Registration No. 333-34413
As filed with the Securities and Exchange Commission on September __, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
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 345,000(4) $5.00(5) $1,725,000 $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 172,500
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 SEPTEMBER __, 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>
=====================================================================================================================
Price to Underwriting Proceeds to the
Public Discount (1) Company(2)(3)
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<S> <C> <C> <C>
Per Unit (4) $ $ $
- ---------------------------------------------------------------------------------------------------------------------
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, Inc. is a market leader in the leasing and sale of portable steel
storage containers. These 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 80 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.
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<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%.
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<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.
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<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.
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<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.
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<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)
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<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 $56.3 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 150,000 shares (or 172,500 shares if the Underwriter's over-allotment
option is exercised in full) 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 172,000 shares if the Underwriters over-allotment option is exercised
in full) will be issuable upon the exercise of the Redeemable Warrants. An
additional 150,000 shares of Common Stock (or 172,000 shares if the
Underwriter's over-allotment option is exercised in full) 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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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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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 150,000 shares of the Company's Common Stock (172,500 shares if the
Underwriters' over-allotment option is exercised in full). 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.
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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/A-3 for the fiscal
year ended December 31, 1996, including 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 (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.
II-1
<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.
* To be filed by amendment.
** 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
$6,000,000
MOBILE MINI, INC.
___% SENIOR SUBORDINATED NOTES DUE 2002 AND
WARRANTS TO PURCHASE 150,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
________, 1997
PEACOCK, HISLOP, STALEY & GIVEN, INC.
As Representative of the several Underwriters
2999 North 44th Street, Suite 100
Phoenix, Arizona 85018
Ladies and Gentlemen:
MOBILE MINI, INC., a Delaware corporation (the "Company"), addresses
you as the Representative of each of the persons, firms and corporations listed
in Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Securities. The Company proposes to issue and sell
$6,000,000 in aggregate principal amount of [______%] Senior Subordinated Notes
Due 2002 (the "Notes") and warrants (the "Warrants") to purchase 150,000 shares
of the Company's common stock, $.01 par value per share (the "Common Stock"), to
the several Underwriters (collectively, the "Firm Securities"). The Company also
proposes to grant to the Underwriters an option to purchase up to $900,000 in
aggregate principal amount of additional Notes, together with additional
Warrants to purchase an aggregate of 22,500 shares of Common Stock (the "Option
Securities"), as provided in Section 3 hereof. In addition, the Company proposes
to sell to you, individually and not in your capacity as Representative, five
(5) year warrants (the "Representative's Warrants") to purchase up to 172,500
shares of Common Stock, which sale will be consummated in accordance with the
terms and conditions of the Warrant Agreement (the "Warrant Agreement")
governing the terms and rights of the Warrants, in the form of which is filed as
an exhibit to the Registration Statement described below. As used in this
Agreement, the term "Securities" shall include the Firm Securities and the
Option Securities, and the term "Warrants" shall include the Warrants included
in the Firm Securities and in the Option Securities. The term "Security" shall
include one Note in the original principal amount of $5,000 together with 125
Warrants, each to purchase one share of Common Stock at an initial per share
exercise price of $_____.___. The shares of common stock, $.01 par value per
share, of the Company outstanding from time to time are hereinafter referred to
as "Common Stock." Unless the context otherwise requires,
<PAGE>
references herein to the "Company" include Mobile Mini, Inc. together with its
subsidiaries described in the Prospectus (hereinafter defined.).
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees
with each Underwriter that:
(a) A registration statement on Form S-2 (File No.
333-34413) in respect of the Securities and the shares of Common Stock issuable
upon exercise of the Warrants (the "Warrant Stock"), including a prospectus
subject to completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act and has been filed with
the Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.
If the registration statement relating to the
Securities has been declared effective under the Act by the Commission, the
Company will prepare and promptly file with the Commission the information
previously omitted from the registration statement, as applicable, pursuant to
Rule 430A(a) of the Rules and Regulations pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Securities has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file amendments to the registration statement, including a final form of
prospectus, as applicable. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or becomes,
as the case may be, effective (including, if the Company omitted information
from the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the registration statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations) and, in the event of any amendment thereto after the effective date
of such registration statement, shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended. The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Securities as included in such Registration Statement at the time it
becomes effective (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations,
the information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 430A(b) of the Rules and Regulations), except
that if any revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Securities that differs
from the prospectus on file with the Commission at the time the Registration
Statement became or
2
<PAGE>
becomes, as the case may be, effective (whether or not such revised prospectus
is required to be filed with the Commission pursuant to Rule 424(b)(3) of the
Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus, at the time
of filing thereof, has conformed in all material respects to the requirements of
the Act, the Rules and Regulations and the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Securities are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Trust Indenture Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or prospects of the Company taken as
a whole; no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification; the Company is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities that are material
to the conduct of its business, all of which are valid and in full force and
effect; the Company is not in material violation of its charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease,
3
<PAGE>
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by which it or
its properties or assets may be bound; and the Company is not in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its properties or assets.
The Prospectus accurately describes any corporation, association or other entity
owned or controlled, directly or indirectly, by the Company.
(d) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, and all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances or claims other than liens in favor of the
lenders under the Senior Credit Agreement (as defined in the Registration
Statement). All outstanding shares of capital stock of the Company have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company).
(e) The Company has full legal right, power and
authority to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement may be limited by applicable law and except
as the enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. The issue and
sale of the Securities and the compliance by the Company with all of the
provisions of the Securities, the Indenture governing the terms of the Notes
(the "Indenture"), the Warrant Agreement governing the terms of the Warrants
(the "Warrant Agreement"), and this Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, warrant agreement, mortgage, deed of trust,
sale/leaseback agreement, loan agreement or other similar financing agreement or
other material agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the property or assets of the
Company is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its properties; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue and
sale of the Securities or the consummation by the Company of the transactions
contemplated by this Agreement, the Indenture and the Warrant Agreement, except
such as have been, or will have been obtained under the Act and the Trust
Indenture Act and such consents, approvals, authorizations, registrations or
qualifications as may
4
<PAGE>
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters;
(f) The Securities have been duly authorized, and,
when issued and delivered pursuant to this Agreement, such Securities will have
been duly executed, authenticated and, in the case of Warrants, countersigned by
the Warrant Agent as provided in the Warrant Agreement, issued and delivered and
will constitute valid and legally binding obligations of the Company entitled to
the benefits provided by the Indenture and the Warrant Agreement, as the case
may be, each of which will be substantially in the form filed as an exhibit to
the Registration Statement; the Warrant Agreement has been duly authorized and
the Indenture has been duly authorized and duly qualified under the Trust
Indenture Act and the Indenture and the Warrant Agreement, as the case may be,
will constitute a valid and legally binding instrument, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles; and each of the
Indenture and the Warrant Agreement conforms, and the Securities will conform,
to the descriptions thereof contained in the Prospectus as amended or
supplemented with resect to such Securities to the extent described therein;
(g) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) is reasonably likely to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
its properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations or by the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the rules and regulations of the Commission
thereunder that have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(h) Arthur Andersen LLP, which has examined the
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1995 and 1996 and for each of the years in the three
(3) year period ended December 31, 1996 filed with the Commission as a part of
the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the
5
<PAGE>
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited and unaudited financial statements presented
therein. No other financial statements or schedules are required to be included
in the Registration Statement.
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations or business of the Company, (ii) any transaction that is
material to the Company, (iii) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the ordinary course of
business, (iv) any material change in the capital stock or outstanding
indebtedness of the Company, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company.
(j) Except as set forth in the Registration
Statement and Prospectus, (i) the Company has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company, (ii) the agreements to which the Company is a party
described in the Registration Statement are valid agreements, enforceable by the
Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, except for loan
agreements with customers, the other contracting party or parties thereto are
not in material breach or material default under any of such agreements, and
(iii) the Company has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted and as
described in the Registration Statement and the Prospectus.
(k) The Company has timely filed all federal, state,
local and foreign tax returns required to be filed by it and has paid all taxes
shown thereon as due, and there is no tax deficiency that has been or, to the
best of the Company's knowledge, is reasonably likely to be asserted against the
Company, which might have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company, and all tax
liabilities are adequately provided for on the books of the Company.
(l) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business in light of the Company's historical loss
experience including, but not limited to, insurance covering real and personal
property owned or
6
<PAGE>
leased by the Company against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against by the Company during recent
periods, all of which insurance is in full force and effect; the Company has not
been refused any insurance coverage sought or applied for; and the Company does
have any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition (financial or
otherwise), earnings, operations or business of the Company.
(m) To the best of the Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(n) The Company owns or possesses adequate rights to
use all trade secrets, know-how, trademarks, service marks and trade names that
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any trade secrets, know-how, trademarks,
service marks or trade names; and the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights of
others with respect to any trade secrets, know-how, trademarks, service marks or
trade names which, singly or in the aggregate, in the event of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(o) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is approved for quotation on the Nasdaq
National Market, and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. ("NASD") is contemplating terminating
such registration or listing. The Warrants have been approved for listing on the
Nasdaq SmallCap Market, subject to official notice of issuance.
(p) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(q) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Securities are to be purchased, as the case may be, and (ii) completion
of the distribution of the Securities, any offering material in connection with
the offering and sale of the Securities other than any Preliminary Prospectuses,
the Prospectus, the Registration Statement and other materials, if any,
permitted by the Act.
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(r) The Company has not at any time during the last
five (5) years (i) made any unlawful contribution to any candidate for foreign
office or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(s) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization in violation of law or manipulation
of the price of the Common Stock or other securities of the Company to
facilitate the sale or resale of the Securities.
(t) Except as set forth in the Registration
Statement and Prospectus, (i) the Company is in material compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") that are applicable to its business, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its best knowledge, the Company is not
likely to be required to make future material capital expenditures to comply
with Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated site under
applicable state or local law.
(u) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, including
without limitation cash receipts, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers, directors or director-nominees of the Company or any of the members of
the families of any of them, except as disclosed in the Registration Statement
and the Prospectus.
(w) The Warrant Stock has been duly authorized and
reserved for issuance upon the exercise of the Warrants and when issued upon
payment of the exercise price therefor will be validly issued, fully paid and
nonassessable shares of Common Stock of the Company.
3. Purchase, Sale and Delivery of Securities.
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(a) On the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $4,750 per Security, the respective amount of Firm Securities as
hereinafter set forth. The obligation of each Underwriter to the Company shall
be to purchase from the Company that amount of Firm Securities which is set
forth opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10).
Delivery of definitive certificates representing the
Notes and the Warrants comprising the Firm Securities to be purchased by the
Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by wire transfer in same day
funds to the account of the Company. Such delivery shall take place at the
offices of the Representative or such other place as may be agreed upon among
the Representative and the Company, at 7:00 A.M., Phoenix time, on the third
(3rd) full business day following the first day that Securities are traded (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "First Closing Date." The certificates representing the Notes
and the Warrants comprising the Firm Securities to be so delivered will be made
available to you for review at such office or such other location as you may
reasonably request at least one (1) full business day prior to the First Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to the First
Closing Date.
It is understood that you, individually, and not as
the Representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Securities to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective,
the several Underwriters intend to make a public offering (as such term is
described in Section 11 hereof) of the Firm Securities at a public offering
price of $5,000.00 per Note. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
(b) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Securities only, a nontransferable option to purchase up to $900,000 in
principal amount of additional Notes, together with additional Warrants covering
an aggregate of 22,500 shares of Common Stock at the purchase price per Security
for the Firm Securities set forth in Section 3(a) hereof. Such option may be
exercised by the Representative on behalf of the several Underwriters on one (1)
or more occasions in whole or in part during
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the period of forty-five (45) days after the date on which the Firm Securities
are initially offered to the public, by giving written notice to the Company.
The number of Option Securities to be purchased by each Underwriter upon the
exercise of such option shall be the same proportion of the total amount of
Option Securities to be purchased by the several Underwriters pursuant to the
exercise of such option as the amount of Firm Securities purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total amount of Firm
Securities purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representative in such reasonable manner as the
Representative shall determine to avoid fractional shares.
Delivery of definitive certificates for the Notes
and the Warrants comprising the Option Securities to be purchased by the several
Underwriters pursuant to the exercise of the option granted by this Section 3(b)
shall be made against payment of the purchase price therefor by the several
Underwriters by wire transfer in same day funds to the account of the Company.
Such delivery and payment shall take place at the offices of the Representative,
or at such other place as may be agreed upon among the Representative and the
Company (i) on the Closing Date, if written notice of the exercise of such
option is received by the Company at least three (3) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the fifth
(5th) full business day following the date the Company receives written notice
of the exercise of such option, if such notice is received by the Company less
than three (3) full business days prior to the Closing Date.
The certificates for the Option Securities to be so
delivered will be made available to you for review at such office or such other
location as you may reasonably request at least two (2) full business days prior
to the date of payment and delivery and will be in such names and denominations
as you may request, such request to be made at least three (3) full business
days prior to such date of payment and delivery.
It is understood that you, individually, and not as
the Representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Securities to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(c) Upon exercise of any option provided for in Section 3(b)
hereof, the obligations of the several Underwriters to purchase such Option
Securities will be subject (as of the date hereof and as of the date of payment
and delivery for such Option Securities) to the accuracy of and compliance with
the representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Securities shall be reasonably satisfactory in form and substance to you
and to Underwriters' counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
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evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained in each
case in all material respects.
(d) The information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters), in
the final two (2) paragraphs on the inside front cover page, concerning
stabilization and passive market making by the Underwriters, and in third,
fourth and ninth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use reasonable efforts to cause
the Registration Statement and any amendments thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; it will notify you,
promptly after it shall receive notice thereof, of the times when the
Registration Statement or any subsequent amendments to the Registration
Statement have become effective or any supplement to the Prospectus has been
filed; if the Company omitted information from the Registration Statement at the
time it was originally declared effective in reliance upon Rule 430A(a) of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of post-effective
amendments to such Registration Statement as originally declared effective which
are declared effective by the Commission; if for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Securities by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Securities as then in effect
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
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<PAGE>
of the circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the applicable effective date of the Registration Statement in connection with
the sale of the Securities, it will prepare promptly upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations and
the rules and regulations of the Commission thereunder and the provisions of
this Agreement.
(b) The Company will advise you, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use reasonable efforts to
qualify the Securities, including in the case of the Warrants, the Warrant
Stock, for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of such Securities, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required to
be so qualified or to so execute a general consent to service of process. In
each jurisdiction in which the Securities shall have been qualified as above
provided, the Company will make and file such statements and reports in each
year as are or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, copies of the Registration Statement (including all exhibits), each
Preliminary Prospectus, the Prospectus and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with Section
10(a)(3) of the Act (including all exhibits) all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
security holders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective dates of the Registration Statement
(as defined in Rule 158(c)), an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section 11(a)
of the Act and the Rules and Regulations and covering a twelve (12) month period
beginning after the effective date of the Registration Statement.
(f) During the five (5) year period beginning after
the date hereof and for so long as the Company is subject to Section 13 or 15 of
the Exchange Act, the Company will furnish to its stockholders as soon as
practicable after the end of each respective period,
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annual reports (including financial statements audited by independent certified
public accountants) and unaudited quarterly reports of operations for each of
the first three quarters of the fiscal year, and will furnish to you and the
other several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's stockholders, (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD, (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders, and (vi) any additional information of a public nature concerning
the Company or its business which you may reasonably request. During such five
(5) year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary that
is not so consolidated.
(g) To furnish to the holders of the Securities all
other documents specified in the Indenture or the Warrant Agreement, as the case
may be, all in the manner so specified.
(h) The Company will apply the net proceeds from the
sale of the Securities being sold by it in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to list
the Warrants on the Nasdaq SmallCap Market and to list the Warrant Stock on the
Nasdaq National Market System.
(j) The Company will maintain a registrar and
warrant agent for the Warrants and a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, registrar (which may be the same
entity as the transfer agent) for its Common Stock.
(k) [Intentionally deleted.]
(l) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 10(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 10(b)(i),
the Company will pay the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or
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<PAGE>
preparing to market or marketing the Securities and to the extent any advances
to the Underwriters exceed such expenses, the Underwriter shall return such
excess to the Company.
(m) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your reasonable opinion the market price of the Common Stock or the Securities
has been or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, if requested by you, forthwith prepare, and, if
permitted by law, disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(n) During the period of 180 days from the date that
the Registration Statement is declared effective by the Commission, the Company
will not, without the prior written consent of the Representative, offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to, directly or indirectly, any shares of Common Stock, any
options or warrants to purchase shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock other than (i) the
sale of the Firm Securities and the Option Securities hereunder, (ii) the
Company's issuance of options or Common Stock under the Company's presently
authorized stock option plans or restricted stock plans as in effect from time
to time (collectively, the "Option Plans") and the issuance of Common Stock upon
the exercise of options or warrants outstanding on the date hereof and described
in the Prospectus and (iii) securities issued in connection with acquisitions.
(o) The Company shall reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy obligations to issue shares of its Common Stock
upon exercise of the Warrants.
5. Expenses.
---------
(a) The Company covenants and agrees with each
Underwriter that:
(i) The Company will pay or cause to be paid
the following: (A) the fees, disbursements and expenses of the Company's counsel
and accountants in connection with the registration of the Securities and the
Warrant Stock under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriters and dealers; (B)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, the Indenture, the Warrant Agreement, any Blue Sky Memoranda and any
other documents in connection with the offering, purchase, sale and delivery of
the Securities; (C) all expenses in connection with the qualification of the
Securities and the Warrant Stock for offering and sale under state securities
laws, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
survey(s); (D) any fees charged by securities rating services for rating the
Securities; (E) any filing fees incident to any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale
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of the Securities; (F) the cost of preparing the Securities; (G) the fees and
expenses of the Trustee and Warrant Agent and any agent of any Trustee or
Warrant Agent and the fees and disbursements of counsel for the Trustee and
Warrant Agent in connection with the Indenture and Warrant Agreement and the
Securities, and the cost and charges of any transfer agent or registrar or
dividend disbursing agent; and (H) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in Section 4(1) hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on
resale of any of the Securities by them, and any advertising expenses connected
with any offers they may make.
(ii) In addition to its other obligations
under Section 5(a)(i) hereof, the Company will reimburse the Representative for
all reasonable expenses incurred in connection with the Offering, including,
without limitation, fees and disbursements of the Representative's counsel. This
reimbursement shall be paid to you on the Closing Date and may be deducted from
the net proceeds from the sale of the Securities that is otherwise payable to
the Company.
(b) In addition to its other obligations under
Section 7(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 7(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's five (5) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
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(c) It is agreed that any controversy arising out of
the operation of the interim reimbursement arrangements set forth in Sections
5(a)(iii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD
in Maricopa County, Arizona (or as close geographically to Maricopa County,
Arizona as is reasonably practical). Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 7(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Securities as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date and
any later date on which Option Securities are to be purchased, as the case may
be, of the representations and warranties of the Company to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., Arizona time, on the date following the date
of this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel. The Prospectus as amended or
supplemented in relation to the applicable Securities shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the Rules and Regulations.
