UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934(Amendment No. 9) Filed by the Registrantþ
Filed by a Party other than the Registranto
Check the appropriate box:
þ Preliminary Proxy Statement
| | |
þ | | Preliminary Proxy Statement |
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | | |
o | | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o Definitive Proxy Statement | | |
o | | Definitive Proxy Statement |
o Definitive Additional Materials | | |
o | | Definitive Additional Materials |
o Soliciting Material Pursuant to §240.14a-12 | | |
o | | Soliciting Material Pursuant to §240.14a-12 |
GENERAL FINANCE CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o | | No fee required. |
|
þ | | o No fee required. þFee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| | 1) | | Title of each class of securities to which transaction applies: |
| | | |
| | | Common stock, par value $0.001 per share, of Mobile Office Acquisition Corp. |
| | 2) | | Aggregate number of securities to which transaction applies: |
| | | |
| | | Acquisition of all outstanding common stock of Mobile Office Acquisition Corp. |
| | 3) | | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| | | |
| | | $48,000,000 (Holders of Mobile Office Acquisition Corp. common stock will receive an aggregate of (1) up to $21.5 million in cash, (2) 4,000,000 shares of common stock of General Finance Corporation valued at an aggregate of $25 million as of July 31, 2008 and (3) a subordinated promissory note in the amount of $1.5 million) |
| | 4) | | Proposed maximum aggregate value of transaction:
|
|
| | | $102,200,00048,000,000 |
| | 5) | | Total fee paid:
$10,035.06 |
þ | | Fee paid previously with preliminary materials. |
| |
o | | | $1,866.40 |
o Fee paid previously with preliminary materials.
| | |
| x | | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| | 1) | | Amount Previously Paid:
$5,189.66 |
| | 2) | | Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement (PREM 14A) |
| | 3) | | Filing Party:
General Finance Corporation |
| | 4) | | Date Filed:
October 20, 2006 |
GENERAL FINANCE CORPORATION
260 South Los Robles, Suite 21739 East Union Street
Pasadena, California 9110191103
To the Stockholders of General Finance Corporation:
You are cordially invited to attend a special meeting of our stockholders to be held at 9:00 a.m., local time, on [l], 2007,2008, at the offices of our legal counsel, Troy & Gould ProfessionalGeneral Finance Corporation, 1801 Century Parkor General Finance, located at 39 East 16th Floor, Los Angeles, California.Union Street, Pasadena, California 91103.
At the special meeting, you will be asked to consider and vote upon our proposed acquisition of all of the outstanding capital stock of RWA Holdings Pty Limited, an Australian company,Mobile Office Acquisition Corp., or RWA. We refer to RWAMOAC, and its subsidiaries collectively as “Royal Wolf.” Royal Wolfwholly-owned subsidiary Pac-Van, Inc. and the issuance of 4,000,000 shares of restricted General Finance common stock, or the Shares, in connection with the acquisition. Pac-Van, Inc. leases and sells portablemodular buildings, mobile offices and storage containers portable container buildingsin 31 states across the United States. MOAC and freight containersPac-Van, Inc. are referred to collectively in Australia. We are not aware of any published third-party analysisthis proxy as Pac-Van.
At the closing of the Australian portable container market. Based upon Royal Wolf’s own internal analysis,acquisition, we believe Royal Wolf is the market leader in Australia for container-based storage and accommodation products. Royal Wolf operates customer service centers in every state in Australia, is represented in all major business centers in Australia, and, as such, is the only container leasing and sales company in Australia with a nationally integrated infrastructure and work force.
We will acquire the RWA sharesMOAC through a merger, or Merger, of MOAC into our wholly-owned subsidiary, GFN Australasia Finance Pty Limited,North America Corp., or GFN Australasia, an indirect, wholly owned Australian subsidiary formed by us for this purpose.GFNA. The purchase price for the RWAMOAC shares will be $57.6approximately $158.8 million, plus $864,600 per month from March 29, 2007 until the closing. The purchase price includes deposits of $1,005,000 previously paid by us in connection with the acquisition. If the acquisition is not completed for any reason, we will forfeit the deposits. Assuming the closing occurs on July 31, 2007, we will pay the purchase price of the RWA shares, less the deposits, by a combination of cash of approximately $51.7 million and issuance of approximately 1,380 shares of capital stock of GFN U.S. Australasia Holdings, Inc., or GFN U.S., our wholly owned U.S. subsidiary, which will constitute 13.8%consist of the outstanding capital stock of GFN U.S. immediately following the acquisition. Assuming the closing occurs on July 31, 2007, the aggregate acquisition consideration will be approximately $102.2 million, including a total of $2.4up to $21.5 million in cash, payable by usa $1.5 million senior subordinated note of GFNA, or the Note, $30 million in two equal installmentsShares, which are valued at $7.50 per share for the purposes of the acquisition, and the assumption of indebtedness. The amount of cash paid for the MOAC shares will depend on the first and second anniversaries of the closing in exchange for a non-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities. There was $38.7 million, including accrued interest,amount of indebtedness assumed but will not exceed $21.5 million in any event. The indebtedness to be assumed consists of outstanding principal as of June 30, 2008 under these facilitiesPac-Van’s existing senior secured credit facility of March 31, 2007.approximately $80.4 million and a senior subordinated secured note, or the Subordinated Debt, of approximately $25 million. The actual amount of indebtedness outstanding as of the closing of the Merger will be different, but will in no event exceed $39.4$86 million of principal.principal under the senior secured credit facility and $25 million of original principal under the Subordinated Debt. For more information about the Merger consideration, see the Agreement and Plan of Merger — Merger Consideration” beginning on page 45. As a result of the acquisition, RWAMerger, Pac-Van, Inc. will become a direct, wholly owned subsidiary of GFN Australasia, and we will own indirectly 86.2% of Royal Wolf.GFNA.
Enclosed is a notice of special meeting and proxy statement containing detailed information concerning the acquisition. Whether or not you plan to attend the meeting, we urge you to read these materials carefully.
OurA special committee of independent members of the board of directors has unanimously approvedof General Finance was formed to determine whether to acquire Pac-Van because Ronald F. Valenta, our President, Chief Executive Officer and director, is a stockholder of General Finance and a stockholder and director of MOAC. The special committee comprised only of independent directors, which did not include Mr. Valenta, was therefore created to formulate an independent determination as to whether the acquisition of RWAPac-Van would achieve our strategic goals and enhance stockholder value. The special committee has determined that itthe acquisition of Pac-Van is in the best interests of usGeneral Finance and our stockholders. Our board of directors alsoThe factors considered by the special committee in arriving at its determinations are more fairly described in the enclosed proxy statement. The special committee believes that the acquisition is fair to usGeneral Finance and ourits stockholders. No fairness opinion was sought or obtained byThe special committee of our board of directors in making its determinations.has unanimously approved the acquisition of Pac-Van.OurThe special committee of our board of directors unanimously recommends that you vote or give instruction to vote “FOR” approval of the acquisition.acquisition and the issuance of restricted General Finance common stock pursuant to the merger agreement.
Under our certificate of incorporation, weWe can complete the acquisition only if it is approved by the affirmative vote of the holders of a majority of the shares of our common stock present and entitled to vote at the special meeting with respect to the acquisition, as well as the holders of a majority of the shares of our common stock that were originally issued in our initial public offering, or IPO, that are voted. Notwithstanding these approvals, our certificate of incorporation provides that we cannot complete the acquisition if the holders of 20% or more of our IPO shares (1,725,000 or more shares) vote against it and demand that their shares be converted into the right to receive a pro rata portion of the funds presently held in the trust account established at the time of our IPO. If you exercise your conversion rights and the acquisition of Royal Wolf is completed, then you will be entitled to tender your share certificate to our transfer agent for cash of not less than approximately $7.88 per IPO share. If you wish to exercise your conversion rights, you must affirmatively vote against approval of the acquisition and follow the procedures described in detail beginning on pages xiii and 32 of the enclosed proxy statement. If the acquisition is completed, the foregoing provisions of our certificate of incorporation will no longer apply.
Our units, common stock and warrants are listed on the American Stock Exchange under the symbols “GFN.U,” “GFN” and “GFN.WS,” respectively. On July 2, 2007, the closing sale price of our common stock was $7.87. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares, assuming that the acquisition is completed.
Our officers and directors hold shares of our common stock acquired prior to our IPO that represent approximately 17.9% of our outstanding shares. They have agreed to vote these shares with respect to the acquisition as the holders of a majority of our IPO shares that are voted at the special meeting.
Your vote is important. Whether you plan to attend the special meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided.
I look forward to seeing you at the meeting.
Sincerely,
Ronald F. Valenta
John O. Johnson
Chief ExecutiveOperating Officer
GENERAL FINANCE CORPORATION
260 South Los Robles, Suite 21739 East Union Street
Pasadena, California 91101
91103
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [l], 20072008
To the Stockholders of General Finance Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of General Finance Corporation, a Delaware corporation, or General Finance, will be held at 9:00 a.m., local time, on [l], 2007,2008 at the offices of our legal counsel, Troy & Gould Professional Corporation, 1801 Century ParkGeneral Finance, located at 39 East 16th Floor, Los Angeles,Union Street, Pasadena, California, for the following purposes:
(1) to consider and vote upon a proposal to approve our acquisition of RWA Holdings Pty Limited,Mobile Office Acquisition Corp., or MOAC, and its wholly-owned subsidiary, Pac-Van, Inc., via a merger, the Merger, into our subsidiary GFN North America Corp. pursuant to an Australian company, or RWA;agreement and plan of merger;
(2) to approve the issuance of 4,000,000 shares of restricted General Finance common stock pursuant to the Merger; and
(2)(3) in the event that there are insufficient votes present at the meeting for approval of the RWAMOAC acquisition, to consider and act upon a proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the acquisition.Merger.
These items of business are described in the attached proxy statement, which we encourage you to read in its entirety before voting. Only holders of record of our common stock at the close of business on June 11, 2007, 2008 are entitled to notice of and to vote at the meeting and any adjournment or postponement of the meeting.
All stockholders are cordially invited to attend the meeting in person. However, to ensure your representation at the meeting, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. Proxy cards that are returned to us in time for the special meeting will be voted by the proxy holders named therein as instructed on the proxy cards. If no instructions are given, they will be voted “FOR” approval of the Royal WolfMOAC acquisition and the other proposal described above. By returning the enclosed proxy card, you also will be granting the proxy holders discretionary authority to consider and act upon such other matters incident to the conduct of the meeting as may be properly presented at the meeting and any adjournment or postponement of the meeting.
The holders of shares of our common stock that were originally issued in our initial public offering, or IPO, are entitled to vote against approval of the acquisition and demand that their shares be converted into the right to receive a pro rata portion of the funds held in the trust account established at the time of the IPO. If you wish to exercise your conversion rights, you must affirmatively vote against approval of the acquisition and follow the procedures described in detail beginning on pages xiii and 32 of the enclosed proxy statement.
By Order of the Board of Directors
Ronald F. Valenta
John O. Johnson
Chief ExecutiveOperating Officer
June [l], 20072008
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER TO ENSURE THAT YOUR SHARES ARE VOTED, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. IF GIVEN, YOU MAY REVOKE YOUR PROXY BY FOLLOWING THE INSTRUCTIONS IN THE PROXY STATEMENT.
THIS SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF EACH OF THE PROPOSALS DESCRIBED IN THE ATTACHED PROXY STATEMENT.
GENERAL FINANCE CORPORATION
260 South Los Robles, Suite 21739 East Union Street
Pasadena, California 9110191103
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies on behalf of the board of directors of General Finance Corporation for use at the special meeting of our stockholders to be held at 9:00 a.m., local time, on [l], 2007,2008, at the offices of our legal counsel, Troy & Gould ProfessionalGeneral Finance Corporation 1801 Century Parklocated at 39 East 16th Floor, Los Angeles,Union Street, Pasadena, California. The accompanying notice of special meeting describes the purposes of the meeting. The proxies will be used at the meeting and at any postponement or adjournment of the meeting.
This proxy statement and accompanying proxy solicitation materials were first mailed on or about June [l], 20072008 to our shareholdersstockholders entitled to vote at the meeting.
TABLE OF CONTENTS
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i
SUMMARY TERM SHEET
This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Acquisition and the Special Meeting” and “Summary of the Proxy Statement,” summarizes certain material information contained in this proxy statement. You should carefully read this entire proxy statement for a more complete understanding of the matters to be considered at the special meeting of stockholders.
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| | • | Pursuant to an acquisition agreement, General Finance Corporation, (referred to below as “we” or “our”)General Finance or we, will acquire RWA Holdings Pty LimitedMobile Office Acquisition Corp., or MOAC, and its subsidiaries (collectivelywholly-owned subsidiary Pac-Van, Inc. pursuant to an agreement and plan of merger, or Merger Agreement. MOAC and Pac-Van, Inc. are referred to collectively in this proxy as “Royal Wolf”).Pac-Van. For more information about the acquisition, see the section entitled “The Acquisition Agreement”Agreement and Plan of Merger” beginning on page 6445 and the acquisition agreement, itself (referred to in Australia as a share sale deed),Merger Agreement that is attached as ANNEXAnnex A to this proxy statement. |
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| | • | At the special meeting of stockholders to be held on [l], 2007,2008, you will be asked to approve the acquisition.acquisition and the issuance of 4,000,000 shares of restricted General Finance common stock, or the Shares, pursuant to the Merger Agreement. For more information about the special meeting, see the section entitled “The Special Meeting” beginning on page 30.27. |
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| | • | We are a special-purpose acquisition company organized underPac-Van, Inc. leases and sells modular buildings, mobile offices and storage containers in 31 states across the laws of Delaware on October 14, 2005. We were formed to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business.United States. For more information about us, see the section entitled “Other Information About Us” beginning on page 82. |
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| • | Royal Wolf is an Australian company that leases and sells portable storage containers, portable container buildings and freight containers in Australia. Based upon its own internal analysis, Royal Wolf’s management believes Royal Wolf is the market leader in Australia for container-based storage and accommodation products. For more information about Royal Wolf,Pac-Van, see the sections entitled “Unaudited Pro Forma Condensed Combined Financial Statements,” “Information About Royal Wolf,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Royal Wolf”Pac-Van” and “Information About Pac-Van,” beginning on pages 73, 87,58, 68 and 104,79, respectively. Also see Royal Wolf’sPac-Van’s financial statements beginning onpage F-2. |
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| | • | At the closing of the acquisition, we will purchase allacquire MOAC through a merger of GFN North America Corp. or GFNA, and MOAC in which GFNA is the surviving corporation. GFNA is a wholly owned direct subsidiary of General Finance formed for the purpose of acquiring Pac-Van. As a result of the outstanding shares of Royal Wolf from its shareholders. Weacquisition, Pac-Van, Inc. will acquire the RWA shares through GFN Australasia Finance Pty Limited, or GFN Australasia. GFN Australasia is our indirect,become a direct, wholly owned Australian subsidiary formed for this purpose.of GFNA. The purchase price for the RWAMOAC shares will be $57.6 million, plus $864,600 per month from March 29, 2007 until the closing.approximately $158.8 million. The purchase price includes depositsfor the MOAC shares will consist of $1,005,000 previously paid by us in connection with the acquisition. If the acquisition is not completed for any reason, we will forfeit the deposits. Assuming the closing occurs on July 31, 2007, we will pay the purchase price of the RWA shares, less the deposits, by a combination of cash of approximately $51.7 million and issuance of approximately 1,380 shares of capital stock of GFN U.S. Australasia Holdings, Inc., or GFN U.S., our wholly owned U.S. subsidiary, which will constitute 13.8% of the outstanding capital stock of GFN U.S. immediately following the acquisition. Assuming the closing occurs on May 31, 2007, the aggregate acquisition consideration will be approximately $102.2 million, including a total of $2.4up to $21.5 million in cash, payable by usa $1.5 million unsecured senior subordinated note of GFNA, or the Note, $30 million in two equal installmentsrestricted common stock of General Finance, which is valued at $7.50 per share for the purposes of the acquisition, and the assumption of indebtedness. The amount of cash paid for the MOAC shares will depend on the firstamount of indebtedness but will not exceed $21.5 million in any event. The indebtedness assumed will consist of borrowings under Pac-Van’s existing senior secured credit facility, or Credit Facility, with LaSalle Bank National Association, or LaSalle, and second anniversaries ofother lenders and the closing in exchange for a non-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities with Australia and New Zealand Banking Group,senior subordinated secured note, or Subordinated Debt, originally issued to Laminar Direct Capital L.P., which we refersubsequently assigned such Subordinated Debt to in this proxy statement as ANZ.its affiliate, SPV Capital Funding, L.L.C., or collectively, Laminar. There was $38.7principal as of June 30, 2008 of approximately $80.4 million including accrued interest, of indebtednessand $25 million outstanding under these facilities of March 31, 2007.the Credit Facility and Subordinated Debt, respectively. The actual amount of indebtedness outstanding as of the closing will be different, but will in no event exceed $39.4$86 million of principal.principal under the Credit Facility and $25 million of principal under the Subordinated Debt. For more information about the acquisition consideration, see the section entitled “The Acquisition Agreement and Plan of Merger — Acquisition Consideration; Payment ofMerger Consideration” beginning on page 64. As a result45. |
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| • | Certain MOAC stockholders will pledge $8.5 million of stock received pursuant to the Merger Agreement and the $1.5 million Note to secure the satisfaction of the acquisition, RWAindemnification obligations of such MOAC stockholders under the Merger Agreement. The Note’s maturity is 20 months after the closing of the Merger. Interest at the rate of 8% per annum will becomebe paid on the Note semi-annually prior to its maturity. |
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| • | Subject to certain exceptions, Mr. Valenta and Mr. Havner will agree not to acquire any additional shares of our common stock (except via the exercise of warrants held as of the closing of the acquisition) until June 30, 2009. |
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| • | The stock acquired by Mr. Valenta, Mr. Havner and D. E. Shaw Laminar Portfolios, L.L.C., or D. E. Shaw, in the Merger, will be valued at $7.50 per share, representing a direct, wholly owned subsidiarypremium of GFN Australasia, and weapproximately 23.5% to the $6.07 per share closing price of our common stock as of July 28, 2008. The stock will own indirectly 86.2% of Royal Wolf.also be restricted stock which will generally not be eligible for sale or hypothecation until June 30, 2009. |
ii
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| | • | UnderUpon the acquisition agreement, $5.5 millionclosing of the cash consideration payable to the sellers will be deposited in a separate bank account requiring signatures of us and the sellers for withdrawals. The purpose of this account is to provide a source of funds to pay the sellers’ indemnification obligations. The acquisition agreement provides that 25% of these funds will be released to the sellers on September 1, 2007 and the |
ii
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| | balance will be released to the sellers on March 31, 2008. For more information about these escrow provisions, see the section entitled “The Acquisition Agreement — Indemnification and Escrow Provisions” beginning on page 68. |
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| • | After we complete the acquisition of Royal Wolf, our management andPac-Van, Ronald L. Havner, Jr. will join the board of directors and Theodore M. Mourouzis will continue as before the acquisition. Royal Wolf alsopresident of Pac-Van, Inc. Pac-Van will continue to be managed largely by its existing officers. For more information about management, see the section entitled “Directors and‘‘The Merger — Management Followingof General Finance After the Acquisition”Merger” on page 120.42. |
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| | • | Our special committee and management considered various factors in determining whether to acquire Royal WolfPac-Van and to sign the acquisition agreement.Merger Agreement. For more information about our management’sthe decision-making process of our special committee and management, see the section entitled “Consideration“The Merger — Background of the Acquisition”Merger” beginning on page 34.31. |
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| | • | Our acquisition of Royal WolfPac-Van involves numerous risks. For more information about these risks, see the section entitled “Risk Factors” beginning on page 20.21. |
iii
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
AND THE SPECIAL MEETING
The following questions and answers address briefly some commonly asked questions regarding our proposed acquisition of RWA Holdings Pty Limited,Mobile Office Acquisition Corp. or RWA,MOAC, and its wholly-owned subsidiary Pac-Van, Inc., and the special meeting of our shareholders.stockholders. These questions and answers may not address all questions that may be important to you as oura stockholder. The answers below are qualified by reference to the more detailed information contained elsewhere in this proxy statement.
References in this proxy statement to “Royal Wolf” mean RWA and its subsidiaries, Royal Wolf Trading Australia Pty Limited and Hi-Tech Pty Limited.
References in this proxy statement to “GFN Australasia” mean GFN Australasia“General Finance, Pty Ltd., a newly formed company organized by us under the laws of Australia and indirect, wholly owned subsidiary of GFN U.S. Australasia Holdings, Inc., or GFN U.S., our wholly owned U.S. subsidiary. References in this proxy statement to” “we,” “us,” “our,” and “ours” mean General Finance Corporation and its subsidiaries, including Royal WolfPac-Van following the acquisition. References in this proxy statement to “Pac-Van” mean MOAC collectively with Pac-Van, Inc.
The shareholders from whom we will purchase the sharesstockholders of RWAMOAC at the closing include Bison Capital Australia LP, a Delaware limited partnership, which we refer toRonald F. Valenta, Ronald L. Havner, Jr.,D. E. Shaw Laminar Portfolios, L.L.C., or D. E. Shaw, whose shares will be canceled in this proxy statement as Bison-GE. Bison-GE is affiliated with Bison Capital Management, LLC, a private equity firm, which we refer to in this proxy statement as Bison Capital,the Merger, and GE Asset Management Incorporated on behalfsix members of the General Electric Pension Trust, bothmanagement team of Pac-Van, Inc., which are affiliates of General Electric Corporation, or GE. The other current shareholders of RWA are Cetro Pty Limited, FOMJ Pty Limited, FOMM Pty Limited, TCWE Pty Limited, which, along with Paul Jeffrey, James Warren, Michael Baxterincludes Theodore M. Mourouzis and Peter McCann, who constitute the majority of the directors and executive officers of RWA, are referred to collectively in this proxy statement as the management shareholders. Bison-GEstockholders. Messrs. Valenta and Havner, D. E. Shaw and the management shareholdersstockholders are sometimes referred to in this proxy statement as the sellers.
On September 12, 2006, weJuly 28, 2008, General Finance, GFN North America Corp., or GFNA, MOAC and certain stockholders of MOAC entered into an acquisition agreement which is referred to in Australia as a share sale deed, with the management shareholders and Equity Partners Two Pty Limited, an Australian private equity firm,plan of merger, or Equity Partners,Merger Agreement, under which we agreed to purchase from them all of the shares of capital stock of RWA. On March 29, 2007, we entered into an amended acquisition agreement with Bison-GE, the management shareholders and Equity Partners, which superseded the September 12, 2006 acquisition agreement in its entirety. Pursuant to the amended acquisition agreement, Bison-GE acquired 80% of the RWA shares, consisting of all of the RWA shares owned by Equity Partners and approximately 50% of the RWA shares owned by the management shareholders, for purchase consideration equivalent to the consideration that was originally negotiated by us with the management shareholders and Equity Partners as set forth in the original acquisition agreement. We arranged for Bison-GE’s purchase of the RWA shares as an accommodation to us to avoid the possible termination of the original acquisition agreement and permit us time to complete the proxy statement review process with the Securities and Exchange Commission and present the proposed Royal Wolf acquisition to a vote of our stockholders. The terms our original acquisition agreement to purchase the RWA shares were determined by arm’s-length negotiations between us and the management shareholders and Equity Partners.acquire MOAC. The terms of Bison-GE’s participation and the other terms of the amended acquisition agreement and related agreements alsoMerger Agreement were determined by arm’s-length negotiations among the parties.special committee of our independent board of directors, MOAC and the stockholders of MOAC.
References in this proxy statement to the acquisition agreement mean the amended acquisition agreement, unless the context indicates otherwise.
Some of the financial terms and provisions of the acquisition agreement are denominated in Australian dollars, as are the historical consolidated financial statements of RWA included in this proxy statement. However, for convenience, the financial terms and provisions of the acquisition agreement, as well as the dollar amounts included in the sections entitled “Consideration of the Acquisition” and “Information About Royal Wolf,” have been converted throughout the text of this proxy statement into U.S. dollars. Unless otherwise indicated, all amounts have been converted based upon the currency exchange rate in effect on March 1, 2007 of 0.788 U.S. dollar for one Australian dollar. The currency exchange rate in effect as of the closing of the acquisition or at any future date may differ. Because Royal Wolf’s business is presently conducted entirely within Australia, assuming the acquisition is completed, our future consolidated financial results stated in U.S. dollars will fluctuate in accordance with changes in currency exchange rates.
iv
The Following Questions and Answers are of Interest to All Stockholders
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| Q. | | Why am I receiving this proxy statement? |
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| A. | | We have agreed to acquire RWAPac-Van in a “business combination” within“merger” under Delaware law. The acquisition and the meaningissuance of our certificateshares of incorporation. Under our certificate of incorporation,restricted General Finance common stock pursuant to the acquisitionMerger Agreement must be approved by our stockholders, which is the purpose of the special meeting. This proxy statement contains important information about the acquisition, the issuance of shares of restricted General Finance common stock and the special meeting of our stockholders. |
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| Q. | | What vote is required in order to approve the acquisition? |
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| A. | | Under our certificate of incorporation,Delaware law, we can complete the acquisitionMerger and issuance of shares of restricted General Finance common stock only if it is approved by the affirmative vote of the holders of a majority of the shares of our common stock present and entitled to vote with respect to the acquisition, as well as the holders of a majority of the shares of our common stock that were originally issued in our initial public offering, or IPO, that are voted with respect to the acquisition. Notwithstanding these approvals, our certificate of incorporation provides that we cannot complete the acquisition if the holders of 20% or more of our IPO shares (1,725,000 or more shares) vote against it and demand that their shares be converted into a pro rata portion of the net proceeds of our IPO presently held in the trust account established for this purpose at the time of our IPO. These rights of holders of our IPO shares to vote against the acquisition and demand conversion of their shares are referred to in this proxy statement as “conversion rights” and described elsewhere in this proxy statement. If the acquisition is completed, the foregoing provisions of our certificate of incorporation will no longer apply. |
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| Q. | | Are we being asked to consider any other matter? |
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| A. | | Yes. We are asking our stockholders to approve the issuance of restricted General Finance common stock in connection with the Merger and to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the acquisition in the event that there are insufficient votes for its approval present at the special meeting. |
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| Q. | | What will happen in the proposed acquisition? |
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| A. | | GFN AustralasiaGFNA will acquire all of the capital stock of RWA,MOAC, and we will own indirectlydirectly through GFN U.S. Australasia Holdings, Inc., or GFN U.S.,GFNA, our wholly owned subsidiary, 86.2%100% of Royal WolfPac-Van, Inc. and carry on Royal Wolf’sPac-Van’s business and operations following the acquisition.Bison-GE will own indirectly through GFN U.S. the remaining 13.8% of Royal Wolf. |
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| Q. | | What is the consideration for the Royal WolfPac-Van acquisition? |
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| A. | | We will acquire the RWA shares through GFN Australasia Finance Pty Limited, or GFN Australasia. GFN Australasia is our indirect, wholly owned Australian subsidiary formed for this purpose. The purchase price for the RWAMOAC shares will be $57.6 million, plus $864,600 per month from March 29, 2007 until the closing. The purchase price includes deposits of $1,005,000 previously paid by us in connection with the acquisition. If the acquisition is not completed for any reason, we will forfeit the deposits. Assuming the closing occurs on July 31, 2007, we will pay the purchase price of the RWA shares, less the deposits, by a combination of cash of approximately $51.7 million and issuance of approximately 1,380 shares of capital stock of GFN U.S., which will constitute 13.8% of the outstanding capital stock of GFN U.S. immediately following the acquisition. Assuming the closing occurs on May 31, 2007, the aggregate acquisition consideration will be approximately $102.2 million, including a total of $2.4up to $21.5 million in cash, payable by us in two equal installmentsa $1.5 million senior subordinated note of GFNA, or the Note, $30 million of restricted General Finance common stock, which is valued at $7.50 per share for the purposes of the acquisition, or the Shares and the assumption of Pac-Van indebtedness. The amount of cash paid for the MOAC shares will depend on the firstamount of indebtedness assumed but will not exceed $21.5 million in any event. The Pac-Van indebtedness assumed consists of borrowings under Pac-Van’s existing Credit Facility with LaSalle Bank National Association, or LaSalle, and second anniversaries of the closing in exchange for a non-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities with New Zealand Banking Group, which we refer to in this proxy statement as ANZ.senior subordinated secured note, or Subordinated Debt, held by Laminar. There was $38.7principal as of June 30, 2008 of approximately $80.4 million including accrued interest, of indebtednessand $25 million outstanding under the ANZ facilities of March 31, 2007.Credit Facility and Subordinated Debt, respectively. The actual amount of indebtedness outstanding as of the closing will be different, but will in no event exceed $39.4$86 million of principal.principal under the Credit Facility and $25 million of original principal under the Subordinated Debt. For more information about the acquisition consideration, see the “Agreement and Plan of Merger — Merger Consideration” beginning on page 45. As a result of the acquisition, Pac-Van, Inc. will become a direct, wholly owned subsidiary of GFNA. |
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| Q. | | Will financing be used to acquire Royal Wolf?Pac-Van? |
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| A. | | Yes. We will finance a portion of the purchase price of the RWAMOAC shares payable by us at the closing by GFN Australasia’s sale andthrough GNFA’s issuance to Bison Capital or its affiliatesthe sellers of $15.76a $1.5 million principal amount of senior subordinated unsecured promissory notes.note. As described above, we also will acquire Royal WolfPac-Van subject to the indebtedness under Royal Wolf’s existing credit facilities with ANZ.Pac-Van’s Credit Facility and Pac-Van’s Subordinated Debt. The material terms of the GFN Australasia |
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| | senior subordinated promissory notesPac-Van’s Credit Facility and of Royal Wolf’s indebtedness under the ANZ existing credit facilitiesSubordinated Debt are described under the caption “The Acquisition AgreementMerger — Acquisition Consideration; Payment of Consideration”Financing” beginning on page 6443 of this proxy statement. |
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| Q. | | Is the consideration subject to change? |
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| A. | | Yes. The purchase price of the RWA shares will increase by $864,600 per month from March 29, 2007 until the closing. |
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| | In addition, some of the financial terms and provisions of the acquisition agreement are denominated in Australian dollars, which, for convenience, have been converted throughout the text of this proxy statement into U.S. dollars based upon the currency exchange rate in effect on March 1, 2007 of 0.788 U.S. dollar for one Australian dollar. The currency exchange rate in effect as of the closing of the acquisition may differ.No. |
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| Q. | | Why are you proposing the acquisition? |
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| A. | | We were organizedThe acquisition of Pac-Van will meet our strategic goals of acquiring a growing business in the North American portable storage and modular building industries, diversifying our business across multiple continents and improving our access to effect an acquisition,the capital stock exchange, asset acquisition or other similar business combination with an operating business. Although we were not limited to a particular industry, we stated our intention to focus our efforts on the specialty finance industry and in areas where our management has significant expertise. Our management has been focused primarily on accomplishing the Royal Wolf acquisition since, until we complete our initial business combination, we can engage in no business or operations. We have not yet developed a business strategy beyond continuing to implement Royal Wolf’s own business plan and considering how Royal Wolf may serve as our platform company for possible future growth. Royal Wolfmarkets. Pac-Van is a leading specialty finance companylessor and seller of modular buildings, mobile offices and storage containers in Australia that we31 states across the United States. We believe Pac-Van has a strong and deep management team and is well-positioned for significant growth domestically in Australia. We also believe Royal Wolf can serve as a both a rental services platform for expansion throughout the Asia-Pacific region and potentially the core management team for the global container leasing segment of our business.North America. The acquisition of RWAPac-Van will provide us and our stockholders the opportunity to own and operate Royal Wolf and expand upon its existingPac-Van’s business and operations.enhance stockholder value. |
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| Q. | | Are there risks involved in the acquisition? |
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| A. | | Yes. There are risks related to the acquisition, including the following: |
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| | • Our working capital will be reduced to the extentRonald F. Valenta, one of our stockholders exercise their conversion rights, which would reduce our cash reserves after the acquisition. |
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| | • Our current directors and executive officers own shares ofour President and Chief Executive Officer, owns common stock of MOAC and havehas interests in the acquisition that are different from yours, and if the acquisition is not approved, the shares of common stock acquired by them prior to our IPO may become worthless.yours. |
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| | • We will issue $15.76to D. E. Shaw a $1.5 million principal amount of senior unsecured subordinated promissory notesnote of GFN AustralasiaGFNA at the closing of the acquisition and will acquire Royal WolfPac-Van subject to the indebtedness under Royal Wolf’sPac-Van’s existing credit facilities with ANZ. ThereCredit Facility and Subordinated Debt. As of June 30, 2008, there was $38.7principal of approximately $80.4 million including accrued interest, outstanding under the ANZ facilities asPac-Van’s existing Credit Facility and approximately $25 million of March 31, 2007.Subordinated Debt, respectively. The actual amount outstanding under the Credit Facility and under Subordinated Debt as of the closing will be different,may differ from those amounts, but will in no event exceed $39.4$86 million of principal.principal under the Credit Facility and $25 million of original principal under the Subordinated Debt. Any adverse change in the results of operations of Royal WolfPac-Van may make it difficult for us to repay or refinance this indebtedness. |
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| | • The aggregate consideration for the acquisition will increase if the value of the U.S. dollar compared to the Australian dollar decreases before the closing due to currency exchange rate fluctuations. |
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| | • If we do not complete our acquisition, we may not be successful in identifying another suitable business combination, in which case we may be forced to liquidate. In a liquidation, our stockholders will receive less than $8.00 per share for their shares of our common stock and their warrants to purchase our common stock will become worthless. |
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| | • The market price of our common stock will depend upon the operations of Royal Wolf and may, as a result, be highly volatile and subject to wide fluctuations. |
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| | • Our failure to complete the acquisition could negatively impact the market price of our common stock and may make it more difficult for us to attract another acquisition candidate. |
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| | • The proposed acquisition of Royal WolfPac-Van may result in additional costs under the Sarbanes-Oxley Act of 2002, costs, issuesas amended, and as a result of the adoption of additional control procedures of our combined reporting company. |
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| | • We may have difficulty establishing adequate management, legal and financial controls over Royal Wolf.Pac-Van. |
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| | • With some exceptions, we have not yet established the compensation that will be payable to our directors and executive officers following the acquisition, and our stockholders will not have this information in deciding how to vote their shares with respect to the acquisition. |
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| | Following the acquisition, we will be subject to all of the risks related to ownership of Royal Wolf’sPac-Van’s business and operations, including the following: |
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| | • General or localized economic downturns or weakness may adversely affect Royal Wolf’sPac-Van’s customers, which may cause the demand for Royal Wolf’sPac-Van’s products and services to decline and therefore harm our future revenues and results of operations. |
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| | • Royal WolfWe may need additional debt or equity financing to sustain Pac-Van’s growth, but we have no commitments or arrangements to obtain such financing, other than the already committed $30 million increase in the existing Pac-Van Credit Facility up to $120 million. |
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| | • Pac-Van faces significant competition. If Royal WolfPac-Van is unable to compete successfully, it could lose customers and our future revenues and results of operations could be adversely affected. |
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| | • Royal Wolf has depended to a large extentPac-Van depends in part on the sales of its modular buildings, mobile offices and storage containers, which sales may fluctuate significantly in the future. |
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| | • Royal Wolf’sPac-Van’s leasing revenues, which constituteconstituted approximately one-quarter69.9% of its total revenues for the year ended December 31, 2007, depend upon Royal Wolf’sPac-Van’s ability to re-lease modular buildings, mobile offices and storage containers. The failure of Royal WolfPac-Van to effectively and quickly re-lease modular buildings, mobile offices and storage containers could materially and adversely affect our future results of operations. |
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| | • Governmental regulations could impose substantial costs or restrictions on Royal Wolf’sPac-Van’s operations that could harm our future results of operations. |
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| | • We may not be able to effectively implementindentify and complete attractive acquisitions which could impair our growth strategy for Royal Wolf by identifying or completing transactions with attractive acquisition candidates, which could impair our growth.Pac-Van. |
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| | • Our failure to retain key Royal WolfPac-Van personnel could adversely affect our operations and could impede our ability to execute our business plan and growth strategy. |
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| | • Any failure of Royal Wolf’s management information systems could disrupt our business and result in decreased rental or sale revenues and increased overhead costs. |
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| | • Significant increases in Royal Wolf’sPac-Van’s raw material costs could increase our operating costs and adversely affect our results of operations. |
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| | • TheA failure of Royal Wolf’s ChinesePac-Van’s manufacturers and suppliers to sell and deliver products to Royal WolfPac-Van in a timely fashion may harm our reputation and our financial condition. |
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| | • Royal Wolf’s growth plan includes a possible expansion into markets outside of Australia, including in the Asia-Pacific, which may not prove successful. |
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| | • Royal Wolf’s planned growth may strain our management resources, which could disrupt the development of new products and new applications of Royal Wolf’s existing products and Royal Wolf’s customer service centers and other facilities. |
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| | • We may need additional debt or equity financing to sustain Royal Wolf’s growth, but have no commitments or arrangements to obtain such financing. |
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| Q. | | Does the special committee of the board of directors of General Finance Corporation recommend voting for the acquisition? |
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| A. | | Yes. After careful consideration of the business and operations of Royal WolfPac-Van and the terms and provisions of the acquisition agreement,Merger Agreement, the special committee of our board of directors has unanimously approveddetermined that the acquisition of Royal Wolf and determined that it is in the best interests of usGeneral Finance and ourits stockholders. OurThe special committee of our board of directors also believeshas determined that the acquisition is fair to us and our stockholders. No fairness opinion was sought or obtained byThe special committee of our board of directors in making its determinations. Our board of directors unanimously recommends that our stockholders vote “FOR” approval of the acquisition. |
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| Q. | | HasWhy was a special committee of the board of directors of General Finance Corporation received a valuation or fairness opinion with respect to the acquisition?formed? |
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| A. | | No. OurA special committee of our board of directors has determined that the fair market value of Royal Wolf exceeds 80%was formed because Ronald F. Valenta, one of our net assets. As set forth in the prospectus relating todirectors and our IPO, we are not required to obtain an opinion from an investment banking firm as to the fair market value if our board determines that the Royal Wolf acquisition meets the 80% threshold.President and Chief Executive Officer owns common stock of MOAC. The terms of the acquisition were determined based upon arm’s-length negotiationsnegotiated between us and the sellers, and our officers and directors, including Ronald A. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer, have extensive industry and deal-making experience inspecial committee of the portable storage industry. Under the circumstances, ourGeneral Finance board of directors believed that obtaining a valuation or fairness opinion was unnecessary. |
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Q. | | Are there indicators that Royal Wolf’s value may be less thanand stockholders of MOAC, with the 80% threshold? |
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A. | | Yes. A minorityassistance of the valuation measurements considered by our board of directors in initially evaluating the Royal Wolf acquisition when we entered into the September 12, 2006 acquisition agreement indicated that the fair market value of Royal Wolf may be below 80% of our net assets. By one measure, the entire range of values was below the 80% threshold. Our board of directors updated its original valuations when we entered into the March 29, 2007 amended acquisition agreement,their respective legal and a minority of the updated measurements indicated a fair market value of Royal Wolf below the 80% threshold at the low end of the range of values only. The majority of the valuation measurements, however, indicated that Royal Wolf’s fair market value exceeded the 80% threshold, and our board of directors determined that these majority measurements, including the measurements based upon the projected results of operations of Royal Wolf for the fiscal year ending June 30, 2007 and twelve months ending December 31, 2007, were better indicators of the fair market value of Royal Wolf. |
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| | Our IPO prospectus states that the 80% test relates to the fair market value of the target business in our initial business combination. The IPO prospectus did not describe specifically how the 80% threshold would apply if we acquired less than all of the equity interests in the target business, and it is possible that investors could conclude that the 80% test should relate instead only to the value of our equity interest in the target business. At the low end of the range of Royal Wolf’s fair market value as determined by our board of directors, the fair market value of our 86.2% ownership interest in Royal Wolf also exceeds the 80% threshold; however, a minority of the updated valuation measurements considered by our board of directors indicated that the fair market value of our 86.2% ownership interest in Royal Wolf was below the 80% threshold. It is possible, therefore, that stockholders could challenge our board’s determination that the Royal Wolf acquisition satisfies the 80% test described in our IPO prospectus. In this event, we could incur substantial legal fees and other costs and expenses in defending our board’s determination. If such claims were asserted, and if we were unsuccessful in defending the claims, we also could be subject to damages that could have a material adverse effect on our financial condition or results of operations. Such claims also would divert the time and attention of our management and board of directors, which could adversely affect our business and operations. |
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| | All of our valuation determinations were based upon an analysis of the fair market value of the entirety of Royal Wolf’s business and operations. In considering the 80% threshold as it relates to our 86.2% ownership interest in Royal Wolf, we multiplied 86.2% by the entire fair market value of Royal Wolf, and we did not attempt to otherwise value our 86.2% ownership interest in Royal Wolf.advisors. |
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| Q. | | Do the directors and officers of General Finance Corporation have interests in the acquisition that are different from mine? |
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| A. | | Yes. If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will be required to liquidate as soon as reasonably practicable. In that event, the shares of our common stock acquired by our officers and directors prior to our IPO for an aggregate purchase price of $250,000 will become worthless, because our officers and directors have waived their rights to receive any liquidation distribution with respect to these shares. As of July 2, 2007, the aggregate market value of these shares of our common stock owned by our officers and directors was $14,756,250. |
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| | Ronald F. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer, own warrants to purchase an aggregate of 1,491,333 sharesmember of our board of directors beneficially owns approximately 18.1% of the outstanding common stock that they acquired forof General Finance. Mr. Valenta owns approximately 34.5% of the voting common stock of MOAC. Mr. Valenta is therefore an interested director under Delaware law because he has a financial interest in MOAC, the company General Finance proposes to acquire. A special committee comprised of only independent directors of General Finance was created to formulate an |
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| | an aggregate purchase priceindependent determination as to whether the acquisition of approximately $1,400,000, which also will become worthless uponPac-Van would achieve our liquidation. As of July 2, 2007, the aggregate market value of these warrants was $2,833,533. |
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| | Mr. Valenta has made available to us a line of credit under which we may borrow from him from time to time up to $3,000,000 at an annual interest rate equal to 8%. Our borrowings under the line of credit have beenstrategic goals and will continue to be used by us to pay operating expenses, including deposits of $1,005,000 and expenses relating to the acquisition. At May 31, 2007, the outstanding amount of principal and accrued interest under the line of credit was $2,256,322. We will continue to borrow funds under the line of credit to pay expenses through the closing of the acquisition.enhance stockholder value. If the acquisition of Pac-Van is completed, Mr. Valenta will be repaid all outstanding principalwould receive approximately $17.5 million upon the consummation of the Merger consisting of approximately $3.7 million in cash and accrued interest underapproximately $13.8 million of shares of restricted General Finance common stock, valued at $7.50 per share for purposes of the line of credit. If, on the other hand, the acquisition is not completed and we are required to liquidate as described above, Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit.Merger. |
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| | All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan,Theodore M. Mourouzis, the Chief Executive OfficerPresident of Royal Wolf,Pac-Van, Inc., will be deemedcontinue to be oneserve as the President of our executive officers following the acquisition. At present, we do not compensate our officers or directors other than Charles E. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. We will have employment agreements with only Messrs. Barrantes and Allan.Pac-Van, Inc. Mr. BarrantesMourouzis receives a base annual salary of $200,000$250,000 and, if the Merger is eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided that he is employed on the last day of such year. Mr. Allan receives a base annual salary of $236,400 and iscompleted, will be eligible to receive an annual performance bonus not to exceed $78,800 based upon the achievement of specified performance indicators. Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our boardindicators as well as receive grants of directors that they will continueoptions to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million. If the acquisition is completed, we may compensate our officers and adopt a plan of compensation for directors based upon the advice and recommendations of the Compensation Committee of our board of directors. Except as described above, there are no present commitments or understandings, regarding our future compensation of officers or directors, so our stockholders will not have this information deciding how to vote their shares with respect to the acquisition. |
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| | As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement.acquire General Finance common stock. |
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| Q. | | What is the legal structure of the acquisition? |
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| A. | | The acquisition will be accomplished by GFN Australasia’s purchaseGFNA’s acquisition of all of the capital stock of RWA underMOAC through a Merger between GFNA and MOAC in which GFNA will be the acquisition agreement. GFN Australasiasurviving entity. GFNA is an indirect, wholly owned subsidiary of GFN U.S., our wholly owned U.S. subsidiary. In connection with the acquisition, we will issue to Bison-GE approximately 1,380 shares, or 13.8%, of the capital stock of GFN U.S. As a result, RWA will become a direct, wholly owned subsidiary of General Finance. In connection with the acquisition GFNA will issue a $1.5 million senior unsecured subordinated note, and GFN Australasia,will issue the Shares valued at $7.50 per share and RWA and its subsidiaries will become our indirect, 86.2% owned subsidiaries. GFN Australasia, itself, is wholly owned by GFN Australasia Holdings Pty Limited, which is wholly owned by GFN U.S. We therefore sometimes refer to GFN Australasiaapproximately $30 million in this proxy statement as our indirect, wholly owned subsidiary.the aggregate. |
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| | A copy of the acquisition agreement, which is referred to in Australia as a share sale deed,the Merger Agreement, is attached to this proxy statement as ANNEXAnnex A. We encourage you to read the acquisition agreementMerger Agreement in its entirety, because it, and not this proxy statement, is the legal contract that governs the acquisition. |
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| Q. | | Does the acquisition require any change in the certificate of incorporation of General Finance Corporation?Finance? |
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| A. | | No. Our certificate of incorporation need not be amended and will remain in effect, without change, following the acquisition. If the acquisition is completed, however, the provisions of our certificate of incorporation relating to our initial business combination and related matters such as conversion rights will no longer apply. |
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| Q. | | Are there contractual conditions to completion of the acquisition? |
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| A. | | Yes. The respective obligations of ussellers and sellersus to complete the acquisition are subject to the satisfaction or waiver of a number of conditions. These include, among others, the following: |
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| | • The approval of the acquisition by our stockholders; |
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| | • The delivery to General Finance of resolutions of the MOAC board of directors and stockholders approving the Merger; |
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| | • The parties shall reasonably believe that the Merger shall qualify as a tax-free “reorganization” as described in Section 368 of the Internal Revenue Code of 1986, as amended; |
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| | • All representations and warranties of all the parties to the Merger Agreement shall be true and accurate in all material respects as of the closing date; |
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| | • No occurrence of events that would have a material adverse effect on Royal Wolf’s EBITDA over any12-month period;Pac-Van’s financial condition, operating profits, back log, assets, liabilities, operations, business prospects, applicable regulations, employee relations, or customer or supplier relations; |
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| | • Pac-Van and LaSalle Bank shall have entered into an amendment to the Credit Facility of Pac-Van under terms and conditions set forth in La Salle’s commitment letter; |
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| | • Pac-Van and Laminar shall have entered into an amendment to the Investment Agreement and amendments to certain related documents governing the Subordinated Debt of Pac-Van held by Laminar; and |
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| | • ANZ and Bison Capital entering intoPac-Van will have a subordination agreement with respect to the senior subordinated promissory notesworking capital deficit not in excess of GFN Australasia to be issued to Bison Capital at the closing of the acquisition.$4 million. |
All required third-party consents were obtained in connection with Bison-GE’s purchase of RWA shares pursuant to the acquisition agreement, and no further or additional consents are needed with respect to our purchase of Royal Wolf. ANZ and Bison-GE are in the process of preparing the subordination agreement between them relating to the senior subordinated promissory notes to be issued to Bison-GE. We expect that the subordination agreement will be in customary form and will be entered into only in conjunction with the closing of our acquisition of Royal Wolf, and not before the closing.
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| Q. | | Can the acquisition agreementMerger Agreement be terminated? |
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| A. | | Yes. The acquisition agreementMerger Agreement can be terminated prior to completion of the acquisition in some circumstances, including the following: |
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| | • By us orBison-GE if the acquisition is not approved by our stockholders at the special meeting, or otherwise by September 1, 2007;mutual consent of General Finance and MOAC; and |
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| | • By any party after March 29,November 1, 2008 if any of the other conditions to the closing of the acquisition has not been satisfied and the terminating party has used reasonable efforts to satisfy the conditions. |
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| Q. | | Will any finder’s fee be paid in connection with the acquisition? |
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| A. | | No. |
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| Q. | | Could payment of termination fees be required? |
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| A. | | No. There is no termination or breakup fee payable in connection with the termination of the acquisition agreement; however, we have paid deposits of $1,005,000 in connection with the acquisition. If the closing does not occur for any reason, we will forfeit the deposits.Merger Agreement. |
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| Q. | | Is the acquisition subject to any regulatory requirements? |
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| A. | | Yes. ItWe do not believe the acquisition is subject to review by the Treasurer of the Commonwealth of Australia, which issued its notice of non-objection to the acquisition on September 29, 2006. The acquisition is not subject to any regulatory approvals in the U.S.United States. |
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| Q. | | How do the General Finance Corporation insiders intend to vote their shares? |
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| A. | | Our officers and directors hold shares of our common stock acquired prior to our IPO that represent approximately 17.9%30.6% of our outstanding shares. They have agreed to vote these shares with respect to the acquisition as the holders of a majority of our IPO shares that are voted at the special meeting. Our officers and directors own no IPO shares.will vote all of their shares of common stock in favor of the acquisition. |
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| Q. | | How will the acquisition affect my securities of General Finance Corporation?Finance? |
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| A. | | Following the acquisition, you will continue to hold the shares of our common stock that you owned prior to the acquisition. If the acquisition exceptis approved by the requisite vote of our stockholders and all the other conditions to closing in the extent that you exercise your conversion rights. TheMerger Agreement are satisfied or waived, the number of shares of our common |
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| | stock outstanding immediately after the acquisition will increase by 4,000,000 shares, representing an increase of approximately 28.9% in the number of issued and outstanding shares of General Finance common stock. Your percentage ownership of our common stock will decrease as additional shares of common stock will be less, depending uponissued pursuant to the extent to which our stockholders exercise their conversion rights.Merger. |
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| | If the acquisition is completed, our outstanding warrants to purchase common stock will becomenot be exercisable uponinto shares of our common stock until a post-effective amendment to our registration statement onForm S-1 is declared effective by the closing of the acquisition.Securities and Exchange Commission, or SEC. Otherwise, the acquisition will have no affect on any of our warrants that you may own. |
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| Q. | | If I object to the proposed acquisition, do I have appraisal rights? |
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| A. | | No. You have no appraisal rights in connection with the acquisition under applicable Delaware corporation law or otherwise. |
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Q. | | What will happen to the funds held in the trust account after the acquisition? |
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A. | | If the acquisition is completed, a portion of the funds held in the trust account established at the time of our IPO will be used to pay the cash portion of the purchase price of the RWA shares and costs of the acquisition. Assuming the closing occurs on July 31, 2007, the cash payable at the closing will be approximately $43.0 million. The actual cash payable at the closing will be different to the extent the closing occurs before or after July 31, 2007. We also will use the funds held in the trust account to repay the outstanding principal balance, which we estimate will be $3,000,000 (including our deposits of $1,005,000 in connection with the acquisition), plus accrued interest, under our line of credit with Mr. Valenta. Based upon the amount of funds held in the trust account as of May 31, 2007, this would leave available in the trust account after the acquisition a maximum of approximately $21.0 million, assuming no exercise of conversion rights, and a minimum of approximately $7.8 million, assuming the maximum conversion rights are exercised. Following the acquisition, the trust account will be closed and our stockholders who properly exercise their conversion rights will receive their pro rata portion of the funds held in the trust account; including a pro rata share of the contingent underwriting discount and a pro rata share of any interest earned, net of taxes. Any remaining funds in the trust account, less payment of the contingent underwriting discount payable to the underwriters of our initial IPO, will be released to us. We intend to use a portion of the remaining funds to repay Mr. Valenta for all amounts owing to him under our line of credit and for working capital and general corporate purposes. Following the acquisition, there will be no further restrictions on our use of these funds. |
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| Q. | | Who will manage General Finance Corporation and Royal WolfPac-Van after the acquisition? |
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| A. | | After the acquisition, all of our current directors and officers will continue to serve in the capacities described under “Directors and“The Merger — Management Followingof General Finance After the Acquisition”Merger” on page 12042 of this proxy statement. In connection with the acquisition, Ronald L. Havner, Jr. will be appointed as a member of the board of directors of General Finance. |
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| | Royal WolfPac-Van also will continue to be managed largely by its existing officers,management team, including Robert Allan,Theodore M. Mourouzis, its Chief Executive Officer, Peter McCann, its Chief Financial Officer,President, and James Warren, its Chief Operating Officer. Eachsix other senior managers. Mr. Mourouzis and his senior management team have served at Pac-Van for an average of Messrs. Allan, McCann and Warrenten years. Mr. Mourouzis is party to an employment agreement which is terminable upon advance notice by either party. In connection with the acquisition, Ronald F. Valenta and John O. Johnson will be appointed as directors of RWA, and Michael Baxter, a founder and Executive Director of RWA, will become a consultant to Royal Wolf under a consulting agreement under which he will agree to provide consulting services relating to the transition of ownership of Royal Wolf until March 31, 2008. A copy of Mr. Baxter’s consulting agreement is included as part of ANNEX A to this proxy statement. |
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| Q. | | Will our business plan change as a result of the acquisition of Royal Wolf?Pac-Van? |
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| A. | | No. Our business plan and strategy disclosed in our IPO prospectuswill remain the same. Our strategy is to seek to identify, acquire and consolidate under our holding company specialty finance businesses in the U.S.,North America, Europe and Asia. Ronald F. Valenta, our Chief Executive Officer, has successfully executed a similar strategy as the Chief Executive Officer and later the Chairman of the Board of Mobile Storage Group. Royal Wolf is a leading specialty finance company in Australia that weWe believe Pac-Van has a strong and deep management team and is well-positioned for significant growth domestically in Australia. We also believe Royal Wolf can serve as a both a rental services platform for expansion throughout the Asia-Pacific regionNorth America, Europe and potentially the core management team for the global container leasing segment of our business.Asia-Pacific. If we complete the Royal Wolf acquisition, our present strategy is to seek to acquire other equipment leasing companies in North America, Asia and Europe and to consider acquisitions of other companies in the special finance business. We also will continue Royal Wolf’s strategy of consolidating small equipment leasing companies in the region. Before we entered into thePac-Van |
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| | acquisition, agreement, we entered into confidentiality agreementsour present strategy is to continue to acquire other specialty finance and conducted preliminary due diligence with respectportable services businesses in North America, Europe and Asia-Pacific, to a number of other possible initial business combinations. We andgrow our operating company subsidiaries, Royal Wolf also previously entered into a confidentiality agreement and conducted preliminary due diligence with respectPac-Van, and to one smaller Australian equipment leasing company that Royal Wolf considered to be a suitable acquisition for it. We are notacquire modular building and portable storage businesses in current discussions or negotiations, or currently conducting due diligence, regarding any of the entities with which we signed confidentiality agreements prior to entering into the Royal Wolf acquisition agreement,selected markets in North America, Europe and neither we nor Royal Wolf has any present understandings, arrangements or commitments with respect to any possible future acquisition.Asia-Pacific. There is no assurance that we or Royal WolfPac-Van will be able to identify, negotiate or complete any future acquisitions, or, if completed, that any such acquisitions will be successful. |
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| Q. | | What happens if the acquisition is not completed? |
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| A. | | If the acquisition is not completed, we will forfeit deposits of $1,005,000 and bear substantial costs incurred in connection with the acquisition and immediately resume our search for another business combination to present to our stockholders for their approval. If we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will liquidate as soon as practicable. In any liquidation, the funds held in the trust account will be distributed pro rata to the holders of our IPO shares only. Our officers and directors have waived any right to any liquidation distribution with respect to shares of our common stock acquired by them prior to our IPO. In a liquidation, holders of our outstanding warrants would not receive any value for their warrants. |
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| | We cannot liquidate the trust account unless and until our stockholders approve our plan of dissolution and liquidation in accordance with the procedures described in this proxy statement. Accordingly, there will be a delay (which may be substantial) beyond October 5, 2007 or April 5, 2008, as the case may be, in our liquidation and the distribution to our public stockholders of the funds in our trust account as part of any plan of dissolution and liquidation.acquisition. |
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| Q. | | When do you expect the acquisition to be completed? |
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| A. | | We presently expect the acquisition to close on [l], 2007,by October 31, 2008, assuming the acquisition is approved at the special meeting of General Finance stockholders on [l], 2007.2008. |
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| Q. | | What do I need to do now? |
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| A. | | We urge you to read carefully and consider all of the information contained in this proxy statement, including ANNEXESAnnexes A, B and C, to fully understand how the acquisition will affect you as a stockholder of General Finance Corporation.Finance. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card. |
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| Q. | | How do I vote? |
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| A. | | If you are a holder of record of our common stock, you may vote in person at the special meeting or by submitting athe proxy card included in this statement for the special meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you must provide the record holder of your shares with instructions on how to vote them.them by completing the enclosed voting instruction form and returning it in the postage-paid envelope included. “Street Name” holders may also vote via telephone or internet by following the instruction on your enclosed voting instruction form. |
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| Q. | | Is there a deadline for submitting my proxy? |
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| A. | | Yes. Proxies must be received prior to the voting at the special meeting. Any proxies or other votes received after this time will not be counted in determining whether the acquisition and issuance of shares of restricted General Finance common stock has been approved. Furthermore, any proxies or other demand received after the voting at the special meeting will not be effective to exercise your conversion rights. |
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| Q. | | If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me? |
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| A. | | No. Your broker, bank or nominee cannot vote your shares unless you provide voting instructions in accordance with the information and procedures provided to you by your broker, bank or nominee. |
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| Q. | | What will happen if I abstain from voting or fail to vote? |
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| A. | | Under our certificate of incorporation,Delaware law, we are allowed to complete the Royal WolfPac-Van acquisition only if it is approved by the affirmative vote of the holders of a majority of the shares of our common stock that were issued in the IPOpresent and that are voted on the proposal. Therefore, your abstention or failureentitled to vote with respect to the acquisition. Abstentions and broker non-votes will not be counted towardhave the same effect as a vote total onagainst approval of the acquisition proposal. Furthermore, your abstention or failure to vote will not be sufficient to exercise your conversion rights.acquisition. |
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| Q. | | Can I change my vote or revoke my proxy after I have mailed my signed proxy form. |
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| A. | | Yes. To change your vote, you may send a later-dated, signed proxy card to our address set forth in this proxy statement so that it is received prior to the voting at the special meeting or, if you are a record holder, attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to us prior to the voting at the special meeting. |
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| Q. | | What should I do if I receive more than one set of proxy materials? |
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| A. | | You may receive more than one set of proxy materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to vote all of your shares. |
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| Q. | | Who can help answer my questions? |
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| A. | | If you have questions about the acquisition, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact: |
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| John O. Johnson |
Chief Operating Officer
General Finance Corporation
39 East Union Street
Pasadena, California 91103
Telephone:(626) 584-9722 extension 1009 | | OR | | | MacKenzie Partners, Inc. |
Chief Operating Officer | | | | | |
105 Madison Avenue |
General Finance Corporation | | | | | |
New York, New York 10016 |
260 South Robles, Suite 217 | | | | | |
Telephone: (800) 322-2885 |
Pasadena, California 91101 | | | | | | |
Telephone:(626) 584-9722
| | | | | | or
(212) 929-5500 (call collect) |
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| | You may also obtain additional information about us from documents filed with the Securities and Exchange Commission by following the instructions in the section entitled “Where You Can Find More Information.” |
The Following Questions and Answers are of Interest Primarily to Stockholders Who May Wish to Exercise their Conversion Rights
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Q. | | What are my conversion rights? |
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A. | | If you hold IPO shares, you have the right to vote against the acquisition and demand that, if the acquisition is completed, your IPO shares be converted into a pro rata portion of the funds held in the trust account established at the time of our IPO. |
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Q. | | Can I Vote Against the Acquisition Without Electing to Convert My Shares? |
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A. | | Yes. You need not elect to convert your shares, even if you vote against the acquisition. |
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Q. | | How do I exercise my conversion rights? |
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A. | | If you wish to exercise your conversion rights, you must: |
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| | • Affirmatively vote against approval of the acquisition and, at the same time, demand that we convert your shares into cash; and |
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| | • If the acquisition is completed, tender your share certificate to our transfer agent, Continental Stock Transfer Trust Company, 17 Battery Place, New York, New York 10004, Attention: Mark Zimkind, Tel. 212-845-3287, Fax 212-616-7616. |
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| | Any action that does not include an affirmative vote against approval of the acquisition will be insufficient to exercise your conversion rights. |
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Q. | | Is there a charge for following the conversion procedures? |
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A. | | No. |
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Q. | | How can I remedy an improper exercise of my conversion rights? |
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A. | | If you: |
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| | • Return your proxy with directions to vote for approval of the acquisition, but then wish to vote against it and demand conversion of your shares; or |
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| | • Return your proxy with directions to vote against approval of the acquisition and wish to demand conversion of your shares, but do not check the appropriate box on the proxy card demanding conversion or send a written request to us to demand conversion; or |
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| | • Return your proxy with directions to vote against approval of the acquisition, but later wish to vote for it; |
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| | you may request that we send you another proxy card on which you may indicate your intended vote and, if that vote is against approval of the acquisition, demand conversion of your shares by following the conversion procedures described above and on page 32 of this proxy statement. You may request another proxy card by contacting us at the phone number or address listed in this proxy statement.Any corrected or changed proxy card or written demand to convert your shares must be submitted to us so that it is received our transfer agent prior to 12:00, noon, New York City time on [l], 2007. |
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Q. | | What is the estimated conversion amount? |
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A. | | If you comply with the foregoing procedures and, notwithstanding your affirmative vote against the acquisition, it is completed, you will be entitled to receive a pro rata portion of the funds held in the trust account established at the time of our IPO, including any earned interest, calculated as of the date two business days prior to the closing of the acquisition. As of May 31, 2007, there was approximately $67.9 million in the trust account after deduction of the taxes on earned interest, or approximately $7.88 for each IPO share. If you exercise your conversion rights and acquisition of Royal Wolf is completed, then you will be exchanging your shares of our common stock for the right to receive cash of not less than approximately $7.88 per IPO share and will no longer own these shares. If the acquisition is not completed, these shares will not be converted into cash. |
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Q. | | How does the estimated conversion amount compare to the recent market price of common stock? |
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A. | | On July 2, 2007, the closing sale price of our common stock was $7.87 as reported on the American Stock Exchange. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed. |
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Q. | | When will I receive the cash amount? |
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A. | | If you properly exercise your conversion rights and the acquisition is completed, you will be entitled to receive cash for your shares only if you tender your share certificate to our transfer agent. |
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Q. | | If I exercise my conversion rights, what will happen to my warrants? |
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A. | | Nothing. The exercise of your conversion rights will not affect any warrants to purchase our common stock that you may own, which will continue to be outstanding and will become exercisable following the acquisition. |
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Q. | | What are the federal income tax consequences of exercising my conversion rights? |
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A. | | If you properly exercise your conversion rights and the acquisition is completed, you will generally be required to recognize capital gain or loss upon the conversion of your IPO shares if such shares were held as a capital asset on the date of the acquisition. Such gain or loss will be measured by the difference between the amount of cash you receive and your tax basis in your converted IPO shares. The gain or loss will be short-term gain or loss if the acquisition closes as scheduled, but may be long term gain or loss if the closing is postponed. |
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| | There will be no federal income tax consequences to non-converting stockholders as a result of the acquisition. |
xv7
SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information regarding our proposed acquisition of Royal WolfPac-Van that is more fully discussed elsewhere in this proxy statement. This summary may not contain all of the information that is important to you. You should carefully read this entire proxy statement for a more complete understanding of the acquisition. You also should read the acquisition agreement, which is referred to in Australia as a share sale deed,Merger Agreement, attached as ANNEXAnnex A to this proxy statement, as well as the shareholders agreement and back up purchase agreementopinion of RBC Capital Markets Corporation, or RBC, attached as ANNEXESAnnex B, and C, respectively, to this proxy statement.excerpts from our Quarterly Report onForm 10-Q for the quarter ended March 31, 2008 attached as Annex C. The acquisition agreementMerger Agreement is the legal contract that governs the acquisition.
The Companies
General Finance Corporation (page 82)
We are a special-purpose acquisitionholding company organized as a corporation under the laws of Delaware on October 14, 2005. We were formedwhose strategy and business plan is to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business. On April 11, 2006, we completed our initial public offering of securities, or IPO, from which we derived net proceeds of approximately $65.55 million. Of the net proceeds, $65 million, along with proceeds of $700,000 from the private placement of units to our officersacquire and directors, were placedoperate specialty finance and portable services businesses in a trust account while we sought to identifyNorth America, Europe and complete our initial business combination. Accordingly, such funds, together with the earned interest, are to be released to us in connection with the closing of the acquisition, less amounts payable to the holders of our IPO shares who exercise their conversion rights as described in this proxy statement and less the amount of the contingent underwriting discount payable to the underwriters of our IPO. The maximum contingent underwriting discount is $1,380,000, which is subject to reduction by the amount of $0.16 per share for each IPO share that is converted in connection with the acquisition.Asia-Pacific.
The remainder of the net proceeds ofTo date our IPO, or approximately $550,000, was used by us to pay offering expenses incurred in connection with our IPO. Since our IPO, we have relied for the payment of ouronly operating expenses upon the proceeds from the sale of $250,000 of our shares to our officers and directors prior to our IPO and borrowings under a $3,000,000 line of credit made available to us by Ronald F. Valenta, our Chief Executive Officer and a director. Other than our IPO and pursuit of a business combination, we have not engaged in any business to date.
If we do not enter into an agreement in principle or a definitive agreement with respect to a business combination by October 5, 2007, or having done so we fail to complete the business combination by April 5, 2008, we are required under our certificate of incorporation to take all actions necessary to dissolve and liquidate as soon as reasonably practicable. In any liquidation, the funds held in the trust account will be distributed pro rata to the holders of our IPO shares only. Our officers and directors have waived any right to any liquidation distribution with respect to shares of our common stock acquired by them prior to our IPO. In a liquidation, holders of our outstanding warrants would not receive any value for their warrants.
Our common stock, warrants to purchase common stock and units (each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a purchase price of $6 per share) are listed on the American Stock Exchange under the symbols “GFN,” “GFN.WS” and “GFN.U,” respectively.
References in this proxy statement to “we,” “us,” “our,” and “ours” mean General Finance Corporation and our subsidiaries, including Royal Wolf following the acquisition.
The mailing address of our principal executive officesubsidiary is 260 South Los Robles, Suite 217, Pasadena, California 91101, and our telephone number is(626) 584-9722.
GFN Australasia Finance Pty Limited (page 82)
GFN Australasia Finance Pty Limited, or GFN Australasia, is a newly formed company organized by us under the laws of Australia and wholly owned subsidiary of GFN Australasia Holdings Pty Limited, which also is a newly formed company organized by us under the laws of Australia and a wholly owned subsidiary of GFN U.S. GFN
1
Australasia and GFN Australasia Holdings Pty Limited were formed by us for the sole purpose of facilitating our acquisition of Royal Wolf, and have not engaged in any business other than in connection with the acquisition.
GFN Australasia’s mailing address is c/o Robert Barnes, Level 2, 222 Clarence Street, Sydney, New South Wales, Australia 2000, and its telephone number is 001-612-9266-0077.
GFN U.S. Australasia Holdings, Inc. (page 82)
GFN U.S. Australasia Holdings, Inc., or GFN U.S., is a newly formed Delaware corporation and our wholly owned subsidiary. GFN U.S. was formed by us for the sole purpose of facilitating our acquisition of Royal Wolf, and has not engaged in any business other than in connection with the acquisition.
GFN U.S.’s mailing address is c/o General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101, and its telephone number is (626) 584-9722.
RWA Holdings Pty Limited (page 87)
RWA Holdings Pty Limited, or RWA, is a company organized under the laws of Australia and a holding company for Royal Wolf Trading Australia Pty Limited, its principal operating subsidiary acquired in December 2003, and its only other subsidiary, Hi-Tech Pty Limited, which is engaged in substantially the same business and activities asLtd., or Royal Wolf. Royal Wolf Trading Australia Pty Limited. RWA engages in no significant business activities apart from its ownership of Royal Wolf Trading Australia Pty Limited and Hi-Tech Pty Limited. RWA and its subsidiaries are collectively referred to in this proxy statement as “Royal Wolf.” The separate financial statements of Royal Wolf Trading Australia Pty Limited as of and foris the year ended December 31, 2003 are included elsewhere in this proxy statement.
The mailing address of RWA is Suite 201, Level 2, 22-28 Edgeworth David Avenue, Hornsby, New South Wales, Australia 2077, and its telephone numberleading provider in Australia is 011-612-9482-3466. Royal Wolf maintains a website at www.royalwolf.com.au. The information maintained or made available by Royal Wolf on its website is not partand New Zealand of this proxy statement.
Royal Wolf leases and sells portable storage containers, portable container buildings and freight containers, in Australia. We are not aware of any published third-party analysis of the Australian portablewhich we refer to collectively as storage container market. Based, however, upon its own internal analysis, including discussions with its customers and competitors and informal observations about the size of container fleets on site at competitors’ locations and in container depots and listed in telephone directories in each major metropolitan area, Royal Wolf’s management believes Royal Wolf is the market leader in Australia for container-based storage and accommodation products. Royal Wolf currentlyhad approximately 24,000 units in its lease fleet and sales inventory as of March 31, 2008. We believe Royal Wolf has more than 150 employeesthe largest lease fleet of storage container products in Australia. Royal Wolf leases and operates 15sells storage container products through its 18 customer service centers located in every state in Australia. It is representedRoyal Wolf acquired Royal Wolf Trading New Zealand, or Royal Wolf New Zealand, on April 30, 2008. Royal Wolf New Zealand has 5,000 units and five customer service centers. Royal Wolf’s storage container products are used by a broad range of industries. Royal Wolf’s storage container products provide secure, accessible temporary storage for a diverse client base of over 12,000 large and small customers who conduct business in all major business centers in Australiaindustries that include mining, road and as such, israil, construction, moving and storage, manufacturing, transportation and defense. During the only container leasingnine months ending March 31, 2008, we generated revenues of approximately $62.9 million and sales company in Australia with a nationally integrated infrastructure and work force.net income of approximately $3.6 million.
Royal Wolf serves both small to mid-size retail customersOur units, warrants and large corporate customers incommon stock trade on the following sectors: roadAmerican Stock Exchange under the symbols GFN.U, GFN.US and rail; movingGFN respectively. Our principal executive offices are located at 39 East Union Street, Pasadena, California, our telephone number is(626) 584-9722, and storage; mining and defense; and portable buildings. Royal Wolf’s present revenue mixour Internet website address is approximately 69% sales and 31% leasing.www.generalfinance.com. Information displayed on our website does not constitute part of this proxy statement.
Royal Wolf’s products include:Pac-Van
Portable Storage Containers: Royal WolfPac-Van leases and sells portablemodular buildings, mobile officers, and storage containers in 31 states across the United States. Pac-Van has a lease fleet of approximately 12,000 units and 26 branch locations. Pac-Van’s permanent and temporary modular buildings provide usable space for the construction, government, education, industrial and retail sectors. Pac-Van’s mobile offices provide temporary office space for construction, industrial commercial, government, education, healthcare and retail applications.
Pac-Van’s storage containers provideon-site storage by customers that includefor the construction, retail, outletseducation and manufacturers, government departments, farmingsectors. For the twelve months ended June 30, 2008, Pac-Van projected revenues of approximately $70.5 million and agricultural concerns, buildingadjusted earnings before interest, taxes, depreciation and construction companies, clubs and sporting associations, mine operators and the general public. Royal Wolf’s products include general purpose dry storage containers, refrigerated containers and hazardous goods containers in a rangeamortization of standard and modified sizes, designs and storage capacities.
Portable Container Buildings: Royal Wolf also leases and sells portable container buildings as site offices and for temporary accommodations. Royal Wolf entered the portable building market in August 2005 with 20-foot and 40-foot portable buildings manufactured from steel container platforms which it markets to a subset of its portable storage container customer base.
2
Freight Containers: Royal Wolf also leases and sells freight containers specifically designed for transport of products by road and rail. Customers include national moving and storage companies, distribution and logistics companies, freight forwarders, transport companies, rail freight operators and the Australian military. Royal Wolf’s freight container products include curtain-side, refrigerated and bulk cargo containers, together with a range of standard and industry-specific dry freight containers.
$22.7 million.
The Sellers (page 103)
The shareholdersstockholders from whom we will purchase the shares of RWA at the closingMOAC include Bison Capital Australia LP, a Delaware limited partnership, which we refer to in this proxy statement asBison-GE.Bison-GE is affiliated with Bison Capital Management, LLC, a private equity firm, which we refer to in this proxy statement as Bison Capital,Ronald F. Valenta, Ronald F. Havner, Jr., D. E. Shaw and GE Asset Management Incorporated on behalfcertain officers and members of the General Electric Pension Trust, bothsenior management team of which are affiliates of General Electric Corporation, or GE. The other current shareholders of RWA are Cetro Pty Limited, FOMJ Pty Limited, FOMM Pty Limited, TCWE Pty Limited, which, along with Paul Jeffrey, James Warren, Michael Baxter and Peter McCann, who constitutePac-Van. Under the majority of the directors and executive officers of RWA, are referred to in this proxy statement as the management shareholders.Bison-GE and the management shareholders are sometimes referred to in this proxy statement as the sellers.
On September 12, 2006, we entered into the original acquisition agreement with the management shareholders and Equity Partners Two Pty Limited, an Australian private equity firm, or Equity Partners, under which we agreed to purchase from them all of the shares of capital stock of RWA. On March 29, 2007, we entered into an amended acquisition agreement with Bison-GE, the management shareholders and Equity Partners, which superseded the September 12, 2006 acquisition agreement in its entirety. Pursuant to the amended acquisition agreement, Bison-GE acquired all of the RWA shares owned by Equity Partners and approximately 50% of the RWA shares owned by the management shareholders for purchase consideration equivalent to the consideration that was originally negotiated by us with the management shareholders and Equity Partners as set forth in the original acquisition agreement.
Consideration and Funding (page 64)
WeMerger Agreement, GFNA will acquire the RWA shares through GFN Australasia, our indirect, wholly owned subsidiary. The purchase price of the RWA shares will be $57.6 million, plus $864,600 per month from March 29, 2007 until the closing. The purchase price includes deposits of $1,005,000 previously paid by us in connection with the acquisition. If the acquisition is not completed for any reason, we will forfeit the deposits. Assuming the closing occurs on July 31, 2007, we will pay the purchase price of the RWA shares, less the deposits, by a combination of cash of approximately $51.7 million and issuance of approximately 1,380 shares of capital stock of GFN U.S., which will constitute 13.8% of the outstanding capital stock of GFN U.S. immediately following the acquisition. Assuming the closing occurs on May 31, 2007, the aggregate acquisition consideration will be approximately $102.2 million, including a total of $2.4 million in cash payable by us in two equal installments on the first and second anniversaries of the closing in exchange for a non-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities with ANZ. There was $38.7 million, including accrued interest, of indebtedness outstanding under these facilities of March 31, 2007. The actual amount outstanding as of the closing will be different, but will in no event exceed $39.4 million of principal.MOAC.
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The Acquisition
The Merger (Page 31)
AcquisitionOn July 28, 2008, we entered into an agreement and plan of merger, which we refer to as the Merger Agreement, (page 64)
with GFN AustralasiaNorth America Corp., or GFNA, our wholly-owned subsidiary, MOAC and certain stockholders of MOAC. The stockholders from whom we will acquire MOAC include Ronald F. Valenta, Ronald F. Havner, Jr., D. E. Shaw Laminar Portfolios, L.L.C., or D. E. Shaw, and certain officers and members of the senior management team of Pac-Van. Pursuant to the Merger Agreement, MOAC will merge with and into GFNA, and GFNA will be the surviving corporation. Under the Merger Agreement, in exchange for the acquisition of all of the capital stock of RWA pursuantMOAC, we will:
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| • | pay up to $21.5 million in cash; |
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| • | assume approximately $107 million of Pac-Van’s outstanding indebtedness; |
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| • | issue a $1.5 million senior unsecured subordinated note; and |
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| • | issue the Shares. |
The amount of cash paid for the MOAC shares will depend on the amount of indebtedness assumed, but will not exceed $21.5 million in any event. The 4,000,000 Shares will represent a fully diluted ownership of General Finance of approximately 22.4% as of June 30, 2008.
