issued on exercise of a Redeemable Warrant.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, for which Peacock, Hislop, Staley & Given, Inc. is
acting as representative (in such capacity the "Representative"), have agreed to
purchase from the Company Units which include the principal amount of ____%
Senior Subordinated Notes with Redeemable Warrants set forth opposite their
names below:
Principal
Name Amount
---- ------
Peacock, Hislop, Staley & Given, Inc.................................$
-----------
Total................................................................$ 6,000,000
===========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Units (comprised of Notes and the
Redeemable Warrants) offered hereby (other than those subject to the
Underwriters' over-allotment described below) if any of such Notes and the
Redeemable Warrants are purchased.
The Representative has advised the Company that the Underwriters
propose to offer the Units (comprised of Notes and the Redeemable Warrants)
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at this price less a
concession not in excess of ______% of the principal amount of the Notes. The
Underwriters may allow and these dealers may reallow a concession not in excess
of _______% of the principal amount of the Notes to certain other dealers. After
the initial public offering of the Units, the offering price and other selling
terms may be changed by the Representative.
The Company has granted the Underwriters an option, exercisable not
later than 45 days after the date of this prospectus, to purchase additional
Units (comprised of up to $900,000 in principal amount of additional Notes,
together with additional Redeemable Warrants covering an aggregate of 22,500
shares of Common Stock), at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus, solely to
cover over-allotments. To the extent that the Underwriters exercise this option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof as the principal amount of Notes and Redeemable
Warrants to be purchased by it shown in the above table bears to the total
offering, and the Company will be obligated, pursuant to the option, to sell
such Units to the Underwriters.
Any Underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Over-allotment involves sales in excess of the offering size, which creates a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the securities in the open
market after the distribution is completed to cover short positions. Penalty
bids permit the Underwriters to reclaim a selling concession from a dealer when
the securities originally sold by the dealer are purchased in a covering
transaction to cover short positions. Those activities may cause the price of
the securities to be higher than it would otherwise be. If commenced, the
Underwriters may discontinue those activities at any time.
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In the Underwriting Agreement, the Company has agreed to reimburse the
Underwriters for their fees and costs in connection with the Offering (including
the fees and expenses of Squire, Sanders & Dempsey L.L.P., counsel to the
Underwriters). Further, the Underwriting Agreement contains covenants of
indemnity between the Underwriters, on the one hand, and the Company on the
other, against certain civil liabilities, including liabilities under the
Securities Act.
The Company has agreed to issue for a nominal consideration, warrants
to the Representative and its designees (the "Representative Warrants") to
purchase 144,870 shares of the Company's Common Stock. The Representative
Warrants are exercisable at any time during the period commencing on March 1,
1998 and ending on November 1, 2002. The number of shares of Common Stock
covered by the Representative's Warrants and the exercise price thereof are
subject to certain anti-dilution adjustments. The exercise price and all other
terms of the Representative's Warrant, and the terms of the Common Stock
issuable upon exercise thereof, are identical to the terms of the Redeemable
Warrants sold in this offering and the Common Stock issuable upon exercise
thereof; provided, however, that the Representative's Warrant will be subject to
a one-year lock-up period commencing on the effective date of the registration
statement of which this Prospectus is a part.
Pursuant to the terms of certain lock-up agreements, certain holders of
the Company's Common Stock have agreed with the Representative that, for a
period of 180 days after the effective date of the registration statement, they
will not offer to sell, dispose of or grant any rights with respect to any
shares of Common Stock, now owned or hereafter acquired directly by such holders
or with respect to which they have power of disposition, without the prior
written consent of Representative.
Prior to this Offering there has been no public market for the Units,
Notes or the Redeemable Warrants, and the initial public offering price for the
Notes and the Redeemable Warrants offered hereby has been determined by
negotiation among the Company and the Representative. Among the factors to be
considered in making such determination are the history of the prospects for the
industry in which the Company competes, an assessment of the Company's
management, the past and present operations of the Company, the general
condition of the securities markets at the time of the offering of the Company,
the general condition of the securities markets at the time of the offering. The
Company has applied to The Nasdaq Stock Market to have the Redeemable Warrants
listed on the Nasdaq SmallCap Market under the symbol "____". The Common Stock
of the Company trades on the Nasdaq National Market under the symbol "MINI."
There is no public market for the Notes and the Company does not intend to apply
for listing of the Notes on Nasdaq or any national stock market. See "Risk
Factors -- Absence of Trading Market."
LEGAL MATTERS
The validity of the Notes and of the Redeemable Warrants offered hereby
will be passed upon for the Company by Bryan Cave LLP, Phoenix, Arizona. Squire,
Sanders & Dempsey L.L.P., Phoenix, Arizona, will pass upon certain matters as
requested by the Underwriter.
EXPERTS
The consolidated financial statements and schedule of the Company and
its subsidiaries as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 included or incorporated by
reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included and
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
53
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------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the SEC. Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the SEC, at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
be obtained upon written request from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or on the
World Wide Web through the SEC's Internet address at "http://www.sec.gov."
The Company has filed with the SEC a registration statement on Form S-2
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the SEC. For further information, reference is hereby made to
the Registration Statement. Each statement made in this Prospectus concerning a
document filed as part of the Registration Statement is qualified in its
entirety by reference to such document for a complete statement of its
provisions. Copies of the Registration Statement may be inspected, without
charge, at the offices of the SEC, or obtained at prescribed rates from the
Public Reference Section of the Commission, at the address set forth above, or
on the World Wide Web through the Commission's Internet address at
"http://www.sec.gov."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-12804)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and the following amendments thereto:
Amendment No. 1 dated April 29, 1997, Amendment No. 2 dated
June 15, 1997, and Amendment No. 3 dated August, 1997;
2. All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since December 31, 1996,
consisting of the Company's Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1997 and June 30, 1997;
and
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, dated February 9, 1994, as
amended by Amendment No. 1 dated February 16, 1994.
Exhibits to the following registration statements and periodic reports
of the Company, filed with the Commision, are incorporated by reference herein:
Registration Statement on Form SB-2, as amended by Post-Effective Amendment No.
1 thereto dated February 2, 1994 (File No. 33-71528-LA); Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994 and December 31,1995; and
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1994.
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Offering made hereby shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified shall not
be deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents which are incorporated herein by
reference (other than exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Requests for such copies
should be directed to: Stockholder Relations Department, Mobile Mini, Inc., 1834
West Third Street, Tempe, Arizona 85281, telephone: (602) 894-6311.
------------------
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INDEX
Report of Independent Public Accountants F-2
Financial Statements-
Consolidated Balance Sheets - December 31, 1996 and 1995 F-3
Consolidated Statements of Operations - For the Years Ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity - For the Years
Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements - December 31, 1996 and 1995 F-8
Financial Statements (Unaudited)-
Consolidated Balance Sheet - December 31, 1996 (unaudited) and
June 30, 1997 (unaudited) F-19
Consolidated Statements of Operations - Three Months and Six
Months ended June 30, 1997 and June 30, 1996 (unaudited) F-20
Consolidated Statements of Cash Flows - Six Months ended June 30,
1997 and June 30, 1996 (unaudited) F-21
Notes to Consolidated Financial Statements F-22
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mobile Mini, Inc.:
We have audited the accompanying consolidated balance sheets of MOBILE MINI,
INC. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Mini, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, the Company has
given retroactive effect to the change in accounting for its convertible
securities having beneficial conversion features.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 24, 1997 (except with respect to the
matter discussed in Note 1 - Restatement,
as to which the date is August 7, 1997).