(b) All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issuance, sale and
delivery of the Securities, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
documents and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this Section 6.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have been any change in
the condition (financial or
16
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otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Securities as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and
on any later date on which Option Securities are purchased, as the case may be,
the following opinion of Bryan Cave LLP, counsel for the Company, dated the
Closing Date or such later date on which Option Securities are purchased,
addressed to the Underwriters (and stating that it may be relied upon by Squire,
Sanders & Dempsey L.L.P, Underwriters' Counsel, in rendering its opinion
pursuant to Section 6(e) of this Agreement) and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company is a corporation in good
standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing
of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect
on the condition (financial or otherwise), operations or
business of the Company taken as a whole. To such counsel's
knowledge, the Prospectus accurately describes any
corporation, association or other entity owned or controlled,
directly or indirectly, by the Company;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the
Prospectus, as amended or supplemented, under the caption
"Capitalization" as of the dates stated therein. All of the
issued and outstanding shares of capital stock of the Company
have been duly and validly authorized and issued and are fully
paid and nonassessable, and, to such counsel's knowledge, have
not been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first
refusal or other similar right;
(v) The Notes and the Warrants have been
duly authorized, executed, authenticated and, in the case of
Warrants, countersigned by the Warrant Agent as provided in
the Warrant Agreement, issued and delivered and constitute
valid and legally binding obligations of the Company entitled
to the
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benefits provided by the Indenture and the Warrant Agreement,
and the Securities and the Indenture and Warrant Agreement
conform to the descriptions thereof in the Prospectus, as
amended or supplemented. To such counsel's knowledge, the
Securities have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Securities to be issued and
sold by it hereunder;
(vii) This Agreement has been duly
authorized by all necessary corporate action on the part of
the Company and has been duly executed and delivered by the
Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except
insofar as indemnification provisions may be limited by
applicable law and to which counsel need not express any
opinion and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or
by general equitable principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no
stop orders suspending the effectiveness of the Registration
Statement have been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the
Act;
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other
than the financial statements (including supporting schedules)
and financial and statistical data included in the
Registration Statement as to which such counsel need express
no opinion), as of their respective effective dates, and with
respect to the Prospectus as of ___________, 1997, complied as
to form in all material respects with the requirements of the
Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under
the captions "Description of Notes," "Description of
Warrants," and "Description of Common Stock and Other
Securities," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is
a fair summary of such matters and conclusions;
(xi) The forms of certificates evidencing
the Warrants and filed as exhibits to the Registration
Statement comply with Delaware law;
(xii) The descriptions in the Registration
Statement and the Prospectus of the charter and bylaws of the
Company and of statutes are accurate and fairly present the
information required to be presented by the Act and the
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applicable Rules and Regulations (provided that Counsel need
not express any opinion as to its completeness);
(xiii) To such counsel's knowledge, there
are no agreements, contracts, leases or documents to which the
Company is a party of a character required to be described or
referred to in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement that are
not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and
the consummation of the transactions herein contemplated will
not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and
provisions of, or constitute a material default under, any
material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel
to which the Company is a party or by which its properties are
bound, or any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ
or decree of any court, government or governmental agency or
body having jurisdiction over the Company or over any of its
properties or operations;
(xv) To counsel's knowledge, no consent,
approval, authorization or order of or qualification with any
court, government or governmental agency or body having
jurisdiction over the Company or over any of its properties or
operations is necessary in connection with the consummation by
the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the
Securities by the Underwriters;
(xvi) To such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened
against the Company of a character required to be disclosed in
the Registration Statement or the Prospectus by the Act or the
Rules and Regulations or by the Exchange Act or the applicable
rules and regulations of the Commission thereunder, other than
those described therein;
(xvii) The Warrant Stock to be issued by the
Company pursuant to the terms of the Warrant Agreement has
been duly and validly authorized and reserved for issuance
and, upon issuance and delivery against payment therefor as
described in the Prospectus, will be duly and validly issued
and fully paid and nonassessable, and to such counsel's
knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right of
stockholders; and
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<PAGE>
(xviii) To such counsel's knowledge, except
as described in the Prospectus, no holders of Common Stock or
other securities of the Company have registration rights
entitling the holder thereof to include securities of the
Company in this Offering.
In addition, such counsel shall state that such
counsel has participated in conferences with officials and other representatives
of the Company, the Representative, Underwriters' Counsel and the independent
certified public accountants of the Company, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although (except as specifically set forth in paragraphs (x) and (xii) above)
they have not verified the accuracy or completeness of the statements contained
in the Registration Statement or the Prospectus, nothing has come to the
attention of such counsel that leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Securities are
to be purchased, the Registration Statement and any amendments or supplements,
when such documents became effective or were filed with the Commission (other
than the financial statements including supporting schedules and other financial
and statistical data included in the Registration Statement as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Securities are to be purchased, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case its opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representative of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and
on any later date on which Option Securities are to be purchased, as the case
may be, an opinion of Squire, Sanders & Dempsey L.L.P. in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and
on any later date on which Option Securities are to be purchased, as the case
may be, a letter from Arthur Andersen LLP, addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option
Securities are to be purchased, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
20
<PAGE>
meaning of the Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than five (5) business days prior to the Closing
Date or such later date on which Option Securities are to be purchased, as the
case may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing Date
or such later date on which Option Securities are to be purchased, as the case
may be, and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements, data
or information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations or business of the Company from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Securities as contemplated by the Prospectus. The Original Letter from Arthur
Andersen LLP shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth its opinion with respect to its examination of
the balance sheet of the Company as of December 31, 1995 and 1996 and related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1994, 1995 and 1996, and (iii) address other matters agreed
upon by Arthur Andersen LLP and you. In addition, you shall have received from
Arthur Andersen LLP a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of its examination of the Company's financial statements
as of December 31, 1996, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and
on any later date on which Option Securities are to be purchased, as the case
may be, a certificate of the Company, dated the Closing Date or such later date
on which Option Securities are to be purchased, as the case may be, signed by
the President and by the Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of
the Company in this Agreement are true and correct, as if made
on and as of the Closing Date or any later date on which
Option Securities are to be purchased, as the case may be, and
the Company has complied, in all material aspects, with all
the agreements and satisfied all the conditions on its part to
be performed or satisfied, in all material respects, at or
prior to the Closing Date or any later date on which Option
Securities are to be purchased, as the case may be;
(ii) No stop orders suspending the
effectiveness of the Registration Statement have been issued
and no proceedings for that purpose have been instituted or,
to their knowledge, are pending or threatened under the Act;
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<PAGE>
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and
the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included
therein by the Act and the Rules and Regulations or the
Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, and in all material
respects conformed to the requirements of the Act and the
Rules and Regulations or the Exchange Act and the applicable
rules and regulations of the Commission thereunder, as the
case may be, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, the Prospectus, and any
amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has not
been so set forth; and
(iv) Subsequent to the respective dates as
of which information is given in the Registration Statement
and Prospectus, there has not been (a) any material adverse
change in the condition (financial or otherwise), earnings,
operations or business of the Company, (b) any transaction
that is material to the Company, except transactions entered
into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to the Company,
incurred by the Company, except obligations incurred in the
ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company that is
material to the Company, (e) any dividend or distribution of
any kind declared, paid or made on the capital stock of the
Company (other than dividends paid in respect of the Company's
preferred stock outstanding on the date of the Prospectus in
amounts not in excess of those described in the Prospectus),
or (f) any loss or damage (whether or not insured) to the
property of the Company which has a material adverse effect on
the condition (financial or otherwise), earnings, operations
or business of the Company.
(h) The Company shall have furnished to you such
further certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company, as to the performance by the
Company of its obligations hereunder and as to the other conditions concurrent
and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company will furnish you
with such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
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7. Indemnification and Contribution.
---------------------------------
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendments or supplements thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 7(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Securities, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 7(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company against any losses, claims,
damages or liabilities, joint or several, to which the Company may become
subject under the Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
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(i) any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendments or supplements thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 7(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 7(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 7. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party which pose a conflict of interest for such counsel, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that
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the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 7(a)
or 7(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such indemnification.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 7 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the initial public offering price, and the Company is responsible for the
remaining portion, provided, however, that (i) no Underwriter shall be required
to contribute any amount in excess of the underwriting discount applicable to
the Securities purchased by such Underwriter and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 7(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls the Underwriters or the Company
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the Company.
(e) If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
of the Securities on the other from the offering of the Securities to which such
a loss, claim, damage or liability (or action in respect thereof) relates. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnifying party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or
25
<PAGE>
payable by such indemnifying party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters of the Securities on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and such Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from such offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by such Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provision of this subsection (e), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
applicable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Underwriters of Securities in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations with respect to such Securities and not joint.
(f) The obligations of the Company under this Section
7 shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 7 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each other and director of the Company and to each
person, if any, who controls the Company with the meaning of the Act.
(g) The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 7, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 7
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised
26
<PAGE>
that federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section 7,
and the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under this Section
7 and further agree not to attempt to assert any such defense.
8. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 7
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Securities to the several Underwriters hereunder or termination of this
Agreement.
9. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Securities agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Securities in accordance with the terms hereof, and if the aggregate number of
Firm Securities which such defaulting Underwriter or Underwriters so agreed but
failed to purchase does not exceed 10% of the Firm Securities, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Securities of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Securities which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Securities, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Securities which the defaulting Underwriter or Underwriters
so agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Securities which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Securities which the defaulting Underwriter or Underwriters
so agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Securities of the defaulting Underwriter or Underwriters as provided in this
Section 9, (i) the Company shall have the right to postpone the time of delivery
for a period of not more than seven (7) full business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may
27
<PAGE>
thereby be made necessary, and (ii) the respective number of Firm Securities to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm
Securities so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Securities as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 9, the Company shall not be liable to
any Underwriter (except as provided in Sections 5 and 7 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Securities agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company (except
to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 9.
10. Effective Date of this Agreement and Termination.
-------------------------------------------------
(a) This Agreement shall become effective at the
earlier of (i) 6:30 A.M., Arizona time, on the second full business day
following the effective date of the Registration Statement, or (ii) the time of
the first public offering of any of the Securities by the Underwriters after the
Registration Statement becomes effective. The time of the first public offering
shall mean the time of the release by you, for publication, of the first
newspaper advertisement relating to the Securities, or the time at which the
Securities are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By giving
notice as set forth in Section 11 before the time this Agreement becomes
effective, you, as Representative of the several Underwriters, or the Company,
may prevent this Agreement from becoming effective without liability of any
party to any other party, except as provided in Sections 4(j), 5 and 7 hereof.
(b) You, as Representative of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time at or prior to the Closing Date or on or
prior to any later date on which Option Securities are to be purchased, as the
case may be, (i) if the Company shall have failed, refused or been unable to
perform any agreement hereunder on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over
28
<PAGE>
the counter market by the NASD, or trading in securities generally shall have
been suspended on either such exchange or in the over the counter market by the
NASD, or if a banking moratorium shall have been declared by federal, New York
or Arizona authorities, or (iii) if the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
to interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Securities, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representative, makes it impracticable or inadvisable to proceed with the
public offering of the Securities as contemplated by the Prospectus. Any
termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
4(l), 5 and 7 hereof. In the event of termination pursuant to subparagraph (i)
above, the Company shall also remain obligated to pay costs and expenses
pursuant to Sections 4(l), 5 and 7 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 10, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
11. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Peacock, Hislop, Staley & Given, Inc., 2999
North 44th Street, Suite 100, Phoenix, Arizona 85018, telecopier number (602)
952-0220, Attention: Thomas L. Thomas; if sent to the Company, such notice shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to 1834 West Third Street, Tempe, Arizona 85281, telecopier
number (602) 894-6422, Attention: Lawrence Trachtenberg.
12. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 7 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Securities from any Underwriter shall be construed a
successor or assign by reason merely of
29
<PAGE>
such purchase. The Agreement constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof.
In all dealings with the Company under this Agreement, you
shall act on behalf of each of the several Underwriters, and the Company shall
be entitled to act and rely upon any statement, request, notice or agreement
made or given by you on behalf of each of the several Underwriters.
13. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Arizona, without regard to choice
or conflict of law principles.
14. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among
the Company and the several Underwriters, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company and the several Underwriters.
Very truly yours,
MOBILE MINI, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
---------------------------
Accepted as of the date first above written:
PEACOCK, HISLOP, STALEY & GIVEN, INC.
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By: PEACOCK, HISLOP, STALEY & GIVEN, INC.
By:
--------------------------------
Name:
-----------------------
Title:
----------------------
31
<PAGE>
SCHEDULE A
Principal Amount
of Securities
To Be
Underwriters Purchased
Peacock, Hislop, Staley & Given, Inc. ........................
Total................................................ $6,000,000.00
=============
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT ("Agreement"), dated as of this ___ day of
________ , 1997, by and among MOBILE MINI, INC., a Delaware corporation
("Company"), Harris Trust and Savings Bank, as Warrant Agent (the "Warrant
Agent"), and PEACOCK, HISLOP, STALEY & GIVEN, INC., an Arizona corporation
("PHSG").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with (i) a public offering (the "Offering") of
up to $6,900,000 in aggregate principal amount of the Company's __% Senior
Subordinated Notes Due 2002 ("Notes") (including $900,000 in principal amount of
additional Notes if the Underwriters' over-allotment option (the "Over-allotment
Option") is exercised in full) and warrants ("Warrants") to purchase 172,500
shares (including an aggregate of 22,500 Warrants if the Over-allotment Option
is exercised in full) of the common stock, $.01 par value, of the Company (the
"Common Stock") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated _______ __, 1997, between the Company and PHSG, and (ii) the
issuance of up to 172,500 Warrants to PHSG pursuant to the Underwriting
Agreement (including 22,500 Warrants if the Over-allotment Option is exercised
in full), the Company may issue up to 345,000 Warrants; and
WHEREAS, each Warrant initially entitles the Registered Holder thereof
to purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Additional Shares of Common Stock" means all shares of
Common Stock issued or issuable by the Company after the date of this Warrant,
other than shares of Common Stock issuable (a) upon the exercise of warrants
issued or sold prior to the date hereof and (b) upon the exercise of options
issued pursuant to the Company's stock option plans in effect from time to time
so long as the exercise price is not less than the Fair Value of the Common
Stock on the date such options are granted.
<PAGE>
(b) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share, and includes any common stock of the Company of any class
or classes resulting from any reclassification or reclassifications thereof
which is not limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.
(c) "Convertible Securities" means shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Additional Shares of Common Stock.
(d) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 111 West
Monroe, 21E, Chicago, Illinois, 60603.
(e) "Current Market Price" of a share of Common Stock or of
any other security as of a relevant date means: (i) the Fair Value thereof as
determined in accordance with clause (ii) of the definition of Fair Value with
respect to Common Stock or any other security that is not listed on a national
securities exchange or traded on the over-the-counter market or quoted on
NASDAQ, and (ii) the closing price on such date (excluding any trades which are
not bona fide arm's length transactions) with respect to Common Stock or any
other security that is listed on a national securities exchange or traded on the
over-the-counter market or quoted on NASDAQ. The closing price for each day
shall be (i) the last sale price of shares of Common Stock or such other
security on such date or, if no such sale takes place on such date, the average
of the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which the
same are then listed or admitted to trading, or (ii) if no shares of Common
Stock or if no securities of the same class as such other security are then
listed or admitted to trading on any national securities exchange, the average
of the reported closing bid and asked prices thereof on such date in the
over-the-counter market as shown by the National Association of Securities
Dealers automated quotation system or, if no shares of Common Stock or if no
securities of the same class as such other security are then quoted in such
system, as published by the National Quotation Bureau, Incorporated or any
similar successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected by the Registered Holders.
(f) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Exercise Price.
(g) "Exercise Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $___.____, subject
2
<PAGE>
to adjustment from time to time pursuant to the provisions of Section 9 hereof,
and subject to the Company's right to reduce the Exercise Price upon notice to
all Registered Holders of Warrants.
(h) "Fair Value" means: (i) with respect to a share of Common
Stock or any other security, the Current Market Price thereof, and (ii) with
respect to any other property, assets, business or entity, an amount determined
in good faith by the board of Directors of the Company.
(i) "Initial Warrant Exercise Date" shall mean as to each
Warrant March 1, 1998.
(j) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(k) "Transfer Agent" shall mean Harris Trust and Savings Bank,
as the Company's transfer agent, or its authorized successor as such.
(l) "Warrant Expiration Date" shall mean 5:00 P.M. (Arizona
local time) on November 1, 2002; provided that if such date shall in the State
of Arizona be a holiday or a day on which banks are authorized or required to
close, then 5:00 P.M. (Arizona local time) on the next following day which in
the State of Arizona is not a holiday or a day on which banks are authorized or
required to close. Upon notice to all Registered Holders, the Company shall have
the right to extend the Warrant Expiration Date.
(m) "Warrant Shares" means shares of Common Stock issuable to
Registered Holders pursuant to this Agreement.
(n) "Warrants" means the 150,000 Warrants issuable in the
public offering, the 22,500 Warrants issuable upon exercise of the
Over-allotment Option, and the 172,500 Warrants issuable to PHSG (including an
aggregate of 22,500 Warrants subject to the Over-allotment Option), and any
Warrants issued in exchange or replacement of said Warrants or upon transfer
thereof. The Warrants shall be denominated the "Series B Warrants" to
distinguish them from any other warrants to purchase shares of Common Stock that
may be outstanding from time to time.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of the Notes will be
detachable and separately transferable immediately from the Notes.
3
<PAGE>
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 345,000 shares of
Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder;
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Option; and
(vi) at the option of the Company, in such form as may be approved by its Board
of Directors, to reflect any adjustment or change in the Exercise Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(d). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant
4
<PAGE>
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case of any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
and shall notify the Company in writing of the exercise of the Warrants.
Promptly following, and in any event within five days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a Warrant Certificate for any
remaining unexercised Warrants of the Registered Holder), unless prior to the
date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance of
checks received in payment of the Exercise Price pursuant to such Warrants. Upon
the exercise of any Warrant and clearance of the funds received, the Warrant
Agent shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing.
5
<PAGE>
(b) In lieu of exercising this Warrant as specified in Section
4(a), above, a Registered Holder may from time to time at the Registered
Holder's option convert this Warrant, in whole or in part, into a number of
shares of Common Stock of the Company determined by dividing (A) the aggregate
Fair Value of such shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Exercise Price of such shares by (B) the
Fair Value of one such share.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof (other than those which the Company shall promptly
pay or discharge), and that upon issuance such shares shall be listed on each
national securities exchange on which the other shares of outstanding Common
Stock of the Company are then listed or shall be eligible for inclusion in the
Nasdaq National Market or the Nasdaq SmallCap Market if the other shares of
outstanding Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of the Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval. The
Company will use reasonable efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws. With respect to any such
securities, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if the shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised,
6
<PAGE>
then no such delivery shall be made unless the person requesting the same has
paid to the Warrant Agent the amount of transfer taxes or charges incident
thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer of any Warrant Certificate at such office,
the Company shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
7
<PAGE>
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) On not less than thirty (30) days notice given at any time after
_________ __, 199_ (the "Redemption Notice"), to Registered Holders of the
Warrants being redeemed, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.05 per Warrant (the "Redemption Price"),
provided the Market Price of the Common Stock receivable upon exercise of such
Warrants shall exceed $_.__ (the "Target Price"), subject to adjustment as set
forth in Section 8(f), below. Market Price shall mean (i) the average closing
bid price of the Common Stock, for twenty (20) consecutive business days (or
such other period as PHSG may consent to), 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 (or such other period as PHSG may consent to)
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. For purposes of this
Section 8, the Calculation Date shall mean a date within 15 days of the mailing
of the Redemption Notice. The date fixed for redemption of the Warrants is
referred to herein as the "Redemption Date."