The assumed debt as of June 30, 2008 consists of unpaid principal of approximately $80.4 million outstanding under Pac-Van’s Credit Facility and $25 million outstanding under Pac-Van Subordinated Debt.
Why you are receiving this Proxy Statement (page 27)
In order to an acquisition agreement, which is referredcomplete the Merger at the special meeting of General Finance stockholders to be held on , 2008 holders of General Finance common stock must approve the Merger Agreement, the Merger, the issuance by General Finance of restricted common stock in Australia as a share sale deed.connection the Merger and the other proposals set forth in this proxy statement. A copylist of the acquisition agreement is attachedproposals follows:
Proposal 1: The Merger Agreement and Plan of Merger (page 30)
We are asking holders of General Finance common stock to approve and adopt the Merger Agreement and the Merger.
Proposal 2: Issuance of common stock in connection with the Merger (page 30)
We are asking holders of General Finance common stock to approve the issuance of 4,000,000 Shares to the former stockholders of MOAC in consideration for the sale of their capital stock to GFNA. If approved by General Finance stockholders, this proxy statement as ANNEX A.issuance would increase the number of issued and outstanding shares of common stock from 13,826,052 to 17,826,052.
3
Proposal 3: Approval of adjournments or postponements of the Special Meeting (page 30)
We are asking holders of General Finance common stock to approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.
Recommendation of ourthe Special Committee of the Board of DirectorsGeneral Finance (page 30)27); Reasons for the AcquisitionMerger (page 43)35)
After careful consideration of the business and operations of Royal WolfPac-Van and the terms and conditions of the acquisition agreement,Merger Agreement, the special committee of our board of directors has unanimously determined that the acquisition of Pac-Van is in the best interest of General Finance and its stockholders. The special committee has unanimously approved the acquisition of RWAPac-Van and determined that it is inunanimously recommends a vote “For” each of the best interestsproposals described
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above. Each of usproposals 1 and our stockholders. No fairness opinion was sought or obtained by our board2 must be approved for any of directors in reaching its determination.them to be implemented and the Merger to be consummated.
In considering the acquisition, the special committee of our board of directors, in working with management:management and the special committee’s outside legal and due diligence advisors:
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| | • | Reviewedreviewed certain internal financial information relating to the business and financial prospects of Royal Wolf,Pac-Van, including financial projections provided by Royal Wolf’sPac-Van’s management that were not publicly available; |
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| | • | Conducted discussions with membersreceived a presentation from Theodore M. Mourouzis, the President of the senior management of Royal WolfPac-Van, concerning its business and financial prospects; |
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| | • | Reviewedreviewed drafts of the acquisition agreementMerger Agreement and certain other agreements related thereto; and |
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| | • | Considered industry data and analyses andconsidered such other information as theyour special committee and our management deemed appropriate. |
During the course of reaching its decision to approverecommend the acquisition, our board of directorsthe special committee considered a number of factors and consulted our management and outside legal and due diligence advisors.factors. The factors considered by the special committee of our board of directors included, among others, the following:factors set out in the section entitled “Reasons for the Merger: Recommendations of the special committee of the board of General Finance” beginning on page 35.
The terms of the acquisition agreement, include:
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| | • | Discussions withthe inclusion of customary representations and warranties of the sellers for our management regarding Royal Wolf’s established business, record of growth and potential for future growth, the industry in which it competes, and current industry conditions, all of which led our board of directors to conclude that the acquisition presented an opportunity for us and our stockholders to realize value through the acquisition;benefit; |
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| | • | The experiencethe maximum amount of our management, in particular, Mr. Valenta, in buildingindebtedness that General Finance and consolidating similar businesses inits subsidiaries would be required to assume under the U.S. and Europe;Merger Agreement; |
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| | • | The experiencethe value of Royal Wolf’s management, including Robert Allan, Royal Wolf’s Chief Executive Officer, and James Warren, its Chief Operating Officer in building and operating Royal Wolf’s business; |
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| • | Royal Wolf’s ability to execute its business plan using its own financing resources, since somethe shares of our stockholders may exercise their conversion rights in connection with the acquisition and thereby reduce the funds in the trust account available to us following the acquisition; |
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| • | Royal Wolf’s financial results, including revenue growth and expanding operating margins; |
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| • | The aggregate consideration for the acquisition represented an approximate run-rate adjusted earnings before interest, taxes and depreciation, or EBITDA, multiple of 7.3x Royal Wolf’s projected adjusted EBITDA for the twelve months ending December 31, 2007; |
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| • | The financial presentations of our management to our board of directorsrestricted General Finance common stock that based upon and subjectwould be issued pursuant to the assumptions made, procedures followed, factors considered and limitations upon its review as of the date of the presentation, the fair value of Royal Wolf exceeded 80% of our net assets, which is one of the requirements for our initial business combination as described under “Satisfaction of 80% Test” below; |
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| • | The belief by our board of directors that we had paid the fair market value and the lowest price that the sellers were willing to accept, taking into account the terms resulting from extensive negotiations between the parties; |
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| • | The advice of our legal advisors, Troy & Gould Professional Corporation in the U.S. and Barnes & Wenden in Australia, and our due diligence advisors, Ernst & Young LLP Australia as to tax and structuring matters, La Rue, Corrigan and McCormick LLP as to accounting matters, and Consulting Earth Scientists as to environmental matters; |
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| • | The terms of the acquisition agreement, including: |
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| • | The inclusion of a “material adverse effect” clause in our favor, which includes any effect that results or is reasonably likely to result in a decline in Royal Wolf’s EBITDA of 15% or more in any twelve-month period;Merger Agreement; and |
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| | • | The inclusionthe amount of customary representations and warrantiesworking capital of the sellers, non-compete, indemnification and escrow provisions in our favor; |
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| • | The need for Bison-GE to participate in the acquisition in order to avoid the possible termination of the original acquisition agreement and permit us to present the Royal Wolf acquisition to a vote of our stockholders, and the willingness of Bison-GE to participate pursuant to the acquisition agreement and related agreements; |
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| • | The fact that we will own indirectly 86.2%, rather than all, of Royal WolfPac-Van at the closing of the acquisition; |
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| • | The provisions of the shareholders agreement, including the fact that we may require Bison-GE to sell to us all of its GFN U.S. shares in the future at a price specified in the shareholders agreement to be entered into between us and Bison-GE; |
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| • | The costs and other potential disadvantages to us and our stockholders of abandoning the proposed acquisition, including the forfeiture of our deposits of $1,005,000, and seeking to identify and negotiate an alternative initial business combination; and |
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| • | The willingness of Ronald F. Valenta to facilitate our acquisition of Royal Wolf by agreeing to the backup purchase agreement, and the fact that Mr. Valenta will not be compensated for agreeing to the backup purchase agreement.Merger. |
In the course of its deliberations, our board of directorsthe special committee also considered a variety of risks and other countervailing factors, including:including the risks relating to Pac-Van’s business set out in this proxy statement in the section entitled “Risk Factors” beginning on page 21.
Opinion of the Special Committee’s Financial Advisor (page 36)
In connection with the evaluation of the proposed merger by the special committee, the special committee’s financial advisor, RBC Capital Markets Corporation, or RBC, rendered to the special committee a written opinion dated July 24, 2008 as to the fairness, from a financial point of view and as of such date, to General Finance of the aggregate merger consideration (which representatives of General Finance directed RBC to assume was $52.6 million) to be paid by General Finance. The full text of RBC’s written opinion, dated July 24, 2008, is attached to this Proxy Statement as Annex B and describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken.RBC’s opinion was addressed to, and provided for the information and assistance of, the special committee in connection with the Merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to the Merger or any other matter in connection with the Merger.
Expected timing of the Merger (page 46)
We anticipate that the closing of the Merger will occur promptly after the date of the special meeting of the stockholders of General Finance to approve the Merger and the other proposals set forth in this proxy, provided that the requisite stockholder vote in favor of the Merger and the other proposals is obtained and the other conditions to closing of the Merger are satisfied or waived.
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Conditions to completion of the Merger (page 50)
Completion of the Merger is subject to various conditions, including among others:
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| | • | The risks relating to Royal Wolf’s business set out in this proxy statement inapproval of the section entitled “Risk Factors” beginning on page 20;Merger by the holders of a majority of the outstanding shares of General Finance common stock; |
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| | • | That Royal Wolf has no current business or operations inPac-Van and the U.S. or outsidelenders whose consents are sufficient to amend Pac-Van’s Credit Facility shall have entered into amendments to the Credit Facility which consent to the Merger, increase the amount of Australia;the annual management fee to $1.5 million that may be paid by Pac-Van to General Finance and increase the amount of lender’s commitments by $30 million under the Credit Facility; |
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| | • | That Royal Wolf only recently began generating operating income;Pac-Van and Laminar shall have entered into an amendment and a consent which permits the Merger, the revised terms of the Credit Facility and, subject to customary restrictions and subordination provisions, the payment of the $1.5 million annual management fee by Pac-Van to General Finance; |
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| | • | That Royal Wolf’s portable storage sales business is maturingthe representations and is not likelywarranties of Pac-Van shall be true and correct in all material respects, subject to grow at the same rate as its leasing business; |
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| • | That the provisions of the acquisition agreement will result in our forfeiture of $1,005,000 deposits if the acquisition is not completedcertain exceptions for any reason; |
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| • | That delays in meeting the deadlines set forth in the original acquisition agreement for obtaining stockholder approvallitigation and other matters made it necessary to seek Bison-GE’s participation to allow more time to present the acquisition to vote of our stockholders, and the increased acquisition consideration and additional transaction costs associatedcompliance with the amended acquisition agreement as compared to the original acquisition agreement;law; and |
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| | • | The provisions of the shareholders agreement, including the fact that Bison-GE may require us to purchase all of its GFN U.S. sharessince December 31, 2007 there shall not have been any material adverse change in the future at a price specified in the shareholders agreement.financial condition, operating, profits, backlog, assets, liabilities, operations, business prospects, applicable regulations, employee relations, or customer or supplier relations of Pac-Van. |
The foregoing discussionEach of the factors consideredconditions to General Finance’s and Pac-Van’s obligations to complete the Merger may be waived, in whole or in part, to the extent permitted by our boardapplicable law, by the agreement of General Finance and Pac-Van if the condition is a condition to both GFN’s and Pac-Van’s obligation to complete the Merger, or by the party for whom such condition is a condition of its obligation to complete the Merger. The boards of directors of General Finance and Pac-Van may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement and re-solicitation of proxies is necessary. However, General Finance and Pac-Van do not expect any such waiver to be significant enough to require an amendment of this proxy statement and re-solicitation of stockholders. In the event that any such waiver is not intendeddetermined to be exhaustive, but sets forthsignificant enough to require re-solicitation of stockholders, we will have the principal factors considered bydiscretion to complete the board. After evaluating the foregoing factors and consulting with its legal counsel and its other advisers, our board of directors unanimously determined that the acquisition is in the best interests of us and our stockholders and approved the acquisition in light of the various factors described above and other factors that our directors present concluded were appropriate. Our board of directors also believes that the acquisition is fair to us and our stockholders. No fairness opinion was sought or obtained by our board of directors in making its determinations. In view of the variety of factors considered by our board of directors in connection with its evaluation of the acquisition and the complexity of these matters, our board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any
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particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of our board of directors. Rather, our board of directors made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors.Merger without seeking further General Finance stockholder approval.
Accordingly, the special committee of our board of directors unanimously recommends that stockholders vote “FOR” approval of the acquisition.
Management and Strategy (page 120)42)
After the acquisition, all of our current directors and officers will continue to serve in the capacities described under “Directors and Management Following“Management of General Finance After the Acquisition.Merger.” Our management team will continue to execute our business plan and strategy disclosed in our IPO prospectus of identifying, acquiring and consolidating under our holding company other specialty finance and portable service businesses in the U.S.,North America, Europe and Asia. Ronald F. Valenta, our Chief Executive Officer, has successfully executed a similar strategy as the Chief Executive Officer and later the Chairman of the Board of Mobile Storage Group. We have no present understandings, arrangements or commitments, however, with respect to any other acquisition.
Royal WolfAsia-Pacific. Pac-Van, Inc. also will continue to be managed largely by its existing officers, including Robert Allan,management team lead by Theodore M. Mourouzis, its Chief Executive Officer, Peter McCann, its Chief Financial Officer, and James Warren, its Chief Operating Officer.President.
Mr. Allan will be deemed to be one of our executive officers following the acquisition and Messrs. McCann and Warren will be key employees. Each of Messrs. Allan, McCann and WarrenMourouzis is a party to an employment agreement with Royal Wolf which is terminable upon advance notice by either party upon not less than six months’ notice inparty.
In connection with the caseacquisition, Ronald L. Havner, Jr. will be appointed as a member of Mr. Allan and upon not less than three months’ notice in the casesboard of Messers. McCann and Warren.directors of General Finance. In connection with the acquisition, Ronald F. Valenta, and John O. Johnson, Charles E. Barrantes and Theodore M. Mourouzis will be appointed as directors of RWA,GFNA and Michael Baxter, a founder and Executive Director of RWA, will become a consultant to us and Royal Wolf under a consulting agreement, under which he will agree to provide consulting services relating to the transition of ownership of Royal Wolf until March 31, 2008. A copy of Mr. Baxter’s consulting agreement is included as part of ANNEX A to this proxy statement.
If the acquisition is completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of a Compensation Committee of our Board of Directors to be established. Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million.
Except as described above, there is no current understanding or arrangement, however, with respect to any such compensation, and our stockholders will have no information with respect to any such future compensation in deciding how to vote their shares with respect to the acquisition.
Our management has been focused primarily on accomplishing the Royal Wolf acquisition since, until we complete our initial business combination, we can engage in no business or operations. We have not yet developed a business strategy beyond continuing to implement Royal Wolf’s own business plan and considering how Royal Wolf may serve as our platform company for possible future growth. Royal Wolf is a leading specialty finance company in Australia that we believe has a strong and deep management team and is well-positioned for significant growth domestically in Australia. We also believe Royal Wolf can serve as a both a rental services platform for expansion throughout the Asia-Pacific region and potentially the core management team for the global container leasing segment of our business. The acquisition of Royal Wolf will provide us and our stockholders the opportunity to own and operate Royal Wolf and expand upon its existing business and operations.
Pac-Van.
Our Inside Stockholders (page 126)87)
On the record date,July 28, 2008 our officers and directors owned an aggregate of 1,875,0002,563,522 shares of our common stock, or approximately 17.9%18.5% of our outstanding shares that they acquired prior to our IPO. They have agreed to vote these
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shares with respect to the acquisition as the holders of a majority of our IPO shares that are voted at the special meeting. Our officers and directors own beneficially 13,500 IPO shares,
Date, Time and Place of Special Meeting of Our Stockholders (page 30)27)
The special meeting of our stockholders will be held at 9:00 A.M., local time, on [l], 20072008 at the offices of our legal counsel, Troy & Gould ProfessionalGeneral Finance Corporation 1801 Century Parklocated at 39 East 16th floor, Los Angeles,Union Street, Pasadena, California.
Record Date; Voting Power (page 30)27)
You will be entitled to vote or direct votes to be cast at the special meeting if you owned shares of our common stock at the close of business on June 11, 2007,, 2008, which is the record date for the special meeting. You will have one vote for each share of our common stock you owned at the close of business on the record date. On the record date, there were 10,500,00013,826,052 shares of our common stock outstanding, of which 8,625,000 shares were IPO shares.
outstanding.
Approval of the RWA ShareholdersMOAC Stockholders (page 87)46)
The shareholdersstockholders of RWAMOAC approved the acquisition by virtue of their execution of the acquisition agreement, and noMerger Agreement immediately following its execution. No further action by the RWA shareholdersMOAC stockholders is needed for approval of the acquisition.
Quorum and Vote of General Finance Stockholders (page 30)27)
A quorum of our stockholders is necessary to hold a valid stockholders meeting. A quorum will be present at the special meeting if a majority of the shares of our common stock outstanding as of the record date are presented in person or by proxy. Abstentions and broker non-votes will count as present for the purposes of establishing a quorum.
The approval of the acquisition will require the approval of the holders of a majority of the shares of our common stock present and entitled to vote at the meeting with respect to the acquisition, as well as the holders of a majority of our IPO shares voted with respect to the acquisition. Notwithstanding these approvals, the acquisition will not be completed if the holders of 20% or more of our IPO shares (1,725,000 or more shares) exercise their conversion rights.
Abstentions and broker non-votes will have the same effect as a vote against approval of the acquisition. Please note, however, that you cannot exercise your conversion rights unless you affirmatively vote against approval of the acquisition.
Conversion Rights (page 32)
Under our certificate of incorporation, stockholders holding IPO shares may vote against approval of the acquisition and demand that we convert such shares into a pro rata share of the funds held in the trust account established at the time of our IPO. In addition to voting against approval of the acquisition, you must tender your share certificate or accomplish the certification of your “street name” shares and demand conversion of your shares in accordance with the instructions in this proxy statement prior to the special meeting of stockholders.
If conversion rights are exercised properly and the acquisition is completed, we will convert each IPO share into a pro rata portion of the funds held in the trust account as of the date two business days prior to completion of the acquisition. We anticipate that this would amount to not less than approximately $7.88 per IPO share based upon the funds in the trust account as of May 31, 2007. This compares to the closing sale price of our common stock of $7.87 as reported on the American Stock Exchange on July 2, 2007. The actual conversion amount will vary. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed.
If you properly exercise your conversion rights and the acquisition is completed, you will be entitled to receive cash for your shares only if you tender your share certificate to our transfer agent. If the acquisition is not completed, these shares will not be converted into cash. An improper exercise of conversion rights may be remedied at any time up until the time of the special meeting.
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If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will be forced to liquidate.
We cannot complete the acquisition if holders of 20% or more of our IPO shares (1,725,000 or more shares) exercise their conversion rights.
If the acquisition is completed, the foregoing provisions of our certificate of incorporation will no longer apply.
Appraisal Rights (page 33)29)
Our stockholders do not have appraisal rights in connection with the acquisition.
Proxies (page 31)28)
Proxies may be solicited by mail, telephone or in person. We have engaged MacKenzie Partners, Inc. to assist us in the solicitation of proxies.
If you grant a proxy, you may still vote your shares in person if you revoke your proxy at or before the special meeting.
InterestsInterest of Our Directors and Officers in the Acquisition (page 62)(pages 42, 52 and 89)
When you consider the recommendation of our board of directors “FOR” approval of the acquisition, youYou should keep in mind that certain of our officers and directors have interests in the acquisition that are different from, or in addition to, your interests as a stockholder. In particular:
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| • | If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will be required to liquidate. In that event, the 1,875,000 shares of common stock held by our officers and directors that were acquired prior to the IPO for an aggregate purchase price of $250,000 will be worthless, because our officers and directors have waived all rights to receive any liquidation proceeds with respect to such shares. As of July 2, 2007, the aggregate market value of these shares of our common stock owned by our officers and directors was $14,756,250. |
In particular:
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| | • | Ronald F. Valenta, our President, Chief Executive Officer, and a director, and John O. Johnson, our Chief Operating Officer, own warrants to purchase an aggregate of 1,491,333 sharesmember of our board of directors, beneficially owns approximately 18.1% of the outstanding common stock that they acquired for an aggregate purchase price of General Finance. Mr. Valenta owns approximately $1,400,000, which also will become worthless upon our liquidation. As34.5% of July 2, 2007, the aggregate market valuevoting common stock of these warrants was $2,833,533.MOAC. |
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| | • | Mr. Valenta has made available to us a line of credit under which we may borrow from him from time to time up to $3,000,000 at an annual interest rate equal to 8%. Our borrowings under the line of credit have been and will continue to be used by us to pay operating expenses, including deposits and expenses relating to the acquisition. At May 31, 2007, the outstanding amount of principal and accrued interest under the line of credit was $2,256,322. We will continue to borrow funds under the line of credit to pay expenses through the completion of the acquisition. If the acquisition of Pac-Van is completed, Mr. Valenta would receive approximately $17.5 million upon the consummation of the Merger consisting of approximately $3.7 million in cash and approximately $13.8 million of shares or 1,026,700 shares of restricted General Finance common stock, valued at $7.50 per share for purposes of the Merger. |
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| • | Ronald L. Havner, Jr. will be repaid all outstanding principal and accrued interest under the lineappointed as a director of credit. If, on the other hand, the acquisition or other business combination is not completed and we are required to liquidate as described above, Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amount owed to him under the line of credit.General Finance. |
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| | • | All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan,Theodore M. Mourouzis, the Chief Executive OfficerPresident of Royal Wolf,Pac-Van, will be deemedcontinue to be oneserve as the President of our officers following the acquisition and Peter McCann and James Warren, Royal Wolf’s Chief Financial Officer and Chief Operating Officer, respectively, will be key employees. At present, we do not compensate our officers or directors other than Charles E. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. We will have employment agreements with only Messrs. Barrantes and Allan. Pac-Van, Inc. |
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| | Mr. BarrantesMourouzis receives a base annual salary of $200,000$250,000 and is eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided that he is employed on the last day of such year. Mr. Allan receives a base annual salary of $236,400 and is eligible to receive an performance annual bonus not to exceed $78,800 |
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| | based upon the achievement of specifiedcertain performance indicators. Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves a annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million. If the acquisition is completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of the Compensation Committee of our board of directors. Except as described above, there is no current understanding or arrangement with respect to any future compensation to our officers or directors. |
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| • | As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement. |
Except as set forth above, none of our officers or directors or their associates has any interest in the acquisition.
Indemnification Provisions (page 53)
Conditions toCertain representations and warranties of Pac-Van under the CompletionMerger Agreement for corporate authorization of the Acquisition (page 67)
The completionMerger, board approval, non-contravention of charter documents, taxes, environmental matters and title to personal property and intellectual property will survive until the acquisition is conditioned upon our stockholders approving the acquisition no later than September 1, 2007. Notwithstanding their approval, if the holdersthird anniversary of 20% or more of our IPO shares exercise their conversion rights, the acquisition cannot be completed.
In addition, the completion of the acquisition is conditioned upon, among other things:
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| • | The absence of any event that has a material adverse effect on Royal Wolf’s EBITDA over any 12-month period; and |
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| • | ANZ and Bison Capital entering into a subordination agreement with respect to the senior subordinated promissory notes of GFN Australasia to be issued to Bison Capital at the closing of the acquisition. |
All required third-party consents were obtained in connection with Bison-GE’s purchase of RWA shares pursuant to the amended acquisition agreement, and no further or additional consents are needed with respect to our purchase of Royal Wolf. ANZ and Bison-GE are in the process of preparing the subordination agreement between them relating to the senior subordinated promissory notes to be issued to Bison-GE. We expect that the subordination agreement will be in customary form and will be entered into only in conjunction with the closing of our acquisitionthe Merger. Subject to certain exceptions, all other representations and warranties of Royal Wolf, and not beforePac-Van will survive until 20 months after the closing.
Except forThe stockholders of MOAC that signed the stockholder approval condition, any of the foregoing closing conditions may be waived by the party entitled to the benefit of the condition. We may waive one or more of the closing conditions if we deem it advisable to do so.
Indemnification and Escrow Provisions (page 68)
Equity Partners and each of the management shareholders hasMerger Agreement have agreed in the acquisition agreementMerger Agreement to indemnify Bison-GEGeneral Finance against claims (as defined)on a several basis due to breach of the sellers’representations and warranties, subject to certain limitations. AtWith limited exceptions, these limitations provide that the closingMOAC stockholders are not required to indemnify General Finance until the damages from a claim exceed $500,000. With certain exceptions, the indemnification obligations of our acquisitioneach stockholder shall not exceed such stockholder’s pro-rata share of Royal Wolf, Bison-GE$10 million. The MOAC stockholders will assign to us these indemnification rights. The sellersbe therefore have no liability for a claim unless the amount of the claim is at least $15,800 and until$500,000, or the aggregate of all claims in excess of $15,800 exceeds $296,300,Indemnity Deductible, in which event we can claimwould be entitled to seek reimbursement for the whole amount not just the amount in excess of $296,300. The sellers will have no liability for breach of warranty unless the claim, arises within 18 months afterup to a maximum of $10 million, or the date of the acquisition agreement (five years after the date of the acquisition agreement for breach of certain warranties relating to corporate organization, outstanding shares and share capitalization, compliance with legal requirements, tax, and the environment).Indemnity Cap.
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The acquisition agreementMerger Agreement provides that $5.5$10 million of the cash consideration paid to the MOAC stockholders will secure satisfaction of the indemnification obligations of the MOAC stockholders. Of the $10 million securing the indemnity obligations, Messrs. Valenta and Havner (and their affiliates) and D.E. Shaw will pledge the shares of restricted General Finance common stock received pursuant to the Merger Agreement and that are valued at $8.5 million in the aggregate, or payable$7.50 per share, under the Merger Agreement, and D. E. Shaw will pledge the $1.5 million Note. If either Messrs. Valenta or Havner or D. E. Shaw are required to Equity Partnerssurrender shares pursuant to their indemnification obligations under the Merger Agreement, they will receive $7.50 of credit per share surrendered against such obligations regardless of the value of the common stock of General Finance in the public markets.
Under the Merger Agreement, General Finance and GFNA have agreed to indemnify the management shareholdersMOAC stockholders for losses arising in connection with the breach of any representation or warranty of General Finance or GFNA made pursuant to Merger Agreement, the breach of any covenant or agreement in the Merger Agreement or arising out of any claim by a General Finance stockholder relating to the Merger. General Finance and GFNA will be deposited inresponsible for any taxes that result from the Merger not qualifying as a separate bank account requiring signatures of us and Equity Partners and the management shareholders for withdrawals.tax-free reorganization. The purpose of this account is to provide a source of fundsobligation to pay these sellers’ indemnification obligations. The acquisition agreement provides that 25% of these funds will be releasedsuch taxes and to these sellers on September 1, 2007 and the balance will be released to them on March 1, 2008, in each case,indemnify for losses arising from lawsuits by General Finance stockholders are not subject to any paidthe Indemnity Deductible or pending indemnity claims by us. The acquisition agreement provides that these funds can be released prior to such dates if Equity Partners and the management shareholders obtain warranty insurance in such amount and on such other terms as we may approve.
Indemnity Cap.
RWA Management GuaranteesStockholders Agreement (page 69)55)
The management shareholders are companies formed by Paul Jeffrey, James Warren, Michael Baxter and Peter McCann to hold their shares of RWA. Under the acquisition agreement, each of these individuals has agreed to personally guarantee the obligations under the acquisition agreement, including indemnification obligations, of his management shareholder company.
Shareholders Agreement (page 69)
As part of the purchase price of the RWA shares, we will issue to Bison-GE 13.8% of the capital stock of GFN U.S. At the closing under the acquisition agreement,Merger Agreement, we and Bision-GEthe former MOAC stockholders will enter into a shareholdersstockholders agreement setting forth our rights and obligations with respect to our respectivetheir restricted shares of GFN U.S.General Finance. Under the shareholdersstockholders agreement, Bison-GEthe former MOAC stockholders will have the right to require us to purchase all, but not less than all, of its GFN U.S. shares at any time afterregister for public trading the second anniversary of the closing at a cash price specified in the shareholders agreement. We will have a corresponding right to require Bison-GE to sell to us its GFN U.S. shares at any time after the second anniversary of the closing at a price specified in the shareholders agreement if Bison-GE has not previously exercised its right to require us to purchase its GFN U.S. shares.
We and Bison-GE also will agree in the shareholders agreement to various restrictions relating to GFN U.S. and our respective GFN U.S. shares, including a restriction against selling or otherwise disposing of our respective GFN U.S. shares unless we sell or dispose of all of our shares and obtain the other’s approval. A copy of the shareholders agreement is attached to the proxy statement as ANNEX B.
General Finance common stock.
Backup Purchase Agreement (page 70)
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement. A copy of the backup purchase agreement is attached to this proxy statement as ANNEX C.
Consulting and Employment Agreements (page 70)52)
In connection with the acquisition, Michael Baxter,Theodore M. Mourouzis, the executive director and a founderPresident of Royal Wolf, will enterPac-Van, Inc., entered into a consultingan amendment to his employment agreement pursuantthat extended its term to which he will agree to provide consulting services relating to the transition of ownership of Royal Wolf until MarchJuly 31, 2008 for total fee of approximately $39,060.2010. A copy of the amendment to Mr. Baxter’s consultingMourouzis’ employment agreement is includedattached hereto as part of ANNEXAnnex A to this proxy statement.
Robert Allan, James Warren and Peter McCann, the three principal executives of Royal Wolf, will continue to serve in these capacities following the acquisition under their existing employment agreements. For more details regarding the terms of these employment agreements, see the discussion under the caption “Consulting and Employment Agreements” on page 70 of this Proxy Statement.
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Termination, Amendment and Waiver (pages 7053 and 71)54)
The acquisition agreementMerger Agreement may be terminated as follows:by mutual consent of General Finance and MOAC, and the Merger Agreement may be terminated by either party after November 1, 2008 if any of the conditions to the closing has not been satisfied and the terminating party has used reasonable effects to satisfy the conditions.
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| • | By us, Bison-GE or the management sellers if the acquisition is not approved by our stockholders at the special meeting, or otherwise by September 1, 2007; and |
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| • | By Bison-GE or the management sellers if any other closing condition is not satisfied within 20 business days after approval of the acquisition by our stockholders (which termination right will be deemed to be waived unless Bison-GE or the management shareholders give us notice of the termination within 10 business days following expiration of such 20 business day period); and |
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| • | By any party after March 29, 2008 if any of the other conditions to the closing of the acquisition has not been satisfied and the terminating party has used reasonable efforts to satisfy the conditions. |
There is no termination or breakup fee payable in connection with the termination of the acquisition agreement; however, if the closing does not occur, we will forfeit deposits of $1,005,000 made by us in connection with the acquisition. The acquisition agreement does not specifically address any other rights of a party in the event of a wrongful refusal or failure of the other party to complete the acquisition. In that event, such party would be entitled to assert its legal rights for breach of contract against the wrongful party.Merger Agreement.
If permitted under applicable law, either we or the sellersMOAC may waive any inaccuracies in the representations and warranties made to us or the sellers contained in the acquisition agreementMerger Agreement and waive compliance with any agreements or conditions for the benefit of us or the sellersMOAC contained in the acquisition agreement.Merger Agreement. We cannot assure you that any or all of the conditions will be satisfied or waived. The conditions that the acquisition be approved by our stockholders and that the holders of fewer than 20% of our IPO shares exercise their conversion rights cannot be waived.
Non-Compete Covenants (page 71)
Under the acquisition agreement, Equity Partners and the management shareholders have agreed not to compete with Royal Wolf in Australia or New Zealand for the five-year period ending March 29, 2012. They also have agreed to refrain from inducing Royal Wolf employees to leave its employ during the two-year period ending March 29, 2009.
Listing on AMEX (page 64)
Following the acquisition, our outstanding common stock, warrants and units will continue to be listed for trading on the American Stock Exchange.
Tax Consequences (page 71)
There will be no tax consequences to our stockholders directly resulting from the acquisition, except to the extent they exercise their conversion rights.
A stockholder who exercises conversion rights will generally be required to recognize capital gain or loss upon the conversion, if such shares were held as a capital asset on the date of the acquisition. This gain or loss will be measured by the difference between the amount of cash received and the stockholder’s tax basis in the converted shares. The gain or loss will be short-term gain or loss if the acquisition closes as scheduled, but may be long term gain or loss if the closing is postponed.
Finder’s Fees (page 72)47)
No finder’s fees will be paid in connection with the acquisition.
Accounting Treatment (page 72)43)
The mergerMerger will be accounted for using the purchase method of accounting with us treated as the acquirer. Under this method of accounting, Royal Wolf’sPac-Van’s assets and liabilities will be recorded by us at their respective fair
11
values as of the closing date of the mergerMerger (including any identifiable intangible assets). Any excess of purchase price over the net fair values of Royal Wolf’sPac-Van’s assets and liabilities will be recorded as goodwill. Our financial statements after the mergerMerger will reflect these values and the results of operations of Royal WolfPac-Van will be included in our results of operations beginning upon the completion of the merger.
Merger.
Regulatory Matters (page 71)43)
TheWe do not believe that the acquisition is subject to review by the TreasurerFederal Trade Commission under theHart-Scott-Rodino Antitrust Improvements of the Commonwealth of Australia, which issued its notice of non-objection to the transaction on September 26, 2006. The acquisition1976, as amended, or HSR, or is not subject to any other regulatory approvalsreview.
No Appraisal Rights (page 43)
Holders of General Finance common stock are not entitled to appraisal rights in connection with the U.S.Merger under Delaware law or General Finance’s certificate of incorporation.
Risk Factors (page 20)21)
Before you grant your proxy or vote or instruct the vote with respect to the acquisition,Merger, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on us and Royal Wolf.
Pac-Van.
1214
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995, although the safe-harbor provisions of that act do not apply to statements made in this proxy statement. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and Royal WolfPac-Van that may cause the actual future business and financial results of us and Royal WolfPac-Van to be materially different from prior results or any results expressed or implied by such forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those described in the “Risk Factors” section and elsewhere in this proxy statement. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.
All forward-looking statements included in this proxy statement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
13
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the financial information in this section to assist you in your analysis of the financial aspects of the acquisition. The information in this section is only a summary, and should be read in conjunction with the historical financial statements and related notes. The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of us and our consolidated subsidiaries, including Royal Wolf, following the acquisition.
General Finance Corporation Selected Historical InformationDATA OF GENERAL FINANCE CORPORATION
The following table sets forth selectedsummary historical financial information derived from our unaudited consolidated financial statements for the period from October 14, 2005 (inception) to March 31, 2007 and for the quarters ended March 31, 2007 and 2006; and from our audited consolidated financial statements for the year ended December 31, 2006. The unaudited financial information includes all significant adjustments, consisting primarily of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations for the periods presented.
Statement of Operations Information:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | October 14, 2005
| |
| | | | | | | | | Year Ended
| | | (inception) to
| |
| | | Quarter Ended March 31, | | | December 31,
| | | March 31,
| |
| | | 2007 | | | 2006 | | | 2006 | | | 2007 | |
| | | (Unaudited) | | | | | | (Unaudited) | |
| | | (In thousands except share information) | |
| |
| General and administrative expenses | | $ | 906 | | | $ | 8 | | | $ | 1,171 | | | $ | 2,081 | |
| Operating (loss) | | | (906 | ) | | | (8 | ) | | | (1,171 | ) | | | (2,081 | ) |
| Other income: | | | | | | | | | | | | | | | | |
| Interest expense | | | (28 | ) | | | — | | | | (21 | ) | | | (49 | ) |
| Interest income | | | 661 | | | | — | | | | 1,889 | | | | 2,549 | |
| Net income | | | (180 | ) | | | (8 | ) | | | 457 | | | | 273 | |
| | | | | | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.02 | ) | | $ | (0.00 | ) | | $ | 0.06 | | | | | |
| Diluted | | | (0.02 | ) | | | (0.00 | ) | | | 0.05 | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 10,500,000 | | | | 1,875,000 | | | | 8,151,000 | | | | | |
| Diluted | | | 10,500,000 | | | | 1,875,000 | | | | 9,637,000 | | | | | |
| | | | | | | | | | | | | | | | | |
The following table setsdata set forth selected financial informationbelow are derived from our unaudited consolidated financial statements as of March 31, 2007 and from our audited consolidated financial statements as of December 31, 2006.
Balance Sheet Information:
| | | | | | | | | |
| | | March 31, 2007 | | | December 31, 2006 | |
| | | (Unaudited) | | | | |
| | | (In thousands) | |
| |
| Cash | | $ | 155 | | | $ | 38 | |
| Cash equivalents held in trust | | | 68,081 | | | | 68,055 | |
| Total assets | | | 69,725 | | | | 69,128 | |
| Deferred underwriting fees | | | 1,380 | | | | 1,380 | |
| Total liabilities | | | 4,468 | | | | 3,797 | |
| Common stock subject to possible conversion | | | 13,241 | | | | 13,168 | |
| Stockholders’ equity | | | 52,016 | | | | 52,163 | |
14
RWA Selected Historical Consolidated Financial Information
The following table sets forth, in Australian dollars, selected historical financial information of RWA derived from RWA’s unaudited consolidated financial statements as of and for the six months ended December 31, 2006 and 2005; the audited consolidated financial statements as of andRoyal Wolf (as our Predecessor) for the yearyears ended June 30, 2007 and 2006, the six months ended June 30, 2005 and the year ended December 31, 2004 contained elsewhere2004; and from our unaudited condensed consolidated financial statements for the nine months ended March 31, 2007 (Predecessor), the period from July 1, to September 13, 2007 (Predecessor) and the nine months ended March 31, 2008 (Successor). The summary historical financial data for the periods ended March 31, 2008 and 2007 are derived from our unaudited consolidated financial statements, have been prepared on the same basis as the audited consolidated financial statements referred to above and, in the opinion of management, include all significant normal, recurring adjustments necessary to state fairly the data included therein in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information. Interim results are not necessarily indicative of the results to be expected for any other interim period or any fiscal year.
The selected financial data presented below should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Post-Effective Amendment onForm S-1 declared effective March 31, 2008, Transition Report onForm 10-K for the six months ended June 30, 2007 and Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2008, which are all hereby incorporated by reference. The full text of all such filings with the SEC referenced above, as well as the other documents General Finance has filed with the SEC prior to, or will file with the SEC subsequent to, the filing of this proxy statement. statement can be accessed electronically on the SEC’s website at www.sec.gov.
The information as of and for the year ended December 31, 2003 was derived from the audited financial statements of Royal Wolf Trading Australia Pty Limited, or RWT, Royal Wolf’sWolf, the principal operating subsidiary, contained elsewheresubsidiary.
15
Consolidated Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | Six
| | | | | | | | | Nine
| | | | | | | |
| | | | | | | | | Months
| | | | | | | | | Months
| | | Period from
| | | Nine Months
| |
| | | Year Ended | | | Ended | | | Year Ended | | | Ended | | | July 1, to
| | | Ended | |
| | | December 31, | | | June 30, | | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sale of containers | | $ | 16,947 | | | $ | 26,141 | | | $ | 13,563 | | | $ | 34,473 | | | $ | 52,929 | | | $ | 37,441 | | | $ | 10,944 | | | $ | 45,277 | |
| Leasing of containers | | | 8,540 | | | | 12,351 | | | | 7,224 | | | | 15,921 | | | | 21,483 | | | | 15,995 | | | | 4,915 | | | | 17,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 25,487 | | | | 38,492 | | | | 20,787 | | | | 50,394 | | | | 74,412 | | | | 53,436 | | | | 15,859 | | | | 62,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 1,447 | | | | 2,926 | | | | 560 | | | | 2,412 | | | | 4,672 | | | | 1,694 | | | | 1,530 | | | | 6,715 | |
| Other income (expense), net | | | 1,596 | | | | (2,242 | ) | | | (662 | ) | | | (2,626 | ) | | | (3,870 | ) | | | (2,756 | ) | | | (1,062 | ) | | | (971 | ) |
| Income (loss) before provision for income taxes and minority interest | | | 3,043 | | | | 684 | | | | (102 | ) | | | (214 | ) | | | 802 | | | | (1,062 | ) | | | 468 | | | | 5,744 | |
| Net income (loss) | | | 2,244 | | | | 284 | | | | (177 | ) | | | (428 | ) | | | 312 | | | | (1,923 | ) | | | 288 | | | | 3,553 | |
Consolidated Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | June 30, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Trade and other receivables, net | | $ | 3,901 | | | $ | 5,479 | | | $ | 6,002 | | | $ | 7,451 | | | $ | 13,322 | | | $ | 20,088 | |
| Inventories | | | 2,908 | | | | 1,669 | | | | 3,066 | | | | 5,460 | | | | 5,472 | | | | 20,660 | |
| Container for lease fleet, net | | | 13,080 | | | | 17,511 | | | | 19,644 | | | | 27,773 | | | | 40,928 | | | | 71,986 | |
| Total assets | | | 24,953 | | | | 30,728 | | | | 35,930 | | | | 47,903 | | | | 68,788 | | | | 179,982 | |
| Total current liabilities | | | 9,009 | | | | 11,070 | | | | 8,997 | | | | 16,580 | | | | 20,859 | | | | 30,159 | |
| Long-term debt and obligations, net | | | 11,432 | | | | 16,081 | | | | 22,993 | | | | 27,155 | | | | 33,811 | | | | 70,968 | |
| Net assets | | | 4,322 | | | | 3,165 | | | | 3,586 | | | | 3,018 | | | | 13,040 | | | | 68,855 | |
16
SELECTED FINANCIAL DATA OF MOBILE OFFICE ACQUISITION CORP. AND PAC-VAN, INC.
The following tables set forth the selected historical financial data of Mobile Office Acquisition Corp. andPac-Van, Inc. for the periods indicated. Pac-Van, Inc. was acquired by Mobile Office Acquisition Corp., or MOAC, on August 2, 2006. The financial data for periods prior to August 2, 2006 are derived from the financial statements of Pac-Van, Inc. (Predecessor) prior to its acquisition by MOAC (Successor). The selected historical financial data for the years ended December 31, 2007 and 2005, the periods from January 1, 2006 to August 1, 2006, and from August 2, 2006 to December 31, 2006; and the consolidated balance sheet information as of December 31, 2006 and 2007 are derived from the audited financial statements included in this proxy statement. The selected historical consolidated financial data for the three months ended March 31, 2008 and 2007, and the consolidated balance sheet information as of March 31, 2008 are derived from the unaudited consolidated financial statements also included in this proxy statement. The selected historical financial data as of and for the years ended December 31, 20022003 and 2001 was derived from2004 and the unaudited financial statementsbalance sheet information as of RWT that are not contained in this proxy statement. RWA changed its fiscal year-end to June 30 from December 31, commencing with the six months ended June 30, 2005 and the fiscal year ended June 30, 2006. RWA’s unaudited consolidated financial statements as of and for the six months ended December 31, 2006 and 2005;are derived from the audited consolidated financial statements as of and for the year ended June 30, 2006 and December 31, 2004 and as of and for the six months ended June 30, 2005 were prepared in accordance with Australian accounting standards. International financial reporting standards, or IFRS, form the basis of Australian accounting standards, and are referred toPac-Van not included in this proxy statement as Australian equivalents to IFRS, or AIFRS, to distinguish them from Australian generally accepted accounting principles, or AGAAP, which were in effect for periods prior to 2004. AIFRS became effective for accounting periods beginning on or after January 1, 2005. Royal Wolf’s firststatement. The financial statements prepared in accordance with AIFRS were for the six months ended June 30, 2005, with comparative information for the year ended December 31, 2004 restated accordingly. The other financial statements of RWT referred to above were prepared in accordance with AGAAP. AIFRS and AGAAP are not comparable, and both AIFRS and AGAAP differ in some respects from U.S. generally accepted accounting principles, or U.S. GAAP, and are not comparable to U.S. GAAP. However, a reconciliation to U.S. GAAP of the consolidated financial results of RWA and the December 31, 2003 financial statements of RWT is set forth below should be read in the notes to the respective consolidated financial statements of RWA andconjunction with the financial statements and the related notes, and “Management’s Discussion and Analysis of RWTFinancial Condition and Results of Operations,” included in this proxy statement.
The consolidated financial statements of RWA for each period presented and the financial statements of RWT for the year ended December 31, 2003 have been restated due to a correction of an error in accounting for income taxes as set forth in the notes to the respective consolidated financial statements of RWA and the financial statements of RWT included in this proxy statement.
The summarized information below should be read together with the historical financial statements and accompanying notes contained elsewhere in this proxy statement.
Consolidated Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Year Ended
| | | Six Months Ended
| | | | | | | | | | | | | | |
| | | Six Months Ended December 31, | | | June 30,
| | | June 30,
| | | Year Ended December 31, | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | | | 2004 | | | | 2003 | | | 2002 | | | 2001 | |
| | | (Unaudited) | | | (Restated) | | | (Restated) | | | (Restated) | | | | (Restated) | | | (Unaudited) | | | (Unaudited) | |
| | | (In thousands of Australian dollars) | | | | | | | |
| Sale and modification of containers | | $ | 30,502 | | | $ | 22,887 | | | $ | 46,097 | | | $ | 17,534 | | | $ | 35,463 | | | | $ | 25,973 | | | $ | 22,526 | | | $ | 16,358 | |
| Hire of containers | | | 13,397 | | | | 9,774 | | | | 21,290 | | | | 9,339 | | | | 16,756 | | | | | 13,089 | | | | 10,574 | | | | 9,653 | |
| Total revenues | | | 43,899 | | | | 32,661 | | | | 67,387 | | | | 26,873 | | | | 52,219 | | | | | 39,062 | | | | 33,100 | | | | 26,011 | |
| Results from operating activities | | | 224 | | | | 1,567 | | | | 2,656 | | | | 613 | | | | 3,517 | | | | | 2,176 | | | | 2,867 | | | | 1,701 | |
| Other income (expense), net | | | (2,263 | ) | | | (1,649 | ) | | | (3,512 | ) | | | (856 | ) | | | (3,042 | ) | | | | 747 | | | | (4,482 | ) | | | (2,769 | ) |
| Income tax (benefit) | | | 806 | | | | 96 | | | | (525 | ) | | | (30 | ) | | | (4 | ) | | | | 312 | | | | 203 | | | | (4 | ) |
| Net income (loss) | | | (2,845 | ) | | | (178 | ) | | | (331 | ) | | | (213 | ) | | | 479 | | | | | 2,611 | | | | (1,412 | ) | | | (1,697 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | | | | January 1,
| | | August 2,
| | | | | | | | | | |
| | | | | | | | | | | | 2006 to
| | | 2006 to
| | | Year Ended
| | | Three Months
| |
| | | Year Ended December 31, | | | August 1,
| | | December 31,
| | | December 31,
| | | Ended March 31, | |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2006 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sales of equipment | | $ | 9,498 | | | $ | 14,682 | | | $ | 18,848 | | | $ | 11,053 | | | $ | 11,262 | | | $ | 20,220 | | | $ | 4,648 | | | $ | 4,124 | |
| Leasing revenues | | | 25,943 | | | | 26,769 | | | | 32,158 | | | | 22,270 | | | | 17,605 | | | | 47,035 | | | | 10,337 | | | | 11,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 35,441 | | | | 41,451 | | | | 51,006 | | | | 33,323 | | | | 28,867 | | | | 67,255 | | | | 14,985 | | | | 16,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 4,632 | | | | 4,975 | | | | 7,906 | | | | 6,705 | | | | 5,292 | | | | 15,721 | | | | 3,463 | | | | 3,570 | |
| Other expense, net | | | (2,721 | ) | | | (2,478 | ) | | | (2,672 | ) | | | (1,761 | ) | | | (3,164 | ) | | | (8,425 | ) | | | (2,001 | ) | | | (2,090 | ) |
| Income before provision for income taxes | | | 1,911 | | | | 2,497 | | | | 5,234 | | | | 4,944 | | | | 2,128 | | | | 7,296 | | | | 1,462 | | | | 1,480 | |
| Net income | | | 1,141 | | | | 1,499 | | | | 3,155 | | | | 2,987 | | | | 1,297 | | | | 4,030 | | | | 831 | | | | 895 | |
15
Consolidated Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | June 30, | | | December 31, | |
| | | 2006 | | | 2006 | | | 2005 | | | 2004 | | | | 2003 | | | 2002 | | | 2001 | |
| | | (Unaudited) | | | (Restated) | | | (Restated) | | | (Restated) | | | | (Restated) | | | (Unaudited) | | | (Unaudited) | |
| | | (In thousands of Australian dollars) | | | | |
| Cash and cash equivalents | | $ | 613 | | | $ | 777 | | | $ | 695 | | | $ | 3 | | | | $ | 1,788 | | | $ | 788 | | | $ | 942 | |
| Trade and other receivables | | | 15,795 | | | | 10,206 | | | | 7,876 | | | | 7,024 | | | | | 5,205 | | | | 5,339 | | | | 3,831 | |
| Inventories | | | 8,153 | | | | 7,498 | | | | 4,023 | | | | 2,140 | | | | | 3,880 | | | | 2,487 | | | | 1,576 | |
| Total assets | | | 80,830 | | | | 66,406 | | | | 47,152 | | | | 39,390 | | | | | 34,917 | | | | 24,696 | | | | 21,171 | |
| Total current liabilities | | | 33,134 | | | | 22,710 | | | | 11,807 | | | | 14,190 | | | | | 12,015 | | | | 14,296 | | | | 11,069 | |
| Non-current interest bearing loans and borrowings | | | 44,065 | | | | 37,194 | | | | 30,175 | | | | 20,614 | | | | | 15,438 | | | | 5,409 | | | | 7,785 | |
| Equity | | | 2,016 | | | | 4,829 | | | | 4,816 | | | | 4,151 | | | | | 6,388 | | | | 3,777 | | | | 2,265 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Accounts receivables, net | | $ | 4,809 | | | $ | 6,379 | | | $ | 8,544 | | | $ | 9,409 | | | $ | 11,846 | | | $ | 10,565 | |
| Rental inventory and fleet, net | | | 60,491 | | | | 54,102 | | | | 59,115 | | | | 73,668 | | | | 94,709 | | | | 100,773 | |
| Total assets | | | 58,942 | | | | 61,816 | | | | 69,385 | | | | 128,985 | | | | 151,061 | | | | 156,305 | |
| Total current liabilities | | | 5,934 | | | | 7,026 | | | | 10,016 | | | | 13,373 | | | | 14,999 | | | | 14,473 | |
| Long-term debt and | | | | | | | | | | | | | | | | | | | | | | | | |
| obligations, net | | | 38,922 | | | | 38,272 | | | | 37,622 | | | | 80,071 | | | | 93,239 | | | | 97,538 | |
| Net assets | | | 9,002 | | | | 10,728 | | | | 13,976 | | | | 23,977 | | | | 28,006 | | | | 28,901 | |
1617
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following summarytables present, as of March 31, 2008, and for the fiscal year ended June 30, 2007 and the nine months ended March 31, 2008, selected unaudited pro forma condensed combined financial information is designed to show how our acquisitiondata and have been prepared using the purchase method of RWA might have affected our historical financial statements if the acquisition had been completed at an earlier time.accounting. The following summary unaudited pro forma condensed combined financial information was prepared based on the historical financial results of us and RWA. The historical results for RWA have been adjusted to conform with U.S. GAAP and converted to U.S. dollars at the average exchange rate during the periods presented in the statements of income and at March 31, 2007 for the balance sheets. The following should be read in connection with “Unaudited Pro Forma Condensed Combined Financial Statements” and the historical financial statements of RWA that are contained elsewhere in this proxy statement.
The unaudited pro forma balance sheet data assumes that the acquisition took place on March 31, 2007 and combines RWA’s March 31, 2007 unaudited consolidated balance sheet data with our unaudited March 31, 2007 balance sheet data. The unaudited pro forma statements of operations data forgives effect to the three months ended March 31, 2007acquisition of Pac-Van as if it had occurred on the first day of the period and for the twelve months ended December 31, 2006unaudited pro forma condensed combined balance sheet data gives effect to the acquisition as if it had occurred on January 1, 2007 and on January 1, 2006, respectively, and combines the resultsdate of operations of us and RWA for the periods indicated.such balance sheet.
The summary unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of our combined financial condition or results of operations for future periods or the combined financial condition or results of operations that actually would have been realized had we acquired and owned RWA during these periods:
| | | | | | | | | | | | | | | | | |
| | | Pro Forma | |
| | | Three Months Ended
| | | Twelve Months Ended
| |
| | | March 31, 2007 | | | December 31, 2006 | |
| | | Assuming No
| | | Assuming Maximum
| | | Assuming No
| | | Assuming Maximum
| |
| | | Conversions(1) | | | Conversions(2) | | | Conversions(1) | | | Conversions(2) | |
| | | (In thousands except per share data) | |
| |
Statement of Operations Data: | | | | | | | | | | | | | | | | |
| Revenues | | $ | 20,025 | | | $ | 20,025 | | | $ | 59,489 | | | $ | 59,489 | |
| Net loss | | | (270 | ) | | | (361 | ) | | | (3,189 | ) | | | (3,553 | ) |
| Net income (loss) per share: | | | | | | | | | | | | | | | | |
| Basic | | | (0.03 | ) | | | (0.04 | ) | | | (0.30 | ) | | | (0.40 | ) |
| Diluted | | | (0.03 | ) | | | (0.04 | ) | | | (0.30 | ) | | | (0.40 | ) |
| | | | | | | | | |
| | | Pro Forma
| |
| | | March 31, 2007 | |
| | | Assuming No
| | | Assuming Maximum
| |
| | | Conversions(1) | | | Conversions(2) | |
| | | (In thousands) | |
| |
Balance Sheet Data: | | | | | | | | |
| Cash and cash equivalents | | $ | 24,605 | | | $ | 11,364 | |
| Total assets | | | 139,540 | | | | 126,299 | |
| Long-term debt | | | 52,991 | | | | 52,991 | |
| Other long-term liabilities | | | 1,641 | | | | 1,641 | |
| Minority interest | | | 6,932 | | | | 6,932 | |
| Stockholders’ equity | | | 59,668 | | | | 46,427 | |
| | |
(1) | | Assumes that none of our stockholders exercises conversion rights. |
|
(2) | | Assumes that 19.99% of our IPO shares, or 1,724,138 shares, are converted into their pro rata share of the funds held in the trust account. |
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COMPARATIVE UNAUDITED HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth audited historical and unaudited pro forma per share ownership information of us after giving effect to the acquisition, assuming both no conversions and maximum conversions by our stockholders. You should read this information in conjunction with (i) our selectedseparate historical consolidated financial information. Thestatements and accompanying notes incorporated by reference into this proxy statement, (ii) the separate historical consolidated financial statements and accompanying notes of Pac-Van included in this proxy statement and (iii) the unaudited pro forma per share information is derived from,condensed combined financial statements and should be readaccompanying notes included elsewhere in conjunction with, thethis proxy statement (see “Unaudited Pro Forma Condensed Combined Financial Statements” and related notes included elsewhere in this proxy statement.“Where You Can Find More Information”).
The selected unaudited pro forma condensed earnings per share information below does not purport to represent the earnings per share that would have been achieved had we acquiredcombined financial data is provided for illustrative purposes only and owned RWA during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma book value per share information below doesdo not purport to represent what our valueactual consolidated results of operations or the consolidated financial position would have been had we acquired and owned RWA.the business combination with Pac-Van occurred on the respective date assumed, nor are they necessarily indicative of future consolidated operating results or financial position.
| | | | | | | | | | | | | |
| | | Quarter Ended | | | Year Ended
| |
| | | March 31, 2007 | | | March 31, 2006 | | | December 31, 2006 | |
| | | (Unaudited) | | | | |
| |
Historical: | | | | | | | | | | | | |
| Basic income per share | | $ | (0.02 | ) | | $ | (0.00 | ) | | $ | 0.06 | |
| Diluted income per share | | | (0.02 | ) | | | (0.00 | ) | | | 0.05 | |
| | | | | | | | | |
| | | Year Ended
| | | Nine Months Ended
| |
| | | June 30, 2007 | | | March 31, 2008 | |
| | | (In thousands, except per share data) | |
| |
Pro Forma Statement of Operations Data: | | | | | | | | |
| Revenues | | $ | 140,268 | | | $ | 130,826 | |
| Total operating expenses | | | 127,955 | | | | 111,110 | |
| Operating income | | | 12,313 | | | | 19,716 | |
| Net income (loss) | | | (2,811 | ) | | | 4,994 | |
| | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | |
| Basic | | $ | (0.16 | ) | | $ | 0.28 | |
| Diluted | | | (0.16 | ) | | | 0.26 | |
| | | | | | | | | |
| | | | | |
| | | As of
| |
| | | March 31, 2008 | |
| | | (In thousands, except
| |
| | | per share data) | |
| |
Pro Forma Balance Sheet Data: | | | | |
| Lease fleet, net | | $ | 170,224 | |
| Total assets | | | 367,628 | |
| Total long-term debt and obligations | | | 187,745 | |
| Minority interest | | | 8,762 | |
| Stockholders’ equity | | | 118,237 | |
| | | | | |
| Book value per share | | $ | 6.63 | |
| | | | | |
| | | | | | | | | |
| | | Quarter Ended
| | | Year Ended
| |
| | | March 31, 2007 | | | December 31, 2006 | |
| |
Pro Forma Consolidated: | | | | | | | | |
| Basic loss per share assuming no conversions(1) | | $ | (0.03 | ) | | $ | (0.30 | ) |
| Diluted loss per share assuming no conversions(1) | | | (0.03 | ) | | | (0.30 | ) |
| Basic loss per share assuming maximum conversions(2) | | | (0.04 | ) | | | (0.40 | ) |
| Diluted loss per share assuming maximum conversions(2) | | | (0.04 | ) | | | (0.40 | ) |
| | | | | | | | | |
Shares Used to Compute Basic Per Share Data: | | | | | | | | |
| Assuming no conversions(1) | | | 10,500,000 | | | | 10,500,000 | |
| Assuming maximum conversions(2) | | | 8,776,000 | | | | 8,776,000 | |
Shares Used to Compute Diluted Per Share Data: | | | | | | | | |
| Assuming no conversions(1) | | | 10,500,000 | | | | 10,500,000 | |
| Assuming maximum conversions(2) | | | 8,776,000 | | | | 8,776,000 | |
| | | | | | | | | |
| | | March 31, 2007 | | | | |
| |
Historical Book Value of Stockholders’ Equity Per Share | | $ | 4.95 | | | | | |
Pro Forma Book Value of Stockholders’ Equity Per Share: | | | | | | | | |
| Assuming no conversions(1) | | $ | 5.68 | | | | | |
| Assuming maximum conversions(2) | | $ | 5.29 | | | | | |
| | |
(1) | | Assumes that none of our stockholders exercises conversion rights. |
|
(2) | | Assumes that 19.99% of our IPO shares, or 1,724,138 shares, are converted into their pro rata share of the funds held in the trust account. |
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PRICE RANGE OF GENERAL FINANCE CORPORATION SECURITIES AND DIVIDENDS
RELATED STOCKHOLDER MATTERS
Our units, common stock and warrants are listed on the American Stock Exchange under the symbols “GFN.U,” “GFN” and “GFN.WS,” respectively. The following table sets forth for the periods indicated the range of high and low sales prices for the units, common stock and warrants for the periods indicated since the units commenced public trading on April 10, 2006, and since the common stock and warrants commenced public trading separately on June 13, 2006:warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Units | | | Common Stock | | | Warrants | |
| | | High | | | Low | | | High | | | Low | | | High | | | Low | |
| |
2007: | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter (through July 2) | | $ | 9.75 | | | $ | 9.00 | | | $ | 7.95 | | | $ | 7.56 | | | $ | 1.96 | | | $ | 1.45 | |
| First Quarter | | $ | 9.60 | | | $ | 8.50 | | | $ | 7.95 | | | $ | 7.46 | | | $ | 1.80 | | | $ | 1.10 | |
2006: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 8.00 | | | $ | 7.81 | | | $ | 7.70 | | | $ | 7.25 | | | $ | 1.15 | | | $ | 0.62 | |
| Third Quarter | | $ | 8.45 | | | $ | 7.75 | | | $ | 7.36 | | | $ | 7.22 | | | $ | 0.85 | | | $ | 0.63 | |
| Second Quarter | | $ | 8.06 | | | $ | 7.75 | | | $ | 7.35 | | | $ | 7.24 | | | $ | 0.80 | | | $ | 0.63 | |
The closing sales prices for our units, common stock and warrants as reported on the American Stock Exchange on July 2, 2007 were $9.70, $7.87 and $1.90, respectively. Holders of our units, common stock, and warrants should obtain current market quotations for their securities. The market price of our units, common stock, and warrants may vary at any time before the closing of the acquisition.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Units | | | Common Stock | | | Warrants | |
| | | High | | | Low | | | High | | | Low | | | High | | | Low | |
| |
FY 2009: | | | | | | | | | | | | | | | | | | | | | | | | |
| First Quarter (through August 1, 2008) | | $ | 7.35 | | | $ | 5.90 | | | $ | 6.40 | | | $ | 4.90 | | | $ | 1.05 | | | $ | 0.82 | |
FY 2008: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.05 | | | $ | 6.15 | | | $ | 7.54 | | | $ | 5.44 | | | $ | 1.90 | | | $ | 0.91 | |
| Third Quarter | | $ | 12.15 | | | $ | 8.50 | | | $ | 9.05 | | | $ | 7.00 | | | $ | 3.24 | | | $ | 1.55 | |
| Second Quarter | | $ | 13.70 | | | $ | 10.00 | | | $ | 9.89 | | | $ | 7.90 | | | $ | 4.05 | | | $ | 2.20 | |
| First Quarter | | $ | 10.05 | | | $ | 8.80 | | | $ | 8.00 | | | $ | 7.43 | | | $ | 2.20 | | | $ | 1.60 | |
FY 2007: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.75 | | | $ | 9.00 | | | $ | 7.95 | | | $ | 7.56 | | | $ | 1.96 | | | $ | 1.45 | |
| Third Quarter | | $ | 9.60 | | | $ | 8.50 | | | $ | 7.95 | | | $ | 7.46 | | | $ | 1.80 | | | $ | 1.10 | |
| Second Quarter | | $ | 8.00 | | | $ | 7.81 | | | $ | 7.70 | | | $ | 7.22 | | | $ | 1.15 | | | $ | 0.62 | |
| First Quarter | | $ | 8.45 | | | $ | 7.75 | | | $ | 7.36 | | | $ | 7.22 | | | $ | 0.85 | | | $ | 0.63 | |
Record Holders
As of June 11, 2007, the record date for the special meeting, there was one holder of record of our units and our warrants andAugust 1, 2008, there were eight holdersstockholders of record of our common stock. We believe that there are hundreds of beneficial holdersowners of our common stock, units and warrants.
DividendsDividend Policy
We have not paid any dividends on our common stock to datedate. The payment of dividends in the future will be contingent upon our revenues and do not intend to payearnings, if any, capital requirements and general financial condition. The payment of any dividends prior towill be within the completiondiscretion of a business combination.
our board of directors. It is the present intention of our boardBoard of directorsDirectors to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future. The payment of dividends subsequent to a business combination will be within the discretion of our then board of directors and will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination.
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CAPITALIZATION
The following table shows our capitalization as of March 31, 2008 on an actual and pro forma basis. The “actual” column reflects our capitalization as of March 31, 2008 on a historical basis, without any adjustments to reflect subsequent or anticipated events. The “pro forma” column reflects our capitalization as of March 31, 2008 with adjustments to reflect:
(a) borrowings under the Pac-Van Credit Facility and the 13.0% Subordinated Debt to be assumed in connection with the Merger;
(b) the issuance by GFNA of an 8.0% Note to D. E. Shaw;
(c) the issuance of 4,000,000 restricted shares of our common stock to certain of the MOAC stockholders at the market price at March 31, 2008 of $7.07 per share;
(d) borrowings under the ANZ senior secured credit facility in connection with the acquisition of Royal Wolf Trading New Zealand Limited on April 30, 2008 and a 13.5% secured subordinated promissory note; and
(e) proceeds received under our warrant exercise program completed on May 30, 2008.
| | | | | | | | | |
| | | March 31, 2008 | |
| | | Actual | | | Pro Forma | |
| | | (Unaudited - in thousands) | |
| |
| Cash and cash equivalents | | $ | 1,169 | | | $ | 1,512 | |
| | | | | | | | | |
| Long-term debt and obligations: | | | | | | | | |
| ANZ senior secured credit facility(d) | | $ | 63,932 | | | $ | 75,030 | |
| Pac-Van Credit Facility(a) | | | — | | | | 82,000 | |
| Capital lease obligations | | | 478 | | | | 478 | |
| 13.5% secured subordinated promissory note(d) | | | 15,637 | | | | 21,137 | |
| 13.0% Subordinated Debt(a) | | | — | | | | 25,000 | |
| 8.0% Note(b) | | | — | | | | 1,500 | |
| | | | | | | | | |
| Total long-term debt and obligations | | | 80,047 | | | | 205,145 | |
| Minority interest | | | 8,762 | | | | 8,762 | |
| Stockholders’ equity(c)(e) | | | 68,855 | | | | 118,237 | |
| | | | | | | | | |
| Total capitalization | | $ | 157,664 | | | $ | 332,144 | |
| | | | | | | | | |
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RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you vote or instruct your vote with respect to the approval of the acquisition.
Risks Related to Our Business and Operations Following Our Acquisition of Royal WolfPac-Van
General or localized economic downturns or weakness may adversely affect Royal Wolf’sPac-Van’s customers, in particular those in the mining and moving and storage industries,construction industry, which may reduce demand for Royal Wolf’sPac-Van’s products and services to decline and negatively impact our future revenues and results of operations.
A significant portion of Royal Wolf’sPac-Van’s revenues is derived from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions, including the mining and moving and storage industries,construction industry, which constituted approximately 9% and 6%, respectively,50% of Royal Wolf’sPac-Van’s revenues in the fiscal year ended June 30, 2006.December 31, 2007. Although the variety of Royal Wolf’sPac-Van’s products, the breadth of its customer base and its geographic diversity throughout Australiathe United States limits its exposure to economic downturns, general economic downturns or localized downturns in markets where its operates could reduce demand for Royal Wolf’sPac-Van’s products, especially in the construction industry, and negatively impact our future revenues and results of operations.
Royal WolfPac-Van faces significant competition in the portablemodular buildings industry and regional competition in the portable storage market. Royal Wolfindustries. Pac-Van also faces potentially significant competition from modular industrybuildings companies who have portable storage product offerings, especially from several national competitors in Australiathe United States who have greater financial resources and pricing flexibility than Royal WolfPac-Van does. If Royal WolfPac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
Although Royal Wolf’sPac-Van’s competition varies significantly by market, the portablemodular buildings markets in which Royal WolfPac-Van competes isare dominated by three or four large participants and isare highly competitive. In addition, Royal WolfPac-Van competes with a number of large to mid-sized regional competitors, as well as many smaller, full and part-time operators in many local regions. The modular spacebuilding industry is highly competitive and almost all of the competitors have portable storage product offerings. The primary modular national competitors with portable storage product offerings are less leveraged than Royal Wolf,Pac-Van, and have greater financial resources and pricing flexibility than Royal WolfPac-Van does. If they focus on portable storage, Royal WolfPac-Van could lose customers and our future revenues could decline. If Royal WolfPac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
We will incur indebtedness in connection with the acquisition of Pac-Van, and we may need additional debt or equity financing to sustain our growth. We do not have commitments for any such financing.
In conjunction with our acquisition of Pac-Van, we will incur assume approximately $80.4 million of indebtedness under Pac-Van’s Credit Facility and $25 million of Subordinated Debt. The Subordinated Debt will bear interest at the annual rate of 13%, payable quarterly in arrears and will mature in February 2013. We will rely on cash flow from operations of Pac-Van to make payments under this subordinated indebtedness, and there is no assurance that Pac-Van’s cash flow will be sufficient to service Pac-Van’s indebtedness. Payment of interest and other expenses relating to this indebtedness may adversely affect our financial condition and results of operations.
We also may finance Pac-Van’s growth through a combination of borrowings, cash flow from operations and equity financing. The ability of Pac-Van to grow will depend in part on our ability to obtain either additional debt or equity financing to fund the costs of such growth. The availability and terms of any debt and equity financing will vary from time to time, and will be influenced by Pac-Van’s performance and by external factors, such as the economy generally and developments in the market, that are beyond our control. Also, additional debt financing or the sale of additional equity securities may adversely affect the market price of our securities. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail Pac-Van’s growth by delaying new customer service center openings or the expansion of its lease fleet.
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Because Royal WolfPac-Van has depended to a large extent on the success of its leasing operations, the failure of Royal WolfPac-Van to effectively and quickly remarket lease units that are returned could materially and adversely affect our results of operations.
Royal Wolf’sPac-Van’s average monthly lease fleet utilization has historically exceeded 80%averaged between 70% and 85%, with the typical lease being for an average period of over twelve months. The high utilization rate and the length of the average lease hashave provided Royal WolfPac-Van with a predictable revenue stream. However, should a significant number of Royal Wolf’sPac-Van’s lease units be returned during any short period of time, Royal WolfPac-Van would have to re-lease a large supply of units at similar rates in order to maintain historic revenues from these operations. Royal Wolf’sPac-Van’s failure to effectively remarket a large influx of units returning from leases could have a material adverse effect on our results of operations.
Royal WolfPac-Van operates with a high amount of debt, a substantial portion of which is secured by all or substantially all of the company’s assets and is subject to variable interest rates.
As of March 31, 2007, Royal WolfJune 30, 2008, Pac-Van had outstanding approximately $38.7$80.4 million including accrued interest, of indebtedness under its existing credit facilitiesCredit Facility with ANZ,LaSalle, which bears interest at variable rates ranging from 6.57%equal to 8.75%LIBOR plus 1.5% to 2.25% (or the prime rate or prime rate plus 0.25%) based upon the ratio of senior debt to EBITDA, and approximately $25 million of Subordinated Debt which bears interest at the rate of 13% per annum. Royal Wolf’syear. Pac-Van’s debt obligations require it to dedicate a significant portion of its cash flow from operations to payments on this indebtedness, which could reduce the availability of cash flow for future working capital, capital expenditures, acquisitions and other general corporate purposes. In addition, Royal Wolf’sPac-Van’s debt load increases its vulnerability to general adverse economic and industry conditions, limits its flexibility in planning for,
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or reacting to, changes in its business and its industry, and subjects it to certain restrictive covenants that influence its operations and its ability to borrow additional funds. These periodic interest rate adjustments could expose Royal Wolf’sPac-Van’s operating results and cash flows to periodic fluctuations. Although Royal Wolf uses interest rate hedging arrangements and swap agreements to limit its exposure to interest rate volatility, no assurance can be given that Royal Wolf will not remain subject to unexpected interest expenses. Failing to comply with its debt service obligations and the debt covenants could result in an event of default under its Credit Facility or Subordinated Debt which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In addition, since Royal Wolf’sPac-Van’s bank loans are secured by a lien on all or substantially all of Royal Wolf’sPac-Van’s modular buildings, mobile offices and storage container fleet and other assets, a default under Royal Wolf’sPac-Van’s bank debt could result in the foreclosure of all of these assets, which would materially and adversely affect Royal Wolf’sPac-Van’s operations and ability to continue its current operations.
The supply and cost of used ocean-going containers fluctuates, which fluctuation could affect Royal Wolf’s pricing and our ability to grow.
Royal Wolf currently purchases, refurbishes and modifies used ocean-going containers in order to replenish and expand its lease fleet. Various freight transportation companies, freight forwarders and commercial and retail storage companies also purchase used ocean-going containers. Many of these other companies have greater financial resources than Royal Wolf does. As a result, if the number of available containers for sale decreases, these competitors may be better able to absorb an increase in the cost of containers. If used ocean-going container prices increase substantially, Royal Wolf may not be able to purchase enough new units to maintain or increase the size of its fleet. These price increases also could increase Royal Wolf’s acquisition costs and operating expenses and adversely affect our results of operations and reduce our earnings. Conversely, an oversupply of used ocean-going containers may cause container prices to fall, which may result in competitors then lowering the lease rates on their storage units. As a result, Royal Wolf may need to lower its lease rates to remain competitive, which would cause our future revenues to decline.
Sales of modular buildings, mobile offices and storage units constitute a significant portion of Royal Wolf’sPac-Van’s revenues. Failure to continue to sell units at historic rates could adversely affect our ability to grow Royal Wolf’sPac-Van’s lease fleet.
Sales of modular buildings, mobile offices and storage units constituted approximately 59% and 56%30.1% of Royal WolfPac-Van’s total revenues for the six monthsyear ended December 31, 2006 and the year ended June 30, 2006, respectively.2007. Revenues from sales of modular buildings, mobile offices and storage units have been used to fund increases in the size of our lease fleet. As a result, the failure to continue to sell a significant number of units may adversely affect our ability to increase the size of Royal Wolf’sPac-Van’s lease fleet or to otherwise take advantage of business and growth opportunities available to it.
Governmental regulations could impose substantial costs and restrictions on Royal Wolf’sPac-Van’s operations that could harm our future results of operations.
Royal WolfPac-Van is subject to various Australian federal, state and local environmental, transportation, health and safety laws and regulations in connection with its operations. Any failure to comply with these laws or regulations could result in capital or operating expenditures or the imposition of severe penalties or restrictions on its operations. In addition, these laws and regulations could change in a manner that materially and adversely affects Royal Wolf’sPac-Van’s ability to conduct its business. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs. If Royal WolfPac-Van is unable to pass these increased costs on to its customers, our future operating results could be negatively impacted.
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Royal WolfPac-Van may not be able to facilitate its growth strategy by identifying or completing transactions with attractive acquisition candidates, which could impair the growth and profitability of its business.
Since December 2005, Royal WolfAugust 2006, Pac-Van has completed foursix small acquisitions. An important element of our growth strategy for Royal WolfPac-Van is to continue to seek additional acquisitions in order to add new customers within existing geographic markets and branch locations, and to expand Royal Wolf’sPac-Van’s operations into new markets. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices, upon advantageous terms and conditions and upon successful integration of the acquired businesses. However, future acquisitions may not be available at advantageous prices or upon favorable
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terms and conditions. In addition, acquisitions involve risks that the businesses acquired will not perform in accordance with expectations, that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, that the acquired businesses may not be integrated successfully and that the acquisitions may strain Royal Wolf’sPac-Van’s management resources. Future acquisitions and any necessary related financings also may involve significant transaction-related expenses. If Royal WolfPac-Van is unable to complete additional acquisitions or successfully integrate any businesses that it does acquire, our future growth and operating results would be adversely impacted.
Before we entered into the original acquisition agreement, we entered into confidentiality agreements and conducted preliminary due diligence with respect to a number of other possible initial business combinations. We and Royal Wolf also previously entered into a confidentiality agreement and conducted preliminary due diligence with respect to one smaller Australian equipment leasing company that Royal Wolf considered to be a suitable acquisition for it. We are not in current discussions or negotiations, or currently conducting due diligence, regarding any of the entities with which we signed confidentiality agreements prior to entering into the Royal Wolf acquisition agreement, and neither we nor Royal Wolf has any present understandings, arrangements or commitments with respect to any possible future acquisition. There is no assurance that we or Royal Wolf will be able to identify, negotiate or complete any future acquisitions, or, if completed that any such acquisitions will be successful.
Failure to retain key personnel could adversely affect Royal Wolf’sPac-Van’s operations and could impede our ability to execute our business plan and growth strategy.
After the completion of the acquisition, Royal WolfPac-Van will continue to be managed largely by its existing officers, including Robert Allan, its Chief Executive Officer, Peter McCann, its Chief Financial Officer,Theodore M. Mourouzis, the President of Pac-Van, Inc., and James Warren, its Chief Operating Officer.six senior managers. The continued success of Royal WolfPac-Van will depend largely on the efforts and abilities of Mr. Mourouzis and these executive officers and certain other key employees, many ofsenior managers who have over eight yearsserved at Pac-Van for an average of experience with Royal Wolf.ten years. These officers and employees have knowledge and an understanding of Royal WolfPac-Van and its industry that cannot be readily duplicated. Each of Messrs. Allan, McCann and WarrenMr. Mourouzis has an employment agreement which is terminable under certain circumstances upon notice to or by him. The loss of any member of Royal Wolf’sPac-Van’s senior management team could impair our ability to execute our business plan and growth strategy, cause a loss of customers, reduce revenues and adversely affect employee morale.
Any failure of Royal Wolf’sPac-Van’s management information systems could disrupt our business and result in decreased rental or sale revenues and increased overhead costs, which could negatively impact our results of operations.
Royal WolfPac-Van depends on its management information systems to actively manage its lease fleet, control new unit capital spending and provide fleet information, including leasing history, condition and availability of our units. These functions enhance Royal Wolf’sPac-Van’s ability to optimize fleet utilization, rentability and redeployment. The failure of Royal Wolf’sPac-Van’s management information systems to perform as we anticipate could disrupt its business and could result in, among other things, decreased leases or sales and increased overhead costs, which could negatively impact our results of operations.
A write-off of all or a part of our goodwill would hurt our operating results and reduce our stockholders’ equity.
As a result of four acquisitions completed by Royal Wolf since December 2005, we will have significant intangible assets related to goodwill, which represents the excess of the total purchase price of the acquisitions over the fair value of the net assets acquired. We are not permitted to amortize goodwill under the U.S. accounting standards and instead are required to review goodwill at least annually for impairment. In the event impairment is identified, a charge to earnings would be recorded. Although it does not affect our cash flow, a write-off in future periods of all or a part of our goodwill would hurt our operating results and stockholders’ equity. We are unable to currently estimate if and when it may become necessary to write-off goodwill or the effect such a write-off may have on our financial results or the market prices of our securities.