F-2
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS: 1996 1995
----------- -----------
<S> <C> <C>
Cash $ 736,543 $ 1,430,651
Receivables, net of allowance for doubtful accounts of $268,000 and $158,000
at December 31, 1996 and 1995, respectively 4,631,854 4,312,725
Inventories 4,998,382 5,193,222
Prepaid and other 742,984 718,574
----------- -----------
Total current assets 11,109,763 11,655,172
CONTAINER LEASE FLEET, net of accumulated depreciation of $1,244,000
and $911,000, respectively 34,313,193 26,954,936
PROPERTY, PLANT AND EQUIPMENT, net 17,696,046 15,472,164
OTHER ASSETS 1,697,199 259,672
----------- -----------
$64,816,201 $54,341,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,557,329 $ 4,265,147
Accrued compensation 674,818 238,132
Other accrued liabilities 1,517,295 1,334,332
Current portion of long-term debt (Note 4) 1,378,829 737,181
Current portion of obligations under capital leases (Note 5) 1,352,279 2,488,205
----------- -----------
Total current liabilities 7,480,550 9,062,997
LINE OF CREDIT (Note 3) 26,406,035 4,099,034
LONG-TERM DEBT, less current portion (Note 4) 5,623,948 8,363,333
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 5) 5,387,067 12,944,653
DEFERRED INCOME TAXES 3,709,500 3,711,985
----------- -----------
Total liabilities 48,607,100 38,182,002
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9) STOCKHOLDERS' EQUITY (Note 10):
Series A Convertible Preferred Stock, $.01 par value, $100 stated value,
5,000,000 shares authorized, 0 and 50,000 shares issued and outstanding at
December 31,
1996 and 1995, respectively -- 5,000,000
Common stock, $.01 par value, 17,000,000 shares authorized, 6,739,324 and 4,835,000
shares issued and outstanding at December 31, 1996 and 1995, respectively 67,393 48,350
Additional paid-in capital 15,588,873 10,628,979
Retained earnings 552,835 482,613
----------- -----------
Total stockholders' equity 16,209,101 16,159,942
----------- -----------
$64,816,201 $54,341,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Container and modular building sales $ 23,618,754 $ 24,264,547 $ 18,480,503
Leasing 13,638,635 12,213,888
7,174,585
Delivery, hauling and other 4,952,705 3,426,767 2,527,146
------------ ------------ ------------
42,210,094 39,905,202 28,182,234
COSTS AND EXPENSES:
Cost of container and modular building sales 19,926,191 19,106,960 13,903,299
Leasing, selling, and general expenses 15,343,210 15,174,159 10,863,068
Depreciation and amortization 1,713,419 1,317,974 624,754
Restructuring charge (Note 1) 700,000 -- --
------------ ------------ ------------
INCOME FROM OPERATIONS 4,527,274 4,306,109 2,791,113
OTHER INCOME (EXPENSE):
Interest income and other 225,053 292,686 204,007
Interest expense (3,894,155) (3,211,659) (1,274,204)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM 858,172 1,387,136 1,720,916
PROVISION FOR INCOME TAXES (377,596) (610,341) (765,098)
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 480,576 776,795 955,818
EXTRAORDINARY ITEM, net of income tax benefit of $322,421 (Note 3) (410,354) -- --
------------ ------------ ------------
NET INCOME 70,222 776,795 955,818
PREFERRED STOCK DIVIDENDS (Notes 1 and 10) -- 1,250,000 --
------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 70,222 $ (473,205) $ 955,818
============ ============ ============
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) available to common shareholders
before extraordinary item $ 0.07 $ (0.09) $ 0.21
Extraordinary item (0.06) -- --
------------ ------------ ------------
Net income (loss) available to common shareholders $ 0.01 $ (0.09) $ 0.21
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 6,737,592 5,004,817 4,496,904
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ -- $ 27,000 $ 3,265,097 $ -- $ 3,292,097
Sale of common stock (Note 10) -- 21,350 7,005,768 -- 7,027,118
Net income -- -- -- 955,818 955,818
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1994 -- 48,350 10,270,865 955,818 11,275,033
Sale of preferred stock (Note 10) 5,000,000 -- (891,886) -- 4,108,114
Preferred stock discount (Note 10) -- -- 1,250,000 -- 1,250,000
Net income -- -- -- 776,795 776,795
Preferred stock dividend (Note 10) -- -- -- (1,250,000) (1,250,000)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1995 5,000,000 48,350 10,628,979 482,613 16,159,942
Conversion of preferred stock
(Note 10) (5,000,000) 19,043 4,959,894 -- (21,063)
Net income -- -- -- 70,222 70,222
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 $ -- $ 67,393 $ 15,588,873 $ 552,835 $ 16,209,101
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 70,222 $ 776,795 $ 955,818
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Extraordinary loss on early debt extinguishment 410,354 -- --
Amortization of deferred costs on credit agreement 385,473 -- --
Depreciation and amortization 1,713,419 1,317,974 624,754
Loss (gain) on disposal of property, plant and equipment 3,938 1,763 (399)
Changes in assets and liabilities:
Increase in receivables, net (319,129) (292,339) (2,255,883)
Decrease (increase) in inventories 194,840 (1,085,216) (2,681,378)
Increase in prepaid and other (24,410) (219,109) (112,169)
Decrease (increase) in other assets 45,902 (87,617) (89,495)
(Decrease) increase in accounts payable (1,707,818) (825,657) 3,551,884
(Decrease) increase in accrued liabilities 619,649 (382,147) 618,970
(Decrease) increase in deferred income taxes (2,485) 629,987 688,998
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,389,961 (165,566) 1,301,100
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of container lease fleet (7,737,552) (6,752,060) (6,512,209)
Net purchases of property, plant and equipment (3,013,247) (4,025,574) (7,918,913)
----------- ----------- -----------
Net cash used in investing activities (10,750,799) (10,777,634) (14,431,122)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 22,307,001 876,804 1,427,208
Proceeds from issuance of long-term debt 7,127,997 5,855,982 3,290,005
Proceeds from sale-leaseback transactions -- 5,857,235 4,690,350
Payment for deferred financing costs (1,963,484) -- --
Principal payments and penalties on early debt extinguishment (14,405,879) -- --
Principal payments on long-term debt (1,334,083) (2,081,883) (1,081,740)
Principal payments on capital lease obligations (3,043,759) (3,089,046) (1,505,677)
Additional paid in capital (21,063) 4,108,114 7,027,118
----------- ----------- -----------
Net cash provided by financing activities 8,666,730 11,527,206 13,847,264
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (694,108) 584,006 717,242
CASH, beginning of year 1,430,651 846,645 129,403
----------- ----------- -----------
CASH, end of year $ 736,543 $ 1,430,651 $ 846,645
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 3,186,774 $ 2,745,542 $ 1,320,084
=========== =========== ===========
Cash paid during the year for income taxes $ 59,958 $ 277,600 $ 300,692
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations of $548,697, $1,851,336 and $1,413,061 during 1996, 1995, and 1994, respectively, were incurred in
connection with lease agreements for containers and equipment.
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
MOBILE MINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) THE COMPANY, ITS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Mobile Mini, Inc., a Delaware corporation, designs and manufactures portable
steel storage containers and telecommunications shelters and acquires and
refurbishes ocean-going shipping containers for sale and lease primarily in
Arizona, California and Texas. It also designs and manufactures a variety of
delivery systems to compliment its storage container sales and leasing
activities.
Principles of Consolidation
The consolidated financial statements include the accounts of Mobile Mini, Inc.
and its wholly owned subsidiaries, Delivery Design Systems, Inc. ("DDS") and
Mobile Mini I, Inc. (collectively the "Company"). All material intercompany
transactions have been eliminated.