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
the Warrant Agent to mail a Redemption Notice to each of the Registered Holders
of the 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 Section 6. Any notice mailed
in the manner provided herein shall be conclusively presumed to have been duly
given whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the Redemption Price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the Redemption Price paid, (iv) that the Warrant Agent will assist
each Registered Holder of a Warrant in connection with the exercise thereof and
(v) that the right to exercise the Warrant shall terminate at 5:00 P.M. (Arizona
time) on the business day immediately preceding the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (a) to whom notice was not mailed or (b) whose
notice was defective. An affidavit of the Warrant Agent or of the Secretary or
an Assistant Secretary of the Warrant Agent or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(Arizona time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Exercise Price; Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Registered Holders
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.
(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. In the event that the Company shall at any time issue or sell any
Additional Shares of Common Stock or Convertible Securities, or declare any
dividend or authorize any other distribution upon any class of stock of the
Company payable in Additional Shares of Common Stock or Convertible Securities,
and the Company shall receive consideration in respect of such issuance, sale,
dividend or distribution in an amount less than the 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
8
<PAGE>
immediately after such issuance, sale, dividend or distribution. In case at any
time on or after the date hereof, 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 Convertible
Securities, such declaration or distribution shall be deemed to have been issued
or sold (as of the record date) without consideration. For purposes of this
Section 9, the number of shares of Common Stock outstanding at any given time
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 of this Section 9.
(c) Reorganization, Reclassification, Consolidation, Merger or
Sale. 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 Registered Holders shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant upon exercise of this Warrant 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 hereby, and in any such case appropriate
provision shall be made with respect to the rights and interests of the
Registered Holders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) 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.
(d) Company to Prevent Dilution. 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 this Section 9, and which might
materially and adversely effect the exercise rights of the Registered Holders
under this Warrant, 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 Warrants, so as to preserve, without dilution,
the exercise rights of the Registered Holders.
(e) Stock Splits and Reverse Splits. In case at any time the
Company shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
9
<PAGE>
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(f) Dissolution, Liquidation and Wind-Up. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Registered Holders shall be entitled, upon the
exercise of this Warrant, to receive, in lieu of the shares of Common Stock of
the Company which such Registered Holders would have been entitled to receive,
the same kind and amount of assets as would have been issued, distributed or
paid to such Registered Holders upon any such dissolution, liquidation or
winding up with respect to such shares of Common Stock of the Company, had such
Registered Holders been the holders of record of the Warrant Shares receivable
upon the exercise of this Warrant 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 provided for by this Warrant, the
Registered Holders may, at each such Registered Holder's option, exercise the
same without making payment of the Exercise Price, and in such case the Company
shall, upon the distribution to said Registered Holders, consider that said
Exercise Price has been paid in full to it and in making settlement to said
Registered Holders, shall deduct from the amount payable to such Registered
Holders an amount equal to such Exercise Price.
(g) Adjustment Certificate. 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 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 this Warrant and prepare and duly execute and
deliver to the Registered Holders a certificate setting forth such adjustment
and showing in detail the facts upon which such adjustment is based.
SECTION 10. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of Warrants.
With respect to any fraction of a share called for upon exercise hereof, such
fraction shall be rounded to the nearest whole share. A fraction of one-half
shall be rounded up to the next highest integer.
SECTION 11. Notices of Stock Dividends, Subscriptions,
Reclassifications, Consolidations, Mergers, etc.
If at any time: (i) the Company shall declare a cash or stock dividend
(or an increase in the then existing dividend rate), or declare a dividend on
Common Stock payable otherwise than in cash out of its net earnings after taxes
for the prior fiscal year, or (ii) the Company shall authorize the granting to
the holders of Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or (iii) there shall be any
capital reorganization, or reclassification, or redemption of the capital stock
of the Company, or consolidation or merger of the Company with, or sale of all
or substantially all of its assets to,
10
<PAGE>
another corporation or firm; or (iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then the Company shall
give to the Registered Holders at the addresses of such Registered Holders as
shown on the books of the Company, at least twenty (20) days prior to the
applicable record date hereinafter specified, a written notice summarizing such
action or event and stating the record date for any such dividend or rights (or,
if a record date is not to be selected, the date as of which the holders of
Common Stock of record entitled to such dividend or rights are to be
determined), the date on which any such reorganization, reclassification,
consolidation, merger, sale of assets, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected the
holders of Common Stock of record shall be entitled to effect any exchange of
their shares of Common Stock for cash (or cash equivalent), securities or other
property deliverable upon any such reorganization, reclassification,
consolidation, merger, sale of assets, dissolution, liquidation or winding up.
SECTION 12. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscriptions rights, until such holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 13. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 14. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance thereof,consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
11
<PAGE>
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 15. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 16. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Exercise Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
12
<PAGE>
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate of the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as
13
<PAGE>
though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
SECTION 17. Modification of Agreement. Subject to the provisions of
Section 4(b), the parties hereto and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Warrants which are to be governed by this Agreement
resulting from a subsequent public offering of Company securities which includes
Warrants having the same terms and conditions as the Warrants originally covered
by or subsequently added to this Agreement under this Section 15; or (iii) that
they may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 50% of the Warrants then outstanding;
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Exercise Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 1834 West Third Street, Tempe, Arizona 85281,
attention: Lawrence Trachtenberg, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office; if to PHSG, at 2999 North 44th Street, Suite
100, Phoenix, Arizona 85004-1098; attention: Tom Thomas.
SECTION 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona, without reference
to principles of conflict of laws.
SECTION 20. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 21. Termination. This Agreement shall terminate at the close of
business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants (including the warrants issuable upon exercise of the Option) have
been exercised, except that the Warrant
14
<PAGE>
Agent shall account to the Company for cash held by it and the provisions of
Section 14 hereof shall survive such termination.
SECTION 22. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
SECTION 23. Lockup. Notwithstanding anything in this Agreement to the
contrary, the Warrants (and related Warrant Certificates) issued to PHSG
pursuant to this Agreement and in accordance with the terms of the Underwriting
Agreement shall bear a restrictive legend that provides that the Warrant shall
not be sold, transferred, assigned, pledged or hypothecated for a period of one
(1) year following the effective date of the Offering; provided, however, that
such Warrants may be transferred to such persons or entities as provided by Rule
2710 of the National Association of Securities Dealers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MOBILE MINI, INC.
By:
---------------------------------
Its:
---------------------------------
HARRIS TRUST AND SAVINGS BANK
By:
---------------------------------
Authorized Officer
PEACOCK, HISLOP, STALEY & GIVEN, INC.
By:
---------------------------------
15
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W-SB- ___ Warrants
VOID AFTER November 1, 2002
SERIES B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
MOBILE MINI, INC.
This certifies that FOR VALUE RECEIVED ___________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants specified above. Each Warrant represented hereby initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, $.01 par value ("Common
Stock"), of Mobile Mini, Inc., a Delaware corporation (the "Company"), at any
time between March 1, 1998 and the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of Haris Trust and Savings Bank as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $__.__ (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________ ___, 1997 by and among the Company, the Warrant Agent and
Peacock, Hislop, Staley & Given, Inc.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate
A-1
<PAGE>
or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (Arizona local
time) on November 1, 2002 or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of Arizona be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (Arizona local time) the next following day which in the State of Arizona
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. The Warrants represented
hereby shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any applicable
transfer fee in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Arizona.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers hereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
MOBILE MINI, INC.
Dated: By:
-----------------------------------
Its:
-----------------------------------
[seal]
Countersigned:
Harris Trust & Savings Bank, Warrant Agent
By:
---------------------------------
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
------------------------
------------------------
------------------------
------------------------
[please print or type name and address]
and be delivered to
------------------------
------------------------
------------------------
------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise
A-4
<PAGE>
indicated by listing the name of another NASD member firm, it will be assumed
for purposes of any applicable fee calculation that the exercise was solicited
by Peacock, Hislop, Staley & Given, Inc.
----------------------------------------
(Name of NASD Member)
Dated: X
------------ ---------------------------------
----------------------------------------
----------------------------------------
Address
----------------------------------------
Taxpayer Identification Number
----------------------------------------
Signature Guaranteed
----------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
------------------------
------------------------
------------------------
------------------------
[please print or type name and address]
of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: X
------------ -----------------------------------
Signature Guaranteed
-----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
MOBILE MINI, INC.
and
HARRIS TRUST AND SAVINGS BANK,
Trustee
---------------
INDENTURE
---------------
______% Senior Subordinated Notes Due
November 1, 2002
Dated as of ________ __, 1997
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TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Other Provisions
of General Application
Section 101. Definitions ................................................... 1
Section 102. Compliance Certificates and Opinions .......................... 7
Section 103. Form of Documents Delivered to Trustee ........................ 7
Section 104. Acts of Holders; Record Dates ................................. 8
Section 105. Notices, Etc., to Trustee and Company ......................... 10
Section 106. Notice to Holders; Waiver ..................................... 10
Section 107. Conflict with Trust Indenture Act ............................. 11
Section 108. Effect of Headings and Table of Contents ...................... 11
Section 109. Successors and Assigns ........................................ 11
Section 110. Separability Clause ........................................... 11
Section 111. Benefits of Indenture ......................................... 11
Section 112. Governing Law ................................................. 11
Section 113. Legal Holidays ................................................ 11
ARTICLE II
Note Forms
Section 201. Forms Generally ............................................... 12
Section 202. Form of Face of Note .......................................... 12
Section 203. Form of Reverse of Note ....................................... 13
Section 204. Form of Trustee's Certificate of Authentication ............... 15
ARTICLE III
The Notes
Section 301. Title and Terms ............................................... 16
Section 302. Denominations ................................................. 16
Section 303. Execution, Authentication, Delivery and Dating ................ 16
Section 304. Temporary Notes ............................................... 17
Section 305. Registration; Registration of Transfer and Exchange ........... 17
Section 306. Mutilated, Destroyed, Lost and Stolen Notes ................... 18
Section 307. Payment of Interest; Interest Rights Preserved ................ 19
Section 308. Persons Deemed Owners ......................................... 20
Section 309. Cancellation .................................................. 20
Section 310. Computation of Interest ....................................... 21
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ARTICLE IV
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture ....................... 21
Section 402. Application of Trust Money .................................... 22
ARTICLE V
Default and Remedies
Section 501. Events of Default ............................................. 22
Section 502. Remedies ...................................................... 24
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee 25
Section 504. Trustee May File Proofs of Claim .............................. 26
Section 505. Trustee May Enforce Claims Without Possession of Notes ........ 26
Section 506. Application of Money Collected ................................ 26
Section 507. Limitation on Suits ........................................... 27
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest .......................................... 28
Section 509. Restoration of Rights and Remedies ............................ 28
Section 510. Rights and Remedies Cumulative ................................ 28
Section 511. Delay or Omission Not Waiver .................................. 28
Section 512. Control by Holders ............................................ 28
Section 513. Waiver of Past Defaults ....................................... 29
Section 514. Undertaking for Costs ......................................... 29
Section 515. Waiver of Usury, Stay or Extension Laws ....................... 29
ARTICLE VI
The Trustee
Section 601. Certain Duties and Responsibilities ........................... 30
Section 602. Notice of Defaults ............................................ 30
Section 602. Certain Rights of the Trustee ................................. 30
Section 604. Not Responsible for Recitals or Issuance of Notes ............. 31
Section 605. May Hold Notes ................................................ 31
Section 606. Money Held in Trust ........................................... 32
Section 607. Compensation and Reimbursement ................................ 32
Section 608. Conflicting Interests ......................................... 32
Section 609. Corporate Trustee Required; Eligibility ....................... 33
Section 610. Resignation and Removal; Appointment of Successor ............. 33
Section 611. Acceptance of Appointment by Successor ........................ 34
Section 612. Merger, Conversion, Consolidation or Succession to Business ... 35
Section 613. Preferential Collection of Claims Against Company ............. 35
Section 614. Appointment of Authenticating Agent ........................... 36
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ARTICLE VII
Holders' Lists and Reports by Trustee and Company
Section 701. Company to Furnish Trustee Names and Addresses of Holders .... 37
Section 702. Preservation of Information; Communications to Holders ....... 37
Section 703. Reports by Trustee ........................................... 38
Section 704. Reports by Company ........................................... 38
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company May Consolidate, Etc., Only on Certain Terms ......... 38
Section 802. Successor Substituted ........................................ 39
ARTICLE IX
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders ........... 40
Section 902. Supplemental Indentures With Consent of Holders .............. 40
Section 903. Execution of Supplemental Indentures ......................... 41
Section 904. Effect of Supplemental Indentures ............................ 42
Section 905. Conformity with Trust Indenture Act .......................... 42
Section 906. Reference in Notes to Supplemental Indentures ................ 42
ARTICLE X
Covenants of the Company
Section 1001. Payment of Principal, Premium and Interest ................... 42
Section 1002. Maintenance of Office or Agency .............................. 42
Section 1003. Money for Notes Payments to Be Held in Trust ................. 43
Section 1004. Statement by Officers as to Default .......................... 44
Section 1005. Existence .................................................... 44
Section 1006. Maintenance of Properties .................................... 44
Section 1007. Payment of Taxes and Other Claims ............................ 44
Section 1008. Financial Reporting .......................................... 45
Section 1009. Conduct of Business; Compliance with Laws .................... 46
Section 1010. Insurance .................................................... 46
Section 1011. Books and Records ............................................ 46
Section 1012. Certain Notices .............................................. 46
Section 1013. Inspection ................................................... 47
Section 1014. Environmental Compliance ..................................... 47
Section 1015. Modification of Senior Credit Agreement;
Notice to Senior Lenders ..................................... 47
Section 1016. Source of Payments ........................................... 47
Section 1017. Change in Control Refinancing ................................ 48
Section 1018. Financial Covenants .......................................... 49
Section 1019. Negative Covenants ........................................... 51
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Section 1020. Subsidiary Guarantees ........................................ 52
Section 1021. Payment of Fees .............................................. 53
Section 1022. Waiver of Certain Covenants .................................. 53
ARTICLE XI
Redemption of Notes
Section 1101. Applicability of Article ..................................... 53
Section 1102. Selection by Trustee of Notes to Be Redeemed ................. 54
Section 1103. Notice of Redemption ......................................... 54
Section 1104. Deposit of Redemption Price .................................. 55
Section 1105. Notes Payable on Redemption Date ............................ 55
Section 1106. Notes Redeemed in Part ....................................... 55
ARTICLE XII
Reserve Account
Section 1201. Establishment of Reserve Account; Use of Proceeds ............ 56
Section 1202. Use of Reserve Account Funds ................................. 56
ARTICLE XIII
Defeasance and Covenant Defeasance
Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance . 57
Section 1302. Defeasance and Discharge ..................................... 57
Section 1303. Covenant Defeasance .......................................... 57
Section 1304. Conditions to Defeasance or Covenant Defeasance .............. 58
Section 1305. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Miscellaneous Provisions ........................... 60
Section 1306. Reinstatement ................................................ 60
ARTICLE XIV
Subordination of Notes
Section 1401. Notes Subordinate to Senior Debt ............................. 61
Section 1402. Continuing Senior Status ..................................... 61
Section 1403. Defaults With Respect to Senior Debt ......................... 61
Section 1404. Blockage Notice .............................................. 62
Section 1405. Priority of Payments ......................................... 62
Section 1406. Acceleration of Notes ........................................ 63
Section 1407. Avoided Payments ............................................. 63
Section 1408. Subrogation Upon Payment of Senior Debt ...................... 64
Section 1409. Trustee to Effectuate Subordination .......................... 64
Section 1410. Notice to Trustee ............................................ 64
Section 1411. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights ............................. 65
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Section 1412. Trustee Not Fiduciary for Holders of Senior Debt ............. 65
Section 1413. No Waiver of Subordination Provisions ..................... 66
Section 1414. Defeasance of this Article XIV ............................... 66
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Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
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INDENTURE, dated as of ________ __, 1997, between Mobile Mini, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 1834 West 3rd
Street, Tempe, Arizona 85281, and Harris Trust and Savings Bank, an Illinois
banking corporation, as Trustee (herein called the "Trustee").
Recitals of the Company
The Company has duly authorized the creation of an issue of its
_______% Senior Subordinated Notes Due 2002 (herein called the "Notes") of
substantially the tenor and amount herein set forth, and to provide therefor the
Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed and duly issued
by the Company and authenticated and delivered hereunder, the valid obligations
of the Company, and to make this Indenture a valid agreement of the Company, in
accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
Section 101. Definitions.
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For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted in the United
States of America;
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(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case
may be, of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate Notes.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in Phoenix, Arizona or that Place of Payment are authorized
or obligated by law or executive order to close.
"Change in Control Refinancing" has the meaning specified in Section
1017.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, or, if at any time after the execution of this instrument
such Commission is not existing and performing the duties now assigned to it
under the Trust Indenture Act, then the body performing such duties at such
time.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
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"Control Prepayment Amount" has the meaning specified in Section 1017.
"Control Prepayment Date" has the meaning specified in Section 1017.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date hereof is located at 311 West Monroe
Street, 12th Floor, Chicago, Illinois 60606.
"Corporation" includes corporations, associations, companies,
joint-stock companies, limited partnerships and business trusts.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Default Rate" shall mean a rate of interest equal to two percent (2%)
per month.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Holder" or "Noteholder" means a Person in whose name a Note is
registered in the Register.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on any Note.
"Investment Company Act" means the Investment Company Act of 1940 and
any statute successor thereto, in each case as amended from time to time.
"Material Adverse Effect" means any material adverse effect on the
business, condition (financial or otherwise), prospects, properties or results
of operations of the Company and its Subsidiaries taken as a whole.
"Material Subsidiary" has the meaning specified in Section 1020.
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"Maturity", when used with respect to any Note, means the date on which
the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, or other counsel who shall be reasonably acceptable to
the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(1) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(2) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Notes;
provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(3) Notes as to which Defeasance has been effected pursuant to
Section 1302; and
(4) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands such Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Notes have given, made or taken any request, demand,
authorization, direction, notice, consent, waiver or other action hereunder as
of any date, Notes owned by the Company or any other obligor upon the Notes or
any Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice,
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consent, waiver or other action, only Notes which the Trustee knows to be so
owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Note on behalf of the Company.
The Company may act as Paying Agent with respect to any Note issued hereunder.
"Person" means any individual, corporation, partnership, company, joint
venture, trust, association, joint-stock company, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means Phoenix, Arizona or any other place or places
where the principal of and any premium and interest on the Notes are payable.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means the price at which any Note is to be redeemed
pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the close of business on the October 15 or April 15, as the case may
be, whether or not a Business Day, immediately preceding the Interest Payment
Date on which such interest is payable.
"Reserve Account" has the meaning specified in Section 1201.
"Reserve Account Security Agreement" has the meaning specified in
Section 1202.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, any senior trust
officer, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
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"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Senior Credit Agreement" means that certain Credit Agreement dated as
of March 28, 1996 by and among the Company, the financial institutions party
thereto, and BT Commercial Corporation, as agent, as amended, supplement or
modified from time to time and including any restatements, renewals, refundings
or refinancings thereof.
"Senior Debt" of the Company 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. 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.
"Senior Funded Indebtedness Ratio" has the meaning specified in Section
1018.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Note or any
installment of principal thereof or interest thereon, means the date specified
in such Note as the fixed date on which the principal of such Note or such
instalment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation
more than 50% of the outstanding voting stock of which is owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries, and (ii) any other Person (other
than a corporation) in which such Person, directly or indirectly, at the date of
determination thereof, has at least a majority equity ownership interest. For
the purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Subsidiary Guarantee" has the meaning specified in Section 1020.