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Significant increases in raw material costs could increase our operating costs significantly and harm our stockholders’ equity.
Royal WolfPac-Van purchases raw materials, including metals, lumber, siding and roofing and other products, to perform periodic refurbishment of its unitsconstruct and modify modular buildings and to modify containers to its customers’ requirements. Pac-Van also maintains a truck fleet to deliver units to and return units from customers. During periods of rising prices for raw materials, especially oil and fuel for delivery vehicles, and in particular when the prices increase rapidly or to levels significantly higher than normal, wePac-Van may incur significant increases in our operating costs and may not be able to pass price increases through to our customers in a timely manner, which could harm our future results of operations.
Failure by Royal Wolf’s ChinesePac-Van’s manufacturers to sell and deliver products to Royal WolfPac-Van in timely fashion may harm Royal Wolf’sPac-Van’s reputation and our financial condition.
Royal WolfPac-Van currently purchases new modular buildings and components, mobile offices and storage container products directly from container manufacturers in China.manufacturers. Although Royal WolfPac-Van is not dependent on any one manufacturer and is able to purchase products from a variety of suppliers, the failure of one or more of its suppliers to timely manufacture and
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deliver storage containers to Royal WolfPac-Van could adversely affect its operations. Royal WolfPac-Van purchases new container productsmodular buildings and components, mobile offices and storage containers under purchase orders issued to containervarious manufacturers, which the manufacturers may or may not accept or be able to fill. Royal WolfPac-Van has no contracts with any supplier. If these suppliers do not timely fill Royal Wolf’sPac-Van’s purchase orders, or do not properly manufacture the ordered products, our reputation and financial condition also could be harmed.
Royal Wolf’s growth plan includes a possible expansion of Royal Wolf’s operations into markets outside of Australia, including Asia/Pacific markets. Such international expansion may not prove successful, and may divert significant capital, resources and management’s time and attention and adversely affect Royal Wolf’s on-going operations in Australia.
To date, Royal Wolf has conducted all of its business within Australia. However, Royal Wolf has plans to enter international markets, including the Asia/Pacific market, in the future, which will require meaningful amounts of management time and attention. Royal Wolf’s products and its overall marketing approach may not be accepted in other markets to the extent needed to make its international expansion profitable. In addition, the additional demands on its management from these activities may detract from Royal Wolf’s efforts in the Australian market and adversely affect its operating results in its principal market. Any international expansion will expose Royal Wolf to the risks normally associated with conducting international business operations, including unexpected changes in regulatory requirements, changes in foreign legislation, possible foreign currency controls, currency exchange rate fluctuations or devaluations, tariffs, difficulties in staffing and managing foreign operations, difficulties in obtaining and managing vendors and distributors, potential negative tax consequences and difficulties collecting accounts receivable.
Royal Wolf’sPac-Van’s planned growth could strain our management resources, which could disrupt our development of new Royal WolfPac-Van customer service centers.
Our future performance will depend in large part on our ability to manage Royal Wolf’sPac-Van’s planned growth. Royal Wolf’sPac-Van’s growth could strain our existing management, human and other resources. To successfully manage this growth, we must continue to add managers and employees and improve Royal Wolf’sPac-Van’s operating, financial and other internal procedures and controls. We also must effectively motivate, train and manage Royal Wolf’sPac-Van’s employees. If we do not manage Royal Wolf’sPac-Van’s growth effectively, some of its new customer service centers and acquisitions may lose money or fail, and we may have to close unprofitable locations. Closing a customer service centerbranch would likely result in additional expenses that would adversely affect our future operating results.
We will incur indebtedness in connection with the acquisition of Royal Wolf, and we may need additional debt or equity financing to sustain our growth. We do not have commitments for any such financing.
In conjunction with our acquisition of Royal Wolf, we will incur $15.76 million of indebtedness to Bison Capital or its affiliate to be evidenced by senior subordinated promissory notes of GFN Australasia. The notes will bear interest at the annual rate of 13.5%, payable quarterly in arrears, will mature 66 months from the date of issuance, and generally will not be prepayable, or will be prepayable only at a premium, prior to maturity. We will
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rely on cash flow from operations of Royal Wolf to make payments under this subordinated indebtedness, and there is no assurance that Royal Wolf’s cash flow will be sufficient to service both Royal Wolf’s indebtedness and this subordinated indebtedness of GFN Australasia. Payment of interest and other expenses relating to this indebtedness may adversely affect our financial condition and results of operations.
We also may finance Royal Wolf’s growth through a combination of borrowings, cash flow from operations and equity financing. The ability of Royal Wolf to grow will depend in part on our ability to obtain either additional debt or equity financing to fund the costs of such growth. The availability and terms of any debt and equity financing will vary from time to time, and will be influenced by Royal Wolf’s performance and by external factors, such as the economy generally and developments in the market, that are beyond our control. Also, additional debt financing or the sale of additional equity securities may adversely affect the market price of our securities. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail Royal Wolf’s growth by delaying new customer service center openings or expansion of its lease fleet.
Some zoning laws restrict the use of Royal Wolf’sPac-Van’s storage units and therefore limit its ability to offer its products in all markets.
MostMany of Royal Wolf’sPac-Van’s customers use Royal Wolf’sPac-Van’s storage units to store goods on their own properties. Local zoning laws in some of Royal Wolf’sPac-Van’s geographic markets prohibit customers from maintaining portablemobile offices or storage unitscontainers on their properties or require that portablemobile offices or storage unitscontainers be located out of sight from the street. If local zoning laws in one or more of Royal Wolf’sPac-Van’s geographic markets were to ban or restrict portablemobile offices or storage unitscontainers stored on customers’ sites, Royal Wolf’sPac-Van’s business in that market will suffer.
Unionization by some or all of Royal Wolf’sPac-Van’s employees could cause increases in operating costs.
Royal Wolf’sPac-Van’s employees are not presently covered by collective bargaining agreements. However, from timeUnions may attempt to time various unions have attempted to organize some of Royal Wolf’s employees.Pac-Van’s employees in the future. We are unable to predict the outcome of any continuing or future efforts to organize Royal Wolf’sPac-Van’s employees, the terms of any future labor agreements, or the effect, if any, those agreements might have on our operations or financial performance.
Risks Related to the Acquisition
In performing its valuation analysesreview of Royal Wolf,Pac-Van, our management relied on projections for Royal WolfPac-Van provided by itsPac-Van’s management. No assurance can be made that thethese projections our management used in its analyses will be achieved.
Royal Wolf did not publicly disclose its internal managementPac-Van provided projections provided to our management in connection with our management’s analysis of the acquisition, and the projections were not prepared with intent for public disclosure or prepared in accordance with generally accepted accounting principles,GAAP, the published guidelines of the Securities and Exchange commissionSEC or the American Institute of Certified Public Accountants’ guidelines for projections or forecasts. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of our management, including, without limitation, factors related to general economic and industry conditions and competitive activity. Actual results could vary significantly from those set forth in the projections used by our management. For all of these reasons, stockholders should not place undue reliance on these projections as summarized elsewhere in this proxy statement.
We obtained no fairness opinion in connection with our acquisition of Royal Wolf and it is possible that stockholders could challenge our determinations regarding the value of Royal Wolf.
Our board of directors approved our acquisition of Royal Wolf and determined that it is in the best interests of us and our stockholders, and believes that the acquisition is fair to us and our stockholders. Our board also determined that the fair market value of Royal Wolf exceeds 80% of our net assets. As set forth in the prospectus relating to our IPO, we are not required to obtain an opinion from an investment banking firm as to the fair market value if our board determines that the Royal Wolf acquisition meets the 80% threshold. In making its determinations, our board of directors relied upon the portable storage industry and deal-making experience of our officers and directors, including Ronald F. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer. Our
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board of directors did not seek or obtain a fairness opinion from an independent advisor to support its determinations, and it is possible that stockholders could challenge our board’s determinations regarding the value of Royal Wolf.
There are indicators that the fair market value of Royal Wolf is below the 80% threshold, and we may be subject to stockholder claims that our board’s valuation determinations are contrary to our IPO prospectus.
Our board of directors determined that the fair market value of Royal Wolf at the time we entered into the September 12, 2006 acquisition agreement was between $75 million and $95 million, which exceeded 80%, or approximately $52 million, of our net assets as of September 30, 2006. A minority of the valuation measurements indicated that the fair market value of Royal Wolf may be below 80% of our net assets. By one measure, based upon a comparison of selected transactions and utilizing the actual cash flow of Royal Wolf for the fiscal year ended June 30, 2006, the entire range of values was below the 80% threshold. Our board of directors updated its original valuations when we entered into the March 29, 2007 amended acquisition agreement, and determined that the updated fair market value of Royal Wolf was between approximately $90 million and $120 million, which exceeded 80%, or approximately $54 million, of our net assets as of December 31, 2006. A minority of the updated measurements also indicated a fair market value of Royal Wolf below the 80% threshold at the low end of the range of values only. The majority of both the initial and updated valuation measurements, however, indicated that Royal Wolf’s fair market value exceeded the 80% threshold, and our board of directors determined that these majority measurements, including the measurements based upon the projected results of operations of Royal Wolf for the fiscal year ending June 30, 2007 and twelve months ending December 31, 2007, were better indicators of the fair market value of Royal Wolf.
Our IPO prospectus states that the 80% test relates to the fair market value of the target business in our initial business combination. The IPO prospectus did not describe specifically how the 80% threshold would apply if we acquired less than all of the equity interests in the target business, and it is possible that investors could conclude that the 80% test should relate instead only to the value of our equity interest in the target business. At $75 million and $90 million, the low end of the range of Royal Wolf’s fair market value as determined by our board of directors in September 2006 and March 2007, respectively, the fair market value of our 86.2% ownership interest in Royal Wolf exceeds the 80% threshold; however, a minority of the updated valuation measurements considered by our board of directors indicated that the fair market value of our 86.2% ownership interest in Royal Wolf was below the 80% threshold. It is possible, therefore, that stockholders could challenge our board’s determination that the Royal Wolf acquisition satisfies the 80% test described in our IPO prospectus. In this event, we could incur substantial legal fees and other costs and expenses in defending our board’s determination. If such claims were asserted, and if we were unsuccessful in defending the claims, we also could be subject to damages that could have a material adverse effect on our financial condition or results of operations. Such claims also would divert the time and attention of our management and board of directors, which could adversely affect our business and operations.
All of our valuation determinations were based upon an analysis of the fair market value of the entirety of Royal Wolf’s business and operations. In considering the 80% threshold as it relates to our 86.2% ownership interest in Royal Wolf, we multiplied 86.2% by the entire fair market value of Royal Wolf, and we did not attempt to otherwise value our 86.2% ownership interest in Royal Wolf.
Our working capital will be reduced to the extent our stockholders exercise their conversion rights. This would reduce our cash reserves after the acquisition.
We are not permitted to complete the acquisition if holders of 20% or more of our IPO shares exercise their conversion rights. Based upon the funds held in the trust account as of May 31, 2007, the amount of funds that could be disbursed to our stockholders upon the exercise of their conversion rights is approximately $13.6 million, or approximately 20% of the funds then held in the trust account after deduction of the taxes on earned interest. To the extent our stockholders exercise their conversion rights, there will be a corresponding reduction in the amount of funds available to us following the acquisition. Depending on the net price paid by our various stockholders for the outstanding IPO shares and other financial considerations, it may be in the best interests of some stockholders to convert their shares or to permit the liquidation of this company. Since we cannot currently predict how many stockholders will exercise their conversion rights, we do not know if the acquisition of Royal Wolf will be effected, and if so, what amount of funds will be disbursed to stockholders who exercise their conversion rights.
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The purchase price we will pay for the RWA shares may increase due to currency exchange rate fluctuations.
The purchase price of the RWA shares to be purchased from the management shareholders, as well as the payments to the management shareholders and Equity Partners for their non-compete covenant, will be payable in Australian dollars. The exchange rate between the U.S. dollar and the Australian dollar is subject to market fluctuations, and the U.S. dollar generally has weakened recently compared to the Australian dollar. In the event that the value of the Australian dollar appreciates compared to the U.S. dollar prior to our payment of these amounts the, the amount of U.S. dollars that we will have to exchange into Australian dollars at that time could be significantly higher, thereby making the actual amount of these payments higher. (The actual amount of the these payments will be lower if the Australian dollar depreciates compared to the U.S. dollar.) We have not entered into any hedge agreements to limit our exposure to currency rate fluctuations, and no assurance can be given that the currency exchange rate between the U.S. dollar and the Australian dollar will not be less favorable to us when these payments are made.
Our directors and officers own shares of common stock and have interests in the acquisition that are different from yours. If the acquisition is not approved, the shares of common stock acquired by them prior to our IPO may become worthless.
Our directors and officers own 1,875,000 shares of our common stock purchased by them for an aggregate purchase price of $250,000 prior to our IPO as to which they have waived any right to receive any of the cash proceeds that may be distributed upon our liquidation. If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will liquidate and such shares held by our officers and directors will become worthless. As of July 2, 2007, the aggregate market value of these shares of our common stock owned by our officers and directors was $14,756,250.
Ronald F. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer, own warrants to purchase an aggregate of 1,491,333 shares of our common stock that they acquired for an aggregate purchase price of approximately $1,400,000. These warrants also will become worthless if the acquisition is not completed and we fail to enter into an agreement in principle or a definitive agreement with respect to another business combination, or fail to complete another business combination, as described above. As of July 2, 2007, the aggregate market value of these warrants was $2,833,533.
Mr. Valenta has made available to us a line of credit under which we may borrow from him from time to time up to $3,000,000 at an annual interest rate equal to 8%. Our borrowings under the line of credit have been and will continue to be used by us to pay operating expenses, including deposits and expenses relating to the acquisition. At May 31, 2007, the outstanding amount of principal and accrued interest under the line of credit was $2,256,322. We will continue to borrow funds under the line of credit through the closing of the acquisition. If the acquisition is completed, Mr. Valenta will be repaid all outstanding principal and accrued interest under the line of credit. If, on the other hand, the acquisition is not completed and we are required to liquidate as described above, Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit.
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement.
These financial interests of our directors and officers may have influenced their decision to approve our acquisition of Royal Wolf. In considering the recommendations of our board of directors for approval of the acquisition, you should consider these interests.
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We have not established the compensation of some of our officers or our directors, so stockholders will not have this information in deciding how to vote.
Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA OF $40 million.
If the acquisition is completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of the Compensation Committee of our board of directors. Except as described above, there is no current understanding or arrangement with respect to any such compensation, and our stockholders will have no information with respect to any such future compensation in deciding how to vote their shares with respect to the acquisition.
Bison-GE may require us to purchase all of its GFN U.S. shares in the future at a specified price, which price may exceed the value of the GFN U.S. shares.
Immediately following the acquisition, we will own 86.2% andBison-GE will own 13.8% of the outstanding shares of GFN U.S. At the closing of the acquisition, we will enter into a shareholders agreement with Bison-GE under which, among other things, Bison-GE will have the right to require us to purchase all, but not less than all, of its GFN U.S. shares at any time after the second anniversary of the closing at a cash price specified in the shareholders agreement. This price will not necessarily bear any relation to the market value or fair value of the GFN U.S. shares, and Bison-GE is likely to require us to purchase its GFN U.S. shares, if at all, at a time when the value of the GFN U.S. shares is less than the price that we are required to pay under the shareholders agreement. We also will have the right to require Bison-GE to sell us its GFN U.S. shares after the second anniversary of the closing at a price specified in the shareholders agreement, but there is no assurance that the specified price will not exceed the market value or fair value of the GFN U.S. shares. As a result, we may choose not to purchase the GFN U.S. shares owned by Bison-GE.
If we do not complete our acquisition of Royal Wolf, we will forfeit our deposits and bear substantial costs, and we may not be successful in identifying another suitable business combination.
If we do not complete the acquisition, we will forfeit deposits of $1,005,000 and bear substantial transaction costs and immediately resume our search for another suitable business combination to present to our stockholders for their approval. We have no commitments or understandings with respect to any other business combination, and there is no assurance that whether or on what terms we may be able to negotiate another business combination. Because of the costs incurred in connection with the proposed acquisition of Royal Wolf and other expenses, the $3,000,000 revolving line of credit that we have been using to fund our operations may be fully utilized, thereby reducing our ability to fund another acquisition. At May 31, 2007, we have the capacity to borrow an additional $820,000 under our line of credit and, as of May 31, 2007, we had current accounts payable and accrued expenses of approximately $677,500.
If we do not complete our acquisition of Royal Wolf and are forced to dissolve and liquidate, third parties may bring claims against us and, as a result, the proceeds held in our trust account could be reduced and the per-share liquidation price received by our public stockholders could be less than $7.84 per share.
If we fail to complete the acquisition of Royal Wolf and also fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete another business combination by April 5, 2008, we will be required by our certificate of incorporation to initiate proceedings to dissolve and liquidate the assets held in our trust account to the holders of our IPO shares.
Based upon the funds held in the trust account as of May 31, 2007, the per-share liquidation price as of that date would have been approximately $7.88, or $0.12 less than the per-unit offering price of $8.00 in our IPO. This compares to the closing sale prices of our common stock of $7.87 as reported on the American Stock Exchange on July 2, 2007. Our stockholders should verify the market price of our common stock prior to selling any common
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stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors, and there is no assurance that the actual per-share liquidation price will not be less than $7.86 due to such claims.
Creditors may seek to interfere with the distribution of the trust account pursuant to federal or state creditor and bankruptcy laws, which could delay the actual distribution of such funds or reduce the amount ultimately available for distribution to our public stockholders. If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law and may be included in our bankruptcy estate and senior to claims of our public stockholders.
If we do not complete our acquisition of Royal Wolf and are forced to dissolve and liquidate, payments from the trust account to our public stockholders may be delayed.
If we are forced to initiate our dissolution as a result of our failure to complete the acquisition of Royal Wolf or of another business by the deadline of October 5, 2007 or April 5, 2008, as applicable, we will be unable to liquidate the trust account and distribute the proceeds to our public stockholders unless and until our stockholders approve our plan of dissolution and liquidation following our compliance with procedures mandated by the Delaware General Corporation Law and the federal securities laws. Among other things, we will be required to prepare and file with the Securities and Exchange Commission a proxy statement regarding our plan of dissolution and liquidation. Accordingly, there will be a delay (which may be substantial) beyond October 5, 2007 or April 5, 2008, as the case may be, in our liquidation and the distribution to our public stockholders of the funds in our trust account as part of any plan of dissolution and liquidation.
If the acquisition is not completed and Mr. Valenta is unable to satisfy his obligation to indemnify us for claims of creditors, the amounts in our trust account available for distribution to our public stockholders would be reduced.
If the acquisition is not completed and we dissolve and liquidate prior to the consummation of a business combination, Mr. Valenta has agreed, pursuant to a written agreement executed in connection with the IPO, that he will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or products sold to us and target businesses who have entered into written agreements with us and who have not waived all of their rights to make claims against the proceeds in the trust account. Some of our creditors, including our legal counsel and our independent public accounting firm (for certain non-attest services rendered and subsequently paid), have waived in writing their rights to make claims against the proceeds in the trust account. Amounts owing to these creditors totaled $329,000 at May 31, 2007. Other creditors have not been willing to waive such rights, and we cannot assure you that there will be no claims of creditors against the proceeds in the trust account at the time of any dissolution and liquidation. Amounts owing to these creditors totaled $348,500 at May 31, 2007. At May 31, 2007, we had borrowed $2,180,000 under our $3,000,000 line of credit provided by Mr. Valenta, and we have available credit of $820,000. Mr. Valenta also has agreed under his indemnification agreement to satisfy all such claims, and our board of directors would have a fiduciary obligation to seek indemnification from Mr. Valenta. As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. If the Royal Wolf acquisition is not completed and we dissolve and liquidate, the satisfaction of Mr. Valenta’s obligations under the backup purchase agreement could make it difficult, or impossible, for Mr. Valenta to satisfy his indemnity obligations to us. If Mr. Valenta were not able financially to indemnify us, and if pursuing indemnification therefore would be futile and costly, our board of directors might determine not to seek to enforce our rights to indemnification. If Mr. Valenta were unable financially to satisfy all claims of our creditors, his indemnification agreement may not effectively mitigate the risk of creditors’ claims reducing the amounts in the trust account.
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Our stockholders may be held liable for claims by third parties to the extent of liquidation distributions received by them.
All claims by creditors and other third parties must be paid or provided for prior to any distributions to any stockholders upon dissolution and acquisition, and under Sections 280 through 282 of the Delaware General Corporation Law, our stockholders may be held liable for claims by third parties against us to the extent of distributions received by the stockholders in connection with our dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a60-day notice period during which any third-party claims can be brought against the corporation, a90-day period during which the corporation may reject any claims brought, and an additional150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of each such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to liquidate the trust account to our public stockholders as part of our plan of dissolution and liquidation, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures. As a result, our stockholders would potentially be liable for any claims to the extent of distributions received by them in connection with our dissolution and any liability of our stockholders may extend beyond the third anniversary of the dissolution.
A substantial number of our shares will become eligible for future resale in the public market after the acquisition, which could result in dilution and an adverse effect on the market price of those shares.our common stock.
If the acquisitionMerger is completed, our outstanding warrants to purchase 10,708,333we will issue 4,000,000 shares of restricted General Finance common stock, including warrants issuedor the Shares. We will enter into a stockholders agreement in connection with the IPO,Merger Agreement which will become exercisable uponrequire us to register the closing of its acquisition. Moreover, 1,875,000 shares of our common stock purchased by our directors and officers prior to the IPO will be released from escrow one year after the completion of the acquisition and be eligibleShares for resale in the public market, subject to compliance with applicable laws.markets upon demand at any time after June 30, 2009 from certain holders a majority of the Shares. Consequently, at various times after completion of the acquisition, a substantial
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number of additional shares of our common stock will be eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market prices of our securities.
There can be no assurance that the Merger will be deemed by governmental authorities to constitute a tax-free “reorganization” or that General Finance will not be required to indemnify the MOAC stockholders if the Merger is not deemed to constitute a tax-free “reorganization.”
The Merger is intended to constitute a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. None of the parties are requesting and will not be requesting a ruling from the IRS in connection with the Merger. None of the tax consequences set forth in this discussion are binding on the IRS or the courts and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court. A successful IRS challenge to the tax-free reorganization status of the Merger would result in MOAC stockholders recognizing taxable gain or loss with respect to each share of common stock of MOAC surrendered. This gain or loss would be measured by the difference between (i) the sum of the fair market value of the General Finance common stock received by MOAC stockholders, and (ii) the adjusted tax basis in the shares of MOAC common stock surrendered. Under the Merger Agreement, General Finance has agreed to indemnify the MOAC stockholders if the IRS or governmental authorities conclude that the Merger does not constitute a tax-free “reorganization.” Payment by General Finance of such indemnification claims could adversely affect our financial condition and results of operations.
The proposed acquisition of Royal WolfPac-Van may result in additional Sarbanes-Oxley Act of 2002 costs, issues and control procedures of our combined reporting company.
Royal WolfPac-Van is a private Australian company that to date has not been subject to the requirements of the Sarbanes-Oxley Act of 2002. Royal Wolf’s2002, as amended, or the Act.Pac-Van’s existing internal controls and procedures are not compliant with the Act, in general, or Section 404 of the Act, in particular. Although we are not aware of any significant weaknesses in internal controls and procedures or in the disclosure controls and procedures of Royal Wolf,Pac-Van, it is possible that such weaknesses may exist. We understand, for example, that there were adjustments proposed by the auditors and made to the audited financial statements included elsewhere in this proxy statement and a restatement of previously released financial statements. Also, management of Royal WolfPac-Van may not have the expertise or time to properly document, assess, test and remedy the control structure of Royal Wolf,Pac-Van, to timely identify any material control weaknesses or to disclose to us any such weaknesses in time to comply with our reporting requirements under the Act. We expect to incur significant costs in implementing additional controls and procedures at Royal WolfPac-Van in order to comply with the Act.
We may have difficulty establishing adequate management, legal and financial controls over Royal Wolf.Pac-Van.
The internal financial and accounting staff at Royal Wolf currently doesPac-Van is a private company that has been not havebeen subject to the ability to prepare financial statements in accordance with U.S. GAAP.requirements of the Act. Accordingly, we will have to establish U.S. financial reporting concepts and practices at Royal Wolf, as well as implement public company financial control systems. We may have difficulty in hiring, training and retaining a sufficient number of qualified employees with the required expertise. In addition, no assurance can be given that Royal WolfPac-Van will be able to prepare and deliver to us the quarterly and annual financial information necessary for us to prepare consolidated financial statements in time to meet the Security and Exchange CommissionSEC filing deadlines.
Risks Related to our Substantial Indebtedness
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various covenants which limit the discretion of our management in operating our business and could prevent us from engaging in some beneficial activities.
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various restrictive covenants that limit our management’s discretion in operating our business. In particular, these agreements include covenants relating to limitations on:
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| • | dividends on, and redemptions and repurchases of, capital stock, |
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| • | liens and sale-leaseback transactions, |
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| • | loans and investments, |
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| • | debt and hedging arrangements, |
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| • | mergers, acquisitions and asset sales, |
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| • | transactions with affiliates, and |
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| • | changes in business activities conducted by us and our subsidiaries. |
In addition, both the Pac-Van Credit Facility and the Subordinated Debt require us, under certain circumstances, to maintain certain financial ratios and limit our ability to make capital expenditures. See Note 5 of the Notes to Audited Consolidated Financial Statements.
If we fail to comply with the restrictions of the investment agreement governing the Subordinated Debt or the terms of the Pac-Van Credit Facility or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds. Accordingly, we may not be able to fully repay our debt obligations, if some or all of our debt obligations are accelerated upon an event of default.
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THE SPECIAL MEETING
General
We are furnishing this proxy statement to our stockholders in connection with the solicitation of proxies by our board of directors for use at the special meeting of stockholders and at any adjournment or postponement of the meeting. Thisproxy statement provides you with the information we believe you should know to be able to vote or instruct your vote at the special meeting.
Date, Time and Place
The special meeting of stockholders will be held on [l], 2007 at 9:00 a.m., local time, on , 2008 at the offices of our legal counsel, Troy & Gould Professional Corporation, 1801 Century ParkGeneral Finance located at 39 East 16th Floor, Los Angeles, California.Union Street, Pasadena, California 91103.
Purpose of the Special Meeting
At the special meeting, we are asking stockholders to:
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| • | Approve our acquisition of Royal Wolf; and |
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| • | Grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the acquisition if that there are insufficient votes present at the meeting for its approval. |
(1) to consider and vote upon a proposal to approve our acquisition of Mobile Office Acquisition Corp., or MOAC, via a merger, the Merger, with our subsidiary GFN North America Corp;
(2) to approve the issuance of 4,000,000 shares of restricted General Finance common stock, the Shares, pursuant to the Merger; and
(3) in the event that there are insufficient votes present at the meeting for approval of the MOAC acquisition, to consider and act upon a proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the Merger.
Recommendation of Our Board of DirectorsSpecial Committee
OurThe special committee of our board of directors:
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| | • | Has unanimously approveddetermined the acquisitionMerger Agreements, the Merger and determined that itthe issuance of the Shares is fair to, and in the best interests of, usGeneral Finance and ourits stockholders; |
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| • | has unanimously approved the Merger Agreement, the Merger and the issuance of Shares; and |
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| | • | Unanimously recommends that our common stockholders vote “FOR” approval of the acquisition. |
No fairness opinion was sought or obtained by our board of directors in reaching its determination to approve the acquisition.
Record Date; Who is Entitled to Vote
We have fixed the close of business on June 11, 2007,, 2008, as the record date for determining the stockholders entitled to notice of and to attend and vote at the special meeting. As of the close of business on June 11, 2007,, 2008, there were 10,500,00013,862,052 shares of our common stock outstanding. Each share of our common stock is entitled to one vote with respect to each of the matters to be acted upon at the special meeting.
Quorum
The presence, in person or by proxy, of a majority of the shares of our common stock outstanding as of the record date constitutes a quorum for the transaction of business.
Abstentions and Broker Non-Votes
Proxies that are marked “abstain” and proxies relating to “street name” shares that are returned to us but marked by brokers as “not voted” with respect to the acquisition or other proposal will be treated as shares present for purposes of determining the presence of a quorum on all matters. The latter, however, will not be treated as shares entitled to vote any proposal to which authority to vote is withheld by the broker. If you do not give the broker voting instructions, under the rules of the National Association of Securities Dealers, Inc., your broker may not vote your shares with respect to the acquisition. Since stockholders must affirmatively vote against approval of the acquisition in order to exercise their conversion rights, stockholders who fail to vote, or who abstain from voting, may not exercise their conversion rights. Beneficial holders of shares held in “street name” that are voted against approval of the acquisition may exercise their conversion rights. See the information set forth under “Special Meeting — Conversion Rights” below.
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Vote of Our Stockholders Required
The approval of the acquisition will require the approval of the holders of a majority of the shares of our common stock present and entitled to vote at the meeting with respect to the acquisition, as well as the holders of a majority of our IPO shares voted with respect to the acquisition. Notwithstanding these approvals, our certificate of incorporation provides that we cannot complete the acquisition if the holders of 20% or more of our IPO shares (1,725,000 or more shares) exercise their conversion rights.Merger.
The approval of the proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the acquisitionMerger and the issuance of 4,000,000 Shares pursuant to the Merger Agreement in the event that there are insufficient votes for itsthe approval of such proposals present at the special meeting will require the affirmative vote of the holders of a majority of our common stock present and entitled to vote at the meeting. Abstentions are deemed entitled to vote on this proposal. Therefore, they will have the same effect as a vote against the proposal. Broker non-votes, however, are not deemed entitled to vote on this proposal and will have no effect on the outcome of the vote on this proposal.
Voting Your Shares
Each share of our common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of our common stock that you own.
There are two ways to vote your shares of our common stock at the special meeting:
| | |
| | • | You can vote by completing, dating, signing and returning the enclosed proxy card. If you vote by proxy card, the proxy holders whose names are listed on the proxy card will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by our board of directors “FOR” the approval of the acquisition and the other proposal described in this proxy statement; and |
| |
| | • | You can attend the special meeting and vote in person. We will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares. |
Proxies must be received prior to the voting at the special meeting. Any proxies or other votes received after this time will not be counted in determining whether the acquisition has been approved. Furthermore, any proxies or other demand received after the voting at the special meeting will not be effective to exercise conversion rights.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
| | |
| | • | You may send us another proxy card with a later date; |
| |
| | • | You may notify John O. Johnson, our Chief Operating Officer, in writing before the special meeting that you revoke your proxy; or |
| |
| | • | You may attend the special meeting, revoke your proxy and vote in person, as indicated above. |
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call John O. Johnson, our Chief Operating Officer, at(626) 795-0040.584-9722, extension 1009. You also may call MacKenzie Partners, Inc. toll-free at(800) 322-2885.322-2885 or (212) 929-5500 (call collect).
Adjournment
In the event there are an insufficient number of shares of our common stock present in person or by proxy at the special meeting to approve our acquisition of Royal Wolf,Pac-Van, our board of directors intends to adjourn the special meeting to a later date provided a majority of the shares present and voting on the motion vote is in favor of such
31
adjournment. The place and date to which the special meeting would be adjourned would be announced at the special meeting. Proxies voted against the approval of the acquisition will not be voted to adjourn the special meeting. Abstentions and broker non-votes also will not be voted on this matter. If it is necessary to adjourn the special meeting and the adjournment is for a period of not more than 30 days from the original date of the special meeting, no notice of the time and place of the adjourned meeting need be given to our stockholders, other than by an announcement made at the special meeting.
28
The effect of any such adjournment would be to permit us to solicit additional proxies for approval of the acquisition. Such an adjournment would not invalidate any proxies previously filed as long as the record date remains the same for the subsequent meeting. We do not anticipate that we would change the meeting’s record date if we seek an adjournment of the special meeting. In the unlikely event that our board of directors exercised its right under the Delaware General Corporation Law to set a new record date for the meeting, we would mail notices of the new meeting date to our stockholders of record.
No Additional Matters May Be Presented at the Special Meeting
The special meeting has been called only to consider the approval of our acquisition of Royal WolfPac-Van via the Merger between our subsidiary GFNA and MOAC, the issuance of the 4,000,000 Shares pursuant to the Merger Agreement and the related proposal described in this proxy statement. Under our by-laws, other than procedural matters incident to the conduct of the meeting, no other matters may be considered at the special meeting.
By signing and returning the enclosed proxy card, you will be deemed to grant the proxy holders discretionary authority to consider and act upon such other matters as may properly presented incident to the conduct of the meeting and any adjournment or postponement of the meeting.
Conversion Rights
Any stockholder holding shares of our common stock originally issued in our IPO who affirmatively votes “against” approval of our acquisition of Royal Wolf may demand that we convert such shares into a pro rata portion of the funds held in the trust account pursuant to Article Sixth of our certificate of incorporation. If demand is made and the acquisition is consummated, we will convert these shares into a pro rata portion of the funds held in the trust account, including earned interest (net of taxes on such interest), as of the date two business days prior to the closing of the acquisition. Stockholders who seek to exercise their conversion rights must affirmatively vote against the acquisition.
The closing sale price of our common stock as reported on the American Stock Exchange on July 2, 2007, the record date, was $7.87. The funds held in the trust account on May 31, 2007 were approximately $7.88 per IPO share after deduction of the taxes on earned interest. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed.
If the holders of 20% or more of our IPO shares (1,725,000 or more shares) exercise their conversion rights, we cannot complete the acquisition notwithstanding its approval by our stockholders at the special meeting.
Exercise of Conversion Rights
If you wish to exercise your conversion rights, you must:
| | |
| • | Affirmatively vote against approval of the acquisition and, at the same time, demand that we convert your shares into cash; and |
|
| • | If the acquisition is completed, tender your share certificate to our transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004, Attention: Mark Zimkind, Tel.212-845-3287, Fax.212-616-7616. |
Any action that does not include an affirmative vote against approval of the acquisition will be insufficient to exercise your conversion rights.
32
If you exercise your conversion rights, then you will be exchanging your shares of our common stock for cash and will no longer own those shares. If the acquisition is not completed, these shares will not be converted into cash.
No Appraisal Rights
Stockholders ofGeneral Finance stockholders have no appraisal rights in connection with the acquisition under applicable Delaware corporation lawGeneral Corporation Law or otherwise.
Proxy Solicitation CostsListing on AMEX
Following the acquisition, our outstanding common stock, warrants and units will continue to be listed for trading on the American Stock Exchange.
Tax Consequences
There will be no tax consequences to our stockholders directly resulting from the acquisition.
Finder’s Fees (page 47)
No finder’s fees will be paid in connection with the acquisition.
Accounting Treatment (page 43)
The Merger will be accounted for using the purchase method of accounting with us treated as the acquirer. Under this method of accounting, Pac-Van’s assets and liabilities will be recorded by us at their respective fair values as of the closing date of the Merger (including any identifiable intangible assets). Any excess of purchase price over the net fair values of Pac-Van’s assets and liabilities will be recorded as goodwill. Our financial statements after the Merger will reflect these values and the results of operations of Pac-Van will be included in our results of operations beginning upon the completion of the Merger.
Regulatory Matters (page 43)
We are soliciting proxies on behalfdo not believe that the acquisition is subject to review by the Federal Trade Commission under theHart-Scott-Rodino Antitrust Improvements of our board of directors. This solicitation1976, as amended, or HSR, or is being made by mail, but also may be made by telephone or in person. We and our directors, officers and employees may also solicit proxies in person, by telephone or bysubject to any other electronic means. These persons will not be compensated for these solicitation activities.regulatory review.
We have engaged Mackenzie Partners, Inc.No Appraisal Rights (page 43)
Holders of General Finance common stock are not entitled to assistappraisal rights in connection with the Merger under Delaware law or General Finance’s certificate of incorporation.
Risk Factors (page 21)
Before you grant your proxy or vote or instruct the vote with respect to the Merger, you should be aware that the occurrence of the events described in the mailing of“Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on us and responding to questions from stockholders. For these services, we will pay Mackenzie Partners, Inc. a fee of $5,000, plus reasonableout-of-pocket charges. Such costs will be paid initially with borrowings under the line of credit made available to us by Mr. Valenta, which borrowings will be repaid to Mr. Valenta if the acquisition (or other business combination) is completed.
We will ask banks, brokers and other institutions, nominees and fiduciaries to forward our proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. We will reimburse them for their reasonable expenses.
Householding of Special Meeting Materials
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. If you would prefer to receive separate copies of a proxy statement or annual report either now or in the future, please contact your bank, broker or other nominee. Upon written or oral request to John O. Johnson, our Chief Operating Officer, at General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101, (626) 795-0040, we will provide a separate copy of the annual reports and proxy statements. In addition, stockholders sharing an address can request delivery of a single copy of annual reports or proxy statements if you are receiving multiple copies upon written or oral request to our Chief Operating Officer at the address and telephone number stated above.
Voting Agreement
As of the record date, Ronald F. Valenta, John O. Johnson, James B. Roszak, Lawrence Glascott, Manuel Marrero, David M. Connell, and Marc Perez, each of whom is our director or executive officer, owned an aggregate of 1,875,000 shares of our common stock, or approximately 17.9% of our outstanding shares. In connection with our IPO, they agreed to vote these shares with respect to our initial business combination as the holders of a majority of the IPO shares that are voted. Our officers and directors own beneficially 13,500 IPO shares.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN. WE SINCERELY DESIRE YOUR PRESENCE AT THE SPECIAL MEETING. HOWEVER, SO THAT WE MAY BE SURE THAT YOUR VOTE WILL BE INCLUDED, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
Stockholders who have questions concerning the proposed acquisition or any other aspect of the special meeting should contact John O. Johnson at(626) 584-9722 or MacKenzie Partners, Inc. at(800) 322-2885.Pac-Van.
3314
CONSIDERATIONFORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995, although the safe-harbor provisions of that act do not apply to statements made in this proxy statement. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and Pac-Van that may cause the actual future business and financial results of us and Pac-Van to be materially different from prior results or any results expressed or implied by such forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those described in the “Risk Factors” section and elsewhere in this proxy statement. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.
All forward-looking statements included in this proxy statement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
SELECTED FINANCIAL DATA OF THEGENERAL FINANCE CORPORATION
The summary historical consolidated financial data set forth below are derived from the audited consolidated financial statements of Royal Wolf (as our Predecessor) for the years ended June 30, 2007 and 2006, the six months ended June 30, 2005 and the year ended December 31, 2004; and from our unaudited condensed consolidated financial statements for the nine months ended March 31, 2007 (Predecessor), the period from July 1, to September 13, 2007 (Predecessor) and the nine months ended March 31, 2008 (Successor). The summary historical financial data for the periods ended March 31, 2008 and 2007 are derived from our unaudited consolidated financial statements, have been prepared on the same basis as the audited consolidated financial statements referred to above and, in the opinion of management, include all significant normal, recurring adjustments necessary to state fairly the data included therein in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information. Interim results are not necessarily indicative of the results to be expected for any other interim period or any fiscal year.
The selected financial data presented below should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Post-Effective Amendment onForm S-1 declared effective March 31, 2008, Transition Report onForm 10-K for the six months ended June 30, 2007 and Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2008, which are all hereby incorporated by reference. The full text of all such filings with the SEC referenced above, as well as the other documents General Finance has filed with the SEC prior to, or will file with the SEC subsequent to, the filing of this proxy statement can be accessed electronically on the SEC’s website at www.sec.gov.
The information as of and for the year ended December 31, 2003 was derived from the audited financial statements of Royal Wolf Trading Australia Pty Limited, or Royal Wolf, the principal operating subsidiary.
15
Consolidated Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | Six
| | | | | | | | | Nine
| | | | | | | |
| | | | | | | | | Months
| | | | | | | | | Months
| | | Period from
| | | Nine Months
| |
| | | Year Ended | | | Ended | | | Year Ended | | | Ended | | | July 1, to
| | | Ended | |
| | | December 31, | | | June 30, | | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sale of containers | | $ | 16,947 | | | $ | 26,141 | | | $ | 13,563 | | | $ | 34,473 | | | $ | 52,929 | | | $ | 37,441 | | | $ | 10,944 | | | $ | 45,277 | |
| Leasing of containers | | | 8,540 | | | | 12,351 | | | | 7,224 | | | | 15,921 | | | | 21,483 | | | | 15,995 | | | | 4,915 | | | | 17,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 25,487 | | | | 38,492 | | | | 20,787 | | | | 50,394 | | | | 74,412 | | | | 53,436 | | | | 15,859 | | | | 62,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 1,447 | | | | 2,926 | | | | 560 | | | | 2,412 | | | | 4,672 | | | | 1,694 | | | | 1,530 | | | | 6,715 | |
| Other income (expense), net | | | 1,596 | | | | (2,242 | ) | | | (662 | ) | | | (2,626 | ) | | | (3,870 | ) | | | (2,756 | ) | | | (1,062 | ) | | | (971 | ) |
| Income (loss) before provision for income taxes and minority interest | | | 3,043 | | | | 684 | | | | (102 | ) | | | (214 | ) | | | 802 | | | | (1,062 | ) | | | 468 | | | | 5,744 | |
| Net income (loss) | | | 2,244 | | | | 284 | | | | (177 | ) | | | (428 | ) | | | 312 | | | | (1,923 | ) | | | 288 | | | | 3,553 | |
Consolidated Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | June 30, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Trade and other receivables, net | | $ | 3,901 | | | $ | 5,479 | | | $ | 6,002 | | | $ | 7,451 | | | $ | 13,322 | | | $ | 20,088 | |
| Inventories | | | 2,908 | | | | 1,669 | | | | 3,066 | | | | 5,460 | | | | 5,472 | | | | 20,660 | |
| Container for lease fleet, net | | | 13,080 | | | | 17,511 | | | | 19,644 | | | | 27,773 | | | | 40,928 | | | | 71,986 | |
| Total assets | | | 24,953 | | | | 30,728 | | | | 35,930 | | | | 47,903 | | | | 68,788 | | | | 179,982 | |
| Total current liabilities | | | 9,009 | | | | 11,070 | | | | 8,997 | | | | 16,580 | | | | 20,859 | | | | 30,159 | |
| Long-term debt and obligations, net | | | 11,432 | | | | 16,081 | | | | 22,993 | | | | 27,155 | | | | 33,811 | | | | 70,968 | |
| Net assets | | | 4,322 | | | | 3,165 | | | | 3,586 | | | | 3,018 | | | | 13,040 | | | | 68,855 | |
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SELECTED FINANCIAL DATA OF MOBILE OFFICE ACQUISITION CORP. AND PAC-VAN, INC.
The following tables set forth the selected historical financial data of Mobile Office Acquisition Corp. andPac-Van, Inc. for the periods indicated. Pac-Van, Inc. was acquired by Mobile Office Acquisition Corp., or MOAC, on August 2, 2006. The financial data for periods prior to August 2, 2006 are derived from the financial statements of Pac-Van, Inc. (Predecessor) prior to its acquisition by MOAC (Successor). The selected historical financial data for the years ended December 31, 2007 and 2005, the periods from January 1, 2006 to August 1, 2006, and from August 2, 2006 to December 31, 2006; and the consolidated balance sheet information as of December 31, 2006 and 2007 are derived from the audited financial statements included in this proxy statement. The selected historical consolidated financial data for the three months ended March 31, 2008 and 2007, and the consolidated balance sheet information as of March 31, 2008 are derived from the unaudited consolidated financial statements also included in this proxy statement. The selected historical financial data as of and for the years ended December 31, 2003 and 2004 and the balance sheet information as of December 31, 2005 are derived from the audited consolidated financial statements of Pac-Van not included in this proxy statement. The financial information set forth below should be read in conjunction with the financial statements and the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this proxy statement.
Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | | | | January 1,
| | | August 2,
| | | | | | | | | | |
| | | | | | | | | | | | 2006 to
| | | 2006 to
| | | Year Ended
| | | Three Months
| |
| | | Year Ended December 31, | | | August 1,
| | | December 31,
| | | December 31,
| | | Ended March 31, | |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2006 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sales of equipment | | $ | 9,498 | | | $ | 14,682 | | | $ | 18,848 | | | $ | 11,053 | | | $ | 11,262 | | | $ | 20,220 | | | $ | 4,648 | | | $ | 4,124 | |
| Leasing revenues | | | 25,943 | | | | 26,769 | | | | 32,158 | | | | 22,270 | | | | 17,605 | | | | 47,035 | | | | 10,337 | | | | 11,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 35,441 | | | | 41,451 | | | | 51,006 | | | | 33,323 | | | | 28,867 | | | | 67,255 | | | | 14,985 | | | | 16,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 4,632 | | | | 4,975 | | | | 7,906 | | | | 6,705 | | | | 5,292 | | | | 15,721 | | | | 3,463 | | | | 3,570 | |
| Other expense, net | | | (2,721 | ) | | | (2,478 | ) | | | (2,672 | ) | | | (1,761 | ) | | | (3,164 | ) | | | (8,425 | ) | | | (2,001 | ) | | | (2,090 | ) |
| Income before provision for income taxes | | | 1,911 | | | | 2,497 | | | | 5,234 | | | | 4,944 | | | | 2,128 | | | | 7,296 | | | | 1,462 | | | | 1,480 | |
| Net income | | | 1,141 | | | | 1,499 | | | | 3,155 | | | | 2,987 | | | | 1,297 | | | | 4,030 | | | | 831 | | | | 895 | |
Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Accounts receivables, net | | $ | 4,809 | | | $ | 6,379 | | | $ | 8,544 | | | $ | 9,409 | | | $ | 11,846 | | | $ | 10,565 | |
| Rental inventory and fleet, net | | | 60,491 | | | | 54,102 | | | | 59,115 | | | | 73,668 | | | | 94,709 | | | | 100,773 | |
| Total assets | | | 58,942 | | | | 61,816 | | | | 69,385 | | | | 128,985 | | | | 151,061 | | | | 156,305 | |
| Total current liabilities | | | 5,934 | | | | 7,026 | | | | 10,016 | | | | 13,373 | | | | 14,999 | | | | 14,473 | |
| Long-term debt and | | | | | | | | | | | | | | | | | | | | | | | | |
| obligations, net | | | 38,922 | | | | 38,272 | | | | 37,622 | | | | 80,071 | | | | 93,239 | | | | 97,538 | |
| Net assets | | | 9,002 | | | | 10,728 | | | | 13,976 | | | | 23,977 | | | | 28,006 | | | | 28,901 | |
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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following tables present, as of March 31, 2008, and for the fiscal year ended June 30, 2007 and the nine months ended March 31, 2008, selected unaudited pro forma condensed combined financial data and have been prepared using the purchase method of accounting. The unaudited pro forma condensed combined statements of operations data gives effect to the acquisition of Pac-Van as if it had occurred on the first day of the period and the unaudited pro forma condensed combined balance sheet data gives effect to the acquisition as if it had occurred on the date of such balance sheet.
You should read this information in conjunction with (i) our separate historical consolidated financial statements and accompanying notes incorporated by reference into this proxy statement, (ii) the separate historical consolidated financial statements and accompanying notes of Pac-Van included in this proxy statement and (iii) the unaudited pro forma condensed combined financial statements and accompanying notes included elsewhere in this proxy statement (see “Unaudited Pro Forma Condensed Combined Financial Statements” and “Where You Can Find More Information”).
The selected unaudited pro forma condensed combined financial data is provided for illustrative purposes only and do not purport to represent what our actual consolidated results of operations or the consolidated financial position would have been had the business combination with Pac-Van occurred on the respective date assumed, nor are they necessarily indicative of future consolidated operating results or financial position.
| | | | | | | | | |
| | | Year Ended
| | | Nine Months Ended
| |
| | | June 30, 2007 | | | March 31, 2008 | |
| | | (In thousands, except per share data) | |
| |
Pro Forma Statement of Operations Data: | | | | | | | | |
| Revenues | | $ | 140,268 | | | $ | 130,826 | |
| Total operating expenses | | | 127,955 | | | | 111,110 | |
| Operating income | | | 12,313 | | | | 19,716 | |
| Net income (loss) | | | (2,811 | ) | | | 4,994 | |
| | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | |
| Basic | | $ | (0.16 | ) | | $ | 0.28 | |
| Diluted | | | (0.16 | ) | | | 0.26 | |
| | | | | | | | | |
| | | | | |
| | | As of
| |
| | | March 31, 2008 | |
| | | (In thousands, except
| |
| | | per share data) | |
| |
Pro Forma Balance Sheet Data: | | | | |
| Lease fleet, net | | $ | 170,224 | |
| Total assets | | | 367,628 | |
| Total long-term debt and obligations | | | 187,745 | |
| Minority interest | | | 8,762 | |
| Stockholders’ equity | | | 118,237 | |
| | | | | |
| Book value per share | | $ | 6.63 | |
| | | | | |
18
PRICE RANGE OF GENERAL FINANCE CORPORATION SECURITIES AND
RELATED STOCKHOLDER MATTERS
Our units, common stock and warrants are listed on the American Stock Exchange under the symbols “GFN.U,” “GFN” and “GFN.WS,” respectively. The following table sets forth for the periods indicated the range of high and low sales prices for the units, common stock and warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Units | | | Common Stock | | | Warrants | |
| | | High | | | Low | | | High | | | Low | | | High | | | Low | |
| |
FY 2009: | | | | | | | | | | | | | | | | | | | | | | | | |
| First Quarter (through August 1, 2008) | | $ | 7.35 | | | $ | 5.90 | | | $ | 6.40 | | | $ | 4.90 | | | $ | 1.05 | | | $ | 0.82 | |
FY 2008: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.05 | | | $ | 6.15 | | | $ | 7.54 | | | $ | 5.44 | | | $ | 1.90 | | | $ | 0.91 | |
| Third Quarter | | $ | 12.15 | | | $ | 8.50 | | | $ | 9.05 | | | $ | 7.00 | | | $ | 3.24 | | | $ | 1.55 | |
| Second Quarter | | $ | 13.70 | | | $ | 10.00 | | | $ | 9.89 | | | $ | 7.90 | | | $ | 4.05 | | | $ | 2.20 | |
| First Quarter | | $ | 10.05 | | | $ | 8.80 | | | $ | 8.00 | | | $ | 7.43 | | | $ | 2.20 | | | $ | 1.60 | |
FY 2007: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.75 | | | $ | 9.00 | | | $ | 7.95 | | | $ | 7.56 | | | $ | 1.96 | | | $ | 1.45 | |
| Third Quarter | | $ | 9.60 | | | $ | 8.50 | | | $ | 7.95 | | | $ | 7.46 | | | $ | 1.80 | | | $ | 1.10 | |
| Second Quarter | | $ | 8.00 | | | $ | 7.81 | | | $ | 7.70 | | | $ | 7.22 | | | $ | 1.15 | | | $ | 0.62 | |
| First Quarter | | $ | 8.45 | | | $ | 7.75 | | | $ | 7.36 | | | $ | 7.22 | | | $ | 0.85 | | | $ | 0.63 | |
Record Holders
As of August 1, 2008, there were eight stockholders of record of our common stock. We believe that there are hundreds of beneficial owners of our common stock, units and warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
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CAPITALIZATION
The following table shows our capitalization as of March 31, 2008 on an actual and pro forma basis. The “actual” column reflects our capitalization as of March 31, 2008 on a historical basis, without any adjustments to reflect subsequent or anticipated events. The “pro forma” column reflects our capitalization as of March 31, 2008 with adjustments to reflect:
(a) borrowings under the Pac-Van Credit Facility and the 13.0% Subordinated Debt to be assumed in connection with the Merger;
(b) the issuance by GFNA of an 8.0% Note to D. E. Shaw;
(c) the issuance of 4,000,000 restricted shares of our common stock to certain of the MOAC stockholders at the market price at March 31, 2008 of $7.07 per share;
(d) borrowings under the ANZ senior secured credit facility in connection with the acquisition of Royal Wolf Trading New Zealand Limited on April 30, 2008 and a 13.5% secured subordinated promissory note; and
(e) proceeds received under our warrant exercise program completed on May 30, 2008.
| | | | | | | | | |
| | | March 31, 2008 | |
| | | Actual | | | Pro Forma | |
| | | (Unaudited - in thousands) | |
| |
| Cash and cash equivalents | | $ | 1,169 | | | $ | 1,512 | |
| | | | | | | | | |
| Long-term debt and obligations: | | | | | | | | |
| ANZ senior secured credit facility(d) | | $ | 63,932 | | | $ | 75,030 | |
| Pac-Van Credit Facility(a) | | | — | | | | 82,000 | |
| Capital lease obligations | | | 478 | | | | 478 | |
| 13.5% secured subordinated promissory note(d) | | | 15,637 | | | | 21,137 | |
| 13.0% Subordinated Debt(a) | | | — | | | | 25,000 | |
| 8.0% Note(b) | | | — | | | | 1,500 | |
| | | | | | | | | |
| Total long-term debt and obligations | | | 80,047 | | | | 205,145 | |
| Minority interest | | | 8,762 | | | | 8,762 | |
| Stockholders’ equity(c)(e) | | | 68,855 | | | | 118,237 | |
| | | | | | | | | |
| Total capitalization | | $ | 157,664 | | | $ | 332,144 | |
| | | | | | | | | |
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RISK FACTORS
On September 12, 2006, we entered into an acquisition agreementYou should carefully consider the following risk factors, together with the management shareholders and Equity Partners under which we agreed to purchase from them all of the shares of capital stock of RWA. On March 29, 2007, we entered into an amended acquisition agreementother information included in this proxy statement, before you vote or instruct your vote with Bison-GE, the management shareholders and Equity Partners, which superseded its September 12, 2006 acquisition agreement in its entirety. Pursuantrespect to the amended acquisition agreement, Bison-GE acquired 80% of the RWA shares, consisting of all of the RWA shares owned by Equity Partners and approximately 50% of the RWA shares owned by the management shareholders for purchase consideration equivalent to the consideration that was originally negotiated by us with the management shareholders and Equity Partners as set forth in the original acquisition agreement. The terms our original acquisition agreement to purchase the RWA shares were determined by arm’s-length negotiations between us and the management shareholders and Equity Partners. The terms of Bison-GE’s participation and the other terms of the amended acquisition agreement and related agreements also were determined by arm’s-length negotiations among the parties. The following is a summary of our considerationapproval of the acquisition.
BackgroundRisks Related to Our Business and Operations Following Our Acquisition of Pac-Van
General or localized economic downturns or weakness may adversely affect Pac-Van’s customers, in particular those in the construction industry, which may reduce demand for Pac-Van’s products and services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Van’s revenues is derived from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions, including the construction industry, which constituted approximately 50% of Pac-Van’s revenues in the fiscal year ended December 31, 2007. Although the variety of Pac-Van’s products, the breadth of its customer base and its geographic diversity throughout the United States limits its exposure to economic downturns, general economic downturns or localized downturns in markets where its operates could reduce demand for Pac-Van’s products, especially in the construction industry, and negatively impact our future revenues and results of operations.
Pac-Van faces significant competition in the modular buildings and portable storage industries. Pac-Van also faces potentially significant competition from modular buildings companies who have portable storage product offerings, especially from several national competitors in the United States who have greater financial resources and pricing flexibility than Pac-Van does. If Pac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
Although Pac-Van’s competition varies significantly by market, the modular buildings markets in whichPac-Van competes are dominated by three or four large participants and are highly competitive. In addition, Pac-Van competes with a number of large to mid-sized regional competitors, as well as many smaller, full and part-time operators in many local regions. The modular building industry is highly competitive and almost all of the competitors have portable storage product offerings. The primary modular national competitors with portable storage product offerings are less leveraged than Pac-Van, and have greater financial resources and pricing flexibility than Pac-Van does. If they focus on portable storage, Pac-Van could lose customers and our future revenues could decline. If Pac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
We are a special-purpose acquisition company organized on October 14, 2005 to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business. In April 2006, we completed our initial public offering, or IPO, from which we derived net proceeds of approximately $65.55 million. Of the net proceeds, $65 million, along with proceeds of $700,000 from the private placement of securities to our Chief Executive Officer and Chief Operating Officer, were placed in a trust account. Such funds, together with the interest earned thereon, will be released to us upon completion of our initial business combination, less any amount payable to our stockholders who exercise their conversion rightsincur indebtedness in connection with the business combinationacquisition of Pac-Van, and less the contingent underwriting fee payablewe may need additional debt or equity financing to the underwriters ofsustain our IPO. If we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to a business combination, or having done so we fail to complete the business combination by April 5, 2008, then, in accordance with our certificate of incorporation, we must take all actions necessary to dissolve and liquidate as soon as reasonably practicable.
Original Acquisition Agreementgrowth. We do not have commitments for any such financing.
AsIn conjunction with our acquisition of Pac-Van, we representedwill incur assume approximately $80.4 million of indebtedness under Pac-Van’s Credit Facility and $25 million of Subordinated Debt. The Subordinated Debt will bear interest at the annual rate of 13%, payable quarterly in arrears and will mature in February 2013. We will rely on cash flow from operations of Pac-Van to make payments under this subordinated indebtedness, and there is no assurance that Pac-Van’s cash flow will be sufficient to service Pac-Van’s indebtedness. Payment of interest and other expenses relating to this indebtedness may adversely affect our financial condition and results of operations.
We also may finance Pac-Van’s growth through a combination of borrowings, cash flow from operations and equity financing. The ability of Pac-Van to grow will depend in part on our ability to obtain either additional debt or equity financing to fund the costs of such growth. The availability and terms of any debt and equity financing will vary from time to time, and will be influenced by Pac-Van’s performance and by external factors, such as the economy generally and developments in the prospectus relating tomarket, that are beyond our IPO, we had no specific business combination under consideration and did not contact any third partiescontrol. Also, additional debt financing or have any discussions, directly or indirectly, in this regard prior to the effectivenesssale of additional equity securities may adversely affect the market price of our IPO registration statement and completionsecurities. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail Pac-Van’s growth by delaying new customer service center openings or the expansion of the initial distribution and sale our IPO securities on April 5, 2006. We also did not engage in any other activities, directly or indirectly, prior to our IPO regarding specific business targets or combinations, including the possible acquisition of Royal Wolf. Prior to the April 5, 2006 effective date of our IPO registration statement, Messrs. Valenta and Johnson received several unsolicited voice-mail messages and telephone calls from persons who either identified themselves as, or whom Messrs. Valenta and Johnson understood to have been, business brokers or investment bankers interested in discussing with General Finance the possibility of being engaged by us to find a target or introduce a target to us. None of these contacts related to Royal Wolf or RWA. We did not respond to any of the voice-mail messages, and Messrs. Valenta and Johnson advised those persons with whom they spoke on the telephone that they were not in a position to discuss any possible acquisitions and were not interested in engaging anyone to find target companies. No specific business opportunities were identified in any of the unsolicited telephone calls or voice-mail messages that we received prior to the effectiveness of our IPO registration statement, and we never returned any of the calls or messages. We also never engaged an investment banker, finder or broker in connection with the Royal Wolf acquisition or any other possible initial business combination or transaction.
After the effectiveness of our IPO registration statement, we began contacting investment bankers, private equity firms and other business contacts in order to generate ideas about a suitable business combination and also received unsolicited inquiries from several investment banking firms, including CIBC, Inc., RBC Dain Rauscher and Jump Securities, LLC, private equity firms such as LightYear Capital and Guiliani Partners, LLC, and other business intermediaries. These sources regularly track the progress of registered public offerings by special purpose acquisition companies such as ours, as well as Securities and Exchange Commission filings by other public companies that indicate that the filers will be seeking to accomplish an acquisition or other strategic transaction. We informed these contacts that, as described in the prospectus relating to our IPO, we were seeking an operatingits lease fleet.
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Because Pac-Van has depended to a large extent on the success of its leasing operations, the failure of Pac-Van to effectively and quickly remarket lease units that are returned could materially and adversely affect our results of operations.
Pac-Van’s average monthly lease fleet utilization has averaged between 70% and 85%, with the typical lease being for an average period of over twelve months. The high utilization rate and the length of the average lease have provided Pac-Van with a predictable revenue stream. However, should a significant number of Pac-Van’s lease units be returned during any short period of time, Pac-Van would have to re-lease a large supply of units at similar rates in order to maintain historic revenues from these operations. Pac-Van’s failure to effectively remarket a large influx of units returning from leases could have a material adverse effect on our results of operations.
Pac-Van operates with a high amount of debt, a substantial portion of which is secured by all or substantially all of the company’s assets and is subject to variable interest rates.
As of June 30, 2008, Pac-Van had outstanding approximately $80.4 million of indebtedness under its existing Credit Facility with LaSalle, which bears interest at variable rates equal to LIBOR plus 1.5% to 2.25% (or the prime rate or prime rate plus 0.25%) based upon the ratio of senior debt to EBITDA, and approximately $25 million of Subordinated Debt which bears interest at the rate of 13% per year. Pac-Van’s debt obligations require it to dedicate a significant portion of its cash flow from operations to payments on this indebtedness, which could reduce the availability of cash flow for future working capital, capital expenditures, acquisitions and other general corporate purposes. In addition, Pac-Van’s debt load increases its vulnerability to general adverse economic and industry conditions, limits its flexibility in planning for, or reacting to, changes in its business and its industry, and subjects it to certain restrictive covenants that influence its operations and its ability to borrow additional funds. These periodic interest rate adjustments could expose Pac-Van’s operating results and cash flows to periodic fluctuations. Failing to comply with its debt service obligations and the debt covenants could result in an event of default under its Credit Facility or Subordinated Debt which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In addition, since Pac-Van’s bank loans are secured by a lien on all or substantially all of Pac-Van’s modular buildings, mobile offices and storage container fleet and other assets, a default under Pac-Van’s bank debt could result in the specialty finance area for our initial business combination. We also asked the lead underwriter of our IPO, Morgan Joseph & Co. Inc., to tell us of any candidates that it might view as appropriate for our initial business combination. We did not retain an investment banking firm or fairness or valuation advisor to conduct a formal search for an initial business combination, and we did not maintain a complete listforeclosure of all of the potential target businesses. In general, however, we followed up with potential business targets until they were deemed either unsuitable or potentially too expensive. Criteria for suitability includedthese assets, which would materially and adversely affect Pac-Van’s operations and ability to continue its current operations.
Sales of modular buildings, mobile offices and storage units constitute a significant portion of Pac-Van’s revenues. Failure to continue to sell units at historic rates could adversely affect our management’s assessmentability to growPac-Van’s lease fleet.
Sales of the competitive strengthsmodular buildings, mobile offices and weaknessesstorage units constituted approximately 30.1% of the potential business targets, the outlookPac-Van’s total revenues for the sectorsyear ended December 31, 2007. Revenues from sales of modular buildings, mobile offices and storage units have been used to fund increases in which the targets operated,size of our lease fleet. As a result, the strengthfailure to continue to sell a significant number of units may adversely affect our ability to increase the management team, and the qualitysize of the assetsPac-Van’s lease fleet or to be acquired. Certain potential targets were considered unsuitable because they operated in sectors of the specialty finance industry that our management believed did not have good economic potential. Other targets were considered by management to have too great a levelotherwise take advantage of business risk dueand growth opportunities available to poor asset quality or poor or erratic financial results.it.
ThroughGovernmental regulations could impose substantial costs and restrictions on Pac-Van’s operations that could harm our future results of operations.
Pac-Van is subject to various federal, state and local environmental, transportation, health and safety laws and regulations in connection with its operations. Any failure to comply with these contacts, we identifiedlaws or regulations could result in capital or operating expenditures or the imposition of severe penalties or restrictions on its operations. In addition, these laws and reviewed information with respectregulations could change in a manner that materially and adversely affects Pac-Van’s ability to more than 20 target companies, including a number that were based outside of the U.S. We signed nondisclosure agreementsconduct its business. More burdensome regulatory requirements in order to obtain confidential information regarding 19 possible target companies in addition to Royal Wolf. These contacts and communications continued through August of 2006. Apart from these confidentiality agreements, we did not enter into agreements with any of these contacts other then Royal Wolf. We have not, and will not, pay any finder’s fees to any of these contacts or other persons. We provided four ofareas may increase our general and administrative costs. If Pac-Van is unable to pass these companies, including three based in Germany, with written indications of interest or verbal indications of value as follows:
| | |
| • | In May 2006, we approached the owner of and commenced discussions with a California provider of modular buildings that had revenue in excess of $6 million in its most recent fiscal year. We were provided summary financial information, along with a management presentation. Although we furnished the company with a written indication of interest, the parties were unable to agree upon the value of the company and discussions terminated in June 2006. |
|
| • | In May 2006, we were contacted by an investment bank representingthree German providers of portable storage containers and offices. We were provided with a summary information memorandum that led to discussions of value. The three companies had combined revenues in excess of $20 million in the most recent fiscal year. We determined that the German providers were either too small or too heavily reliant upon sales rather than leasing, which led to the termination of the negotiations in June 2006. |
At the effective date ofincreased costs on to its customers, our IPO on April 5, 2006, we did not have any specific business combination under consideration, and neither we nor anyone on our behalf had contacted any prospective target business or had any discussions, formal or otherwise, with respect to a business combination transaction. We also did not have any specific business combination under consideration, and neither we nor anyone on our behalf had contacted any prospective target business or had any discussions, formal or otherwise, with respect to a business combination transaction, during the period between the April 5, 2006 effective date of our IPO and the closing of the sale of the IPO securities on April 10, 2006.
On April 11, 2006, one day after the closing of the sale of our IPO securities, Ronald F. Valenta, our Chief Executive Officer and a director, was contacted by telephone by Michael Baxter, a founder and Executive Director of RWA, who introduced himself to Mr. Valenta. Mr. Baxter told Mr. Valenta that he had been referred to Mr. Valenta by, Robert Skinner, the Chief Executive Officer of Royal Wolf Holdings, the former U.S. parent company of Royal Wolf and a subsidiary of Triton Corporation. Mr. Skinner has been employed by Royal Wolf Holdings since, 2002, and served as a director of RWA from 2002 until early 2004. Mr. Baxter worked with Mr. Skinner while Royal Wolf was owned by Royal Wolf, Inc., and the two men remained acquaintances after RWA purchased Royal Wolf in December 2003. Except as referred to above, there is no business or other relationship between Mr. Baxter and Mr. Skinner, or any other relationship between Mr. Skinner and RWA. According to Mr. Baxter, in or about March 2006, Mr. Skinner telephoned Mr. Baxter, and the two men had a casual conversation in which, among other things, Mr. Skinner informed Mr. Baxter that we had filed a registration statement relating to our IPO. None of our officers, directors or affiliates previously was acquainted or had any connection with Mr. Baxter, and there were no contacts, directly or indirectly, between us or our officers, directors or affiliates and Mr. Skinner regarding us or our IPO or Royal Wolf or other possible initial business combination or transaction by us. Mr. Skinner has no financial interest, directly or indirectly, in Royal Wolf, and will not benefit, directly or indirectly, from our acquisition of Royal Wolf.future operating results could be negatively impacted.
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Mr. Valenta has known Mr. Skinner for more than 15 years. His acquaintancePac-Van may not be able to facilitate its growth strategy by identifying or completing transactions with Mr. Skinner has been limited primarily to polite conversations at industryattractive acquisition candidates, which could impair the growth and trade associations, and Mr. Valenta recalls meeting Mr. Skinner in person on approximately three occasions and speaking with him by telephone on many occasions. Since our IPO was conceptualized in on about mid-2005, Mr. Valenta spoke with Mr. Skinner only in December 2005. At that time, Mr. Valenta contacted Mr. Skinner on behalf of Mobile Services Group, Inc., the holding company of Mobile Storage Group, Inc., a privately held portable storage company which was founded by Mr. Valenta and a majority interest in which was sold to Windward Capital Management LLC and its affiliates in 2000. Mr. Valenta was asked by the board of directors and management of Mobile Services Group, Inc. to contact Mr. Skinner regarding Triton Holding’s possible saleprofitability of its U.S.business.
Since August 2006, Pac-Van has completed six small acquisitions. An important element of our growth strategy for Pac-Van is to continue to seek additional acquisitions in order to add new customers within existing geographic markets and U.K. portable container storagebranch locations, and to expand Pac-Van’s operations into new markets. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices, upon advantageous terms and conditions and upon successful integration of the acquired businesses. Mr. Valenta approached Mr. SkinnerHowever, future acquisitions may not be available at advantageous prices or upon favorable terms and conditions. In addition, acquisitions involve risks that the businesses acquired will not perform in this regard strictly in his capacity as a directoraccordance with expectations, that business judgments concerning the value, strengths and weaknesses of Mobile Services Group,businesses acquired will prove incorrect, that the acquired businesses may not be integrated successfully and that the acquisitions may strain Pac-Van’s management resources. Future acquisitions and any necessary related financings also may involve significant transaction-related expenses. If Pac-Van is unable to complete additional acquisitions or successfully integrate any businesses that it does acquire, our future growth and operating results would be adversely impacted.
Failure to retain key personnel could adversely affect Pac-Van’s operations and could impede our ability to execute our business plan and growth strategy.
After the completion of the acquisition, Pac-Van will continue to be managed largely by its existing officers, including Theodore M. Mourouzis, the President of Pac-Van, Inc., and six senior managers. The continued success of Pac-Van will depend largely on the efforts and abilities of Mr. Mourouzis and these senior managers who have served at Pac-Van for an average of ten years. These officers and employees have knowledge and an understanding of Pac-Van and its industry that cannot be readily duplicated. Mr. Mourouzis has an employment agreement which is terminable under certain circumstances upon notice to or by him. The loss of any member of Pac-Van’s senior management team could impair our ability to execute our business plan and growth strategy, cause a loss of customers, reduce revenues and adversely affect employee morale.
Any failure of Pac-Van’s management information systems could disrupt our business and result in decreased rental or sale revenues and increased overhead costs, which could negatively impact our results of operations.
Pac-Van depends on its management information systems to actively manage its lease fleet, control new unit capital spending and provide fleet information, including leasing history, condition and availability of our units. These functions enhance Pac-Van’s ability to optimize fleet utilization, rentability and redeployment. The failure of Pac-Van’s management information systems to perform as we anticipate could disrupt its business and could result in, among other things, decreased leases or sales and increased overhead costs, which could negatively impact our results of operations.
Significant increases in raw material costs could increase our operating costs significantly and harm our stockholders’ equity.
Pac-Van purchases raw materials, including metals, lumber, siding and roofing and other products, to construct and modify modular buildings and to modify containers to its customers’ requirements. Pac-Van also maintains a truck fleet to deliver units to and return units from customers. During periods of rising prices for raw materials, especially oil and fuel for delivery vehicles, and in particular when the prices increase rapidly or to levels significantly higher than normal, Pac-Van may incur significant increases in operating costs and may not be able to pass price increases through to customers in a timely manner, which could harm our future results of operations.
Failure by Pac-Van’s manufacturers to sell and deliver products to Pac-Van in timely fashion may harm Pac-Van’s reputation and our financial condition.
Pac-Van currently purchases new modular buildings and components, mobile offices and storage container products directly from manufacturers. Although Pac-Van is not dependent on our behalf. Following Mr. Valenta’s introduction, managementany one manufacturer and is able to purchase products from a variety of Mobile Services Group, Inc., with Mr. Valenta’s participation, negotiated with Triton Holding regardingsuppliers, the possible acquisitionfailure of one or bothmore of these businesses, but the negotiations were unsuccessful. Triton Holding subsequently sold its U.S.suppliers to timely manufacture and U.K. portable storage container businesses to Mobile Mini, Inc., a publicly held competitor of Mobile Services Group, Inc. Mr. Valenta never discussed with Mr. Skinner, or anyone else at Triton Holding, our IPO or any possible initial business combination or other transaction by us on this or any other occasion. Mr. Valenta has not spoken with Mr. Skinner since January 2006, when discussions broke off between Mobile Services Group, Inc. and Triton Holding. None of our other officers or directors previously was acquainted or had any connection with Mr. Skinner. There also is no affiliation between us and RWA or our respective officers, directors or affiliates. Prior to Mr. Baxter’s unsolicited telephone call to Mr. Valenta on April 11, 2006, none of our directors or officers had any contacts or dealings with Mr. Baxter or any of Royal Wolf’s other officers, directors affiliates or representatives, and Mr. Baxter took no actions regarding a possible transaction with us prior to his telephone call to Mr. Valenta on April 11, 2006. We are not aware if Mr. Skinner may have taken any actions regarding a possible transaction with us prior to or after his call to Mr. Baxter in March 2006 or Mr. Baxter’s telephone call to Mr. Valenta on April 11, 2006. No finder’s fee or other compensation has been or will be paid to Mr. Skinner in connection or related to our acquisition of RWA, and we do not have, and have never had, any contracts or agreements with Mr. Skinner. Mr. Valenta is not acquainted with any other current or former Royal Wolf employee. He is acquainted on a casual business basis with Edward Schneider, the President and Chief Executive Officer of Triton Holding, the parent of Royal Wolf, Inc., which formerly owned Royal Wolf. Mr. Valenta has not had any conversations with Mr. Schneider regarding RWA, and Mr. Schneider has had no direct or indirect involvement, and has no interest, in RWA or our dealings with RWA. Mr. Valenta also is casually acquainted with Terry Nakashima, a branch manager, and Karl Obertik, the Chief Operating Officer, of A Royal Wolf Portable Storage, Inc., a subsidiary of Royal Wolf, Inc. Mr. Valenta has not had any contact with either of these individuals within at least the past two years. Mr. Valenta has not had any contacts and is not acquainted with any other affiliate of either RWA or the former parent of RWA.
Mr. Baxter has advised us that the purpose of his telephone call to Mr. Valenta on April 11, 2006 was to find out more about our business plan. During the telephone call, Mr. Valenta explained to Mr. Baxter that he had extensive experience in the portable services industry, and that we intended to focus our search for an initial business combination on companies in the specialty financing industry. Mr. Baxter discussed briefly with Mr. Valenta Royal Wolf’s plans to introduce new products and seek to acquire businesses or assets in Australia in order to grow Royal Wolf and position it for a possible sale or other strategic transaction. Mr. Baxter indicated, however, that Royal Wolf was not for sale and was perhaps a year away from considering any strategic transaction.
Following April 11, 2006, Mr. Valenta had several follow-on telephone calls with Mr. Baxter. During these calls, Mr. Valenta became interested in the possibility of acquiring Royal Wolf in our initial business combination and asked Mr. Baxter to share with us more information regarding Royal Wolf’s business and prospects. Mr. Baxter initially expressed reluctance to share confidential information based upon his previous advice that Royal Wolf was perhaps a year away from considering a possible strategic transaction, but he eventually agreed to do so. On May 2, 2006, we executed a non-disclosure agreement with Royal Wolf and began exchanging information with RWA.
On May 8 and 9, 2006, Mr. Valenta met in the Sydney, Australia, offices of Equity Partners, the private equity sponsor and majority shareholder of RWA, with Mr. Baxter, Dr. Richard Peter Gregson, Managing Director of Equity Partners, Mr. Rajeev Dhawan, Executive Director of Equity Partners, Paul Henry Jeffery, Non-Executive Director of RWA and James Warren, Chief Operating Officer of RWA. The representatives discussed their
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respective companiesdeliver storage containers to Pac-Van could adversely affect its operations. Pac-Van purchases new modular buildings and components, mobile offices and storage containers under purchase orders issued to various manufacturers, which the valuation parameters of a potential transaction. Following this meeting, Mr. Valenta advised Mr. Baxter that we were interested in continuing discussions relatingmanufacturers may or may not accept or be able to a possible acquisition of RWA.fill. Pac-Van has no contracts with any supplier. If these suppliers do not timely fill Pac-Van’s purchase orders, or do not properly manufacture the ordered products, our reputation and financial condition also could be harmed.
On May 11, 2006, we convened a telephonic meetingPac-Van’s planned growth could strain our management resources, which could disrupt our development of our board of directors at which, among other things, management reviewed with our directors the status of our discussions with RWA regarding a possible acquisition of RWA. At the meeting, management conveyed its preliminary view that Royal Wolf was a leading company in its sector and geographic market with a strong management team and significant growth potential.new Pac-Van customer service centers.
Over the next several days, Messrs. BaxterOur future performance will depend in large part on our ability to manage Pac-Van’s planned growth.Pac-Van’s growth could strain our existing management, human and Dhawanother resources. To successfully manage this growth, we must continue to add managers and Mr. Peter McCann, Chief Financial Officeremployees and improvePac-Van’s operating, financial and other internal procedures and controls. We also must effectively motivate, train and managePac-Van’s employees. If we do not managePac-Van’s growth effectively, some of RWA, had several communications with Mr. Valenta regardingits new customer service centers and acquisitions may lose money or fail, and we may have to close unprofitable locations. Closing a branch would likely result in additional expenses that would adversely affect our preliminary due diligence requests and a due diligence timetable.future operating results.