Management's Plans
The Company has experienced rapid growth during the last several years with
revenues increasing at a 35.0% compounded rate during the last three years. This
growth related to both the opening of additional sales and leasing offices in
California and Texas and to an increase in leasing revenues due to the expansion
of the Company's container lease fleet. Much of this growth was financed with
short-term debt or capital leases, which was not adequate to meet the Company's
growth needs.
As discussed more fully in Note 3, in March 1996, the Company entered into a
$41.0 million credit agreement (the "Senior Credit Agreement") with a group of
lenders. Initial borrowings under the Senior Credit Agreement of $22,592,000
were used to refinance a majority of the Company's outstanding indebtedness with
more favorable terms. The Company intends to use its remaining borrowing
availability, primarily to expand its container lease fleet and related
operations.
The Company believes that its current capitalization together with borrowings
available under the Senior Credit Agreement, is sufficient to maintain the
Company's current level of operations and permit controlled growth. However,
should demand for the Company's products exceed current expectations, the
Company would be required to secure additional financing through debt or equity
offerings, additional borrowings or a combination of these sources. However,
there is no assurance that any such financings will be available or will be
available on terms acceptable to the Company.
The Company's ability to obtain used containers for its lease fleet is subject
in large part to the availability of these containers in the market. This is in
part subject to international trade issues and the demand for containers in the
ocean cargo shipping business. Should there be a shortage in supply of used
containers, the Company could supplement its lease fleet with new manufactured
containers. However, should there be an overabundance of these used containers
available, it is likely that prices would fall. This could result in a reduction
in the lease rates the Company could obtain from its container leasing
operations. It could also cause the appraised orderly liquidation value of the
containers in the lease fleet to decline. In such event, the Company's ability
to finance its business through the Senior Credit Agreement would be severely
limited, as the maximum borrowing limit under that facility is based upon the
appraised orderly liquidation value of the Company's container lease fleet.
The Company previously was involved in the manufacture, sale and leasing of
modular steel buildings in the state of Arizona. These buildings were used
primarily as portable schools, but could be used for a variety of purposes.
Although the Company believes its modular buildings were superior to the
wood-framed buildings offered by its competitors, the Company was not able to
generate acceptable margins on this product line. During 1996, the Company
implemented a strategic restructuring program designed to concentrate management
effort and resources and better position itself to achieve its strategic growth
objectives. As a result of this program, the Company's 1996 results include
charges of $700,000 ($400,000
F-7
<PAGE>
after tax, or $.06 per share) for costs associated with restructuring the
Company's manufacturing operations and for other related charges. These charges
were recorded in the fourth quarter of 1996, and were comprised of the
write-down of assets used in the Company's discontinued modular building
operations and related severance obligations ($300,000), and the write-down of
other fixed assets ($400,000). By discontinuing its modular building operations,
the Company will be able to utilize the management resources and production
capacity previously utilized by this division to expand the Company's
telecommunications shelter business and its container leasing operations.
Revenue Recognition
The Company recognizes revenue from sales of containers upon delivery. Revenue
generated under container leases is recognized on a straight-line basis over the
term of the related lease.
Revenue under certain contracts for the manufacture of modular buildings is
recognized using the percentage-of-completion method primarily based on contract
costs incurred to date compared with total estimated contract costs. Provision
for estimated losses on uncompleted contracts is made in the period in which
such losses are determined. Costs and estimated earnings less billings on
uncompleted contracts of approximately $141,000 and $112,000 in 1996 and 1995,
respectively, represent amounts received in excess of revenue recognized and are
included in accrued liabilities in the accompanying balance sheet. In 1995,
costs and estimated revenue recognized in excess of amounts billed were included
in receivables.
Revenue for container delivery, pick-up and hauling is recognized as the related
services are provided.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 105, consist primarily of trade accounts receivable. The Company's trade
accounts receivable are generally secured by the related container or modular
building sold or leased to the customer.
The Company does not rely on any one customer base. The Company's sales and
leasing customers by major category are presented below as a percentage of units
sold/leased:
1996 1995
----------------- -----------------
Sales Leasing Sales Leasing
Retail and wholesale businesses 54% 52% 50% 44%
Homeowners 5% 17% 6% 22%
Construction 12% 22% 10% 23%
Institutions 14% 4% 20% 5%
Government, industrial and other 15% 5% 14% 6%
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined under the specific identification method. Market is the lower of
replacement cost or net realizable value. Inventories at December 31 consisted
of the following:
1996 1995
---------- ----------
Raw materials and supplies $3,547,487 $2,858,181
Work-in-process 288,986 883,814
Finished containers 1,161,909 1,451,227
========== ==========
$4,998,382 $5,193,222
========== ==========
F-8
<PAGE>
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. Salvage 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 salvage values do not cause
carrying values to exceed net realizable value. Normal repairs and maintenance
to property, plant and equipment are expensed as incurred.
Property, plant and equipment at December 31 consisted of the following:
Estimated
Useful Life
in Years
1996 1995
------ -----
Land - $708,555 $328,555
Vehicles and equipment 5 to 10 11,218,281 9,469,092
Buildings and improvements 30 6,958,247 6,363,154
Office fixtures and equipment 5 to 20 2,514,812 1,714,312
---------- ----------
21,399,895 17,875,113
Less-Accumulated depreciation (3,703,849) (2,402,949)
------------ ------------
$17,696,046 $15,472,164
=========== ===========
Included in property plant and equipment are assets held under capital leases of
$6,304,895 and $21,416,130, and accumulated amortization of $191,892 and
$620,283 at December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, substantially all property, plant and equipment
has been pledged as collateral for long-term debt obligations and obligations
under capital lease (see Notes 3, 4 and 5).
Accrued Liabilities
Included in accrued liabilities in the accompanying consolidated balance sheets
are customer deposits and prepayments totaling approximately $412,000 and
$505,000 for the years ended December 31, 1996 and 1995, respectively.
Earnings Per Common and Common Share Equivalent
Earnings per common and common share equivalent is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. Fully diluted and primary earnings per common and common share
equivalent are considered equal for all periods presented.
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company 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 the Company could realize in a
current market exchange.
The carrying amounts of cash, receivables and accounts payable approximate fair
values. The carrying amounts of the Company's borrowing under the line of credit
agreement and long-term debt instruments approximate their fair value. The fair
value of the Company's long-term debt and line of credit is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
F-9
<PAGE>
Deferred Financing Costs
Included in other assets are deferred financing costs of $1,659,218 and $172,715
at December 31, 1996 and 1995, respectively. These costs of obtaining long-term
financing are being amortized over the term of the related debt, using the
straight line method. The difference between amortizing the deferred financing
costs using the straight line method and amortizing such costs using the
effective interest method is not material.
Advertising Expense
The Company expenses the costs of advertising the first time the advertising
takes place, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits. Advertising expense
totaled $2,341,000 and $2,258,000 in 1996 and 1995, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Recently Issued Accounting Standard
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, was adopted in 1996. The adoption of SFAS No. 121 did not have a material
effect on the Company's financial position or its results of operations.
Restatement
The financial position and results of operations presented in the financial
statements and footnotes for the year ended December 31, 1995, have been
restated to give effect to the accounting treatment announced by the staff of
the Securities and Exchange Commission ("SEC") at the March 13, 1997 meeting of
the Emerging Issues Task Force relevant to the Company's issuance of Series A
Convertible Preferred Stock having "beneficial conversion" features. Such
issuance included conversion features, which permitted the holders to convert
their holdings to common shares at a fixed discount off of the market price of
the common shares when converted.