"Tangible Net Worth" has the meaning specified in Section 1018.
"Total Consolidated Indebtedness" has the meaning specified in Section
1018.
"Total Funded Indebtedness Ratio" has the meaning specified in Section
1018.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
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"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Notes shall mean the Trustee with respect to Notes.
"U.S. Government Obligation" has the meaning specified in Section 1304.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
Section 102. Compliance Certificates and Opinions.
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Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
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In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders; Record Dates.
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Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Indenture to be given, made or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Notes shall be proved by the Note Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Note.
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The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Notes entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Notes, provided that the Company may not set a record date for, and
the provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
Outstanding Notes on such record date, and no other Holders, shall be entitled
to take the relevant action, whether or not such Holders remain Holders after
such record date; provided that no such action shall be effective hereunder
unless taken on or prior to the applicable Expiration Date by Holders of the
requisite principal amount of Outstanding Notes on such record date. Nothing in
this paragraph shall be construed to prevent the Company from setting a new
record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding Notes
on the date such action is taken. Promptly after any record date is set pursuant
to this paragraph, the Company, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Trustee in writing and to each Holder in the manner set forth
in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Notes entitled to join in the giving or
making of (i) any notice of an Event of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Notes. If any record date is set
pursuant to this paragraph, the Holders of Outstanding Notes on such record
date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Notes on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding Notes
on the date such action is taken. Promptly after any record date is set pursuant
to this paragraph, the Trustee, at the Company's expense, shall cause notice of
such record date, the proposed action by Holders and the applicable Expiration
Date to be given to the Company in writing and to each Holder of Notes in the
manner set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Notes in the manner set forth in Section 106, on or prior to
the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the party hereto which
set such record date shall be deemed
9
<PAGE>
to have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no
Expiration Date shall be later than the 180th day after the applicable record
date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Note may do so with regard to all
or any part of the principal amount of such Note or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
Section 105. Notices, Etc., to Trustee and Company.
--------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Indenture Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the
Company.
Section 106. Notice to Holders; Waiver.
--------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Note Register, not later than
the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
10
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Section 107. Conflict with Trust Indenture Act.
----------------------------------
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Section 108. Effect of Headings and Table of Contents.
-----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction or interpretation
hereof.
Section 109. Successors and Assigns.
-----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
--------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 111. Benefits of Indenture.
----------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 112. Governing Law.
--------------
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of Arizona, without regard to conflicts of
laws principles thereof.
Section 113. Legal Holidays.
---------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Note shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Notes (other
than a provision of any Note which specifically states that such provision shall
apply in lieu of this Section)) payment of interest or principal (and premium,
if any) need not be made at such Place of Payment on such date, but may be made
on the next succeeding Business Day at such Place of Payment with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity.
11
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ARTICLE II
Note Forms
Section 201. Forms Generally.
----------------
The Notes shall be in substantially the form set forth in this Article,
or in such other form as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or
depositary therefor or as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution thereof. If the
form of Notes of any series is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by Section
303 for the authentication and delivery of such Notes.
The definitive Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Notes, as evidenced by their execution of such
Notes.
Section 202. Form of Face of Note.
---------------------
[Insert any legend required by the Internal Revenue Code and
the regulations thereunder.]
MOBILE MINI, INC.
_______% Senior Subordinated Notes Due 2002
No. _____________ $_________
CUSIP NO. _________
Mobile Mini, Inc., a corporation duly organized and existing under the
laws of Delaware (herein called the "Company", which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _____________________________ or registered assigns, the
principal sum of _____________________________ Dollars on November 1, 2002, and
to pay interest thereon from ___________, 1997 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on May 1 and November 1 in each year, commencing May 1, 1998, at the rate of
____% per annum, until the principal hereof is paid or made available for
payment, provided that any principal and overdue interest shall bear interest at
the rate of 2% per month (to the extent that the payment of such interest shall
be legally enforceable) during the continuation of an Event of Default (as
defined in the Indenture), from the dates such amounts are due until they are
paid or made available for payment, and such interest shall be payable on
demand. The interest so payable, and punctually paid or duly
12
<PAGE>
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name a Note (or one or more Predecessor Notes) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 15 or October 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name a Note (or one or more Predecessor Notes) is registered at
the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to such Special Record Date, or be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on the
Notes will be made at the office or agency of the Company maintained for that
purpose in Chicago, Illinois, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
MOBILE MINI, INC.
By
-------------------------------------
Attest:
- -----------------------------------
Section 203. Form of Reverse of Note.
------------------------
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Notes"), issued and to be issued under an Indenture,
dated as of ________ __, 1997 (herein called the "Indenture", which term shall
have the meaning assigned to it in such instrument), between the Company and
Harris Trust and Savings Bank, as Trustee (herein called the
13
<PAGE>
"Trustee", which term includes any successor trustee under the Indenture), and
reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Notes and of the terms upon which the Notes
are, and are to be, authenticated and delivered. This Note is one of the series
designated on the face hereof, limited in aggregate principal amount to
$6,900,000.
The Notes are subject to redemption in whole at any time from and after
____________, 1999, and in part on any Interest Payment Date from and 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, together in the case
of any such redemption with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Dates referred
to on the face hereof for such interest installments, all as provided in the
Indenture.
In the event of redemption of this Note in part only, a new Note or
Notes of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
The Notes and all obligations thereunder (whether principal, interest
or otherwise) is subordinate and junior in right of payment to all Senior Debt
to the extent provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee without the consent of any Holders in
certain limited cases, and with the consent of the Holders of 66 2/3% in
principal amount of the Notes at the time Outstanding subject to certain
exceptions. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver shall be conclusive
and binding upon the Holder of this Note and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Note.
As provided in and subject to the provisions of the Indenture, the
Holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Notes, the Holders of not less than 25% in principal amount of the Notes at the
time Outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from the
Holders of a majority in principal amount of Notes at the time Outstanding a
direction inconsistent with such request, and shall have failed to institute any
such proceeding, for 60 days after receipt of such notice, request and offer of
14
<PAGE>
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Note for the enforcement of any payment of principal hereof or any premium
or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium and interest on
this Note are payable, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes and of like tenor, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of Five Thousand Dollars ($5,000) and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Notes are exchangeable for a like aggregate principal amount of Notes
and of like tenor of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Section 204. Form of Trustee's Certificate of Authentication.
------------------------------------------------
The Trustee's certificates of authentication shall be in substantially
the following form:
15
<PAGE>
This is one of the ________% Senior Subordinated Notes due 2002 issued
under the Indenture referred to therein.
-----------------------------------
As Trustee
By
--------------------------------
Authorized Officer
ARTICLE III
The Notes
Section 301. Title and Terms.
----------------
The aggregate principal amount of Notes Outstanding at any time may not
exceed the amount of Six Million Nine Hundred Thousand Dollars ($6,900,000),
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305, 306
or 906.
The Notes shall be issued in a single series, known and designated as
the "_________% Senior Subordinated Notes Due 2002" of the Company. The Stated
Maturity for the payment of principal of the Notes shall be November 1, 2002,
and the Notes shall bear interest at the rate of _______% per annum from the
Issue Date, or from the most recent Interest Payment Date to which interest has
been paid thereon or duly provided for, payable semi-annually on May 1 and
November 1 of each year (commencing May 1, 1998) until the principal thereof is
paid or duly provided for. Notwithstanding the foregoing, 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.
The principal of (and premium, if any) and interest on the Notes shall
be payable at any other office or agency maintained by the Company for such
purpose; provided, however, that interest may be payable at the option of the
Company by check mailed to the address of the Person entitled thereto as such
address shall appear on the Register.
Section 302. Denominations.
--------------
The Notes shall be issuable in fully registered form without coupons in
denominations of Five Thousand Dollars ($5,000) or any integral multiple
thereof.
Section 303. Execution, Authentication, Delivery and Dating.
-----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman of
the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal
16
<PAGE>
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, and the Trustee in accordance with the Company Order
shall authenticate and deliver such Notes. Each Note shall be dated the date of
its authentication. The Notes may contain such notations, legends or
endorsements required by law, stock exchange rule or usage.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder and is entitled to the benefits of
such Indenture.
Section 304. Temporary Notes.
----------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company in a
Place of Payment, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Notes, of any authorized denominations and of like tenor and aggregate principal
amount. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes of such
tenor.
Section 305. Registration; Registration of Transfer and Exchange.
----------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office in any other office
or agency of the Company in a Place of Payment being herein sometimes referred
to as the "Note Register") in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration
17
<PAGE>
of Notes and of transfers of Notes. The Trustee is hereby appointed "Note
Registrar" for the purpose of registering Notes and transfers of Notes as herein
provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company in a Place of Payment, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes, of any authorized
denominations and of like tenor and aggregate principal amount.
At the option of the Holder, Notes be exchanged for other Notes of any
authorized denominations and of like tenor and aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Note Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 906 or 1106 not involving any transfer.
If the Notes are to be redeemed, the Company shall not be required (A)
to issue, register the transfer of or exchange any Notes during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of any such Notes selected for redemption and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
Section 306. Mutilated, Destroyed, Lost and Stolen Notes.
--------------------------------------------
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such Note or indemnity as may be required by them to save each of them and any
agent of either of them harmless, then, in the absence of notice to the Company
or the Trustee that such Note has been acquired by a bona fide
18
<PAGE>
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 307. Payment of Interest; Interest Rights Preserved.
-----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest, at the office or agency
of the Company maintained for that purpose in a Place of Payment for such Notes,
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Note Register.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit
19
<PAGE>
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be given to each Holder of Notes in the manner
set forth in Section 106, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on
the Notes in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Notes may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed
payment pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
Section 308. Persons Deemed Owners.
----------------------
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of and any premium and (subject to
Section 307) any interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Section 309. Cancellation.
-------------
All Notes surrendered for payment, redemption, registration of transfer
or exchange or for credit against any sinking fund payment shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and may
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deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Notes previously authenticated hereunder which the Company has
not issued and sold, and all Notes so delivered shall be promptly cancelled by
the Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes cancelled as provided in this Section, except as expressly permitted by
this Indenture. All cancelled Notes held by the Trustee shall be disposed of as
directed by a Company Order.
Section 310. Computation of Interest.
------------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
ARTICLE IV
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Notes herein expressly provided for), and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 306 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption
within one year under arrangements
satisfactory to the Trustee for the
giving of notice of redemption by
the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose money in
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an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal and any premium and
interest to the date of such deposit (in the case of Notes
which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
Section 402. Application of Trust Money.
---------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee.
ARTICLE V
Default and Remedies
Section 501. Events of Default.
------------------
"Event of Default", wherever used herein with respect to Notes, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) the Company shall fail 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
hereunder (other than principal or interest) within ten (10) days of
receipt of written notice from the Trustee;
22
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(b) the Company shall fail 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 or any Subsidiary shall fail to comply with
any other provision of this Indenture or any Note, and such failure
continues for more than thirty (30) days after the earlier of the date
upon which (i) the Company or such Subsidiary shall have become aware
of such failure or (ii) written notice of such failure shall first have
been given to the Company or such Subsidiary by the Trustee;
(d) any warranty, representation or other statement by or on
behalf of the Company or any Subsidiary contained herein or in any
instrument furnished in connection herewith or with the Notes in
reference hereto or thereto 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:
(i) 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
(ii) causes any one or more of the holders thereof or
a trustee therefor to require the Company or any Subsidiary to
repurchase such indebtedness from the holders thereof;
(f) a receiver, liquidator, custodian or trustee of the
Company or any Material 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 Material
Subsidiary, or the Company or any Material Subsidiary shall be
adjudicated a bankrupt or insolvent, or all or any substantial part of
the property of the Company or any Material 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
Material 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 Material Subsidiary shall file a
petition in voluntary bankruptcy or seeking relief under any provision
of any bankruptcy, reorganization,
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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 Material 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 Material 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 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 of a Material Subsidiary 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 of a Material Subsidiary, or any Material
Subsidiary shall fail to comply with any of the terms or provisions of
a Subsidiary Guarantee, or any Material Subsidiary denies that it has
any further liability under a Subsidiary Guarantee or gives notice
(written or otherwise) to such effect.
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.
Section 502. Remedies.
---------
If any Event of Default specified in Section 501(a) 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 specified in Section 501(a) 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 by notice in writing to the Company and the
Trustee, may declare the unpaid principal of and accrued interest to the date of
acceleration on all the outstanding Notes to be due and payable immediately and,
upon any such declaration, the Outstanding Notes shall become immediately
24
<PAGE>
due and payable, or exercise any other right, power or remedy permitted to such
Trustee or such Holders by law.
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.
At any time after such a declaration of acceleration with respect to
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in principal amount of the Outstanding Notes, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on) any
Notes which have become due otherwise than by such declaration
of acceleration and any interest thereon at the rate or rates
prescribed therefor in such Notes,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate or rates
prescribed therefor in such Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default with respect to Notes other than the
non-payment of the principal of Notes which has become due solely by
such declaration of acceleration, have been cured or waived as provided
in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
----------------------------------------------------------------
The Company covenants that if the Notes shall become due and payable in
accordance with Section 501, the Company will, upon demand of the Trustee, pay
to it, for the benefit of the Holders of such Notes, the whole amount then due
and payable on such Notes for principal and any premium and interest and, to the
extent that payment of such interest shall be legally enforceable, interest on
any overdue principal and premium and on any overdue interest, at the rate or
rates prescribed therefor in such Notes, and, in addition thereto, such further
amount as
25
<PAGE>
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Subject to the terms of this Indenture, if an Event of Default with
respect to Notes occurs and is continuing, the Trustee may in its discretion
proceed to protect and enforce its rights and the rights of the Holders of Notes
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
---------------------------------
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Notes), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors' or other similar
committee.
Section 505. Trustee May Enforce Claims Without Possession of Notes.
-------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
Section 506. Application of Money Collected.
-------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such
26
<PAGE>
money on account of principal or any premium or interest, upon presentation of
the Notes and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 607;
Second: To the payment of the amounts then due and unpaid for principal
of and any premium and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such Notes for
principal and any premium and interest, respectively, and
Third: To the payment of the balance, if any, to the Company or any
other Person or Persons legally entitled thereto.
Section 507. Limitation on Suits.
--------------------
No Holder of any Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
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Section 508. Unconditional Right of Holders to Receive Principal, Premium and
-------------------------------------------------------------------
Interest.
---------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder; provided, that such right shall be subject
at all time to the provisions of Article XIV of this Indenture.
Section 509. Restoration of Rights and Remedies.
-----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
-------------------------------
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
-----------------------------
No delay or omission of the Trustee or of any Holder of any Notes to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 512. Control by Holders.
-------------------
Subject to Section 602(5), the Holders of a majority in principal
amount of the Outstanding Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, with respect to the
Notes, provided that
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(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 601, the Trustee
shall have the right to decline to follow any such direction if the
Trustee in good faith shall, by a Responsible Officer or Officers of
the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability.
Section 513. Waiver of Past Defaults.
------------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(1) in the payment of the principal of or any premium or
interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the
Holder of each Outstanding Note.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
----------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee.
Section 515. Waiver of Usury, Stay or Extension Laws.
----------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein
29
<PAGE>
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE VI
The Trustee
Section 601. Certain Duties and Responsibilities.
------------------------------------
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. In case of a default (as defined in Section 602), the
Trustee shall exercise the rights and powers vested in it by this Indenture
using the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs. Notwithstanding the foregoing, no provision of this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
Section 602. Notice of Defaults.
-------------------
Within 30 days after the occurrence of any Default or Event of Default,
the Trustee shall give the Holders of Notes notice thereof as and to the extent
provided by the Trust Indenture Act. For the purpose of this Section and Section
601, the term "Default" means any event which is, or after notice or lapse of
time or both would become, an Event of Default.
Section 602. Certain Rights of the Trustee.
------------------------------
Subject to the provisions of Section 601 and the provisions of the
Trust Indenture Act:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order,
and any resolution of the Board of Directors shall be sufficiently
evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
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(4) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable Note or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default which may have
occurred, the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(8) The Trustee shall not be deemed to have notice of an Event
of Default or of any event or conditions which, with the giving of
notice, the passage of time, or both, might constitute an Event of
Default unless (i) the Trustee has received written notice thereof from
the Company or any Holder or (ii) a Responsible Officer of the Trustee
shall have actual knowledge thereof.
(9) The permissive right of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable for other than its gross negligence or
and willful misconduct.
(10) The Trustee shall not be required to give any bond or
surety in respect of the execution of said trusts and powers or
otherwise in respect of the premises.
Section 604. Not Responsible for Recitals or Issuance of Notes.
--------------------------------------------------
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity,
legality or sufficiency of this Indenture or of the Notes. Neither the Trustee
nor any Authenticating Agent shall be accountable for the use or application by
the Company of Notes or the proceeds thereof.
Section 605. May Hold Notes.
---------------
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Notes and, subject to Sections 608
and 613, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or
such other agent.
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Section 606. Money Held in Trust.
--------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
Section 607. Compensation and Reimbursement.
-------------------------------
The Company agrees
(1) to pay to the Trustee from time to time such compensation
as shall be agreed to in writing between the Company and the Trustee
for all services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation, expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder and the cost and expense of enforcing
this right of indemnification.
The Trustee shall have a lien prior to the Notes upon all property and
funds held by it hereunder for any amount owing it or any predecessor Trustee
pursuant to this Section 607, except with respect to funds held in trust for the
benefit of the Holders of particular Notes.
Without limiting any rights available to the Trustee under applicable
law, when the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(f), (g), (h) or (i), the expenses
(including the reasonable charges and expenses of its counsel) and compensation
for the services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture and the resignation or removal of the Trustee.
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Section 608. Conflicting Interests.
----------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility.
----------------------------------------
There shall at all times be one (and only one) Trustee hereunder with
respect to the Notes. Trustee shall be a Person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section and to the extent permitted by
the Trust Indenture Act, the combined capital and surplus of such Person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee with respect to the
Notes shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor.
--------------------------------------------------
No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
The Trustee may resign at any time with respect to the Notes by giving
written notice thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 611 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Notes.
The Trustee may be removed at any time with respect to the Notes by Act
of the Holders of a majority in principal amount of the Outstanding Notes
delivered to the Trustee and to the Company.
If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed
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or any public officer shall take charge or control of the Trustee or of
its property or affairs for the purpose of rehabilitation, conservation
or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Notes, or (B) subject to Section 514, any Holder who
has been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Notes and the
appointment of a successor Trustee or Trustees.
If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee or Trustees
with respect to the Notes and shall comply with the applicable requirements of
Section 611. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Notes shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements of
Section 611, become the successor Trustee with respect to the Notes and to that
extent supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Notes shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Notes.
The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders of Notes
in the manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor.
---------------------------------------
In case of the appointment hereunder of a successor Trustee hereunder,
every such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; provided, that on the request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee, the
Company, the retiring Trustee and each successor Trustee shall execute and
deliver an indenture supplemental hereto wherein each successor Trustee shall
accept such appointment and which (1) shall contain such
34
<PAGE>
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Notes, (2) if the retiring Trustee is not
retiring with respect to all Notes, shall contain such provisions as shall be
deemed necessary or desirable to confirm that all the rights, powers, trusts and
duties of the retiring Trustee shall continue to be vested in the retiring
Trustee, and (3) shall add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, it being understood that nothing
herein or in such supplemental indenture shall constitute such Trustees
co-trustees of the same trust and that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and upon the execution and delivery of
such supplemental indenture the resignation or removal of the retiring Trustee
shall become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Notes.
Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 612. Merger, Conversion, Consolidation or Succession to Business.
------------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
Section 613. Preferential Collection of Claims Against Company.
--------------------------------------------------
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
35
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Section 614. Appointment of Authenticating Agent.
------------------------------------
The Trustee may appoint an Authenticating Agent or Agents (by giving
notice of the appointment in the manner provided in Section 106 to the Company
and to all Holders of Notes) with respect to the Notes, which Authenticating
Agent(s) shall be authorized to act on behalf of the Trustee to authenticate
Notes issued upon original issue and upon exchange, registration of transfer or
partial redemption thereof or pursuant to Section 306, and Notes so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Notes. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
36
<PAGE>
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the ________% Senior Subordinated Notes Due 2002
referred to in the within-mentioned Indenture.
----------------------------------------
As Trustee
By
--------------------------------------
As Authenticating Agent
By
--------------------------------------
Authorized Officer
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
----------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(1) fifteen days after each Regular Record Date, a list, in
such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Regular Record Date, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list in similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
provided, however, that so long as the Trustee is the Note Registrar, no such
list shall be required to be furnished.
Section 702. Preservation of Information; Communications to Holders.
-------------------------------------------------------
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished.
37
<PAGE>
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Notes, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
Section 703. Reports by Trustee.
-------------------
The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
sixty days after each May 15 following the date of this Indenture deliver to
Holders a brief report, dated as of such May 15 which complies with the
provisions of such Section 313(a). The Trustee shall comply with Section 313(b)
and 313(c) of the Trust Indenture Act.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any Notes
are listed, with the Commission and with the Company. The Company will promptly
notify the Trustee when any Notes are listed on any stock exchange.
Section 704. Reports by Company.
-------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company May Consolidate, Etc., Only on Certain Terms.
-----------------------------------------------------
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged
38
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or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership, unincorporated
organization, trust, or other entity shall be organized and validly
existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, 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 this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or
any Subsidiary as a result of such transaction as having been incurred
by the Company or such Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, shall have happened and be
continuing;
(3) if, as a result of any such consolidation or merger or
such conveyance, transfer or lease, properties or assets of the Company
would become subject to a mortgage, pledge, lien, security interest or
other encumbrance which would not be permitted by this Indenture (if
any), the Company or such successor Person, as the case may be, shall
take such steps as shall be necessary effectively to secure the Notes
equally and ratably with (or prior to) all indebtedness secured
thereby; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
Section 802. Successor Substituted.
----------------------
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Notes.
39
<PAGE>
ARTICLE IX
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders.
---------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of
the Holders of all Notes or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of
the Holders of all Notes; or
(4) to add to or change any of the provisions of this
Indenture to such extent as shall be necessary to permit or facilitate
the issuance of Notes in bearer form, registrable or not registrable as
to principal, and with or without interest coupons, or to permit or
facilitate the issuance of Notes in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of
this Indenture, provided that any such addition, change or elimination
(A) shall neither (i) apply to any Outstanding Note entitled to the
benefit of such provision nor (ii) modify the rights of the Holder of
any such Note with respect to such provision or (B) shall become
effective only when there is no such Note Outstanding; or
(6) to secure the Notes; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(8) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture, provided that such
action pursuant to this Clause (8) shall not adversely affect the
interests of the Holders of Notes in any material respect.
Section 902. Supplemental Indentures With Consent of Holders.
------------------------------------------------
With the consent of the Holders of not less than 66-2/3% in principal
amount of the Outstanding Notes, by Act of said Holders delivered to the Company
and the Trustee, the
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<PAGE>
Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of Notes
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Note affected
thereby,
(1) change the Stated Maturity of the principal of, or any
instalment 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, in the case of redemption, on or after the Redemption
Date), or
(2) 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, or
(3) modify any of the provisions of this Section, Section 513
or Section 1008, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Note
affected thereby; provided, however, that this clause shall not be
deemed to require the consent of any Holder with respect to changes in
the references to "the Trustee" and concomitant changes in this Section
and Section 1008, or the deletion of this proviso, in accordance with
the requirements of Sections 611 and 901(8).
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures.
-------------------------------------
The Trustee shall execute any supplemental indenture or modification
authorized pursuant to this Article, subject to the last sentence of this
Section 903. In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
41
<PAGE>
Section 904. Effect of Supplemental Indentures.
----------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes, and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 905. Conformity with Trust Indenture Act.
------------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
Section 906. Reference in Notes to Supplemental Indentures.
----------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE X
Covenants of the Company
Section 1001. Payment of Principal, Premium and Interest.
-------------------------------------------
The Company covenants and agrees that it will duly and punctually pay
the principal of and any premium and interest on the Notes in accordance with
the terms of the Notes and this Indenture. An instalment of principal or
interest shall be considered paid on the date it is due if the Trustee or Paying
Agent holds by 12:00 noon Phoenix, Arizona time on that date dollars designated
for and sufficient to pay the installment and is not prohibited from paying such
money to the Holders pursuant to the terms of this Indenture.
Section 1002. Maintenance of Office or Agency.
--------------------------------
The Company will maintain in each Place of Payment an office or agency
where Notes of that series may be presented or surrendered for payment, 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. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
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The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Notes for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Section 1003. Money for Notes Payments to Be Held in Trust.
---------------------------------------------
If the Company shall at any time act as its own Paying Agent with
respect to the Notes, it will, on or before each due date of the principal of or
any premium or interest on any of the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
and any premium and interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, prior to each due date of the principal of or any premium or
interest on any Notes, deposit with a Paying Agent a sum sufficient to pay such
amount, such sum to be held as provided by the Trust Indenture Act, and (unless
such Paying Agent is the Trustee) the Company will promptly notify the Trustee
of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (1) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (2) during the continuance of any default
by the Company in the making of any payment in respect of the Notes, upon the
written request of the Trustee, forthwith pay to the Trustee all sums held in
trust by such Paying Agent for payment in respect of the Notes.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or any premium or
interest on any Note and remaining unclaimed for two years after such principal,
premium or interest has become due and payable shall be paid to the Company on
Company Request, or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the
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Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each business day
and of general circulation in the Borough of Manhattan, The City of New York,
New York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
Section 1004. Statement by Officers as to Default or Incurrence of Indebtedness.
------------------------------------------------------------------
The Company will
(1) deliver to the Trustee and to Peacock, Hislop, Staley & Given, Inc.
("PHSG"), within 90 days after the end of each fiscal year of the Company ending
after the date hereof, an Officers' Certificate, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
(2) deliver to the Trustee and to PHSG, within forty-five (45) days
after the end of each fiscal quarter and promptly upon the incurrence of any
indebtedness in excess of $1,000,000 within the scope of subparagraphs (b) and
(c) included the definition of Senior Debt (and giving effect thereto), an
Officers' Certificate, certifying that the Company is in compliance with all of
the terms, provisions and conditions of this Indenture (without regard to any
period of grace or requirement of notice provided thereunder) and setting forth
in reasonable detail the calculation of the financial covenents contained in
this Indenture as the applicable measurement period.
Section 1005. Existence.
----------
Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
Section 1006. Maintenance of Properties.
--------------------------
The Company will cause all properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals replacements, betterments and improvements thereof,
all as in the judgment of the Company may be reasonably necessary so that the
business carried by the Company on in connection therewith may be properly and
advantageously conducted at all times.
Section 1007. Payment of Taxes and Other Claims.
----------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or upon the income,
profits or property of the Company, and (2) 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 (i) whose amount, applicability or validity is being
contested in good faith by appropriate proceedings or
44
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(ii) if the failure to pay such tax, assessment, charge or claim is not likely
to have a Material Adverse Effect.
Section 1008. Financial Reporting.
--------------------
The Company will
(1) within forty-five (45) days after the end of each fiscal
quarter (other than the last fiscal quarter of each fiscal year),
provide to the Trustee copies of the unaudited financial statements of
the Company consisting of a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such quarter and a consolidated
statement of income and a consolidated statement of cash flows of the
Company and its Subsidiaries for such quarter and for the portion of
the fiscal year through such quarter, all in reasonable detail and
certified (subject to normal year-end audit adjustments) on behalf of
the Company by an officer of the Company as having been prepared in
accordance with generally acceptable accounting principles consistently
applied;
(2) within ninety (90) days after the end of each fiscal year,
provide to the Trustee copies of the audited financial statements of
the Company consisting of a consolidated balance sheet and statement of
stockholders' equity of the Company and its Subsidiaries as of the end
of such fiscal year and a consolidated statement of income and a
consolidated statement of cash flows of the Company and its
Subsidiaries for such fiscal year, setting forth in comparative form
the corresponding figures for the preceding fiscal year, certified
without qualification as to scope of audit by independent public
accountants of recognized national standing selected by the Company;
(3) promptly upon any officer of the Company obtaining
knowledge thereof, provide to the Trustee written notice of any action,
suit, proceeding or investigation pending or threatened against or
affecting the Company or any Subsidiary of the Company or any of its or
their respective properties before any court, governmental agency or
regulatory authority (whether federal, state or local) which could
reasonably be expected to have a Material Adverse Effect; and
(4) promptly upon their distribution, provide to the Trustee
copies of all financial statements, reports, notices and proxy
statements sent by the Company to its security holders generally and
all regular and periodic reports, registration statements and other
filings relating to the Notes (and all amendments and supplements
thereto) filed by the Company from time to time with the Securities and
Exchange Commission or with any national securities exchange on which
any of the Company's securities are listed, and copies of all press
releases and other statements made available generally by the Company
to the public concerning material developments in the business of the
Company.
45
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Section 1009. Conduct of Business; Compliance with Laws.
------------------------------------------
The Company will carry on and conduct its business, and cause
each of its Material Subsidiaries to carry on and conduct its business, in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted and to do all things necessary to remain, and cause
each of its Material Subsidiaries to remain, duly incorporated, validly existing
and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain, and cause each of its Material Subsidiaries to
maintain, its qualification as a foreign corporation in each jurisdiction where
the conduct of its business makes such qualification necessary, except where the
failure to maintain such existence or qualification could not reasonably be
expected to have a Material Adverse Effect. The Company will comply, and cause
each of its Material Subsidiaries to 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.
Section 1010. Insurance.
----------
The Company will maintain, and cause each of its Material Subsidiaries
to maintain, with insurance companies rated at least "A" by A.M. Best (or on
equivalent rating by a nationally recognized insurance company rating service),
insurance on all property in such amounts and covering such risks as is
consistent with sound business practice, and furnish to the Trustee upon request
full information as to the insurance carried.
Section 1011. Books and Records.
------------------
The Company will at all times keep true and correct books, records and
accounts for itself and each Subsidiary pursuant to a system of accounting
established and administered in accordance with generally accepted accounting
principles, consistently applied.
Section 1012. Certain Notices.
----------------
The Company will deliver to the Trustee
(1) promptly, but in any event within three (3) Business Days
of becoming aware of the existence of any condition or event which
constitutes an Event of Default or which would, with notice or the
passage of time or both, become an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto; and
(2) prompt notice in writing of any other development,
financial or otherwise, relating specifically to the Company or any of
its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect.
46
<PAGE>
Section 1013. Inspection.
-----------
The Company will, upon at least two (2) Business Days' prior notice and
upon request of the Trustee or not less than 25% in aggregate principal amount
of the Notes at the time Outstanding, permit the Trustee or such Holders, by
their representatives and agents, to inspect during normal business hours any of
the property, corporate books and financial records of the Company and each
Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Company and each Subsidiary, and to discuss the
affairs, finances and accounts of the Company and each Subsidiary with, and to
be advised as to the same by, their respective officers, employees and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss the finances and affairs of the Company and its
Subsidiaries).
Section 1014. Environmental Compliance.
-------------------------
The Company will at all times comply, and cause each of its
Subsidiaries to comply, in all material respects with all 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 or any of its Subsidiaries. In the event that the
Company or any Subsidiary undertakes any remedial action with respect to any
hazardous material on, under or about any real property, the Company or such
Subsidiary shall conduct and complete such remedial action in compliance in all
material respects with all applicable environmental laws and regulations and in
accordance with the policies, orders and directives of all federal, state and
local governmental authorities.
Section 1015. Modification of Senior Credit Agreement; Notice to Senior Lenders.
------------------------------------------------------------------
The Company will 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. Each such notice shall be accompanied by a
description of the amendment, modification or waiver and a brief explanation of
the principal reasons for such amendment, modification or waiver. The Company
will provide prompt written notice to the lenders under the Senior Credit
Agreement and to the Trustee if the Company shall make or propose to make any
payment of interest hereunder using funds on deposit in the Reserve Account.
Section 1016. Source of Payments.
-------------------
The Company will use its best efforts to cause all payments of
interest hereunder 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.
47
<PAGE>
Section 1017. 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 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. If the Control Prepayment Date shall
not be specified in such notice, the Control Prepayment Date shall be the
thirtieth (30th) day after the date of such holder's receipt of such notice. In
no event will the Company take any action to consummate or finalize any
transaction which gives rise to a Change in Control Refinancing unless
contemporaneously with such action the Company prepays the Notes as required by
this Section 1017. Notwithstanding the foregoing, in no event shall the Company
be obligated to make any prepayment pursuant to this 1017 unless and until the
closing of the transactions contemplated which gives rise to the Change in
Control Refinancing to which such offered prepayment relates. For purposes
hereof, "Change in Control Refinancing" shall mean the refinancing, refunding or
restructuring of the Company's credit facility which is the subject of that
certain Credit Agreement dated as of March 28, 1996 (as amended, supplement or
modified from time to time, and including any restatements, renewals, refundings
or refinancings thereof, the "Senior Credit Agreement") by and among the
Company, the financial institutions party thereto, and BT Commercial
Corporation, as agent, 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.
48
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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
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 (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) 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.
Notice of prepayment having been given as aforesaid, 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. Upon surrender of any
such Note for prepayment in as aforesaid, such Note shall be prepaid by the
Company on the Control Prepayment Date at the Control prepayment Amount;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Control Prepayment Date will be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
Section 1018. 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:
(1) 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
49
<PAGE>
For purposes hereof, "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.
(2) 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 0.8 to 1
1998 0.79 to 1
1999 and thereafter 0.78 to 1
For purposes hereof, "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 and excluding any deferred
tax liability of the Company and its Subsidiaries ("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.
(3) 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
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. For purposes hereof, "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
50
<PAGE>
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 this Indenture, and without
prejudice to any other remedies which the Holder may have in respect of any
matured or unmatured Event of Default hereunder, during such time as the Company
shall fail to comply fully with each of the financial covenants set forth in
subsections (1), (2) and (3) above, the Company agrees that it will not, and
will not permit any Subsidiary to:
(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 subsection(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 subsection(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 or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than the
Company or such Subsidiary 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 under Section 1019 this
Indenture.
Section 1019. Negative Covenants.
-------------------
So long as any Note shall be Outstanding, the Company will not, nor
will the Company permit any Subsidiary to,
(1) 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
(provided that the Company shall notify the Holder of any other
amendment or modification thereto as soon as practicable thereafter);
provided, that any such amendments or modifications that are described
in the
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Company's Registration Statement on Form S-2 as filed with the
Securities and Exchange Commission on July 2, 1997 shall not be subject
to the provisions of this Section 1019(1);
(2) enter into any indenture, agreement, instrument or other
arrangement which, (i) 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 pursuant to the provisions of Section 1020 or
any provision of any Subsidiary Guarantee or (ii) contains any
provision which would be violated or breached by the Company's or any
Subsidiary's performance of any of its obligations under this
Indenture, any Note or any other document, instrument or agreement
related to the transactions contemplated hereby;
(3) merge or consolidate with (except that a Subsidiary may
merge into the Company or any wholly-owned Subsidiary of the Company),
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;
(4) 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 and its Subsidiaries previously so leased, sold or transferred
(other than inventory sold or leased in the ordinary course of
business) since the date of this Indenture do not constitute a
substantial portion of the property of the Company and its
Subsidiaries, and (iii) sales, transfers and other 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
(5) 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.
Section 1020. Subsidiary Guarantees.
----------------------
The Company shall cause each Subsidiary which may from time to time
account for five percent (5%) or more of the Company's consolidated annual net
revenues or consolidated net assets (a "Material Subsidiary") to execute a
guarantee agreement (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 this Indenture and the Notes. Each Subsidiary
Guarantee shall be substantially in the form attached hereto as Exhibit A. The
Trustee shall have no obligation to determine if any Subsidiary is or has become
a Material Subsidiary.
52
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Section 1021. Payment of Fees.
----------------
The Company shall pay all reasonable fees, expenses and costs incurred
by the Holder in connection with the issuance of the Notes and the negotiation
and documentation of the transactions contemplated hereby and thereby.
Section 1022. Waiver of Certain Covenants.
----------------------------
The Company may, with respect to the Notes of any series, omit in any
particular instance to comply with any term, provision or condition set forth in
any covenant provided pursuant to Section 901(2) for the benefit of the Holders
if before the time for such compliance the Holders of at least 66-2/3% in
principal amount of the Outstanding Notes shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
term, provision or condition, but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE XI
Redemption of Notes
Section 1101. Applicability of Article.
-------------------------
The Company may at its option redeem Notes, in whole or in part,
pursuant to the terms of this Indenture and in accordance with their terms. The
Notes are subject to redemption in whole at any time from and after
____________, 1999, and in part on any Interest Payment Date from and 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, together in the case
of any such redemption with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Dates referred
to on the face hereof for such interest installments. In the event of redemption
of the Notes in part only, a new Note or Notes of this series and of like tenor
for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.
In case of any redemption of less than all the Notes, the Company
shall, at least 45 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be reasonably satisfactory to the Trustee),
notify the Trustee of such Redemption Date and of the principal amount of the
Notes to be redeemed. The Company shall deliver to the Trustee an Officer's
Certificate, a Board Resolution authorizing the redemption and an Opinion of
Counsel with respect to the due authorization of such redemption and to the
effect that such redemption is being made in accordance with this Indenture and
the Notes.
53
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Section 1102. Selection by Trustee of Notes to Be Redeemed.
---------------------------------------------
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, from the Outstanding Notes not previously called for redemption,
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 an authorized denomination (which shall not be less than the
minimum authorized denomination) for such Note.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption as aforesaid and, in case of any Notes selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
Section 1103. Notice of Redemption.
---------------------
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:
(1) the Redemption Date,
(2) the Redemption Price,
(3) 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;
(4) 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
(5) the place or places where each such Note is to be
surrendered for payment of the Redemption Price.
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Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
Section 1104. Deposit of Redemption Price.
----------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Notes which
are to be redeemed on that date.
Section 1105. Notes Payable on Redemption Date.
---------------------------------
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified, 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. Upon surrender of any such Note
for redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date will be payable to the Holders of
such Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the Note.
Section 1106. Notes Redeemed in Part.
-----------------------
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 authorized denomination 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.
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ARTICLE XII
Reserve Account
Section 1201. Establishment of Reserve Account; Use of Proceeds.
--------------------------------------------------
The Company shall use a portion of the net proceeds of the issuance of
the Notes to establish an interest reserve escrow account (the "Reserve
Account") and shall use the remaining net proceeds of the issuance of the Notes
for one or more of the following purposes: repayment of indebtedness of the
Company (including, without limitation, obligations under the Senior Credit
Agreement), capital expenditures by the Company, working capital, and/or general
corporate purposes. The Reserve Account shall be an escrow account established
at a bank or other financial institution reasonably acceptable to the Trustee.