On May 15, 2006, we delivered a preliminary non-binding indicationSome zoning laws restrict the use of interestPac-Van’s storage units and therefore limit its ability to Messrs. Gregson and Dhawan. After several subsequent communications between Messrs. Dhawan and Baxter and Mr. Valenta, on May 23, 2006, we delivered a revised non-binding indication of interest, which was executed on May 26, 2006.offer its products in all markets.
On June 26, 2006, we engaged LaRue, Corrigan and McCormick LLP,Many ofPac-Van’s customers usePac-Van’s storage units to store goods on their own properties. Local zoning laws in some ofPac-Van’s geographic markets prohibit customers from maintaining mobile offices or LCM,storage containers on their properties or require that mobile offices or storage containers be located out of sight from the street. If local zoning laws in one or more ofPac-Van’s geographic markets were to review the audit work papers of Royal Wolf’s auditors and undertake other specific financial accounting due diligence procedures.ban or restrict mobile offices or storage containers stored on customers’ sites,Pac-Van’s business in that market will suffer.
On July 3, 2006, LCM began its due diligence procedures at Equity Partners’ headquartersUnionization by some or all ofPac-Van’s employees could cause increases in Sydney, Australia. On July 7, 2006, we engaged Ernst & Young LLP Australia to perform tax due diligence and advise us with respect to structuring of the possible acquisition. During these procedures, management of Royal Wolf provided us with the following financial estimates and summary projections for Royal Wolf’s fiscal year ending June 30, 2007. These summary projections were provided in connection with the valuation of the transaction only, and these results may not actually be obtained. For this reason, stockholders should not place undue reliance upon such projections:
| | | | | | | | | |
| | | Year Ending June 30, 2007(1) | | | Year Ending June 30, 2006(1) | |
| | | (In millions) | | | (In millions) | |
| |
| Revenue | | $ | 67.6 | | | $ | 48.8 | |
| Revenue growth | | | 38.5 | % | | | 23.7 | % |
| EBITDA(2) | | $ | 10.7 | | | $ | 5.2 | |
| Margin | | | 15.8 | % | | | 10.7 | % |
| Net capital expenditures | | $ | 6.2 | | | $ | 5.6 | |
| Number of containers | | | 17,027 | | | | 16,739 | |
operating costs.
| | |
(1) | | Translated at exchange rate of 0.7239 AUD to USD |
|
(2) | | Excludes transaction costs |
On July 10, 2006, we engaged Barnes & Wenden as our Australian legal counsel in connection with the acquisition.
On July 11, 2006, Mr. Valenta and John O. Johnson, our Chief Operating Officer, met with senior managers of Royal Wolf at the offices of Equity PartnersPac-Van’s employees are not presently covered by collective bargaining agreements. Unions may attempt to review our preliminary due diligence findings and discuss various aspects of a possible acquisition. Over the course of approximately one week, succeeding drafts of a non-binding term sheet were prepared in response to comments and suggestions of the parties and their respective counsel, with management and counsel for both companies engaging in numerous telephonic conferences and negotiating sessions. On July 18, 2006, we engaged Consulting Earth Scientists, an environmental services firm, to conduct environmental site assessments on each of the leased facilities of RWA.
On July 28, 2006, our board of directors met to discuss the proposed acquisition of RWA. Present at the meeting were all of our directors, as well as Mr. Johnson, Marc Perez, our Controller, and Alan B. Spatz of Troy & Gould Professional Corporation, our corporate counsel. Prior to the meeting, financial, operational and descriptive information about Royal Wolf was sent to each of our directors. Messrs. Valenta and Johnson described Royal Wolf’s business and operations and the structure of the possible acquisition, and led a discussion among the directors and our outside counsel. Messers. Valenta and Johnson indicated that their due diligence and theorganizeon-sitePac-Van’s presentation by Royal Wolf’s management reinforced their preliminary view expressedemployees in the May 11 board meeting, and they recommended proceeding withfuture. We are unable to predict the possible acquisition on this basis. Following the discussion,
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our boardoutcome of directors directed Messrs. Valenta and Johnsonany continuing or future efforts to continue pursuing the acquisition as outlined and to keep the board of directors apprised of their progress.
Following the July 28, 2006 board meeting, our management and legal advisors continued to negotiate with representatives of RWA. On August 3, 2006, we signed a non-binding term sheet by which RWA granted us an exclusive period extending through August 31, 2006 to perform more in-depth due diligence and to discussorganizePac-Van’s employees, the terms of a definitive acquisition agreement. Several conversations took place overany future labor agreements, or the next several days between us, RWA andeffect, if any, those agreements might have on our respective legal advisors regarding the outline of a definitive acquisition agreement.
From August 14 to August 16, 2006, Mr. Johnson was present in Sydney, Australia, to conduct further due diligence with respect to potential tax and corporate structure with Ernst & Young LLP Australia, to review the legal due diligence with Mr. Barnes of Barnes & Wenden and the environmental due diligence with Consulting Earth Scientists, and to continue to evaluateoperations or financial and accounting information of Royal Wolf. During this same three-day period, several negotiations were held between Barnes & Wenden and counsel to the sellers, resulting in the preparation of a draft definitive acquisition agreement.
On August 29, 2006, a special meeting of our board of directors was convened in Glendale, California, at which our board reviewed the internal valuation analyses of Royal Wolf prepared by our management and discussed the various terms of the draft definitive acquisition agreement. Representatives of the sellers also were present at the beginning of the meeting, and presented Royal Wolf’s 2007 business plan and answered questions posed by our directors prior to the directors’ deliberations regarding approval of the acquisition. After further review and discussion, the acquisition agreement was unanimously approved by our board of directors, subject to modifications to be negotiated to address the directors’ comments on the draft agreement.
Additional negotiations regarding adjustments to the definitive acquisition agreement took place in person on August 30, 2006 and telephonically over the several days after that, which discussions resulted in the preparation of the proposed final definitive agreement.
On September 1, 2006, a telephonic meeting of our board took place at which the board was updated regarding ongoing developments and approved the final modifications to the terms of the acquisition agreement.
The parties signed the original acquisition agreement on September 12, 2006. On September 12, 2006, we issued a press release and filed a Current Report onForm 8-K announcing the signing of the acquisition agreement and certain other matters.
The original acquisition agreement was amended in certain immaterial respects by amendments entered into on January 19 and March 9, 2007, respectively.performance.
Amended Acquisition Agreement
The original acquisition agreement, as amended, entitled the management shareholders and Equity PartnersRisks Related to terminate the agreement if, among other things, we did not obtain Securities and Exchange Commission clearance to mail this proxy statement by February 26, 2007 or the acquisition was not approved by our stockholders by March 26, 2007.
Our board of directors met on February 20, 2007. At the meeting, our management briefed our board on the status of the Securities and Exchange Commission proxy statement review. Our management reported that it appeared increasingly unlikely that we would complete the proxy statement review process by the deadline set forth in the original acquisition agreement, and that the RWA shareholders were becoming concerned about the delay in the proxy statement review process and the implications for the acquisition. Also at the February 20, 2007 meeting, our board of directors approved a non-binding term sheet from Bison Capital to provide mezzanine financing in connection with the Royal Wolf acquisition, and authorized our management to sign the term sheet.
As the February 26, 2007 deadline approached for mailing this proxy statement, we informed the management shareholders and Equity Partners that we did not anticipate completing the Securities and Exchange Commission proxy statement review process by the deadline, and that we would need an extension of the deadlines relating to the mailing of this proxy statement and approval of the acquisition by our stockholders. Equity Partners informed us that it was not willing to consider any extension of the deadlines unless we agreed that our previous deposits of
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$1,005,000 in connection with the acquisition were no longer refundable under any circumstance if the closing did not occur by the March 26, 2007 deadline. Equity Partners also indicated that it was willing to extend the deadlines for not more than 14 days, and only if we agreed to amendments to the original acquisition agreement that would have:
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| • | Increased the acquisition consideration payable by us in cash at the closing by approximately $2.36 million; |
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| • | Required us to pay approximately $591,000 of the additional cash consideration as a nonrefundable deposit in addition to our prior $1,005,000 deposits; and |
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| • | Reduced the amount of the acquisition consideration to be retained in escrow following the closing to satisfy the sellers’ indemnification obligations from $5.5 million to approximately $2.5 million. |
Our management informed Equity Partners and the management shareholders that we were willing to consider its suggested changes to the economic terms of the original acquisition agreement, but that a14-day extension of the deadlines for obtaining Securities and Exchange Commission clearance to mail this proxy statement and stockholder approval of the acquisition would not allow sufficient time to complete the proxy statement review process with the Securities and Exchange Commission, mail the definitive proxy statement, and convene the special meeting of our stockholders a reasonable number of days after the final proxy statement was furnished to them. Equity Partners indicated, however, that it had several other unidentified potential buyers for Royal Wolf and that it believed that Royal Wolf’s current value exceeded the value of the acquisition consideration that we had agreed to pay under the original acquisition agreement. Equity Partners also told us that Royal Wolf would be the first portfolio company sold by Equity Partners, and that it desired to complete the sale soon in order to facilitate the formation and funding of its second private equity fund. For these reasons, according to Equity Partners, it was not willing to grant us an extension in excess of 14 days from the original deadlines under the original acquisition agreement.
Based upon Equity Partners’ position that it was unwilling to postpone the sale of its RWA shares for more than 14 days, our management undertook to consider whether we should abandon the Royal Wolf acquisition altogether, forfeit our deposits of $1,005,000, and undertake to seek to identify another possible initial business combination. Our management also considered possible means of avoiding abandoning the acquisition.
On March 1, 2007, Mr. Valenta contacted Douglas B. Trussler of Bison Capital to discuss with him the status of the Securities and Exchange Commission proxy statement review process and our management’s conclusion that we were not likely to be able to meet the deadlines set forth in the original acquisition agreement. Mr. Valenta also discussed with Mr. Trussler the fact that Equity Partners was unwilling to give us a sufficient extension of the time to complete the proxy statement review process and present the Royal Wolf acquisition to a vote of our stockholders, and whether Bison Capital might be willing to participate in our acquisition of Royal Wolf in an effort to resolve these matters.
Bison Capital is a Los Angeles-based private equity firm affiliated with General Electric Corporation, or GE. Ronald F. Valenta has known Douglas B. Trussler, one of the founders of Bison Capital, since 1999, when Mr. Trussler was employed by Windward Capital Management LLC, an affiliate of Windward Capital Partners II, L.P., a private equity fund. In April 2000, Mr. Valenta, the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., and other Mobile Storage shareholders sold a majority interest in Mobile Storage Group, Inc. to Windward Capital Partners II, L.P. Mr. Trussler subsequently left Windward Capital Partners II, L.P. in December 2000 to found Bison Capital in May 2001. James K. Hunt, the other co-founder of Bison Capital, was appointed by Windward Capital Partners II, L.P. to the board of directors of Mobile Storage Group, Inc. in 2002.
Messrs. Valenta and Trussler have kept in contact since their direct involvement in the investment by Windward Capital Partners II, L.P. in Mobile Storage Group, Inc. In May 2006, in one such contact, Mr. Valenta informed Mr. Trussler that we had recently raised approximately $70 million in our IPO, and that we were seeking to identify our initial business combination. Mr. Trussler indicated that Bison Capital might have an interest in financing a potential acquisition, or providing financing to a business that we might acquire, given that Bison Capital was in the business of providing such financing and given Mr. Trussler’s successful dealings with Mr. Valenta in connection with Windward Capital’s investment in Mobile Storage Group, Inc.
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In September 2006, Mr. Valenta contacted Mr. Trussler to discuss with him our recently announced proposal to acquire Royal Wolf and to determine whether Bison Capital might have an interest in providing mezzanine financing at or after the transaction. Mr. Valenta informed Mr. Trussler that, although we had sufficient cash to complete the purchase of Royal Wolf without financing, we may be interested in establishing a relationship with Bison Capital or its affiliates as a long-term capital partner. Following the discussion between Messrs. Valenta and Trussler, Bison Capital submitted to us a preliminary non-binding indication of the terms of possible mezzanine financing for the Royal Wolf acquisition, and in October 2006 Mr. Trussler visited the Royal Wolf facilities in Australia. Bison Capital subsequently submitted a non-binding letter of intent to provide acquisition financing to Royal Wolf, which we entered into after the February 20, 2007 meeting of our board of directors described above. As part of its due diligence relating to the letter of intent, Bison Capital revisited Royal Wolf in February 2007. On March 1, 2007, not long after that visit, as described above, Mr. Valenta contacted Mr. Trussler to discuss the Securities and Exchange Commission proxy statement review process and timing relative to the commitments in our original acquisition agreement to purchase Royal Wolf.
In his discussions with Mr. Valenta on March 1, 2007, Mr. Trussler indicated to Mr. Valenta that, based upon Bison Capital’s prior due diligence and familiarity with Royal Wolf, Bison Capital might be willing to buy Equity Partners’ RWA shares if we would commit to repurchase the RWA shares from Bison Capital on economic and other terms satisfactory to Bison Capital and if we subsequently received stockholder approval of the Royal Wolf acquisition. Mr. Trussler indicated that the transaction would have to be consistent with Bison Capital’s usual investment criteria, and that Mr. Valenta, personally, would have to agree to buy all or a portion of Bison Capital’s RWA shares if we were not able to do so for any reason. Mr. Trussler suggested as a possible structure that the original acquisition agreement be assigned by us to Bison Capital, and that we and Bison Capital work jointly with the shareholders of Royal Wolf to seek their consent to the assignment and to the terms and provisions of the restructured acquisition.
Following the March 1, 2007 discussion between Mr. Valenta and Mr. Trussler, our management continued to discuss with Bison Capital the possible terms on which it might be willing to participate in the Royal Wolf acquisition as set forth in draft term sheets circulated between us and our legal advisors and Bison Capital and its legal advisors.
On March 6, 2007, at a meeting of our board of directors called for this purpose, our management briefed our directors on the discussions with Bison Capital and the possible restructuring of the acquisition agreement to accomplish an extension of the various deadlines under the acquisition agreement with Bison Capital’s participation. At the meeting, our management discussed the costs and other disadvantages to us and our stockholders of abandoning the Royal Wolf acquisition and seeking another initial business combination, including the risk that we could not identify and negotiate another initial business combination, complete the Securities and Exchange Commission proxy statement review process, and present the alternative business combination to our stockholders before April 5, 2008, the date by which we must dissolve our company if we have not completed our initial business combination. Management and our board also discussed the risks associated with proceeding with the acquisition of Royal Wolf on the terms proposed by Equity Partners, including the fact that management, in consultation with Troy & Gould, our outside counsel, believed that we would require more than 14 days to complete the proxy statement review process with the Securities and Exchange Commission. Mr. Valenta and Mr. Johnson reported to our board that they continued to believe that Royal Wolf was an attractive initial business combination, and that we should proceed with the acquisition, if feasible. At the March 6, 2007 meeting, our board authorized management to develop a proposal to accomplish the Royal Wolf acquisition, but on a schedule that would allow us time to complete the proxy statement review process, including any additional review that might be necessitated by any changes in the terms and provisions of the original acquisition agreement.
On March 9, 2007, our board of directors met to consider our management’s discussions with Equity Partners and Bison Capital. Our management explained that Equity Partners and the management shareholders were entitled under the original acquisition agreement to terminate the acquisition agreement given the passage of the February 26, 2007 deadline for obtaining Securities and Exchange Commission clearance to mail this proxy statement, but that they were willing not to terminate the acquisition agreement if we would agree to make our deposits nonrefundable. After discussion, our board authorized our management to enter into an amendment to the
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acquisition agreement making our $1,005,000 of deposits nonrefundable if the closing does not occur. We entered into such an amendment later that same day.
On March 13, 2007, John O. Johnson, our Chief Operating Officer, traveled to Australia to address with the RWA shareholders the possibility of restructuring the acquisition with Bison Capital’s participation. Over the following two days, March 14 and March 15, 2007, Mr. Johnson, with the participation by telephone and email of our other management and legal advisors in the U.S. and Australia, negotiated with the RWA shareholders the terms of the possible restructured acquisition. During his meetings in Australia, Royal Wolf management also furnished Mr. Johnson with updated internal projected results of operations of Royal Wolf for the twelve months ended December 31, 2006 and the twelve months ending December 31, 2007, and discussed with Mr. Johnson recent developments and the current status of Royal Wolf’s business and operations. Management of Royal Wolf confirmed that, through December 31, 2007, Royal Wolf was performing according to the management projections previously provided to us. Management also reported on the increased capital expenditures for Royal Wolf’s container fleet and management’s expectation that these additional expenditures would further improve Royal Wolf’s operating results for 2007.
The RWA management team provided us, at our request, with trailing twelve month December 31, 2006 financials as well as projected December 31, 2007 numbers so that we could more accurately compare them with our U.S. comparable companies that use a calendar year end period. These summary projections were provided in connection with our management’s evaluation of the transaction only, and these results may not actually be obtained. For this reason, stockholders should not place undue reliance upon such projections:
| | | | | | | | | |
| | | Projected Dec. 31, 2007(1) | | | Actual TTM Dec. 31, 2006(1) | |
| | | (In millions) | | | (In millions) | |
| |
| Revenue | | $ | 79.8 | | | $ | 62.1 | |
| Revenue growth | | | 28.5 | % | | | 23.7 | % |
| EBITDA(2) | | $ | 13.8 | | | $ | 8.1 | |
| Margin | | | 17.3 | % | | | 13.1 | % |
| Net capital expenditures | | $ | 20.3 | | | $ | 17.5 | |
| Number of containers | | | 22,288 | | | | 17,808 | |
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(1) | | Translated at exchange rate of 0.788 AUD to USD. TTM means Trailing Twelve Months. |
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(2) | | Excludes transaction costs and transaction-related ESOP conversion costs. |
On March 15, 2007, Bison Capital submitted to our management a term sheet outlining an agreement in principle under which Bison Capital or its affiliate would agree on not later than March 29, 2007 to purchase all of the RWA shares of Equity Partners and a portion of the management shareholders’ RWA shares for consideration equivalent in all material respects to the aggregate acquisition consideration that we originally agreed to as set forth in the original acquisition agreement. Under the term sheet, we would agree at a subsequent closing to be held after completion of the proxy statement review process, and assuming that the acquisition is approved by our stockholders, to purchase the remaining RWA shares held by the management shareholders and a portion of the RWA shares owned by Bison Capital and its affiliates, such that we would own, directly or indirectly, approximately 86.2% of the outstanding capital stock of RWA as of the subsequent closing and Bison Capital or its affiliates would own, directly or indirectly, not less than 13.8% of the outstanding RWA shares. The subsequent closing would be subject to the closing condition relating to approval of the acquisition by our stockholders as contemplated by the original acquisition agreement, as well as new closing conditions relating to the maintenance of Royal Wolf’s existing credit facilities with ANZ and our agreement to cause GFN Australasia to sell and issue approximately $15.7 million of senior subordinated promissory notes to Bison Capital or its affiliates at the subsequent closing.
Later in the day on March 15, 2007, our management arranged a conference telephone call with our board of directors to discuss the terms of the Bison Capital term sheet. At the meeting, our board discussed the prospects for avoiding the termination of the original acquisition agreement without Bison Capital’s participation, the terms and provisions of the Bison Capital term sheet, including the funding to be provided by Bison Capital and its affiliates to accomplish the purchase of the RWA shares prior to March 30, 2007 and the purchase price that would be payable
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by us for those shares at the subsequent closing, our payment of costs and expenses, including legal fees and expenses, incurred by Bison Capital and its affiliates in connection with these transactions, the terms of the subordinated indebtedness to be issued by GFN Australasia, and the terms of Mr. Valenta’s agreement to make whole Bison Capital and its affiliates if we do not purchase the RWA shares. Our board also discussed the need for updated due diligence and valuation analyses from our management prior to approving a definitive amended acquisition agreement. During the March 15, 2007 conference call, our board agreed that our management should seek to negotiate an amended acquisition agreement for Royal Wolf on the terms outlined in the Bison Capital term sheet, and directed management to update its due diligence and prepare an updated analysis of the fair value of Royal Wolf in order to present these updates at a subsequent meeting of our board tentatively scheduled for approximately one week later on March 23, 2007.
Over the weekend following March 15 and throughout the week of March 19, our management, together with our legal advisors at Troy & Gould in the U.S. and Barnes & Wenden in Australia, negotiated with Equity Partners, the management shareholders, Bison-GE, and their respective legal advisors the terms and provisions of the restructured acquisition and prepared drafts of the related legal documentation. As a result of these negotiations, it was agreed, among other things, that the original acquisition agreement would be amended as set forth in the amended acquisition agreement, that we and Bison-GE would enter into the shareholders agreement, and that Mr. Valenta would enter into the backup purchase agreement with Bison-GE and the management shareholders.
Our board of directors met on March 23, 2007 to review and consider the terms and provisions of the definitive amended acquisition agreement, the shareholders agreement, the backup purchase agreement, and related agreements, and to hear from our management regarding its updated due diligence and valuation analyses. At the March 23, 2007 meeting, our management summarized for the directors the events since the meeting of our board of directors held on March 15, 2007. A representative of Troy & Gould, our U.S. legal advisor, summarized for the directors the material terms and provisions of the draft amended acquisition agreement, including the changes from the terms and provisions of the original acquisition agreement. The Troy & Gould representative and our management also summarized the terms and provisions of the proposed shareholders agreement and Mr. Valenta’s backup purchase agreement. Mr. Johnson presented to the directors our management’s updated financial and valuation analyses and discussed changes from the original financial and valuation analyses considered by our board of directors in connection with its evaluation and approval of the original acquisition agreement. Following discussion, our board of directors directed management to proceed to try and finalize the amended acquisition agreement and related agreements along the lines discussed at the meeting and to respond to the directors’ questions and comments at a follow-on board meeting tentatively scheduled for Monday, March 26, 2007. At the meeting on March 23, 2007, our management also discussed with our board of directors the advisability of seeking from Mr. Valenta an increase in his line of credit from $2,000,000 to $3,000,000. Mr. Valenta indicated that he was willing to agree to the increase, and our board determined to table the matter until the next board meeting.
Our management and our legal advisors here in the U.S. and Australia continued to work over the weekend of March 24 and March 25 and on Monday, March 26, 2007, to further revise the amended acquisition agreement and related agreements prior to the follow-on board meeting.
Our board of directors met in the afternoon of Monday, March 26, 2007, to review the final terms and provisions of the amended acquisition agreement and related documents and consider our management’s final valuation analysis. A representative of Troy & Gould also participated in the meeting and summarized the final terms of the amended acquisition agreement and related agreements, including any changes from the terms considered by the directors at the March 23, 2007 board meeting.
The following summarizes the material changes effected by the amended acquisition agreement, as they affect us:
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| • | The purchase price for Royal Wolf is the same as the purchase price that we would have paid if we had closed the acquisition on March 31, 2007, plus $1.125 million, which equates to approximately $57.6 million, plus $864,600 per month from March 29, 2007 through the closing. The $1.125 million plus $864,600 per month represents the increase in the purchase price over what we would have paid had we been able to complete the proxy statement review process and accomplish the closing of the acquisition on March 29, 2007. There will |
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| | be no adjustments to the purchase price based upon net debt, working capital, net tangible assets or container rentals of Royal Wolf; |
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| • | We will no longer pay $1.2 million of the purchase price with shares of our common stock; |
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| • | We will pay $6.7 million of the purchase price by issuing to Bison-GE approximately 1,380 shares of GFN U.S. representing 13.8% of the GFN U.S. shares and, as a result, we will own indirectly 86.2%, rather than 100%, of Royal Wolf, and Bison-GE will own indirectly 13.8% of Royal Wolf, subject to the provisions of the shareholders agreement; |
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| • | The covenants of the sellers were amended to provide that Royal Wolf may not make any acquisitions without our consent; |
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| • | We will commit to issue to Bison Capital or its affiliates $15.76 million of senior subordinated indebtedness of GFN Australasia. We previously contemplated obtaining senior subordinated indebtedness in connection with the acquisition, but we had not entered into any financing commitment; |
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| • | We will agree to pay the costs and expenses of Bison-GE and its affiliates in connection with it acquisition of the RWA shares and sale of the shares to us; |
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| • | Bison Capital will assign to us the warranties relating to the business of Royal Wolf made by both Equity Partners and the management shareholders in connection with Bison-GE’s purchase of RWA shares. The warranties relating to the Royal Wolf business made to us at the closing will be made by the management shareholders; and |
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| • | The periods for the sellers’ covenants not to compete and the release of escrow funds will run from Bison-GE’s purchase of RWA shares rather than our closing of the purchase of Royal Wolf. |
After further review and consideration, our board of directors unanimously approved the amended acquisition agreement and related agreements and authorized our management to finalize and execute and deliver the agreements on our behalf, subject to any modifications deemed appropriate by our management in consultation with our legal advisors in the U.S. and Australia. Our board established April 20, 2007 as the tentative record date and May 29, 2007 as the tentative meeting date for the special meeting of our stockholders. At the meeting, our board of directors also authorized an increase in the line of credit from Mr. Valenta to $3,000,000.
Over the next several days, our management and legal advisors finalized the amended acquisition agreement and related agreements, and on March 29, 2007 the parties signed the amended acquisition agreement, which superseded the September 12, 2006 acquisition agreement in its entirety, and Bison-GE purchased 80% of the RWA shares under the amended acquisition agreement. On March 29, 2007, we and Mr. Valenta also signed an amendment to his line of credit agreement to increase the line of credit to $3,000,000. On March 30, 2007, we issued a press release and filed a Current Report onForm 8-K relating to the signing of the amended acquisition agreement and the establishment of the new record date and meeting date for the special meeting of stockholders.
Subsequently, we and Bison-GE agreed that Bison-GE’s 13.8% ownership interest in Royal Wolf would be in the form of shares of capital stock of GFN U.S.
Our Board of Directors’ Reasons for the Approval of the Acquisition
Based uponIn its evaluation, our boardreview of directors has unanimously approved our acquisition of RWA and determined that it is in the best interests of us and our stockholders. Our board of directors also believes that the acquisition is fair to us and our stockholders. No fairness opinion was sought or obtained by our board of directors in making its determinations.
In the prospectus relating to our IPO, we stated our intention to focus our pursuit of a business combination on targets in the specialty finance industry and in areas where our management has significant expertise. We believe that the RWA acquisition meets these investment objectives.
Our board of directors also considered a wide variety of other factors in connection with its evaluation of the acquisition. In light of the complexity of those factors, our board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its
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decision. In addition, individual members of our board of directors may have given different weight to different factors.
Our board of directors considered the nature of RWA’s business and assets, its current capitalization and resulting operating losses, the extent of the liabilities to be assumed and the factors below, in addition to the factors discussed in the section entitled “Risk Factors” described beginning on page 20, in reaching its conclusion that the acquisition agreement is fair to and in the best interests of GFN’s stockholders and to approve the acquisition and enter into the acquisition agreement.
In considering the acquisition, our board of directors gave considerable weight to the following positive factors:
Royal Wolf’s established business, strong management team, record of growth and potential for future growth
Our board of directors considered it to be important that our initial business combination target have an established business and significant growth potential. Royal Wolf has been in business since 1995, has strong current business operations and is a market leader in the Australian domestic portable storage and container industries. It has achieved significant historical growth, both internally and through acquisitions, and has in place its infrastructure to support additional growth with minimal additional overhead investments. Royal Wolf has been successful in developing new applications for portable containers, and has grown revenues from $30.8 million in fiscal 2003 to $53.1 million in fiscal 2006 and $62.1 million for the twelve months ended December 31, 2006. Royal Wolf also has completed four acquisitions since December 2005, demonstrating its ability to grow through acquisitions. Our board of directors believes that Royal Wolf will be able to continue to grow domestically within Australia, because:
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| • | Royal Wolf has customer service centers in each state in Australia; |
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| • | Royal Wolf has average monthly lease container utilization rates of between 81% and 91%; and |
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| • | Royal Wolf has over 12,000 active customers in numerous industries. |
Our board also believes that Royal Wolf can grow by expanding into new geographic markets in the Asia-Pacific, and that our capital resources may be used to facilitate this growth.
The experience of our management
Our board of directors considered the experience of our management in building and consolidating specialty finance businesses in the U.S. and Europe. Mr. Valenta, in particular, has extensive management experience in the portable storage industry that lends itself to the planned growth of Royal Wolf’s business and operations.
The experience of Royal Wolf’s management
Another important criteria to our board of directors was that the company have a seasoned management team. Royal Wolf’s management has extensive experience in the container, transportation and portable storage industries. Mr. Robert Allan and Mr. Warren each have more than 30 years of experience managing companies in related industries and more than ten years each as Regional Directors ofU.S.-based container leasing companies. Mr. McCann has nearly three years of experience at Royal Wolf, and many of Royal Wolf’s operating managers also have long tenure with Royal Wolf or other companies in the portable storage and container industry. The management team has demonstrated its ability to grow both internally and through acquisition and is capable of managing this industry segment globally for us.
Royal Wolf’s ability to execute its business plan after the acquisition using its own financing resources, since part of the cash held in our trust account may be used to pay our stockholders who exercise their conversion rights
Our board of directors considered the fact that our stockholders may exercise their conversion rights in connection with the acquisition, and thereby reduce the amount of cash available to us following the acquisition. If the acquisition is completed, a portion of the funds held in the trust account established at the time of our IPO will be
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used to pay the cash portion for the acquisition and costs of the acquisition, which we estimate will be approximately $43.0 million, and to repay the outstanding principal balance, which we estimate will be $3,000,000, plus accrued interest, under our line of credit with Mr. Valenta. This amount includes the deposits of $1,005,000 made in connection with the acquisition. Based upon the amount of funds held in the trust account as of May 31, 2007, this would leave available in the trust account after the acquisition a maximum of approximately $21.0 million, assuming no exercise of conversion rights, and a minimum of approximately $7.8 million, assuming the maximum conversion rights are exercised. Our board of directors believes that Royal Wolf will be able to fully implement its business plan, even if not all the funds currently in the trust account are available to us after the acquisition.
Financial results
Our board of directors reviewed Royal Wolf’s historical revenue and profitability. Royal Wolf achieved $53.1 million in revenue for the fiscal year ended June 30, 2006. Royal Wolf’s gross profit on an absolute basis improved from $13.5 million to $16.7 million from 2004 to 2006, although it declined as a percentage of revenue in 2006, because of new product introductions. This improvement reflects the operating leverage in Royal Wolf’s business model, the overhead structure being utilized more efficiently, and a $0.5 million reduction in depreciation due to a revision of the useful lives and residual values of certain fixed assets. This is supported by revenues and operating profit for the twelve months ended December 31, 2006 of $62.1 million and $4.9 million, respectively, and gross profit for the same period of $22.7 million. Our board of directors also considered Royal Wolf’s historic lack of profitability, which is attributable to its leveraged capital structure and investment in infrastructure.
Favorable industry dynamics
Our board of directors considered positive long-term capital spending trends in Australia, such as the growing demand for portable services in the mining and construction industries. Our board of directors believes that similar trends underway in developing Asia-Pacific markets are favorable to the expansion of Royal Wolf’s business into new geographic markets.
Competitive position and acceptance of its services
Royal Wolf’s leading market share in Australia, reputation in its industry and among its clients, and its involvement in high-profile projects were considered by our board of directors to be favorable factors in approving the acquisition.
Barriers to entry
Duplicating Royal Wolf’s nationwide consumer service center network would require a large cadre of experienced industry personnel, which we believe is not readily available to a potential entrant in the Australian portable storage industry and represents a competitive advantage of Royal Wolf.
Regulatory environment of the industry
Royal Wolf’s business currently is not subject to burdensome regulatory requirements, although these requirements are subject to future change and could worsen. We believe that Royal Wolf has satisfactory regulatory compliance procedures in place.
Costs associated with effecting the business combination
Our board of directors determined that the transactions costs of acquiring RWA are of the same order of magnitude as would be encountered with other possible business combinations, and reasonable in relation to the total acquisition consideration. In determining that the transaction costs are reasonable, our board of directors also considered the costs to us of abandoning the Royal Wolf acquisition. A favorable factor was that RWA’s historical financial statements were audited in accordance with practices applicable to Australian private companies by a reputable and experienced accounting firm, and that RWA was able to furnish the financial and other information
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required for the preparation of this proxy statement in accordance with Securities and Exchange Commission requirements.
Bison-GE’s participation in the amended acquisition agreement
Under the original acquisition agreement approved by our board of directors, we were to own after the closing all of the equity interest in Royal Wolf. Although our board considered seeking acquisition financing from third parties such as Bison Capital, it did not consider seeking an equity partner to acquire a minority interest in Royal Wolf. In our negotiations with Bison Capital that led to Bison-GE’s participation in the amended acquisition agreement, we proposed to pay the purchase price of Bison-GE’s RWA shares, as with the RWA shares to be purchased from the management shareholders, all in cash at the closing, consistent with the structure of the original acquisition agreement. Based, however, upon its own due diligence and evaluation of the business, operations and prospects of Royal Wolf, Bison-GE negotiated for the right to retain a minority equity interest in Royal Wolf by receiving 13.8% of the capital stock of GFN U.S. in payment of a portion of the purchase price payable by us at the closing for Bison-GE’s RWA shares. Bison-GE agreed that the GFN U.S. shares would be valued for this purpose at the same price that we agreed to pay the RWA shareholders under the original acquisition agreement. Our board of directors considered Bison Capital’s insistence on acquiring a significant equity interest in Royal Wolf on the same terms that we had agreed to in the original acquisition agreement as supporting our board’s conclusion that Royal Wolf is an attractive initial business combination and that the acquisition is fair to us and our stockholders.
The terms of the acquisition agreement contain customary provisions for transactions of this type.
Our board of directors believes that the acquisition agreement contains customary provisions for transactions of this type, including customary representations and warranties, non-compete, and indemnification and escrow provisions in our favor. It was important to our board of directors that the acquisition agreement include these customary provisions to protect us against the risks associated with possible unknown liabilities or similar potential problems at Royal Wolf. The sellers’ willingness to agree to an escrow of a portion of the acquisition consideration to satisfy potential indemnification claims by us was viewed favorably by our board.
Material Negative Factors Considered by Our Board of Directors
Our board of directors believes that each of the above factors supports its determination and recommendation to approve the acquisition. Notwithstanding these positive factors, our board of directors also considered negative factors and potential risks in its deliberations, including the following:
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| • | The risks relating to Royal Wolf’s business set out in this proxy statement in the section entitled “Risk Factors” beginning on page 20; |
|
| • | The fact that Royal Wolf has no current business or operations in the U.S. or outside of Australia was perceived as more difficult to manage than a U.S. domestic operation and that Royal Wolf had operations throughout Australia but had no business presence beyond that marketplace; |
|
| • | The fact that Royal Wolf currently is unprofitable, has experienced fluctuations in its operating income and has not been able to achieve consistent or improved operating margins even with increasingyear-over-year revenues. While revenues grew substantially, Royal Wolf experienced net losses for the last two fiscal years and a slight decline in the gross margin for the year ended June 30, 2006. The losses in the most recent fiscal year were primarily attributable to higher costs from the introduction of several new products during the fiscal year, coupled with the higher interest expense and debt load. In our directors’ view, this was offset by the strong revenue increase in those products in the later part of the fiscal year along with the interim periods. In addition, the annual revenues of the business asset purchases that were made in 2006 were not fully reflected in the previous financial statements. Our board of directors also took into consideration the view of our management that Royal Wolf’s branch infrastructure was underutilized; |
|
| • | The fact that Royal Wolf’s container sales business is maturing and is not likely to grow at the same rate as its other businesses. Royal Wolf appears to have captured much of the market opportunity, but has been under-capitalized over the past three years. With our focus on a better capital structure, our board of directors |
46
| | |
| | believes that we will be able to create more leasing or acquisition opportunities, which is historically a higher margin business, thereby increasing gross margins; |
| | |
| • | The fact that we will own indirectly 86.2%, rather than all, of Royal Wolf at the closing of the acquisition; |
|
| • | The fact that the deposit and termination provisions of the acquisition agreement will result in our forfeiture of deposits totaling $1,005,000 if the acquisition is not completed for any reason; |
|
| • | That delays in meeting the deadlines set forth in the original acquisition agreement for obtaining stockholder approval and other matters made it necessary to seekBison-GE’s participation to allow more time to present the acquisition to vote of our stockholders, and the increased acquisition consideration and additional transaction costs associated with the amended acquisition agreement as compared to the original acquisition agreement; and |
|
| • | The provisions of the shareholders agreement, including the fact thatBison-GE may require us to purchase all of its GFN U.S. shares in the future at a price specified in the shareholders agreement. |
Our board of directors gave no particular weight to the foregoing negative factors, but believes that they are outweighed by the positive factors it considered. Our board of directors did not consider other possible negative factors, or consider further these negative factors.
Due Diligence and Valuation
Several members of our management or board of directors have extensive experience in due diligence evaluations of acquisition targets and in valuing companies. Ronald A. Valenta, our Chief Executive Officer and a director, has been a board member of ten other companies in a number of industries, and has extensive experience in the portable services industry and as a private investor. John O. Johnson, our Chief Operating Officer, has extensive experience as an investment analyst, investment banker and financial advisor. Other members of the board, including David Connell and James Roszak, are experienced in the investment, securities and capital management industries.
In determining to approve the original acquisition agreement relating to Royal Wolf, as well as the amended acquisition agreement, our board of directors relied on financial, industry, customer, capital markets (equity valuations), product, business and legal information relating to Royal Wolf compiled by our management and upon the advice of our legal advisors, Troy & Gould Professional Corporation in the U.S. and Barnes & Wenden in Australia, and our due diligence advisors, Ernst & Young LLP Australia as to tax and structuring matters, La Rue, Corrigan and McCormick LLP as to accounting matters, and Consulting Earth Scientists as to environmental matters. In addition to reviewing financial information of RWA and the portable storage and container industry, in general, our board of directors reviewed publicly-available information of companies with business and operations that the board considered to be similar to those of Royal Wolf and publicly-available information related to acquisition or merger transactions similar to the acquisition. None of the companies reviewed were identical to RWA, nor were any of the transactions reviewed identical to the acquisition. In fact, the companies reviewed are all based in the U.S., whereas Royal Wolf is based and operates exclusively in Australia. Our board of directors nonetheless believes that such companies and transactions were relevant in analyzing the acquisition, because they involved companies that operate primarily in the portable storage and container industry and because we are aU.S.-based company. Stockholders should note that analyses of comparable companies and comparable transactions are not purely mathematical, but involve subjective business judgments concerning the differences between those companies and transactions and Royal Wolf and the acquisition.
Further, the estimates contained in these analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets neither purport to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty, and cannot anticipate future events. Management believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors collectively, could
47
create an incomplete and misleading view of the process underlying the analyses performed by management in connection with the preparation of its conclusion.
Our board of directors did not rely on any single analysis or single valuation measurement, or upon any one particular set of industry information, in evaluating the acquisition, but reviewed the totality of the information presented to it, including, among other items, the valuation analyses done by our management. Further, based on our board of directors’ belief that its members have the skill and experience to properly evaluate the acquisition, our board determined that obtaining a valuation or fairness opinion was unnecessary.
Initial Valuation Analyses
The following is a summary of the material valuation analyses performed by our management in connection with entering into the September 12, 2006 acquisition agreement. We performed the valuation analyses in accordance with our undertaking in the prospectus relating to our IPO that the business acquired by us in our initial business combination would have a fair market value equal to at least 80% of our net assets at the time of the transaction, including the funds held in the trust account. Based upon our total net assets, including funds held in the trust account, of approximately $65 million as of September 30, 2006, 80% of our net assets at the time of the September 12, 2006 acquisition agreement was approximately $52 million. As discussed below, as part of its analysis management compared the twelve components of the three valuation methods against the 80% test. The range of values produced by one of the twelve components, LTM EBITDA — Selected Transactions, was entirely below the 80% level, while two other components, LTM Revenue — Selected Transactions and LTM EBITDA — Selected Companies, were below the 80% level at the low end of the range of values. See “Satisfaction of 80% Requirement” below in this section for further discussion of our determinations with respect to the 80% test.
The following summary does not purport to be a complete description of the analyses performed by our management, and the order of analyses described below does not necessarily represent the relative importance or weight given to those analyses by our management. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data and currency exchange notes as they existed on or before August 29, 2006 and is not necessarily indicative of current market conditions.
In performing its analyses,Pac-Van, our management relied on projections for Royal Wolf asPac-Van provided by its management as summarized below:
| | | | | | | | | |
| | | Actual Year Ended June 30, 2006(1) | | | Year Ending June 30, 2007(1) | |
| | | (In millions, except %) | |
| |
| Revenue | | $ | 48.8 | | | $ | 67.6 | |
| Revenue growth(2) | | | 23.7 | % | | | 38.7 | % |
| EBITDA(3) | | $ | 5.2 | | | $ | 10.7 | |
| Margin | | | 10 | % | | | 15.8 | % |
| Net capital expenditures | | $ | 5.6 | | | $ | 6.2 | |
| Number of containers | | | 16,739 | | | | 17,027 | |
| | |
(1) | | Translated at exchange rate of 0.7239 AUD to USD. |
|
(2) | | Revenue growth percentage is 2007 FYE projected versus 2006 FYE actual. The estimated revenue growth is based upon anticipated benefits of new products, increased large government sales and full-year benefit of 2006 acquisitions. |
|
(3) | | Excludes transaction costs. |
Pac-Van’s management. No assurance can be made that the Royal Wolfthese projections our management used in its analyses will be achieved. Further, Royal Wolf did not publicly disclose internal management
Pac-Van provided projections of the type provided to our management in connection with our management’s analysis of the acquisition, and the projections utilized were not prepared with intent for public disclosure or prepared in accordance with generally accepted accounting principles,GAAP, the published guidelines of the Securities and Exchange CommissionSEC or the American Institute of Certified Public Accountants’ guidelines for projections or forecasts. These fiscal 2007 projections were based on numerous variables and assumptions
48
that are inherently uncertain and may be beyond the control of our management, including, without limitation, factors related to general economic and industry conditions and competitive activity and the following:
| | |
| • | Continued market penetration and customer acceptance of Royal Wolf’s full product range; |
|
| • | Full-year benefit from Royal Wolf’s newer products introduced during the 2006 fiscal year; |
|
| • | Integration and full-year benefits from competitor fleet acquisitions made during January through June of 2006; and |
|
| • | Selling, general and administrative expense savings driven by restructuring of Royal Wolf’s facilities operations. |
activity. Actual results could vary significantly from those set forth in the projections used by our management. For all of these reasons, stockholders should not place undue reliance on these projections.projections as summarized elsewhere in this proxy statement.
OurA substantial number of our shares will become eligible for future resale in the public market after the acquisition, which could result in dilution and an adverse effect on the market price of our common stock.
If the Merger is completed, we will issue 4,000,000 shares of restricted General Finance common stock, or the Shares. We will enter into a stockholders agreement in connection with the Merger Agreement which will require us to register the Shares for resale in the public markets upon demand at any time after June 30, 2009 from certain holders a majority of the Shares. Consequently, at various times after completion of the acquisition, a substantial
24
number of additional shares of our common stock will be eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market prices of our securities.
There can be no assurance that the Merger will be deemed by governmental authorities to constitute a tax-free “reorganization” or that General Finance will not be required to indemnify the MOAC stockholders if the Merger is not deemed to constitute a tax-free “reorganization.”
The Merger is intended to constitute a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. None of the parties are requesting and will not be requesting a ruling from the IRS in connection with the Merger. None of the tax consequences set forth in this discussion are binding on the IRS or the courts and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court. A successful IRS challenge to the tax-free reorganization status of the Merger would result in MOAC stockholders recognizing taxable gain or loss with respect to each share of common stock of MOAC surrendered. This gain or loss would be measured by the difference between (i) the sum of the fair market value of the General Finance common stock received by MOAC stockholders, and (ii) the adjusted tax basis in the shares of MOAC common stock surrendered. Under the Merger Agreement, General Finance has agreed to indemnify the MOAC stockholders if the IRS or governmental authorities conclude that the Merger does not constitute a tax-free “reorganization.” Payment by General Finance of such indemnification claims could adversely affect our financial condition and results of operations.
The proposed acquisition of Pac-Van may result in additional Sarbanes-Oxley Act of 2002 costs, issues and control procedures of our combined reporting company.
Pac-Van is a private company that to date has not been subject to the requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Act.Pac-Van’s existing internal controls and procedures are not compliant with the Act, in general, or Section 404 of the Act, in particular. Although we are not aware of any significant weaknesses in internal controls and procedures or in the disclosure controls and procedures of Pac-Van, it is possible that such weaknesses may exist. Also, management usedof Pac-Van may not have the following valuation methodologies:expertise or time to properly document, assess, test and remedy the control structure of Pac-Van, to timely identify any material control weaknesses or to disclose to us any such weaknesses in time to comply with our reporting requirements under the Act. We expect to incur significant costs in implementing additional controls and procedures at Pac-Van in order to comply with the Act.
We may have difficulty establishing adequate management, legal and financial controls over Pac-Van.
Pac-Van is a private company that has been not been subject to the requirements of the Act. Accordingly, we will have to implement public company financial control systems. We may have difficulty in hiring, training and retaining a sufficient number of qualified employees with the required expertise. In addition, no assurance can be given that Pac-Van will be able to prepare and deliver to us the quarterly and annual financial information necessary for us to prepare consolidated financial statements in time to meet the SEC filing deadlines.
Risks Related to our Substantial Indebtedness
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various covenants which limit the discretion of our management in operating our business and could prevent us from engaging in some beneficial activities.
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various restrictive covenants that limit our management’s discretion in operating our business. In particular, these agreements include covenants relating to limitations on:
| | |
| | • | Discounted cash flow, or DCF, analysis;dividends on, and redemptions and repurchases of, capital stock, |
| |
| | • | Comparable companies analysis;liens and sale-leaseback transactions, |
| |
| | • | Precedent transactions. |
The following factors, among others, were considered in determining Royal Wolf’s earning power for each methodology employed:
| | |
| • | Revenueloans and EBITDA for the year ended June 30, 2006; |
| | |
| • | Revenue and earnings before interest, taxes, depreciation and amortization, or EBITDA, with EBITDA adjusted to exclude certain non-recurring costs, including transactions costs to be incurred by Royal Wolf in connection with the acquisition, provided by Royal Wolf’s management, for the last twelve-month period, or LTM, ended June 30, 2006; |
| | |
| • | June 30, 2007 FYE projections provided to the board of directors by RWA; andinvestments, |
| |
| | • | Projections beyond June 30, 2007, up todebt and including the fiscal year ending June 30, 2010, as prepared by our management team with assistance of Royal Wolf’s management (such extended projections were used only in the DCF analysis); including revenue and adjusted EBITDA estimates. |
Although not necessary in order to evaluate the satisfaction of the 80% test, our board of directors considered the relative valuation multiples implied by the actual total consideration to be paid by us compared to both historical and projected revenues and EBITDA for Royal Wolf. This comparison formed a part of our board of director’s determination that the acquisition was fair to us and our shareholders. The resulting implied multiples for Royal Wolf from this analysis were as follows, assuming $85 million initial aggregate consideration at the time of the September 12, 2006 acquisition agreement (based upon the 0.7239 exchange rate utilized in the board presentation) and that the aggregate consideration equals EV:
| | | | |
| | At $85 Million
| |
| | Aggregate
| |
| | Consideration | |
|
• EV to LTM FY 2006 — Actual revenue | | | 1.74x | |
• EV to FY 2007 — Management projected revenue | | | 1.26x | |
• EV to LTM FY 2006 — Actual adjusted EBITDA | | | 10.90x | |
• EV to FY 2007 — Management projected adjusted EBITDA | | | 7.94x | |
“EV” means “enterprise value.” For public companies referenced herein, EV is the fully diluted equity value plus straight and convertible debt, less cash, options and warrant proceeds. “LTM” means last twelve months, “FY” means fiscal year, and “EBITDA” means earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure that is used because of its wide acceptance as a measure of operating profitability and financial performance before nonoperating expenses (interest and taxes) and non-cash charges (depreciation and amortization), exclusive of transaction costs.
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The expected aggregate value or enterprise value at closing represents 7.9 times Royal Wolf’s EBITDA and 1.3 times Royal Wolf’s projected revenues for the fiscal year ended June 30, 2007. Our management and board of directors relied in its initial valuation analyses upon that the projected adjusted 2007 EBITDA amount more than the actual adjusted 2006 EBITDA, because they believed that the financial results in 2006 and 2005 were adversely impacted by certain factors, such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which they considered to be unusual events or not likely to recur in fiscal 2007. In addition, fiscal 2007 will include the full benefits of the competitor fleet acquisitions made during that later part of fiscal 2006.
As part of its initial analysis regarding the fairness of the Royal Wolf acquisition to us and our stockholders, our management compared the multiples in the table above with those of other selected comparable public companies and with selected comparable transactions (see “Selected Companies Analysis” and “Selected Transactions Analysis” below”).
Discounted Cash Flow Analysis.
Management utilized a discounted cash flow analysis, an income valuation approach, for the purpose of calculating the estimated present value of projected future cash flows of Royal Wolf.
A discounted cash flow analysis estimates present value based upon a company’s projected future unlevered after-tax free cash flow, typically for a period of five years, discounted at a rate of return reflecting risks inherent in its business and capital structure. Unlevered free cash flow represents the amount of cash generated and available for principal, interest and dividend payments as well as for growth capital investments after providing for ongoing business operations. To account for the value of the enterprise at the end of the projection period and beyond, a terminal value is calculated and discounted to the present and then added to the value of the discounted unlevered free cash flows derived from the projections.
While the discounted cash flow analysis is the most scientific of the methodologies used, it is dependent on projections and is further dependent on numerous industry-specific and macroeconomic factors.
The discounted cash flow analysis determines a net present value of future cash flows (including a theoretical terminal value) of Royal Wolf. This analysis starts with a net cash flow for each year of the projection period (through 2010) equal to Royal Wolf’s EBITDA less cash taxes, capital expenditures and changes in working capital, which we refer to as unlevered free cash flows. In addition, a terminal value is computed in 2010 as a multiple of 2010 EBITDA using the range of the low to the mean (7x to 9x) of the public comparable LTM EBITDA multiples. The annual net cash flow and terminal value are converted into a present value as of June 30, 2006 using a discount rate of 15% to 20%, which our management believed to be a reasonably conservative range based upon the risk characteristics of Royal Wolf. Cash balances are added and debt balances are subtracted as of June 30, 2006 from the present value to arrive at net equity value of Royal Wolf.
In using the 15% to 20% discount rate, management first considered the long-term interest rates on risk-free securities, generally considered to be those obligations backed by the full faith and credit of the U.S. government. To this “risk free” rate, management added a premium to reflect the fact that an investment in Royal Wolf is not without risk(s) and would represent the risks of an investment in equity securities, as well as the specific risks of an investment in Royal Wolf, including these described under the caption “Risk Factors” in this proxy statement. The determination of the discount rate is an estimate only, based upon required rates of return that management has witnessed in similar transactions in which it participated either as an investor or as an advisor, and in some cases as an informed observer of transactions completed by other parties. While the estimate of the discount rate involves certain subjective judgements, it should be noted that utilizing higher discount rates would result in lower net present values.
Our management extended the summary 2007 projections provided by Royal Wolf as set forth above to forecast free cash flows for the business over the five-year period from 2006 through 2010. The projections
50
represented Royal Wolf management’s judgement as of the date the information was provided to us (late June 2006), and our management’s extension of these projections, and incorporated the following principal assumptions:
| | |
| • | Revenue: Revenue growth did not include the effect of possible acquisitions or changes to the current business model, but was adjusted to reflect the current run rate of several new products, new government contracts and additional Royal Wolf fleet inventory spending and asset purchases as follows: |
| | | | | | | | | | | | | | | |
| 2007 | | | 2008 | | | 2009 | | | 2010 | |
| | 38.7 | % | | | 13.4 | % | | | 11.5 | % | | | 10 | % |
| | |
| • | Gross margins: Gross margins not include changes in the mix between sales and rental revenues, and it was assumed that they would remain constant at 38% of revenues. |
|
| • | Costs: Input costs were inflation adjusted based on Royal Wolf management’s inflation estimates, but lower than revenue growth as a result of the impact of leveraging the sales/leasing growth against the infrastructure put into place in2004-2006. |
Our management believed that these assumptions were reasonable based upon its knowledge of the industry and its due diligence with respect to Royal Wolf’s business operations.
Our management discounted Royal Wolf’s future free cash flows through 2010 using discount rates reflecting RWA’s weighted-average cost of capital ranging from 15% to 20% and a terminal-year EBITDA of $22.5 million multiplied by a terminable-year EBITDA multiple of 7 to 9 times, which is within the low to mid-point of public comparable valuations. This resulted in an estimated enterprise value of Royal Wolf in the range of $66.7 million to $99.1 million and an average enterprise value of $82.9 million.
Selected Companies Analysis.
Our management utilized the selected comparable company analysis, a market valuation approach, for the purposes of compiling guidelines for comparable company statistics and developing valuation metrics based on prices at which stocks of similar companies are trading in a public market.
Our management reviewed and compared financial information of Royal Wolf to corresponding financial information, ratios and public market multiples for the publicly-traded companies that were selected because they have operations that we considered reasonably similar to the operations of Royal Wolf. All three of these companies, however, are profitable and larger than Royal Wolf, and our management and board of directors did not do a comparison of these companies to Royal Wolf based on either profitability or asset size. While our management did not necessarily include all companies or businesses that could be deemed comparable to Royal Wolf and all of the companies are of greater (and some are substantially greater) size than Royal Wolf, our management believes that this list provides the most meaningful information from which to imply a valuation for the Royal Wolf transaction. Additionally, for these selected companies, while not comparable to Royal Wolf based solely on size or net income, were considered by management to be comparable based on industry profile, and because the stock of these companies are generally widely held and actively traded, they were believed by management to present a reasonable indication of how investors value companies in the storage container and modular/container building sectors. The companies our management selected for its analyses were:
| | |
• Mobile Mini Inc. | | Nasdaq NMS — MINI |
• Williams-Scotsman | | Nasdaq NMS — WLSC |
• McGrath Rentcorp | | Nasdaq NMS — MGRC |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Enterprise Value / | |
| | | Last Twelve Months(1) | | | LTM
| | | FY1
| | | LTM
| | | FY1
| |
Company | | Revenue | | | EBITDA | | | Revenue | | | Revenue | | | EBITDA | | | EBITDA | |
| |
| Mobile Mini, Inc. | | $ | 254.6 | | | $ | 110.7 | | | | 5.1x | | | | 4.7x | | | | 11.7x | | | | 11.0x | |
| McGrath Rentcorp | | $ | 274.0 | | | $ | 125.1 | | | | 3.5x | | | | 3.5x | | | | 7.7x | | | | 7.7x | |
| Williams Scotsman International, Inc. | | $ | 678.8 | | | $ | 217.5 | | | | 2.6x | | | | 2.6x | | | | 8.1x | | | | 7.9x | |
High | | | | | | | | | | | 5.1x | | | | 4.7x | | | | 11.7x | | | | 11.0x | |
Mean | | | | | | | | | | | 3.7x | | | | 3.6x | | | | 9.1x | | | | 8.9x | |
Median | | | | | | | | | | | 3.5x | | | | 3.5x | | | | 8.1x | | | | 7.9x | |
Low | | | | | | | | | | | 2.6x | | | | 2.6x | | | | 7.7x | | | | 7.7x | |
| | |
(1) | | Source: Company SEC filings & CapitalIQ. |
Our management calculated and compared financial information and various financial market multiples and ratios of the selected companies based on historical information it obtained from Securities and Exchange Commission filings and consensus estimates from publicly available sources reporting such data. With respect to Royal Wolf and each of the selected companies, our management calculated:
| | |
| • | EV as a multiple of actual fiscal year 2006 and management projected 2007 revenue; and |
|
| • | EV as a multiple of actual fiscal year 2006 and management projected 2007 EBITDA. |
Historical LTM financial results utilized by our management for purposes of this analysis were based upon information contained in the applicable company’s most recent publicly available financial statements prior to August 1, 2006. For the selected companies, “LTM” refers to the last twelve-month period available from the most recently publicly available financial information prior to August 1, 2006. “FY1” refers to the first fiscal year to be completed after August 2006
All companies were selected because they served the modular building or container rental/leasing markets. However, all of the companies operate exclusively or primarily in the U.S. and all are profitable and have substantially more assets than Royal Wolf. As a result, any conclusions from this analysis must involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies selected and other factors that would affect the market values of publicly-traded companies. At the lower end of the range of value indicated by one measurement, LTM EV to EBITDA, the fair value of Royal Wolf was less than 80% of our net assets as of September 30, 2006.
The results of these analyses are summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | | |
| | | Mean | | | Median | | | Range | | | Valuation Range(2) | | | Transaction | |
| | | | | | | | | | | | (In Millions) | | | | |
| |
| Selected Companies: | | | | | | | | | | | | | | | | | | | | |
EV to Revenue | | | | | | | | | | | | | | | | | | | | |
| LTM(x) | | | 3.5 | | | | 2.7 | | | | 2.6 to 5.3 | | | $ | 126.9 to $248.9 | | | | 1.76x | |
| Estimated 2006(1) | | | 3.3 | | | | 2.6 | | | | 2.5 to 4.6 | | | $ | 175.8 to $317.7 | | | | 1.26x | |
EV to EBITDA | | | | | | | | | | | | | | | | | | | | |
| LTM(x) | | | 8.9 | | | | 8.4 | | | | 6.0 to 12.3 | | | $ | 40.4 to $60.8 | | | | 10.90x | |
| Estimated 2006(1) | | | 8.2 | | | | 7.9 | | | | 6.7 to 10.7 | | | $ | 82.4 to $118.8 | | | | 7.94x | |
| | |
(1) | | Because of differences in year end between the public companies with fiscal years ending December 31 and Royal Wolf with a June 30 fiscal year, the “Estimated 2006” data for Royal Wolf will be for the year ended June 30, 2007. |
|
(2) | | Translated at exchange rate of 0.7239 AUD to USD. |
In evaluating the results of the comparable company analysis, our board placed more reliance on the valuation results using the estimated 2006 revenues and EBITDA for Royal Wolf than the LTM numbers. This is because we believed that the financial results in LTM 2006 were adversely impacted by factors such as the introduction of
52
several new products at one time combined with heavy infrastructure costs and buildout, which management considered to be unusual or not likely to recur in fiscal 2007. In addition, 2007 results will include the full benefits of the competitor fleet acquisitions made in future by Royal Wolf during that latter part of LTM 2006.
Selected Transactions Analysis.
The comparable transactions analysis generally provides the widest range of value due to the varying importance of an acquisition to a buyer (e.g., a strategic buyer might be willing to pay more than a financial buyer) and potential differences in the transaction process (e.g., the competitiveness at the time among potential buyers).
Our management also analyzed certain available information relating to merger and acquisition transactions involving companies that were selected because they have operations or operated in sectors that management considered reasonably similar to the operations of Royal Wolf. In addition, many of these companies are profitable and larger than Royal Wolf, and only limited financial information of some of these companies was available to management. Our management and board of directors did not do a comparison to Royal Wolf based on profitability or asset size. This group of sellers consisted solely of private companies, although the buyers in two of the transactions were public companies. No other comparable public transactions were relevant. Multiples used in this analysis were derived from both public and non-public data. Because of the private nature of the transactions, only pieces of each transaction were available, and our management used the group averages of multiples of revenues and EBITDA to EV. Private companies without publicly disclosed data were included in the analysis presented to our board in order to provide insight into the number and nature of the transactions occurring in this sector, which were primarily private companies being acquired by private entities. This information was of only limited value in management’s quantitative analysis, which was based primarily upon the publicly available information. The transactions are, however, in the opinion of our management and based upon its general knowledge of the industry and the companies, a representative sampling and are comparable to the Royal Wolf acquisition, and no other announced transactions were considered. Our management analyzed the following transactions:
| | | | | | | | | | |
Date
| | Target
| | Acquirer
| | Deal Value
| | Nature of Acquirer
|
|
8/04/06 | | Pac Van, Inc | | Mobile Office Acquisition Corp | | $ | 100 million | | | Private |
8/04/06 | | Mobile Storage Group, inc | | Welsh, Carson, Anderson & Stowe | | $ | 608.5 million | | | Private |
3/13/06 | | Royal Wolf Portable Storage | | Mobile Mini Inc. | | $ | 48.5 million | | | Public |
3/06/06 | | Comark Building Systems | | Carlyle Group | | $ | — | | | Private |
1/17/06 | | Waco International Limited | | Asia Opportunity Fund/JP Morgan | | $ | 893.3 million | | | Private |
12/01/05 | | Bennett’s Trailer Company | | New Acton Mobile Industries | | $ | — | | | Private |
11/28/05 | | Skanska Modul AB | | 3i Group plc | | $ | 45 million | | | Private |
10/17/05 | | Baker Tanks, Inc | | Lightyear Capital, LLC | | $ | 500 million | | | Private |
10/05/05 | | A-One Storage, LLC | | Mobile Mini, Inc. | | $ | 7 million | | | Public |
3/04/05 | | Mobile Space, Inc. | | Williams Scotsman, Inc. | | $ | — | | | Public |
The list of publicly-announced acquisitions set forth above is not an exhaustive list of comparable acquisitions in the portable storage container and modular building and office rental/leasing industry. The transactions are, however, in the opinion of our management, a representative list of companies that were deemed comparable, and no other announced transactions were considered.
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Our management reviewed these transactions identified in order to compare the total transaction value to the EBITDA based on latest twelve months of operations (“LTM EBITDA”) of the respective acquired companies. The multiples were applied both to Royal Wolf’s LTM EBITDA and estimated 2006 EBITDA(1) using publicly-available information, which is necessarily limited because of many of the above companies are privately held. All data were provided from publicly available sources reporting such data. The table below, excluding transactions where observations were not available, summarizes the mean, median, and range of the set of selected comparable acquisition and merger transactions:
| | | | | |
| | | Implied
|
| | | Transaction Multiple: |
| | | LTM
| | LTM
|
| | | Revenue(x) | | EBITDA(x) |
| |
| Mean | | 1.7 | | 8.3 |
| Median | | 1.7 | | 8.8 |
| Range | | .8 - 2.8 | | 6.9 - 9.1 |
| | | | |
| | Valuation Range(2) |
| | (In millions) |
| | LTM
| | LTM
|
| | Revenue | | EBITDA |
|
| | $39.0 - $136.6 | | $35.9 - $47.3 |
| | | | |
| | Estimated 2006(1)
| | Estimated 2006(1)
|
| | Revenue | | EBITDA |
|
| | $54.1 - $189.3 | | $73.8 - $97.4 |
| | |
(1) | | Because of differences in year-end between the public companies with fiscal years ending December 31 and Royal Wolf with a June 30 fiscal year, the “Estimated 2006” date for Royal Wolf will be for the year ended June 30, 2007. |
|
(2) | | Translated at exchange rate of 0.7239 AUD to USD. |
Although the selected transactions were used for comparison purposes, none of the selected transactions nor the companies involved in them was either identical or directly comparable to the acquisition. Further, all multiples for the selected transactions were based on public information available at the time of each transaction, and do not take into account differing market and other conditions during which the selected transaction occurred. In addition, each transaction involved companies with differing financial and operating characteristics, potential for synergies, and other factors which would necessarily affect the transaction multiples. As a result, any conclusions from this analysis must involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies selected, the timing of the transaction, and other factors that would affect the market values of merger and acquisition transactions. The entire range of fair value indicated by the measurements based upon LTM EBITDA is below 80% of our net assets as of September 30, 2006 and one other range, LTM revenue, is partially below the 80% threshold. However, in evaluating the results of the selected transactions analysis, our board placed more reliance on valuation results using estimated 2006 revenues and EBITDA for Royal Wolf than LTM numbers for the reasons described above in this section under “Selected Companies Analysis.”
Updated Valuation Analyses
In connection with its approval of the March 29, 2007 amended acquisition agreement, our board of directors updated its initial determination of the fair market value of Royal Wolf for purposes of the 80% test as required under our IPO prospectus. The following is a summary of the updated financial analyses. Based upon our total net assets, including funds held in the trust account, of approximately $68 million as of December 31, 2006, 80% of our net assets is approximately $54 million. The following summary does not purport to be a complete description of the financial analyses performed by our management, and the order of analyses described below does not necessarily represent the relative importance or weight given to those analyses by our management. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data and
54
currency exchange notes as they existed on or before March 1, 2007 and is not necessarily indicative of current market conditions.
In performing its analyses, our management relied on updated projections for Royal Wolf as provided by its management as summarized below and referred to above in this section under “Background:”
| | | | | | | | | |
| | | Projected Dec. 31, 2007(1) | | | Actual TTM Dec. 31, 2006(1) | |
| | | (In millions) | | | (In millions) | |
| |
| Revenue | | $ | 79.8 | | | $ | 62.1 | |
| Revenue growth | | | 28.5 | % | | | 23.7 | % |
| EBITDA(2) | | $ | 13.8 | | | $ | 8.1 | |
| Margin | | | 17.3 | % | | | 13.1 | % |
| Net capital expenditures | | $ | 20.3 | | | $ | 17.5 | |
| Number of containers | | | 22,288 | | | | 17,808 | |
| | |
(1) | | Translated at exchange rate of 0.788 AUD to USD. “TTM” means trailing twelve months. |
|
(2) | | Excludes transaction costs and transaction related ESOP conversion costs. |
As with the initial projections provided by Royal Wolf, no assurance can be made that the Royal Wolf projections will be achieved. These fiscal and calendar 2007 projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including without limitation, factors related to general economic and industry conditions and competitive activity and the following:
| | |
| • | Continued market penetration and customer acceptance of Royal Wolf’s full product range; |
|
| • | Full-year benefit from Royal Wolf’s newer products introduced during the 2006 fiscal year; |
|
| • | Integration and full-year benefits from competitor fleet acquisitions made during January through June of 2006; and |
|
| • | Selling, general and administrative expense savings driven by restructuring of Royal Wolf’s facilities operations. |
Actual results could vary significantly from those set forth in the projections used by our management. For all of these reasons, stockholders should not place undue reliance on these projections.
Our management used the same valuation methodologies — discounted cash flow, or DCF, analysis, comparable companies analysis, and precedent transactions — and considered the same factors in determining Royal Wolf’s earning power for each methodology employed as described above in connection with our board’s initial valuation analyses. As in its initial valuation, our management compared the twelve components of the three updated valuation methods described below against the 80% test. Management also compared the 80% test to 86.2% of the component valuations in light of the fact that, under the amended acquisition agreement, we will own indirectly only 86.2% of Royal Wolf rather than 100% as was originally contemplated in September 2006. Two of the twelve components, LTM Revenue — Selected Transactions and LTM EBITDA — Selected Companies, were below the 80% level at the low end of the range of values after discounting the values to 86.2%, while ten of the components satisfied the 80% test over the full range of values even after discounting the values to 86.2%. It is nonetheless possible that our shareholders could challenge the Board’s initial and updated determinations of value as being below the 80% threshold and therefore contrary to our IPO prospectus. All of our valuation determinations were based upon an analysis of the fair market value of the entirety of Royal Wolf’s business and operations, and we did not attempt to separately value our 86.2% ownership interest in Royal Wolf.
Our management likewise considered the relative valuation multiples implied by the actual total consideration to be paid by us compared to both historical and projected revenues and EBITDA for Royal Wolf. The resulting implied multiples for Royal Wolf from this analysis were as follows, assuming $100.745 million aggregate
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consideration (based upon the 0.788 exchange rate utilized in the board presentation) and that the aggregate consideration equals EV:
| | | | |
| | At $100.745 Million
| |
| | Aggregate
| |
| | Consideration | |
|
• EV to LTM December 31, 2006 — Actual revenue | | | 1.62x | |
• EV to December 31, 2007 — Management projected revenue | | | 1.26x | |
• EV to LTM December 31, 2006 — Actual adjusted EBITDA | | | 12.43x | |
• EV to December 31, 2007 — Management projected adjusted EBITDA | | | 7.3x | |
“EV” means “enterprise value.” For public companies referenced herein, EV is the fully diluted equity value plus straight and convertible debt, less cash, options and warrant proceeds. “LTM” means last twelve months, “FY” means fiscal year, and “EBITDA” means earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure that is used because of its wide acceptance as a measure of operating profitability and financial performance before nonoperating expenses (interest and taxes) and non-cash charges (depreciation and amortization), exclusive of transaction costs.
The expected aggregate value or enterprise value at closing represents 7.3 times Royal Wolf’s EBITDA and 1.3 times Royal Wolf’s projected revenues for the calendar year ended December 31, 2007. Our management and board of directors relied upon that the projected adjusted 2007 EBITDA amount more than the actual adjusted December 31, 2007 EBITDA, because they believed that the financial results in 2006 and 2005 were adversely impacted by certain factors, such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which they considered to be unusual events or not likely to recur at the same levels. In addition, calendar year 2007 results will include the full benefits of the competitor fleet acquisitions made during fiscal 2006.
Further, the aggregate consideration and the projected results for the twelve months ending December 31, 2007 and beyond will be positively impacted by increased container fleet spending of approximately $6.9 million over the previous forecast as Royal Wolf shifts its emphasis toward rental/hire stream revenue.
As part of its analysis regarding the fairness of the Royal Wolf acquisition to us and our stockholders, our management compared the multiples in the table above with those of other selected comparable public companies and with selected comparable transactions (see “Selected Companies Analysis” and “Selected Transactions Analysis” below”).
Updated Discounted Cash Flow Analysis.
Management updated its discounted cash flow analysis based upon the more recent information available with respect to Royal Wolf. Management used the same 15% to 20% discount rate that it employed in its initial discounted cash flow analysis and incorporated the following updated principal assumptions:
| | |
| • | Revenue Growth: The gross revenue grew by virtue of increased fleet spending and asset purchases, especially in the rental/hire pool, the full run rate of acquisitions made at the end of the previous fiscal year, a 5% rate increase in FY 2008 and the introduction of a damage waiver program in FY 2008 which had a lag affect into 2009. These assumptions produced the resulting percentage increases in revenue: |
| | | | | | | | | | | | | | | |
| 2007 | | | 2008 | | | 2009 | | | 2010 | |
| |
| | 37.9 | % | | | 10.7 | % | | | 20.9 | % | | | 12.6 | % |
| | |
| • | Gross Margins: Gross margins were changed primarily to reflect improvements resulting from Royal Wolf’s substantial increase in container fleet inventory spending since September 2006 that should continue and extend into 2008. Management also expects Royal Wolf’s rate increase and its damage waiver program to favorably impact margins as no new branches and only marginal direct or fixed costs will be added during the coming year. |
| | | | | | | | | | | | | | | |
| 2007 | | | 2008 | | | 2009 | | | 2010 | |
| |
| | 38.2 | % | | | 41.0 | % | | | 40.4 | % | | | 43.5 | % |
| | |
| • | Costs: Input costs were inflation adjusted based on Royal Wolf management’s inflation estimates, but lower than revenue growth as a result of the impact of leveraging the sales/leasing growth against thehedging arrangements, |
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| | |
| | infrastructure put into place in 2004-2006. These exclude the one-time costs incurred during the purchase to payout the ESOP and transaction expenses. |
The updated discounted cash flow valuation varied from the initial valuation primarily for two reasons: The increase in Royal Wolf’s container fleet spending of $6.9 million over prior periods is projected to improve the revenue and corresponding EBITDA in future periods resulting in a terminal EBITDA value of $28 million, which is higher than the initial valuation terminal value of $22.5 million; and the increase in the rental fleet is expected to result in a higher gross margin as disclosed from 38% to 43.5% as reflected in the later2008-10 periods. The cumulative affect of the increased container fleet spending and shift toward rental revenue resulted in an increase of $26 million to $44 million in the range of values indicated by the discounted cash flow analysis.
Management believes these assumptions to be reasonable based upon its knowledge of the industry and its due diligence with respect to Royal Wolf’s business operations.
As noted above, our management discounted Royal Wolf’s future free cash flows through 2010 using discount rates reflecting RWA’s weighted-average cost of capital ranging from 15% to 20% and a terminal-year EBITDA of $28 million multiplied by a terminable-year EBITDA multiple of 7 to 9 times, which is within the low to mid-point of public comparable valuations. Our board of directors determined that the updated range of value under this methodology was between $92.7 million and $143.1 million, with a mean of $117.9 million.
Updated Selected Companies Analysis.
As in its initial analyses, our management utilized the selected comparable company analysis for the purposes of compiling guidelines for comparable company statistics and developing valuation metrics based on prices at which stocks of similar companies are trading in a public market.
As in its initial analyses, the companies our management selected for its analyses were:
| | |
• Mobile Mini Inc. | | Nasdaq NMS — MINI |
• Williams-Scotsman | | Nasdaq NMS — WLSC |
• McGrath Rentcorp | | Nasdaq NMS — MGRC |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Enterprise Value / | |
| | | Last Twelve Months(1) | | | LTM
| | | FRY1
| | | LTM
| | | FRY1
| |
Company | | Revenue | | | EBITDA | | | Revenue | | | Revenue | | | EBITDA | | | EBITDA | |
| |
| Mobile Mini, Inc. | | $ | 273.4 | | | $ | 119.3 | | | | 4.7 | x | | | 4.0 | x | | | 10.7 | x | | | 9.2 | x |
| McGrath Rentcorp | | $ | 267.1 | | | $ | 119.3 | | | | 3.4 | x | | | 3.0 | x | | | 7.2 | x | | | 6.7 | x |
| Williams Scotsman International, Inc. | | $ | 680.8 | | | $ | 228.74 | | | | 2.6 | x | | | 2.4 | x | | | 7.7 | x | | | 7.0 | x |
High | | | | | | | | | | | 4.7 | x | | | 4.0 | x | | | 10.7 | x | | | 9.2 | x |
Mean | | | | | | | | | | | 3.6 | x | | | 3.1 | x | | | 8.5 | x | | | 7.6 | x |
Median | | | | | | | | | | | 3.4 | x | | | 3.0 | x | | | 7.7 | x | | | 7.0 | x |
Low | | | | | | | | | | | 2.6 | x | | | 246 | x | | | 7.2 | x | | | 6.7 | x |
| | |
(1) | | Source: Company SEC filings & CapitalIQ. |
Our management calculated and compared financial information and various financial market multiples and ratios of the selected companies based on historical information it obtained from Securities and Exchange
57
Commission filings and consensus estimates from publicly available sources reporting such data. With respect to Royal Wolf and each of the selected companies, our management calculated:
| | |
| • | EV as a multiple of actual calendar year December 31, 2006 and management projected calendar year December 31, 2007 revenue; and |
|
| • | EV as a multiple of actual calendar year December 31, 2006 and management projected calendar year December 31, 2007 EBITDA. |
Historical LTM financial results utilized by our management for purposes of this analysis were based upon information contained in the applicable company’s most recent publicly available financial statements prior to March 1, 2007. For the selected companies, “LTM” refers to the last twelve-month period available from the most recently publicly available financial information prior to March 1, 2007. “FY1” refers to the first fiscal year to be completed after March 2007.
All companies were selected because they served the modular building or container rental/leasing markets. However, all of the companies operate exclusively or primarily in the U.S. and all are profitable and have substantially more assets than Royal Wolf. As a result, any conclusions from this analysis must involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies selected and other factors that would affect the market values of publicly-traded companies. At the lower end of the range of value indicated by one measurement, LTM EV to EBITDA, the fair value of Royal Wolf is less than 80% of our net assets as of December 31, 2006.
The results of these analyses are summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | | |
| | | Mean | | | Median | | | Range | | | Valuation Range(2) | | | Transaction | |
| | | | | | | | | | | | (In Millions) | | | | |
| |
| Selected Companies: | | | | | | | | | | | | | | | | | | | | |
EV to Revenue | | | | | | | | | | | | | | | | | | | | |
| LTM12/31/07(x) | | | 3.6 | | | | 3.4 | | | | 2.6 to 4.7 | | | $ | 161.5 to $291.87 | | | | 1.62x | |
| Projected Calendar Year 2007(1) | | | 3.1 | | | | 3.0 | | | | 2.4 to 4.0 | | | $ | 191.5 to $319.2 | | | | 1.26x | |
EV to EBITDA | | | | | | | | | | | | | | | | | | | | |
| LTM 12/31/07(x) | | | 8.5 | | | | 7.7 | | | | 7.2 to 10.7 | | | $ | 58.3 to $86.7 | | | | 12.43x | |
| Projected Calendar Year 2007(1) | | | 7.6 | | | | 7.0 | | | | 6.7 to 9.2 | | | $ | 92.5 to $126.96 | | | | 7.3x | |
| | |
(1) | | Projected calendar year 12/31/07 is used as a date comparison to the public companies Forward Year |
|
(2) | | Translated at exchange rate of 0.788 AUD to USD. |
In evaluating the results of the comparable company analysis, management placed more reliance on the valuation results using the estimated 2007 calendar revenues and EBITDA for Royal Wolf than the LTM numbers. This is because management believes that the financial results in calendar 2006 were adversely impacted by factors such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which management considered to be unusual or not likely to recur. In addition, estimated 2007 will include the full benefits of the competitor fleet acquisitions made in future by Royal Wolf during that middle part of LTM 2006.