Under this accounting treatment, the estimated value of the fixed discount (20%
of the closing price at the date of conversion) has been accounted for as
additional paid-in-capital. The difference between the stated value of the
Series A Convertible Preferred Stock and its original carrying value (i.e.,
fixed discount) was accreted through the first possible conversion date,
December 31, 1995, as preferred stock dividends. The restatement gives effect to
the recognition in the calculation of earnings (loss) per share of the accretion
of the fixed discount as preferred stock dividends on the Company's Series A
Convertible Preferred Stock. None of these restatements had any effect on cash
flows of the Company.
(2) CONTAINER LEASE FLEET:
The Company has a container lease fleet consisting of refurbished or constructed
containers and modular buildings that are leased to customers under operating
lease agreements with varying terms. Depreciation is provided using the
straight-line method over the containers' and modular buildings' estimated
useful lives of 20 years with salvage values estimated at 70% of cost. In the
opinion of management, estimated salvage values do not cause carrying values to
exceed net realizable value. At December 31, 1996 and 1995, approximately $6.9
million and $24.9 million, respectively of containers and modular buildings
included in the container lease fleet have been pledged as collateral for
long-term debt
F-10
<PAGE>
and obligations under capital leases. The balance of the containers are secured
as collateral under the Senior Credit Agreement (see Notes 3, 4 and 5). Normal
repairs and maintenance to the containers and modular buildings are expensed as
incurred.
(3) LINE OF CREDIT:
In March 1996, the Company entered into the Senior Credit Agreement with BT
Commercial Corporation, as Agent for a group of lenders (the "Lenders"). Under
the terms of the Senior Credit Agreement, as amended, the Lenders have provided
the Company with a $35.0 million revolving line of credit and a $6.0 million
term loan. Borrowings under the Senior Credit Agreement are secured by
substantially all of the Company's assets.
Available borrowings under the revolving line of credit are based upon the level
of the Company's inventories, receivables and container lease fleet. The
container lease fleet will be appraised at lease annually, and up to 90% of the
lesser of cost or appraised orderly liquidation value, as defined, may be
included in the borrowing base. Interest accrues at the Company's option at
either prime plus 1.5% or the Eurodollar rate plus 3% and is payable monthly.
The term of this line of credit is three years, with a one-year extension
option.
In connection with the closing of the Senior Credit Agreement, the Company
terminated its line of credit with its previous lender, repaying all
indebtedness under that line. In addition, the Company repaid other long-term
debt and obligations under capital leases totaling $14.1 million. As a result,
the Company recognized costs previously deferred related to certain indebtedness
and prepayment penalties resulting in an extraordinary charge to earnings of
$410,000 ($732,000 net of a $322,000 benefit for income taxes).
The line of credit balance outstanding at December 31, 1996, was approximately
$26.4 million and is classified as a long-term obligation in the accompanying
1996 balance sheet. The amount available for borrowing was approximately
$957,000 at December 31, 1996. Prior to the refinancing, the Company had
available short-term lines of credit which bore interest at 1.5% over the prime
rate. During 1996 and 1995, the weighted average interest rate under the lines
of credit was 8.73% and 10.2%, respectively, and the average balance outstanding
during 1996 and 1995 was approximately $20.3 million and $4.2 million,
respectively.
The Senior Credit Agreement contains several covenants including a minimum
tangible net worth requirement, a minimum fixed charge coverage ratio, a maximum
ratio of debt to equity, minimum operating income levels and minimum required
utilization rates. In addition, the Senior Credit Agreement contains limits on
capital expenditures and the incurrence of additional debt, as well as
prohibiting the payment of dividends.
F-11
<PAGE>
(4) LONG TERM DEBT:
Long-term debt at December 31, consists of the following:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Notes payable to BT Commercial Corporation, interest ranging from 3.25%
over Eurodollar rate (5.6% at December 31, 1996) to 1.75% over prime
(8.25% at December 31, 1996), fixed monthly installments of principal
plus interest, due March 2001, secured by various classes of the
Company's assets $5,437,500 $ --
Notes payable, interest ranging from 9% to 12.2%, monthly installments
of principal and interest, due March 1997 through September 2001,
secured by equipment and vehicles 743,867 3,122,665
Notes payable, interest ranging from 11.49% to 12.63%, monthly
installments of principal and interest, due July 2000 through January
2001, secured by containers 706,796 4,342,043
Short term note payable to financial institution, interest at 6.89%
payable in fixed monthly installments due March 1997, unsecured 114,614 --
Notes payable to banks, interest ranging from 1.75% to 2.75% over
prime, monthly installments of principal and interest, paid off in
March 1996, secured by deeds of trust on real property. -- 1,635,806
--------- ---------
7,002,777 9,100,514
Less: Current portion (1,378,829) (737,181)
--------- ---------
$5,623,948 $8,363,333
========= =========
</TABLE>
Future maturities under long-term debt are as follows:
Years ending December 31, 1996
------------------------- ---------
1997 $ 1,378,829
1998 1,673,650
1999 1,806,743
2000 1,707,031
2001 436,524
----------
7,002,777
Less: current portion (1,378,829)
----------
$ 5,623,948
==========
The Senior Credit Agreement with BT Commercial Corporation contains restrictive
covenants. See Note 3
(5) OBLIGATIONS UNDER CAPITAL LEASES:
The Company leases certain storage containers and equipment under capital leases
expiring through 2001. Certain storage container leases were entered into under
sale-leaseback arrangements with various leasing companies. 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 containers. These leases
have been capitalized using interest rates ranging from approximately 8% to 14%.
The leases are secured by storage containers and equipment under lease.
During 1995 and 1994, the Company entered into multi-year agreements (the
"Leases") to lease a number of portable classrooms to school districts in
Arizona. Subsequent to entering the leases, the Company
F-12
<PAGE>
"sold" the portable classrooms and assigned the Leases to an unrelated third
party financial institution (the "Assignee"). In addition, the Company entered
into Remarketing/Releasing Agreements (the "Agreements") with the Assignee. The
Agreements provide that the Company will be the exclusive selling/leasing agent
upon the termination of the aforementioned Leases for a period of 12 months. If
the Company is successful in releasing the buildings and the Assignee receives,
via lease payments, an amount equal to the Base Price, as defined, plus any
reimbursed remarketing costs of the Company, the Company has the option to
repurchase the buildings for $1 each. If the Company sells any of the buildings,
the Assignee shall receive from each sale that portion of the Base Price
allocated to the building sold plus costs the Assignee has reimbursed to the
Company plus interest on those combined amounts from the date of the Lease
termination at the Assignee's prime rate plus 4%. Any sales proceeds in excess
of this amount are to be remitted to the Company.
In the event the Company has not released or sold the buildings within 12 months
of the termination of the Leases, the Assignee has the right to require the
Company to repurchase the buildings for the Base Price plus all costs the
Assignee has reimbursed to the Company plus interest thereon at the Assignee's
prime rate plus 4% since the termination of the Lease. For financial reporting
purposes these transactions were accounted for as capital leases in accordance
with SFAS No. 13, Accounting for Leases. For income tax purposes these
transactions were treated as sales.
During 1996, leases on 15 of the buildings matured and the Company sold all 15
portable buildings in 1996 pursuant to the Agreements. The revenues from these
sales are included in the accompanying statements of operations and the
underlying capital lease obligations for these buildings were paid in full at
December 31, 1996.
Future payments of obligations under capital leases:
Years ending December 31,
1997 $2,091,580
1998 2,456,136
1999 2,405,222
2000 1,313,241
2001 54,418
---------
Total payments 8,320,598
Less: Amounts representing interest (1,581,251)
---------
6,739,347
Less: Current portion (1,352,279)
---------
$5,387,067
=========
Certain obligations under capital leases contain financial covenants which
include that the Company maintains a specified interest expense coverage ratio
and a required debt to equity ratio.