The Company shall, upon issuance of the Notes, deposit into the Reserve Account,
and shall, subject to the provisions hereof, maintain in the Reserve Account at
all times while any of the Notes are Outstanding, an amount equal to six months'
interest on the Notes based on the amount Outstanding from time to time.
Section 1202. Use of Reserve Account Funds.
-----------------------------
Without limiting any other legal, equitable or contractual remedies
that may available to the Trustee or any Holder of a Note, if the Company shall
fail to make any payment of interest as and when due under the terms of this
Indenture and the Notes, 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 shall at
any time be less than six months' interest based on the amount outstanding
hereunder at such time, the Company shall immediately deposit into the Reserve
Account cash in such amount as shall be necessary to increase the amount on
deposit in the Reserve Account to an amount equal to six months' interest on the
Notes; provided, that the Company shall not make any deposits into the Reserve
Account during any period in which the Company shall be in default in the
payment of any principal of, or interest on, any Senior Debt after the same
shall have become due and payable, whether at maturity, at a date fixed for
prepayment, by declaration of acceleration or otherwise, or during any period in
which a Blockage Notice under Section 1404 shall be in effect. The parties shall
execute a security agreement (the "Reserve Account Security Agreement"), which
shall be in the form attached hereto as Exhibit B, pursuant to which all 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, as security
for all obligations of the Company under this Indenture and the Notes. The
Company agrees to take all action and execute all documents and instruments
reasonably requested by the Holder from time to time in order to perfect and
maintain the security interest of the Trustee, on behalf of the Holders of the
Notes, in the Reserve Account.
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ARTICLE XIII
Defeasance and Covenant Defeasance
Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance.
-------------------------------------------------------------
The Company may elect, at its option at any time, to have Section 1302
or Section 1303 applied to any Notes upon compliance with the conditions set
forth below in this Article. Any such election shall be evidenced by a Board
Resolution.
Section 1302. Defeasance and Discharge.
-------------------------
Upon the Company's exercise of its option (if any) to have this Section
applied to any Notes, the Company shall be deemed to have been discharged from
its obligations, and the provisions of Article XIV shall cease to be effective,
with respect to such Notes as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Notes and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same),
subject to the following which shall survive until otherwise terminated or
discharged hereunder: (1) the rights of Holders of such Notes to receive, solely
from the trust fund described in Section 1304 and as more fully set forth in
such Section, payments in respect of the principal of and any premium and
interest on such Notes when payments are due, (2) the Company's obligations with
respect to such Notes under Sections 304, 305, 306, 1002 and 1003 and with
respect to the Trustee under Section 607, (3) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (4) this Article. Subject to
compliance with this Article, the Company may exercise its option (if any) to
have this Section applied to any Notes notwithstanding the prior exercise of its
option (if any) to have Section 1303 applied to such Notes.
Section 1303. Covenant Defeasance.
--------------------
Upon the Company's exercise of its option (if any) to have this Section
applied to any Notes, (1) the Company shall be released from its obligations
under Section 801(3), Sections 1006 through 1007, inclusive, and any covenants
provided pursuant to Section 901(2), 901(6) or 901(7) for the benefit of the
Holders of such Notes and (2) the occurrence of any event specified in Sections
501(c) (with respect to any of Section 801(3), Sections 1006 through 1007,
inclusive, and any such covenants provided pursuant to Section 301(19), 901(2)
or 901(6), shall be deemed not to be or result in an Event of Default and the
provisions of Article XIV shall cease to be effective, in each case with respect
to such Notes as provided in this Section on and after the date the conditions
set forth in Section 1304 are satisfied (hereinafter called "Covenant
Defeasance"). For this purpose, such Covenant Defeasance means that, with
respect to such Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
specified Section (to the extent so specified in the case of Section 501(c)) or
Article XIV, whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
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Section or Article to any other provision herein or in any other document, but
the remainder of this Indenture and such Notes shall be unaffected thereby.
Section 1304. Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to the application of Section
1302 or Section 1303 to any Notes:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose
of making the following payments, specifically pledged as Note for, and
dedicated solely to, the benefit of the Holders of such Notes, (A)
money in an amount, or (B) U.S. Government Obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, in each case sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of and any premium and interest on such Notes
on the respective Stated Maturities or on any Redemption Date
established pursuant to clause (9) below, in accordance with the terms
of this Indenture and such Notes. As used herein, "U.S. Government
Obligation" means (x) any Note which is (i) a direct obligation of the
United States of America for the payment of which the full faith and
credit of the United States of America is pledged or (ii) an obligation
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case (i) or (ii), is not
callable or redeemable at the option of the issuer thereof, and (y) any
depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any U.S. Government
Obligation which is specified in Clause (x) above and held by such bank
for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, provided that
(except as required by law) such custodian is not authorized to make
any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of principal or
interest evidenced by such depositary receipt.
(2) In the event of an election to have Section 1302 apply to
any Notes, the Company shall have delivered to the Trustee an Opinion
of Counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since
the date of this instrument, there has been a change in the applicable
Federal income tax law, in either case (A) or (B) to the effect that,
and based thereon such opinion shall confirm that, the Holders of such
Notes will not recognize gain or loss for Federal income tax purposes
as a result of the deposit, Defeasance and discharge to be effected
with respect to such Notes and will be subject to Federal income
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tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.
(3) In the event of an election to have Section 1303 apply to
any Notes, the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders of such Notes will not
recognize gain or loss for Federal income tax purposes as a result of
the deposit and Covenant Defeasance to be effected with respect to such
Notes and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such
deposit and Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an
Officers' Certificate to the effect that neither such Notes nor any
other Notes, if then listed on any securities exchange, will be
delisted as a result of such deposit.
(5) No event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to such Notes or
any other Notes shall have occurred and be continuing at the time of
such deposit or, with regard to any such event specified in Sections
501(f), (g), (h) or (i), at any time on or prior to the 90th day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming all Notes are in default within the meaning of
such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it
is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act unless such trust
shall be registered under such Act or exempt from registration
thereunder.
(9) If the Notes are to be redeemed prior to Stated Maturity,
notice of such redemption shall have been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee shall have
been made.
(10) At the time of such deposit, (A) no default in the
payment of any principal of or premium or interest on any Senior Debt
shall have occurred and be continuing, (B) no event of default with
respect to any Senior Debt shall have resulted in such Senior Debt
becoming, and continuing to be, due and payable prior to the date on
which it would otherwise have become due and payable (unless payment of
such Senior Debt has been made or duly provided for), and (C) no other
event of default with respect to any Senior Debt shall have occurred
and be continuing permitting (after notice or lapse of
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time or both) the holders of such Senior Debt (or a trustee on behalf
of such holders) to declare such Senior Debt due and payable prior to
the date on which it would otherwise have become due and payable.
(11) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent with respect to such Defeasance or Covenant
Defeasance have been complied with.
Section 1305. Deposited Money and U.S. Government Obligations to Be Held in
------------------------------------------------------------------
Trust; Miscellaneous Provisions.
--------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee pursuant to Section 1304 in respect of any Notes shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any such
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Notes, of all sums due and to
become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law.
Money and U.S. Government Obligations so held in trust shall not be
subject to the provisions of Article XIV.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Notes.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1304 with
respect to any Notes which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Notes.
Section 1306. Reinstatement.
--------------
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Notes by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the obligations under this
Indenture and such Notes from which the Company has been discharged or released
pursuant to Section 1302 or 1303 shall be revived and reinstated as though no
deposit had occurred pursuant to this Article with respect to such Notes, until
such time as the Trustee or Paying Agent is permitted to apply all money held in
trust pursuant to Section 1305 with respect to such Notes in accordance with
this Article; provided, however, that at any such time
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or during the continuance of any such event, the Company may request the return
of all money or securities deposited hereunder with respect to such Notes and
the Trustee will return to the Company all such money and securities.
ARTICLE XIV
Subordination of Notes
Section 1401. Notes Subordinate to Senior Debt.
---------------------------------
The Company covenants and agrees, and each Holder of Notes issued
hereunder by his acceptance thereof likewise covenants and agrees, that all
Notes shall be issued subject to the provisions of this Article XIV, and each
Holder of a Note, whether upon original issue or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions.
Each Note evidences subordinated debt and shall be subordinate and
junior in right of payment to all Senior Debt to the extent provided in this
Article XIV and nothing in this Article XIV shall be construed as a limit on the
extent of the secured claim of the Senior Debt lenders. For purposes hereof,
"Senior Debt" means and includes all obligations, liabilities and indebtedness
of the Company now or hereafter existing, whether fixed or contingent, and
whether for principal, interest, fees, expenses, indemnification or otherwise,
which by its terms is senior in right of payment to the Notes (including,
without limitation, indebtedness under the Senior Credit Agreement) and senior
in right of payment to any other indebtedness of the Company which by its terms
ranks pari passu with the Notes.
Section 1402. Continuing Senior Status.
-------------------------
The Senior Debt shall continue to be Senior Debt and entitled to the
benefits of these subordination provisions irrespective of any amendment,
modification or waiver of any term of the Senior Debt, any extension or renewal
of the Senior Debt, any refinancing or refunding of the Senior Debt or the
granting or release of any collateral or security securing the repayment of the
Senior Debt.
Section 1403. Defaults With Respect to Senior Debt.
-------------------------------------
In the event the Company shall default in the payment of any principal
of, or interest on, any Senior Debt when the same becomes due and payable,
whether at maturity, at a date fixed for prepayment, by declaration of
acceleration or otherwise, then, unless and until such default shall have been
cured or waived or shall have ceased to exist, no direct or indirect payment (in
cash, property or securities or by set-off or otherwise) shall be made or agreed
to be made 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 from the Reserve Account in accordance
with Section 1202 shall be permitted.
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Section 1404. Blockage Notice.
----------------
Upon the occurrence of any Default (as defined in the Senior Credit
Agreement), then, unless and until such Default shall have been cured or waived
in writing or shall have ceased to exist, no direct or indirect payment (in
cash, property or securities or by set-off or otherwise) shall be made or agreed
to be made 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 eighty (180) days after the
time a notice of such Default shall have been given to the Company by the
holders of Senior Debt or the agent therefor stating that such notice is a
"Blockage Notice" given pursuant to this Section 12(d), other than payments from
the Reserve Account in accordance with Section 1202. 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 shall have been cured or waived in writing or shall have 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 shall be given with respect to a Default which
existed and was known to the holders of the Senior Debt or the agent therefor 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 or the agent
therefor shall deliver any Blockage Notice pursuant to this Section 12(d), any
payment of principal, interest or other amounts that, but for such Blockage
Notice, would have been payable by the Company to the holder of any Note 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.
Section 1405. Priority of Payments.
---------------------
In the event of
(1) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
which relates to the Company or its property,
(2) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings,
(3) any assignment by the Company for the benefit of
creditors, or
(4) any other marshaling of the assets of the Company,
then and in any such event:
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(i) 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 from the Reserve Account in
accordance with Section 1202), shall be made to any Holder on account
of any Notes;
(ii) any payment or distribution, whether in cash, securities
or other property (other than securities of the Company or any other
corporation provided for by a plan or reorganization or readjustment
the payment of which is subordinated, at least to the extent of the
Notes as provided in this Section 1405, to the payment of all Senior
Debt at the time outstanding and to any Securities issued to the
holders of Senior Debt in respect of the Senior Debt under any such
plan or reorganization or readjustment), that would otherwise (but for
this Section 1405), 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
(iii) 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 of Notes. Each Holder of the Notes, while it shall retain
the right to vote its claim and otherwise act in any bankruptcy,
insolvency or similar proceeding related to the Company, shall not take
any act or vote in any way so as to contest the enforceability of the
subordination provisions set forth herein.
Section 1406. Acceleration of Notes.
----------------------
In the event that the Senior Debt shall be 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 this Indenture do not
prohibit payment on the Notes, no direct or indirect payment (in cash,
securities, other property or by set-off or otherwise) shall be made or agreed
to be made 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 and its consequences shall have been rescinded and all
such defaults shall have been remedied or waived in writing or shall have ceased
to exist.
Section 1407. Avoided Payments.
-----------------
In the event that
(1) any payment or distribution shall be paid to or collected
or received by any holders of Notes in contravention of any of the
terms of this Article XIV and prior to the payment in full, in cash, of
the Senior Debt at the time outstanding, and
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(2) any holder of such Senior Debt shall have notified the
Trustee, within ninety (90) days of any such payment or distribution,
of the facts by reason of which such collection or receipt so
contravenes this Article XIV,
then and in any such event such holders of the Notes will deliver such payment
or distribution, to the extent necessary to pay all such Senior Debt in full, in
cash, to the holders of such Senior Debt and, until so delivered, the same shall
be held in trust by such holders of the Notes as the property of the holders of
such Senior Debt. If, after any amount is delivered to the holders of Senior
Debt pursuant to this Section 1407, either (i) the holders of Notes shall be
required by an order or judgment of a court of competent jurisdiction to
disgorge a payment (the "Avoided Payment") received by them and so paid over (in
whole or in part) to the holders of Senior Debt, or (ii) the outstanding Senior
Debt shall thereafter be paid in full, in cash, without giving effect to such
delivery made pursuant to this Section 1407, then, in any such case, the holders
of Senior Debt shall return to such holders of the Notes an amount equal to the
amount delivered to such holders of Senior Debt pursuant to this Section 1407,
so long as (in the case of the immediately preceding clause (ii) only) after the
return of such amount the Senior Debt shall remain paid in full, in cash. For
purposes of clause (i) of the immediately preceding sentence, if less than all
of the Avoided Payment was paid over to the holders of Senior Debt and the
holders of the Notes are able to satisfy their obligations under such order or
judgment in whole or in part from the portion of the Avoided Payment not so paid
over to the holders of the Senior Debt, the holders of Senior Debt shall not be
required to return any portion of the Avoided Payment in excess of the amount
actually required by the holders of the Notes to satisfy their obligations.
Section 1408. Subrogation Upon Payment of Senior Debt.
----------------------------------------
Upon the payment in full, in cash, of all Senior Debt, the holders of
the Notes shall be subrogated to all rights of any holder of Senior Debt to
receive any further payments or distributions applicable to the Senior Debt
until the Notes shall have been paid in full, and such payments or distributions
received by the holders of the Notes by reason of such subrogation, of cash,
securities or other property that otherwise would be paid or distributed to the
holders of Senior Debt, shall, as between the Company and its creditors other
than the holders of Senior Debt, on the one hand, and the holders of the Notes,
on the other hand, be deemed to be a payment by the Company on account of Senior
Debt, and not on account of the Notes.
Section 1409. Trustee to Effectuate Subordination.
------------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee in his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article XIV and appoints the
Trustee his attorney-in-fact for any and all such purposes.
Section 1410. Notice to Trustee.
------------------
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company which would prohibit the making
of any payment of monies
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to or by the Trustee in respect of the Notes pursuant to the provisions of this
Article XIV. Notwithstanding the provisions of this Article XIV or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
monies to or by the Trustee in respect of the Notes pursuant to the provisions
of this Article XIV, unless and until a Responsible Officer of the Trustee shall
have received written notice thereof at the Corporate Trust Office of the
Trustee from the Company or a holder or holders of Senior Debt or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Article VI, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 1410 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (or premium, if any) or interest on any Note), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purposes for which they were received, and shall not be affected by any notice
to the contrary which may be received by it within two Business Days prior to
such date.
The Trustee, subject to the provisions of Article VI, shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to
establish that such notice has been given by a holder of Senior Debt or a
trustee on behalf of any such holder or holders. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Debt to participate in any payment or
distribution pursuant to this Article XIV, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Debt held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XIV, and if such
evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 1411. Rights of Trustee as Holder of Senior Debt; Preservation of
------------------------------------------------------------------
Trustee's Rights.
-----------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIV, in respect of any Senior Debt at any time
held by it, to the same extent as any other holder of Senior Debt, and nothing
in this Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article XIV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 607.
Section 1412. Trustee Not Fiduciary for Holders of Senior Debt.
-------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and, subject to the provisions of Article VI, the Trustee
shall not be liable to any holder of Senior Debt if it shall in good faith
mistakenly pay over or deliver to any Holder, the Company
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or any other person money or assets to which any holder of Senior Debt shall be
entitled by virtue of this Article XIV or otherwise.
Section 1413. No Waiver of Subordination Provisions.
--------------------------------------
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Notes to the holders of Senior Debt, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (iii) release any person liable in any manner
for the collection of Senior Debt; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.
Section 1414. Defeasance of this Article XIV.
-------------------------------
The subordination of the Notes provided by this Article XIV shall apply
only to Notes that are Outstanding under this Indenture and is expressly made
subject to the provisions for Defeasance or Covenant Defeasance in Article XIII
hereof and the provisions for satisfaction and discharge of this Indenture in
Article IV hereof and, anything herein to the contrary notwithstanding, upon the
effectiveness of any such Defeasance or Covenant Defeasance or any such
satisfaction and discharge, the Notes then Outstanding shall thereupon cease to
be subordinated pursuant to this Article XIV.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
MOBILE MINI, INC.
By
--------------------------------------
----------------------------------------
Attest:
- -----------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By
--------------------------------------
----------------------------------------
Attest:
- -----------------------
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<PAGE>
STATE OF ARIZONA )
) ss.:
COUNTY OF MARICOPA )
On the _______ day of ___________, 1997 before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he is _____________________ of Mobile Mini, Inc., one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
----------------------------------------
STATE OF _______ )
) ss.:
COUNTY OF ______ )
On the ______ day of ____________, 1997 before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is _____________________ of Harris Trust and Savings Bank, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
----------------------------------------
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<PAGE>
EXHIBIT A
FORM OF SUBSIDIARY GUARANTEE
----------------------------
SUBORDINATED GUARANTEE (as amended from time to time, this "Guarantee")
dated as of __________, 199__, by (the "Guarantor"), a ____________ corporation,
in favor of HARRIS TRUST AND SAVINGS BANK, (together with its successors and
assigns, the "Trustee").
WITNESSETH:
WHEREAS, Mobile Mini, Inc., a Delaware corporation (together with its
successors, assigns and transferees, the "Company"), and the Trustee have
entered into that Indenture, dated as of _______ __, 1997 (the "Indenture"),
pursuant to which the Gurantor has authorized the creation of an issue of its
__% Senior Subordinated Notes Due 2002 (the "Notes"); and
WHEREAS, the Company, pursuant to the Indenture, has agreed to cause
the Guarantor to guaranty the payment and performance of all obligations of the
Company arising under, or in respect of, the Indenture and the Notes and all
other documents executed in connection therewith, as hereinafter provided; and
WHEREAS, the Guarantor will, as a [wholly-owned] subsidiary of the
Company, derives substantial benefits from the proceeds of the Notes; and
WHEREAS, the Guarantor is willing to execute this Guarantee in order to
induce the Holders to acquire the Notes;
NOW THEREFORE, in consideration of the premises and mutual agreements
set forth herein, and other good and valuable consideration to the Guarantor
paid (the receipt and sufficiency of which are hereby acknowledged), the
Guarantor hereby agrees with the Trustee, on behalf of the Holders, as follows:
1. Definitions.
Terms used herein and not otherwise defined herein shall have the
respective meanings given to such terms in the Indenture.