The primary drivers of the difference in value between the initial selected companies valuation analysis and the updated analysis were the differences in the starting and ending points of the LTM comparison and the improved performance of Royal Wolf for the updated LTM compared to the original LTM per Royal Wolf’s original projections. The changes in the underlying comparative values of the public companies were minimal, but the starting point revenue difference of $13.3 million and EBITDA of $2.9 million for RWA at 2.6x and 7.2x multiples, respectively, resulted in an increase in the range of value by approximately $10 million to $28 million.
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Our board determined the relevant range of values for this methodology was between $99.7 million and $139.6 million, with a mean of $119.7 million.
Updated Selected Transactions Analysis.
In updating its initial comparable transactions analysis, our management eliminated private company transactions that were considered in its initial analysis for which there was insufficient information available to us. No newly announced transactions were considered. Our management reanalyzed the following transactions considered in its initial analysis:
| | | | | | | | | | |
| | Target | | Deal | | Implied EV / | | | Implied EV / |
Date | | Acquirer | | Value | | Sales | | | EBITDA |
|
08/04/06 | | Mobile Storage Group, Inc.
Welsh, Carson, Anderson & Stowe | | $608.5 million | | | 2.8x | | | 9.1x |
03/13/06 | | Royal Wolf Portable Storage Inc.
Mobile Mini Inc. (NasdaqNM:MINI) | | $48.5 million | | | 2.8x | | | 8.5x |
01/17/06 | | Waco International Limited
Asia Opportunity Fund, J.P. Morgan Partners | | $893.3 million | | | 1.5x | | | — |
11/28/05 | | Skanska Modul AB
3i Group plc (LSE:III) | | $45 million | | | 0.8x | | | — |
10/17/05 | | Baker Tanks, Inc.
Lightyear Capital, LLC , Lightyear Fund, L.P. | | $500 million | | | — | | | 8.8x
|
HIGH | | | | | | | 2.8x | | | 9.1x |
MEAN | | | | | | | 2.0x | | | 8.8x |
HARMONIC MEAN | | | | | | | 2.2x | | | 8.8x |
MEDIAN | | | | | | | 2.2x | | | 8.8x |
LOW | | | | | | | 0.8x | | | 8.5x |
Our management reviewed these transactions identified in order to compare the total transaction value to the EBITDA based on latest twelve months of operations (“LTM EBITDA”) of the respective acquired companies. The multiples were applied both to Royal Wolf’s Calendar 2006 EBITDA and estimated December 31 EBITDA using publicly-available information, which is necessarily limited because of many of the above companies are privately held. All data were provided from publicly available sources reporting such data. At the lower end of the range of value indicated by one measurement, LTM revenue, the fair value of Royal Wolf was less than 80% of our assets at December 31, 2006.
The table below summarizes the mean, median, and range of the set of selected comparable acquisition and merger transactions:
| | | | | |
| | | Implied
|
| | | Transaction Multiple: |
| | | LTM
| | LTM
|
| | | Revenue(x) | | EBITDA(x) |
| |
| Mean | | 2.0 | | 8.8 |
| Median | | 2.2 | | 8.8 |
| Range | | .8 - 2.8 | | 8.5 - 9.1 |
| | | | | |
| | | Valuation Range(2) |
| | | (In millions) |
| | | LTM
| | LTM
|
| | | Revenue | | EBITDA |
| |
| Mean | | $124.2 | | $71.3 |
| Range | | $49.7 - $173.9 | | $68.8-$73.7 |
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| | | | | |
| | | Estimated 2007(1) | | Estimated 2007(1) |
| | | Revenue | | EBITDA |
| |
| Mean | | $159.6 | | $121.4 |
| Range | | $63.8-$223.4 | | $117.3-$125.6 |
| | |
(1) | | Because of differences in year-end between the public companies with fiscal years ending December 31 and Royal Wolf with a June 30 fiscal year, the “Estimated 2007” date for Royal Wolf will be for the calendar year ended December 31, 2007. |
(2) | | Translated at exchange rate of 0.788 AUD to USD |
In evaluating the results of the comparable company analysis, management placed more reliance on the valuation results using the estimated 2007 calendar revenues and EBITDA for Royal Wolf than the LTM numbers. This is because management believes that the financial results in calendar 2006 were adversely impacted by factors such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which management considered to be unusual or not likely to recur. In addition, estimated 2007 will include the full benefits of the competitor fleet acquisitions made in future by Royal Wolf during that middle part of LTM 2006.
The primary drivers of the increase in value between the initial selected transactions valuation analysis and the updated analysis were the improved performance of Royal Wolf for the updated LTM per its budget and the omission from the updated analysis of the private company transactions that were included in the original analysis, which had the effect of improving the valuation multiples. The differences in value because of improved performance for the updated LTM per plan resulted in $10.7 million at the lower revenue level, while EBITDA increased primarily by $20 million due to the improved actual performance and $7 million as a result of the elimination of private companies, among other factors.
Our board of directors determined that the relevant range of value under this methodology was between $61 million and $139.6 million, with a mean of $100.3 million.
Comparison of Initial and Updated Valuations
In its initial valuation analyses in connection with the September 12, 2006 acquisition agreement, our board of directors determined that the fair market value of Royal Wolf was between approximately $75 million and $95 million. In its updated valuations undertaken in connection with the March 29, 2007 amended acquisition agreement, our board determined that the fair market value of Royal Wolf had increased to between $90 million and $120 million.
The differences between the initial valuation and the updated valuation, which are more pronounced at the low end of the range of values, stem primarily from changes in the LTM data used in the updated analysis, which reflected Royal Wolf’s improved performance per its original projections and in accordance with our expectations when we originally approved the transaction. The updated LTM data was benefited by increased capital spending by Royal Wolf for its rental fleet since the time of the initial valuation analysis and the positive effect of this spending on projected future revenues and margins. The improved updated LTM data compared to the initial LTM data was due also to increased revenues and improved margins relating to Royal Wolf’s acquisitions and new product introductions during fiscal 2006, the full benefits of which were realized in fiscal 2007. The change in the exchange rate between AUD and USD from .7239 to .788 also accounted for some of the difference. For instance, the initial LTM revenue and EBITDA were $48.8 million and $5.2 million, respectively, while the updated LTM revenue and EBITDA were $62.1 million and $8.1 million, respectively. These differences of $13.3 million and $2.9 million, respectively, can be broken out between improved performance of RWA of $12.2 million for revenue and $2.6 million for EBITDA, respectively, and $1.1 million and $0.3 million for currency exchange differences, respectively.
The additional investment in container fleet made by RWA also resulted in improved margins and rental revenue stream and corresponding EBITDA for the twelve months ending December 31, 2007 used in the updated analysis as compared to twelve months ending June 30, 2007. This increase also positively affected the terminal EBITDA value for all valuation methodologies at the high end of the range of values.
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Satisfaction of 80% requirement
We represented in the prospectus relating to our IPO that the target business in our initial business combination would have a fair market value equal to at least 80% of our net assets at the time of the transaction, including the funds held in the trust account. Based on the financial analysis it used generally in evaluating and approving the acquisition, our board of directors determined that the acquisition of Royal Wolf meets this requirement.
At the time we entered into the September 12, 2006 acquisition agreement, our board of directors determined based upon our management’s valuation analyses that the fair market value of Royal Wolf was between approximately $75 million and $95 million, which exceeded 80%, or approximately $52 million, of our net assets as of September 30, 2006. The board’s determination was based primarily upon valuation analyses utilizing the projected results of operations of Royal Wolf for the fiscal year ending June 30, 2007. A minority of the valuation results indicated that the fair market value of Royal Wolf may be below 80% of our net assets. However, the valuation methods that indicated this possibility were based primarily on capitalizing revenues and earnings for Royal Wolf for fiscal 2006. By one measure, LTM EBITDA — Selected Transactions, the entire range of values was below the 80% threshold. Our board of directors believed that these methods understated the true value of Royal Wolf at the time, because they believe that the financial results in fiscal 2006 had been adversely impacted by factors such as the introduction of several new products at one time and heavy infrastructure costs and buildout, which they considered to be unusual or not likely to recur in fiscal 2007. In addition, the estimated fiscal 2007 results would include the benefits of the competitor fleet acquisitions made by Royal Wolf during that latter part of fiscal 2006.
Our board of directors updated its valuation of Royal Wolf at the time we entered into the March 29, 2007 amended acquisition agreement, which superseded the September 12, 2006 acquisition agreement in its entirety. Our board of directors has determined that the updated fair market value of Royal Wolf is between approximately $90 million and $120 million. This determination is based on the valuation analyses described above and an analysis of Royal Wolf’s current and projected revenue and EBITDA, as compared to other publicly-traded businesses of a similar nature and the acquisition multiples for other similar transactions in the storage container and modular building/office rental/leasing industry that have recently been publicly announced or completed. In addition, a leveraged buyout/discounted cash flow analysis was performed to determine the present economic value of the assets being acquired. The range of the fair market value exceeds $54 million, which is 80% of our net asset value of approximately $68 million as of December 31, 2006.
Our IPO prospectus states that the 80% test relates to the fair market value of the target business in our initial business combination. The IPO prospectus did not describe specifically how the 80% threshold would apply if we acquired less than all of the equity interests in the target business, and it is possible that investors could conclude that the 80% test should relate instead only to the value of our equity interest in the target business. At $75 million and $90 million, the low end of the range of the fair market value of Royal Wolf as determined by our board of directors in September 2006 and March 2007, respectively, the fair market value of our 86.2% ownership interest in Royal Wolf would be $64.7 million and $77.6 million, respectively. This also exceeds 80% of our net assets at the time; however, a minority of the updated valuation measurements considered by our board of directors indicated that the fair market value of our 86.2% ownership interest in Royal Wolf was below the 80% threshold. It is possible therefore, that stockholders could challenge our board’s determination that the Royal Wolf acquisition satisfies the 80% test described in our IPO prospectus. In this event, we could incur substantial legal fees and other costs and expenses in defending our board’s determination. If such claims were asserted, and if we were unsuccessful in defending the claims, we also could be subject to damages that could have a material adverse effect on our financial condition or results of operations. Such claims also would divert the time and attention of our management and board of directors, which could adversely affect our business and operations.
All of our valuation determinations were based upon an analysis of the fair market value of the entirety of Royal Wolf’s business and operations. In considering the 80% threshold as it relates to our 86.2% ownership interest in Royal Wolf, we multiplied 86.2% by the entire fair market value of Royal Wolf, and we did not attempt to otherwise value our 86.2% ownership interest in Royal Wolf.
The terms of the Royal Wolf acquisition were determined based upon arm’s-length negotiations between us and the sellers, who had no prior dealings with us or our officers or directors. Under the circumstances, our board of
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directors believes that the total consideration for the acquisition appropriately reflects the fair market value of Royal Wolf. In light of the financial background and experience of several members of our management and board of directors, our board also believes it is qualified to determine whether the acquisition of Royal Wolf meets this requirement. Our board of directors did not seek or obtain an opinion of an outside fairness or valuation advisor as to whether the acquisition is fair, from a financial point of view, to our stockholders or the 80% test has been met.
Interests of Our Directors and Officers in the Acquisition
When you consider the recommendation of our board of directors “FOR” approval of the acquisition, you should keep in mind that our officers and directors have interests in the acquisition that are different from, or in addition to, your interests as a stockholder. In particular:
| | |
| • | If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will be required to liquidate. In that event, the 1,875,000 shares of common stock held by our officers and directors that were acquired prior to the IPO for an aggregate purchase price of $250,000 will be worthless, because our officers and directors have waived all rights to receive any liquidation proceeds with respect to such shares. As of July 2, 2007, the aggregate market value of these shares of our common stock owned by our officers and directors was $14,756,250. |
| | |
| • | Ronald F. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer, own warrants to purchase an aggregate of 1,491,333 shares of our common stock that they acquired for an aggregate purchase price of approximately $1,400,000, which also will become worthless upon our liquidation. As of July 2, 2007, the aggregate market value of these warrants was $2,833,533. |
| | |
| • | Mr. Valenta has made available to us a line of credit under which we may borrow from him from time to time up to $3,000,000 at an annual interest rate equal to 8%. Our borrowings under the line of credit have been and will continue to be used by us to pay operating expenses, including deposits and expenses relating to the acquisition. At May 31, 2007, the outstanding amount of principal and accrued interest under the line of credit was $2,256,322. We will continue to borrow funds under the line of credit to pay expenses through the completion of the acquisition. If the acquisition is completed, Mr. Valenta will be repaid all outstanding principal and accrued interest under the line of credit. If, on the other hand, the acquisition or other business combination is not completed and we are required to liquidate as described above, Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amount owed to him under the line of credit. |
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| • | All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of our officers following the acquisition and Peter McCann and James Warren, Royal Wolf’s Chief Financial Officer and Chief Operating Officer, respectively, will be key employees. At present, we do not compensate our officers or directors other than Charles E. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. We will have employment agreements with only Messrs. Barrantes and Allan. Mr. Barrantes receives a base annual salary of $200,000 and is eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided that he is employed on the last day of such year. Mr. Allan receives a base annual salary of $236,400 and is eligible to receive an performance annual bonus not to exceed $78,800 based upon the achievement of specified performance indicators. Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million. If the acquisition is completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of a compensation committee of our board of directors to be established. Except as described above, there is no current understanding or arrangement with respect to any future compensation to our officers or directors. |
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| | • | As an inducement toBison-GEmergers, acquisitions and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreementasset sales, |
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| • | transactions withBison-GE affiliates, and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase fromBison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable |
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| • | changes in business activities conducted by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta,Bison-GEand the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement.our subsidiaries. |
ExceptIn addition, both the Pac-Van Credit Facility and the Subordinated Debt require us, under certain circumstances, to maintain certain financial ratios and limit our ability to make capital expenditures. See Note 5 of the Notes to Audited Consolidated Financial Statements.
If we fail to comply with the restrictions of the investment agreement governing the Subordinated Debt or the terms of the Pac-Van Credit Facility or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as set forth above, nonewell as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds. Accordingly, we may not be able to fully repay our debt obligations, if some or all of our officers or directors or their associates has any interest in the acquisition.debt obligations are accelerated upon an event of default.
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THE ACQUISITION AGREEMENTSPECIAL MEETING
On September 12, 2006,General
We are furnishing this proxy statement to our stockholders in connection with the solicitation of proxies by our board of directors for use at the special meeting of stockholders and at any adjournment or postponement of the meeting. Thisproxy statement provides you with the information we entered intobelieve you should know to be able to vote or instruct your vote at the originalspecial meeting.
Date, Time and Place
The special meeting of stockholders will be held at 9:00 a.m. local time, on , 2008 at the offices of General Finance located at 39 East Union Street, Pasadena, California 91103.
Purpose of the Special Meeting
At the special meeting, we are asking stockholders to:
(1) to consider and vote upon a proposal to approve our acquisition agreement, whichof Mobile Office Acquisition Corp., or MOAC, via a merger, the Merger, with our subsidiary GFN North America Corp;
(2) to approve the issuance of 4,000,000 shares of restricted General Finance common stock, the Shares, pursuant to the Merger; and
(3) in the event that there are insufficient votes present at the meeting for approval of the MOAC acquisition, to consider and act upon a proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the Merger.
Recommendation of Our Special Committee
The special committee of our board of directors:
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| • | unanimously determined the Merger Agreements, the Merger and the issuance of the Shares is fair to, and in the best interests of, General Finance and its stockholders; |
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| • | has unanimously approved the Merger Agreement, the Merger and the issuance of Shares; and |
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| • | recommends that our common stockholders vote “FOR” approval of the acquisition. |
Record Date; Who is referredEntitled to Vote
We have fixed the close of business on , 2008, as the record date for determining the stockholders entitled to notice of and to attend and vote at the special meeting. As of the close of business on , 2008, there were 13,862,052 shares of our common stock outstanding. Each share of our common stock is entitled to one vote with respect to each of the matters to be acted upon at the special meeting.
Quorum
The presence, in Australia asperson or by proxy, of a share sale deed, with Equity Partners and the management shareholders under which we agreed to purchase from them allmajority of the shares of capitalour common stock outstanding as of RWA. On March 29, 2007, we entered into the amended acquisition agreementrecord date constitutes a quorum for the transaction of business.
Abstentions and Broker Non-Votes
Proxies that are marked “abstain” and proxies relating to “street name” shares that are returned to us but marked by brokers as “not voted” with Equity Partners,Bison-GE and the management shareholders, which superseded the September 12, 2006 acquisition agreement in its entirety. References in this proxy statementrespect to the acquisition agreement meanor other proposal will be treated as shares present for purposes of determining the amended acquisition agreement, unlesspresence of a quorum on all matters. The latter, however, will not be treated as shares entitled to vote any proposal to which authority to vote is withheld by the context indicates otherwise.
The following is a summary of selected provisionsbroker. If you do not give the broker voting instructions, under the rules of the acquisition agreement. While we believe this description covers the material termsNational Association of the acquisition agreement, itSecurities Dealers, Inc., your broker may not contain all of the information that is important to you and is qualified in its entirety by referencevote your shares with respect to the acquisition agreement attached as ANNEX A to this proxy statement. We urge you to read the acquisition agreement in its entirety.acquisition.
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The acquisition agreement contains representations, warranties, covenants and other agreements that we, GFN Australasia and the other parties made to one another. The assertions embodied in those representations, warranties, covenants and other agreements are qualified by information in disclosure schedules that the sellers have delivered in connection with signing the acquisition agreement. We have included selected disclosure schedules as part of ANNEX A to this proxy statement. With the possible exception of these included schedules. We do not believe that the disclosure schedules contain information that materially modifies the acquisition agreement or that otherwise is material to a stockholder’s understanding of the proposed acquisition. Information concerning the subject matter of the representations, warranties, covenants and other agreements may have changed since the date of the acquisition agreement, which subsequent information may or may not be fully reflected in our public disclosures.
StructureVote of AcquisitionOur Stockholders Required
The acquisition agreement provides that GFN Australasia, our indirect, wholly owned subsidiary, will acquire allapproval of the capitalacquisition will require the approval of the holders of a majority of the shares of our common stock present and entitled to vote at the meeting with respect to the Merger.
The approval of RWAthe proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the Merger and the issuance of 4,000,000 Shares pursuant to the Merger Agreement in the event that there are insufficient votes for the approval of such proposals present at the special meeting will require the affirmative vote of the holders of a majority of our common stock present and entitled to vote at the meeting. Abstentions are deemed entitled to vote on this proposal. Therefore, they will have the same effect as a vote against the proposal. Broker non-votes, however, are not deemed entitled to vote on this proposal and will have no effect on the outcome of the vote on this proposal.
Voting Your Shares
Each share of our common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of our common stock that you own.
There are two ways to vote your shares of our common stock at the special meeting:
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| • | You can vote by completing, dating, signing and returning the enclosed proxy card. If you vote by proxy card, the proxy holders whose names are listed on the proxy card will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by our board of directors “FOR” the approval of the acquisition and the other proposal described in this proxy statement; and |
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| • | You can attend the special meeting and vote in person. We will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares. |
Proxies must be received prior to the voting at the special meeting. Any proxies or other votes received after this time will not be counted in determining whether the acquisition has been approved.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
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| • | You may send us another proxy card with a later date; |
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| • | You may notify John O. Johnson, our Chief Operating Officer, in writing before the special meeting that you revoke your proxy; or |
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| • | You may attend the special meeting, revoke your proxy and vote in person, as indicated above. |
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call John O. Johnson, our Chief Operating Officer, at(626) 584-9722, extension 1009. You also may call MacKenzie Partners, Inc. toll-free at(800) 322-2885 or (212) 929-5500 (call collect).
Adjournment
In the event there are an insufficient number of shares of our common stock present in person or by proxy at the special meeting to approve our acquisition of Pac-Van, our board of directors intends to adjourn the special meeting to a later date provided a majority of the shares present and voting on the motion vote is in favor of such adjournment. The place and date to which the special meeting would be adjourned would be announced at the special meeting. Proxies voted against the approval of the acquisition will not be voted to adjourn the special meeting. Abstentions and broker non-votes also will not be voted on this matter. If it is necessary to adjourn the special meeting and the adjournment is for a period of not more than 30 days from the shareholdersoriginal date of RWA.the special meeting, no notice of the time and place of the adjourned meeting need be given to our stockholders, other than by an announcement made at the special meeting.
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The effect of any such adjournment would be to permit us to solicit additional proxies for approval of the acquisition. Such an adjournment would not invalidate any proxies previously filed as long as the record date remains the same for the subsequent meeting. We do not anticipate that we would change the meeting’s record date if we seek an adjournment of the special meeting. In the unlikely event that our board of directors exercised its right under the Delaware General Corporation Law to set a new record date for the meeting, we would mail notices of the new meeting date to our stockholders of record.
No Additional Matters May Be Presented at the Special Meeting
The special meeting has been called only to consider the approval of our acquisition of Pac-Van via the Merger between our subsidiary GFNA and MOAC, the issuance of the 4,000,000 Shares pursuant to the Merger Agreement and the related proposal described in this proxy statement. Under our by-laws, other than procedural matters incident to the conduct of the meeting, no other matters may be considered at the special meeting.
By signing and returning the enclosed proxy card, you will be deemed to grant the proxy holders discretionary authority to consider and act upon such other matters as may properly presented incident to the conduct of the meeting and any adjournment or postponement of the meeting.
No Appraisal Rights
General Finance stockholders have no appraisal rights in connection with the acquisition under applicable Delaware General Corporation Law or otherwise.
Listing on AMEX
Following the acquisition, our outstanding common stock, warrants and units will continue to be listed for trading on the American Stock Exchange.
Closing of the Acquisition
In connection with the execution of the amended acquisition agreement on March 29, 2007,Bison-GE purchased 80% of the outstanding capital stock of RWA, consisting of all of the capital stock of RWA owned by Equity Partners and approximately 50% of the capital stock of RWA owned by the management shareholders. The purchase price of the RWA shares was approximately $45 million, which was equivalent to the consideration that we had previously agreed to pay to these sellers under the terms of the original acquisition agreement. This consideration was determined as described below under “Acquisition Consideration; Payment of Consideration.”At the closing of our acquisition of Royal Wolf, we will pay Bison-GE this amount, plus $1.125 million and its share of the $864,600 per month payable by us to the sellers from March 29, 2007 until the closing, by a combination of cash and shares of capital stock of GFN Australasia. The balance of the purchase price for the RWA shares described below under “Acquisition Consideration; Payment of Consideration” will be paid in cash to the management shareholders for their remaining RWA shares.
The closing of our acquisition of the RWA shares from Bison-GE and the management shareholders will take place on the day the conditions to closing have been satisfied or waived, or such other date and time as we and the parties agree. We expect to close the acquisition by [ l ], 2007, assuming it is approved at the special meeting on [ l ], 2007.
Acquisition Consideration; Payment of Consideration
The purchase price for the RWA shares will be $57.6 million, plus $864,600 per month from March 29, 2007 until the closing. The purchase price includes deposits of $1,005,000 previously paid by us in connection with the acquisition.
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If the acquisition is not completed for any reason, we will forfeit the deposits. Assuming the closing occurs on July 31, 2007, we will pay the purchase price of the RWA shares, less the deposits, by a combination of cash of approximately $51.7 million and issuance toBison-GE of approximately 1,380 shares of capital stock of GFN U.S., which will constitute 13.8% of the outstanding capital stock of GFN U.S. immediately following the acquisition. Assuming the closing occurs on May 31, 2007, the aggregate acquisition consideration will be approximately $102.2 million, including a total of $2.4 million in cash payable by us in two equal installments on the first and second anniversaries of the closing in exchange for anon-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities with ANZ. There was $38.7 million, including accrued interest, outstanding under the facilities as of March 31, 2007. The actual amount outstanding as of the closing will be different, but will in no event exceed $39.4 million of principal.
The purchase price of the RWA shares, excluding any amount attributable to the increase in price after March 29, 2007, is equivalent to the amount paid byBison-GE to acquire the RWA shares in connection with the signing of the acquisition agreement. The amount paid by Bison-GE was equivalent to the acquisition consideration that we had originally agreed to pay to these sellers under the original acquisition agreement of $91.8 million, less the deposits of $1,005,000 previously paid by us and subject to adjustments called for in the original acquisition agreement as follows:
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| Aggregate acquisition consideration | | $ | 91,802,000 | |
| Less: | | | | |
| Deposits paid | | | (1,005,000 | ) |
| Add: | | | | |
| Container rental equipment | | | 6,779,000 | |
| Less: | | | | |
| Net tangible assets | | | (562,000 | ) |
| Other, net | | | (250,000 | ) |
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| Aggregate adjusted consideration | | | 96,764,000 | |
| Less: | | | | |
| Non-compete covenant | | | (2,364,000 | ) |
| Assumed bank debt | | | (38,700,000 | ) |
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| Net acquisition consideration | | $ | 55,700,000 | |
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| Net acquisition consideration paid by Bison-GE for approximately 80% of RWA shares | | $ | 45,000,000 | |
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| • | Container Rental Equipment. If the gross amount of container rental equipment at the closing was greater than the specified amount, the purchase price was to be increased by the amount of such excess, and if the gross amount of container rental equipment at the closing was less than the specified amount, the purchase price was to be decreased by the amount of such deficiency. Gross container rental equipment of $43,720,000 was greater than the specified amount of $36,941,000 by $6,779,000. |
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| • | Net Tangible Assets. If the total assets less all intangibles and liabilities of Royal Wolf, excluding the amount required to cash out outstanding options, the bonus to the former chairman and costs and expenses of the acquisition were less than $2,128,000 at the closing, the aggregate consideration was to be decreased by the amount of the shortfall, or $562,000. |
Senior Subordinated Indebtedness
In conjunction with, and as a condition to Bison-GE’s obligations to sell the RWA shares to us at the closing, we have agreed to issue to Bison Capital or its affiliate $15.76 million of senior subordinated promissory notes of GFN Australasia. The senior subordinated notes will be sold by GFN Australasia at par. We will use the proceeds from the issuance of the senior subordinated promissory notes to augment Royal Wolf’s working capital and for general corporate purposes, which may include future acquisitions. Neither we nor Royal Wolf has any understanding or commitment with respect to any such future acquisition.
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Upon the sale of the senior subordinated promissory notes, we will pay Bison Capital in cash a fee of $315,000 and will grant to Bison Capital seven-year warrants to purchase 500,000 shares of common stock of our company at an initial exercise price of $8.00 per share. The warrants will contain customary antidilution provisions for stock splits and stock dividends. The warrants also will contain so-called exercise price-type antidilution adjustments that would be triggered by our future sales of common stock or common stock equivalents at a price below the then-current market price of our common stock, subject to certain exceptions.
The senior subordinated promissory notes will bear interest at the annual rate of 13.5%, payable quarterly in arrears. The notes may not be prepaid prior to the second anniversary of their issuance. Thereafter, the notes may be prepaid at a declining price of 102% during the third year, 101% during the fourth year, and 100% thereafter.
The senior subordinated notes will mature 66 months from the date of issuance, subject to our right to extend the scheduled maturity date by up to an additional 12 months. If, during the66-month period ending on the scheduled maturity date, our common stock has not traded above $10 per share for any 20 consecutive trading days on which the average daily trading volume was at least 30,000 shares (ignoring any daily trading volume above 100,000 shares), we will pay Bison Capital on the scheduled maturity date a premium of $900,000 in cash and the above-referenced warrants held by Bison Capital will terminate to the extent they were not previously exercised. The premium payable by us will be reduced by any gain realized by Bison Capital from any prior exercise of the warrants and sale of the underlying warrant shares. The premium will be payable by us on the scheduled maturity date, whether or not the notes have been paid by us on or before (or after) that date.
ANZ Credit Facilities
The aggregate consideration for Royal Wolf includes the indebtedness under Royal Wolf’s existing credit facilities with ANZ. There was $38.7 million, including accrued interest, of indebtedness outstanding under the ANZ facilities of March 31, 2007. The actual amount outstanding as of the closing will be different, but will in no event exceed $39.4 million of principal. The material terms of the ANZ credit facilities are described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Royal Wolf — Current Financing Arrangements” elsewhere in this proxy statement.
Warranties
The acquisition agreement contains warranties of each of us, GFN Australasia and the sellers, includingBison-GE, relating, among other things, to:
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| • | Proper corporate organization and similar corporate matters; |
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| • | The authorization, performance and enforceability of the acquisition agreement; and |
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| • | Ownership of RWA shares; |
The acquisition agreement also contains representations and warranties of Equity Partners and the management shareholders relating, among other things, to:
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| • | No conflict or breach of any material contracts; |
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| • | Liquidation, insolvency or defaults of any of the sellers; and |
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| • | No option, right to acquire or encumbrance of or affecting the shares; |
The acquisition agreement also contains representations and warranties of Equity Partners and the management shareholders relating to Royal Wolf, including:
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| • | Proper corporate organization and similar corporate matters of RWA and its subsidiaries; |
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| • | No insolvency event; |
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| • | Subsidiaries; |
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| • | Shares; shares in the subsidiaries; no issuance of dividends; |
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| • | Lack of any other subsidiary, partnership, joint venture or unincorporated association, or any other business entity; |
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| • | Title to and ownership of properties and assets, including intellectual property rights; |
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| • | Accuracy, maintenance and possession of records; |
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| • | Financial information; |
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| • | Compliance; required filings; |
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| • | Tax matters; |
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| • | Litigation; |
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| • | Environmental matters; |
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| • | Labor matters; |
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| • | Material contracts; |
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| • | Insurance; and |
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| • | Leased property. |
Covenants
The parties to the acquisition agreement have each agreed to take such actions as are necessary, proper or advisable to consummate the acquisition. The sellers have agreed, to the extent within their respective powers as shareholders of Royal Wolf and through their board representation, to continue the management and conduct of business of Royal Wolf and its subsidiaries in the ordinary course prior to the closing and not to take the following actions without our prior written consent or except in accordance with Royal Wolf’s budget:
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| • | Enter into, terminate or alter any term of any material contract or commitment with a value equal to or greater than $78,800; |
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| • | Incur any material liability of $39,400 or more outside the ordinary course of the business; |
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| • | Dispose of, agree to dispose of, encumber or grant an option over any of its assets outside the ordinary course of the business; |
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| • | Hire or terminate any senior employee or alter the terms of employment of any senior employee whose salary package is valued at $118,200 or more; |
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| • | Allot or issue or agree to allot or issue any share or any security convertible into any share; |
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| • | Declare or pay any dividends or make any other distribution of assets or profits; |
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| • | Alter or agree to alter the constitution; |
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| • | Pass any special resolution; or |
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| • | Make any acquisition without our consent. |
Conditions to Closing of the Acquisition
The completion of the acquisition is conditioned upon our stockholders approving the acquisition at the special meeting, or otherwise by September 1, 2007. Notwithstanding their approval, if the holders of 20% or more of our IPO shares exercise their conversion rights, the acquisition cannot be completed.
In addition, the completion of the acquisition is conditioned upon, among other things:
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| • | The absence of any event that has a material adverse effect on Royal Wolf’s EBITDA over any12-month period; and |
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| • | ANZ and Bison Capital entering into a subordination agreement with respect to the senior subordinated promissory notes of GFN Australasia to be issued to Bison Capital at the closing of the acquisition. |
All required third-party consents were obtained in connection with Bison-GE’s purchase of RWA shares pursuant to the amended acquisition agreement, and no further or additional consents are needed with respect to our purchase of Royal Wolf. Following is a summary of such consents and the approximate dates they were obtained:
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| • | Australian Government (Foreign Investment Review Board) — September 29, 2006; |
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| • | New Zealand Banking Group (ANZ) — March 29, 2007; |
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| • | Triton Container International Limited — March 28, 2007; |
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| • | Triton CSA International — March 30, 2007; |
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| • | GPF No. 3 Pty Ltd — March 2, 2007; |
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| • | Tyne Container Services Pty Ltd — November 2, 2006; |
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| • | Trutek Administration Pty Limited — November 2, 2006; |
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| • | Strang International Pty Ltd — November 2, 2006; |
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| • | P&V Industries Pty Ltd — November 2, 2006; |
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| • | MPM Leasing — November 2, 2006; |
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| • | James Matra Pty Ltd — November 2, 2006; and |
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| • | Chan Ling Lam — November 2, 2006. |
ANZ and Bison-GE are in the process of preparing the subordination agreement between them relating to the senior subordinated promissory notes to be issued to Bison-GE. The subordination agreement will specify the relative rights of ANZ, as senior lender, and Bison GE, as junior lender, to the repayment of their respective indebtedness. We expect that the subordination agreement will be in customary form and that it will be entered into only in conjunction with the closing of our acquisition of Royal Wolf, and not before the closing.
If permitted under applicable law, any of the parties may waive any inaccuracies in the representations and warranties made to the other parties contained in the acquisition agreement and waive compliance with any agreements or conditions for their benefit contained in the acquisition agreement. We cannot assure you that any or all of the conditions will be satisfied or waived. The conditions that the acquisition be approved by our stockholders and that the holders of fewer than 20% of our IPO shares exercise their conversion rights cannot be waived. We may waive one or more of the closing conditions if we deem it advisable to do so.
Indemnification and Escrow Provisions
Equity Partners and each of the management shareholders has agreed in the acquisition agreement to indemnify Bison-GE against claims (as defined) due to breach of their warranties, subject to certain limitations. At the closing of our acquisition of Royal Wolf, Bison-GE will assign to us these indemnification rights. Equity Partners and the management shareholders will have no liability for a claim unless the amount of the claim is at least $15,800 and until the aggregate of all claims in excess of $15,800 exceeds $296,300, in which event we can claim the whole amount, not just the amount in excess of $296,300. They also will have no liability for breach of warranty unless the claim arises within 18 months after the date of the acquisition agreement (five years after the date of the acquisition agreement for breach of certain warranties relating to corporate organization, outstanding shares and share capitalization, compliance with legal requirements, tax, and the environment).
At or before the closing, $5.5 million of the cash paid or payable to Equity Partners and the management shareholders will be deposited in a separate bank account requiring signatures of us and Equity Partners and the management shareholders for withdrawals. The purpose of this account is to provide a source of funds to pay the indemnification obligations. The acquisition agreement provides that 25% of these funds will be released to Equity Partners and the management shareholders on September 1, 2007 and the balance will be released to them on March 31, 2008, in each case, subject to any paid or pending indemnity claims by us.
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RWA Management Guarantees
The management shareholders are companies formed by Paul Jeffrey, James Warren, Michael Baxter and Peter McCann to hold their shares of RWA. Under the acquisition agreement, each of these individuals has agreed to personally guarantee the obligations under the acquisition agreement of his management shareholder company.
Shareholders Agreement
As part of the purchase price of the RWA shares, we will issue to Bison-GE approximately 1,380 shares, or 13.8%, of the capital stock of GFN U.S. At the closing under the acquisition agreement, we and Bision-GE will enter into a shareholders agreement setting forth our rights and obligations with respect to our respective shares of GFN U.S. A copy of the shareholders agreement is attached to this proxy statement as ANNEX B.
Under the shareholders agreement, Bison-GE will have the option at any time after two years from the closing to require us to purchase its GFN U.S. shares. The purchase price for the shares would be the greatest of the following:
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| • | 8.25 times EBITDA of Royal Wolf, as increased to include payments by Royal Wolf to us for expenses, less “net debt” (as defined); |
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| • | A specified multiple (based upon the market price of our common stock as a multiple of our consolidated EBITDA), which is referred to as the “GFC trading multiple,” multiplied by EBITDA of Royal Wolf, less “net debt”; and |
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| • | The purchase price that Bison-GE paid for its shares. |
We will have the right at any time prior to the third anniversary of the closing to require Bison-GE to sell to us its GFN U.S. shares at a price equal to 2.75 times the purchase price that Bison-GE paid for those shares, provided that Bison-GE has not previously exercised its right to require us to purchase its shares as described above. We will have a second option to purchase Bison-GE’s GFN U.S. shares after three years from the closing for a purchase price equal to the greater of:
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| • | 8.75 multiplied by EBITDA of Royal Wolf, as increased to include payments by Royal Wolf to us for expenses, less “net debt”; and |
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| • | The GFC trading multiple multiplied by EBITDA of Royal Wolf, less the “net debt.” |
If we fail to purchase Bison-GE’s GFN U.S. shares upon exercise of the foregoing rights, the applicable purchase price multiples will increase.
In the shareholders agreement, we will agree that, without the consent of Bison-GE, we will not:
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| • | Sell or transfer material assets outside of the ordinary course of business; |
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| • | Appoint or remove an auditor; |
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| • | Enter into a related-party transaction, provided that we may pay up to $1 million per year for expenses of related parties (which amount is subject to reduction to not less than $500,000 if we make other acquisitions); |
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| • | Issue, pledge or redeem any shares (other than for senior debt); |
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| • | Pay any dividends; |
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| • | Change the nature of the business; or |
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| • | Merge or consolidate with any person. |
We will agree in the shareholders agreement to indemnify Bison-GE for substantially any matter occurring in connection with its acquisition of the RWA shares upon the signing of the acquisition agreement and the sale of the RWA shares to us at the closing, excluding matters involving a breach of representation, warranty or agreement by Bison-GE or Bison-GE’s willful misconduct as determined by a court.
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We will agree in the shareholders agreement that we will make any acquisitions of Royal Wolf competitive businesses in the geographic area east of Vietnam, south of Guam and west of Hawaii solely through Royal Wolf. Bison-GE will agree that we are not restricted in making acquisitions outside of this geographic area, and that Bison-GE will have no right to participate in such other acquisitions. As a result of the covenants described above, Bison-GE will have veto power over any in-market acquisitions by Royal Wolf that requires financing from us. We also will agree to make, or not to make, various U.S. tax elections with respect to GFN U.S. and its subsidiaries, and to indemnify Bison-GE with respect to certain unexpected tax liabilities relating to its ownership of shares.
Backup Purchase Agreement
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders. Under the backup purchase agreement, Mr. Valenta, as trustee of The Ronald Valenta Revocable Offshore Trust, has agreed that, if the acquisition is terminated for any reason, a wholly owned entity to be formed by him for this purpose will purchase all of the RWA shares held by Bison-GE and the management shareholders at the same price as would have been payable by us under the amended acquisition agreement. The purchase price to the management shareholders will be payable in cash. The purchase price to Bison-GE will be payable by a combination of cash and a 30% equity interest in the entity formed by Mr. Valenta to make the purchase and which will own and operate Royal Wolf following the purchase. Mr. Valenta’s entity also will issue to Bison-GE approximately $15.76 million of senior subordinated promissory notes of the entity on the same terms and provisions of the GFN Australasia senior subordinated promissory notes that we otherwise would have issued to Bison-GE under the amended acquisition agreement. A copy of the backup purchase agreement is attached to this proxy statement as ANNEX C.
Consulting and Employment Agreements
In connection with the acquisition, Michael Baxter, the executive director and a founder of Royal Wolf, will enter into a consulting agreement pursuant to which he will agree to provide consulting services relating to the transition of ownership of Royal Wolf until March 31, 2008 for total fee of approximately $39,400. A copy of Mr. Baxter’s consulting agreement is included as part of ANNEX A to this proxy statement.
Robert Allan, James Warren and Peter McCann, the three principal executives of Royal Wolf, will continue to serve in these capacities following the acquisition under their existing employment agreements. The employment agreements will continue indefinitely, unless terminated upon six months’ notice by either party in the case of Mr. Allan and three months’ notice in the cases of Messrs. McCann and Warren, or unless an individual’s employment is terminated by Royal Wolf for “cause” (as defined). Messrs. Allan, McCann and Warren are entitled under their respective agreements to a base annual salary of $236,400, $197,000 and $177,300, respectively, and to an annual performance bonus based upon the achievement of specified performance indicators not to exceed $78,800, $27,600 and $118,200, respectively. The maximum annual performance bonuses are subject to increase annually based upon consumer price index increases. The agreements provide for no severance or similar payments, except that Royal Wolf may pay six months’ compensation to Mr. Allan and three months’ compensation to either Mr. McCann or Mr. Warren in lieu of providing notice of termination of their employment as described above.
Termination
We, or Bison-GE or the management shareholders may terminate the acquisition agreement if the acquisition is not approved by our stockholders at the special meeting, or otherwise by September 1, 2007. Any party may terminate the acquisition agreement if any of the other closing conditions are not satisfied by March 29, 2008, provided that it such party has used reasonable efforts to satisfy its conditions and kept the other party informed of its progress in satisfying its conditions.
Fees and Expenses
All fees and expenses incurred by us in connection with the acquisition agreement and the transactions contemplated thereby will be paid by us, whether or not the acquisition is consummated. If the acquisition is consummated, we also will pay at the closing under the acquisition agreement all direct,out-of-pocket fees and expenses, including legal fees and expenses, incurred by Bison-GE and its affiliates in connection with the amended
70
acquisition agreement and the transactions contemplated thereby. All fees and expenses incurred by the management shareholders will be borne by them; however, any transaction fees of the sellers that were paid by Royal Wolf were included in the calculation of Royal Wolf’s net debt as of the signing of this amended acquisition agreement and reduced the cash consideration paid by Bison-GE accordingly.
Confidentiality; Access to Information
Royal Wolf will afford to us and our financial advisors, accountants, counsel and other representatives prior to the completion of the acquisition reasonable access during normal business hours, upon reasonable notice, to all of its respective properties, books, records and personnel to obtain all information concerning the business, provided that we do so in a manner that does not disrupt the business of Royal Wolf.
Non-compete Covenants
Equity Partners or the management shareholders have agreed that following the closing, within Australia or New Zealand, they will not:
| | |
| • | Engage in a business that competes with Royal Wolf for a period of five years ending March 29, 2012; |
|
| • | Solicit, canvass, approach or accept an approach from a person who was at any time during the 12 months ending on March 29, 2008 a customer of Royal Wolf with a view to obtaining their business that is in competition with the business of Royal Wolf for a period of four years ending March 29, 2011; |
|
| • | Interfere with the relationship between Royal Wolf and its customers, employees or suppliers for a period of three years ending March 29, 2010; |
|
| • | Induce or help to induce a Royal Wolf employee to leave their employment for a period of two years ending March 29, 2009; or |
|
| • | Disclose or use to their advantage or to Royal Wolf’s disadvantage, itself or by any of its subsidiaries, agents, or representatives, any of the trade secrets or any confidential information relating to Royal Wolf or its business at any time after March 29, 2007. |
The acquisition agreement provides that the consideration for these covenants is $2.4 million, payable by us in two equal installments on the first and second annual anniversaries of the closing.
Amendment
The acquisition agreement may be further amended by the parties thereto only by writing signed on behalf of each of the parties.
Regulatory Matters
The acquisition is subject to review by the Treasurer of the Commonwealth of Australia, which issued its notice of non-objection to the transaction on September 26, 2006. The acquisition is not subject to any regulatory approvals in the U.S.
Tax Consequences
There will be no tax consequences to our stockholders directly resulting from the acquisition, except to the extent they exercise their conversion rights.acquisition.
A stockholder who exercises conversion rights will generally be required to recognize capital gain or loss upon the conversion, if such shares were held as a capital asset on the date of the acquisition. This gain or loss will be measured by the difference between the amount of cash received and the stockholder’s tax basis in the converted shares. The gain or loss will be short-term gain or loss if the acquisition closes as scheduled, but may be long-term gain or loss if the closing is postponed.
71
Finder’s Fees (page 47)
No finder’s feefees will be paid in connection with the acquisition.
Accounting Treatment (page 43)
The mergerMerger will be accounted for using the purchase method of accounting with us treated as the acquirer. Under this method of accounting, Royal Wolf’sPac-Van’s assets and liabilities will be recorded by us at their respective fair values as of the closing date of the mergerMerger (including any identifiable intangible assets). Any excess of purchase price over the net fair values of Royal Wolf’sPac-Van’s assets and liabilities will be recorded as goodwill. Our financial statements after the mergerMerger will reflect these values and the results of operations of Royal WolfPac-Van will be included in our results of operations beginning upon the completion of the merger.
Merger.
Changes EffectedRegulatory Matters (page 43)
We do not believe that the acquisition is subject to review by the Amended Acquisition AgreementFederal Trade Commission under theHart-Scott-Rodino Antitrust Improvements of 1976, as amended, or HSR, or is subject to any other regulatory review.
No Appraisal Rights (page 43)
Holders of General Finance common stock are not entitled to appraisal rights in connection with the Merger under Delaware law or General Finance’s certificate of incorporation.
Risk Factors (page 21)
Before you grant your proxy or vote or instruct the vote with respect to the Merger, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on us and Pac-Van.
14
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995, although the safe-harbor provisions of that act do not apply to statements made in this proxy statement. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and Pac-Van that may cause the actual future business and financial results of us and Pac-Van to be materially different from prior results or any results expressed or implied by such forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those described in the “Risk Factors” section and elsewhere in this proxy statement. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.
All forward-looking statements included in this proxy statement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
SELECTED FINANCIAL DATA OF GENERAL FINANCE CORPORATION
The amendedsummary historical consolidated financial data set forth below are derived from the audited consolidated financial statements of Royal Wolf (as our Predecessor) for the years ended June 30, 2007 and 2006, the six months ended June 30, 2005 and the year ended December 31, 2004; and from our unaudited condensed consolidated financial statements for the nine months ended March 31, 2007 (Predecessor), the period from July 1, to September 13, 2007 (Predecessor) and the nine months ended March 31, 2008 (Successor). The summary historical financial data for the periods ended March 31, 2008 and 2007 are derived from our unaudited consolidated financial statements, have been prepared on the same basis as the audited consolidated financial statements referred to above and, in the opinion of management, include all significant normal, recurring adjustments necessary to state fairly the data included therein in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information. Interim results are not necessarily indicative of the results to be expected for any other interim period or any fiscal year.
The selected financial data presented below should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Post-Effective Amendment onForm S-1 declared effective March 31, 2008, Transition Report onForm 10-K for the six months ended June 30, 2007 and Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2008, which are all hereby incorporated by reference. The full text of all such filings with the SEC referenced above, as well as the other documents General Finance has filed with the SEC prior to, or will file with the SEC subsequent to, the filing of this proxy statement can be accessed electronically on the SEC’s website at www.sec.gov.
The information as of and for the year ended December 31, 2003 was derived from the audited financial statements of Royal Wolf Trading Australia Pty Limited, or Royal Wolf, the principal operating subsidiary.
15
Consolidated Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | Six
| | | | | | | | | Nine
| | | | | | | |
| | | | | | | | | Months
| | | | | | | | | Months
| | | Period from
| | | Nine Months
| |
| | | Year Ended | | | Ended | | | Year Ended | | | Ended | | | July 1, to
| | | Ended | |
| | | December 31, | | | June 30, | | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sale of containers | | $ | 16,947 | | | $ | 26,141 | | | $ | 13,563 | | | $ | 34,473 | | | $ | 52,929 | | | $ | 37,441 | | | $ | 10,944 | | | $ | 45,277 | |
| Leasing of containers | | | 8,540 | | | | 12,351 | | | | 7,224 | | | | 15,921 | | | | 21,483 | | | | 15,995 | | | | 4,915 | | | | 17,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 25,487 | | | | 38,492 | | | | 20,787 | | | | 50,394 | | | | 74,412 | | | | 53,436 | | | | 15,859 | | | | 62,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 1,447 | | | | 2,926 | | | | 560 | | | | 2,412 | | | | 4,672 | | | | 1,694 | | | | 1,530 | | | | 6,715 | |
| Other income (expense), net | | | 1,596 | | | | (2,242 | ) | | | (662 | ) | | | (2,626 | ) | | | (3,870 | ) | | | (2,756 | ) | | | (1,062 | ) | | | (971 | ) |
| Income (loss) before provision for income taxes and minority interest | | | 3,043 | | | | 684 | | | | (102 | ) | | | (214 | ) | | | 802 | | | | (1,062 | ) | | | 468 | | | | 5,744 | |
| Net income (loss) | | | 2,244 | | | | 284 | | | | (177 | ) | | | (428 | ) | | | 312 | | | | (1,923 | ) | | | 288 | | | | 3,553 | |
Consolidated Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | June 30, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Trade and other receivables, net | | $ | 3,901 | | | $ | 5,479 | | | $ | 6,002 | | | $ | 7,451 | | | $ | 13,322 | | | $ | 20,088 | |
| Inventories | | | 2,908 | | | | 1,669 | | | | 3,066 | | | | 5,460 | | | | 5,472 | | | | 20,660 | |
| Container for lease fleet, net | | | 13,080 | | | | 17,511 | | | | 19,644 | | | | 27,773 | | | | 40,928 | | | | 71,986 | |
| Total assets | | | 24,953 | | | | 30,728 | | | | 35,930 | | | | 47,903 | | | | 68,788 | | | | 179,982 | |
| Total current liabilities | | | 9,009 | | | | 11,070 | | | | 8,997 | | | | 16,580 | | | | 20,859 | | | | 30,159 | |
| Long-term debt and obligations, net | | | 11,432 | | | | 16,081 | | | | 22,993 | | | | 27,155 | | | | 33,811 | | | | 70,968 | |
| Net assets | | | 4,322 | | | | 3,165 | | | | 3,586 | | | | 3,018 | | | | 13,040 | | | | 68,855 | |
16
SELECTED FINANCIAL DATA OF MOBILE OFFICE ACQUISITION CORP. AND PAC-VAN, INC.
The following tables set forth the selected historical financial data of Mobile Office Acquisition Corp. andPac-Van, Inc. for the periods indicated. Pac-Van, Inc. was acquired by Mobile Office Acquisition Corp., or MOAC, on August 2, 2006. The financial data for periods prior to August 2, 2006 are derived from the financial statements of Pac-Van, Inc. (Predecessor) prior to its acquisition by MOAC (Successor). The selected historical financial data for the years ended December 31, 2007 and 2005, the periods from January 1, 2006 to August 1, 2006, and from August 2, 2006 to December 31, 2006; and the consolidated balance sheet information as of December 31, 2006 and 2007 are derived from the audited financial statements included in this proxy statement. The selected historical consolidated financial data for the three months ended March 31, 2008 and 2007, and the consolidated balance sheet information as of March 31, 2008 are derived from the unaudited consolidated financial statements also included in this proxy statement. The selected historical financial data as of and for the years ended December 31, 2003 and 2004 and the balance sheet information as of December 31, 2005 are derived from the audited consolidated financial statements of Pac-Van not included in this proxy statement. The financial information set forth below should be read in conjunction with the financial statements and the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this proxy statement.
Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | | | | | | | | | | January 1,
| | | August 2,
| | | | | | | | | | |
| | | | | | | | | | | | 2006 to
| | | 2006 to
| | | Year Ended
| | | Three Months
| |
| | | Year Ended December 31, | | | August 1,
| | | December 31,
| | | December 31,
| | | Ended March 31, | |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2006 | | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Sales of equipment | | $ | 9,498 | | | $ | 14,682 | | | $ | 18,848 | | | $ | 11,053 | | | $ | 11,262 | | | $ | 20,220 | | | $ | 4,648 | | | $ | 4,124 | |
| Leasing revenues | | | 25,943 | | | | 26,769 | | | | 32,158 | | | | 22,270 | | | | 17,605 | | | | 47,035 | | | | 10,337 | | | | 11,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 35,441 | | | | 41,451 | | | | 51,006 | | | | 33,323 | | | | 28,867 | | | | 67,255 | | | | 14,985 | | | | 16,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 4,632 | | | | 4,975 | | | | 7,906 | | | | 6,705 | | | | 5,292 | | | | 15,721 | | | | 3,463 | | | | 3,570 | |
| Other expense, net | | | (2,721 | ) | | | (2,478 | ) | | | (2,672 | ) | | | (1,761 | ) | | | (3,164 | ) | | | (8,425 | ) | | | (2,001 | ) | | | (2,090 | ) |
| Income before provision for income taxes | | | 1,911 | | | | 2,497 | | | | 5,234 | | | | 4,944 | | | | 2,128 | | | | 7,296 | | | | 1,462 | | | | 1,480 | |
| Net income | | | 1,141 | | | | 1,499 | | | | 3,155 | | | | 2,987 | | | | 1,297 | | | | 4,030 | | | | 831 | | | | 895 | |
Balance Sheet Information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | December 31, | | | March 31,
| |
| | | 2003 | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | (In thousands of dollars) | | | (Unaudited) | |
| |
| Accounts receivables, net | | $ | 4,809 | | | $ | 6,379 | | | $ | 8,544 | | | $ | 9,409 | | | $ | 11,846 | | | $ | 10,565 | |
| Rental inventory and fleet, net | | | 60,491 | | | | 54,102 | | | | 59,115 | | | | 73,668 | | | | 94,709 | | | | 100,773 | |
| Total assets | | | 58,942 | | | | 61,816 | | | | 69,385 | | | | 128,985 | | | | 151,061 | | | | 156,305 | |
| Total current liabilities | | | 5,934 | | | | 7,026 | | | | 10,016 | | | | 13,373 | | | | 14,999 | | | | 14,473 | |
| Long-term debt and | | | | | | | | | | | | | | | | | | | | | | | | |
| obligations, net | | | 38,922 | | | | 38,272 | | | | 37,622 | | | | 80,071 | | | | 93,239 | | | | 97,538 | |
| Net assets | | | 9,002 | | | | 10,728 | | | | 13,976 | | | | 23,977 | | | | 28,006 | | | | 28,901 | |
17
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following tables present, as of March 31, 2008, and for the fiscal year ended June 30, 2007 and the nine months ended March 31, 2008, selected unaudited pro forma condensed combined financial data and have been prepared using the purchase method of accounting. The unaudited pro forma condensed combined statements of operations data gives effect to the acquisition of Pac-Van as if it had occurred on the first day of the period and the unaudited pro forma condensed combined balance sheet data gives effect to the acquisition as if it had occurred on the date of such balance sheet.
You should read this information in conjunction with (i) our separate historical consolidated financial statements and accompanying notes incorporated by reference into this proxy statement, (ii) the separate historical consolidated financial statements and accompanying notes of Pac-Van included in this proxy statement and (iii) the unaudited pro forma condensed combined financial statements and accompanying notes included elsewhere in this proxy statement (see “Unaudited Pro Forma Condensed Combined Financial Statements” and “Where You Can Find More Information”).
The selected unaudited pro forma condensed combined financial data is provided for illustrative purposes only and do not purport to represent what our actual consolidated results of operations or the consolidated financial position would have been had the business combination with Pac-Van occurred on the respective date assumed, nor are they necessarily indicative of future consolidated operating results or financial position.
| | | | | | | | | |
| | | Year Ended
| | | Nine Months Ended
| |
| | | June 30, 2007 | | | March 31, 2008 | |
| | | (In thousands, except per share data) | |
| |
Pro Forma Statement of Operations Data: | | | | | | | | |
| Revenues | | $ | 140,268 | | | $ | 130,826 | |
| Total operating expenses | | | 127,955 | | | | 111,110 | |
| Operating income | | | 12,313 | | | | 19,716 | |
| Net income (loss) | | | (2,811 | ) | | | 4,994 | |
| | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | |
| Basic | | $ | (0.16 | ) | | $ | 0.28 | |
| Diluted | | | (0.16 | ) | | | 0.26 | |
| | | | | | | | | |
| | | | | |
| | | As of
| |
| | | March 31, 2008 | |
| | | (In thousands, except
| |
| | | per share data) | |
| |
Pro Forma Balance Sheet Data: | | | | |
| Lease fleet, net | | $ | 170,224 | |
| Total assets | | | 367,628 | |
| Total long-term debt and obligations | | | 187,745 | |
| Minority interest | | | 8,762 | |
| Stockholders’ equity | | | 118,237 | |
| | | | | |
| Book value per share | | $ | 6.63 | |
| | | | | |
18
PRICE RANGE OF GENERAL FINANCE CORPORATION SECURITIES AND
RELATED STOCKHOLDER MATTERS
Our units, common stock and warrants are listed on the American Stock Exchange under the symbols “GFN.U,” “GFN” and “GFN.WS,” respectively. The following table sets forth for the periods indicated the range of high and low sales prices for the units, common stock and warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Units | | | Common Stock | | | Warrants | |
| | | High | | | Low | | | High | | | Low | | | High | | | Low | |
| |
FY 2009: | | | | | | | | | | | | | | | | | | | | | | | | |
| First Quarter (through August 1, 2008) | | $ | 7.35 | | | $ | 5.90 | | | $ | 6.40 | | | $ | 4.90 | | | $ | 1.05 | | | $ | 0.82 | |
FY 2008: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.05 | | | $ | 6.15 | | | $ | 7.54 | | | $ | 5.44 | | | $ | 1.90 | | | $ | 0.91 | |
| Third Quarter | | $ | 12.15 | | | $ | 8.50 | | | $ | 9.05 | | | $ | 7.00 | | | $ | 3.24 | | | $ | 1.55 | |
| Second Quarter | | $ | 13.70 | | | $ | 10.00 | | | $ | 9.89 | | | $ | 7.90 | | | $ | 4.05 | | | $ | 2.20 | |
| First Quarter | | $ | 10.05 | | | $ | 8.80 | | | $ | 8.00 | | | $ | 7.43 | | | $ | 2.20 | | | $ | 1.60 | |
FY 2007: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 9.75 | | | $ | 9.00 | | | $ | 7.95 | | | $ | 7.56 | | | $ | 1.96 | | | $ | 1.45 | |
| Third Quarter | | $ | 9.60 | | | $ | 8.50 | | | $ | 7.95 | | | $ | 7.46 | | | $ | 1.80 | | | $ | 1.10 | |
| Second Quarter | | $ | 8.00 | | | $ | 7.81 | | | $ | 7.70 | | | $ | 7.22 | | | $ | 1.15 | | | $ | 0.62 | |
| First Quarter | | $ | 8.45 | | | $ | 7.75 | | | $ | 7.36 | | | $ | 7.22 | | | $ | 0.85 | | | $ | 0.63 | |
Record Holders
As of August 1, 2008, there were eight stockholders of record of our common stock. We believe that there are hundreds of beneficial owners of our common stock, units and warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
19
CAPITALIZATION
The following table shows our capitalization as of March 31, 2008 on an actual and pro forma basis. The “actual” column reflects our capitalization as of March 31, 2008 on a historical basis, without any adjustments to reflect subsequent or anticipated events. The “pro forma” column reflects our capitalization as of March 31, 2008 with adjustments to reflect:
(a) borrowings under the Pac-Van Credit Facility and the 13.0% Subordinated Debt to be assumed in connection with the Merger;
(b) the issuance by GFNA of an 8.0% Note to D. E. Shaw;
(c) the issuance of 4,000,000 restricted shares of our common stock to certain of the MOAC stockholders at the market price at March 31, 2008 of $7.07 per share;
(d) borrowings under the ANZ senior secured credit facility in connection with the acquisition of Royal Wolf Trading New Zealand Limited on April 30, 2008 and a 13.5% secured subordinated promissory note; and
(e) proceeds received under our warrant exercise program completed on May 30, 2008.
| | | | | | | | | |
| | | March 31, 2008 | |
| | | Actual | | | Pro Forma | |
| | | (Unaudited - in thousands) | |
| |
| Cash and cash equivalents | | $ | 1,169 | | | $ | 1,512 | |
| | | | | | | | | |
| Long-term debt and obligations: | | | | | | | | |
| ANZ senior secured credit facility(d) | | $ | 63,932 | | | $ | 75,030 | |
| Pac-Van Credit Facility(a) | | | — | | | | 82,000 | |
| Capital lease obligations | | | 478 | | | | 478 | |
| 13.5% secured subordinated promissory note(d) | | | 15,637 | | | | 21,137 | |
| 13.0% Subordinated Debt(a) | | | — | | | | 25,000 | |
| 8.0% Note(b) | | | — | | | | 1,500 | |
| | | | | | | | | |
| Total long-term debt and obligations | | | 80,047 | | | | 205,145 | |
| Minority interest | | | 8,762 | | | | 8,762 | |
| Stockholders’ equity(c)(e) | | | 68,855 | | | | 118,237 | |
| | | | | | | | | |
| Total capitalization | | $ | 157,664 | | | $ | 332,144 | |
| | | | | | | | | |
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RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you vote or instruct your vote with respect to the approval of the acquisition.
Risks Related to Our Business and Operations Following Our Acquisition of Pac-Van
General or localized economic downturns or weakness may adversely affect Pac-Van’s customers, in particular those in the construction industry, which may reduce demand for Pac-Van’s products and services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Van’s revenues is derived from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions, including the construction industry, which constituted approximately 50% of Pac-Van’s revenues in the fiscal year ended December 31, 2007. Although the variety of Pac-Van’s products, the breadth of its customer base and its geographic diversity throughout the United States limits its exposure to economic downturns, general economic downturns or localized downturns in markets where its operates could reduce demand for Pac-Van’s products, especially in the construction industry, and negatively impact our future revenues and results of operations.
Pac-Van faces significant competition in the modular buildings and portable storage industries. Pac-Van also faces potentially significant competition from modular buildings companies who have portable storage product offerings, especially from several national competitors in the United States who have greater financial resources and pricing flexibility than Pac-Van does. If Pac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
Although Pac-Van’s competition varies significantly by market, the modular buildings markets in whichPac-Van competes are dominated by three or four large participants and are highly competitive. In addition, Pac-Van competes with a number of large to mid-sized regional competitors, as well as many smaller, full and part-time operators in many local regions. The modular building industry is highly competitive and almost all of the competitors have portable storage product offerings. The primary modular national competitors with portable storage product offerings are less leveraged than Pac-Van, and have greater financial resources and pricing flexibility than Pac-Van does. If they focus on portable storage, Pac-Van could lose customers and our future revenues could decline. If Pac-Van is unable to compete successfully, it could lose customers and our future revenues could decline.
We will incur indebtedness in connection with the acquisition of Pac-Van, and we may need additional debt or equity financing to sustain our growth. We do not have commitments for any such financing.
In conjunction with our acquisition of Pac-Van, we will incur assume approximately $80.4 million of indebtedness under Pac-Van’s Credit Facility and $25 million of Subordinated Debt. The Subordinated Debt will bear interest at the annual rate of 13%, payable quarterly in arrears and will mature in February 2013. We will rely on cash flow from operations of Pac-Van to make payments under this subordinated indebtedness, and there is no assurance that Pac-Van’s cash flow will be sufficient to service Pac-Van’s indebtedness. Payment of interest and other expenses relating to this indebtedness may adversely affect our financial condition and results of operations.
We also may finance Pac-Van’s growth through a combination of borrowings, cash flow from operations and equity financing. The ability of Pac-Van to grow will depend in part on our ability to obtain either additional debt or equity financing to fund the costs of such growth. The availability and terms of any debt and equity financing will vary from time to time, and will be influenced by Pac-Van’s performance and by external factors, such as the economy generally and developments in the market, that are beyond our control. Also, additional debt financing or the sale of additional equity securities may adversely affect the market price of our securities. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail Pac-Van’s growth by delaying new customer service center openings or the expansion of its lease fleet.
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Because Pac-Van has depended to a large extent on the success of its leasing operations, the failure of Pac-Van to effectively and quickly remarket lease units that are returned could materially and adversely affect our results of operations.
Pac-Van’s average monthly lease fleet utilization has averaged between 70% and 85%, with the typical lease being for an average period of over twelve months. The high utilization rate and the length of the average lease have provided Pac-Van with a predictable revenue stream. However, should a significant number of Pac-Van’s lease units be returned during any short period of time, Pac-Van would have to re-lease a large supply of units at similar rates in order to maintain historic revenues from these operations. Pac-Van’s failure to effectively remarket a large influx of units returning from leases could have a material adverse effect on our results of operations.
Pac-Van operates with a high amount of debt, a substantial portion of which is secured by all or substantially all of the company’s assets and is subject to variable interest rates.
As of June 30, 2008, Pac-Van had outstanding approximately $80.4 million of indebtedness under its existing Credit Facility with LaSalle, which bears interest at variable rates equal to LIBOR plus 1.5% to 2.25% (or the prime rate or prime rate plus 0.25%) based upon the ratio of senior debt to EBITDA, and approximately $25 million of Subordinated Debt which bears interest at the rate of 13% per year. Pac-Van’s debt obligations require it to dedicate a significant portion of its cash flow from operations to payments on this indebtedness, which could reduce the availability of cash flow for future working capital, capital expenditures, acquisitions and other general corporate purposes. In addition, Pac-Van’s debt load increases its vulnerability to general adverse economic and industry conditions, limits its flexibility in planning for, or reacting to, changes in its business and its industry, and subjects it to certain restrictive covenants that influence its operations and its ability to borrow additional funds. These periodic interest rate adjustments could expose Pac-Van’s operating results and cash flows to periodic fluctuations. Failing to comply with its debt service obligations and the debt covenants could result in an event of default under its Credit Facility or Subordinated Debt which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In addition, since Pac-Van’s bank loans are secured by a lien on all or substantially all of Pac-Van’s modular buildings, mobile offices and storage container fleet and other assets, a default under Pac-Van’s bank debt could result in the foreclosure of all of these assets, which would materially and adversely affect Pac-Van’s operations and ability to continue its current operations.
Sales of modular buildings, mobile offices and storage units constitute a significant portion of Pac-Van’s revenues. Failure to continue to sell units at historic rates could adversely affect our ability to growPac-Van’s lease fleet.
Sales of modular buildings, mobile offices and storage units constituted approximately 30.1% of Pac-Van’s total revenues for the year ended December 31, 2007. Revenues from sales of modular buildings, mobile offices and storage units have been used to fund increases in the size of our lease fleet. As a result, the failure to continue to sell a significant number of units may adversely affect our ability to increase the size of Pac-Van’s lease fleet or to otherwise take advantage of business and growth opportunities available to it.
Governmental regulations could impose substantial costs and restrictions on Pac-Van’s operations that could harm our future results of operations.
Pac-Van is subject to various federal, state and local environmental, transportation, health and safety laws and regulations in connection with its operations. Any failure to comply with these laws or regulations could result in capital or operating expenditures or the imposition of severe penalties or restrictions on its operations. In addition, these laws and regulations could change in a manner that materially and adversely affects Pac-Van’s ability to conduct its business. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs. If Pac-Van is unable to pass these increased costs on to its customers, our future operating results could be negatively impacted.
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Pac-Van may not be able to facilitate its growth strategy by identifying or completing transactions with attractive acquisition candidates, which could impair the growth and profitability of its business.
Since August 2006, Pac-Van has completed six small acquisitions. An important element of our growth strategy for Pac-Van is to continue to seek additional acquisitions in order to add new customers within existing geographic markets and branch locations, and to expand Pac-Van’s operations into new markets. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices, upon advantageous terms and conditions and upon successful integration of the acquired businesses. However, future acquisitions may not be available at advantageous prices or upon favorable terms and conditions. In addition, acquisitions involve risks that the businesses acquired will not perform in accordance with expectations, that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, that the acquired businesses may not be integrated successfully and that the acquisitions may strain Pac-Van’s management resources. Future acquisitions and any necessary related financings also may involve significant transaction-related expenses. If Pac-Van is unable to complete additional acquisitions or successfully integrate any businesses that it does acquire, our future growth and operating results would be adversely impacted.
Failure to retain key personnel could adversely affect Pac-Van’s operations and could impede our ability to execute our business plan and growth strategy.
After the completion of the acquisition, Pac-Van will continue to be managed largely by its existing officers, including Theodore M. Mourouzis, the President of Pac-Van, Inc., and six senior managers. The continued success of Pac-Van will depend largely on the efforts and abilities of Mr. Mourouzis and these senior managers who have served at Pac-Van for an average of ten years. These officers and employees have knowledge and an understanding of Pac-Van and its industry that cannot be readily duplicated. Mr. Mourouzis has an employment agreement entered intowhich is terminable under certain circumstances upon notice to or by him. The loss of any member of Pac-Van’s senior management team could impair our ability to execute our business plan and growth strategy, cause a loss of customers, reduce revenues and adversely affect employee morale.
Any failure of Pac-Van’s management information systems could disrupt our business and result in decreased rental or sale revenues and increased overhead costs, which could negatively impact our results of operations.
Pac-Van depends on March 29, 2007 amendedits management information systems to actively manage its lease fleet, control new unit capital spending and provide fleet information, including leasing history, condition and availability of our units. These functions enhance Pac-Van’s ability to optimize fleet utilization, rentability and redeployment. The failure of Pac-Van’s management information systems to perform as we anticipate could disrupt its business and could result in, among other things, decreased leases or sales and increased overhead costs, which could negatively impact our results of operations.
Significant increases in raw material costs could increase our operating costs significantly and harm our stockholders’ equity.
Pac-Van purchases raw materials, including metals, lumber, siding and roofing and other products, to construct and modify modular buildings and to modify containers to its customers’ requirements. Pac-Van also maintains a truck fleet to deliver units to and return units from customers. During periods of rising prices for raw materials, especially oil and fuel for delivery vehicles, and in particular when the prices increase rapidly or to levels significantly higher than normal, Pac-Van may incur significant increases in operating costs and may not be able to pass price increases through to customers in a timely manner, which could harm our future results of operations.
Failure by Pac-Van’s manufacturers to sell and deliver products to Pac-Van in timely fashion may harm Pac-Van’s reputation and our financial condition.
Pac-Van currently purchases new modular buildings and components, mobile offices and storage container products directly from manufacturers. Although Pac-Van is not dependent on any one manufacturer and is able to purchase products from a variety of suppliers, the failure of one or more of its suppliers to timely manufacture and
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deliver storage containers to Pac-Van could adversely affect its operations. Pac-Van purchases new modular buildings and components, mobile offices and storage containers under purchase orders issued to various manufacturers, which the manufacturers may or may not accept or be able to fill. Pac-Van has no contracts with any supplier. If these suppliers do not timely fill Pac-Van’s purchase orders, or do not properly manufacture the ordered products, our reputation and financial condition also could be harmed.
Pac-Van’s planned growth could strain our management resources, which could disrupt our development of new Pac-Van customer service centers.
Our future performance will depend in large part on our ability to manage Pac-Van’s planned growth.Pac-Van’s growth could strain our existing management, human and other resources. To successfully manage this growth, we must continue to add managers and employees and improvePac-Van’s operating, financial and other internal procedures and controls. We also must effectively motivate, train and managePac-Van’s employees. If we do not managePac-Van’s growth effectively, some of its new customer service centers and acquisitions may lose money or fail, and we may have to close unprofitable locations. Closing a branch would likely result in additional expenses that would adversely affect our future operating results.
Some zoning laws restrict the use ofPac-Van’s storage units and therefore limit its ability to offer its products in all markets.
Many ofPac-Van’s customers usePac-Van’s storage units to store goods on their own properties. Local zoning laws in some respects and supersededofPac-Van’s geographic markets prohibit customers from maintaining mobile offices or storage containers on their properties or require that mobile offices or storage containers be located out of sight from the street. If local zoning laws in one or more ofPac-Van’s geographic markets were to ban or restrict mobile offices or storage containers stored on customers’ sites,Pac-Van’s business in that market will suffer.
Unionization by some or all ofPac-Van’s employees could cause increases in operating costs.
Pac-Van’s employees are not presently covered by collective bargaining agreements. Unions may attempt to organizePac-Van’s employees in the future. We are unable to predict the outcome of any continuing or future efforts to organizePac-Van’s employees, the terms of any future labor agreements, or the effect, if any, those agreements might have on our operations or financial performance.
Risks Related to the Acquisition
In its entiretyreview of Pac-Van, our management relied on projections for Pac-Van provided byPac-Van’s management. No assurance can be made that these projections will be achieved.
Pac-Van provided projections to our management in connection with our management’s analysis of the acquisition, and the projections were not prepared with intent for public disclosure or prepared in accordance with GAAP, the published guidelines of the SEC or the American Institute of Certified Public Accountants’ guidelines for projections or forecasts. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of our management, including, without limitation, factors related to general economic and industry conditions and competitive activity. Actual results could vary significantly from those set forth in the projections used by our management. For all of these reasons, stockholders should not place undue reliance on these projections as summarized elsewhere in this proxy statement.
A substantial number of our shares will become eligible for future resale in the public market after the acquisition, which could result in dilution and an adverse effect on the market price of our common stock.
If the Merger is completed, we will issue 4,000,000 shares of restricted General Finance common stock, or the Shares. We will enter into a stockholders agreement in connection with the Merger Agreement which will require us to register the Shares for resale in the public markets upon demand at any time after June 30, 2009 from certain holders a majority of the Shares. Consequently, at various times after completion of the acquisition, a substantial
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number of additional shares of our common stock will be eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market prices of our securities.
There can be no assurance that the Merger will be deemed by governmental authorities to constitute a tax-free “reorganization” or that General Finance will not be required to indemnify the MOAC stockholders if the Merger is not deemed to constitute a tax-free “reorganization.”
The Merger is intended to constitute a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. None of the parties are requesting and will not be requesting a ruling from the IRS in connection with the Merger. None of the tax consequences set forth in this discussion are binding on the IRS or the courts and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court. A successful IRS challenge to the tax-free reorganization status of the Merger would result in MOAC stockholders recognizing taxable gain or loss with respect to each share of common stock of MOAC surrendered. This gain or loss would be measured by the difference between (i) the sum of the fair market value of the General Finance common stock received by MOAC stockholders, and (ii) the adjusted tax basis in the shares of MOAC common stock surrendered. Under the Merger Agreement, General Finance has agreed to indemnify the MOAC stockholders if the IRS or governmental authorities conclude that the Merger does not constitute a tax-free “reorganization.” Payment by General Finance of such indemnification claims could adversely affect our financial condition and results of operations.
The proposed acquisition of Pac-Van may result in additional Sarbanes-Oxley Act of 2002 costs, issues and control procedures of our combined reporting company.
Pac-Van is a private company that to date has not been subject to the requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Act.Pac-Van’s existing internal controls and procedures are not compliant with the Act, in general, or Section 404 of the Act, in particular. Although we are not aware of any significant weaknesses in internal controls and procedures or in the disclosure controls and procedures of Pac-Van, it is possible that such weaknesses may exist. Also, management of Pac-Van may not have the expertise or time to properly document, assess, test and remedy the control structure of Pac-Van, to timely identify any material control weaknesses or to disclose to us any such weaknesses in time to comply with our reporting requirements under the Act. We expect to incur significant costs in implementing additional controls and procedures at Pac-Van in order to comply with the Act.
We may have difficulty establishing adequate management, legal and financial controls over Pac-Van.
Pac-Van is a private company that has been not been subject to the requirements of the Act. Accordingly, we will have to implement public company financial control systems. We may have difficulty in hiring, training and retaining a sufficient number of qualified employees with the required expertise. In addition, no assurance can be given that Pac-Van will be able to prepare and deliver to us the quarterly and annual financial information necessary for us to prepare consolidated financial statements in time to meet the SEC filing deadlines.
Risks Related to our Substantial Indebtedness
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various covenants which limit the discretion of our management in operating our business and could prevent us from engaging in some beneficial activities.
The investment agreement governing the Subordinated Debt and the terms of the Pac-Van Credit Facility contain various restrictive covenants that limit our management’s discretion in operating our business. In particular, these agreements include covenants relating to limitations on:
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| • | dividends on, and redemptions and repurchases of, capital stock, |
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| • | liens and sale-leaseback transactions, |
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| • | loans and investments, |
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| • | debt and hedging arrangements, |
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| • | mergers, acquisitions and asset sales, |
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| • | transactions with affiliates, and |
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| • | changes in business activities conducted by us and our subsidiaries. |
In addition, both the Pac-Van Credit Facility and the Subordinated Debt require us, under certain circumstances, to maintain certain financial ratios and limit our ability to make capital expenditures. See Note 5 of the Notes to Audited Consolidated Financial Statements.
If we fail to comply with the restrictions of the investment agreement governing the Subordinated Debt or the terms of the Pac-Van Credit Facility or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds. Accordingly, we may not be able to fully repay our debt obligations, if some or all of our debt obligations are accelerated upon an event of default.