Gains from sale-leaseback transactions have been deferred and are being
amortized over the estimated useful lives of the related assets. Unamortized
gains at December 31, 1996 and 1995, approximated $288,000 and $305,000,
respectively, and are reflected as a reduction in the container lease fleet in
the accompanying financial statements.
Included in the accompanying statements of operations are revenues of
approximately $3,645,000 in 1995 for container sales under sale-leaseback
transactions where no profit was recognized. The Company did not enter into any
significant sale-leaseback transactions during 1996.
F-13
<PAGE>
(6) INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities at the tax rates in effect
when these differences are expected to reverse.
The provision for income taxes at December 31, 1996, 1995 and 1994 consisted of
the following:
1996 1995 1994
---- ---- ----
Current $ -- $ -- $ --
Deferred 377,596 610,341 765,098
------- ------- -------
Total $377,596 $610,341 $765,098
======== ======= =======
The components of the net deferred tax liability at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net long-term deferred tax liability:
Accelerated tax depreciation $(7,363,000) $(5,450,000)
Deferred gain on sale-leaseback transactions (429,000) 136,000
Deferred revenue (Note 5) -- (87,000)
Alternative minimum tax credit 211,000 211,000
Reserve and other 324,500 (68,000)
Net operating loss carry forwards 3,369,000 1,412,000
Valuation allowance (13,000) (13,000)
----------- -----------
(3,900,500) (3,859,000)
----------- -----------
Net short-term deferred tax asset:
Valuation reserve for accounts receivable 113,000 66,000
Unicap adjustment 40,000 51,000
Vacation reserve 38,000 30,000
----------- -----------
191,000 147,000
----------- -----------
$(3,709,500) $(3,712,000)
=========== ===========
</TABLE>
SFAS No. 109 requires the reduction of deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
Stock issuances by the Company may cause a change in ownership under the
provisions of the Internal Revenue Code Section 382; accordingly, the
utilization of the Company's net operating loss carryforwards may be subject to
annual limitations. Due to a change in ownership during 1996, approximately
$1,300,000 of the Company's net operating losses are subject to limitation.
A reconciliation of the federal statutory rate to the Company's effective tax
rate for the years ended December 31 are as follows:
1996 1995 1994
---- ---- ----
Statutory federal rate 34% 34% 34%
State taxes, net of federal benefit 6 6 8
Effect of permanent differences 4 4 2
= = =
44% 44% 44%
=== === ===
F-14
<PAGE>
Net operating loss carryforwards for federal income tax purposes totaled $8.0
million and $3.6 million at December 31, 1996 and 1995, respectively, and expire
from 2008 through 2011.
(7) TRANSACTIONS WITH RELATED PARTIES:
Effective December 31, 1993, Richard E. Bunger contributed substantially all of
the assets and liabilities of Mobile Mini Storage Systems ("MMSS") and the stock
of DDS to the Company in exchange for 2,700,000 shares of common stock and the
assumption of certain liabilities by the Company. Such liabilities include
liabilities associated with the MMSS operations and certain income tax
liabilities of Mr. Bunger and an affiliate arising from the MMSS operations
occurring prior to January 1, 1994. These income tax liabilities were
approximately $2,821,000. The Company will indemnify and defend Mr. Bunger
against loss or expense related to all liabilities assumed by the Company and
for any contingent liabilities arising from past operations.
The Company leases a portion of the property comprising its Phoenix location and
the property comprising its Tucson location from Mr. Bunger's five children.
Annual payments under these leases currently total approximately $70,000 with an
annual adjustment based on the Consumer Price Index. The term of each of these
leases will expire on December 31, 2003. Additionally, the Company leases its
Rialto, California facility from Mobile Mini Systems, Inc., an affiliate, wholly
owned by Mr. Bunger, for total annual lease payments of $204,000, with annual
adjustments based on the Consumer Price Index. The Rialto lease is for a term of
15 years expiring on December 31, 2011. Management believes the rental rates
reflect the fair market value of these properties. The Company purchased certain
leased property at its Maricopa, Arizona facility from Mr. Bunger on March 29,
1996, for a purchase price of $335,000, which management believes reflects the
fair market value of the property.
All ongoing and future transactions with affiliates will be on terms no less
favorable than could be obtained from unaffiliated parties and will be approved
by a majority of the independent and disinterested directors.
(8) BENEFIT PLANS:
Stock Option Plan
In August 1994, the Company's board of directors adopted the Mobile Mini, Inc.
1994 Stock Option Plan ("the Plan"). Under the terms of the Plan, both incentive
stock options ("ISOs"), which are intended to meet the requirements of Section
422 of the Internal Revenue Code, and non-qualified stock options may be
granted. ISOs may be granted to the officers and key personnel of the Company.
Non-qualified stock options may be granted to the Company's directors and key
personnel, and to providers of various services to the Company. The purpose of
the Plan is to provide a means of performance-based compensation in order to
attract and retain qualified personnel and to provide an incentive to others
whose job performance or services affect the Company.
Under the Plan, as amended in 1996, options to purchase a maximum of 543,125
shares of the Company's common stock may be granted. The exercise price for any
option granted under the Plan may not be less than 100% (110% if the option is
granted to a stockholder who at the time the option is granted owns stock
comprising more than 10% of the total combined voting power of all classes of
stock of the Company) of the fair market value of the common stock at the time
the option is granted. The option holder may pay the exercise price in cash or
by delivery of previously acquired shares of common stock of the Company that
have been held for at least six months.
The Plan is administered by the compensation committee of the board of directors
which will determine whether such options will be granted, whether such options
will be ISOs or non-qualified options, which directors, officers, key personnel
and service providers will be granted options, the restrictions upon the
F-15
<PAGE>
forfeitablity of such options and the number of options to be granted, subject
to the aggregate maximum number set forth above. Each option granted must
terminate no more than 10 years from the date it is granted.
The board of directors may amend the Plan at any time, except that approval by
the Company's shareholders may be required for any amendment that increases the
aggregate number of shares which may be issued pursuant to the Plan, changes the
class of persons eligible to receive such options, modifies the period within
which the options may be granted, modifies the period within which the options
may be exercised or the terms upon which options may be exercised, or increases
the material benefits accruing to the participants under the Plan. Unless
previously terminated by the board of directors, the Plan will terminate in
November, 2003, but any option granted thereunder will continue throughout the
terms of such option.
The following summarizes the activity for the Plan for the years ended December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
Number Weighted Average Number Weighted Average
of Shares Exercise Price of Shares Exercise Price
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year 241,000 $ 4.04 128,000 $ 4.11
Granted 156,000 $ 3.43 143,000 $ 3.94
Canceled/Expired (50,000) $ 3.16 (30,000) $ 3.88
Exercised -- -- -- --
-------- -------- ------- --------
Options outstanding,
end of year 347,000 $ 3.89 241,000 $ 4.04
-------- -------- ------- --------
Options exercisable,
end of year 158,500 89,250
------- ------
Range of exercise prices $3.12-$3.85 $3.75-$5.38
=========== ===========
Weighted average fair value
of options granted $ 1.70 $ .97
</TABLE>
At December 31, 1996, the weighted average remaining contractual life of the
options outstanding was 7.6 years.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based method
of accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost related to stock options issued to employees under
the Plan using the method of accounting prescribed by the Accounting Principles
Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees.
Entities electing to remain under the accounting in APB No. 25 must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting defined in SFAS No. 123 has been applied.