2. Guaranteed Obligations.
The Guarantor hereby irrevocably and unconditionally guaranties to the
Trustee, on behalf of the Holders, and to the holders from time to time of the
Notes, as and for its own
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debt, until final and indefeasible payment has been made, the due and punctual
payment of the principal of, and interest on, the Notes at any time outstanding,
and the due and punctual payment of all amounts payable, and all other
indebtedness owing, by the Company under the Indenture and the Notes and any the
other documents, instruments or agreements executed in connection therewith (all
such obligations so Guaranteed are herein collectively referred to as the
"Guaranteed Obligations"), in each case when and as the same shall become due
and payable, whether at maturity, pursuant to mandatory or optional prepayment,
by acceleration or otherwise, all in accordance with the terms and provisions
thereof; it being the intent of each Guarantor that the guaranty set forth
herein shall be a guaranty of payment and not a guaranty of collection.
3. Performance under this Guarantee.
In the event the Company fails to pay when due any payment of principal
or interest on the Notes, the Guarantor shall, upon demand of the holders of the
Notes to whom such payment is due, but subject to Section 14 hereof, immediately
pay to such holders the entire amount of the Guaranteed Obligations due to such
holders at such time.
4. Waivers.
To the fullest extent permitted by law, the Guarantor does hereby
waive:
(a) notice of acceptance of this Guarantee;
(b) notice of any purchase of the Notes or the creation,
existence or acquisition of any of the Guaranteed Obligations;
(c) notice of the amount of the Guaranteed Obligations,
subject, however, to the Guarantor's right to make inquiry of the
holders of the Notes to ascertain the amount of the Guaranteed
Obligations at any reasonable time;
(d) notice of adverse change in the financial condition of the
Company, any other guarantor of the Notes or any other fact that might
increase the Guarantor's risk hereunder;
(e) notice of presentment for payment, demand, protest, and
notice thereof as to the Notes or any other instrument;
(f) notice of any Event of Default;
(g) all other notices (except if such notice is specifically
otherwise required to be given to the Guarantor under this Guarantee)
and demands to which the Guarantor might otherwise be entitled;
2
<PAGE>
(h) the right by statute or otherwise to require any holders
of the Notes to institute suit against the Company or to exhaust the
rights and remedies of any holder of the Notes against the Company or
any other guarantor of the Notes, the Guarantor being bound to the
payment of each and all Guaranteed Obligations, whether now existing or
hereafter accruing, as fully as if such Guaranteed Obligations were
directly owed by the Guarantor;
(i) any defense arising by reason of any disability or other
defense (other than the defense that the Guaranteed Obligations shall
have been fully and finally performed and indefeasibly paid) of the
Company or by reason of the cessation from any cause whatsoever of the
liability of the Company in respect of the Guaranteed Obligations;
(j) any stay (except in connection with a pending appeal),
valuation, appraisal, redemption or extension law now or at any time
hereafter in force which, but for this waiver, might be applicable to
any sale made under any judgment, order or decree based on the Notes as
well as any redemption in respect of any such judgment, order or
decree; and Guarantor covenants that it will not at any time insist
upon or plead, or in any manner claim or take the benefit or advantage
of such law; and
(k) any claim of any nature arising out of any right of
indemnity, contribution, reimbursement or any similar right, or any
claim of subrogation arising, in respect of any payment made under this
Guarantee or in connection with this Guarantee, against the Company or
the estate of the Company, in each case if, and for so long as, the
Company is the subject of any proceeding brought under Title 11 of the
United States Code, or any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and further agrees
that it will not file any claims against the Company or the estate of
the Company in the course of such proceeding in respect of the rights
referred to in this clause (k), and further agrees that any of the
holders of the Notes may specifically enforce the provisions of this
clause (k).
Until all of the Guaranteed Obligations shall have been indefeasibly paid in
full, the Guarantor shall have no right of subrogation, reimbursement, or
indemnity whatsoever in respect thereof and no right of recourse to or with
respect to any assets or property of the Company. Nothing shall discharge or
satisfy the obligations of the Guarantor hereunder except the full and final
performance and indefeasible payment of the Guaranteed Obligations.
5. Releases.
3
<PAGE>
The Guarantor consents and agrees that, without notice to or by the
Guarantor and without affecting or impairing the obligations of the Guarantor
hereunder, each holder of the Notes and/or any agent acting on behalf of the
holders of the Notes, in the manner provided in the Notes, by action or
inaction, may
(a) compromise or settle, extend the period of duration or the
time for the payment of, or may refuse to, or otherwise not, enforce,
or may, by action or inaction, release all or any one or more parties
to, the Notes or any related document, instrument or agreement,
(b) grant other indulgences to the Company in respect thereof,
(c) amend or modify in any manner and at any time (or from
time to time) any one or more of the Notes or any related document,
instrument or agreement,
(d) release or substitute any one or more of the endorsers or
guarantors of the Guaranteed Obligations, whether parties hereto or
not, and
(e) exchange, enforce, waive, or release, by action or
inaction, any security for the Guaranteed Obligations or any other
guaranty of the Notes.
6. Marshaling; Return of Payments.
The Guarantor consents and agrees:
(a) that neither the holders of the Notes nor any agent
therefor shall be under any obligation to marshal any assets in favor
of the Guarantor, or against or in payment of any or all of the
Guaranteed Obligations, and
(b) that, to the extent the Company makes a payment or
payments to any holder of the Notes, which payment or payments or any
part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required, for any of the foregoing reasons
or for any other reason, to be repaid or paid over to a custodian,
trustee, receiver, or any other party under any (i) bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or
hereinafter in effect, of any jurisdiction, (ii) common law, or (iii)
equitable cause, then to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or
payments had not been made and the Guarantor shall be primarily liable
for such obligation.
7. Liability.
4
<PAGE>
The Guarantor agrees that its liability in respect of this Guarantee
shall be immediate and shall not be contingent upon the exercise or enforcement
by any holder of the Notes and/or any agent therefor of whatever remedies such
Person may have against the Company or any other guarantor or the enforcement of
any lien or the realization upon any security such person may at any time
possess.
8. Primary Obligations.
This Guarantee is a primary and original obligation of the Guarantor
and is an absolute, unconditional, continuing, and irrevocable guaranty of
payment and shall remain in full force and effect without respect to future
changes in conditions, including change of law or any invalidity or irregularity
with respect to the issuance of any obligations (including, without limitation,
the Notes) of the Company to any holder of the Notes, or with respect to the
execution and delivery of any agreement (including, without limitation, the
Indenture and the Notes) by the Company for the benefit of any holder of the
Notes and/or any agent therefor.
9. No Election.
No election to proceed in one form of action or proceeding, or against
any party, or on any obligation, shall constitute a waiver by any holder of the
Notes and/or any agent for the holders of the Notes of its right to proceed in
any other form of action or proceeding or against other parties unless such
holder and/or such agent has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by any holder of the Notes and/or any agent for the holders of the
Notes shall serve to diminish the liability of the Guarantor hereunder except to
the extent that such holder of the Notes or such agent finally and
unconditionally shall have realized payment by such action or proceeding,
notwithstanding the effect of any such action or proceeding upon the Guarantor's
right of subrogation against the Company.
10. Delay or Omission; No Waiver.
No course of dealing on the part of any holder of the Notes or any
agent therefor and no delay or failure on the part of any such Person to
exercise any right under this Guarantee shall impair such right or operate as a
waiver of such right or otherwise prejudice such person's rights, powers and
remedies hereunder. Every right and remedy given by this Guarantee or by law to
any holder of the Notes may be exercised from time to time as often as may be
deemed expedient by such person.
11. Restoration of Rights and Remedies.
If any holder of the Notes or any agent therefor shall have instituted
any proceeding to enforce any right or remedy under this Guarantee and such
proceeding shall have been
5
<PAGE>
discontinued or abandoned for any reason, or shall have been determined
adversely to such holder, then and in every such case such holder and the
Guarantor shall, except as may be limited or affected by any determination in
such proceeding, be restored to their respective former positions hereunder, and
thereafter the rights and remedies of such holder of the Notes shall continue as
though no such proceeding had been instituted.
12. Representations of the Guarantor.
(a) Information. The Guarantor is
(i) fully aware of the financial condition of the Company and
delivers this Guarantee based solely upon its own independent
investigation thereof and in no part upon any representation or
statement of any holder of the Notes with respect thereto, and
(ii) in a position to obtain, and hereby assumes full
responsibility for obtaining, any additional information concerning the
financial condition of the Company as it may deem material to its
obligations hereunder, and the Guarantor is not relying upon, nor
expecting, such holder to furnish it any information in any holder of
the Notes or any other party's possession concerning the financial
condition of the Company.
(b) Financial Condition. The Guarantor warrants and represents to the
Trustee that, as of the Closing Date:
(i) the Fair Market Value of the assets of the Guarantor,
taken as a whole, exceeds its liabilities (after giving effect to the
execution and delivery of this Guarantee) taken as a whole;
(ii) the Guarantor is meeting its liabilities as they mature
and has sufficient capital to conduct its business;
(iii) the Guarantor is entering into this Guarantee without
actual intent to hinder, delay or defraud either present or future
creditors; and
(iv) there are not now pending any material court or
administrative proceedings or undischarged judgments against the
Guarantor, and no federal or state tax liens have been filed or
threatened against the Guarantor, nor is the Guarantor in default or
claimed default under any agreement for borrowed money.
6
<PAGE>
13. Miscellaneous.
(a) Expenses. The Guarantor will reimburse each holder of the Notes for
all reasonable out-of-pocket costs of collection or enforcement (including,
without limitation, attorneys' fees and expenses) incurred in enforcing the
obligations of the Guarantor under this Guarantee.
(b) Amendments. This Guarantee may, from time to time and at any time,
be amended by, and only by, an instrument or instruments in writing executed by
the Guarantor and the holders of the Notes at the time outstanding.
(c) Successors and Assigns. All covenants, agreements, representations
and warranties made herein and in certificates delivered in connection herewith
by or on behalf of the Guarantor shall bind the successors and assigns of the
Guarantor, whether so expressed or not, and all such covenants, agreements,
representations and warranties shall inure to the benefit of all holders from
time to time of the Notes.
(e) Governing Law. THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA (WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PRINCIPLES). THE GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ARIZONA STATE COURT
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE AND THE
GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.
(f) Headings, etc. Any headings or captions preceding the text of the
several sections hereof are intended solely for convenience of reference and
shall not constitute a part of this Guarantee nor shall they affect its meaning,
construction or effect. Each covenant contained in this Guarantee shall be
construed (absent an express contrary provision therein) as being independent of
each and every other covenant contained herein and compliance with any one
covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any and all other covenants.
14. Subordination of this Guarantee.
The Guaranteed Obligations are subordinate and junior in right of
payment to any and all (a) indebtedness and contingent obligations of the
Guarantor owing to the holders of Senior Debt in respect of the Senior Debt and
(b) indebtedness or securities of the Guarantor payable to the Company or any of
its subsidiaries and pledged as collateral security for the repayment of Senior
Debt, in each case, to the same extent and on the same terms as the Subordinated
Debt is subordinated to the Senior Debt pursuant to Section ___ of the
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<PAGE>
Indenture. The subordination provisions contained in Section ____ of the
Indenture are hereby incorporated in their entirety herein by this reference
thereto.
15. Liability of the Guarantor.
It is understood that while the amount of the Guaranteed Obligations
guaranteed hereby is not limited, if in any action or proceeding involving any
state, federal or foreign bankruptcy, insolvency or other law affecting the
rights of creditors generally, this Guarantee would be held or determined to be
void, invalid or unenforceable on account of the amount of the aggregate
liability under this Guarantee with respect to the Guarantor, then,
notwithstanding any other provision of this Guarantee to the contrary, the
aggregate amount of such liability shall, with respect to the Guarantor, without
any further action of the Trustee or any other Person, be automatically limited
and reduced with respect to the Guarantor to the highest amount which is valid
and enforceable as determined in such action or proceeding.
[Remainder of page intentionally blank. Next page is signature page.]
8
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
executed and delivered as of the date first hereinabove mentioned.
[_______________________]
By: ____________________
Name: __________________
Title: _________________
9
<PAGE>
EXHIBIT B
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT ("Agreement"), dated as of the ____day
of _______, 1997, is entered into by and between MOBILE MINI, INC., a Delaware
corporation (the "Company"), and HARRIS TRUST AND SAVINGS BANK, an Illinois
corporation (the "Trustee").
RECITALS:
---------
A. The Company and the Trustee have entered into an Indenture,
dated as of __________ __, 1997 ("Indenture"), pursuant to which the Company has
authorized the creation of an issue of its __% Senior Subordinated Notes Due
2002 (the "Notes"). All capitalized terms used as defined terms in this
Agreement, unless otherwise expressly provided herein, shall have the meaning
set forth in the Indenture.
B. Pursuant to the Indenture, the Company has agreed to
establish an interest reserve account (the "Reserve Account") and to grant to
the Trustee, on behalf of the Holders, a security interest in such Reserve
Account to secure all obligations of the Company arising under the Indenture and
the Notes in accordance with the terms of this Agreement.
AGREEMENTS:
-----------
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the Company and the Trustee agree as follows:
I. Security Interest. The Company hereby pledges and grants to the Trustee and
its successors and assigns, on behalf of the Holders, a security interest in all
of the Company's right, title and interest in and to all of the following: (i)
the Reserve Account which has been established at Bank One Arizona, N.A. (the
"Bank"), as further identified on Exhibit A attached hereto, and (ii) any and
all funds of the Company deposited therein and any earnings therefrom
(collectively, "Collateral"); provided, that so long as no Event of Default
shall have occurred and be continuing, the Company shall be entitled to retain
for its own account any interest earned on the Reserve Account. Without limiting
the foregoing pledge and grant of security interest, and regardless of whether
an Event of Default (as defined in the Indenture) shall have occurred and be
continuing, so long as the Notes are outstanding, the Company shall be permitted
to use any funds constituting the Collateral only to pay interest under the
Indenture and the Notes as set forth therein. The Company shall promptly provide
notice of the foregoing pledge and security interest to the Bank, in such form
as is reasonably acceptable to the Trustee, and shall obtain the acknowledgement
of the Bank of the terms thereof.
II. Indebtedness Secured.
A. Description of Indebtedness. This Agreement is made for the purpose
of securing the following:
<PAGE>
1. payment of the principal amount of the Notes, together with
unpaid interest, and any extension, modification, substitution or renewal
thereof; and
2. performance of any and all other obligations of the Company
arising under the Indenture and the Notes.
B. Pledge Obligations. The term "Pledge Obligations" as used herein
shall mean, collectively, the monetary, performance and other obligations at any
time secured hereby.
III. Representations and Warranties. The Company represents and warrants and, so
long as any Pledge Obligations remain unpaid or unperformed, shall continuously
represent and warrant that: (i) each instrument or document constituting or
evidencing ownership of the Collateral is genuine and is in all respects what it
purports to be; (ii) the Company is the owner of the Collateral free of all
security interests or other encumbrances other than those granted pursuant to
this Agreement in favor of the Trustee, and no effective financing statement
covering the Collateral has been filed or recorded in any public office other
than those filed or recorded pursuant to this Agreement in favor of the Trustee;
(iii) the Company is authorized to enter into this Agreement; and (iv) the
security interest granted to the Trustee pursuant to this Agreement with respect
to all amounts held in the Reserve Account is a first and prior security
interest in such Collateral.
IV. Affirmative Covenants. So long as any Pledge Obligations remain unpaid, the
Company will defend the Collateral against the claims and demands of all other
parties, will keep the Collateral free from all security interests or other
encumbrances other than the Trustee's, and will not sell, transfer, assign,
deliver or otherwise dispose of any of the Collateral or any interest therein
other than in accordance with the terms of the Indenture and the Notes without
the prior written consent of the Trustee.
V. Remedies. In the event of any Event of Default under the Notes arising as a
result of the Company's failure to pay when due any interest thereunder and the
Company's failure to cure such default within ten (10) days after receipt of
written notice thereof (stating that a failure to cure such default will result
in the application of the Collateral to the payment of obligations under the
Indenture and the Notes), the Trustee shall have the right to apply all or any
part of the Collateral to payment of interest due under the Notes. After such
application and provided the obligations of the Company hereunder have been
fully satisfied, the Trustee shall hold the balance of the Collateral (if any)
for disposal by the Company or such other person as is entitled thereto by law.
The Company shall remain liable for any and all of its obligations hereunder or
under the Indenture and the Notes in excess of any amount so applied.
VI. Miscellaneous.
A. Waivers. No waiver by the Trustee of any of its rights or remedies
hereunder or otherwise shall be considered a waiver of any other or subsequent
right or remedy of the Trustee; no delay or omission in the exercise or
enforcement by the Trustee of any rights or remedies shall ever be construed as
a waiver of any right or remedy of the Trustee; and no
2
<PAGE>
exercise or enforcement of any such right or remedy shall ever be held to
exhaust any right or remedy of the Trustee.
B. Preservation of Security Interest. The Trustee shall have no
obligation to take, and the Company shall have the sole responsibility for
taking, any and all steps to preserve the Trustee's rights against any and all
other parties with respect to the Collateral.
C. Binding Effect, Assignment and Entire Agreement. This Agreement
shall inure to the benefit of, and shall be binding upon, the respective
successors and assigns of the parties hereto. The Company has no right to assign
any of its rights or obligations hereunder without the prior written consent of
the Trustee. This Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties, and may be amended
or modified only by a writing signed on behalf of each party.
D. Governing Law. This Agreement and the transaction evidenced hereby
shall be governed by the laws of the State of Arizona (without reference to the
provisions thereof relating to conflicts of laws).
E. Notice. Whenever it is provided herein that notice, demand, request,
consent, approval or other communication shall or may be given to, or served
upon, any of the parties, or whenever any of the parties hereto desires to give
or serve upon the other any notice, demand, request, consent, approval or other
communication with respect hereto, each such notice, demand, request, consent,
approval or other communication shall be in writing and shall be effective for
any purpose only if given or served by (a) certified or registered U.S. Mail,
postage prepaid, return receipt required, (b) personal delivery with a signed
receipt or (c) a recognized national courier service, addressed as follows:
If to the Company: MOBILE MINI, INC.
1834 West Third Street
Tempe, Arizona 85281
Attn: Lawrence Trachtenberg
If to the Trustee: HARRIS TRUST AND SAVINGS BANK
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attn: Indenture Trust Administration
Any such notice may be given, in the manner provided in this Section, on either
party's behalf by its attorneys designated by such party by notice hereunder.
Every notice given hereunder shall be effective on the date actually received,
as indicated on the receipt therefor or on the date delivery thereof is refused
by the recipient thereof. Any party hereto may by notice delivered to the other
parties, change its address for purposes of this Agreement.
3
<PAGE>
F. Expenses. The Company shall pay all costs and expenses incurred by
the Trustee in enforcing this Agreement and in realizing upon the Collateral,
including, without limitation, if the Trustee retains counsel for any such
purpose, its reasonable attorneys' fees and expenses actually incurred.
G. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original but all of which together shall constitute one and
the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
"the Company" MOBILE MINI, INC.
a Delaware corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
"the Trustee" HARRIS TRUST AND SAVINGS BANK, an
Illinois corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
4
<PAGE>
Exhibit A
RESERVE ACCOUNT
Account No. 4003-8927 at
Bank One
ABA # 1221-00024
44 West Broadway Road
Tempe, AZ 85285
<PAGE>
Exhibit B
NOTICE OF PLEDGE
(see attached)
AMENDMENT NUMBER FOUR [REVISED]
TO
CREDIT AGREEMENT
This AMENDMENT NUMBER FOUR TO CREDIT AGREEMENT (this "Amendment"),
dated as of July 30, 1997, is entered into by and among MOBILE MINI, INC., a
Delaware corporation (the "Borrower"), each financial institution a party to the
Credit Agreement (collectively, the "Lenders"), and BT COMMERCIAL CORPORATION
acting as agent for the Lenders ("BTCC"), in light of the following facts:
R E C I T A L S
A. The parties hereto have previously entered into that certain Credit
Agreement, dated as of March 28, 1996, as amended by that certain Amendment
Number One to Credit Agreement, dated as of November __, 1996, that certain
Amendment Number Two to Credit Agreement, dated as of March 24, 1997, and that
certain Amendment Number Three to Credit Agreement, dated as of March 31, 1997
(as amended, the "Agreement").