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THE SPECIAL MEETING
General
We are furnishing this proxy statement to our stockholders in connection with the solicitation of proxies by our board of directors for use at the special meeting of stockholders and at any adjournment or postponement of the meeting. Thisproxy statement provides you with the information we believe you should know to be able to vote or instruct your vote at the special meeting.
Date, Time and Place
The special meeting of stockholders will be held at 9:00 a.m. local time, on , 2008 at the offices of General Finance located at 39 East Union Street, Pasadena, California 91103.
Purpose of the Special Meeting
At the special meeting, we are asking stockholders to:
(1) to consider and vote upon a proposal to approve our acquisition of Mobile Office Acquisition Corp., or MOAC, via a merger, the Merger, with our subsidiary GFN North America Corp;
(2) to approve the issuance of 4,000,000 shares of restricted General Finance common stock, the Shares, pursuant to the Merger; and
(3) in the event that there are insufficient votes present at the meeting for approval of the MOAC acquisition, to consider and act upon a proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the Merger.
Recommendation of Our Special Committee
The special committee of our board of directors:
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| • | unanimously determined the Merger Agreements, the Merger and the issuance of the Shares is fair to, and in the best interests of, General Finance and its stockholders; |
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| • | has unanimously approved the Merger Agreement, the Merger and the issuance of Shares; and |
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| • | recommends that our common stockholders vote “FOR” approval of the acquisition. |
Record Date; Who is Entitled to Vote
We have fixed the close of business on , 2008, as the record date for determining the stockholders entitled to notice of and to attend and vote at the special meeting. As of the close of business on , 2008, there were 13,862,052 shares of our common stock outstanding. Each share of our common stock is entitled to one vote with respect to each of the matters to be acted upon at the special meeting.
Quorum
The presence, in person or by proxy, of a majority of the shares of our common stock outstanding as of the record date constitutes a quorum for the transaction of business.
Abstentions and Broker Non-Votes
Proxies that are marked “abstain” and proxies relating to “street name” shares that are returned to us but marked by brokers as “not voted” with respect to the acquisition or other proposal will be treated as shares present for purposes of determining the presence of a quorum on all matters. The latter, however, will not be treated as shares entitled to vote any proposal to which authority to vote is withheld by the broker. If you do not give the broker voting instructions, under the rules of the National Association of Securities Dealers, Inc., your broker may not vote your shares with respect to the acquisition.
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Vote of Our Stockholders Required
The approval of the acquisition will require the approval of the holders of a majority of the shares of our common stock present and entitled to vote at the meeting with respect to the Merger.
The approval of the proposal to grant our board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval of the Merger and the issuance of 4,000,000 Shares pursuant to the Merger Agreement in the event that there are insufficient votes for the approval of such proposals present at the special meeting will require the affirmative vote of the holders of a majority of our common stock present and entitled to vote at the meeting. Abstentions are deemed entitled to vote on this proposal. Therefore, they will have the same effect as a vote against the proposal. Broker non-votes, however, are not deemed entitled to vote on this proposal and will have no effect on the outcome of the vote on this proposal.
Voting Your Shares
Each share of our common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of our common stock that you own.
There are two ways to vote your shares of our common stock at the special meeting:
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| • | You can vote by completing, dating, signing and returning the enclosed proxy card. If you vote by proxy card, the proxy holders whose names are listed on the proxy card will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by our board of directors “FOR” the approval of the acquisition and the other proposal described in this proxy statement; and |
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| • | You can attend the special meeting and vote in person. We will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares. |
Proxies must be received prior to the voting at the special meeting. Any proxies or other votes received after this time will not be counted in determining whether the acquisition has been approved.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
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| • | You may send us another proxy card with a later date; |
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| • | You may notify John O. Johnson, our Chief Operating Officer, in writing before the special meeting that you revoke your proxy; or |
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| • | You may attend the special meeting, revoke your proxy and vote in person, as indicated above. |
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call John O. Johnson, our Chief Operating Officer, at(626) 584-9722, extension 1009. You also may call MacKenzie Partners, Inc. toll-free at(800) 322-2885 or (212) 929-5500 (call collect).
Adjournment
In the event there are an insufficient number of shares of our common stock present in person or by proxy at the special meeting to approve our acquisition of Pac-Van, our board of directors intends to adjourn the special meeting to a later date provided a majority of the shares present and voting on the motion vote is in favor of such adjournment. The place and date to which the special meeting would be adjourned would be announced at the special meeting. Proxies voted against the approval of the acquisition will not be voted to adjourn the special meeting. Abstentions and broker non-votes also will not be voted on this matter. If it is necessary to adjourn the special meeting and the adjournment is for a period of not more than 30 days from the original date of the special meeting, no notice of the time and place of the adjourned meeting need be given to our stockholders, other than by an announcement made at the special meeting.
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The effect of any such adjournment would be to permit us to solicit additional proxies for approval of the acquisition. Such an adjournment would not invalidate any proxies previously filed as long as the record date remains the same for the subsequent meeting. We do not anticipate that we enteredwould change the meeting’s record date if we seek an adjournment of the special meeting. In the unlikely event that our board of directors exercised its right under the Delaware General Corporation Law to set a new record date for the meeting, we would mail notices of the new meeting date to our stockholders of record.
No Additional Matters May Be Presented at the Special Meeting
The special meeting has been called only to consider the approval of our acquisition of Pac-Van via the Merger between our subsidiary GFNA and MOAC, the issuance of the 4,000,000 Shares pursuant to the Merger Agreement and the related proposal described in this proxy statement. Under our by-laws, other than procedural matters incident to the conduct of the meeting, no other matters may be considered at the special meeting.
By signing and returning the enclosed proxy card, you will be deemed to grant the proxy holders discretionary authority to consider and act upon such other matters as may properly presented incident to the conduct of the meeting and any adjournment or postponement of the meeting.
No Appraisal Rights
General Finance stockholders have no appraisal rights in connection with the acquisition under applicable Delaware General Corporation Law or otherwise.
Proxy Solicitation Costs
We are soliciting proxies on behalf of our board of directors. This solicitation is being made by mail, but also may be made by telephone or in person. We and our directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. These persons will not be compensated for these solicitation activities.
We have engaged Mackenzie Partners, Inc. to assist in the mailing of this proxy statement and responding to questions from stockholders. For these services, we will pay Mackenzie Partners, Inc. a fee of $5,000, plus reasonable out-of-pocket charges.
We will ask banks, brokers and other institutions, nominees and fiduciaries to forward our proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. We will reimburse them for their reasonable expenses.
Householding of Special Meeting Materials
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. If you would prefer to receive separate copies of a proxy statement or annual report either now or in the future, please contact your bank, broker or other nominee. Upon written or oral request to John O. Johnson, our Chief Operating Officer, at General Finance Corporation, 39 East Union Street, Pasadena, California 91103,(626) 584-9722, extension 1009, we will provide a separate copy of the annual reports and proxy statements. In addition, stockholders sharing an address can request delivery of a single copy of annual reports or proxy statements if you are receiving multiple copies upon written or oral request to our Chief Operating Officer at the address and telephone number stated above.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN. WE SINCERELY DESIRE YOUR PRESENCE AT THE SPECIAL MEETING. HOWEVER, SO THAT WE MAY BE SURE THAT YOUR VOTE WILL BE INCLUDED, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
Stockholders who have questions concerning the proposed acquisition or any other aspect of the special meeting should contact John O. Johnson at(626) 584-9722, extension 1009 or MacKenzie Partners, Inc. toll-freeat (800) 322-2885 or (212) 929-5500 (call collect).
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PROPOSALS TO BE CONSIDERED AND VOTED UPON BY HOLDERS OF
GENERAL FINANCE CORPORATION COMMON STOCK AT THE SPECIAL MEETING
Proposal One
Approval of the Merger Agreement and the Merger
General Finance is asking its stockholders to consider and vote upon a proposal to authorize and approve the Merger Agreement, pursuant to which MOAC will merge with and into GFN North America Corp., or GFNA, with GFNA as the surviving corporation, and to approve and adopt the Merger.
Proposal Two
Approval of Issuance of 4,000,000 shares of restricted General Finance common stock
General Finance is seeking the approval of holders of common stock to issue 4,000,000 shares of restricted General Finance common stock pursuant to the Merger Agreement.
Proposal Three
Approval of Adjournments or Postponements of the Special Meeting
General Finance is asking holders of common stock to approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.
Approval of Proposal 3 is not a condition to the completion of the Merger.
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THE MERGER
Background of the Merger
The management team of General Finance has presented from time to time full and partial reviews to the General Finance board of directors of the competitive landscape for the storage container, mobile office and modular office industry in North America, Asia-Pacific and Europe. These reviews have included an overview of market share, positioning, acquisition targets and valuations. These reviews have included discussions covering the length of time that would be required for General Finance to build a new business in the United States based entirely on Septemberorganic growth and the time required to acquire a business. The board of directors reached a general consensus that the more efficient method was to acquire a business that was capable of meeting General Finance’s objective of ultimately becoming a leader in the markets it serves. The General Finance board of directors directed the management team to develop a short list of candidates to be discussed at future meetings.
Between December 2007 and June 2008, several firms were contacted directly by General Finance management or indirectly through other intermediaries. The firms contacted were all in the rental services industry and included storage container, modular and mobile office and other more general equipment rental companies. All of the companies, except Pac-Van, stated that they were not currently interested in a sale. Two of these companies were also viewed as too large or required too much leverage to be acquired by General Finance and were set-aside for those reasons. In addition, it was General Finance management’s assessment that the potential acquisition targets that were large enough to provide an adequate infrastructure and systems platform and yet were also financeable were unlikely to be interested in a sale in the next twelve month period.
Several companies were discussed in the European theater as well and were also considered to be too large to acquire currently or were smaller in size and would necessitate building a management team and infrastructure around them to support the growth expectations and market leadership requirements of the General Finance board of directors.
On February 20, 2008, the possibility of acquiring Pac-Van was discussed with the General Finance board of directors. The board of directors noted that the acquisition of Pac-Van would be an interested party transaction because MOAC was owned by Ronald F. Valenta, the President, Chief Executive and a director of General Finance. The board of directors had previously discussed Pac-Van as an acquisition target in June and July of 2006 before MOAC acquired the business, but had rejected the idea because securities laws relating to the initial public offering of General Finance prohibited General Finance management from being aware of a specific target prior to the initial public offering. General Finance management presented a general overview of Pac-Van, including a summary of its financial position, operating locations, depth of management, a review of historic information and the competitive landscape. A broad and general discussion of public company multiples and previous sale transactions ensued. Several strengths and weaknesses were discussed as was the prospective impact of Pac-Van on the General Finance organization and capital structure. The board of directors suggested that, excluding Ronald F. Valenta, the management team gather additional information about Pac-Van and also continue to pursue other possible acquisition targets in the United States and European markets.
On March 5, 2008, General Finance contacted D. E. Shaw, one of the significant stockholders of MOAC, to discuss an interest in a merger and possible deal structures. D. E. Shaw wanted to know more about General Finance and asked for copies of public filings in addition to hearing a brief overview of General Finance. D. E. Shaw suggested talking directly with Theodore M. Mourouzis, President of Pac-Van, about gathering additional background information on Pac-Van.
On March 6, 2008, General Finance contacted Mr. Mourouzis of Pac-Van to request additional financial information and ask permission to gather other tax and operating information. Charles E. Barrantes, the Chief Financial Officer and Executive Vice President of General Finance, and John O. Johnson, the Chief Operating Officer of General Finance, discussed the terms of the engagement of Pascarella & Wiker, LLP who would perform due diligence services on behalf of General Finance.
On March 11, 2008, the independent directors of GFN convened in a meeting, excluding Mr. Valenta, to discuss additional information gathered by General Finance management relating to Pac-Van and to determine
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whether to continue to move forward with additional due diligence requests and a preliminary non-binding indication of interest, or IOI. General Finance management presented a more detailed discussion of the business overview of Pac-Van, a review of previous due diligence andPac-Van’s historic performance over an extended period of time, including the last recession period of2001-2003. Projections for the fiscal year ending December 31, 2008 were provided by Pac-Van and incorporated into the discussion.
On March 18, 2008, General Finance management then presented a draft IOI for discussion by the independent General Finance board of directors which outlined a $154 million offer based upon the trailing twelve months results and seven times earnings before interest, income taxes, depreciation and amortization and other non-operating costs, or EBITDA, of approximately $22 million, as adjusted for non-recurring items, as of December 31, 2007. The basic structure included $21.5 million of cash, $21.5 million of restricted General Finance common stock (then valued at $7.30 to $7.55 per share), a $15 million subordinated promissory note bearing eight percent interest per year and payable in two years to secure the indemnification obligations of the MOAC stockholders and the assumption of debt. After discussion and several changes, the independent board directed General Finance management to issue the IOI to D. E. Shaw.
The independent members of the General Finance board of directors again inquired about the possibility of other acquisitions, excluding the New Zealand transaction that was ultimately approved and completed on May 1, 2008. Several other potential targets were discussed and some of these were not large enough to warrant extraordinary discussion. Similar to Pac-Van, other larger possible transactions were in early stages of discussion, but had not progressed to preliminary deal term discussions.
The credentials of three separate financial advisors with specific industry experience were reviewed by the independent board members. Based upon this information, the independent board members decided to gather additional data from two of the potential advisors and based upon further review decided to phone interview RBC Capital Markets Corporation, or RBC.
On March 25, 2008, the draft IOI was delivered to D. E. Shaw and a phone conversation followed between a representative of D. E. Shaw and Mr. Johnson. The discussion centered on the amount, tenor and structural placement of the subordinated promissory note along with the basic valuation of the enterprise. D. E. Shaw stated it would take time to review the document with the other stockholders of MOAC while General Finance continued its preliminary due diligence process.
On March 31, 2008, General Finance, Pac-Van and their advisors held a conference call to review an outline for performing tax due diligence and tax structuring work.
On April 7, 2008, Mr. Mourouzis of Pac-Van and Mr. Johnson met while at the Modular Building Institute conference in Florida to discuss the preliminary due diligence performed to date as well as review the organization structure and growth plans of Pac-Van.
On May 1, 2008, General Finance and Pac-Van held a conference call to discuss the current structure of the Pac-Van Credit Facility and the amendments that would be required to allow a potential Pac-Van transaction to occur. Mr. Barrantes, Mr. Johnson and Christopher Wilson, Vice President and General Counsel of General Finance, participated in the call on behalf of General Finance. Mr. Mourouzis and James Dunmyer, Vice President of Finance of Pac-Van, participated in the call on behalf of Pac-Van.
On May 7, 2008, Mr. Barrantes and Mr. Johnson met with Pac-Van at its offices along with representatives of Union Bank of California to review a bank creditor’s presentation and ask questions about the financial position of Pac-Van. RBC was also present
On June 3, 2008, Mr. Mourouzis of Pac-Van hosted a conference call with the lead bank for Pac-Van and Mr. Johnson in order to provide an overview of General Finance and discuss potential amendments that would be required to proceed with a transaction.
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On June 5, 2008, Lawrence Glascott, Chairman of the General Finance board of directors, Manuel Marrero, a member of the General Finance board of directors, and Messrs. Barrantes, Johnson and Wilson participated in two phone interviews with corporate law firms to provide them with background details as to the status of discussions with Pac-Van and to interview them for a position as legal advisor to the special committee of the independent members of the General Finance board of directors. O’Melveny & Myers, LLP, or O’Melveny, was chosen as counsel to the special committee.
On June 10, 2008, the General Finance board of directors met to authorize the establishment of the special committee for the purposes of controlling the discussions of the Pac-Van process and negotiations. Mr. Valenta was excused after the board approved the creation of the special committee. Mr. Valenta was neither present for nor participated in, any of the subsequent meetings of the special committee. The engagement of O’Melveny as counsel to the special committee was approved. James Levin and John Laco of O’Melveny gave the independent directors a summary of their duties and responsibilities. RBC, which had been requested to act as the special committee’s financial advisor, also participated in the meeting by phone. The preliminary IOI was then discussed. General Finance management was tasked with engaging in a dialogue withPac-Van to solicit a response to the IOI draft dated March 25, 2008.
On June 12, 2006.2008, several conversations took place among Mr. Johnson, Ronald L. Havner, Jr., a director ofPac-Van, and Mr. Mourouzis. There were a number of suggested changes to the IOI dated March 25, 2008, most notably including a change in the mix of consideration so that no cash would be received by Messrs. Havner or Mourouzis as stockholders of MOAC, a reduction in the subordinated promissory note from $15 million to $10 million, adding Mr. Havner as a member of the General Finance board of directors and changing the indemnification survival periods and the several nature of the indemnification obligations.
On June 13, 2008, the special committee met telephonically to discuss the proposed changes and agreed to respond toPac-Van with acceptance of several of the key changes, except the several nature of the indemnification and the composition of the consideration given. The following summarizeslock-up period of the materialrestricted General Finance common stock portion of the consideration was increased from one year to two years and a two-year standstill agreement for Mr. Havner and Mr. Valenta were added. A response was delivered to Mr. Mourouzis by Mr. Johnson in person in Indianapolis after a telephonic meeting with the Pac-Van bank group to request certain amendments in the Pac-Van Credit Facility.
On June 17, 2008, Mr. Johnson and a representative of RBC received a response from Mr. Mourouzis stating their request to receive a greater amount of stock as part of the consideration, the elimination of any indemnity obligations of D. E. Shaw, a reduction in the indemnification survival periods, a deductible of $1 million, an increase in the purchase price to $160 million, and reductions in thelock-up period of the restricted stock to six months and a standstill period of one year.
On June 19, 2008, the special committee held a meeting to review changes to the IOI suggested byPac-Van. The special committee discussed D. E. Shaw’s request that it not be required to indemnify General Finance under the Merger Agreement.
On June 21, 2008, the special committee held a meeting to discuss the responses from MOAC and deliberated several of the key points with the assistance of the special committee’s advisors. The special committee approved changes to the consideration to be paid to acquirePac-Van: an increase in the purchase price to $158.8 million, an increase in the amount of the General Finance common stock from $21.5 million to $30 million and a reduction of $7.8 million in the principal amount of the subordinated promissory note, resulting in a $2.2 million subordinated promissory note. The value assigned to the General Finance common stock was also modified from a 110% moving average prior to close to a price of the greater of $7.50 per share or the 110%30-day moving average prior to closing. The General Finance common stock was trading in the $5.50 to $5.75 range at that time. A provision providing for several indemnification, as opposed to joint and several liability, was agreed, but the deductible was reduced to $250,000. The term of thelock-up and standstill were returned to two years.
On June 23, 2008,Pac-Van responded to the IOI with agreement to the purchase price, but a change in the $30 million in restricted General Finance common stock share price to $6.30. Thelock-up and standstill terms were
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shortened to six months and one year, respectively. A deductible of $800,000 was inserted and a shortened indemnification provision to two years for certain representations and warranties and three years on all others.
On June 24, 2008, the General Finance board of directors met in a regularly scheduled meeting. Mr. Valenta was excused for a portion of the meeting so that the special committee could discuss thePac-Van response in addition to hearing a brief presentation from Mr. Mourouzis of Pac-Van about the current operations and results of operations of Pac-Van. RBC discussed with the special committee publicly available trading information for selected public companies in the sector and announced transaction values of selected precedent transactions in the sector. The special committee agreed to respond to MOAC by returning the restricted stock price to $7.50 along with thelock-up to one year and the standstill to two years. The deductible was moved to $500,000 while the indemnity survival periods were limited to 20 months for basic representations and warranties, two years for environmental and taxes and three years for fraud and title. The subordinated promissory note maturity was reduced to 20 months as well. The survival periods for representations and warranties of Messrs. Havner and Valenta were modified to three years for environmental and taxes and five years for breaches of representations and warranties due to fraud or related to title.
On June 30, 2008, Pac-Van requested that the duration of the lockup be shortened to six months and that the indemnification survival periods be the same for all MOAC shareholders. Pac-Van also asked for either a change in the purchase price to $160 million or a reduction in the price of the restricted stock to $7.00 per share. The working capital condition was also revised.
On July 2, 2008, the special committee held a conference call to discuss the Pac-Van counter-offer and agreed to the indemnification survival periods. The special committee elected to keep the purchase price and the restricted stock price the same as the previous General Finance offer. The special committee asked for a draft version of the definitive agreement to be distributed for comments and review. A set of draft definitive agreements was also sent to counsel for Pac-Van for initial comments.
On July 6, 2008, counsel for Pac-Van, General Finance management and RBC held a conference call to discuss the definitive agreement. Several key points arose including the indemnification for pre-closing liabilities, the request for General Finance to provide certain representations and warranties for its financial statements and indemnification of same, thelock-up period of six months and certain adjustments to working capital.
On July 14, 2008, Pac-Van delivered comments on the definitive agreement in several areas includingpre-closing liabilities, indemnification provisions, representations and warranties and the working capital calculation.
On July 17, 2008, the special committee met to review the requests of Pac-Van for changes in the September 12, 2006 acquisition agreement effectedMerger Agreement and ancillary agreements. General Finance management reported to the special committee on the status of documentation governing the amendments to the Credit Facility and the Subordinated Debt. RBC updated the special committee concerning the financial review it was undertaking.
On July 24, 2008, General Finance management reviewed with the special committee the terms of the proposed Merger Agreement and ancillary agreements for the purpose of securing special committee approval of the Merger Agreement and ancillary agreements. The special committee’s legal counsel reviewed the terms of the Merger Agreement and ancillary agreements with the special committee. Also at this meeting, RBC reviewed with the special committee its financial analysis of the consideration to be paid by General Finance pursuant to the amended acquisition agreement,Merger Agreement and delivered to the special committee an oral opinion (which was confirmed by delivery of a written opinion dated July 24, 2008, to the effect that, as they affect us:of such date and subject to the assumptions, qualifications and limitations described in its written opinion, the aggregate merger consideration (which representatives of General Finance directed RBC to assume was $52.6 million) to be paid by General Finance pursuant to the Merger Agreement was fair, from a financial point of view, to General Finance. After discussion of the special committee, the special committee unanimously determined that the transactions contemplated in the Merger Agreement and the ancillary agreements are advisable, fair and in the best interests of General Finance. The special committee then approved the Merger Agreement, the ancillary agreements, the issuance of the Shares pursuant to the Merger
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Agreement and resolved to recommend to General Finance stockholders for approval and adoption the Merger Agreement, the ancillary agreements, the Merger and the issuance of the Shares.
On July 28, 2008, General Finance, GFNA, MOAC, Pac-Van and certain MOAC stockholders executed the Merger Agreement. General Finance issued a press release concerning the signing of the Merger Agreement by all the parties on July 28, 2008.
Reasons for the Merger: Recommendations of the Special Committee of the Board of General Finance
In evaluating the Merger, the special committee of the Board of Directors of General Finance consulted with our senior management and its independent legal counsel, O’Melveny, and its independent financial advisors, RBC. In reaching its decision to approve and adopt the Merger Agreement and recommend that our stockholders vote “FOR” approval and adoption of the Merger Agreement and the merger, the special committee of the board of directors of General Finance considered the following material factors:
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| | • | The purchase price for Royal Wolf is the same as the purchase price that we would have paid if we had closed the acquisition on March 31, 2007, plus $1.125 million, which equatesopportunity to $57.6 million, plus $864,600 per month from March 29, 2007 through the closing. The $1.125 million plus $864,600 per month represents the increaseenter and participate in the purchase price over what we would have paid had we been able to complete the proxy statement review process and accomplish the closinggrowth of the acquisition on March 29, 2007. There will be no adjustments tolargest portable services market in the purchase price based upon net debt, working capital, net tangible assets or container rentals of Royal Wolf; |
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| • | We will no longer pay $1.2 million ofworld with an experienced management team while expanding into the purchase price with shares of our common stock; |
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| • | We will pay $6.7 million of the purchase price by issuing to Bison-GE approximately 1,380 shares of GFN U.S. representing 13.8% of the GFN U.S. sharesmobile office and as a result, we will own indirectly 86.2%, rather than 100%, of Royal Wolf,modular building sales and Bison-GE will own indirectly 13.8% of Royal Wolf, subject to the provisions of the shareholders agreement described above in this section;leasing businesses. |
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| | • | The covenants ofMerger leverages the sellers were amended to provide that Royal Wolf may not make any acquisitions without our consent;existing General Finance holding company overhead cost structure; |
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| | • | We have committedThe increased size of General Finance following the completion of the Merger should provide better access for General Finance to issue to Bison Capital or its affiliates $15.76 million of senior subordinated indebtedness of GFN Australasia. We previously contemplated obtaining senior subordinated indebtedness in connection with the acquisition, but we had not entered into any financing commitment;capital markets; |
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| | • | We have agreed to payThe Merger may improve the costs and expensespredictability of Bison-GE and its affiliates in connection with its acquisitionfuture results because the overall General Finance revenue mix of leasing versus sales will be positively changed by the RWA shares and saleaddition of the shares to us;Pac-Van; |
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| | • | Bison CapitalThe Merger will assignreduce the exposure of General Finance to usfluctuations in the warranties relatingAustralian Dollar; |
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| • | The addition of a highly qualified new board member with extensive public company experience would enhance the development of General Finance’s strategic planning; |
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| • | The Merger is expected to be accretive to General Finance’s earnings per share in 2009, relative to publicly available research analysts’ consensus earnings per share estimates for this year, excluding synergies and integration costs; |
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| • | The Merger was structured to maintain a strong balance sheet with sufficient liquidity; |
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| • | General Finance’s expected post-merger debt would be manageable. The Board of Directors based this conclusion on an analysis of the business of Royal Wolf made by both Equity Partnersexpected post merger debt and the management shareholdersexpected EBITDA for the combined post merger company as reflected in connection with Bison-GE’s purchase of RWA shares on March 29, 2007. The warranties relating to the Royal Wolf business made to us atfinancial forecasts it considered in evaluating the closing will be made by the management shareholders;merger; and |
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| | • | The periodsopinion of RBC to the special committee dated July 24, 2008 as to the fairness, from a financial point of view and as of such date, to General Finance of the aggregate merger consideration (which representatives of General Finance directed RBC to assume was $52.6 million) to be paid by General Finance (the full text of RBC’s written opinion is set forth in Annex B to this Proxy Statement), as well as the financial analyses performed by RBC in connection with its opinion and reviewed with the special committee, as more fully described in “The Merger-Opinion of the Special Committee’s Financial Advisor,” beginning on Page 36. |
The special committee of the board of directors also considered potential risks and costs relating to the Merger, including:
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| • | the risks and costs to us if the Merger is not completed, including the diversion of management and employee attention and the loss of business opportunities that might otherwise have been pursued; |
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| • | the risk that holders of General Finance common stock may fail to approve the Merger and the issuance of the restricted stock; |
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| • | the risk that we may fail to realize the anticipated benefits of the Merger; |
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| • | the risk that the integration process could adversely impact our ongoing operations; |
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| • | the risk of a downturn in the U.S. economy and the impact on the results of operations of Pac-Van; |
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| • | the risk of weakening U.S. credit markets and the impact on the ability of Pac-Van to secure adequate credit facilities and borrowings; |
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| • | the risks and costs associated with the additional indebtedness incurred in connection with the Merger and the adverse impact such additional indebtedness could have on our ability to operate our business; |
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| • | The risks that the Merger would not qualify as a tax-free “reorganization” and that General Finance would be required to pay the taxes resulting from the consummation of the Merger, as provided under the Merger Agreement; |
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| • | The risks associated with the concentration of ownership of General Finance common stock in Messrs. Havner and Valenta; and |
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| • | the fees and expenses associated with completing the Merger in an amount of at least $1 million. |
The foregoing discussion addresses certain material information and factors considered by the special committee in evaluating the Merger, including factors that support the Merger as well as those that may weigh against it. In view of the variety of factors and the quality and amount of information considered, the special committee did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, the special committee did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination. The determination to approve the Merger was made after consideration of all of the factors in the aggregate. In addition, individual members of the special committee may have given different weights to different factors.
The actual benefits from the Merger could differ materially from the estimates and expectations discussed above. Accordingly, the potential benefits described above or the potential benefits described in this proxy statement may not be realized.
Opinion of the Special Committee’s Financial Advisor
General Information Regarding RBC’s Opinion
On July 24, 2008, as financial advisor to the special committee, RBC rendered its written opinion to the special committee to the effect that, as of that date and subject to the assumptions, qualifications and limitations described in its opinion, the aggregate merger consideration (which representatives of General Finance directed RBC to assume was $52.6 million) to be paid by General Finance pursuant to the Merger Agreement was fair, from a financial point of view, to General Finance. The full text of RBC’s written opinion, dated July 24, 2008, is attached to this Proxy Statement as Annex B and describes the procedures followed, assumptions made, matters considered and limitations on, the review undertaken.This summary of RBC’s opinion is qualified in its entirety by reference to the full text of the opinion.
RBC’s opinion did not address the merits of General Finance’ underlying decision to engage in the Merger or the relative merits of the Merger compared to any alternative business strategy or transaction in which General Finance might engage.RBC’s opinion was addressed to, and provided for the information and assistance of, the special committee in connection with the Merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to the Merger or any other matter in connection with the Merger.
The type and amount of consideration payable in the Merger were determined through negotiation between General Finance and Pac-Van, and the decision to enter into the transaction was solely that of the special committee. RBC’s opinion to the special committee and related financial analysis were only two of many factors taken into
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consideration by the special committee in evaluating the Merger and should not be viewed as determinative of the views of the special committee or management with respect to the Merger or the aggregate merger consideration.
RBC’s opinion addressed solely the fairness of the aggregate merger consideration, from a financial point of view, to General Finance. RBC’s opinion did not in any way address other terms of, or arrangements contemplated by, the Merger or the Merger Agreement, including, without limitation, the form or structure of the Merger or the aggregate merger consideration (or any adjustments to the aggregate merger consideration), the financial or other terms of the $1.5 million promissory note or any other agreement contemplated by, or to be entered into in connection with, the Merger Agreement, nor did RBC’s opinion address, and RBC expressed no opinion with respect to, the solvency of General Finance or Pac-Van. Further, in rendering its opinion, RBC expressed no opinion about the fairness of the amount or nature of the compensation (if any) to any of General Finance’s officers, directors or employees, or class of such persons, relative to the aggregate merger consideration.
In rendering its opinion, RBC assumed and relied upon the accuracy and completeness of all the information that was publicly available to RBC and all of the financial, legal, tax, operating, and other information provided to or discussed with RBC by General Finance or Pac-Van (including, without limitation, the financial statements and related notes thereto of each of General Finance and Pac-Van, respectively) and did not assume responsibility for independently verifying, and did not independently verify, this information. RBC assumed that the financial projections and forecasts of General Finance prepared by its management and of Pac-Van prepared by its management provided to RBC by General Finance and Pac-Van, as the case may be, were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the future financial performance of General Finance or Pac-Van (as the case may be), respectively, and also assumed that such financial projections and forecasts would be realized in the amounts and at the times projected. RBC expressed no opinion as to such financial projections and forecasts or the assumptions upon which they were based.
In rendering its opinion, RBC did not assume any responsibility to perform, and did not perform, an independent evaluation or appraisal of any of the assets or liabilities, contingent or otherwise, of General Finance or Pac-Van and, except for a third party appraisal of certain assets of Pac-Van, Inc., RBC was not furnished with any such valuations or appraisals. RBC did not assume any obligation to conduct, and did not conduct, any physical inspection of the property or facilities of General Finance or Pac-Van. RBC did not investigate, and made no assumption regarding, any litigation or other claims affecting General Finance or Pac-Van.
RBC assumed, in all respects material to its opinion, that all conditions to the consummation of the Merger would be satisfied, and all terms of the Merger Agreement would be complied with, without waiver or modification and that all governmental, third party or other consents and approvals necessary for the consummation of the Merger would be obtained without adverse effect on General Finance, Pac-Van or the contemplated benefits of the merger. RBC also assumed that the executed version of the Merger Agreement would not differ, in any respect material to RBC’s opinion, from a draft dated July 24, 2008 of the Merger Agreement reviewed by RBC. RBC further assumed that the Merger would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. In addition, RBC assumed that the actual aggregate consideration payable by General Finance in the Merger would not differ from the estimate that RBC was directed to assume by representatives of RBC in any respect material to RBC’s opinion.
RBC’s opinion spoke only as of the date it was rendered, was based on the conditions as they existed and information which RBC was supplied or reviewed as of such date, and was without regard to any market, economic, financial, legal or other circumstances or event of any kind or nature which may exist or occur after such date. RBC has not undertaken to reaffirm or revise its opinion or otherwise comment upon events occurring after the date of its opinion and does not have an obligation to update, revise or reaffirm its opinion. RBC does not express any opinion as to the actual value of General Finance common stock or the $1.5 million promissory note to be issued in the Merger or prices at which General Finance common stock would trade following the announcement of the Merger or at which General Finance common stock or the $1.5 million promissory note might otherwise be transferable at any time.
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For the purpose of rendering its opinion, RBC undertook the review and inquiries it deemed necessary and appropriate under the circumstances, including:
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| • | reviewing financial terms of a draft dated July 24, 2008 of the Merger Agreement; |
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| • | reviewing and analyzing publicly available financial and other data with respect to General Finance and other relevant historical operating data relating to General Finance and Pac-Van made available to RBC from published sources in the case of General Finance or from internal records of General Finance and Pac-Van, respectively; |
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| • | reviewing financial projections and forecasts of General Finance prepared by General Finance’s management and financial projections and forecasts of Pac-Van prepared byPac-Van’s management; |
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| • | conducting discussions with members of the senior managements of General Finance and Pac-Van with respect to the business prospects and financial outlook of General Finance and Pac-Van as standalone entities as well as the strategic rationale and potential benefits of the Merger; |
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| • | reviewing the reported prices and trading activity for General Finance common stock; and |
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| • | performing other studies and analyses as RBC deemed appropriate. |
In arriving at its opinion, RBC performed the following analyses in addition to the review, inquiries and analyses referred to in the preceding paragraph:
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| • | RBC performed a financial analysis of each of General Finance and Pac-Van as a standalone entity using selected companies analyses and, in the sellers’ covenantscase of Pac-Van, a selected precedent transactions analysis; and |
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| • | RBC performed a pro forma combination analysis, determining the potential financial impact of the merger on the projected 2009 earnings per share, as well as other selected historical and projected metrics, of General Finance. |
RBC was advised that financial projections and forecasts relating to General Finance and Pac-Van for periods beyond June 30, 2009 had not been prepared by the managements of General Finance and Pac-Van and, accordingly, RBC did not undertake an analysis of the future financial performance of General Finance and Pac-Van for periods beyond June 30, 2009. With respect to the $1.5 million promissory note to be issued in the Merger, RBC assumed that the value of such $1.5 million promissory note would be equal to the face value of the $1.5 million promissory note.
In connection with the rendering of its opinion to General Finance’ board of directors, RBC prepared and delivered to General Finance’ board written materials containing the analyses listed above and other information material to the opinion. The summary of the analyses used by RBC contained in this section includes information presented in tabular format. To fully understand the summary of the analyses used by RBC, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses.
Pac-Van Analyses
For purposes of the “Selected Companies Analysis” and “Selected Precedent Transactions Analysis” summarized below, the “implied aggregate merger consideration value” refers to the implied value of the aggregate consideration payable by General Finance in the Merger which representatives of General Finance directed RBC to assume would be $52.6 million, after giving effect to adjustments specified in the Merger Agreement, consisting of the following:
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| • | the aggregate cash consideration payable by General Finance in the Merger of $21.1 million; |
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| • | the implied aggregate value of the 4,000,000 shares of General Finance common stock issuable in the merger of $30.0 million based on the $7.50 stated value per share of General Finance common stock provided for in the Merger Agreement; and |
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| • | the principal amount of the promissory note of $1.5 million. |
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Selected Companies Analysis. RBC reviewed financial and stock market information for the following six selected publicly held companies in the modular space and storage sector of the rental services industry:
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| • | Cavco Industries, Inc. |
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| • | Champion Enterprises, Inc. |
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| • | McGrath RentCorp |
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| • | Mobile Mini, Inc. |
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| • | Nobility Homes, Inc. |
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| • | Nomad Building Solutions Limited |
RBC reviewed, among other things, enterprise values of the selected companies, calculated as fully-diluted market value based on closing stock prices on July 23, 2008, plus debt, minority interest and preferred stock, less cash and cash equivalents, as multiples of latest 12 months (ended on March 31, 2008) earnings before interest, taxes, depreciation and amortization, referred to as EBITDA, and latest 12 months (ended on June 30, 2008) and forward 12 months (ending on June 30, 2009) estimated EBITDA. RBC then applied a range of multiples of 6.3x to 11.0x latest 12 months (ended on March 31, 2008) EBITDA, 5.7x to 11.9x latest 12 months (ended on June 30, 2008) estimated EBITDA and 4.3x to 7.0x forward 12 months (ending on June 30, 2009) estimated EBITDA derived from the selected companies for which information was publicly available to corresponding data of Pac-Van (as adjusted, in the case of latest 12 months (ended on June 30, 2008) estimated EBITDA, to reflect the pro forma full year impact of acquisitions effected during the period and, in the case of latest 12 months (ended on June 30, 2008) and forward 12 months (ending on June 30, 2009) estimated EBITDA, to add back stock-based compensation expense and certain charges identified by General Finance’s management). Financial data for the selected companies were based on public filings and publicly available research analysts’ consensus estimates. Financial data for Pac-Van were based on internal data provided byPac-Van’s management. This analysis indicated the following implied equity reference ranges for Pac-Van, as compared to the implied aggregate merger consideration value:
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| | Implied Equity Reference
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| | Ranges for Pac-Van | | Consideration Value |
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| LTM (3/31/08) EBITDA | | $29.4 million - $129.3 million | | $52.6 million |
| LTM (6/30/08) EBITDA | | $23.7 million - $164.8 million | | |
| FTM (6/30/09) EBITDA | | $0.0 - $56.7 million | | |
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Selected Precedent Transactions Analysis. RBC reviewed, to the extent publicly available, transaction values in the following 13 selected transactions involving companies in the rental services industry:
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Date Announced | | Acquiror | | Target |
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| • 2/2008 | | • Mobile Mini, Inc. | | • Mobile Storage Group, Inc. |
| • 11/2007 | | • First Atlantic Capital, Ltd. | | • Sprint Industrial Holdings LLC |
| • 7/2007 | | • Ristretto Group S.a.r.l | | • Williams Scotsman International, Inc. |
| • 4/2007 | | • Odyssey Investment Partners, LLC | | • NES Rentals Holdings Inc. (Tank Rental Division) |
| • 3/2007 | | • Williams Scotsman International, Inc. | | • Hawaii Modular Space, Inc. |
| • 1/2007 | | • Kungsleden AB | | • Skanska AB (Nordic Modular Group) |
| • 9/2006 | | • General Finance Corporation | | • Royal Wolf Trading Australia Pty Ltd |
| • 8/2006 | | • Williams Scotsman International, Inc. | | • Wiron Construcciones Modulares, SA |
| • 7/2006 | | • Welsh, Carson, Anderson &
Stowe X, L.P. | | • Mobile Storage Group, Inc. |
| • 3/2006 | | • Mobile Mini, Inc. | | • Royal Wolf Portable Storage, Inc. |
| • 1/2006 | | • J.P. Morgan Partners Asia | | • Waco International Limited |
| • 11/2005 | | • 3i Group Plc | | • Skanska Modul AB (Nordic Modular Group) |
| • 10/2005 | | • Mobile Mini, Inc. | | • A-One Storage, LLC |
RBC reviewed, among other things, transaction values in the selected transactions, calculated as the equity value implied for the target company based on the consideration payable in the selected transaction, plus debt, minority interest and preferred stock, less cash and cash equivalents, as multiples of latest 12 months EBITDA to the extent such financial data were publicly available at the time of announcement of the relevant transaction. RBC then applied a range of multiples of 8.0x to 11.3x latest 12 months EBITDA derived from the selected transactions toPac-Van’s latest 12 months (ended on March 31, 2008) EBITDA. This analysis indicated the following implied equity reference range for Pac-Van, as compared to the implied aggregate merger consideration value:
| | |
Implied Equity Reference
| | Implied Aggregate Merger
|
Range for Pac-Van | | Consideration Value |
|
| $65.1 million - $136.0 million | | $52.6 million |
General Finance Selected Companies Analysis
RBC reviewed financial and stock market information for the selected publicly held companies referred to above under“Pac-Van Financial Analyses — Selected Companies Analysis.” RBC reviewed, among other things, enterprise values of the selected companies as multiples of latest 12 months (ended on June 30, 2008) and forward 12 months (ending on June 30, 2009) estimated EBITDA. RBC applied the range of low to high multiples of 5.7x to 11.9x latest 12 months (ended on June 30, 2008) estimated EBITDA and 4.3x to 7.0x forward 12 months (ending on June 30, 2009) estimated EBITDA derived from the selected companies for which information was publicly available to General Finance’s estimated EBITDA for fiscal years ended on June 30, 2008 and ending on June 30, 2009 (as adjusted, in the case of fiscal year 2008 EBITDA, to reflect the pro forma full year impact of acquisitions effected during the period and, in the case of fiscal years 2008 and 2009 estimated EBITDA, to add back stock-based compensation expense and certain charges identified by General Finance’s management). Financial data for the selected companies were based on publicly available research analysts’ consensus estimates. Financial data for General Finance were based on internal data provided by General Finance’s management. This analysis indicated
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the following implied per share equity reference ranges for General Finance, as compared to the $7.50 stated value per share of General Finance common stock provided for in the Merger Agreement:
| | | | |
| | | | Stated Value of
|
| | Implied per Share Equity Reference
| | General Finance Common
|
| | Ranges for General Finance | | Stock in Merger Agreement |
|
| FYE (6/30/08) EBITDA | | $4.74 - $15.12 | | $7.50 |
| FYE (6/30/09) EBITDA | | $4.80 - $10.67 | | |
Pro Forma Combination Analysis
RBC reviewed the potential pro forma effect of the Merger on General Finance’s fiscal year 2009 estimated earnings per share, referred to as EPS, before giving effect to potential synergies, if any, resulting from the Merger. Estimated financial data of General Finance were based on internal estimates of General Finance’s management, and estimated financial data of Pac-Van were based on internal estimates ofPac-Van’s management. Based on an illustrative Merger closing date of June 30, 2008 and other assumptions relating to the Merger and the financing for the Merger provided by General Finance’s management, this analysis indicated that the Merger could be accretive to General Finance’s fiscal year 2009 estimated EPS.RBC’s pro forma combination analysis does not represent a prediction on RBC’s part of the actual financial effect of the Merger on the stock price, financial performance or any other metrics of General Finance following the Merger and was based on the assumptions used by RBC.
Overview of Analyses; Other Considerations
In reaching its opinion, RBC did not assign any particular weight to any one analysis or the results yielded by that analysis. Rather, having reviewed these results in the aggregate, RBC exercised its professional judgment in determining that, based on the aggregate of the analyses used and the results they yielded, the aggregate merger consideration was fair, from a financial point of view, to General Finance. RBC believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analyses and, accordingly, also made qualitative judgments concerning differences between the characteristics of General Finance and Pac-Van respectively, and the Merger, and the data selected for use in its analyses, as further discussed below.
No single company or transaction used in the above analyses as a comparison is identical to General Finance or Pac-Van, or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses, or transactions analyzed. The analyses were prepared solely for purposes of RBC providing an opinion as to the fairness of the aggregate merger consideration, from a financial point of view, to General Finance and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be acquired, which are inherently subject to uncertainty.
The opinion of RBC as to the fairness, from a financial point of view, to General Finance of the aggregate merger consideration was necessarily based upon market, economic, and other conditions that existed as of the date of its opinion and on information available to RBC as of that date.
The preparation of a fairness opinion is a complex process that involves the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Several analytical methodologies were employed by RBC and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions RBC reached were based on all the analyses and factors presented, taken as a whole, and also on application of RBC’s own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. RBC therefore gives no opinion as to the value or merit standing alone of any one or more parts of its analyses and believes that its analyses must be considered as a whole and that selecting portions of the analyses and of the factors considered, without considering all factors and analyses, could create an incomplete or misleading view of the processes underlying its opinion.
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In connection with its analyses, RBC made, and was provided by General Finance’ management with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of General Finance. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of General Finance or its advisors, none of General Finance, RBC or any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.
RBC’s opinion was approved by the RBC Fairness Opinion Committee. General Finance selected RBC to serve as its financial advisor with respect to the Merger and render its opinion based on RBC’s experience in mergers and acquisitions and in securities valuation generally.
RBC is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. In the ordinary course of business, RBC may act as a market maker and broker in the publicly-traded securities of General Finance and receive customary compensation, and may also actively trade the securities of General Finance for its own account and the accounts of its customers and, accordingly, RBC and its affiliates may hold a long or short position in such securities.
Under its June 16, 2008 engagement agreement with General Finance, RBC agreed to advise the special committee concerning the structure and terms of the acquisition, to advise the special committee in the course of negotiations and, if requested by the special committee, to participate in the negotiations. Under the engagement agreement RBC became entitled to receive a fee of $100,000 upon RBC’s engagement and a fee of $300,000 upon the delivery of RBC’s opinion. In addition, if the merger is consummated, RBC will become entitled to an additional fee of $475,000 against which the fees payable upon RBC’s engagement and delivery of RBC’s opinion will be credited. General Finance also will reimburse RBC for its reasonable expenses and indemnify it for certain liabilities that may arise out of RBC’s engagement. The terms of the engagement letter were negotiated at arm’s-length between General Finance and RBC and the special committee was aware of this fee arrangement at the time of its approval of the Merger Agreement.
The Board of Directors of General Finance Following the Merger
As required by the stockholders agreement, upon consummation of the Merger, General Finance will expand the size of the Board of Directors of General Finance from five to six and will appoint Ronald L. Havner to fill the vacancy.
Ronald L. Havner, Jr. has been the Vice-Chairman, Chief Executive Officer and a director of Public Storage, Inc. since November 2002 and its President since July 2005. Mr. Havner has been Chairman of PS Business Parks, Inc. since March 1998 and was Chief Executive Officer of PS Business Parks, Inc. from March 1998 until August 2003. Mr. Havner joined Public Storage in 1986. He is also a member of the Board of Governors and the Executive Committee of the National Association of Real Estate Investment Trusts, Inc. (NAREIT) and a director of Union BanCal Corporation. Mr. Havner is also a director of Mobile Office Acquisition Corporation, the parent company of Pac-Van, Inc., a U.S. office modular and portable storage company and a former director of Mobile Storage Group, Inc.
Management of General Finance After the Merger
Upon completion of the Merger, the executive management team of the combined company will include senior executives from General Finance and from Pac-Van. Ronald F. Valenta will continue to serve as a Director, President and Chief Executive Officer and John Johnson, Charles Barrantes and Christopher Wilson will continue to serve as Chief Operating Officer, Chief Financial Officer and General Counsel of General Finance, respectively. Theodore M. Mourouzis, President of Pac-Van, will continue to manage Pac-Van as a subsidiary of General Finance along with his entire management team, including six senior executives who have served on the Pac-Van management team for an average of ten years.
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Governmental and Regulatory Matters
We do not believe the consummation of the Merger is subject to review by the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission under HSR.
Anticipated Accounting and Tax Treatment
General Finance intends to account for the Merger as a purchase of Pac-Van in accordance with generally accepted accounting principles in the United States. Pac-Van will be treated as the acquired entity for such purposes. Accordingly, the aggregate fair value of the consideration paid by General Finance in connection with the Merger will be allocated toPac-Van’s assets based on their fair values as of the completion of the Merger. The difference between the fair value ofPac-Van’s assets, liabilities and other items and the aggregate fair value of the consideration paid by General Finance will be recorded as goodwill and other assets and intangibles. The results of operations of Pac-Van will be included in General Finance’s consolidated results of operations only for periods subsequent to the completion of the Merger.
For U.S. federal income tax purposes, General Finance will not be entitled to allocate the aggregate fair market value of the consideration paid by General Finance in connection with the Merger with Pac-Van toPac-Van’s assets. Instead, General Finance will inherit thePac-Van’s tax basis in its assets and will not be able to increase that tax basis to reflect the value of the aggregate consideration paid or the fair market value of the assets. As a result, General Finance’s tax-deductible depreciation of the former Pac-Van assets will be less than if those assets had been purchased at the time of the Merger for their fair value. In addition, in the event that General Finance resells any of the former Pac-Van assets, it will calculate taxable gain by reference to their tax basis.
No Appraisal Rights
Under Delaware law, General Finance stockholders will not have appraisal rights pursuant to the Merger and the other transactions contemplated by the Merger Agreement.
Financing
In anticipation of the Merger, Pac-Van has received commitment letters, or collectively the Commitment Letter, from LaSalle Bank National Association, as Administrative Agent, BancAmerica Securities, LLC, as Arranger, Wells Fargo Bank, and National City Bank, collectively, the “Commitment Parties.” The commitment letter from LaSalle dated June 16, 2008 describes a senior secured credit facility under which Pac-Van, Inc. may borrow up to $90 million, subject to a borrowing base. Pac-Van has also received commitments from the Commitment Parties and Union Bank of California to increase the Credit Facility to $120 million upon the closing of this transaction. We will assume this indebtedness as part of the transaction. In connection with the Commitment Letter, Pac-Van has agreed to pay to the Commitment Parties an Upfront Fee of $25,000 and a $20,000 fee to the Arranger. Such fees are included as part of the costs of the transaction and will not recur. In addition,Pac-Van has agreed to pay to LaSalle an annual administration fee of $5,000 per lender to act as administrative agent. We do not have any current plans to repay the Credit Facility.
General Finance organized a wholly owned subsidiary, General Finance North America Inc., or GFNA, as the party that will own Pac-Van and will guarantee certain Pac-Van indebtedness. General Finance Corporation and Royal Wolf Australia will not be parties to the Pac-Van credit agreement.
The Credit Facility has a remaining term of approximately four years, and the Credit Facility has a scheduled expiration date of August 23, 2012. The availability of borrowings under the Credit Facility will be subject to a borrowing base calculated as a discount to the value of certain pledged collateral. The Credit Facility has optional and mandatory prepayment provisions. Repayment of all amounts owed under the Credit Facility will be secured by a first priority perfected security interest in substantially all existing and after acquired assets (real and personal) of Pac-Van and GFNA and all products and proceeds thereof.
Borrowings under the Credit Facility will bear interest at a rate equal to, at our option, either LIBOR plus an applicable margin or the prime rate plus an applicable margin. We expect that the initial applicable margin for borrowings will be .25% with respect to prime rate borrowings and 2.25% with respect to LIBOR borrowings. The
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applicable margins may adjust from time to time based on our senior leverage ratio, which is expected to start at the highest level. In addition to paying interest on outstanding principal under the Credit Facility, we will be required to pay an unused line fee to the lenders under the revolving credit facilities in respect of the unutilized commitments thereunder. The unused line fee rate is 0.25% per annum. We must also pay customary letter of credit fees.
The increased commitments of the banks under the Commitment Letter are subject to, among other things, the consummation of the Merger, including that since December 31, 2007, there has occurred no event, fact or circumstance that has caused or could reasonably be expected to have a material adverse effect on Pac-Van nor any current event of default. The definitive financing agreement includes (i) a borrowing base limiting indebtedness to the lesser of the commitment amount or the combination of 85% of eligible receivables and net book value of modular buildings, mobile offices, storage containers and capitalized freight andset-up costs and 75% of rolling stock, limited to $1 million, (ii) representations and warranties, affirmative and negative covenants and events of default customarily found in credit agreements for transactions of this nature, (iii) financial covenants also customary for credit agreements for transactions of this nature, but including the following:
(a) Maximum Senior Funded Debt to trailing twelve month Adjusted EBITDA of 5.00 to 1.00.
(b) Maximum Total Funded Debt to trailing twelve month Adjusted EBITDA of 5.50 to 1.00.
(c) Minimum Interest Coverage Ratio of 1.25:1.00.
(d) Minimum trailing twelve month Adjusted EBITDA of $15,726,000 plus 80% of EBITDA in connection with any acquisition on a TTM basis.
(e) Minimum Utilization of the fleets on an average dollar basis of 70%.
(f) Maximum Annual Shareholder Distributions of $1,500,000 to be paid to GFNA, with an additional $2,000,000 to be paid in the first two years post-closing related to the Holdback Note.
The Subordinated Debt has a maturity date of February 2, 2013.
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THE AGREEMENT AND PLAN OF MERGER
The following summary describes the material provisions of the Merger Agreement. This summary may not contain all of the information about the Merger Agreement that is important to you and is qualified in its entirety by reference to the Merger Agreement, which is included asAnnex Ato this proxy statement. We urge you to read the entire Merger Agreement and the other annexes to this proxy statement carefully and in their entirety.
The Merger Agreement has been included to provide you with information regarding its terms. The terms and information in the Merger Agreement should not be relied on as disclosure about General Finance, GFNA orPac-Van without consideration of the information provided elsewhere in this document and in the excerpts from the periodic reports included asAnnex C, which such information is incorporated by reference into this proxy statement. The terms of the Merger Agreement (such as the representations and warranties) govern the contractual rights and relationships, and allocate risk, among the parties in relation to the Merger. In particular, the representations and warranties made by the parties to each other in the Merger Agreement have been negotiated among the parties with the principal purpose of setting forth their respective rights with respect to their obligation to close the Merger should events or circumstances change or be different from those stated in the representations and warranties. Matters may change from the state of affairs contemplated by the representations and warranties. None of the parties to the Merger Agreement undertakes any obligation to publicly release any revisions to the representations and warranties, except as required under U.S. federal or other applicable securities laws.
Structure of the Merger
On July 28, 2008, we entered into the Merger Agreement with GFN North America Corp., a wholly-owned subsidiary of General Finance, or GFNA, MOAC, Pac-Van, Inc. and certain stockholders of MOAC, pursuant to which MOAC will merge with and into GFNA.
Conversion of Stock held by Stockholders of MOAC. Each share of MOAC’s common stock issued and outstanding immediately prior to the effective time of the Merger and held by the stockholders of MOAC, and all rights in respect thereof shall, by virtue of the Merger and without any action on the part of the stockholder, forthwith cease to exist and be converted into and represent the right to receive an amount, of cash, a subordinated promissory note of GFNA and 4,000,000 shares of restricted General Finance common stock, or Shares.
Conversion of GFNA Stock. At the effective time of the Merger, by virtue of the Merger and without any action on the part of any party, each share of GFNA’s common stock issued and outstanding immediately prior to the effective time of the Merger, will be converted into and exchanged for one validly issued, fully paid, and nonassessable share of the surviving corporation’s common stock.
Effect on Options. Immediately prior to the effective time of the Merger, all options issued under the stock option plans of MOAC will be cancelled and will cease to exist, and the holder of such options will cease to have any rights with respect thereto and will receive cash for such cancelled options as set forth in the Merger Agreement.
No Further Ownership Rights in MOAC Common Stock. At and after the effective time of the Merger, each stockholder of MOAC shall cease to have any rights as a stockholder of MOAC, except as otherwise required by applicable law and except for the right of each stockholder of MOAC to surrender his or her stock certificate or lost stock certificate affidavit in exchange for payment of the applicable Merger Consideration, and no further transfer of MOAC common stock shall be made on the stock transfer books of the surviving corporation.
Merger Consideration
Merger Consideration. Upon completion of the Merger, the stockholders of MOAC shall be entitled to receive the amount, or Merger Consideration, equal to $158,800,000plusthe aggregate purchase price and transaction costs of any acquisitions completed by Pac-Van during the period commencing on the date of the Merger Agreement and ending at the Closing,minusthe total indebtedness of Pac-Van which is borrowed underPac-Van’s Credit Facility (which principal amount shall not exceed $86,000,000 plus any new acquisition related debt),minusthe subordinated debt of Pac-Van which is borrowed from Laminar (which original principal amount shall not exceed $25,000,000),minusthe aggregate value of indebtedness (other than indebtedness borrowed under the Credit Facility and the Subordinated Debt),minusthe aggregate value of the warrants of MOAC. The Merger
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Consideration will be paid to the MOAC stockholders with up to $21.5 million in cash, a $1.5 million senior unsecured subordinated note of GFNA, or the Note, $30 million in Shares, which are valued at $7.50 per share for the purposes of the acquisition. The amount of cash paid for the MOAC shares will depend on the amount of indebtedness assumed but will not exceed $21.5 million in any event. The MOAC stockholders will receive different percentages of each form of Merger Consideration, as further described in the Merger Agreement.
Surviving Corporation, Governing Documents and Officers and Directors
At the effective time of the Merger, the certificate of incorporation and by-laws of GFNA, as in effect immediately prior to such effective time, will be the certificate of incorporation and by-laws respectively of the surviving corporation of the Merger. The officers and directors of GFNA prior to the effective time of the Merger will continue to be the officers and directors of the surviving corporation of the Merger, subject to the applicable provisions of the certificate of incorporation and by-laws of the surviving corporation.
Closing
Unless the parties agree otherwise, the completion of the Merger will occur on the first business day following the day on which the last of the closing conditions (other than any conditions that by their nature are to be satisfied at the closing) is satisfied or waived. See “— Conditions to the Merger” beginning on page 50. The parties currently expect to complete the merger in the fourth quarter of 2008.
Approval of the MOAC Stockholders
The holders of MOAC Class A Common Stock, the class of common stock with voting rights, approved the Merger Agreement immediately following its execution. No further action by the MOAC Stockholders is needed for approval of the acquisition.
Effective Time of the Merger
The Merger will become effective upon the acceptance of the filing of a certificate of merger in accordance with Section 251 of the Delaware General Corporation Law with the Secretary of State of the State of Delaware, or at such other subsequent date or time as General Finance, GFNA, MOAC, Pac-Van, Inc. and certain stockholders of MOAC may agree and specify in the certificate of merger. General Finance and MOAC will file the certificate of merger on the closing date of the Merger.
Representations and Warranties
The Merger Agreement contains representations and warranties made by MOAC to General Finance and GFNA relating to a number of matters, including the following:
| | |
| • | corporate authorization to execute, deliver and perform the Merger Agreement, and the enforceability of the Merger Agreement; |
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| • | absence of conflicts with, or violations of, organizational documents, applicable law or other obligations as a result of the execution, delivery and consummation of the transactions contemplated by the Merger Agreement; |
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| • | due organization and good standing; |
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| • | capitalization; |
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| • | due organization, good standing and capitalization of MOAC and Pac-Van, Inc.; |
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| • | accuracy of information to be provided by Pac-Van for inclusion in this proxy statement; |
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| • | accuracy of selected financial statements; |
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| • | absence of certain undisclosed liabilities; |
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| • | accuracy of minute books; |
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| | |
| • | title and condition of tangible personal property; |
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| • | owned and leased real properties; |
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| • | material contracts; |
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| • | litigation; |
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| • | tax matters; |
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| • | insurance; |
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| • | intellectual property matters; |
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| • | compliance with laws; |
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| • | relationship with customers; |
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| • | labor and employment relations; |
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| • | employee benefit plan matters; |
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| • | environmental matters; |
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| • | affiliate transactions; |
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| • | obtaining of and compliance with permits; |
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| • | absence of any material adverse effect and certain other changes or events; |
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| • | brokers’ or finders’ fees; |
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| • | absence of certain changes in the business; and |
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| • | scope of representations and warranties and disclaimer of implied and other representations and warranties in the Merger Agreement and related documents. |
The Merger Agreement also contains representations and warranties made by General Finance and GFNA to MOAC and the MOAC stockholders relating to a number of matters, including the following:
| | |
| • | corporate authorization to execute, deliver and perform the Merger Agreement, and the enforceability of the Merger Agreement; |
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| • | absence of conflicts with, or violations of, organizational documents, applicable law or other obligations as a result of the execution, delivery and consummation of the transactions contemplated by the Merger Agreement; |
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| • | due organization and good standing; |
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| • | capitalization; |
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| • | due organization and good standing of General Finance and GFNA; |
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| • | accuracy of information to be provided by General Finance for inclusion in this proxy statement; |
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| • | accuracy of selected financial statements; |
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| • | absence of certain undisclosed liabilities; |
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| • | litigation; |
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| • | tax matters; |
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| • | valid issuance of the Shares in the Merger; |
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| • | compliance with laws; |
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| • | employee benefit plan matters; |
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| | |
| • | absence of certain changes in the business; |
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| • | brokers’ or finders’ fees; and |
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| • | scope of representations and warranties and disclaimer of implied and other representations and warranties in the Merger Agreement and related documents. |
The representations and warranties contained in the Merger Agreement were made for purposes of the Merger Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Merger Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts. This description of the representations and warranties, and their reproduction in the copy of the Merger Agreement attached to this proxy statement as Annex A, are included solely to provide investors with information regarding the terms of the Merger Agreement. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should only be read together with the information provided elsewhere in this proxy statement and in the excerpts from the periodic reports included in Annex C, which such information is incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 89.
Certain of these representations and warranties are qualified by “materiality” or “material adverse effect”. For purposes of the Merger Agreement, a “material adverse effect” with respect to MOAC or Pac-Van, Inc., as the case may be, means one or more events, changes, circumstances or effects, a material adverse effect on the business, operations, assets, liabilities or financial condition of MOAC or Pac-Van, Inc. taken as a whole, other than events, changes, circumstances or effects that arise out of or result from economic factors generally affecting the economy or financial markets as a whole or the industries in which either of MOAC or Pac-Van, Inc. operates which do not disproportionately impact MOAC or Pac-Van, Inc.
The representations and warranties in the Merger Agreement related to corporate authorization, board approval, noncontravention of MOAC’s charter documents, taxes, environmental matters, the real property leases of Sellers being valid leaseholds free and clear of all liens, the personal property of Sellers being free and clear of all liens and intellectual property of Pac-Van, Inc. being valid, enforceable and free of all liens, or the Excluded Representations and breaches of representations and warranties including fraud or intentional tortious conduct, will survive until the third anniversary of the Closing. All representations and warranties in the Merger Agreement other than the Excluded Representations or as described herein will survive until 20 months after the closing date of the Merger. If the Merger Agreement is validly terminated, there will be no liability under the representations and warranties of the parties, or otherwise under the Merger Agreement, except as described below under “— Effect of Termination” and “— Termination Fees and Expenses” beginning on page 54.
Covenants and Agreements
Conduct of Business of Pac-Van Pending the Merger. Pac-Van has agreed that, except as set forth in the Merger Agreement, during the period commencing on July 28, 2008 and ending at the earlier of the completion of the Merger or the termination of the Merger Agreement, Pac-Van will carry on its business in the ordinary and usual course and to use all commercially reasonable efforts to preserve intact its present business organizations, keep available the services of its officers and employees and maintain satisfactory relationships with licensors, suppliers, distributors, customers and others with which it has a business relationship.
Additionally, Pac-Van has agreed that, except as may be approved in writing by General Finance or as expressly permitted or required by the Merger Agreement, prior to the completion of the Merger, Pac-Van will not, and will cause each of its subsidiaries to, refrain from the following:
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| • | amending the certificate of incorporation or bylaws of MOAC or Pac-Van, Inc.; |
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| • | declaring, paying or setting aside any dividend or other distribution; |
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| • | increasing the compensation payable (including wages, salaries and bonuses or any other renumeration) or to become payable to any employee in excess of increases consistent with past practice which shall not exceed 4% in any event, other than pursuant to existing contracts or applicable law; |
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| • | adopt or enter into any new, or amend or otherwise increase or terminate, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan, agreement or arrangement, provided that MOAC may accelerate the vesting of any stock options granted in 2006; |
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| • | hire any new officers, executives or employees at or above the level of vice president (except to replace an officer, executive or employee) or terminate the employment of any officers, executives or employees at or above the level of vice president (except for cause), or promote any officers, executives or employees to, or at or above the level of, vice president (except to replace an officer, executive or employee); |
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| • | incurring, assuming or modifying any indebtedness (other than revolving indebtedness incurred pursuant to the existing Credit Facility of Pac-Van up to $86 million or the Subordinated Debt up to $25 million original principal), in each case, in the ordinary course of business consistent with past practice; |
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| • | subjecting any material property or assets or any capital stock, or other equity or voting interests to any lien other than permitted liens; |
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| • | selling transfering, leasing, licensing or otherwise disposing any assets or properties other than sales of assets in the ordinary course of business consistent with past practice; |
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| • | acquire or merge or consolidate with any business or entity, by merger or consolidation, or purchase of assets or equity interests of any person or persons with a purchase price in excess of $10 million, or by any other manner, in a single transaction or a series of related transactions; |
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| • | making of any capital expenditure or commitment thereto other than in the ordinary course of business consistent with past practice and in accordance with expenditures contemplated by the Pac-Van 2008 capital expenditures budget; |
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| • | writing-off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business consistent with past practice; |
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| • | canceling or waiving any claims or rights of substantial value; |
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| • | making any change any elections with respect to taxes, amend any tax returns, change any annual tax accounting period or adopt or change any tax accounting method or any other similar action other than those required by GAAP or by applicable laws; |
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| • | paying, discharging, settling or satisfying any claims, liabilities or obligations other than in the ordinary course consistent with past practices; |
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| • | adopting a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or material reorganization, other than the Merger; |
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| • | entering into any joint venture, partnership or other similar arrangement; |
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| • | entering into a “Company Material Contract,” as defined in the Merger Agreement, which includes contracts with an obligation in excess of $25,000 and that is not cancellable without penalty on 180 days’ or less notice or any contract with a restriction onPac-Van’s ability to compete or provide products and services; |
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| • | settling or compromising any claim, legal action or other similar matter; or |
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| • | entering into any material transaction with any officer, director, stockholder or affiliate of MOAC. |
Exclusivity. From July 28, 2008 and until the earlier of the completion of the Merger or the termination of the Merger Agreement, Pac-Van has agreed not to engage in any discussions or negotiations with, or provide any information to, any person or entity (other than General Finance and its affiliates and representatives), concerning
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any purchase of any capital stock of Pac-Van or any merger, consolidation or other business combination, asset sale, recapitalization or similar transaction involving Pac-Van. Pac-Van has agreed to notify General Finance as soon as practicable after Pac-Van has knowledge of any person making any proposal, offer, inquiry, or contact withPac-Van, with respect to any such proposal for purchase of capital stock, merger, consolidation, asset sale, recapitalization or similar transaction involving Pac-Van and to describe the identity of the person making such proposal and the substance and material terms of such contact and such proposal.
Access to Information. The Merger Agreement provides mutual rights to each of General Finance andPac-Van to access the properties, books and records of the other party, and obligates each party to provide information regarding its business and properties to the other party to the extent permitted by law. Each of General Finance and Pac-Van agree to permit the other party and its representatives to have reasonable access during normal business hours and on reasonable written advance notice, to its premises and to its properties, books and records and shall cause its officers, employees counsel, accountants, consultants and other representatives to furnish the other party with such financial and operating data and other information with respect to its business and properties as such other party shall request from time to time. Such investigation and assistance shall not unreasonably disrupt the operations of the party providing access to such investigation, cause the loss of attorney/client privilege, and any information provided pursuant to such investigation by either General Finance or Pac-Van or their respective subsidiaries shall be subject to the terms of the mutual confidentiality provisions contained in the Merger Agreement.
Notification of Certain Matters. Pac-Van agrees to provide prompt written notice to General Finance of (i) any notice of, or other communication relating to, a default or event of default under any material contact, (ii) any representation or warranty made by Pac-Van in the Merger Agreement becoming untrue or inaccurate in any material respect and (ii) the failure of any condition precedent to either party’s obligations.
MOAC’s Stock Option Plans. Except as provided below, MOAC agrees, as of the time of the completion of the Merger, to take all actions necessary to terminate all stock option plans, stock incentive plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of Pac-Van. Immediately prior to the effective time of the Merger, all options issued under the option plans of MOAC will be cancelled and will cease to exist, and the holder of such options will cease to have any rights with respect thereto and will receive cash for such cancelled options as set forth in the Merger Agreement.
Certain Other Covenants. The Merger Agreement also contains additional covenants, including covenants relating to the filing of this proxy statement,Pac-Van’s cooperation with General Finance in connection with the debt financing, cooperation and consultation regarding filings and proceedings with governmental and other agencies and organizations and obtaining required consents, cooperation and consultation regarding public statements with respect to transactions contemplated by the Merger Agreement and cooperation with respect to contesting or defending any legal proceedings brought by a third party in connection with the transactions contemplated by the Merger Agreement.
Conditions to the Merger
Conditions to Each Party’s Obligations. The respective obligations of each of General Finance and Pac-Van to effect the Merger are conditioned upon the satisfaction or waiver by General Finance and Pac-Van of the following conditions:
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| • | no action before any governmental authority shall have been commenced, no governmental authority shall have issued any order, decree or ruling and no action by any governmental authority or any other person shall have been filed which seeks to restrain, enjoin or rescind the Merger or which seeks damages in connection with the Merger; |
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| • | the parties shall reasonably believe that the Merger shall qualify as a “tax-free reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended, and that the Merger Agreement shall constitute a “plan of reorganization” within the meaning of the regulations promulgated under Section 368; |
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| • | Pac-Van and the releaselenders under the Credit Facility shall have entered into amendments to the agreements governing the Credit Facility which (i) consent to the Merger, (ii) consent to the “change of escrow funds will runcontrol” |
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| | contemplated by the Merger and the transactions contemplated by the Merger Agreement, (iii) increase the “permitted payments” to permit the payment of an annual management fee of $1.5 million to General Finance and to permit the payment of all sums owed under the Note, (iv) provide for a $30 million increase in commitments from Bison-GE’s purchasethe lenders under the Credit Facility, (v) establish June 30 as the fiscal year end of RWAPac-Van and its affiliates, (vi) shall not require Pac-Van or any other party to pay to the lenders under the Credit Facility or any other party fees, costs or expenses except as agreed in writing by Pac-Van and such lenders prior to the date of the Merger Agreement and (vii) other than amendments described above, shall not amend or alter the terms and conditions governing the Credit Facility as of the date of the Merger Agreement; |
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| • | All of the parties to the agreements governing the Pac-Van Subordinated Debt shall have entered into amendments to such agreements which (i) permit the increase of the lenders’ commitments under the Credit Facility described above, (ii) consent to the “change of control” contemplated by the Merger and the transactions contemplated by the Merger Agreement, (iii) permit the payment of an annual management fee of $1.5 million to General Finance and of all sums owed under the Note, (iv) establish June 30 as the fiscal year end of Pac-Van and the Affiliates of Pac-Van, (v) shall not require Pac-Van or any other party to pay to Laminar or any other party fees, costs or expenses except as agreed in writing by Pac-Van and Laminar prior to the date of this Agreement and (vi) other than changes set forth above, shall not amend or alter the terms and conditions governing the Subordinated Debt. |
Conditions to Obligations of General Finance. The obligations of General Finance to complete the Merger are conditioned upon the satisfaction or waiver by General Finance of the following conditions:
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| • | subject to certain exceptions, the representations and warranties of Pac-Van shall be true and correct in all respects on and as of the closing date with the same effect as though such representations and warranties had been made on and as of such date; |
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| • | Pac-Van shall have performed in all material respects its obligations under the Merger Agreement prior to the consummation of the Merger; |
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| • | Pac-Van shall have furnished General Finance with a certificate dated on the effective date of the Merger to the effect that certain conditions of General Finance to consummate the Merger have been satisfied; |
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| • | any filing with, or consent of, any governmental authority or third party necessary to complete the Merger in compliance with applicable law and all contracts of Pac-Van shall have been made or obtained; |
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| • | at a meeting of the stockholders of General Finance duly called and held for such purpose, the holders of a majority of the General Finance common stock present and entitled to vote at such meeting shall have approved by affirmative vote the proposals set forth in this proxy; |
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| • | the ratio (expressed as a percentage) equal to the aggregate number of MOAC common stock held by persons who have perfected their appraisal rights pursuant to Delaware General Corporation Law divided by the aggregate number of issued and outstanding shares on March 29, 2007, rather than ourof MOAC common stock immediately prior to the closing of the purchaseMerger shall not be greater than 10%; |
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| • | Pac-Van shall have delivered to General Finance evidence reasonably satisfactory to General Finance of Royal Wolf.the resignation of all Pac-Van directors effective as of the closing of the Merger; |
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| • | since December 31, 2007, there shall not have been any material adverse change in the financial condition, operating profits, backlog, assets, liabilities, operations, business prospects, applicable regulations, employee relations or customer or supplier relations of Pac-Van; |
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| • | Pac-Van shall have delivered to General Finance a copy of the resolutions adopted by the board of directors of MOAC and Pac-Van, Inc. approving this Merger Agreement and the Merger, certified by their respective secretaries; |
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| • | At the closing of the Merger, neither MOAC nor Pac-Van, Inc. shall have any indebtedness except as disclosed pursuant to or permitted by the Merger Agreement; |
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| • | General Finance shall have received amendments, satisfactory to General Finance, of any agreements between Pac-Van and the employees of Pac-Van which contains provisions triggered by the consummation of the Merger or which would terminate upon the consummation of the Merger; |
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| • | Each MOAC stockholder who will receive the Shares as part of the Merger Consideration and General Finance shall have executed and delivered the stockholders agreement in the form of Annex A attached hereto; |
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| • | Theodore M. Mourouzis and Pac-Van, Inc. shall have entered into an amendment to his employment agreement which extends its term by one year to July 31, 2010; |
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| • | All MOAC stock options shall have been exercised or terminated pursuant to this Agreement; and |
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| • | Pac-Van shall have current assets, including cash, minus current liabilities, including unearned revenue upon the closing of the Merger, not more negative than $4 million less the amount of accounts payable associated with each modular building project sale greater than $500,000 that has not been invoiced as of the Closing. |
Conditions to Obligations of Pac-Van. The obligations of Pac-Van to complete the Merger are conditioned upon the satisfaction or waiver by Pac-Van of the following conditions:
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| • | subject to certain exceptions, the representations and warranties of General Finance and GFNA shall be true and accurate as of the date of the Merger Agreement and the closing of the Merger as if made at and as of such time; |
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| • | each of General Finance and GFNA shall have performed in all material respects all of the respective obligations hereunder required to be performed by General Finance and GFNA, as the case may be, at or prior to the closing of the Merger; |
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| • | General Finance shall have furnished Pac-Van with a certificate dated as of the closing of the Merger signed on its behalf by an officer to the effect that certain conditions of the closing of the Merger have been satisfied; |
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| • | The board of directors of General Finance shall have elected Ronald L. Havner, Jr. to serve on the board of directors of General Finance as a class C director (who would stand for reelection at the General Finance annual stockholder meeting in 2009) effective immediately after the closing of the Merger and General Finance shall have entered into an indemnification agreement with Mr. Havner substantially similar to the agreements with existing directors of General Finance; |
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| • | the lenders under the Subordinated Debt shall agree that no consent, closing or similar fees shall be payable from Pac-Van or General Finance to such lenders in connection with the Merger and Pac-Van shall be responsible for reimbursing the lenders for reasonable legal fees and expenses incurred by lenders in connection with the Merger in an amount not to exceed $50,000; |
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| • | each stockholder who will receive shares of General Finance as part of the Merger Consideration and General Finance shall have entered into a stockholders agreement in the form of Annex B attached hereto; |
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| • | since December 31, 2007, there shall not have been any material adverse change in the financial condition or results of operations, assets or liabilities of General Finance; and |
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| • | General Finance and GFNA shall have delivered to MOAC stockholders an excerpt of the resolutions adopted by the Board of Directors of GFNA and the special committee of the board of directors of General Finance approving the Merger Agreement and the Merger, certified by their respective secretaries. |
Each of the conditions to General Finance’s andPac-Van’s obligations to complete the Merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of General Finance and Pac-Van if the condition is a condition to both General Finance’s andPac-Van’s obligation to complete the Merger, or by the party for whom such condition is a condition of its obligation to complete the Merger. The boards of directors of General Finance and Pac-Van may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement and re-solicitation of proxies is necessary. However, General Finance and Pac-Van generally do not expect any such waiver to be significant enough to require an amendment of this proxy statement and re-solicitation of stockholders. In the event that any such waiver is not determined to be significant enough to require re-
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solicitation of stockholders, General Finance will have the discretion to complete the Merger without seeking further General Finance stockholder approval.
Indemnification
Certain of MOAC’s stockholders have agreed to hold General Finance and its affiliates, successors and assigns harmless for any losses which arise from or in connection with any breach by Pac-Van of any of its representations, warranties or covenants under the Merger Agreement or in any ancillary agreement or in any instrument, certificate or writing delivered pursuant to the Merger Agreement. General Finance or GFNA has agreed to hold harmless MOAC’s stockholders and their affiliates for any losses which arise from or in connection with (i) any breach by General Finance or GFNA of any of their representations, warranties or covenants under the Merger Agreement or in any agreement delivered pursuant to the Merger Agreement or (ii) with certain limitations, any claim brought by a stockholder of General Finance relating to the Merger.