The vesting period for such options is determined by the Compensation Committee
at the time of grant. The vesting period for outstanding options at December 31,
1996, range from four to five years depending on the circumstances at the date
of grant.
F-16
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996:
Risk free interest rate 6.4%
Expected dividend yield None
Expected holding period 4 years
Expected volatility 48%
Options were assumed to be exercised at the end of the four year expected life
for the purpose of this valuation. Adjustments were not made for options
forfeited prior to vesting. The total value of options granted was computed to
be the following approximate amounts, which would be amortized on the
straight-line basis over the average holding period of options:
Year ended December 31, 1996 $99,418
Year ended December 31, 1995 $56,838
If the Company had accounted for stock options issued to employees using a fair
value based method of accounting, the Company's net income and net income per
share would have been reported as follows:
Year Ended December 31,
1996 1995
---- ----
Net income (loss):
As reported $70,222 $(473,205)
Pro forma 14,548 (505,034)
Net income per common share and common share equivalent:
As reported $0.01 $(0.09)
Pro forma 0.00 (0.10)
The effects of applying SFAS No. 123 for providing pro forma disclosures for
1996 and 1995 are not likely to be representative of the effects on reported net
income and net income per common share equivalent for future years, because
options vest over several years and additional awards generally are made each
year, and SFAS No. 123 has not been applied to options granted prior to January
1, 1995.
401(k) Plan
In 1995, the Company established a contributory retirement plan (the "401(k)
Plan") covering eligible employees with at least one year of service. The 401(k)
Plan is designed to provide tax-deferred income to the Company's 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 2% to 15%
of their respective salary, not to exceed the statutory limit. The Company may
elect to make a qualified non-elective contribution in an amount as determined
by the Company. Under the terms of the 401(k) Plan, the Company 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 his or her funds among
certain named plans. The Company did not elect to make any qualified
non-elective contributions or profit sharing contributions to the 401(k) Plan
during 1996 or 1995.
F-17
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES:
As discussed more fully in Note 7, the Company is obligated under noncancelable
operating leases with related parties. The Company also leases its corporate
offices and other properties, as well as operating equipment from third parties
under noncancelable operating leases. Rent expense under these agreements was
approximately $649,000, $515,000 and $342,000 for the years ended December 31,
1996, 1995, and 1994, respectively. Total future commitments under all
noncancelable agreements for the years ended December 31, are as follows:
1997 $800,987
1998 821,825
1999 837,417
2000 770,668
2001 585,319
Thereafter 3,821,386
---------
$7,637,602
=========
The Company is involved in certain administrative proceedings arising in the
normal course of business. In the opinion of management, the Company's potential
exposure under the pending administrative proceedings is adequately provided for
in the accompanying financial statements and any adverse outcome will not have a
material impact on the Company's results of operations or its financial
condition.
(10) STOCKHOLDERS' EQUITY:
Initial Public Offering
In February 1994, the Company successfully completed an initial public offering
of 937,500 Units, each Unit consisting of two shares of common stock and one
detachable common stock warrant for the purchase of one share of common stock
for $5.00 per share. An additional 130,000 Units were sold in March 1994
pursuant to the underwriters' over-allotment option. Net proceeds to the Company
totaled $7,027,118.
The Company also granted the underwriters a warrant ("Underwriters' Warrant")
for the purchase of an additional 93,750 Units. The Underwriters' Warrant is
exercisable for four years, commencing on February 17, 1995, at an exercise
price of $12.00 per unit. As of December 31, 1995, none of the detachable common
stock warrants or Underwriters' Warrants had been exercised.
Series A Convertible Preferred Stock
In December 1995, the Company completed the private placement of 50,000 shares
of Series A Convertible Preferred Stock ("Series A"), $.01 par value, $100
stated value, for aggregate net proceeds of $4.1 million. Pursuant to the terms
of the Series A, all 50,000 shares of Series A were converted into 1,904,324
shares of the Company's common stock at an average conversion rate of $2.63 per
share during the first quarter of 1996.
In connection with the issuance of the Series A Convertible Preferred Stock, the
Company recorded a preferred stock dividend of $1,250,000 at December 31, 1995
in accordance with the accounting treatment announced by the staff of the SEC at
the March 13, 1997 meeting of the Emerging Issues Task Force whereas the Series
A Convertible Preferred Stock had "beneficial conversion" features which
permitted the holder to convert their holdings to common shares at a fixed
discount off of the market price of the common shares when converted. The effect
of the dividend resulted in a decrease in earnings per share applicable to
common shareholders of $.25.
F-18
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(Unaudited)
--------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 486,443 $ 736,543
Receivables, net 6,317,555 4,631,854
Inventories 7,411,453 4,998,382
Prepaid and other 571,754 742,984
----------- -----------
Total current assets 14,787,205 11,109,763
CONTAINER LEASE FLEET, net 39,144,436 34,313,193
PROPERTY, PLANT AND EQUIPMENT, net 17,827,040 17,696,046
OTHER ASSETS, net 1,458,650 1,697,199
----------- -----------
Total assets $73,217,331 $64,816,201
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,180,063 $ 2,557,329
Accrued compensation 445,265 674,818
Other accrued liabilities 1,929,720 1,517,295
Current portion of long-term debt 1,494,925 1,378,829
Current portion of obligations under capital leases 1,993,239 1,352,279
----------- -----------
Total current liabilities 9,043,212 7,480,550
LINE OF CREDIT 33,776,461 26,406,035
LONG-TERM DEBT, less current portion 5,101,700 5,623,948
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 4,086,298 5,387,067
DEFERRED INCOME TAXES 4,278,040 3,709,500
----------- -----------
Total liabilities 56,285,711 48,607,100
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value, 17,000,000 shares authorized, 6,739,324
issued and outstanding at June 30, 1997 and December 31,
1996 67,393 67,393
Additional paid-in capital 15,588,873 15,588,873
Retained earnings 1,275,354 552,835
----------- -----------
Total stockholders' equity 16,931,620 16,209,101
----------- -----------
Total liabilities and stockholders' equity $73,217,331 $64,816,201
=========== ===========
</TABLE>
See the accompanying notes to these consolidated statements.
F-19
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Container and other sales $ 6,196,750 $ 5,745,611 $ 10,739,381 $ 10,661,443
Leasing 4,106,333 3,171,376 8,005,281 6,342,676
Other 1,890,712 1,374,928 3,098,589 2,196,711
------------ ------------ ------------ ------------
12,193,795 10,291,915 21,843,251 19,200,830
COSTS AND EXPENSES:
Cost of container and other sales 4,564,586 5,119,910 8,010,356 9,045,348
Leasing, selling and general expenses 5,010,835 3,214,535 9,292,185 7,088,898
Depreciation and amortization 529,709 380,136 1,001,876 748,415
------------ ------------ ------------ ------------
Income from operations 2,088,665 1,577,334 3,538,834 2,318,169
OTHER INCOME (EXPENSE):
Interest income and other -- -- -- 4,000
Interest expense (1,158,744) (1,001,059) (2,248,623) (1,949,408)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY 929,921 576,275 1,290,211 372,761
ITEM
PROVISION FOR INCOME TAXES 409,164 253,561 567,692 164,015
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY 520,757 322,714 722,519 208,746
ITEM
EXTRAORDINARY ITEM (Note C) -- -- -- (410,354)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 520,757 $ 322,714 $ 722,519 $ (201,608)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK AND COMMON
STOCK EQUIVALENT:
INCOME BEFORE EXTRAORDINARY $ 0.08 $ 0.05 $ 0.11 $ 0.03
ITEM
EXTRAORDINARY ITEM -- -- -- (0.06)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 0.08 $ 0.05 $ 0.11 $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 6,755,517 6,739,324 6,743,391 6,735,841
------------ ------------ ------------ ------------
</TABLE>
See the accompanying notes to these consolidated statements.