B. Borrower has sold or will sell an aggregate amount of up to Six
Million Nine Hundred Thousand Dollars ($6,900,000), which amount includes a 15%
underwriter's over-allotment option and which amount shall be net of any
subordinated bridge loan proceeds, if such bridge loans are repaid in full, of
subordinated, unsecured notes (the "Subordinated Debt") pursuant to the
$3,000,000 Senior Subordinated Promissory Note, dated July 30, 1997, (the
"Bridge Note") by and between Borrower and Arizona Land Income Corporation
("ALIC") and certain other substantially similar subordinated notes by and
between Borrower and ALIC (the "Subsequent Financing"). The Bridge Loan will be
paid in full upon consummation of the Subsequent Financing.
C. The parties hereto desire to amend the Agreement in accordance with
the terms of this Amendment.
A G R E E M E N T
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. All initially capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Agreement.
2. Amendment to Section 2.2. Section 2.2(a) of the Agreement is hereby
amended by deleting the phrase "which shall not exceed $35,000,000" from such
Section and replacing it with the phrase "which shall not exceed $40,000,000".
3. Amendment of Annex I. Annex I of the Agreement is hereby amended by
deleting the amount of the Revolving Credit Commitment for each Lender and
replacing such amounts as follows:
<PAGE>
================================================================================
Lender Revolving Credit Commitment ($)
================================================================================
BT Commercial Corporation 13,333,333.34
- --------------------------------------------------------------------------------
Nationsbank of Texas, N.A. 13,333,333.33
- --------------------------------------------------------------------------------
Deutsche Financial Services Corporation 13,333,333.33
================================================================================
4. Subordinated Debt.
(a) BTCC consents to Borrower's sale of the Bridge Note to
ALIC, and such sale shall not constitute an Event of Default under the
Agreement.
(b) The Subordinated Debt shall not exceed Six Million Nine
Hundred Thousand Dollars ($6,900,000). In the event the Subordinated Debt
exceeds Six Million Nine Hundred Thousand Dollars ($6,900,000), such occurrence
shall constitute an Event of Default under the Agreement.
(c) With regard to Section 8.8 of the Agreement only,
Borrower's sale of the Subordinated Debt to ALIC shall be treated as a sale of
equity securities, and Borrower shall be subject to the terms and conditions of
Section 8.8 as a result thereof. In addition, with regard to the Subordinated
Debt and its treatment as an equity security under Section 8.8 only, during the
term of this Agreement and so long as there is no continuing Event of Default,
Borrower may carry forward and add to the next year's Capital Expenditure
limitation amount the unused portion of the limitation amount for the prior
year, up to a maximum of one hundred percent (100%) of the prior year's
limitation.
(d) In connection with the Subordinated Debt, the Collateral
under the Agreement shall exclude the Reserve Account (as that term is defined
in the Bridge Note and as that term is defined in any other Subordinated Debt so
long as such definition is substantially similar to the definition of Reserve
Account under the Bridge Note) provided, however, the funds in the Reserve
Account shall not exceed $375,000 at any time.
5. Amendment to Section 1.1. Section 1.1 is amended by inserting the
following in the definition of "Consolidated Tangible Net Worth" between
"Lenders" and the period at the end of the first and only sentence of the
Section:
"provided, however, that the Subordinated Debt and any
proceeds thereof shall be excluded from the calculation of
Consolidated Tangible Net Worth herein."
6. Amendment to Section 8.9(a). Section 8.9(a) of the Agreement is
hereby amended by inserting before the semicolon the following:
", and Indebtedness under the Subordinated Debt".
2
<PAGE>
7. Amendment to Section 8.4. Section 8.4 is amended by deleting the
Ratios for the four quarters of 1998 and replacing such Ratios as set forth
below:
================================================================================
For Quarters Ended Ratio
- --------------------------------------------------------------------------------
3/31/98 2.00:1.0
- --------------------------------------------------------------------------------
6/30/98 2.00:1.0
- --------------------------------------------------------------------------------
9/30/98 2.20:1.0
- --------------------------------------------------------------------------------
12/31/98 2.35:1.0
================================================================================
8. Amendment to Section 8.7. Section 8.7 of the Agreement is hereby
amended by deleting such Section in its entirety and replacing it with the
following:
"8.7 Minimum Utilization Rates. The Borrower shall
maintain minimum utilization rates for each fiscal quarter, calculated at the
end of each such quarter as the average amount during such quarter, and
calculated as:
(a) (i) the number of units of Borrower's Eligible
Container Fleet Inventory which is then subject to valid, current rental or
lease agreements between Borrower and the renters or lessees thereof, divided by
the aggregate number of units of Borrower's Eligible Container Fleet Inventory,
of not less than eighty-three percent (83%) for the second quarter of the fiscal
year ending December 31, 1997 and eighty-five percent (85%) for each other
quarter; and
(b) (i) the number of units of Borrower's Eligible
Container Fleet Inventory which is then subject to valid, current rental or
lease agreements between Borrower and the renters or lessees thereof, divided by
(ii) sum of (A) the number of units of Borrower's Eligible Container Fleet
Inventory, and (B) the number of units of Borrower's Eligible Container
Inventory Held For Sale plus the number of units of Borrower's Eligible Primary
Raw Materials Inventory consisting of unrefurbished ISO units, of not less than
seventy-eight percent (78%) for the second quarter of the fiscal year ending
December 31, 1997 and eighty percent (80%) for each other quarter; provided,
that for the purposes of calculation of compliance with this Section 8.7(b), the
aggregate of the number of units of Eligible Container Inventory Held For Sale
plus the number of units of Borrower's Eligible Primary Raw Materials Inventory
consisting of unrefurbished ISO units, as a percentage of the sum of clauses (A)
and (B) above, shall not exceed five percent (5%)."
9. Amendment to Section 8.10. Section 8.10 of the Agreement is hereby
amended by adding to such Section the following subparagraph:
" (k) Deposits or pledges to support Borrower's interest
payment obligations under the Subordinated Debt pursuant to
the terms of such Subordinated Debt, so long as such deposit
or pledge relates to an amount
3
<PAGE>
which does not exceed the amount equal to one six-month period
of interest on the principal balance of the Subordinated
Debt."
10. Guaranties of the Subordinated Debt. Notwithstanding Section 8.11
of the Agreement, the Material Subsidiaries may guarantee the Subordinated Debt
but such guaranties shall be subordinate to any guaranties or obligations by the
Material Subsidiaries in favor of the Lenders.
11. Conditions Precedent. The effectiveness of this Amendment is
subject to and conditioned upon the fulfillment of each and all of the following
conditions precedent:
(a) BTCC shall have received this Amendment duly executed by
Borrower and Majority Lenders;
(b) BTCC shall have received an affirmation letter duly
executed by each guarantor under the Guaranties, indicating the consent by each
such guarantor to the execution and delivery by Borrower of this Amendment;
(c) BTCC shall have received payment for all fees in
connection with this Amendment from Borrower;
(d) BTCC shall have received executed replacement revolving
promissory notes for each lender under the Agreement in form and substance
satisfactory to BTCC pursuant to the amendments to the Agreement under Sections
2 and 3 herein;
(e) BTCC shall have approved of the terms and conditions of
the Subordinated Debt (such approval not to be unreasonably withheld), and such
Subordinated Debt shall provide, among other things, subordination terms
acceptable to BTCC in its reasonable business judgment; and
(f) BTCC shall have received executed modifications or other
necessary documents and such title insurance as BTCC shall require, either by
endorsement to the policy of title insurance, or by a new policy of title
insurance, insuring such deed(s) of trust or mortgages and that the lien(s)
created thereby continue to be first priority lien, all in form and substance
satisfactory to BTCC in its sole and absolute discretion, and subject to such
exceptions as are approved by BTCC.
12. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered shall be deemed to be an original. All such
counterparts, taken together, shall constitute but one and the same Amendment.
4
<PAGE>
13. Reaffirmation of the Agreement. Except as specifically amended by
this Amendment, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Los Angeles, California as of the date first hereinabove written.
MOBILE MINI, INC.,
a Delaware corporation
By:
------------------------------
Larry Trachtenberg,
Chief Financial Officer
BT COMMERCIAL CORPORATION,
a Delaware corporation,
individually and as agent
By:
------------------------------
Title:
---------------------------
NATIONSBANK OF TEXAS, N.A.
By:
------------------------------
Title:
--------------------------
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By:
------------------------------
Title:
--------------------------
5
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as a guarantor of the obligations of MOBILE
MINI, INC., a Delaware corporation ("Borrower"), arising out of that certain
Credit Agreement, dated as of March 28, 1996, as amended by that certain
Amendment Number One to Credit Agreement, dated as of November __, 1996, that
certain Amendment Number Two to Credit Agreement, dated as of March 24, 1997,
and that certain Amendment Number Three to Credit Agreement, dated as of March
31, 1997 (as amended, the "Agreement"), among BT Commercial Corporation, a
Delaware corporation ("Agent") and the lenders party thereto ("Lenders"), on the
one hand, and Borrower, on the other hand, hereby acknowledges receipt of a copy
of that certain Amendment Number Four to Credit Agreement, dated as of July
[__],1997, among Agent, Lenders and Borrower, consents to the terms contained
therein, and agrees that the Continuing Guaranty executed by each of the
undersigned shall remain in full force and effect as a continuing guaranty of
the obligations of Borrower owing to Agent and Lenders under the Agreement.
Although Agent has informed us of the matters set forth above, and we
have acknowledged same, we understand and agree that Agent has no duty under the
Agreement, the Continuing Guaranty or any other agreement between us to so
notify us or to seek an acknowledgment, and nothing contained herein is intended
to or shall create such a duty as to any advances or transactions hereafter.
IN WITNESS WHEREOF, each of the undersigned has caused this Consent of
Guarantors to be duly executed by its respective authorized officers as of July
30, 1997.
MOBILE MINI I, INC.,
an Arizona corporation
By
------------------------------
Title
----------------------------
DELIVERY DESIGN SYSTEMS, INC.,
an Arizona corporation
By
------------------------------
Title
----------------------------
6
<TABLE>
<CAPTION>
MOBILE MINI, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollar amounts in thousands)
Year Ended December 31, Six months ended
June 30, June 30,
1992 1993 1994 1995 1996 1996 1997
----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense and amortization
of debt discount $ 638 $1,088 $1,274 $3,212 $3,894 $1,949 $2,249
Interest component of rent expense 58 72 113 170 214 101 125
----- ------ ------ ------ ------ ------ ------
Total fixed charges $ 696 $1,160 $1,387 $3,382 $4,108 $2,050 $2,374
===== ====== ====== ====== ====== ====== ======
Earnings:
Income from continuing operations
before income tax $ 200 $ 476 $1,721 $1,387 $ 858 $ 373 $1,290
Plus-fixed charges 696 1,160 1,387 3,382 4,108 2,050 2,374
----- ------ ------ ------ ------ ------ ------
Total earnings $ 896 $1,636 $3,108 $4,769 $4,966 $2,423 $3,664
===== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges(1) 1.3 1.4 2.2 1.4 1.2 1.2 1.5
----- ------ ------ ------ ------ ------ ------
</TABLE>
(1) The ratio of earnings to fixed charges is not presented on a proforma basis
for either the year ended December 31, 1996 or the six months ended June
30, 1997, because the ratios did not differ from those of the corresponding
historical periods by more than 10%.
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,
September 23, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)____
HARRIS TRUST AND SAVINGS BANK
(Exact name of trustee as specified in its charter)
Illinois 36-1194448
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification Number)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices) (Zip code)
----------------------
Daniel G. Donovan, Harris Trust and Savings Bank,
11 West Monroe Street, Chicago, Illinois, 60603
312-461-2908
(Name, address and telephone number of agent for service)
MOBILE MINI, INC.
(Exact name of obligor as specified in its charter)
Delaware 86-0748362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1834 West 3rd Street
Tempe, Arizona 85281
(Address of principal executive offices) (Zip code)
--------
Debt Securities
(Title of the indenture securities)
<PAGE>
Item 1. General information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the
Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
Item 2. Affiliations with the obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The Obligor is not an affiliate of the Trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting securities of
the trustee:
As of:
Col. A Col. B
Title of Class Amount outstanding
Not applicable.
Item 4. Trusteeships under Other Indentures.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other indenture.
Not applicable.
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1) of the Act
arises as a result of the trusteeship under any such other indenture, including
a statement as to how the indenture securities will rank as compared with the
securities issued under such other indenture.
Not applicable.
Item 5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
2
<PAGE>
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or representative
of the obligor or of any underwriter for the obligor, identify each such person
having any such connection and state the nature of each such connection.
Not applicable.
Item 6. Voting Securities of the Trustee Owned by the Obligor or Its Officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner, and
executive officer of the obligor:
As of:
Col. A Col. B Col. C Col. D
Name of owner Title of class Amount owned Percentage of voting
beneficially securities represented by
amount given in Col. C
Not applicable.
Item 7. Voting securities of the Trustee owned by Underwriters or Their
Officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner, and executive officer of each such underwriter:
As of:
Col. A Col. B Col. C Col. D
Name of owner Title of class Amount owned Percentage of voting
beneficially securities represented by
amount given in Col. C
Not applicable.
3
<PAGE>
Item 8. Securities of the Obligor Owned or Held by the Trustee.
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee:
<TABLE>
<CAPTION>
As of:
Col. A Col. B Col. C Col. D
<S> <C> <C> <C>
Title of class Whether the securities Amount owned Percent of class
are voting or non-voting beneficially represented by amount
securities or held as given in Col. C
collateral security
for obligations
in default
Not applicable.
</TABLE>
Item 9. Securities of Underwriters Owned or Held by the Trustee.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the obligor, furnish
the following information as to each class of securities of such underwriter any
of which are so owned or held by the trustee:
<TABLE>
<CAPTION>
As of:
Col. A Col. B Col. C Col. D
<S> <C> <C> <C>
Title of issuer and title Amount outstanding Amount owned Percent of class
of class beneficially represented by amount
or held as given in Col. C
collateral security
for obligations
in default by trustee
Not applicable.
</TABLE>
Item 10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
<TABLE>
<CAPTION>
As of:
Col. A Col. B Col. C Col. D
<S> <C> <C> <C>
Title of issuer and title Amount outstanding Amount owned Percent of class
of class beneficially represented by amount
or held as given in Col. C
collateral security
for obligations
in default by trustee
Not applicable.
</TABLE>
4
<PAGE>
Item 11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
<TABLE>
<CAPTION>
As of:
Col. A Col. B Col. C Col. D
<S> <C> <C> <C>
Title of issuer and title Amount outstanding Amount owned Percent of class
of class beneficially represented by amount
or held as given in Col. C
collateral security
for obligations
in default by trustee
Not applicable.
</TABLE>
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
As of:
Col. A Col. B Col. C
Nature of indebtedness Amount Date due
outstanding
Not applicable.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
None.
Item 14. Affiliations with the Underwriters.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
5
<PAGE>
Not applicable.
Item 15. Foreign Trustee.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be qualified
under the Act.
Not applicable.
Item 16. List of exhibits.
List below all exhibits filed as a part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2- 44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee, or instruments
corresponding thereto.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the United States institutional trustees required by
Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining authority.
(included as Exhibit B on page 3 of this statement)
6
<PAGE>
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its directors or
officers, the Trustee has relied upon information furnished to it by the
obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base responsive answers to Item 2, the answer
to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the Trustee has responded to Items of
this form since to the best knowledge of the Trustee as indicated in Item 13,
the Obligor is not in default under any indenture under which the applicant is
trustee.
7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, Harris Trust and Savings, a corporation organized and existing under
the laws of the state of Illinois, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the city of Chicago, and State of Illinois, on the 17th day of September, 1997.
HARRIS TRUST AND SAVINGS BANK
By /s/ DGDonovan
---------------------------------------
D. G. Donovan
Assistant Vice President
8
<PAGE>
Exhibit 6
CONSENT OF TRUSTEE
The consents of the Trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby
consents that reports of examinations of said trustee by Federal and State
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefore.
Harris Trust and Savings Bank
By /s/ DGDonovan
-------------------------------------------
D.G. Donovan
Assistant Vice President
Dated: August 7, 1997
9
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of June 30, 1997, as published in accordance with a
call made by the State Banking Authority and by the Federal Reserve Bank of the
Seventh Reserve District.
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on June 30, 1997, a state banking institution organized and operating
under the banking laws of this State and a member of the Federal Reserve System.
Published in accordance with a call made by the Commissiioner of Banks and Trust
Companies of the State of Illinois and by the Federal Reserve Bank of this
District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
------ in Thousands
------------
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ....................................... $ 1,707,824
Interest-bearing balances ................................................................ $ 628,916
Securities:
a. Held-to-maturity securities .......................................................... $ 0
b. Available-for-sale securities ........................................................ $ 3,766,727
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold ....................................................................... $ 275,425
Securities purchased under agreements to resell .......................................... $ 0
Loans and lease financing receivables:
Loans and leases, net of unearned income ................................................. $ 8,346,198
LESS: Allowance for loan and lease losses ................................................ $ 110,230
Loans and leases, net of unearned income, allowance, and reserve ........................ $ 8,235,968
Assets held in trading accounts ............................................................. $ 164,281
Premises and fixed assets (including capitalized leases) .................................... $ 199,292
Other real estate owned ..................................................................... $ 524
Investments in unconsolidated subsidiaries and associated companies ......................... $ 69
Customers' liability to this bank on acceptances outstanding ................................ $ 46,107
Intangible assets ........................................................................... $ 287,575
Other assets ................................................................................ $ 670,230
TOTAL ASSETS ................................................................................ $ 15,982,938
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Deposits:
In domestic offices ...................................................................... $ 9,243,162
Noninterest-bearing ........................................................$ 3,411,145
Interest-bearing ...........................................................$ 5,832,017
In foreign offices, Edge and Agreement subsidiaries, and IBFs ............................ $ 1,738,871
Noninterest-bearing ...........................................................$ 34,386
Interest-bearing ............................................................$1,704,485
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase ............... $ 2,985,911
Trading Liabilities ......................................................................... $ 62,083
Other borrowed money:
a) With a remaining maturity of one year or less ......................................... $ 244,781
b) With a remaining maturity of more than one year ....................................... $ 0
Bank's liability on acceptances executed and outstanding .................................... $ 46,107
Subordinated notes and debentures ........................................................... $ 325,000
Other liabilities ........................................................................... $ 119,695
TOTAL LIABILITIES ........................................................................... $ 14,765,610
EQUITY CAPITAL
Common stock ................................................................................ $ 100,000
Surplus ..................................................................................... $ 600,000
a. Undivided profits and capital reserves ................................................ $ 534,395
b. Net unrealized gains (losses) on available-for-sale securities ........................ $ (17,782)
TOTAL EQUITY CAPITAL ........................................................................ $ 1,217,328
Total Liabilities, limited-life preferred stock, and equity capital ......................... $ 15,982,938
</TABLE>
I, Steve Neudecker, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
STEVE NEUDECKER
7/30/97
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD JAFFEE
Directors.
11