The obligations to indemnify and hold harmless for breaches of representations and warranties relating to corporate authorization, board approval, noncontravention of Pac-Van’ charter documents, taxes, environmental matters, finders’ fees, the real property leases of Pac-Van, the personal property of Pac-Van and intellectual property of Pac-Van, or the Excluded Representations, will survive until the third anniversary of the Closing. All representations and warranties in the Merger Agreement other than the Excluded Representations will survive until 20 months after the closing date of the Merger, except for claims for indemnification asserted prior to the end of such period, which claims shall survive until final resolution thereof. With limited exceptions, the maximum amount of General Finance’s or the MOAC stockholders’ indemnification liabilities under the Merger Agreement is $10 million. Indemnification claims may be asserted only if each individual indemnifiable loss exceeds $500,000; provided, that if the amount of indemnifiable losses exceeds the $500,000, the indemnified party shall be entitled to recover the entire amount of losses.
All claims for indemnification by General Finance shall first be satisfied from the pledged Shares and the Note. The indemnification obligations of MOAC’s stockholders are several and not joint.
General Finance will be responsible for the taxes of the MOAC stockholders in the event that the Merger does not qualify as a tax-free reorganization firm under Section 368 of the Internal Revenue Code of 1986, as amended.
Termination
The Merger Agreement may be terminated at any time before the completion of the Merger, in any of the following circumstances:
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| • | by mutual written consent of General Finance and Pac-Van; |
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| • | by either General Finance or Pac-Van, if |
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| • | the merger does not occur on or before November 1, 2008, provided that the right to terminate the Merger Agreement shall not be available to either General Finance or Pac-Van, as the case may be, if its failure to fulfill any obligation under the Merger Agreement shall be the cause of the failure of the closing to occur on or before such date; |
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| • | there has been a breach of any representations and warranties or any covenant to be performed by either General Finance or Pac-Van in a manner such that the closing conditions described in “— Conditions to Each Party’s Obligations” and “— Conditions to Obligations of General Finance” or “— Conditions to Obligations of Pac-Van” or, as the case may be, would not be satisfied; |
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| • | there shall be any order of any competent authority prohibiting such transactions, which has been entered and become final and non-appealable; or |
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| • | by General Finance if a material adverse change in the financial condition of Pac-Van has occurred since December 31, 2007; |
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| • | by MOAC if a material adverse change in the financial condition of General Finance has occurred since December 31, 2007; |
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| • | the approval of the Merger Agreement, the Merger and the issuance of the Shares to the MOAC stockholders in connection with the Merger by the affirmative vote of the holders of a majority of the outstanding shares of General Finance common stock are not obtained. |
Termination Fees and Expenses
If the Merger Agreement is terminated each party will bear its own expenses, provided that General Finance will reimburse Pac-Van for the costs of certain appraisals undertaken in connection with its due diligence investigation, which costs are estimated at $18,000.
Effect of Termination
If the Merger Agreement is terminated in accordance therewith, upon written notice, the Merger Agreement shall be terminated, without any liability (other than liability for any willful breach) on the part of General Finance or Pac-Van; provided, that the provisions of the Merger Agreement relating to public announcements, termination, effects of termination, expenses, transfer taxes and certain confidentiality obligations will survive any termination thereof and, provided further that no such termination shall relieve any party of any liability resulting from the breach of the Merger Agreement by such party.
Specific Performance
Each of General Finance and Pac-Van are entitled to an injunction or injunctions to prevent actual breaches of the Merger Agreement by the other party and to enforce specifically the terms and provisions of the Merger Agreement.
Amendments
The Merger Agreement may not be changed, and any of the terms, covenants, representations, warranties and conditions cannot be waived, except pursuant to an instrument in writing signed by all the parties to the Merger Agreement or, in the case of a waiver, by the party waiving compliance.
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THE STOCKHOLDERS AGREEMENT
The following is a summary of the material provisions of the stockholders agreement to be entered into by and among General Finance and certain stockholders of MOAC upon completion of the Merger. The stockholders agreement is included as Exhibit C to Annex A and is incorporated by reference into this proxy statement. We encourage you to read the stockholders agreement carefully
Transfer of Equity Securities
Transfer Restrictions. No MOAC stockholder party to the stockholders agreement shall, voluntarily or involuntarily, directly or indirectly, transfer in any manner, the restricted General Finance common stock issued pursuant to the Merger Agreement, or the Shares, except pursuant to a transfer permitted under the stockholders agreement. Any attempt to transfer any security in violation of the transfer restrictions shall be null and void and General Finance will not permit or give any effect to any such transfer to be made on its books and records.
Permitted Transfers. A MOAC stockholder who is a party to the stockholders agreement may carry out any of the following transfers:
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| • | any transfer following such stockholder’s death, to such stockholder’s legal representative, heir or legatee, or any gift during such stockholder’s lifetime to such stockholder’s spouse, children, grandchildren or to a trust or other legal entity for the exclusive benefit of such stockholder or any one or more of the foregoing; and |
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| • | any transfer to any affiliate of such stockholder (as long as the permitted transferee agrees in writing to be bound by all the provisions of the stockholders agreement). |
Customary Black-out Periods. Subject to certain exceptions, none of the MOAC stockholders shall sell any Shares other than during any period when the MOAC stockholders are not prohibited from selling securities pursuant to the written policies and procedures of General Finance governing transfers of securities by such officers and directors as may be in effect from time to time.
Standstill. Except for the exercise of warrants owned as of the closing date of the Merger (which shall not be covered by the stockholders agreement) or as agreed by General Finance in advance, for the period commencing on the closing date and ending on June 30, 2009, Ronald F. Valenta and Ronald L. Havner, Jr. shall, and shall cause their controlled affiliates to, refrain from directly or indirectly:
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| • | acquiring, announcing an intention to acquire, offering or proposing to acquire, soliciting an offer to sell or agree to acquire, or entering into any arrangement or undertaking to acquire, directly or indirectly, by purchase, or otherwise, record or direct or indirect beneficial ownership interest in any equity or debt securities of General Finance or any assets (other than purchases of assets in the ordinary course of business) or other securities of General Finance or any of its subsidiaries; |
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| • | making, effecting, initiating, curing or participating in any take-over bid, tender offer, exchange offer, merger, consolidation, business combination, recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction involving General Finance or any of its subsidiaries; |
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| • | soliciting, making, effecting, initiating, causing, or participating in any way in, directly or indirectly, any solicitation of proxies or consents from any holders of any securities of the General Finance or any of its subsidiaries or calling or seeking to have called any meeting of stockholders of General Finance or any of its subsidiaries; |
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| • | forming, joining or participating in, or otherwise encouraging the formation of, any “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) with respect to any securities that are not equity securities and debt securities of General Finance or any of its subsidiaries; |
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| • | arranging, facilitating, or in any way participating, directly or indirectly, in any financing for the purchase of any securities or assets of General Finance or any of its subsidiaries that are not equity securities and debt securities of General Finance or any of its subsidiaries; or |
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| • | acting, directly or indirectly, to seek control or direct the board of directors, stockholders, policies or affairs of General Finance or any of its subsidiaries; soliciting, proposing, seeking to effect or negotiating with any other person with respect to any form of business combination transaction involving General Finance or other extraordinary transaction involving General Finance or any of its subsidiaries; or disclosing an intent, purpose, plan or proposal with respect to General Finance, or any securities or assets of General Finance or any of its subsidiaries that are not equity securities (other than the preferred stock of General Finance and common stock of General Finance issued upon conversion thereof) and debt securities of General Finance or any of its subsidiaries. |
Registration Rights
Shelf Registration Statement. General Finance shall use all commercially reasonable efforts to file a registration statement under the U.S. Securities Act of 1933, as amended, or Securities Act, no later than June 30, 2009 to enable the resale of such registrable securities on a delayed or continuous basis.
Required Registrations. At any time after the date, if any, that (x) General Finance is not permitted to file or maintain aForm S-3 in connection with the shelf registration in accordance with the terms of the stockholders agreement or (y) the registration statement expired in accordance with the terms of the stockholders agreement and not all registrable securities registered in such shelf registration have been sold, D. E. Shaw, Mr. Havner and Mr. Valenta shall each have the right to request General Finance to effect a registration under the Securities Act of registrable securities held by such stockholders. General Finance shall not be required to comply with more than one such demand request during any 12 month period and shall only be obligated to comply with three demand requests in total. If a managing underwriter engaged in connection with such registration concludes that the amount of securities requested to be included in such registration statement would adversely affect the public offering and sale of such securities, then the securities to be included in such registration may be reduced, provided that the securities proposed to be sold by General Finance will be reduced before the shares sought to be registered by the selling stockholders shall be reduced.
Incidental Registration. If, at any time after the first anniversary of the completion of the Merger, General Finance proposes to register any of its securities under the Securities Act for sale to the public, any party to the stockholders agreement shall have the right at each such time to include registrable securities held by it that are not otherwise covered by the shelf registration statement or a required registration statement in such registration statement subject to any underwriters’ customary cut back.
Distribution Black-Out Period. Subject to certain exceptions and limitations if the board of directors of General Finance reasonably determines that the registration and distribution of registrable securities (i) would reasonably be expected to impede, delay or interfere with, or require premature disclosure of, any material financing, offering, acquisition, merger, corporate reorganization, segment reclassification or discontinuation of operations, or other significant transaction or any negotiations, discussions or pending proposals with respect thereto, involving the General Finance or any of its subsidiaries or (ii) would require disclosure of non-public material information, the disclosure of which would reasonably be expected to adversely affect General Finance, General Finance shall be entitled to postpone the filing or effectiveness or suspend the effectiveness of a registration statementand/or the use of any prospectus for a period of time not to exceed 120 days. General Finance shall promptly give the stockholders party to the stockholders agreement written notice of such postponement or suspension (which notice need not specify the nature of the event giving rise to such suspension); provided, that General Finance shall not utilize this deferral right more than once in any 12 month period.
Registration Expenses. General Finance will pay all registration expenses in connection with each registration of securities pursuant to the stockholders agreement, including, without limitation, any such registration not effected by General Finance. General Finance shall not be required, however, to reimburse the counsel of the MOAC stockholders for legal fees and expenses in excess of $50,000.
Holdback Agreements. The MOAC stockholders party to the stockholders agreement (and General Finance and its executive officers if requested by the underwriters) shall not sell, make any short sale of, grant any option for the purchase of, or otherwise dispose of any securities, other than those securities included in a registration
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described above for the seven days prior to and the 90 days after the effectiveness of the registration statement pursuant to which such offering shall be made (or such longer periods as may be advised by the underwriter).
Board of Directors of General Finance
Composition. At the effective time, General Finance shall expand the size of the Board of Directors of General Finance so that the number of members on the Board of Directors of General Finance is equal to six.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2008 and the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended March 31, 2008 and the year ended June 30, 2007 give effect to the business combination and certain other transactions and are based upon:
(a) the historical consolidated financial statements of Pac-Van included in this proxy statement:
(b) our unaudited pro forma condensed combined balance sheet combines our historical unauditedconsolidated balance sheet as of March 31, 20072008, which is included in our historical consolidated financial statements incorporated by reference into this proxy statement; and the historical unaudited balance sheet of Royal Wolf as of March 31, 2007, giving effect to the acquisition as if it had occurred on March 31, 2007.
The following(c) the unaudited pro forma condensed combined statements of operations combine (i) the historical unaudited statements of operations of us and Royal Wolf for the threenine months ended March 31, 2008 and the year ended June 30, 2007, givingwhich are included in this proxy statement (see “Unaudited Pro Forma Condensed Combined Financial Statements of General Finance Corporation and Royal Wolf”)
The Unaudited Pro Forma Condensed Combined Statements of Operations gives effect to the acquisitionbusiness combination as if it had occurred on January 1, 2007, and (ii) the historical audited statementsfirst day of operations of usthe period and the unaudited statements of operations of Royal Wolf for the twelve months ended December 31, 2006, givingUnaudited Pro Forma Condensed Combined Balance Sheet gives effect to the acquisitionbusiness combination as if it had occurred on January 1, 2006.the date of such balance sheet. The unaudited statements of operations of Royal WolfPac-Van for the twelve monthsyear ended December 31, 2006June 30, 2007 were derived by combining the results for the six-month period from JanuaryJuly 1, 2006 to December 31, 2006 with the six-month period from January 1, 2007 to June 30, 20062007, and the unaudited statements of operations of Pac-Van for the nine months ended March 31, 2008 were derived by combining the results for the six-month period from July 1, 2007 to December 31, 2007 with the three-month period from January 1, 2008 to March 31, 2008; asPac-Van’s fiscal year end is December 31.
The Unaudited Pro Forma Condensed Combined Financial Statements do not purport to represent what our actual consolidated results of operations or the consolidated financial position would have been had the business combination with Pac-Van occurred on the respective dates assumed, nor are they necessarily indicative of our future consolidated operating results or the future consolidated financial position.
The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with our audited consolidated financial statements and the accompanying notes, the unaudited condensed consolidated financial statements and the accompanying notes incorporated by reference into this proxy statement and the separate historical consolidated financial statements and accompanying notes of Pac-Van included in this proxy statement. See “Where You Can Find More Information”.
We intend to account for the business combination as a purchase of Pac-Van in accordance with generally accepted accounting principles in the United States. Pac-Van will be treated as the acquired entity for such purposes. Accordingly, the aggregate fair value of the consideration paid by us will be allocated toPac-Van’s assets based on their fair values as of the completion of the business combination. The difference between the fair value ofPac-Van’s identifiable tangible and intangible assets, liabilities and other items and the aggregate fair value of the consideration paid will be recorded as goodwill. The results of operations of Pac-Van will be included in our consolidated results of operations only for periods subsequent to the completion of the business combination.
Purchase Accounting Adjustments
Purchase accounting adjustments include adjustments necessary to allocate the purchase price to the identifiable tangible and intangible assets and liabilities of Pac-Van based on their estimated fair values. A description of each of these purchase accounting adjustments follows:
Fair Market Value Adjustments: The pro forma financial statements reflect the purchase price allocation based on a preliminary assessment of fair market values and lives assigned to the assets, liabilities and other items being acquired. Fair market values in the pro forma financial statements were determined by preliminary discussions with independent valuation consultants and upon available information and assumptions that we believe are reasonable. After the closing of the business combination, we will complete the evaluation of the fair values of assets and liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,Business Combinations,with the assistance of the independent valuation
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consultants. Fair market value adjustments reflected in the pro forma financial statements may be subject to significant revisions and adjustments pending finalization of those valuation studies.
Transaction Costs: We estimate that we will incur approximately $1.0 million of transaction costs, consisting primarily of financial advisory, legal and accounting fees, financing costs and financial printing and other charges related to the purchase of Pac-Van. A portion of these transaction costs will be recorded as deferred charges on the unaudited pro forma condensed combined balance sheet and a portion will be recorded as part of the cost to purchase Pac-Van. These estimates are preliminary and, therefore, are subject to change.
Purchase Price Allocation: The purchase consideration was determined based on the fair value (market price at the balance sheet date) of our shares of common stock to be issued upon the closing of the transaction, cash consideration to be paid to the stockholders of Pac-Van, the issuance of the Note (that bears interest at 8.0%), the long-term debt to be assumed (which would include borrowings under the Credit Facility for the satisfaction of the warrant obligation to SPV Capital Funds, L.L.C. and of vested stock options) and the transaction costs we estimate to incur in connection with the business combination. The following table summarizes the estimated purchase consideration (dollars in thousands):
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| Cash consideration paid | | $ | 20,300 | |
| Fair value of our shares of common stock issued | | | 28,280 | (1) |
| Issuance of the Note | | | 1,500 | |
| Assumption of long-term debt: | | | | |
| Credit Facility | | | 82,000 | |
| Subordinated Debt | | | 25,000 | |
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| Total purchase value | | $ | 157,080 | |
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| (1) | | Represents 4,000,000 of our shares of common stock at $7.07 per share at March 31, 2008 |
The following table summarizes the pro forma net assets acquired and liabilities assumed in connection with the business combination and the preliminary allocation of the purchase consideration at March 31, 2008 (dollars in thousands):
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| Current assets | | $ | 14,523 | |
| Rental inventory and fleet | | | 98,238 | |
| Property plant and equipment | | | 2,151 | |
| Other assets, including intangibles | | | 8,668 | |
| Goodwill | | | 64,066 | |
| Current and other liabilities (not including the Note issued and long-term debt assumed) | | | (30,566 | ) |
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| Total purchase consideration | | $ | 157,080 | |
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Income Taxes: Upon completion of the business combination, we will evaluate whether there is any adjustment necessary to deferred taxes. Any such adjustment would be recorded as an offset to goodwill. Due to the change in ownership upon completion of the business combination, the annual usage of any attributes that were generated prior to the business combination may be substantially limited.
Reclassification: The historical financial statements of Pac-Van reflect reclassifications of certain balances in order to conform to our financial statement presentation.
Warrant Exercise Program: We offered the holders of all of our outstanding, publicly-traded warrants and the privately-placed warrants issued to two executive officers (one of whom is also a director) the opportunity to exercise those warrants for a limited time at a reduced exercise price of $5.10 per warrant. Proceeds totaling approximately $21,100,000 received under this warrant exercise program completed on May 30, 2008 have been reflected in the pro forma financial statements since the proceeds will be required to pay the cash consideration to the Pac-Van stockholders.
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Unaudited Pro Forma Condensed Combined Balance Sheet
At March 31, 2008
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| | | General Finance | | | Pac-Van | | | Adjustments | | | Combined | |
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| |
ASSETS |
| Current assets: | | | | | | | | | | | | | | | | |
| Cash and equivalents | | $ | 1,169 | | | $ | 343 | | | $ | — | | | $ | 1,512 | |
| Trade and other receivables | | | 20,088 | | | | 10,565 | | | | — | | | | 30,653 | |
| Inventories | | | 20,660 | | | | 3,615 | | | | | | | | 24,275 | |
| Other current assets | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total current assets | | | 41,917 | | | | 14,523 | | | | | | | | 56,440 | |
| Lease fleet, net | | | 71,986 | | | | 97,158 | | | | 1,080 | (d) | | | 170,224 | |
| Property and equipment, net | | | 4,616 | | | | 2,151 | | | | — | | | | 6,767 | |
| Goodwill and intangible assets, net | | | 59,821 | | | | 41,909 | | | | 5,700 | (d) | | | 131,991 | |
| | | | | | | | | | | | 24,561 | (e) | | | | |
| Other assets | | | 1,642 | | | | 564 | | | | — | | | | 2,206 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 179,982 | | | $ | 156,305 | | | $ | 31,341 | | | $ | 367,628 | |
| | | | | | | | | | | | | | | | | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Trade payables and accruals | | $ | 19,845 | | | $ | 7,700 | | | $ | 700 | (d) | | $ | 28,245 | |
| Current portion of long-term debt and obligations | | | 9,079 | | | | — | | | | — | | | | 9,079 | |
| Other current liabilities | | | 1,235 | | | | 6,773 | | | | — | | | | 8,008 | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 30,159 | | | | 14,473 | | | | 700 | | | | 45,332 | |
| | | | | | | | | | | | | | | | | |
| Long-term debt and obligations, net of current portion | | | 70,968 | | | | 97,538 | | | | (21,102 | )(a) | | | 178,666 | |
| | | | | | | | | | | | 20,300 | (c) | | | | |
| | | | | | | | | | | | 1,500 | (c) | | | | |
| | | | | | | | | | | | 9,462 | (c) | | | | |
| Other long term liabilities and deferred credits | | | 1,238 | | | | 15,393 | | | | — | | | | 16,631 | |
| | | | | | | | | | | | | | | | | |
| Total long term liabilities | | | 72,206 | | | | 112,931 | | | | 10,160 | | | | 195,297 | |
| | | | | | | | | | | | | | | | | |
| Minority interest | | | 8,762 | | | | — | | | | — | | | | 8,762 | |
| Stockholders’ equity: | | | | | | | | | | | | | | | | |
| Common stock | | | 1 | | | | — | | | | — | | | | 1 | |
| Additional paid-in capital | | | 60,344 | | | | 22,680 | | | | 21,102 | (a) | | | 109,726 | |
| | | | | | | | | | | | (22,680 | (b) | | | | |
| | | | | | | | | | | | 28,280 | (c) | | | | |
| Accumulated other comprehensive income | | | 3,808 | | | | — | | | | — | | | | 3,808 | |
| Retained earnings | | | 4,702 | | | | 6,221 | | | | (6,221 | )(b) | | | 4,702 | |
| | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 68,855 | | | | 28,901 | | | | 20,481 | | | | 118,237 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 179,982 | | | $ | 156,305 | | | $ | 31,341 | | | $ | 367,628 | |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
60
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended March 31, 2008
| | | | | | | | | | | | | | | | | |
| | | Pro Forma
| | | | | | | | | | |
| | | General
| | | | | | Pro Forma
| | | Pro Forma
| |
| | | Finance | | | Pac-Van | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
Revenues | | $ | 78,760 | | | $ | 52,066 | | | $ | — | | | $ | 130,826 | |
| | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | 47,223 | | | | 10,451 | | | | — | | | | 57,674 | |
| Leasing, selling and general expenses | | | 17,864 | | | | 25,417 | | | | — | | | | 43,281 | |
| Depreciation and amortization | | | 5,949 | | | | 3,661 | | | | 439 | (b) | | | 10,155 | |
| | | | | | | | | | | | 106 | (c) | | | | |
| | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 7,724 | | | | 12,537 | | | | (545 | ) | | | 19,716 | |
| Interest income | | | 440 | | | | — | | | | — | | | | 440 | |
| Interest expense | | | (5,788 | ) | | | (6,894 | ) | | | (659 | )(a) | | | (13,385 | ) |
| | | | | | | | | | | | (44 | )(d) | | | | |
| Other, net | | | 2,091 | | | | — | | | | — | | | | 2,091 | |
| | | | | | | | | | | | | | | | | |
| | | | (3,257 | ) | | | (6,894 | ) | | | (703 | ) | | | (10,854 | ) |
| | | | | | | | | | | | | | | | | |
Income before provision for income taxes and minority interest | | | 4,467 | | | | 5,643 | | | | (1,248 | ) | | | 8,862 | |
| Provision (credit) for income taxes | | | 1,281 | | | | 2,582 | | | | (281 | )(e) | | | 3,582 | |
| Minority interest | | | 286 | | | | — | | | | — | | | | 286 | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 2,900 | | | $ | 3,061 | | | $ | (967 | ) | | $ | 4,994 | |
| | | | | | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | 0.28 | |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | 0.26 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 17,826,052 | (f) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 19,219,652 | (f) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
61
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended June 30, 2007
| | | | | | | | | | | | | | | | | |
| | | Pro Forma
| | | | | | | | | | |
| | | General
| | | | | | Pro Forma
| | | Pro Forma
| |
| | | Finance | | | Pac-Van | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
Revenues | | $ | 74,412 | | | $ | 65,856 | | | $ | — | | | $ | 140,268 | |
| | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | 46,402 | | | | 16,156 | | | | — | | | | 62,558 | |
| Leasing, selling and general expenses | | | 22,178 | | | | 31,662 | | | | — | | | | 53,840 | |
| Depreciation and amortization | | | 6,558 | | | | 4,355 | | | | 586 | (b) | | | 11,557 | |
| | | | | | | | | | | | 58 | (c) | | | | |
| | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (726 | ) | | | 13,683 | | | | (644 | ) | | | 12,313 | |
| Interest income | | | 585 | | | | — | | | | — | | | | 585 | |
| Interest expense | | | (7,651 | ) | | | (7,282 | ) | | | (2,871 | )(a) | | | (17,853 | ) |
| | | | | | | | | | | | (49 | )(d) | | | | |
| Other, net | | | 88 | | | | — | | | | — | | | | 88 | |
| | | | | | | | | | | | | | | | | |
| | | | (6,978 | ) | | | (7,282 | ) | | | (2,920 | ) | | | (17,180 | ) |
| | | | | | | | | | | | | | | | | |
Income (loss) before provision for income taxes and minority interest | | | (7,704 | ) | | | 6,401 | | | | (3,564 | ) | | | (4,867 | ) |
| Provision (credit) for income taxes | | | (2,890 | ) | | | 2,550 | | | | (913 | )(e) | | | (1,253 | ) |
| Minority interest | | | (803 | ) | | | — | | | | — | | | | (803 | ) |
| | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (4,011 | ) | | $ | 3,851 | | | $ | (2,651 | ) | | $ | (2,811 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.16 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.16 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 17,826,052 | (f) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 17,826,052 | (f) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements.
62
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(In thousands, except per share data)
Adjustments included in the column under the heading “Pro Forma Adjustments” are the following:
Pro Forma Condensed Combined Balance Sheet
(a) To record the proceeds received of $21,102 under our warrant exercise program completed on May 30, 2008;
(b) To eliminatePac-Van’s equity accounts;
(c) To record payment of purchase consideration consisting of cash, issuance of our common stock and the Note, and the assumption of long-term debt;
(d) To record purchase consideration allocation toPac-Van’s identifiable tangible and intangible (including transaction costs) assets and liabilities (not including the Note issued and long-term debt assumed) acquired based on preliminary discussions with independent valuation consultants and upon available information and assumptions that we believe are reasonable; and
(e) To record goodwill as a result of the estimated purchase price allocation in accordance with the purchase method of accounting.
Pro Forma Condensed Combined Statements of Operations
(a) To adjust interest expense from the beginning of the period on the revised Credit Facility, Subordinated Debt and the Note;
(b) To reflect the amortization from the beginning of the period of the trademark and customer base acquired;
(c) To reflect the additional depreciation from the beginning of the period of the fixed assets acquired;
(d) To reflect the amortization from the beginning of the period of the deferred financing costs incurred;
(e) To adjust the provision for income taxes based on (a) to (d) above at an estimated effective rate of 40%; and
(f) Weighted average shares outstanding are comprised of the following:
| | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended
| | | For the Year Ended
| |
| | | March 31, 2008 | | | June 30, 2007 | |
| | | Basic | | | Diluted | | | Basic | | | Diluted | |
| |
| Common stock assumed outstanding at beginning of period | | | 9,690,099 | | | | 9,690,099 | | | | 9,690,099 | | | | 9,690,099 | |
| Common stock issued in connection with warrant exercise program | | | 4,135,953 | | | | 4,135,953 | | | | 4,135,953 | | | | 4,135,953 | |
| Common stock issued in connection with the business combination | | | 4,000,000 | | | | 4,000,000 | | | | 4,000,000 | | | | 4,000,000 | |
| Assumed exercise of warrants and stock options | | | — | | | | 1,393,600 | | | | — | | | | — | (1) |
| | | | | | | | | | | | | | | | | |
| | | | 17,826,052 | | | | 19,219,652 | | | | 17,826,052 | | | | 17,826,052 | |
| | | | | | | | | | | | | | | | | |
| | |
| (1) | | As a result of the net loss reflected in the unaudited pro forma condensed combined statement of operations for the year ended June 30, 2007, basic and diluted shares used are the same. |
63
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
GENERAL FINANCE CORPORATION AND ROYAL WOLF
The following unaudited pro forma condensed statements of operations combine (i) the historical unaudited consolidated statements of operations of us and Royal Wolf for the nine months ended March 31, 2008, giving effect to our acquisition of them as if it had occurred on July 1, 2007, and (ii) the historical consolidated statements of operations of us and Royal Wolf for the fiscal year ended June 30, 2007, giving effect to our acquisition of them as if it had occurred on July 1, 2006. In September 2007, we changed our fiscal year to June 30 from December 31 and a transition report onForm 10-K with respect to the six months ended June 30, 2007 was filed in November 2007. As a result, our unaudited statement of operations for the year ended June 30, 2007 was derived by combining the results for the audited six-month period from January 1, 2007 to June 30, 2007 with the unaudited results for the period from July 1, 2006 to December 31, 2006, as Royal Wolf’s fiscal year end is June 30. In addition, all unaudited pro forma condensed combined financial information presented for Royal Wolf has been adjusted to conform with U.S. GAAP and converted into U.S. dollars at the average exchange rate during the periods in the pro forma income statements and at the exchange rate at March 31, 2007 for the pro forma balance sheets. The conversion using these historical exchange rates would result in different U.S. dollar amounts from those appearing elsewhere in this proxy statement due to the more current exchange rate used elsewhere in this proxy statement.
2006. The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition, are factually supportable and in the case of the pro forma income statements, have a recurring impact.
The following information should be read in conjunction with the pro forma condensed combined financial statements:
| | |
| • | Accompanying notes to the unaudited pro forma condensed combined statements; |
|
| • | Separate historical financial statements of Royal Wolf for the periods ended December 31, 2006 and June 30, 2006 included elsewhere in this proxy statement; and |
|
| • | Our separate historical financial statements for the quarter ended March 31, 2007 and the year ended December 31, 2006, which are not included in this proxy statement but can be obtained as described in the section “Where You Can Find More Information.” |
The unaudited pro forma condensed combined balance sheet at March 31, 2007 and unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2007 and for the twelve months ended December 31, 2006 have been prepared using two different levels of approval of the acquisition by our stockholders, as follows:
| | |
| • | Assuming No Conversions: This presentation assumes none of our stockholders exercises their conversion rights; and |
|
| • | Assuming Maximum Conversions: This presentation assumes that 19.99% of our stockholders exercise their conversion rights. |
This information to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of the combined company.
The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. Under the purchase method of accounting, the total purchase price will be allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. We will determine the estimated fair values of assets and liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,Business Combinations,with the assistance of third party valuation specialists. As none of the work has commenced at this time, management has determined to allocate all of such adjustments to “goodwill and intangible assets”. The final allocation of the purchase price may result in a reclassification from “goodwill and intangible assets” to specific amortizable assets, which may result in a significant non-cash increase in operating expenses.
73
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2007
Assuming No Conversions
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands except share data) | |
| |
ASSETS |
| Current assets: | | | | | | | | | | | | | | | | |
| Cash | | $ | 155 | | | $ | 539 | | | $ | 68,081 | (a) | | $ | 24,605 | |
| | | | | | | | | | | | (42,790 | )(b) | | | | |
| | | | | | | | | | | | (1,380 | )(b) | | | | |
| Cash held in trust account | | | 68,081 | | | | — | | | | (68,081 | )(a) | | | — | |
| Other current assets | | | — | | | | 16,783 | | | | — | | | | 16,783 | |
| | | | | | | | | | | | | | | | | |
| Total current assets | | | 68,236 | | | | 17,322 | | | | (44,170 | ) | | | 41,388 | |
| Property and equipment, net | | | 3 | | | | 43,794 | | | | — | | | | 43,797 | |
| Goodwill and intangible assets, net | | | — | | | | 3,840 | | | | 2,424 | (b) | | | 53,308 | |
| | | | | | | | | | | | 877 | (b) | | | | |
| | | | | | | | | | | | 46,167 | (b) | | | | |
| Other assets | | | 1,486 | | | | 566 | | | | (1,005 | )(b) | | | 1,047 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 69,725 | | | $ | 65,522 | | | $ | 4,293 | | | $ | 139,540 | |
| | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Trade accounts payable | | $ | 632 | | | $ | 12,426 | | | $ | — | | | $ | 13,058 | |
| Accrued and other current liabilities | | | 3,836 | | | | 8,717 | | | | 877 | (b) | | | 5,250 | |
| | | | | | | | | | | | (1,380 | )(b) | | | | |
| | | | | | | | | | | | (7,143 | )(b) | | | | |
| | | | | | | | | | | | 343 | (c) | | | | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 4,468 | | | | 21,143 | | | | (7,303 | ) | | | 18,308 | |
| | | | | | | | | | | | | | | | | |
| Long term liabilities: | | | | | | | | | | | | | | | | |
| Notes payable | | | — | | | | 32,635 | | | | 20,356 | (b) | | | 52,991 | |
| Other long term liabilities | | | — | | | | 1,641 | | | | — | | | | 1,641 | |
| | | | | | | | | | | | | | | | | |
| Total long term liabilities | | | — | | | | 34,276 | | | | 20,356 | | | | 54,632 | |
| | | | | | | | | | | | | | | | | |
| Common stock subject to possible conversion, 1,724,138 shares at conversion value | | | 13,241 | | | | — | | | | (13,241 | )(b) | | | — | |
| | | | | | | | | | | | | | | | | |
| Minority interest | | | — | | | | — | | | | 6,932 | (b) | | | 6,932 | |
| Stockholders’ equity: | | | | | | | | | | | | | | | | |
| Common stock | | | 1 | | | | 12,344 | | | | (12,344 | )(b) | | | 1 | |
| Retained earnings | | | 273 | | | | (2,241 | ) | | | 2,241 | (b) | | | 1,090 | |
| | | | | | | | | | | | 817 | (b) | | | | |
| Additional paid-in capital | | | 51,742 | | | | — | | | | (6,932 | )(b) | | | 58,577 | |
| | | | | | | | | | | | 13,241 | (b) | | | | |
| | | | | | | | | | | | 526 | (b) | | | | |
| | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 52,016 | | | | 10,103 | | | | (2,451 | ) | | | 59,668 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 69,725 | | | $ | 65,522 | | | $ | 4,293 | | | $ | 139,540 | |
| | | | | | | | | | | | | | | | | |
SeeThe following information should be read together with the audited consolidated financial statements and the accompanying notes; and the unaudited condensed consolidated financial statements and the accompanying notes toincorporated by reference into this proxy statement. The unaudited pro forma condensedinformation is not necessarily indicative of results of operations that may have actually occurred had the business combination taken place on the dates noted, or the future operating results of the combined financial statementscompany.
7464
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended March 31, 2007
Assuming Maximum Conversions2008
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands except share data) | |
| |
ASSETS |
| Current assets: | | | | | | | | | | | | | | | | |
| Cash | | $ | 155 | | | $ | 539 | | | $ | 68,081 | (a) | | $ | 11,364 | |
| | | | | | | | | | | | (42,790 | )(b) | | | | |
| | | | | | | | | | | | (1,380 | )(b) | | | | |
| | | | | | | | | | | | (13,241 | )(b) | | | | |
| Cash held in trust account | | | 68,081 | | | | — | | | | (68,081 | )(a) | | | — | |
| Other current assets | | | — | | | | 16,783 | | | | — | | | | 16,783 | |
| | | | | | | | | | | | | | | | | |
| Total current assets | | | 68,236 | | | | 17,322 | | | | (57,411 | ) | | | 28,147 | |
| Property and equipment, net | | | 3 | | | | 43,794 | | | | — | | | | 43,797 | |
| Goodwill and intangible assets, net | | | — | | | | 3,840 | | | | 2,424 | (b) | | | 53,308 | |
| | | | | | | | | | | | 877 | (b) | | | | |
| | | | | | | | | | | | 46,167 | (b) | | | | |
| Other assets | | | 1,486 | | | | 566 | | | | (1,005 | )(b) | | | 1,047 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 69,725 | | | $ | 65,522 | | | $ | (8,948 | ) | | $ | 126,299 | |
| | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Trade accounts payable | | $ | 632 | | | $ | 12,426 | | | $ | — | | | $ | 13,058 | |
| Accrued and other current liabilities | | | 3,836 | | | | 8,717 | | | | 877 | (b) | | | 5,250 | |
| | | | | | | | | | | | (1,380 | )(b) | | | | |
| | | | | | | | | | | | (7,143 | )(b) | | | | |
| | | | | | | | | | | | 343 | (c) | | | | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 4,468 | | | | 21,143 | | | | (7,303 | ) | | | 18,308 | |
| | | | | | | | | | | | | | | | | |
| Long term liabilities: | | | | | | | | | | | | | | | | |
| Notes payable | | | — | | | | 32,635 | | | | 20,356 | (b) | | | 52,991 | |
| Other long term liabilities | | | — | | | | 1,641 | | | | — | | | | 1,641 | |
| | | | | | | | | | | | | | | | | |
| Total long term liabilities | | | — | | | | 34,276 | | | | 20,356 | | | | 54,632 | |
| | | | | | | | | | | | | | | | | |
| Common stock subject to possible conversion, 1,724,138 shares at conversion value | | | 13,241 | | | | — | | | | (13,241 | )(b) | | | — | |
| | | | | | | | | | | | | | | | | |
| Minority interest | | | — | | | | — | | | | 6,932 | (b) | | | 6,932 | |
| Stockholders’ equity: | | | | | | | | | | | | | | | | |
| Common stock | | | 1 | | | | 12,344 | | | | (12,344 | )(b) | | | 1 | |
| Retained earnings | | | 273 | | | | (2,241 | ) | | | 2,241 | (b) | | | 1,090 | |
| | | | | | | | | | | | 817 | (b) | | | | |
| Additional paid-in capital | | | 51,742 | | | | — | | | | (6,932 | )(b) | | | 45,336 | |
| | | | | | | | | | | | 526 | (b) | | | | |
| | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 52,016 | | | | 10,103 | | | | (15,692 | ) | | | 46,427 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 69,725 | | | $ | 65,522 | | | $ | (8,948 | ) | | $ | 126,299 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | General
| | | | | | Pro Forma
| | | Pro Forma
| |
| | | Finance | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
Revenues | | $ | — | | | $ | 78,760 | | | $ | — | | | $ | 78,760 | |
| | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 47,223 | | | | — | | | | 47,223 | |
| Leasing, selling and general expenses | | | 1,625 | | | | 16,180 | | | | 59 | (h) | | | 17,864 | |
| Depreciation and amortization | | | 4 | | | | 5,483 | | | | 65 | (b) | | | 5,949 | |
| | | | | | | | | | | | 355 | (c) | | | | |
| | | | | | | | | | | | 42 | (d) | | | | |
| | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (1,629 | ) | | | 9,874 | | | | (521 | ) | | | 7,724 | |
| Interest income | | | 963 | | | | 245 | | | | (768 | )(f) | | | 440 | |
| Interest expense | | | (45 | ) | | | (5,287 | ) | | | (341 | )(a) | | | (5,788 | ) |
| | | | | | | | | | | | (32 | )(e) | | | | |
| | | | | | | | | | | | (83 | )(g) | | | | |
| Other, net | | | 1,682 | | | | 409 | | | | — | | | | 2,091 | |
| | | | | | | | | | | | | | | | | |
| | | | 2,600 | | | | (4,633 | ) | | | (1,224 | ) | | | (3,257 | ) |
| | | | | | | | | | | | | | | | | |
Income before provision for income taxes and minority interest | | | 971 | | | | 5,241 | | | | (1,745 | ) | | | 4,467 | |
| Provision (credit) for income taxes | | | (370 | ) | | | 2,387 | | | | (736 | )(i) | | | 1,281 | |
| Minority interest | | | 354 | | | | — | | | | (68 | )(j) | | | 286 | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 987 | | | $ | 2,854 | | | $ | (941 | ) | | $ | 2,900 | |
| | | | | | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | 0.29 | |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | 0.26 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 9,690,100 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 11,083,700 | (k) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
7565
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOMEUnaudited Pro Forma Condensed Combined Statement of Operations
Three MonthsYear Ended March 31,June 30, 2007
Assuming No Conversions
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
| Revenue | | $ | — | | | $ | 20,025 | | | $ | — | | | $ | 20,025 | |
| Cost of sales | | | — | | | | 12,808 | | | | — | | | | 12,808 | |
| | | | | | | | | | | | | | | | | |
| Gross margin | | | — | | | | 7,217 | | | | — | | | | 7,217 | |
| Operating expenses | | | 906 | | | | 4,645 | | | | (474 | )(h) | | | 5,077 | |
| Depreciation and amortization | | | — | | | | 1,069 | | | | 297 | (e) | | | 1,366 | |
| | | | | | | | | | | | | | | | | |
| Operating (loss)/income | | | (906 | ) | | | 1,503 | | | | 177 | | | | 774 | |
| Interest income | | | (661 | ) | | | — | | | | 360 | (g) | | | (301 | ) |
| Interest expense | | | 28 | | | | 1,034 | | | | 270 | (d) | | | 1,381 | |
| | | | | | | | | | | | 49 | (f) | | | | |
| Other expenses | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total other expenses/(income) | | | (633 | ) | | | 1,034 | | | | 679 | | | | 1,080 | |
| | | | | | | | | | | | | | | | | |
| Income/(loss) before provision for income taxes and minority interest | | | (273 | ) | | | 469 | | | | (502 | ) | | | (306 | ) |
| Provision/(credit) for income taxes | | | (93 | ) | | | 246 | | | | (146 | )(i) | | | 7 | |
| Minority interest | | | — | | | | — | | | | 43 | (j) | | | 43 | |
| | | | | | | | | | | | | | | | | |
| Net income/(loss) | | $ | (180 | ) | | $ | 223 | | | $ | (313 | ) | | $ | (270 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | General
| | | | | | Pro Forma
| | | Pro Forma
| |
| | | Finance | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
Revenues | | $ | — | | | $ | 74,412 | | | $ | — | | | $ | 74,412 | |
| | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 46,402 | | | | — | | | | 46,402 | |
| Leasing, selling and general expenses | | | 1,125 | | | | 20,761 | | | | 292 | (h) | | | 22,178 | |
| Depreciation and amortization | | | 1 | | | | 2,577 | | | | 1,467 | (b) | | | 6,558 | |
| | | | | | | | | | | | 2,031 | (c) | | | | |
| | | | | | | | | | | | 482 | (d) | | | | |
| | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (1,126 | ) | | | 4,672 | | | | (4,272 | ) | | | (726 | ) |
| Interest income | | | 2,646 | | | | 413 | | | | (2,474 | )(f) | | | 585 | |
| Interest expense | | | (93 | ) | | | (4,378 | ) | | | (2,639 | )(a) | | | (7,651 | ) |
| | | | | | | | | | | | (143 | )(e) | | | | |
| | | | | | | | | | | | (398 | )(g) | | | | |
| Other, net | | | (7 | ) | | | 95 | | | | — | | | | 88 | |
| | | | | | | | | | | | | | | | | |
| | | | 2,546 | | | | (3,870 | ) | | | (5,654 | ) | | | (6,978 | ) |
| | | | | | | | | | | | | | | | | |
Income (loss) before provision for income taxes and minority interest | | | 1,420 | | | | 802 | | | | (9,926 | ) | | | (7,704 | ) |
| Provision (credit) for income taxes | | | 565 | | | | 490 | | | | (3,945 | )(i) | | | (2,890 | ) |
| Minority interest | | | — | | | | — | | | | (803 | )(j) | | | (803 | ) |
| | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 855 | | | $ | 312 | | | $ | (5,178 | ) | | $ | (4,011 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.41 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.41 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 9,690,100 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 9,690,100 | (k) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statementsstatements.
7666
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Three Months Ended March 31, 2007
Assuming Maximum Conversions
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands, except share and per share data) | |
| |
| Revenue | | $ | — | | | $ | 20,025 | | | $ | — | | | $ | 20,025 | |
| Cost of sales | | | — | | | | 12,808 | | | | — | | | | 12,808 | |
| | | | | | | | | | | | | | | | | |
| Gross margin | | | — | | | | 7,217 | | | | — | | | | 7,217 | |
| Operating expenses | | | 906 | | | | 4,645 | | | | (474 | )(h) | | | 5,077 | |
| Depreciation and amortization | | | — | | | | 1,069 | | | | 297 | (e) | | | 1,366 | |
| | | | | | | | | | | | | | | | | |
| Operating (loss)/income | | | (906 | ) | | | 1,503 | | | | 177 | | | | 774 | |
| Interest income | | | (661 | ) | | | — | | | | 522 | (g) | | | (139 | ) |
| Interest expense | | | 28 | | | | 1,034 | | | | 270 | (d) | | | 1,381 | |
| | | | | | | | | | | | 49 | (f) | | | | |
| Other expenses | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total other expenses/(income) | | | (633 | ) | | | 1,034 | | | | 841 | | | | 1,242 | |
| | | | | | | | | | | | | | | | | |
| Income/(loss) before provision for income taxes and minority interest | | | (273 | ) | | | 469 | | | | (664 | ) | | | (468 | ) |
| Provision/(credit) for income taxes | | | (93 | ) | | | 246 | | | | (202 | )(i) | | | (49 | ) |
| Minority interest | | | — | | | | — | | | | 58 | (j) | | | 58 | |
| | | | | | | | | | | | | | | | | |
| Net income/(loss) | | $ | (180 | ) | | $ | 223 | | | $ | (404 | ) | | $ | (361 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | | | | | | | | | | | | |
See notesNotes to unaudited pro forma condensed combined financial statements
77
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Twelve Months Ended December 31, 2006
Assuming No Conversions
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands except share and per share data) | |
| |
| Revenue | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | |
| Cost of sales | | | — | | | | 36,782 | | | | — | | | | 36,782 | |
| | | | | | | | | | | | | | | | | |
| Gross margin | | | — | | | | 22,707 | | | | — | | | | 22,707 | |
| Operating expenses | | | 1,171 | | | | 17,751 | | | | (784 | )(h) | | | 18,138 | |
| Depreciation and amortization | | | — | | | | 3,151 | | | | 1,134 | (e) | | | 4,285 | |
| | | | | | | | | | | | | | | | | |
| Operating (loss)/income | | | (1,171 | ) | | | 1,805 | | | | (350 | ) | | | 284 | |
| Interest income | | | (1,889 | ) | | | — | | | | 672 | (g) | | | (1,217 | ) |
| Interest expense | | | 21 | | | | 3,292 | | | | 1,519 | (d) | | | 5,029 | |
| | | | | | | | | | | | 197 | (f) | | | | |
| Other expenses | | | — | | | | 39 | | | | — | | | | 39 | |
| | | | | | | | | | | | | | | | | |
| Total other expenses/(income) | | | (1,868 | ) | | | 3,331 | | | | 2,388 | | | | 3,851 | |
| | | | | | | | | | | | | | | | | |
| Income/(loss) before provision for income taxes and minority interest | | | 697 | | | | (1,526 | ) | | | (2,738 | ) | | | (3,567 | ) |
| Provision/(credit) for income taxes | | | 240 | | | | 709 | | | | (816 | )(j) | | | 133 | |
| Minority interest | | | — | | | | — | | | | 511 | (j) | | | 511 | |
| | | | | | | | | | | | | | | | | |
| Net income/(loss) | | $ | 457 | | | $ | (2,235 | ) | | $ | (1,411 | ) | | $ | (3,189 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.30 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.30 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
78
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Twelve Months Ended December 31, 2006
Assuming Maximum Conversions
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | Pro Forma
| |
| | | GFN | | | Royal Wolf | | | Adjustments | | | Combined | |
| | | (In thousands except share and per share data) | |
| |
| Revenue | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | |
| Cost of sales | | | — | | | | 36,782 | | | | — | | | | 36,782 | |
| | | | | | | | | | | | | | | | | |
| Gross margin | | | — | | | | 22,707 | | | | — | | | | 22,707 | |
| Operating expenses | | | 1,171 | | | | 17,751 | | | | (784 | )(h) | | | 18,138 | |
| Depreciation and amortization | | | — | | | | 3,151 | | | | 1,134 | (e) | | | 4,285 | |
| | | | | | | | | | | | | | | | | |
| Operating (loss)/income | | | (1,171 | ) | | | 1,805 | | | | (350 | ) | | | 284 | |
| Interest income | | | (1,889 | ) | | | — | | | | 1,317 | (g) | | | (572 | ) |
| Interest expense | | | 21 | | | | 3,292 | | | | 1,519 | (d) | | | 5,029 | |
| | | | | | | | | | | | 197 | (f) | | | | |
| Other expenses | | | — | | | | 39 | | | | — | | | | 39 | |
| | | | | | | | | | | | | | | | | |
| Total other expenses/(income) | | | (1,868 | ) | | | 3,331 | | | | 3,033 | | | | 4,496 | |
| | | | | | | | | | | | | | | | | |
| Income/(loss) before provision for income taxes and minority interest | | | 697 | | | | (1,526 | ) | | | (3,383 | ) | | | (4,212 | ) |
| Provision/(credit) for income taxes | | | 240 | | | | 709 | | | | (1,039 | )(i) | | | (90 | ) |
| Minority interest | | | — | | | | — | | | | 569 | (j) | | | 569 | |
| | | | | | | | | | | | | | | | | |
| Net income/(loss) | | $ | 457 | | | $ | (2,235 | ) | | $ | (1,775 | ) | | $ | (3,553 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | $ | (0.40 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | $ | (0.40 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
79
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTSUnaudited Pro Forma Condensed Combined Financial Statements
(Amounts inIn thousands, except per share data)
For purposes of these unaudited pro forma condensed combined financial statements, we have assumed the acquisition consideration at March 31, 2007 to be:
| | | | | |
| Acquisition consideration(1) | | $ | 104,179 | |
| Transaction costs | | | 2,489 | |
| | | | | |
| Total acquisition consideration | | $ | 106,668 | |
| | | | | |
| | |
(1) | | Assumes that the business combination closed in sixty days as of March 31, 2007 |
The total acquisition consideration will be satisfied as follows:
| | | | | |
| Cash from trust account | | $ | 42,790 | |
| Deposit paid to Royal Wolf sellers | | | 1,005 | |
| Contemplated financing: | | | | |
| Amended revolver | | | 37,357 | |
| Mezzanine financing (including 500,000 warrants with an estimated value of $526) | | | 16,160 | |
| | | | | |
| | | | 53,517 | |
| | | | | |
| Non-compete agreement | | | 2,424 | |
| Issuance of shares of capital stock resulting in minority interest of 13.8% | | | 6,932 | |
| | | | | |
| | | $ | 106,668 | |
| | | | | |
Adjustments included in the column under the heading “Pro Forma Adjustments” include adjustments:are the following:
(a) To recordadjust interest expense from the reclassificationbeginning of funds held in trust by Continental Stock Transfer & Trust Company;
the period on the amended ANZ secured credit facility and the Bison Note;
(b) Of $42,790 toTo reflect the cash payment portiontwo-year amortization from the beginning of the acquisition (net of $1,005 deposit paid); $1,380 to reflect the payment for deferred underwriters commission; $2,424 to reflect the contractual consideration payable for non-compete agreement that will be entered into with the sellers; $877 to reflect the estimated deferred financing costs; $13,213 ($7,143 reduction in the current portion and an increase of $20,356 in the long-term portion) to reflect the adjustment for the contemplated financing of a portionperiod of the acquisition consideration ($37,357 in a refinanced revolver, $15,634 in new mezzanine debt); $526 representing the estimated value of 500,000 warrants issued in connection with the mezzanine financing; $13,241 (i) assuming no conversions to reflect the increase in equity, and (ii) assuming maximum conversions to reflect the payment in cash to our converting stockholders; $12,344 to reflect the reclassification of Royal Wolf’s common stock to additional paid-in capital; $2,241 to reflect the elimination of Royal Wolf’s accumulated deficit; $817 to increase our retained earnings for direct costs of the acquisition incurred through March 31, 2007, which reflects the recapitalization of such costs by us as the accounting acquirer; $6,932 to record minority interest of 13.8%; and $46,167 to record goodwill and other intangibles under the purchase method of accounting;
non-compete agreement;
(c) To reflect the estimated direct costssix-to-ten year amortization from the beginning of the acquisition not recorded at March 31, 2007;period of the non-retail and retail customer lists acquired;
80
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS — (Continued)
(d) To adjust interest expense to 8.0% onreflect the amended revolver and 13.5% (plus amortizationadditional depreciation from the beginning of discount) on the mezzanine financing based uponperiod of the contemplated financing, as follows:
| | | | | | | | | | | | | | | | | |
| | | Three months ended
| | | Twelve months ended
| |
| | | March 31, 2007 | | | December 31, 2006 | |
| | | | | | Maximum
| | | | | | Maximum
| |
| | | No Conversions | | | Conversions | | | No Conversions | | | Conversions | |
| |
| Estimated interest on contemplated financing: | | | | | | | | | | | | | | | | |
| Amended revolver | | $ | 732 | | | $ | 732 | | | $ | 2,637 | | | $ | 2,637 | |
| Mezzanine financing | | | 557 | | | | 557 | | | | 2,119 | | | | 2,119 | |
| | | | | | | | | | | | | | | | | |
| | | | 1,289 | | | | 1,289 | | | | 4,756 | | | | 4,756 | |
| | | | | | | | | | | | | | | | | |
| Other interest — financing leases | | | 15 | | | | 15 | | | | 55 | | | | 55 | |
| | | | | | | | | | | | | | | | | |
| Estimated interest related to Royal Wolf | | | 1,304 | | | | 1,304 | | | | 4,811 | | | | 4,811 | |
| Interest expense recorded | | | 1,034 | | | | 1,034 | | | | 3,292 | | | | 3,292 | |
| | | | | | | | | | | | | | | | | |
| Pro forma adjustment | | $ | 270 | | | $ | 270 | | | $ | 1,519 | | | $ | 1,519 | |
| | | | | | | | | | | | | | | | | |
fixed assets acquired;
(e) To reflect five and one-half year amortization from the amortization over two yearsbeginning of the non-compete intangible asset;period of deferred financing costs incurred;
(f) To reflect amortization expense over five and one-half yearsadjust interest income from the beginning of the estimated deferred financing costs;period based on the reduction of cash in the trust account as a result of the acquisition;
(g) To adjustreflect withholding tax from the beginning of the period on intercompany interest income based on reduction of cash in trust after acquisition;
charged to Royal Wolf by us;
(h) To adjust operating expenses for our direct costsreflect contributed services from the beginning of the acquisition incurred during the period;
(i) To adjust the provision for income taxes based on adjustment of interest income, interest expense and amortization expense. However, no benefit has been recorded for any portion of goodwill that may be deductible for income tax purposes; and
(a) to (h) above;
(j) To recordadjust for the applicable minority interest effect at 13.8% of 13.8% on the combined statements of income;adjustments above; and
(k) Weighted average shares outstanding are comprised of the following:
| | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended
| | | For the Year Ended
| |
| | | March 31, 2008 | | | June 30, 2007 | |
| | | Basic | | | Diluted | | | Basic | | | Diluted | |
| |
| Common stock issued to initial stockholder | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | |
| Common stock issued in connection with the IPO | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | |
| Common stock issued in connection with underwriters’ over-allotment option | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | |
| Common stock converted to cash | | | (809,900 | ) | | | (809,900 | ) | | | (809,900 | ) | | | (809,900 | ) |
| Assumed exercise of warrants and stock options | | | — | | | | 1,393,600 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | 9,690,100 | | | | 11,083,700 | | | | 9,690,100 | | | | 9,690,100 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | For the three months ended
| | | For the twelve months ended
| |
| | | March 31, 2007 | | | December 31, 2006 | |
| | | | | | Maximum
| | | | | | Maximum
| |
| | | No Conversions | | | Conversions | | | No Conversions | | | Conversions | |
| |
| | | | | | | | | | | | | | | | | |
| Common stock issued to initial stockholder | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | |
| Common stock issued in connection with the IPO | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | |
| Common stock issued in connection with underwriters’ over-allotment option | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | |
| Common stock converted to cash | | | — | | | | (1,724,000 | ) | | | — | | | | (1,724,000 | ) |
| | | | | | | | | | | | | | | | | |
| | | | 10,500,000 | | | | 8,776,000 | | | | 10,500,000 | | | | 8,776,000 | |
| | | | | | | | | | | | | | | | | |
As a result of the net loss reflected in the unaudited pro forma condensed combined statement of operations for the year ended June 30, 2007, basic and diluted shares used are the same.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PAC-VAN
The disclosure under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Transitional Report onForm 10-K for the six months ended June 30, 2007 and in our Quarterly Report onForm 10-Q for the fiscal quarter ended March 31, 2008 is incorporated herein by reference. See “Where You Can Find More Information”.
Pac-Van was acquired (referred to in this discussion as the “Acquisition”) by MOAC on August 2, 2006 for $101.2 million, including $2.8 million in transaction costs. MOAC, which has applied “push down accounting” to its post-Acquisition consolidated financial statements to reflect the new basis of accounting, completed the acquisition of Pac-Van by borrowing $53.7 million under Pac-Van’s Credit Facility, issuing $25.0 million in Subordinated Debt and raising $22.5 million in equity. For more information, see Pac-Van’s consolidated financial statements and the related notes included elsewhere in this proxy statement.
All references in this discussion to events or activities which occurred prior to the completion of the Acquisition on August 2, 2006 relate to Pac-Van, as the predecessor company, or the Predecessor. All references in this discussion to events or activities which occurred after completion of the Acquisition on August 2, 2006 relate to the consolidated results of MOAC and Pac-Van, as the successor company, or the Successor. For purposes of the discussions below, we combined the results of operations of the Predecessor and Successor during the twelve months ended December 31, 2006 in order to achieve a meaningful comparison of Pac-Van’s results of operations during the periods indicated in 2005, 2006 and 2007.
Overview
Pac-Van leases and sells modular buildings, mobile offices, portable storage containers and related ancillary services in the United States. Pac-Van operates 26 branch locations across 17 states and has over 200 employees. The following is a description of its products:
Modular Buildings — Also known as manufactured buildings, modular buildings provide customers with additional space and are often tailored specifically to satisfy the unique needs of the customer. Depending on the customer’s desired application, modular buildings can range in size from 1,000 to more than 30,000 square feet and may be highly customized. Pac-Van currently has approximately 1,000 modular building units in their lease fleet.
Mobile Offices — Also known as trailers or construction trailers, mobile offices are re-locatable units with aluminum or wood exteriors on wood frames on a steel carriage fitted with axles, allowing for an assortment of “add-ons” to provide comfortable and convenient temporary space solutions. Pac-Van also offers Ground Level Offices (GLO), or office containers, which are converted shipping containers that are re-manufactured into mobile offices; and in-plant units, which are manufactured structures that provide self-contained office space with maximum design flexibility. Pac-Van currently has approximately 7,000 mobile office units in their lease fleet.
Storage Containers — Are generally used shipping containers that have been purchased and refurbished by Pac-Van. Storage containers provide a flexible, low cost alternative to warehousing, while offering greater security, convenience, and immediate accessibility. Most units are ventilated and secured with cam-locking doors and steel walls and roofs. Pac-Van also offers storage vans, also known as storage trailers or dock-height trailers. Pac-Van currently has approximately 4,000 storage container units in their lease fleet.
See also “Information About Pac-Van” on page 79.
Results of Operations
On August 2, 2006, MOAC acquired Pac-Van. The amounts shown below for the year ended December 31, 2006 represent a combination (“Combined”) of Pac-Van’s results of operations for the period from January 1, 2006 to August 1, 2006 before the Acquisition (the “Predecessor”) with the consolidated results of MOAC and Pac-Van for the period from August 2, 2006 to December 31, 2006 after the Acquisition (the “Successor”).
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Three Months Ended March 31, 2008 (“YTD 2008”) Compared to Three Months Ended March 31, 2007 (“YTD 2007”)
| | | | | | | | | |
| | | Successor | |
| | | Three Months Ended
| |
| | | March 31 | |
| | | 2007 | | | 2008 | |
| | | (In thousands) | |
| |
| Revenues | | | | | | | | |
| Sales of equipment | | $ | 4,648 | | | $ | 4,124 | |
| Leasing | | | 10,337 | | | | 11,996 | |
| | | | | | | | | |
| | | | 14,985 | | | | 16,120 | |
| | | | | | | | | |
| Costs and Expenses | | | | | | | | |
| Cost of sales | | | 3,047 | | | | 2,876 | |
| Leasing, selling and general expenses | | | 7,359 | | | | 8,548 | |
| Depreciation and amortization | | | 1,116 | | | | 1,126 | |
| | | | | | | | | |
| Income from operations | | | 3,463 | | | | 3,570 | |
| Interest expense | | | 2,001 | | | | 2,090 | |
| | | | | | | | | |
| Income before provision for income taxes | | | 1,462 | | | | 1,480 | |
| Provision for income taxes | | | 631 | | | | 585 | |
| | | | | | | | | |
| Net income | | $ | 831 | | | $ | 895 | |
| | | | | | | | | |
Sales of Equipment: For YTD 2008, sales of equipment totaled $4.1 million compared to $4.6 million during YTD 2007, representing a decrease of $0.5 million, or 10.9%. The YTD 2007 results included $0.5 million in revenue from one sale, one of Pac-Van’s largest, which was not repeated in YTD 2008.
Leasing Revenues: Leasing revenues for YTD 2008 amounted to $12.0 million compared to $10.3 million for the same period in YTD 2007 representing an increase of $1.7 million, or 16.5%. This was driven primarily by an increase in the average units on lease per month, which increased by 1,273 units, or 18.4%, as pricing for new leases dropped from YTD 2007 levels. The lease fleet increased from 8,992 units at March 31, 2007 to 11,273 units at March 31, 2008, an increase of 25.4%. However, average fleet utilization dropped from 81.8% in YTD 2007 to 77.9% in YTD 2008.
Cost of Sales: Cost of sales for YTD 2008 were $2.9 million compared to $3.0 million for the same period in 2007; resulting in a decrease of $0.1 million, or 3.3%, as result of lower volume. Gross margin percentage was 29.3% in YTD 2008 compared to 34.8% in YTD 2007. This decrease in the gross margin percentage was primarily due to a shift in the product mix sold.
Leasing, Selling and General Expenses: For YTD 2008, leasing, selling and general expenses were $8.5 million compared to $7.4 million for YTD 2007. This $1.1 million increase, or 14.9%, relates to the following factors: (i) an increase in delivery and transportation costs associated with increased leasing volume; (ii) an increase in staffing levels necessary to support Pac-Van’s growth; and (iii) an increase in facility costs related to branch expansion and increased utility and telecommunication costs.
Depreciation and Amortization: Depreciation and amortization for YTD 2008 and YTD 2007 was comparable at $1.1 million.
Interest expense: Interest expense for YTD 2008 was $2.1 million compared to $2.0 million for YTD 2007. The increase of $0.1 million is due to increased borrowings primarily to fund capital expenditures and one small acquisition in YTD 2008. However, the weighted-average interest rate dropped from 9.4% in YTD 2007 to 8.4% in YTD 2008.
Provision for Income Taxes: Income tax expense for YTD 2008 and YTD 2007 was $0.6 million, with an overall effective tax rate of 39.5% and 43.2%, respectively. The effective tax rate is above the federal statutory rate
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of 34.0% in each period presented primarily because of state income taxes and, in YTD 2007, Pac-Van incurred additional non-deductible expenses.
Net Income: Net income for YTD 2008 and YTD 2007 was comparable at approximately $0.9 million. Increased operating income in YTD 2008 as compared to YTD 2007 was offset by higher interest expense.
Year Ended December 31, 2007 (“2007”) Compared to Year Ended December 31, 2006 (“2006”)
| | | | | | | | | |
| | | Combined | | | Successor | |
| | | Year Ended
| |
| | | December 31, | |
| | | 2006 | | | 2007 | |
| | | (In thousands) | |
| |
| Revenues | | | | | | | | |
| Sales of equipment | | $ | 22,315 | | | $ | 20,220 | |
| Leasing | | | 39,875 | | | | 47,035 | |
| | | | | | | | | |
| | | | 62,190 | | | | 67,255 | |
| | | | | | | | | |
| Costs and Expenses | | | | | | | | |
| Cost of sales | | | 16,090 | | | | 13,647 | |
| Leasing, selling and general expenses | | | 30,755 | | | | 32,838 | |
| Depreciation and amortization | | | 3,348 | | | | 5,049 | |
| | | | | | | | | |
| Income from operations | | | 11,997 | | | | 15,721 | |
| Interest expense | | | 4,925 | | | | 8,425 | |
| | | | | | | | | |
| Income before provision for income taxes | | | 7,072 | | | | 7,296 | |
| Provision for income taxes | | | 2,788 | | | | 3,266 | |
| | | | | | | | | |
| Net income | | $ | 4,284 | | | $ | 4,030 | |
| | | | | | | | | |
Sales of Equipment: For 2007, sales of equipment totaled $20.2 million compared to $22.3 million in 2006, representing a decrease of $2.1 million, or 9.4%. In 2006, Pac-Van generated record sales on the strength of several large modular complexes. Although reduced from 2006, sales for 2007 exceeded all other prior years. In 2007, sales accounted for 30.1% of total revenues compared to 35.9% in 2006.
Leasing Revenues: Leasing revenues for 2007 were $47.0 million compared to $39.9 million for 2006, an increase of $7.1 million, or 17.8%. This was driven primarily by an increase in the average units on lease per month, which increased by 1,274 units, or 19.5%. The lease fleet increased from 8,640 units at December 31, 2006 to 10,998 units at December 31, 2007, an increase of 27.3%. Average fleet utilization dropped from 82.9% in 2006 to 81.5% in 2007. In 2007, leasing revenues accounted for 69.9% of total revenues compared to 64.1% in 2006.
Cost of Sales: Cost of sales was $13.6 million in 2007 compared to $16.1 million in 2006, representing a decrease of $2.5 million, or 15.5%. This drop reflects not only a lower volume, but better margins on individual transactions and a shift in the product mix sold. The gross sales margin percentage increased from 27.8% in 2006 to 32.7% in 2007.
Leasing, Selling and General Expenses: Leasing, selling and general expenses for 2007 were $32.8 million compared to $30.8 million in 2006, an increase of $2.0 million, or 6.5%. This increase is primarily due to the following factors: (i) an increase in delivery and transportation costs associated with increased leasing volume; (ii) an increase in personnel spending due to enhanced incentive compensation plans; (iii) an increase in marketing expenditures as Pac-Van increased its focus to internet and web-based marketing programs; and (iv) an increase in professional fees.
Depreciation and Amortization: Depreciation and amortization for 2007 was $5.0 million compared to $3.3 million in 2006, representing an increase of $1.7 million, or 51.5%. Approximately $0.7 million of the increase was as a result of Pac-Van’s investment of $23.8 million in its rental fleet during 2007; and $1.0 million was due to a
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full year of amortization in 2007 versus only five months in 2006 as a result of purchase allocation adjustments from the Acquisition.
Interest Expense: Interest expense for 2007 was $8.4 million compared to $4.9 million in 2006, an increase of $3.5 million, or 71.4%. The increase is primarily due to additional borrowings to finance capital expenditures and three very small acquisitions. The weighted-average interest rate increased from 9.0% in 2006 to 9.3% in 2007.
Provision for Income Taxes: Pac-Van’s income tax expense for 2007 was $3.3 million compared to $2.8 million for 2006, an increase of $.5 million, for an overall effective tax rate of 44.8% versus 39.4%, respectively. The effective tax rate is above the federal statutory rate of 34.0% in each period presented primarily because of state income taxes and, in 2007, Pac-Van incurred additional non-deductible expenses.
Net Income: Net income for 2007 of $4.0 million was $0.3 million lower than 2006 net income of $4.3 million. Increased operating income in 2007 as compared to 2006 was more than offset by significantly higher interest expense and income taxes.
Year Ended December 31, 2006 (“2006”) Compared to Year Ended December 31, 2005 (“2005”)
| | | | | | | | | |
| | | Predecessor | | | Combined | |
| | | Year Ended
| |
| | | December 31 | |
| | | 2005 | | | 2006 | |
| | | (In thousands) | |
| |
| Revenues | | | | | | | | |
| Sales of equipment | | $ | 18,848 | | | $ | 22,315 | |
| Leasing | | | 32,158 | | | | 39,875 | |
| | | | | | | | | |
| | | | 51,006 | | | | 62,190 | |
| | | | | | | | | |
| Costs and Expenses | | | | | | | | |
| Cost of sales | | | 13,832 | | | | 16,090 | |
| Leasing, selling and general expenses | | | 26,894 | | | | 30,755 | |
| Depreciation and amortization | | | 2,374 | | | | 3,348 | |
| | | | | | | | | |
| Income from operations | | | 7,906 | | | | 11,997 | |
| Interest expense | | | 2,672 | | | | 4,925 | |
| | | | | | | | | |
| Income before provision for income taxes | | | 5,234 | | | | 7,072 | |
| Provision for income taxes | | | 2,079 | | | | 2,788 | |
| | | | | | | | | |
| Net income | | $ | 3,155 | | | $ | 4,284 | |
| | | | | | | | | |
Sales of Equipment: For 2006, sales of equipment totaled $22.3 million compared to $18.8 million for 2005, representing an increase of $3.5 million, or 18.6%. This increase reflects an increase in both volume and pricing. In 2006, sales accounted for 35.9% of total revenues compared to 37.0% in 2005.
Leasing Revenues: Leasing revenues for 2006 were $39.9 compared to $32.1 million for 2005, an increase of $7.8 million, or 24.3%. This was driven primarily by an increase in the average units on lease per month, which increased by 234 units, or 3.7%, a shift in mix toward modular buildings and an increase in pricing. The lease fleet increased from 8,034 units at December 31, 2005 to 8,640 units at December 31, 2006, an increase of 7.5%. Average fleet utilization increased from 82.8% in 2005 to 82.9% in 2006. In 2006, leasing revenue accounted for 64.1% of total revenues compared to 63.0% in 2005.
Cost of Sales: Cost of sales in 2006 cost of sales was $16.1 million compared to $13.8 million in 2005, representing an increase of $2.3 million, or 16.7%; due to greater volume. The gross margin percentage increased from 26.6% in 2005 to 27.8% in 2005 as a result of the greater volume and favorable product mix.
Leasing, Selling and General Expenses: Leasing, selling and general, and expenses for 2006 were $30.8 million compared to $26.9 million in 2005, an increase of $3.9 million, or 14.5%. This increase is primarily
71
due to the following factors: (i) an increase in delivery and transportation costs associated with increased leasing volume; (ii) an increase in personnel spending due to enhanced incentive compensation plans implemented in the later part of 2006, subsequent to the Acquisition; (iii) an increase in marketing expenditures as the Company increased its focus on internet and web-based marketing programs; and (iv) an increase in property tax associated with the fleet growth.
Depreciation and Amortization: Depreciation and amortization for 2006 was $3.3 million compared to $2.4 million in 2005, representing an increase of $1.0 million, or 41.7%. The increase was primarily the result of purchase allocation adjustments from the Acquisition.
Interest Expense: Interest expense for 2006 was $4.9 million compared to $2.7 in 2005, an increase of $2.2 million, or 81.5%. The increase is primarily due to additional borrowings to finance capital expenditures and the Acquisition by MOAC of Pac-Van. The weighted-average interest rate increased from 7.1% in 2005 to 9.0% in 2006.
Provision for Income Taxes: Pac-Van’s income tax expense for 2006 was $2.8 million compared to $2.1 million for 2005, an increase of $0.7 million, for an overall effective tax rate of 39.4% versus 39.7%, respectively. The effective tax rate is above the federal statutory rate of 34.0% in each period presented primarily because of state income taxes.
Net Income: Net income for 2006 of $4.3 million was $1.1 million higher than 2005 net income of $3.2 million. This increase is due primarily to higher revenues and operating income, which more than offset the significant increase in interest expense.
Measures not in Accordance with Generally Accepted Accounting Principles in the United States (“GAAP”)
Earnings before interest, income taxes, depreciation and amortization and other non-operating costs (“EBITDA”) and adjusted EBITDA are supplemental measures of Pac-Van’s performance that are not required by, or presented in, accordance with GAAP. These measures are not measurements of Pac-Van’s financial performance under GAAP and should not be considered as alternatives to net income, income from operations or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity.
EBITDA is a non-GAAP measure. Pac-Van calculates adjusted EBITDA by adjusting EBITDA to eliminate the impact of certain items it does not consider to be indicative of the performance of its ongoing operations. You are encouraged to evaluate each adjustment and whether you consider each to be appropriate. In addition, in evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, Pac-Van may incur expenses similar to the adjustments in the presentation of EBITDA and adjusted EBITDA. The presentation of EBITDA and adjusted EBITDA should not be construed as an inference that Pac-Van’s future results will be unaffected by unusual or non-recurring items. Pac-Van presents EBITDA and adjusted EBITDA because it considers them to be important supplemental measures of its performance and because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, many of which present EBITDA and adjusted EBITDA when reporting their results.
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EBITDA and adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of Pac-Van’s results as reported under GAAP. Because of these limitations, EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to Pac-Van to invest in the growth of its business or to reduce its indebtedness. Pac-Van compensates for these limitations by relying primarily on its GAAP results and using EBITDA and adjusted EBITDA only supplementally. The following tables show Pac-Van’s EBITDA and adjusted EBITDA, and the reconciliation from operating income:
| | | | | | | | | |
| | | Successor | |
| | | Three Months Ended
| |
| | | March 31, | |
| | | 2007 | | | 2008 | |
| | | (Unaudited - in thousands) | |
| |
| Income from operations | | $ | 3,463 | | | $ | 3,570 | |
| Add — depreciation and amortization | | | 1,116 | | | | 1,126 | |
| | | | | | | | | |
EBITDA | | | 4,579 | | | | 4,696 | |
| Add — | | | | | | | | |
| Stock-based compensation | | | 39 | | | | 39 | |
| Payments to former owners of Pac-Van (predecessor) | | | 47 | | | | 47 | |
| Advisory fee paid to chairman of the board of MOAC | | | 45 | | | | 45 | |
| One-time strategic expenses | | | — | | | | — | |
| | | | | | | | | |
Adjusted EBITDA | | $ | 4,710 | | | $ | 4,827 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | Predecessor | | | Combined | | | Successor | |
| | | Year Ended December 31, | |
| | | 2005 | | | 2006 | | | 2007 | |
| | | (In thousands) | |
| |
| Income from operations | | $ | 7,906 | | | $ | 11,997 | | | $ | 15,721 | |
| Add — depreciation and amortization | | | 2,374 | | | | 3,348 | | | | 5,049 | |
| | | | | | | | | | | | | |
EBITDA | | | 10,280 | | | | 15,345 | | | | 20,770 | |
| Add — | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | | 25 | | | | 154 | |
| Payments to former owners of Pac-Van (predecessor) | | | 1,372 | | | | 1,016 | | | | 186 | |
| Advisory fee paid to chairman of the board of MOAC | | | — | | | | 75 | | | | 180 | |
| One-time strategic expenses | | | 156 | | | | — | | | | — | |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 11,808 | | | $ | 16,461 | | | $ | 21,290 | |
| | | | | | | | | | | | | |
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Liquidity and Capital Resources
Pac-Van’s primary sources of liquidity have been cash provided by operations and borrowings under its bank credit facilities or debt agreements. Historically, Pac-Van has used cash to support it operations, fund its fleet investment and to pay principal and interest associated with its outstanding debt obligations. Supplemental information pertaining to the Pac-Van’s sources and uses of cash is presented in the following table:
| | | | | | | | | | | | | | | | | |
| | | Year Ended
| | | Three Months
| |
| | | December 31, | | | Ended March 31, | |
| | | Predecessor | | | Combined | | | Successor | |
| | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | | | | | | | | | | (Unaudited) | |
| | | (In thousands) | |
| |
| Net cash provided by operating activities | | $ | 8,563 | | | $ | 12,605 | | | $ | 12,475 | | | $ | 3,538 | |
| | | | | | | | | | | | | | | | | |
| Net cash used by investing activities | | $ | (7,876 | ) | | $ | (17,562 | ) | | $ | (24,858 | ) | | $ | (7,399 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash provided (used) by financing activities | | $ | (650 | ) | | $ | (4,443 | ) | | $ | 12,371 | | | $ | 4,150 | |
| | | | | | | | | | | | | | | | | |
Operating Activities: Net cash provided by operating activities for YTD 2008 of $3.5 million primarily relates to net income of $1.0 million; and the non-cash add-backs for depreciation and amortization of $0.9 million and deferred income taxes of $0.6 million, , as well as effective working capital management that increased cash from operating activities by $0.8 million. Net cash provided by operating activities for 2007 of $12.6 million primarily relates to net income of $4.0 million; and the non-cash charge add-backs for depreciation and amortization of $5.2 million and deferred income taxes of $3.3 million. Net cash provided by operating activities for 2006 of $12.7 million primarily relates to net income of $4.3 million; and the non-cash add-backs for depreciation and amortization of $3.4 million and deferred income taxes of $2.8 million, as well as effective working capital management that increased cash from operating activities by $2.3 million. Net cash provided by operating activities for 2005 of $8.6 million primarily relates to net income of $3.2 million; and the non-cash add-backs for depreciation and amortization of $2.4 million and deferred income taxes of $2.1 million.
Investing Activities: Net cash used by investing activities primarily relates to expanding the rental fleet, acquisitions and purchasing support equipment; including transportation, facilities, and information technology. Pac-Van made net investments in its fleet and in one small acquisition of $6.8 million in YTD 2008. For 2007, 2006 and 2005, Pac-Van invested $23.8 million, $16.9 million and $7.2 million in fleet capital expenditures and three very small acquisitions, respectively. In YTD 2008, Pac-Van purchased $0.3 million in support equipment; and in 2007, 2006 and 2005 it invested $1.2 million, $0.8 million and $0.7 million in support equipment, respectively.