F-20
<PAGE>
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
---- ----
<S> <C> <C>
Net income (loss) $ 722,519 $ (201,608)
Adjustments to reconcile income to net cash used in operating activities:
Extraordinary loss on early debt retirement -- 410,354
Amortization of deferred costs on credit agreement 245,921 151,407
Depreciation and amortization 1,001,876 748,415
Loss (gain) on disposal of property, plant and equipment 54,118 (2,164)
Changes in assets and liabilities:
Decrease (increase) in receivables, net (1,685,701) 334,376
Increase in inventories (2,367,519) (1,322,909)
Decrease (increase) in prepaids and other 171,230 (95,126)
Decrease (increase) in other assets (7,372) 255,720
(Decrease) increase in accounts payable 622,734 (2,126,774)
Increase in accrued liabilities 182,872 243,145
(Decrease) increase in deferred income taxes 568,540 (190,186)
------------ ------------
Net cash used in operating activities (490,782) (1,795,350)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of container lease fleet (5,147,114) 73,900
Net purchases of property, plant, and equipment (916,669) (1,288,384)
------------ ------------
Net cash used in investing activities (6,063,783) (1,214,484)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 7,370,426 14,280,279
Proceeds from issuance of long-term debt 314,265 6,635,069
Deferred financing costs -- (2,114,411)
Principal payments and penalties on early debt
extinguishment -- (14,405,879)
Principal payments on long-term debt (720,417) (799,446)
Principal payments on capital lease obligations (659,809) (1,311,457)
Additional paid in capital -- (21,069)
------------ ------------
Net cash provided by financing activities 6,304,465 2,263,086
------------ ------------
NET DECREASE IN CASH (250,100) (746,748)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 736,543 1,430,651
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 486,443 $ 683,903
============ ============
</TABLE>
See the accompanying notes to these consolidated statements.
F-21
<PAGE>
MOBILE MINI, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles 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 six month period ended June 30, 1997 are not necessarily indicative of
the operating results that may be expected for the entire year ending December
31, 1997. These financial statements should be read in conjunction with the
Company's December 31, 1996 financial statements and accompanying notes thereto.
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 financial statement presentation.
NOTE B - Earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common share equivalents assumed
outstanding during the periods. Fully diluted earnings per common share is
considered equal to primary earnings per share in all periods presented.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 is effective for fiscal years ending after December 15, 1997, and
when adopted, will require restatement of prior periods earnings per share. The
effect of this statement is not significant on any period presented.
NOTE C - The Company entered into a credit agreement (the "Credit Agreement") in
March, 1996 with BT Commercial Corporation, as Agent for a group of lenders (the
"Lenders"). Under the terms of the Credit Agreement, the Lenders provided the
Company with a $35.0 million revolving line of credit and a $6.0 million term
loan. In July, 1997, the revolving line of credit was increased to $40.0
million. Borrowings under the Credit Agreement are secured by substantially all
of the Company's assets.
In connection with the closing of the Credit Agreement, the Company repaid
long-term debt and obligations under capital leases totaling $14.1 million. As a
result, costs previously deferred related to this indebtedness and prepayment
penalties resulted in an extraordinary charge to earnings in 1996, of
approximately $410,000 after the benefit of income taxes.
NOTE D - Inventories are stated at the lower of cost or market, with cost being
determined under the specific identification method. Market is the lower of
replacement cost or net realizable value. Inventories consisted of the following
at:
June 30, 1997 December 31, 1996
------------- -----------------
Raw material and supplies $3,707,719 $3,547,487
Work-in-process 1,335,426 288,986
Finished containers 2,368,308 1,161,909
---------- ----------
$7,411,453 $4,998,382
========== ==========
NOTE E - In July 1997, the Company completed a private placement of $3 million
of 12% senior subordinated notes (the "Bridge Notes") and warrants to purchase
50,000 shares of Mobile Mini, Inc. common stock at $5.00 per share. The Bridge
Notes are due the earlier of July 2002, or on the refinancing of the Bridge
Notes on substantially similar terms. The proceeds received by the Company will
be allocated between the Bridge Notes and the warrants based on the respective
fair values of each instrument. The resulting discount increases the effective
interest rate of the Bridge Notes and will be amortized to interest expense over
the life of the debt.
NOTE F - The Company's publicly traded warrants issued in connection with the
Company's initial public offering have been extended six months to expire on
February 17, 1998.
F-22
<PAGE>
PROSPECTUS INSIDE BACK COVER
Mobile Mini, Inc.
[photograph depicting homeowners using storage container]
[photograph depicting installation of container on concrete pad]
CUSTOMER DIVERSIFICATION
The combination of portability, appearance, convenience and security enables
Mobile Mini to effectively meet the needs of virtually all storage customers.
Customers range from Fortune 500 companies needing record storage, to utility
companies needing custom units to house complex communication equipment, and to
homeowners needing storage between homes. Since 1983, Mobile Mini has helped
solve the storage and modular building needs of more than 25,000 customers (show
as a percentage of units leased).
[photograph depicting installation of container]
[photograph depicting storage container in an institutional setting]
[photograph depicting containers in a retail setting; photograph depicting range
of size of containers]
<PAGE>
<TABLE>
<S> <C>
No dealer, salesperson or other person has been authorized $6,000,000
to give any information or to make any representation other than
those contained in this Prospectus in connection with the offer made mobile mini, inc.
by this Prospectus, and, if given or made, must not be relied upon as
having been authorized by the Company or the Underwriter. This ___% Senior Subordinated Notes Due 2002
Prospectus does not constitute an offer to sell or a solicitation of and
an offer to buy any securities other than the registered securities Redeemable Warrants to Purchase 150,000
to which it relates or an offer to or solicitation of any person in Shares of Common Stock
any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus at any time nor __________________________
any sale made hereunder shall, under any circumstances, create any
implication that the information herein contained is correct as of PROSPECTUS
any time subsequent to the date of this Prospectus. __________________________
Peacock, Hislop, Staley & Given, Inc.
____________, 1997
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary------------------------------------------------------------------------------------------------------------ 3
Risk Factors-------------------------------------------------------------------------------------------------------10
Use of Proceeds----------------------------------------------------------------------------------------------------14
Price Range of Common Stock----------------------------------------------------------------------------------------15
Dividend Policy----------------------------------------------------------------------------------------------------15
Capitalization-----------------------------------------------------------------------------------------------------16
Business-----------------------------------------------------------------------------------------------------------17
Selected Consolidated Financial Information------------------------------------------------------------------------23
Management's Discussion and Analysis of Financial Condition and Results of Operations------------------------------25
Management---------------------------------------------------------------------------------------------------------32
Certain Relationships and Related Transactions---------------------------------------------------------------------35
Principal Stockholders---------------------------------------------------------------------------------------------36
Description of the Notes-------------------------------------------------------------------------------------------37
Description of the Redeemable Warrants-----------------------------------------------------------------------------45
Description of Common Stock and Other Securities-------------------------------------------------------------------48
Certain Federal Income Tax Considerations--------------------------------------------------------------------------50
Underwriting-------------------------------------------------------------------------------------------------------52
Legal Matters------------------------------------------------------------------------------------------------------53
Experts------------------------------------------------------------------------------------------------------------53
Available Information----------------------------------------------------------------------------------------------54
Incorporation of Certain Documents by Reference--------------------------------------------------------------------54
Consolidated Financial Statements----------------------------------------------------------------------------------F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses in connection with the offering
described in this registration statement (other than underwriting and brokerage
discounts, commissions and fees) will be as follows:
Securities and Exchange Commission registration fee $ 2,689
Legal fees and expenses 100,000
Accounting fees and expenses 25,000
Indenture trustee fees and expenses 6,000
Warrant Agent fees and expenses 2,000
Printing and engraving expenses 10,000
Nasdaq listing fees and expenses 2,000
Miscellaneous costs and expenses 2,311
-------
Total $150,000
========
All amounts except the Securities and Exchange Commission registration
fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors and executive officers and may indemnify
its other officers, employees and other agents to the fullest extent permitted
by Delaware law. Pursuant to these provisions, the Company intends to enter into
indemnity agreements with each of its directors and executive officers.
In addition, the Company's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will be subject to liability for breach of the director's duty of loyalty to the
Company, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
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<PAGE>
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1[1] Form of Underwriter's Warrant issued in connection with the
Registrant's initial public offering.
4.2[1] Form of Warrant Agreement by and between Mobile Mini, Inc. and
Harris Trust and Savings Bank, as successor to Bank One,
Arizona, NA, dated January 31, 1994.
4.3[1] Form of Common Stock Certificate.
4.4[1] Form of Warrant Certificate [for IPO Warrants].
4.5.1** Form of Underwriting Agreement.
4.5.2** Form of Warrant Agreement to purchase shares of Common Stock,
and form of Redeemable Warrant Certificate.
4.6** Form of Indenture, dated as of __________, 1997 between the
Registrant and Harris Trust & Savings Bank, Trustee.
4.7** Form of Note (included in Exhibit 4.6).
5.1** Opinion of Counsel to the Registrant.
10.2[1] Form of Employment Agreement.
10.3[2] Mobile Mini, Inc. 1994 Stock Option Plan dated August 1, 1994.
10.4[6] Statement regarding amendment to 1994 Stock Option Plan.
10.5[5] Credit Agreement dated as of March 28, 1996 among Mobile Mini,
Inc., each of the financial institutions initially a signatory
thereto, together with assignees, as Lenders, and BT
Commercial Corporation, as Agent.
10.6[6] Amendment No. 1 to Credit Agreement.
10.7[6] Amendment No. 2 to Credit Agreement.
10.7.1[7] Amendment No. 3 to Credit Agreement.
10.7.2** Amendment No. 4 to Credit Agreement [Revised].
II-2
<PAGE>
10.8[1] Lease Agreement by and between Steven G. Bunger, Michael J.
Bunger, Carolyn A. Clawson, Jennifer J. Blackwell, Susan E.
Bunger (collectively "Landlord") and Mobile Mini Storage
Systems ("Tenant") dated January 1, 1994.
10.9[1] Lease Agreement by and between Steven G. Bunger, Michael J.
Bunger, Carolyn A. Clawson, Jennifer J. Blackwell, Susan E.
Bunger (collectively "Landlord") and Mobile Mini Storage
Systems ("Tenant") dated January 1, 1994.
10.10[1] Lease Agreement by and between Steven G. Bunger, Michael J.
Bunger, Carolyn A. Clawson, Jennifer J. Blackwell, Susan E.
Bunger (collectively "Landlord") and Mobile Mini Storage
Systems ("Tenant") dated January 1, 1994.
10.11[1] Lease Agreement by and between Mobile Mini Systems, Inc.
("Landlord") and Mobile Mini Storage Systems ("Tenant") dated
January 1, 1994.
10.12[2] Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell,
Susan E. Bunger (collectively "Landlord") and Mobile Mini
Storage Systems ("Tenant") dated August 15, 1994.
10.13[2] Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell,
Susan E. Bunger (collectively "Landlord") and Mobile Mini
Storage Systems ("Tenant") dated August 15, 1994.
10.14[2] Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell,
Susan E. Bunger (collectively "Landlord") and Mobile Mini
Storage Systems ("Tenant") dated August 15, 1994.
10.15[3] Amendment to Lease Agreement by and between Mobile Mini
Storage Systems, Inc., a California corporation, ("Landlord"),
and the Company dated December 30, 1994. 10.16[5] Lease
Agreement by and between Richard E. and Barbara M. Bunger
("Landlord") and the Company ("Tenant'") dated November 1,
1995.
10.17[5] Amendment to Lease Agreement by and between Richard E. and
Barbara M. Bunger ("Landlord") and the Company ("Tenant'")
dated November 1, 1995.
10.18[6] Amendment No. 2 to Lease Agreement between Mobile Mini Storage
Systems, Inc. and the Company.
10.19[1] Patents and Patents Pending.
10.20[1] U.S. and Canadian Trade Name and Service Mark Registration.
10.21[7] Senior Subordinated Promissory Note dated July 31, 1997, by
the Registrant to Arizona Land Income Corporation ("ALIC")
10.22[7] Pledge Agreement dated as of July 31, 1997, by and between the
Registrant and ALIC.
10.23[7] Stock Purchase Warrant dated July 31, 1997, issued to ALIC.
11[7] Statement Re: Computation of Per Share Earnings.
12** Statement Re: Computation of Ratios.
21[6] Subsidiaries of Mobile Mini, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bryan Cave LLP (included in Exhibit 5.1 hereto)
24** Powers of Attorney (included in Signature Page of original
filing)
25** Statement of Eligibility of Trustee
- ------------------
II-3
<PAGE>
[1] Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (File No. 33-71528-LA), as amended.
[2] Incorporated by reference to the Registrant's Report on Form 10-QSB for
the quarter ended September 30, 1994.
[3] Incorporated by reference to the Registrant's Report on Form 10-KSB for
the fiscal year ended December 31, 1994.
[4] Incorporated by reference to the Registrant's Form 8-A, filed with the
Commission on January 29, 1996.
[5] Incorporated by reference to the Registrant's Report on Form 10-KSB for
the fiscal year ended December 31, 1995.
[6] Incorporated by reference to the Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1996.
[7] Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1997.
** Previously filed as an Exhibit to this Registration Statement.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Tempe, Arizona, on this ____ day of ________, 1997.
MOBILE MINI, INC.
By: /s/ Steven G. Bunger
-------------------------------------
Steven G. Bunger,
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby authorizes Lawrence Trachtenberg as his
attorney-in-fact to execute in the name of each such person and to file such
amendments (including post-effective amendments) to this registration statement
as the Registrant deems appropriate and appoints such person as attorney-in-fact
to sign on his behalf amendments, exhibits, supplements and post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Steven G. Bunger President, Chief Executive Officer , 1997
- -------------------------------------- Executive Officer and Director
Steven G. Bunger (principal executive officer)
/s/ Lawrence Trachtenberg Executive Vice President, Chief , 1997
- -------------------------------------- Financial Officer and Director
Lawrence Trachtenberg (principal financial and accounting officer)
* Chairman of the Board , 1997
- --------------------------------------
Richard E. Bunger
* Director , 1997
- --------------------------------------
George Berkner
* Director , 1997
- --------------------------------------
Ronald J. Marusiak
*
- --------------------------------------
Lawrence Trachtenberg,
Attorney-In-Fact
</TABLE>
II-5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to (i) the use of our
report included in this registration statement and (ii) the incorporation by
reference in this registration statement of our report dated March 24, 1997
(except with respect to the matter discussed in Note 1 - Restatement, as to
which the date is August 7, 1997), included in Mobile Mini, Inc's Form 10-K/A-3
for the year ended December 31, 1996, and to all references to our firm included
in this registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 3, 1997