Financing Activities: Net cash provided by financing activities mainly relate to borrowings or payments on long-term debt associated with Pac-Van’s senior and subordinated credit agreements. Net borrowings were $4.2 million, $12.6 million, and $4.3 million for YTD 2008, 2007 and 2006, respectively. In 2005, Pac-Van reduced long-term debt by $0.7 million.
Pac-Van’s cash position and debt obligations at December 31, 2005, 2006, 2007 and March 31, 2008, are presented in the following table and should be read in conjunction with the company consolidated financial statements and notes thereto included in this proxy statement.
| | | | | | | | | | | | | | | | | |
| | | At December 31, | | | At March 31, | |
| | | Predecessor | | | Combined | | | Successor | |
| | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | | | | | | | | | | (Unaudited) | |
| | | (In thousands) | |
| |
| Cash | | $ | 76 | | | $ | 65 | | | $ | 53 | | | $ | 343 | |
| | | | | | | | | | | | | | | | | |
| Long-term debt and obligations | | $ | 37,622 | | | $ | 80,071 | | | $ | 93,239 | | | $ | 97,538 | |
| | | | | | | | | | | | | | | | | |
Pac-Van believes that its cash flow provided by operations will be sufficient to cover it’s 2008 working capital needs, debt service requirements, and a certain portion of its planned capital expenditures for rental fleet and support equipment to the extent such items are known or reasonably determinable based on current business and
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market conditions. The Company anticipates that it will finance its capital expenditure requirements under its existing credit facilities.
Credit Facilities and Financing
Senior Bank Credit Agreement
Pac-Van’s bank credit agreement includes a revolving line of credit and a swing line of credit with an expiration date of August 23, 2012. The agreement is an asset-based facility providing for loans of up to $90.0 million, subject to specified borrowing base formulas. Pac-Van has pledged all business assets as collateral and is required to maintain certain financial ratios. Pursuant to the terms of the credit agreement, Pac-Van may increase the facility by $30.0 million subject to the consent of the lead agent, availability of lenders willing to provide incremental debt, and compliance with the covenants and certain other conditions specified in the credit agreement. As of March 31, 2008, Pac-Van’s aggregate borrowing capacity under the bank credit agreement amounted to $18.2 million, net of the $71.8 million in outstanding borrowings as of that date.
For more information on the Credit Facility, see Pac-Van’s consolidated financial statements and the related notes included elsewhere in this proxy statement; and “The Merger — Financing”.
Subordinated Debt
In connection with the Acquisition, Pac-Van, Inc. issued a 13.0%, $25.0 million senior subordinated secured note to Laminar, an affiliate of D. E. Shaw, and entered into an investment agreement that governs the terms and conditions of such debt. The note is contractually subordinated to the Credit Facility. The subordinated note has a maturity date of February 2, 2013, and requires quarterly interest payments. The senior subordinated secured note was issued with warrants entitling SPV Capital Funds, L.L.C. to purchase 9,375 shares of MOAC common stock (representing 4% of the issued and outstanding common stock of Pac-Van) at $0.01 per share. The warrants expire on August 2, 2016, and provide the holder with put rights upon the occurrence of a change in control, an event of non-compliance, or any time after August 2, 2012. The put price per share shall be the amount equal to the fair market value for the outstanding common stock at the exercise date. At inception, the warrants were recorded at fair market value of $937,500, and the senior subordinated secured note was discounted by the fair market value of the warrants and recorded at $24,062,500. The discount is amortized to interest expense over the term of the note and Pac-Van recognizes as a liability, with a charge to earnings, any increases in the value of the warrants. At March 31, 2008, the warrants were valued at $1,441,000.
Contractual Obligations
As of December 31, 2007, Pac-Van’s future contractual obligations were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | | | | Less Than
| | | 1-3
| | | 3-5
| | | More Than
| |
| | | Total | | | 1 Year | | | Years | | | Years | | | 5 Years | |
| | | (In thousands) | |
| |
| Long-term debt(1) | | $ | 92,600 | | | $ | — | | | $ | — | | | $ | 67,600 | | | $ | 25,000 | |
| Interest(2) | | | 38,857 | | | | 8,036 | | | | 16,072 | | | | 14,343 | | | | 406 | |
| Operating leases | | | 2,352 | | | | 1,010 | | | | 1,295 | | | | 47 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 133,809 | | | $ | 9,046 | | | $ | 17,367 | | | $ | 81,990 | | | $ | 25,406 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | As a resultPrincipal payments are reflected when contractually required and no early pay-downs are assumed. Long-term debt includes $67.6 million associated with the Credit Facility and $25.0 million related to the Subordinated Debt, but does not include the warrant obligation. |
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| (2) | | Estimated interest is calculated using the interest rate effective as of December 31, 2007 of (i) 7.08% weighted average interest rate on borrowings under the net loss reflected insenior bank credit agreement and (ii) 13.0% on the unaudited pro forma condensed combined statements of income, basic and diluted shares used are the same.subordinated note payable. |
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OTHER INFORMATION ABOUT US
Business of General Finance Corporation
We were incorporated on October 14, 2005, to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business. Prior to executing the acquisition agreement relating to the acquisition of Royal Wolf, our efforts were limited to organizational activities, completion of our IPO and the evaluation of possible business combinations, including the acquisition.
GFN Australasia Finance Pty Limited, or GFN Australasia, is a newly formed company organized by us under the laws of Australia and wholly owned subsidiary of GFN Australasia Holdings Pty Ltd, which also is a newly formed company organized by us under the laws of Australia and a wholly owned subsidiary of GFN U.S. GFN Australasia and GFN Australasia Holdings Pty Ltd were formed by us for the sole purpose of facilitating our acquisition of RWA, and have not engaged in any business other than in connection with the acquisition.
GFN Australasia’s mailing address is c/o Robert Barnes, Level 2, 222 Clarence Street, Sydney, New South Wales, Australia 2000, and its telephone number is 001-612-9266-0077.
GFN U.S. Australasia Holdings, Inc., or GFN U.S., is a newly formed Delaware corporation and our wholly owned subsidiary. GFN U.S. was formed by us for the sole purpose of facilitating our acquisition of Royal Wolf, and has not engaged in any business other than in connection with the acquisition.
GFN U.S.’s mailing address is c/o General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101, and its telephone number is (626)584-9722.
Our business plan and strategy disclosed in our IPO prospectus is to seek to identify, acquire and consolidate under our holding company specialty finance businesses in the U.S., Europe and Asia. Ronald F. Valenta, our Chief Executive Officer, has successfully executed a similar strategy as the Chief Executive Officer and later the Chairman of the Board of Mobile Storage Group. Royal Wolf is a leading specialty finance company in Australia that we believe has a strong and deep management team and is well-positioned for significant growth domestically in Australia. We also believe Royal Wolf can serve as a both a rental services platform for expansion throughout the Asia-Pacific region and potentially the core management team for the global container leasing segment of our business. If we complete the Royal Wolf acquisition, our present strategy is to seek to acquire other equipment leasing companies in North America, Asia and Europe and to consider acquisitions of other companies in the special finance business. We also will continue Royal Wolf’s strategy of consolidating small equipment leasing companies in the region. Before we entered into the acquisition agreement, we entered into confidentiality agreements and conducted preliminary due diligence with respect to a number of other possible initial business combinations. We and Royal Wolf also previously entered into a confidentiality agreement and conducted preliminary due diligence with respect to one smaller Australian equipment leasing company that Royal Wolf considered to be a suitable acquisition for it. We are not in current discussions or negotiations, or currently conducting due diligence, regarding any of the entities with which we signed confidentiality agreements prior to entering into the Royal Wolf acquisition agreement, and neither we nor Royal Wolf has any present understandings, arrangements or commitments with respect to any possible future acquisition. There is no assurance that we or Royal Wolf will be able to identify, negotiate or complete any future acquisitions, or, if completed that any such acquisitions will be successful.
Offering Proceeds Held in Trust
The registration statement relating to our IPO was declared effective on April 5 2006, and the closing of the sale of our IPO securities occurred on April 11, 2006. The net proceeds of the offering, after payment of underwriting discounts and expenses, were approximately $65.55 million. Of that amount, $65 million was placed in the trust account and invested in government securities. The remaining proceeds, along with proceeds of $700,000 from the private placement of units to our officers and directors, were used by us to pay the underwriting
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discount (excluding the contingent underwriting discount) of $4,830,000 and other offering expenses in connection with our IPO as follows:
| | | | | |
| | | | | |
| • Legal fees and expenses | | $ | 331,650 | |
| • Printing and engraving expenses | | | 96,059 | |
| • Accounting fees and expenses | | | 30,600 | |
| • SEC registration fee | | | 23,928 | |
| • NASD filing fee | | | 20,850 | |
| • AMEX filing fee | | | 78,125 | |
| • Initial Trustee’s fee | | | 1,000 | |
| • Miscellaneous expenses | | | 12,505 | |
| | | | | |
| Total other offering expenses | | $ | 594,717 | |
| | | | | |
The actual total offering expenses of $5,424,717 were $44,717 in excess of the estimated offering expenses of $5,380,000, as set forth in the prospectus relating to our IPO. These amounts include the contingent underwriting discount of $1,380,000. The primary reasons for this excess was the net result of greater than estimated printing and engraving expenses ($46,059), accounting fees and expenses ($5,600) and AMEX filing fee ($13,125); somewhat offset by less than estimated legal fees and expenses ($18,350), miscellaneous expenses ($1,693) and SEC registration fee ($24). The funds in the trust account will not be released to us until the earlier of the completion of a business combination or our liquidation. The trust account contained approximately $67.9 million, after deduction of the taxes on earned interest, as of May 31, 2007. We will pay the cash portion of the acquisition consideration payable at the closing with a portion of the net proceeds of our IPO held in the trust account. Any remaining net proceeds in the trust account, less any amounts payable to our stockholders who exercise their conversion rights and after the payment of a contingent underwriting discount to the underwriters of our IPO, will be released to us for use in our business without further restriction. The maximum contingent underwriting discount is $1,380,000, which is subject to reduction by $0.16 per share for each IPO share that is converted in connection with the acquisition. The released funds will be used by us to repay our outstanding indebtedness to Mr. Valenta under the line of credit agreement and for working capital and general corporate purposes, including possible acquisitions, and there will be no further restrictions on our use of such funds.
Our expenses during the search for a target business were paid from, initially, the $250,000 proceeds received from the sale of common stock to officers and directors prior to the IPO and, subsequently, from borrowings under the line of credit described below provided by Mr. Valenta. Our actual expenses incurred since the IPO totaled $2,081,000 through March 31, 2007, and have been primarily for costs related to the proposed business combination with Royal Wolf ($1,257,000), accounting ($66,000), legal ($83,000) and other professional expenses ($53,000), liability insurance ($77,000), payroll and related ($212,000), Board fees ($53,000), printing and filing fees ($221,000) and dues and subscriptions ($4,000).
Line of Credit Agreement
We have a limited recourse revolving line of credit with Ronald F. Valenta, a director and our Chief Executive Officer, pursuant to which we may from time to time borrow up to $3,000,000 outstanding at any time. The limited recourse revolving line of credit terminates upon the earliest to occur of completion of a business combination, the liquidation of the company and April 5, 2008, except that advances may be made after April 5, 2008 solely to pay reasonable costs and expenses in connection with the liquidation of any company. The limited recourse revolving line of credit bears interest at the rate of 8% per annum and has no recourse against the funds in the trust account. Without the consent of Mr. Valenta, the limited recourse line of credit may only be used for ordinary and reasonable operating costs and expenses, including our SEC reporting obligations, the audit and review of our financial statements, identifying and investigating potential targets for a business combination, negotiating and closing the business combination, legal and other professional fees and expenses, fees, salaries and compensation for directors, officers, employees, consultants and advisors, and insurance premiums, and the reasonable cost and expenses in connection with the liquidation of the company if a business combination is not consummated.
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At May 31, 2007, the outstanding amounts of principal and accrued interest under the line of credit were $2,180,000 and $76,322 respectively, and we have available credit of $1,000,000. Borrowings under the line of credit will become due and payable upon the first to occur of our initial business combination, an “event of default” (as defined), our liquidation or dissolution, and April 5, 2008, provided, however, that Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit. Subject to this limitation on recourse to the funds in the trust account, amounts outstanding under the line of credit may be repaid in whole or in pat at any time without penalty or premium. Neither Mr. Valenta nor our other officers or directors has any obligation to provide us any additional financing.
Liquidation If No Business CombinationOff-Balance Sheet Arrangements
Our certificate of incorporation provides that we must liquidate as soon as practicable if we doPac-Van does not complete a business combination by October 5, 2007, or by April 5, 2008 if certain extension criteria have been satisfied.maintain any off-balance sheet arrangements.
In connection withSeasonality
Demand from some of Pac-Van’s customers can be seasonal, such liquidation, we will distribute pro rata to the holders of our IPO shares the amountas in the trust account, including any earned interest (net of taxes on such interest). Our directorsconstruction industry which tends to increase leasing activity in the second and officers who acquired their shares of our common stock priorthird quarters; while customers in the retail industry tend to our IPO have waived their rights to participatelease more units in any liquidation distribution with respect to these shares of common stock. There also will be no distribution from the trust account with respect to our warrants.fourth quarter.
If we failImpact of Inflation
Pac-Van does not believe that in its recent past inflation has had a material effect on its business. However, during periods of rising prices for raw materials, especially oil and fuel for delivery vehicles, and in particular when the prices increase rapidly or to completelevels significantly higher than normal, Pac-Van may incur significant increases in operating costs and may not be able to pass price increases through to customers in a timely manner, which could harm its future results of operations.
Accounting Policies
The preparation of Pac-Van’s financial statements in accordance with generally accepted accounting principles, or GAAP, in the acquisitionUnited States requires it to make estimates and assumptions affecting the reported amounts of Royal Wolfassets and if we also fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to completeliabilities and the business combination by April 5, 2008, we will dissolvedisclosure of contingent assets and liquidate as soon as practicable pursuant to Section 275liabilities at the date of the Delaware General Corporation Law.financial statements and the reported amounts of revenues and expenses during the reporting period. Pac-Van evaluates its estimates and judgments on an ongoing basis and bases its estimates and judgments on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Pac-Van’s actual results may differ from these estimates under different assumptions or conditions.
We currently anticipate that our dissolution and liquidation would proceed in approximatelyPac-Van believes the following manner:critical accounting policies and the related judgments and estimates affect the preparation of its consolidated financial statements:
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| • | Our board of directors will convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to our stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out our plan of dissolution and liquidation as well as the board’s recommendation of the plan; |
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| • | We will then promptly file our preliminary proxy statement with the Securities and Exchange Commission; |
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| • | If the Securities and Exchange Commission does not review the preliminary proxy statement, then, approximately ten days following the filing of the preliminary proxy statement, we will mail the definitive proxy statement to our stockholders, and approximately thirty days following the mailing of such definitive proxy statement, we will convene a meeting of our stockholders, at which they will vote on our plan of dissolution and liquidation; and |
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| • | If the Securities and Exchange Commission does review the preliminary proxy statement, we currently estimate that we will receive their comments approximately thirty days after the filing of the proxy statement; we will then mail the definitive proxy statement to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty and which may be substantial) and we will convene a meeting of our stockholders at which they will vote on our plan of dissolution and liquidation. |
We cannot liquidateRevenue Recognition. Pac-Van leases portable storage equipment, mobile offices, and modular buildings. Leases to customers are generally on a short-term basis and qualify as operating leases. The aggregate lease payments are generally less than the trust account unless and until our stockholders approve our planpurchase price of dissolution and liquidationthe equipment. Revenue is recognized as earned in accordance with the procedures described above. Accordingly, there will be a delay (which may be substantial) beyond October 5, 2007 or April 5, 2008, aslease terms established by the case may be, in our liquidationlease agreements and when collectability is reasonably assured. In addition to the lease payments, Pac- Van also earns revenue from the delivery andset-up and subsequent tear-down and return of lease equipment. These revenues are recognized when the services are provided and the distributioncost associated with these activities is included in leasing, selling and general expenses. Deferred revenue is recorded for the unearned portion of pre-billed lease income and for any services billed in advance.
In addition to our public stockholdersleasing, Pac-Van also earns revenue from selling modular buildings, mobile offices and portable storage equipment, and by providing the associated delivery and installation services. Revenue from sales of equipment is recognized upon delivery and when collectability is reasonably assured. Costs associated with these revenue streams are included in costs of goods sold.
Depreciation of Lease Equipment. Lease equipment consists primarily of portable storage equipment, mobile offices, and modular buildings. The lease equipment is recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which is 20 years for all three product lines, to residual values of 50% for mobile offices and modular buildings and 70% for most portable storage equipment. Pac-Van expenses normal repairs and maintenance on the lease equipment as incurred and records these cost in leasing, selling and general.
Pac-Van periodically reviews its depreciation policy against various factors, including its historical experience with the useful life of each type of equipment, lease rates obtained on older units, the results of the fundsindependent appraisals of its lease fleet performed by the Company’s lenders, profit margins realized on its sales of depreciated lease equipment, and depreciation policies in our trust account as part of any plan of dissolution and liquidation.
Our stockholders holding IPO shares will be entitled to receive funds from the trust account onlyeffect among larger competitors in the event of our liquidation or if they exercise their conversion rights in connection with the acquisition of Royal Wolf or other business combination completed by us. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account.industry. Based on this review,
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We expectPac-Van’s Management believes that all costs associatedthe Company’s depreciation policy does not cause carrying values to exceed net realizable values.
Goodwill and Other Intangible Assets. Pac-Van accounts for goodwill in accordance with implementing our dissolutionStatement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and liquidationOther Intangible Assets.” SFAS No. 142 requires these assets be reviewed for impairment at least annually. Pac-Van performed the required impairment tests of ourgoodwill as of December 31, 2007 and determined that there was no impairment.
Other intangible assets heldwith finite useful lives are amortized over their useful lives. Intangible assets with finite useful lives consist primarily of customer relationships, which are amortized using an accelerated method that reflects the related customer attrition rates.
Provision for Doubtful Accounts. Pac-Van is required to estimate the collectability of its trade receivables. Accordingly, it maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. On a recurring basis, Pac-Van evaluates a variety of factors in our trust accountassessing the ultimate realization of these receivables, including the current credit-worthiness of its customers, its days outstanding trends, a review of historical collection results and a review of specific past due receivables. If the financial conditions of Pac-Van’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, resulting in decreased net income. To date, uncollectible accounts have been within the range of expectations of Pac-Van’s management.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective in fiscal years beginning after November 15, 2007. Management does not believe that the adoption of SFAS No. 157 will have a material effect on Pac-Van’s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS 158 addresses the recognition of over-funded or under-funded status of a defined benefit plan as an asset or liability on an entity’s balance sheet. This requirement is effective for fiscal years beginning after December 15, 2006. The statement also requires the funded status of a plan be funded by borrowings under our $3,000,000 limited recourse linemeasured as of credit provided by our Chief Executive Officer, Ronald F. Valenta,the employer’s fiscal year-end balance sheet. The requirement is effective as of the beginning of a fiscal year beginning after December 15, 2008. Management does not believe that the adoption of SFAS No. 158 will have a material effect on Pac-Van’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115, which permits borrowingsentities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115,Accounting for this purpose. We currently anticipateCertain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157,Fair Value Measurements. Management does not believe that the costsadoption of our dissolution and liquidation will not exceed $50,000. The line of credit bears interest at 8% and, as of May 31, 2007, we have borrowed $2,180,000, leaving us the capacity to borrow an additional $820,000. Also at May 31, 2007, we had current accounts payable and accrued expenses of approximately $677,500. We cannot assure you that weSFAS No. 159 will have sufficient funds to covera material effect on Pac-Van’s consolidated financial statements.
In December 2007, the costs of our dissolutionFASB issued SFAS No. 141(revised 2007),Business Combinations, and liquidation and, if funds available to us outside the trust account are insufficient to pay the costs of our dissolution and liquidation, we will be required to use funds heldSFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141R improves reporting by creating greater consistency in the trust account to pay such costs.
Based upon the funds heldaccounting and financial reporting of business combinations, resulting in the trust account as of May 31, 2007, the per-share liquidation price as of that date would have been approximately $7.88, or $0.12 less than theper-unit offering price of $8.00 in our IPO. This compares to the closing sale prices of our common stock of $7.87 as reported on the American Stock Exchange on July 2, 2007. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors,more complete, comparable, and there is no assurance that the actual per-share liquidation price will not be less than $7.88 due to such claims.
We cannot assure you that third parties will not seek to recover from the assets distributed to our public stockholders any amounts owed to them by us. Creditors may seek to interfere with the distribution of the trust account pursuant to federal or state creditor and bankruptcy laws, which could delay the actual distribution of such funds or reduce the amount ultimately availablerelevant information for distribution to our public stockholders. If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law and may be included in our bankruptcy estate and senior to claims of our public stockholders. Any distributions received by stockholders in our dissolution could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders in our dissolution. To the extent bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders the liquidation amounts due to them. Any claims by creditors could cause additional delays in the distribution of trust funds to the public stockholders beyond the time periods required to comply with the Delaware General Corporation Law’s procedures and federal securities laws and regulations.
All claim by creditorsinvestors and other third parties must be paid or provided for prior to any distributions to any stockholders upon dissolution and acquisition, and underusers of financial statements. SFAS No. 141R requires the Delaware General Corporation Law, our stockholders could be liable for any claims against the corporation to the extent of the distribution received by them after dissolution. We anticipate that all payments to any creditors will be funded from the limited recourse line of credit provided by Mr. Valenta, which provides for such payments. However, if we do not have sufficient funds for those purposes, the amounts distributed to our public stockholders may be less than the estimate of $7.88 per share described above. If we dissolve and liquidate prior to the consummation ofacquiring entity in a business combination Mr. Valenta has agreed, pursuant to a written agreement executed in connection withrecognize all (and only) the IPO, that he will be personally liable to ensure that the proceedsassets acquired and liabilities assumed in the trust account are not reduced bytransaction; establishes the claims of various vendors that are owed money by usacquisition-date fair value as the measurement objective for services rendered or products soldall assets acquired and liabilities assumed; and requires the acquirer to usdisclose to investors and target businesses who have entered into written agreements with us and who have not waivedother users all of their rightsthe information they need to make claims againstevaluate and understand the proceeds innature and financial effect of the trust account. Some of our creditors, including our legal counsel and our independent public accounting firm (for certain non-attest services rendered and subsequently paid) have waived in writing their rights to make claims against the proceeds in the trust account. Amounts owing to these creditors totaled $329,000 at May 31, 2007. Other creditors have not been willing to waive such rights, and we cannot assure you that there will be no claims of creditors against the proceedsbusiness combination. SFAF No. 160 improves
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the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the trust account at the time of any dissolution and liquidation. Amounts owing to these creditors totaled $348,500 at May 31, 2007same way — as set forthequity in the following table:
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Creditor | | Amount Owed | |
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| Vintage Filings, LLC | | $ | 9,700 | |
| Ernst & Young LLP | | | 65,200 | |
| Bowne & Co. | | | 168,300 | |
| Royal Wolf (reimbursable fees and expenses) | | | 27,200 | |
| Barnes & Wenden | | | 71,200 | |
| The Spartan Group, LLC | | | 2,100 | |
| Continental Stock Transfer & Trust Company | | | 2,300 | |
| AT&T | | | 1,000 | |
| Anreder & Company | | | 1,300 | |
| WYNK Marketing | | | 100 | |
| Depository Trust Co. | | | 100 | |
| | | | | |
| | | $ | 348,500 | |
| | | | | |
consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. The two statements are effective for fiscal years beginning after December 15, 2008 and management does not believe that the adoption of SFAS No. 141R will have a material effect on Pac-Van’s consolidated financial statements.
At May 31, 2007, we had borrowed $2,180,000In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under our $3,000,000 lineSFAS No. 133 and its related interpretations, (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows and (d) encourages, but does not require, comparative disclosures for earlier periods at initial adoption. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management does not believe that the adoption of credit provided by Mr. Valenta, and we have available credit of $820,000. Mr. Valenta also has agreed under his indemnification agreement to satisfy all claims by our creditors, and our board of directors wouldSFAS No. 161 will have a fiduciary obligation to seek indemnification from Mr. Valenta. As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. If the Royal Wolf acquisition is not completed and we dissolve and liquidate, the satisfaction of Mr. Valenta’s obligations under the backup purchase agreement could make it difficult, or impossible, for Mr. Valenta to satisfy his indemnity obligations to us. If Mr. Valenta were not able financially to indemnify us, and if pursuing indemnification therefore would be futile and costly, our board of directors might determine not to seek to enforce our rights to indemnification. If Mr. Valenta were unable financially to satisfy all claims of our creditors, his indemnification agreement may not effectively mitigate the risk of creditors’ claims reducing the amounts in the trust account.
Under Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a60-day notice period during which any third-party claims can be brought against the corporation, a90-day period during which the corporation may reject any claims brought, and an additional150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of each such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to liquidate the trust account to our public stockholders as part of our plan of dissolution and liquidation, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures. As a result, our stockholders would potentially be liable for any claims to the extent of distributions received by them in connection with our dissolution and any liability of our stockholders may extend beyond the third anniversary of the dissolution.
Our stockholders holding IPO shares will be entitled to receive funds from the trust account only in the event of our liquidation or if they exercise their conversion rights in connection with the acquisition or other business combination completed by us. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account.material effect on Pac-Van’s consolidated financial statements.
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INFORMATION ABOUT ROYAL WOLFPAC-VAN
RWA Holdings Pty Limited, or RWA, is a company organized under the laws of Australia and a holding company for Royal Wolf Trading Australia Pty Limited, its principal operating subsidiary acquired in December 2003 and its only other subsidiary, Hi-Tech Pty Limited, which is engaged in the same business and activities as Royal Wolf Trading Australia Pty Limited. RWA engages in no significant business activities apart from its ownership of Royal Wolf Trading Australia Pty Limited and Hi-Tech Pty Limited. RWA and its subsidiaries are collectively referred to in this proxy statement as “Royal Wolf.”
The mailing address of RWA is Suite 201, Level 2, 22-28 Edgeworth David Avenue, Hornsby, Hi-Tech, New South Wales, Australia 2077, and its telephone number is 011-612-9482-3466. Royal Wolf maintains a website at www.royalwolf.com.au. The information maintained or made available by Royal Wolf on its website is not part of this proxy statement.
Bison-GE, Equity Partners and the management shareholders approved the acquisition by virtue of their execution of the acquisition agreement, and no further action by the RWA shareholders is needed for approval of the acquisition.
BusinessIndustry Overview
Royal Wolf leasesPac-Van competes in two different, but related, industry segments: the modular space segment and sellsthe mobile storage segment, which we collectively call the portable services industry.
Pac-Van competes in the modular space industry. The Modular Building Institute, in its State of the Industry 2006 report, estimates that U.S. modular space industry dealers earned in excess of $3.0 billion of leasing and sales revenues in 2005. The industry has expanded rapidly over the last thirty years as the number of applications for modular space has increased and recognition of the product’s positive attributes has grown. We believe modular space delivers four core benefits: lower costs, flexibility, reusability and timely solutions. Modular buildings offer customers significant cost savings over permanent construction. Flexibility and reusability are the hallmarks of modular buildings. Modular products are not site specific and can be reutilized. It is not unusual to have modular buildings serve a wide variety of users during their life spans. We believe we are well-positioned to benefit from growth in the modular space industry.
Pac-Van also competes in the mobile storage containers, portable container buildingssector. Mobile storage is used primarily by businesses for secure, temporary storage at the customer’s location. The mobile storage industry serves a broad range of industries, including construction, services, retail, manufacturing, transportation, utilities and freight containers in Australia. We aregovernment.
Mobile storage offers customers a flexible, secure, cost-effective and convenient alternative to constructing permanent warehouse space or storing items at a fixed-site self-storage facility by providing additional space for higher levels of inventory, equipment or other goods on an as-needed basis. Although Pac-Van is not aware of any published third-party analysisestimates, Pac-Van believes the mobile storage industry is growing due to an increasing awareness of the Australian portable container market. Based, however, upon its own internal analysis, including discussions with its customersconvenience and competitors and informal observations about the size of container fleets on site at competitors’ locations and in container depots and listed in telephone directories in each major metropolitan area, Royal Wolf’s management believes that Royal Wolf is the market leader in Australia for container-based storage and accommodation products. Royal Wolf currently has more than 150 employees and operates 15 customer service centers located in every state in Australia. It is the only portable container lease and sales company represented in all major business centers in Australia and, as such, is the only company with a nationally integrated infrastructure and work force.
Royal Wolf serves both small to mid-size retail customers and large corporate customers in the following sectors: road and rail; moving and storage; mining and defense; and portable buildings. Royal Wolf’s present revenue mix is approximately 69% sales and 31% leasing.
Royal Wolf’s products include the following.
Portable Storage Containers: Royal Wolf leases and sells portable containers foron-site storage by retail outlets and manufacturers, local councils and government departments, farming and agricultural concerns, building and construction companies, clubs and sporting associations, mine operators and individual customers. Royal Wolf’s portable storage products include general purpose-dry storage containers, refrigerated containers and hazardous goods containers in a range of standard and modified sizes, designs and storage capacities.
The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | | |
| | | U.S.$ | | | Percent | |
| | | (In millions) | | | | |
| |
| Sales revenues | | $ | 21.6 | | | | 42 | % |
| Leasing revenues | | $ | 7.6 | | | | 15 | % |
| Containers in lease fleet | | | 8,988 | | | | 66 | % |
Portable Container Buildings: Royal Wolf leases and sells portable container buildings for use as site offices, housing accommodations and for other purposes. Royal Wolf entered the portable building market in August 2005 with 20’ and 40’ portable buildings manufactured from steel container platforms, which it markets primarily to mine operators, construction companies and the general public.
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The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | | |
| | | U.S.$ | | | Percent | |
| | | (In millions) | | | | |
| |
| Sales revenues | | $ | 3.7 | | | | 7 | % |
| Leasing revenues | | $ | 5.5 | | | | 11 | % |
| Containers in lease fleet | | | 4,205 | | | | 31 | % |
Freight Containers: Royal Wolf also leases and sells freight containers specifically designed for transport of products by road and rail. Customers include national moving and storage companies, distribution and logistics companies, domestic freight forwarders, transport companies, rail freight operators and the Australian military. Royal Wolf’s freight container products include curtain-side, refrigerated and bulk cargo containers, together with a range of standard and industry-specific dry freight containers.
The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | | |
| | | U.S.$ | | | Percent | |
| | | (In millions) | | | | |
| |
| Sales revenues | | $ | 3.9 | | | | 8 | % |
| Leasing revenues | | $ | 0.3 | | | | 1 | % |
| Containers in lease fleet | | | 400 | | | | 3 | % |
cost benefits.
History
Royal Wolf Trading Australia Pty Ltd, RWA’s principal operating subsidiary,Pac-Van was founded in mid-1995July of 1993 in Columbus, Ohio by William Claymon, Brent Claymon, Scott Claymon and Matthew Claymon. They established the Indianapolis branch, as an Australian subsidiarythe headquarters of Triton Holdings Limited. TritonPac-Van. Pac. In August of 2006 Pac-Van was sold to MOAC, with Mr. Mourouzis retained as President of Pac-Van.
Since August 2006 Pac-Van has consistently grown, primarily through the purchase of fleet and small acquisitions.
Business Strengths
Pac-Van is headquartereda recognized provider of modular buildings, mobile offices and mobile storage products on a national, regional and local basis in the United States, Pac-Van believes it possesses the following strengths:
Extensive Geographic Coverage. With growing lease fleet of approximately 12,000 units, Pac-Van is a national participant in the mobile and modular sectors of the portable service industry. Pac-Van’s branch offices serve 17 of the 50 largest Metropolitan Statistical Areas or MSAs, in the United States. Pac-Van serves a diverse base of national, regional and local customers. The size of Pac-Van’s fleet also allows Pac-Van to offer a wide selection of products to its customers and to achieve purchasing efficiencies.
Highly Diversified Customer Base. Pac-Van has established strong relationships with a diverse customer base in the U.S., ranging from large companies with a national presence to small local businesses. During 2007, Pac-Van leased or sold its portable storage products to over 7,000 customers. In 2007, Pac-Van’s largest customer accounted for approximately 2% of its total revenues and Pac-Van’s top ten customers accounted for approximately 10% of its total revenues. Pac-Van believes that the diversity of its business limits the impact on Pac-Van of changes in any given customer, geography or end market.
Focus On Customer Service and Support. Pac-Van’s operating infrastructure in the U.S. with business activitiesis designed to ensure that include Triton Container International,Pac-Van consistently meets or exceeds customer expectations by reacting quickly and effectively to satisfy their needs. On the world’s largest lessor of marine cargo containersnational and regional level, Pac-Van’s administrative support services and scalable management information systems enhance its service by enabling Pac-Van to the international shipping industry.access real-time information on product
Royal Wolf Trading Australia Pty Ltd’s business initially consisted of selling used shipping containers from third party container depots. With internal Triton financing, it entered the retail container leasing and sales market in 1997 through its acquisition of AA Shipping, a Melbourne-based container leasing and sales business. The acquisition more than doubled the company’s fleet of containers for lease and provided the company with its first retail facility in Australia and a platform from which to grow nationally.
In late 2003, the senior management team completed a management buyout of the company with backing from Equity Partners Two Pty Limited, an Australian private equity firm, and local banks.
During 2004 and 2005, Royal Wolf made significant investments in its customer service center infrastructure and its personnel in preparation for new product introductions that were made in August 2005, possible subsequent acquisitions of competing businesses, and in the organic growth of its existing programs.
Since December 2005, Royal Wolf has completed four acquisitions as follows:
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| • | In December 2005, Royal Wolf acquired the assets of Cairns-based Cape Containers for a purchase price of $647,000. This purchase resulted in the acquisition of 173 portable storage units and the related customer base; |
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| • | In March 2006, Royal Wolf purchased the remaining shares of Royal Wolf-Hi Tech, a Newcastle-based joint venture, for $660,000, which added a further 676 portable storage units to the Royal Wolf lease fleet; |
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| • | In April 2006, Royal Wolf acquired the assets of Melbourne-based Australian Container Network, or ACN, for $4.3 million. This acquisition added a further 891 units to Royal Wolf’s lease fleet and eliminated the second-largest portable storage supplier in Melbourne (next to Royal Wolf) from the market; and |
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availability, customer reservations, customer usage history and rates. Pac-Van believes this focus on customer service attracts new and retains existing customers. In 2007, more than 80% of its lease and lease-related revenues were generated from customers who leased from Pac-Van in prior years.
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| • | In August 2006, Royal Wolf purchased container units from Townsville-based Bohle Containers for $156,000. This was a small but strategically important transaction that added a further 57 units to Royal Wolf’s lease fleet. |
These acquisitions contributed toSignificant Cash Flow Generation and Discretionary Capital Expenditures. Pac-Van has consistently generated significant cash flow from operations by maintaining high utilization rates and increasing the 17,473yield of its lease fleet. Pac-Van’s yield equals its lease and lease related revenues divided by the total number of units in Royal Wolf’sits lease fleet. During the last five years, Pac-Van has achieved an average utilization rate in excess of 75% and its yield increased at a compound annual growth rate of 12.5%. A significant portion of Pac-Van’s capital expenditures are discretionary in nature, thus providing Pac-Van with the flexibility to readily adjust the amount that it spends based on its business needs and prevailing economic conditions.
High Quality Fleet. Pac-Van’s branches maintain their lease fleet to consistent quality standards. Maintenance is expensed as incurred and branch managers and operations staff are responsible for managing a maintenance program aimed at providing equipment to customers that meet or exceed customer expectations and industry standards.
Experienced Management Team. Pac-Van has an experienced and proven senior management team, with its seven most senior managers having worked at Pac-Van for an average of September 30, 2006.ten years. Pac-Van’s President, Theodore M. Mourouzis, joined Pac-Van in 1997 and the consistency of the senior management, corporate and branch management teams has been integral in developing and maintaining its high level of customer service, deploying technology to improve operational efficiencies and integrating acquisitions.
Portable Storage Container MarketProducts and Services
Pac-Van provides a broad range of products to meet the space needs of its customer base. These products include modular buildings, mobile offices and storage containers. The usefollowing provides a description of shipping containers,Pac-Van’s product lines:
Modular Buildings. Modular buildings are factory-built, portable structures generally consisting of two or more floors and are used in a wide variety of applications, ranging from schools to restaurants to medical offices. Ranging in size from 1,000 to more than 30,000 square feet, the company’s modular buildings are constructed in many sizes and are usually designed to satisfy unique customer requirements.. Like mobile offices, Pac-Van builds modular buildings with an established network of manufacturing partners to meet state building requirements and generally obtains multiple state codes for each unit. Modular buildings represent 31% of Pac-Van’s lease fleet.
Mobile Offices. Sales and construction offices, also known as “containerization,” is an important element of the logistics revolutionfield offices are relocatable,single-unit structures primarily used for temporary office space. These units are generally built on frames that changed cargo handlingare connected to axles and wheels and have either a fixed or removable hitch for easy transportation. Standard construction office models range in the last half of the 20th century. The trailer transport of shipping containers began in North America during the mid-1950ssize from approximately 160 square feet to 1,000 square and spread internationally during the late 1960s and early 1970s. The world’s fleet of ocean-borne and domestic/overland freight containers recently surpassed the 15 million TEU mark, having grown by almost 1 million TEU in the preceding year, according to figures in the latest annual World Container Census (2002), produced by Containerisation International (part of the Informa Publishing Group) per theWorld Container News April 2002edition. The census survey presents a detailed snapshot of world container inventories as of the middle of 2001, together with a comparison with earlier years and some forecasting. Figures show that the maritime component of the fleet number 14.5 million TEU at mid-2001, and the domestic or regional fleet at 750,000 units. It is the majority of which are standard 20’ and 40’ steel general purpose containers. Container ownership is predominantly divided between shipping lines and international and domestic container leasing companies. Other container information and references, are contained or referenced toavailable in the following sources:
http://en.wikipedia.org/wiki/Containerization
http://www.reference.com/browse/wiki/Containerization
http://www.spiegel.de/international/spiegel/0,1518,386799,00.html
Althoughwidths — 8, 10, 12 or 14 feet — and include air conditioning and heating, phone jacks, plan tables, shelving, electrical wiring , phone jacks, and other features normally associated with basic office space. Sales offices range in size from 384 to 672 square feet and typically come in 12 foot widths. In addition to the foregoing industry information is several years old, webasic amenities included in a field office, sales offices generally have wood siding, carpeting, high ceilings, custom windows, and glass storefront doors, which provide a professional, customer-friendly building in which to conduct business. Ground offices are not aware of any changes in the portable storage container market that would be adverse to this information.
The domestic portable storage, freight and accommodation container market slowly emerged with the maturing of the international cargo container business during the mid-1980s. As containers were removed from international service due to retirement or surplus inventory, alternate uses were developed.
The retired cargo containers initially were utilized primarily for packaging of one-way shipments, for project work, or for use as cheap storage on farms or construction sites. By the late 1980s, retired containers that were previously sold in an “as-is” condition were being refurbished into secure portable storage containers that were leasedhave been modified to include office space with feature similar to those found in construction offices. Like storage containers, ground offices typically come in lengths of 20 feet and 40 feet. Some models combine both office and storage functions. All of Pac-Van’s mobile offices are built, or soldmodified as with ground offices, by established network of manufacturers partner to customers.standard specification, which may vary depending on regional preferences In addition, Pac-Van builds these units to meet state building code requirements and generally obtains multi state codes enabling the company to move equipment among its branch network to meet changing demand and supply conditions. Mobile offices comprise approximately 63% of Pac-Van’s lease fleet.
ThroughMobile Storage Equipment. Mobile storage equipment is generally classified into the 1990s, new uses forfollowing product groupings: storage containers, were developed that involved converting or customizing a refurbished cargo container for a particular application, such as a workshop or site office. Containers offer a relatively inexpensivedomestic containers, and plentiful building template that is durable, cuttable, movablestorage trailers. Storage containers vary in size from 10 feet to 48 feet in length, with 20-foot and long lasting. During this period, containerization was also gaining market acceptance in Australia as a means of more securely transporting freight by road and rail, gradually replacing older and less efficient forms of freight transportation such as trucks and rail wagons.
Since40-foot length containers being the mid-1990s, the domestic container industry in Australia has developed into a stable market structure with set competitive models analogous to the marine container business 20 or 25 years ago. Marine containerization displaced less efficient and more expensive specialized equipment. In the same way, portable storage, freight and accommodationmost common. Storage containers are increasingly being substituted for more expensive, less flexible, purpose-built space. We believe that there are many more uses for portable storage, freight and accommodation containers still to be developed. Containers provide a simple solution that displace more expensive, less flexible, purpose-built space. Containers also provide a relatively cheap and plentiful building template that is strong, cuttable, movable andlong-lasting. As containers continue to gain market acceptance, new use for Royal Wolf’s products are being developed. Some examples being:steel
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| • | As rapid deployment storage for the military, emergency services, and disaster relief; |
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| • | As portable work camps for the mining and resources industry, including accommodations, ablution and kitchen containers; |
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| • | As low-cost accommodations for remote communities and caravan parks; |
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| • | As offices, workshops or storerooms in a growing range of sizes and configurations; |
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| • | As an economical alternative to fixed-site mini storage; and |
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| • | As cost-effective farm storage for cattle feed, farm equipment, fertilizers, and other items. |
Partunits, which are generally eight feet wide and eight and one-half feet high, and are built to the International Organization for Standardization standards for carrying ocean cargo. Pac-Van purchases new and used storage containers. Domestic storage containers are generally eight feet wide, ten feet in width and come in lengths ranging from 40 to 53 feet. Storage trailers, which vary in size from 28 to 53 feet in length. These units have wheels and hitches at dock height. Mobile storage equipment comprises approximately 6% of Royal Wolf’s market opportunity is to develop and service these new applications. During the fiscal year ended June 30, 2006 and the six months ended June 30, 2005, Royal Wolf expended approximately $308,000 and $49,000, respectively, on product development relating to new container applications. Such expenditures were negligible in the fiscal year ended December 31, 2004.Company’s lease fleet.
We are not awareAll of any published third-party analysis ofPac-Van’s lease fleet carry signage reflecting the Australian portable container market. Based, however, upon its own internal analysis, Royal Wolf’s management estimates thatcompany’s brand, important to the portable storage marketongoing branding and name recognition in Australia currently generates annual revenues of approximately U.S. $150 million, with an estimated 60% derived from sales of portable storage containers. Royal Wolf’s management anticipates that, as the market matures, rental revenue will account for an increasing proportion of the total revenue. This analysis was based upon management’s observations of the following:marketing our products.
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| • | Senior management informal estimates and internal surveys (see tables below) of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf General Managers, senior marketing management, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 regional yellow pages, and discussions with corporate customers and suppliers of used boxes such as wholesalers, shipping lines, and container fleet lessors; and |
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| • | Informal estimates of competitor rental fleet and sale volumes were converted into annual revenue numbers using the following formula: |
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| • | Rental revenues: number of containers in rental fleet at an assumed industry-wide utilization rate of 75% times the average standard 20’ container rental rate for the region times 365 days. Management’s estimate of the 75% industry-wide container utilization rate was determined by discounting Royal Wolf’s actual historical utilization rate, which management believes is higher than the average utilization rate in the industry based upon its informal observations and its own ability to efficiently distribute and rehire fleet due to its national branch infrastructure. The competitor utilization rate was internally generated by conversations with corporate customers and larger users, as well as suppliers of used boxes and conversations with competitors. The 20’ foot sales rate was determined by Royal Wolf management after discussions with wholesalers, shipping lines, and container leasing companies, as well as its own experience in selling boxes year to date. We have no independent corroboration of this information, and there is no assurance that this internally-generated information is accurate or complete; and |
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| • | Sales revenues: number of containers sold annually times average standard 20’ Container retail sale price for the region. |
The portable storage market has experienced steady growth since the mid-1990s. Although there is no official forecast of industry growth rates or the future potential size marketDelivery and Installation, Return and Dismantle, and Other Site Services. Pac-Van delivers and installs all three product lines directly to its customers’ premises. Installation services range from simple leveling for portable storage in Australia, we believe thatto complex seaming and joining for modular buildings. Pac-Van will also provides skirting and ramps as needed by the customer. Depending on the type of unit some states will also require tie downs and other features to secure the unit. Once a number of factors suggest thatunit is on site at a customer location, Pac-Van’s site services include relocating the market will continue to grow:
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| • | The level of knowledge among potential customers regarding the availability and benefits of containerized storage in key Australian markets, such as the construction and mining industries, is still low; |
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| • | Suppliers and customers continue to develop further uses for portable containers, thereby broadening the market for portable containers; and |
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| • | As the market leader in Australia, Royal Wolf has consistently achieved organic growth and based, in part, on growth in the market as a whole. |
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Royal Wolf’s competition in this market is regionalized and highly fragmented. In most locations, Royal Wolf competes with several mid-sized to large-sized regional competitors, including SimplyContainers, Macfield, GE Seaco and ANL CGM, as well as smaller, full and part-time operators. Local competitors are regionally focused, and are usually more capital-constrained. In general, most are therefore heavily reliant on monthly sales performance, have slowly growing rental fleets and limited ability to transact larger deals.unit.
The following table summarizes information about Royal WolfOther Ancillary Products and its principal competitors in the portable storage container market:
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| | | | | Estimated
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| | Scope of
| | | Lease
| |
Competitor
| | Operations | | | Containers | |
|
Royal Wolf | | | National | | | | 17000 | |
GE Seaco | | | National | | | | 7000 | |
Simply Containers | | | Regional | | | | 7000 | |
Macfield | | | Regional | | | | 7000 | |
ANL CGM | | | Regional | | | | 2000 | |
The foregoing table summarizes information regarding Royal Wolf and its principal competitors in the portable buildings market. This information was compiled by management based upon senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 regional yellow pages, and discussions with corporate customers and suppliers of used boxes such as wholesalers, shipping lines, and container fleet lessors. We have no independent corroboration of this market information, and there is no assurance that this internally-generated information is accurate or complete.
Portable Buildings Market
The portable buildings market in Australia is estimatedServices. In addition to have generated revenue totalling $760 million in the year ending June 2006, of which approximately $450 million(1) relates to the markets in which Royal Wolf offers a competing product. The portable buildings market consists of the following:
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| • | Engineering, construction and resources — approximately 50%. |
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| • | Non-residential building construction — approximately 35%. |
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| • | Recreation and holiday market — approximately 15%. |
Within the engineering, construction and resources market, portable buildings are used for site offices, toilet and shower facilities, and worker housing and temporary accommodation blocks. This market is influenced by trends in public and private sector spending on infrastructure, generally, and, particularly, mine development and road and pipeline construction.
Demand from the non-residential buildings market principally stems from the demand for work sheds, site offices, industrial garages and temporary warehousing. Demand can be significantly affected by special projects such as the 2000 Olympic Games and 2006 Commonwealth Games hosted in Australia.
The recreation and holiday market is increasingly becoming an important source of demand, particularly for the supply of fitted out cabins to be used as rental accommodations and second homes on purchased blocks of land. Growth in demand has been driven by growth in disposable income and increased leisure time associated with an aging population.
We believe that the portable buildings market will grow over the medium term, driven in part by a cyclical expansion in the mining and construction markets. We also believe that differentiation and new portable building
(1) Source — IBISWorld Industry Report — Prefabricated Metal Building Manufacturing in Australia — C2911 30th March 2006. This Report may be obtained for a fee by contacting IBIS World Pty. Ltd.
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leasing it core product line, Pac-Van provides ancillary products such as steps, furniture, portable toilets, security systems, and other items to its customers for their use in connection with its equipment. Pac-Van also offers its lease customers a damage waiver program that protects them in case the hazardous materialsleased unit and containerized portable office and portable housing units introduced by Royal Wolf in 2005 will act as a stimulusis damaged. For customers who do not select the damage waiver program,Pac-Van bills them for longer-term growth in the market as older style products are replaced.cost of any repairs.
Pac-Van complements its core leasing business by selling either existing rental fleet assets or assets purchased specifically for resale. Management estimates that nearly 40% of the sales come from existing fleet units. The lease and sale of containerized portable buildings have major advantages over traditional portable buildings in termsthese in-fleet units has historically been a cost-effective method of transportability, securityreplenishing and flexibility. We believe that Royal Wolf’s launchupgrading its lease fleet. As with the leasing business, Pac-Van provides additional services when selling units. These services range from delivery to full scale turnkey solutions. In a turnkey solution, Pac-Van is providing not only the underlying equipment but also a full range of its portable buildings line of products in late 2005 represents a significant new marketancillary services, such as foundation, interior decorating, and growth opportunitylandscaping, necessary to make the equipment operational for Royal Wolf.the customer.
In the portable buildings markets, Royal Wolf competes with three or four other large participants who manufacture their own units and most of whom offer units for both lease and sale to customers. These competitors include Coats, ATCO, Ausco, Nomad and Fleetwood. At present, Royal Wolf has a negligible presence in this market. The major barrier to entry for new participants is the degree of market penetration necessary to create a wide profile with contractors and clients. Penetrating and competing with the range of products and number of depots and agencies offered by incumbent operators tends to inhibit new entrants. As Royal Wolf already has a national sale and distribution network, established supply channels and a strong profile in its target markets, many of the barriers to entry applicable to other new entrants are not applicable to it.
The following table summarizes information regarding Royal Wolf and its principal competitors in the portable buildings market. This information was compiled by management using the IBIS Report previously referenced, as well as and senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 regional yellow pages, and discussions with corporate customers and suppliers of used boxes such as wholesalers, shipping lines, and container fleet lessors. We have no independent corroboration of this market information, and there is no assurance that this internally-generated information is accurate or complete.
| | | | | | | | |
| | | | | Estimated
| |
| | Scope of
| | | Lease
| |
Competitor
| | Operations | | | Buildings | |
|
Coates | | | National | | | | 22000 | |
Ausco | | | National | | | | 15000 | |
Nomad | | | National | | | | 10000 | |
Atco | | | National | | | | 8500 | |
Royal Wolf | | | National | | | | 500 | |
Freight Container Market
Based upon its own internal analysis, RWA’s management estimates that the freight container market in Australia generates approximately $29 million in aggregate annual lease and sales revenues. The rate of growth in this industry has been slow compared with the portable container storage and portable buildings market, which reflects the relative maturity of this industry.
Although there is potential for growth in the freight container market as more road and rail carriers recognize the efficiencies of containerization, Royal Wolf’s present strategy is to maintain rather than grow its container fleet investment and dependence upon this sector of its business activities. Competitors include MacField, GESeaco, Cronos, and Simply Containers.
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The following table summarizes information regarding Royal Wolf and its principal competitors in the freight container market. The information in the table below was derived from Royal Wolf senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 regional yellow pages, and discussions with corporate customers and suppliers of used boxes such as wholesalers, shipping lines, and container fleet lessors. We have no independent corroboration of this market information, and there is no assurance that this internally-generated information is accurate or complete.
| | | | | | | | |
| | | | | Estimated
| |
| | Scope of
| | | Lease
| |
Competitor
| | Operations | | | Containers | |
|
Macfield | | | National | | | | 3500 | |
Royal Wolf | | | National | | | | 2400 | |
Cronos | | | National | | | | 1250 | |
Simply Containers | | | National | | | | 1250 | |
Leasing versus Sale
Royal Wolf’s business model is focused on both the leasing and sale of its products.
Monthly lease rates typically range from approximately $64 to $110 (higher for portable buildings and more specialized containers). Average monthly lease fleet utilization has historically ranged from 81% to 91%. Lease contracts range from30-day short-term leases to long-term leases with a minimum commitment ranging fromtwo-to-five years and average more than twelve months.
Royal Wolf has a strong and scaleable lease platform with significant geographical reach and a recognizable brand identity. Royal Wolf’s lease fleet has grown from 8,171 units in June 2003 to approximately 16,000 units in June 2006.
Economics of container rental model
Royal Wolf estimates that its container lease fleet products have economic lives of up to 30 years. Customers typically request the products by size or intended application, not by age or condition. As a result, standardized products historically have generated comparable lease rates throughout their useful lives.
Sales activity
Historically, capital constraints have limited the extent to which Royal Wolf has been able to grow its lease fleet, so Royal Wolf has pursued a hybrid model — funding growth in the lease fleet through container sales. Sales not only help fund Royal Wolf’s lease fleet growth, but also provide a vehicle for profitably disposing of surplus or aging lease fleet equipment. Royal Wolf has enjoyed a consistent sale market for its products, with sales averaging 12,000 or more units each year since 2003.
Branch network
Royal Wolf leases and sells its products from an Australia-wide network of 15 Customer Service Centers, or CSCs, the largest branch network in Australia of any company in the business of selling and leasing portable storage containers. Royal Wolf is represented in all major locations, and is the only container leasing and sales company with a nationally integrated infrastructure and work force. A typical Royal Wolf CSC consists of a leased site of approximatelytwo-to-five acres with a sales office, forklifts and all-weather container repair workshop. CSC office staffing ranges from two to 15 people and consists of a Branch Manager supported by the appropriate level of sales, operations and administrative personnel. Yard and workshop staffing usually ranges between one and 12 people and can consist of welders, spray painters, boilermakers, forklift drivers and production supervisors. CSC inventory holding ranges between 100 and 500 containers at any one time, depending on market size and throughput demand.
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The following illustrates Royal Wolf’S existing CSC locations:
Products
Royal Wolf is the only container company in Australia with both the national presence and product range capable of servicing all sectors of the domestic rental & sales market. The Company’s key products include:
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Portable storage containers: | | 10’, 20’ & 40’ general purpose units |
| | Mini Cube units |
| | Dangerous Goods containers |
| | Refrigerated containers |
Portable container buildings: | | Site offices & Cabins |
| | Workforce accommodation unit |
| | Luxury accommodation unit |
| | Ablutions block |
Freight Containers: | | Curtain-side containers |
| | 20’ & 40’ Hi-cube containers |
| | 20’ & 40’ two pallet-wide containers |
| | Side-opening door containers |
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CustomersCustomer
Royal WolfPac-Van has established strong relationships with a diverse set of customers, ranging from large national retailers and manufacturers to local sole proprietors. During 2007Pac-Van provided its portable storage, mobile offices and modular building products to a diversified base of approximately 7,000 national, regional and local companies in a variety of industries including, construction, industrial, manufacturing, education, service, and government sectors. This distribution is reflective of the both the strength of Pac-Van’s branch network and the flexibility of its products.
In 2007, Pac-Van generated 70% of its revenues from leasing and 30% of its revenues from sales. Pac-Van’s largest leasing customer accounted for approximately 1% of total leasing revenues and its top ten customers accounted for approximately 2% of its total leasing revenues.
On an aggregate basis, Pac-Van estimates that its most significant customers in terms of revenues participate in the construction, services, retail, manufacturing, transportation, communications and utilities, wholesale and government sectors
Construction. Construction customers include a diverse selection of contractors and subcontractors who work on both commercial and residential projects. Pac-Van believes its construction customer base is characterized by a wide variety of contractors and subcontractors, including general contractors, mechanical contractors, plumbers, electricians and roofers. Pac-Van’s revenues generated from the construction industry decreased from 53% in 2006 to 50% in 2007. Contractors typically use Pac-Van’s products to provideon-site office facilities and to securely store construction materials and supplies at construction sites. Nevertheless, Pac-Van believes the majority of its lease and lease-related revenue is derived from the commercial construction market. Demand from Pac-Van’s construction customers tends to be higher in the second and third quarters when the weather is warmer, particularly in the United States.
Services. Service customers include equipment leasing companies that sublease Pac-Van’s equipment, entertainment companies, schools, hospitals, medical offices and theme parks. These customers typically use Pac-Van’s storage containers to store a wide variety of goods. These customers also lease mobile offices for special events.
Retail. Retail customers include both large national chains and small local stores. These customers typically lease storage containers and storage trailers to store excess inventory and supplies. Retail customers also use Pac-Van’s storage products during store remodeling or refurbishment. Demand from these customers can be seasonal and tends to peak during the winter holidays.
Manufacturing. Manufacturing customers include a broad basearray of over 12,000 activemanufacturers, including oil refineries, petrochemical refineries, carpet manufacturers, textile manufacturers and bottling companies. They generally lease storage containers and storage trailers to store both inventory and raw materials.
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Government. Government customers with no single customer constituting more than 3% ofinclude public schools, correctional institutions, fire departments as well as the Company’s annual revenue for the fiscal year ended June 30, 2006. Our customer base includes the retailU.S. military. These customers generally lease storage containers and manufacturing sectors, councilsstorage trailers to safeguard materials used in their day-to-day operations and various government departments, the farming and agricultural community, the building and construction industry, clubs and sporting associations, the mining sector and the general public. In order to minimize the effect from a financial downturn in any particular industry sector, the Company spreads its business activities across the largest number of customers and widest number of industry sectors possible.
Royal Wolf provides its customers a solutions-orientated approach, with high reliability in equipment quality and supply, with prompt and efficient delivery and pick-up, and with superior service and product knowledge. This is supported by a highly responsive national marketing team, in-house finance, control and engineering expertise, plus nationally linked fleet management and accounting systems. Royal Wolf is the largest and only truly national supplier of container products in Australia, and the only container company with the scale, capacity and geographical spread to service a full range of customers; from small local accounts right through to the largest national corporations.
EmployeesBranch Network
As a key element to its market leadership strategy,Pac-Van maintains a network of June 30, 2006, Royal Wolf employed26 branch offices throughout the United States. This network enables it to increase product availability and customer service within regional and local markets. Customers benefit because they are provided with improved service availability, reduced time to occupancy, better access to sales representatives, the ability to inspect units prior to rental and lower freight costs which are typically paid by the customer.Pac-Van benefits because it is able to spread regional overhead and marketing costs over a larger lease base, redeploy units within its branch network to optimize utilization, discourage potential competitors by providing ample local supply and offer profitable short-term leases which would not be profitable without a local market presence.
Branches are generally headed by a dedicated branch manager and branch operations are led by three regional vice presidents who collectively average more than 10 years of experience withPac-Van. Management believes it is important to encourage employees to achieve specified revenue and profit levels and to provide a high level of service to customers. Regional and branch managers’ compensation is based upon the financial performance of their branches and overall corporate performance which and in some cases sales commission. Sales representatives compensation includes both base and commission elements.
Operations
Leasing. Leasing revenue is a function of average monthly rental rate, fleet size and utilization.Pac-Van monitors fleet utilization at each branch. For 2007, average fleet utilization of the North America fleet was approximately 167 persons on78%. WhilePac-Van adjusts its pricing to respond to local competition in markets, management believes that it generally achieves a full-time basis, including employeesrental rate equal to or above that of competitors because of the quality ofPac-Van’s products and its high level of customer service. As part of leasing operations,Pac-Van sells used modular space units from its lease fleet at fair market value or, to a much lesser extent, pursuant to pre-established lease purchase options included in the terms of its CSC locations,lease agreements. Due in part to an active fleet maintenance program,Pac-Van’s units maintain a substantial portion of their initial value which includes the cost of the units as follows:well as costs of significant improvements made to the units.
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New Unit Sales. New unit sales include sales of newly-manufactured modular space units.Pac-Van does not generally purchase new units for resale until it has obtained firm purchase orders (which are generally non-cancelable) for such units. New modular space units are generally purchased more heavily in the late spring and summer months due to seasonal classroom and construction market requirements.
| | |
| • | Operations — 49; |
|
| • | Sales — 36; |
|
| • | Production — 35; |
|
| • | Management — 20; |
|
| • | Finance — 19; and |
|
| • | Support — 8. |
Delivery and Installation. Pac-Van provides delivery, site-work, installation and other services to its customers as part of its leasing and sales operations. Revenues from delivery, site-work and installation result from the transportation of units to a customer’s location, site-work required prior to installation and installation of the units which have been leased or sold. Typically units are placed on temporary foundations constructed by service technicians, and service personnel will also generally install ancillary products.Pac-Van also derives revenues from tearing down and removing units once a lease expires.
NoneRefurbishment and Maintenance of Royal Wolf’s employeesFleet
Ongoing maintenance to Pac-Van’s lease fleet is performed on an as-needed basis and is intended to maintain the value of its units and keep them in lease-ready condition. Most of this maintenance on storage containers, storage trailers and mobile offices is primarily performed in-house. Maintenance requirements on containers are coveredgenerally minor and include removing rust and dents, patching small holes, repairing floors, painting and replacing seals around the doors. Storage trailer maintenance may also include repairing or replacing brakes, lights, doors and tires. Brake repairs are typically outsourced. Maintenance requirements for offices tend to be more significant than for storage containers or storage trailers and may involve repairs of electric wiring, air conditioning units, doors, windows and roofs. Major office repairs are often outsourced. Whether performed by Pac-Van or a collective bargaining agreement. Royal Wolf’sthird party, the cost of maintenance and repair of Pac-Van’s lease fleet is included in its yard costs and is expensed as incurred. Pac-Van believes that its maintenance program ensures a high quality fleet.
Capital Expenditures
Pac-Van closely monitors fleet capital expenditures, which include fleet purchases and any improvement costs to existing units that may be capitalized. Generally, fleet purchases are controlled by field and corporate executives, and must pass fleet purchasing policy guidelines (which include ensuring that utilization rates and unrentable units levels are reviewed for acceptability, that redeployment, refurbishment and conversion options have been considered, and that specific return on investment criteria have been evaluated).Pac-Van purchases modular and mobile office units through third-party suppliers The top three suppliers of units for 2007 represented approximately 52% of all fleet purchases, and the top ten suppliers represented approximately 85% of all fleet purchases.
Pac-Van believes that its fleet purchases are flexible and can be adjusted to match business needs and prevailing economic conditions.Pac-Van does not generally enter into long-term purchase contracts with manufacturers and can modify its capital spending activities to expenditures to correspond to market conditions. For example, gross fleet capital expenditures, prior to proceeds from sales of used units, were approximately $10 million in 2005, $21 million in 2006, and $26 million in 2007. Purchases of delivery vehicles and yard equipment are part of plant, property and equipment and have averaged $600,000 in the last three years. This is the equivalent of “maintenance capital expenditures.”
We supplement our fleet spending with acquisitions. Although the timing and amount of acquisitions are difficult to predict, management believesconsiders its relationship withacquisition strategy to be opportunistic and will adjust its employees is good. Royal Wolf has never experienced any material labor disruption, and its management is not aware of any efforts or plans to organize its employees.fleet spending patterns as acquisition opportunities become available.
Sales and Marketing
Royal Wolf’sAs of June 30, 2008, Pac-Van’s sales and marketing strategyteam consisted of 38 people. Members of Pac-Van’s sales group act as its primary customer service representatives and are responsible for fielding calls, processing credit applications, quoting prices, following up on quotes and handling orders. Pac-Van’s marketing group is designed to reach thousandsprimarily responsible for coordinating direct mail, Internet marketing and other advertising campaigns, producing company literature, creating promotional sales tools and performing the administration of potential customers. Communication with potential customers is predominantly generated through a combination of Yellow Pagesits sales management tools. Pac-Van’s centralized support services group handles all billing, collections and print media advertising, phoneother support functions, allowing its sales and cold calling, web-site, word of mouth, walk-ins and direct mail.marketing team to focus
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The customer hiringon addressing the needs of its customers. Pac-Van’s marketing programs emphasize the cost-savings and convenience of using its products versus constructing temporary or buying process is being driven by customer awarenesspermanent offices storage facilities. Pac-Van markets its services through a number of promotional vehicles, including the products combined with moderate price shopping. Typical customers may shop two, perhaps three suppliers, but they do not spend much time doing it — the valueyellow pages, prominent branding of the transaction being relatively low to the value of their time. The key is for Royal Wolf to be one of the suppliers that a potential customer calls.
Product Procurement
Royal Wolf purchasesout-of-service marine cargo containers from a wide variety of international shipping linesits equipment, telemarketing, targeted mailings, trade shows and container leasing companies, plus new container products directly from container manufacturerslimited advertising in China. Royal Wolf is the largest buyer of both new and used container products for the Australian market.publications.
The majoritydevelopment of used containers purchased are standard 20’Pac-Van’s marketing programs involves branch managers, regional vice presidents and 40’ units which Royal Wolf converts, refurbishessenior management, all of whom participate in devisingbranch-by-branch marketing strategies, demand forecasts and customizes. Royal Wolf also purchases new containers directly from container manufacturers.
Eachits branch marketing budgets. Pac-Van’s branch managers, working with its corporate marketing team, determine the timing, content and target audience of direct mailings, specials and promotional offers, while its corporate office manages the marketing process itself to ensure the consistency of its message, achieve economies of scale and relieve its local branches of the following material suppliers wasadministrative responsibility of running its marketing programs. Pac-Van believes that its approach to marketing is consistent with the source of 5% or more of Royal Wolf’s container purchases during the fiscal year ended June 30, 2006:
| | | | |
Nanton CIMC | | | 22 | % |
Triton Container | | | 18 | % |
Shanghai Baoshan | | | 12 | % |
GlobeStar Shipping | | | 6 | % |
TAL International Container | | | 6 | % |
Florens Container | | | 5 | % |
Royal Wolf purchases new container products under purchase orders issued to container manufacturers, which the manufacturers may or may not accept or be able to fill. Royal Wolf has no contracts with any supplier. There are several alternative sources of supply of containers, and Royal Wolf is not dependant upon any one manufacturer and is able to purchase products from a variety of suppliers. The failure of one or morelocal nature of its suppliersbusiness and allows each branch to timely deliver containers to Royal Wolf could adversely affectemploy a customized marketing plan that fosters growth within its operations. If these suppliers do not timely fill Royal Wolf’s purchase orders, or do not properly manufacture the ordered products, Royal Wolf’s reputation and financial condition also could be harmed.particular market.
Fleet Management Information Systems
Royal Wolf regularly needs to re-locate containers between its CSCs to meet peaks in regional demand and optimize individual CSC inventory levels. Royal Wolf has close relationships with the national road and rail haulage companies that enable it to transport the majority of containers interstate at attractive rates.
Royal Wolf’sPac-Van’s management information systems are instrumental to ourits lease fleet management and targeted marketing efforts. Fleetefforts and allow management to monitor operations at branches on a daily, weekly, and monthly basis. Lease fleet information is updated daily at the branch level whichand verified through a monthly physical inventory by branch personnel. This provides management with on-line access to utilization, leasing and salelease fleet unit levels and rental revenues by branch or geographic region.
Growth Strategy In addition, an electronic file for each unit showing its lease history and Opportunities
Royal Wolf’s experienced senior management team has demonstrated consistent execution of its growth strategycurrent location/status is maintained in the information system. Branch sales people utilize the system to obtain information regarding unit condition and has successfully positioned Royal Wolf to capitalize on further growth opportunities. With average monthly lease fleet utilization exceeding 80%, reliable sales revenues, expanding market opportunity for its growing product range, acquisitionavailability. The database tracks individual units by serial number and new site development strategies, we believe Royal Wolf is well-positioned to continue its growth while leveraging its existing infrastructure to enhance margins.
The principal components of Royal Wolf’s growth strategy include:
| | |
| • | Lease fleet growth through rate increases, utilization and volume growth; |
|
| • | Potential to implement transport services to improve service and access pick up/ drop off benefits; |
|
| • | In-market acquisitions; |
|
| • | Geographic expansion — Regional and Asia/Pacific; |
|
| • | Complementary products; |
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| | |
| • | Further penetration of mining industry; and |
|
| • | Further penetration of defence industries |
The container storageprovides comprehensive information including cost, condition and portable building industry is a relative young industry in Australia, the youth of the market presenting significant growth opportunities for Royal Wolf. Although container use for portable storage, domestic freight movementother financial and portable building applications is increasing, there are still considerably more uses for containers still to be developed. Royal Wolf’s market opportunity is to fully develop and service these applications, part of the attraction being that public awareness of these products is still relatively low.unit specific information.
Regulatory Matters
Royal WolfPac-Van must comply with various federal, state and local environmental, transportation, health and safety laws and regulations in connection with its operations. Royal WolfPac-Van believes that it isits in substantial compliance with these laws and regulations. In addition
A portion of Pac-Van’s units are subject to compliance costs, Royal Wolf may incur costs related to alleged environmental damage associated with past or current properties owned or leased by it. Royal Wolfregulation in certain states under motor vehicle and similar registrations and certificate of title statutes. Pac-Van believes that it has complied in all material respects with all motor vehicle registration and similar certificate of title statutes in states where such statutes clearly apply to modular space units. However, in certain states, the applicability of such statutes to its liability,modular space units is not clear beyond doubt. If additional registration and related requirements are deemed to be necessary in such states or if any, for any environmental remediationthe laws in such states or other states were to change to require compliance with such requirements, Pac-Van could be subject to additional costs, fees and taxes as well as administrative burdens in order to comply with such statutes and requirements. Pac-Van does not believe the effect of such compliance will not have abe material adverse effect onto its business, results of operations or financial condition. However, we cannot be certain that the discovery of currently unknown matters or conditions, new laws and regulations, or stricter interpretations of existing environmental laws will not have a material adverse effect on Royal Wolf’s business or operations in the future.
Trademarks
Royal Wolf isPac-Van owns a partynumber of trademarks important to a licensing agreement with Triton CSA International B.V.its business, including Pac-Van® and “We Put More Business Into Space®”. Material trademarks are registered or are pending for the use of the “Royal Wolf” name and trademark in connection with its retail sales and leasing of intermodal cargo containers and other container applicationsregistration in the domestic storage market within AustraliaU.S. Patent and surrounding islandsTrademark Office. Registrations for such trademarks in the Pacific Islands region. The license was entered into in December 2003 in connection with RWA’s purchase of Royal Wolf from Triton in consideration of a nominal $1.00 payment by Royal Wolf. The license is royalty-free to Royal Wolf and exclusive within this territory. The licenseUnited States will continue in perpetuitylast indefinitely as long as Royal WolfPac-Van continues to use and maintain the “Royal Wolf” nametrademarks and trademark as the exclusive name for its business and mark for its products, subject to the termination provisions of the license. The license may be terminated by the licensor upon 30 days notice in the event Royal Wolf breaches its obligations under the license. The license will terminate automatically if Royal Wolf becomes insolvent or ceases to sell products under the trademark for a continuous period of 30 months. The license is nontransferable by Royal Wolf without the consent of the licensor, and we have obtained the licensor’s consent to our acquisition of Royal Wolf. Royal Wolf has represented to us that it believes that it is in compliancerenew filings with the agreement and there are no claims pending against Royal Wolf challenging its right to use the “Royal Wolf” name and trade mark within Royal Wolf’s region of business.applicable governmental offices.
Legal ProceedingsCompetition
Currently, Royal WolfAlthough Pac-Van’s competition varies significantly by market, the modular space industry, in general, is not involvedhighly competitive. Pac-Van competes primarily in any material lawsuitsterms of product availability, customer service and price. Pac-Van believes that its reputation for customer service and its ability to offer a wide selection of units suitable for various uses at competitive prices allows it to compete effectively. However, Pac-Van’s largest North American competitors, ModSpace and Williams-Scotsman, have greater market share or claims arising out of the normal course of our business. The nature of the Royal Wolf’s business is such that disputes can occasionally arise with vendors including suppliers and subcontractors, and customers over warranties, contract specifications and contract interpretations among other things. Royal Wolf assesses these matters on acase-by-case basis as they arise. Reserves are established, as required, based on its assessment of its exposure. Royal Wolf has insurance policies to cover general liability and workers compensation related claims. In the opinion of Royal Wolf’s management, the ultimate amount of liability not covered by insurance, if any, under pending litigation and claims will not have a material adverse effect on Royal Wolf’s financial position or operating results.
Compensation Discussion and Analysis
Overview
The board of directors of RWA is responsible for establishing, implementing and monitoring RWA’s executive compensation program. This section of the proxy statement describes RWA’s historical compensation program for its executive officers. This discussion does not necessarily relate to our executive compensation philosophy or program following the Royal Wolf acquisition. For information regarding our executive compensation matters, seeproduct availability in some markets
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and have greater financial resources and pricing flexibility than it. Other regional competitors include Acton Modular, Vanguard Modular and Satellite Modular.
‘‘Future Compensation Policies
With the exception of mobile offices in the U.S., the portable storage industry is highly fragmented, with numerous participants at the local level leasing and Procedures“ belowselling storage containers, storage trailers and other structures used for temporary storage. Pac-Van believes that participants in this sectionits industry compete on the basis of customer relationships, price, service, delivery speed and “Directorsbreadth and Management Followingquality of equipment offered. In every area Pac-Van serves, Pac-Van competes with multiple local, regional, and national portable storage providers. Some of Pac-Van’s competitors may have greater market share, less indebtedness, greater pricing flexibility or superior marketing and financial resources. Pac-Van’s largest competitors in the Acquisition” elsewherestorage container and storage trailer markets in this proxy statement.
the U.S. are Mobile Mini, Williams Scotsman, Allied Leasing, Haulaway, Eagle Leasing and National Trailer Storage. Pac-Van’s largest competitors in the U.S. mobile office market are ModSpace, Williams Scotsman and Mobile Mini.
Compensation Philosophy and ObjectivesProperties
RWA’s executive compensation programBranch Locations. Pac-Van leases all of its 26 branch locations. Most of Pac-Van’s major leased properties have remaining lease terms of at least one year, and Pac-Van believes that none of its individual branch locations is designedmaterial to reward the achievementits operations. Pac-Van also believes that satisfactory alternative properties could be found in all of RWA’s annual, long-term and strategic goals, as well as to attract and retain superior people in key positions by providing compensation that is reasonable and competitive relative to the compensation paid to similarly situated executives in Australia. In order to achieve these objectives, RWA provides its executives, including the “named executive officers” identified in the Summary Compensation Table, below, both cash and stock-based compensation that rewards performance measured against established goals.
Historically, RWA has not utilized outside consultants in connectionmarkets, if necessary. The Pac-Van corporate office shares a leased property with its executive compensation matters. In 2006, however, RWA’s board of directors engaged Godfrey Remuneration Service, an outside executive compensation consulting firm, or Godfrey, to advise the board with respect the compensation of Robert Allan, RWA’s newly appointed Chief Executive Officer. Michael Baxter, who previously served as RWA’s Chief Executive Officer, was one of the founders and principal management shareholders of RWA. In connection with the appointment of Mr. Allan to succeed Mr. Baxter, the RWA board of directors engaged Godfrey to make a recommendation to the board regarding the compensation of a non-shareholder Chief Executive Officer such as Mr. Allan. In particular, the board directed Godfrey to review the compensation of non-shareholder chief executives of other Australian companies with annual revenues of between approximately AUS$60 million and AUS$100 million and with approximately 100 employees, and to make a recommendation to the RWA board regarding Mr. Allan’s base salary. Based upon its review, Godfrey recommended a base annual salary for Mr. Allan of approximately $299,400. Based upon this advice, and in consultation with Mr. Allan, the RWA board determined to adopt Godfrey’s recommendation, but to phase-in the recommended salary over time and predicated on Mr. Allan’s satisfactory performance as Chief Executive Officer. Commencing March 1, 2006, Mr. Allan’s base salary was increased from approximately $173,360 to approximately $220,640; and commencing July 1, 2006, it was increased further to approximately $236,400. The board of directors of RWA currently is considering implementing the final increase in Mr. Allan’s compensation to the full recommended $299,400, which increase is expected to be made effective retroactively to the beginning of RWA’s current fiscal year that commenced on July 1, 2007.
RWA has not implemented or offered any retirement plans, pension benefit or deferred compensation plans for its executive officers.Indianapolis branch.
Setting Executive CompensationEmployees
The boardAs of directors asJune 30, 2008, Pac-Van had 214 employees. None of our employees are covered by a whole establishes RWA’s executive compensation in consultationcollective bargaining agreement. Management believes its relationship with RWA’s Chief Executive Officer. The board historically reviewsour employees is good. We have never experienced any material labor disruption and sets executive compensation during May or June of each year, in conjunction with RWA’s annual budgeting process. As part of this process, RWA’s Chief Executive Officer, in consultation with RWA’s Chief Financial Officer, recommends to the board of directors a budgeted amount of aggregate annual executive compensation, which typically includes a recommended increase in aggregate compensation (as adjusted for any new hires and other changes in executive personnel) at or slightly above the increase in the Australian national consumer price index over the prior year. Once the aggregate executive compensation budget is approved by the RWA board of directors, the Chief Executive Officer, in consultation with RWA’s Chief Financial Officer and consistent with the requirementsare unaware of any written employment agreements with RWA’s executives, submitsefforts or plans to the RWA board his recommendations with regard to the base salaries and annual cash bonuses of each of the individual executives.organize our employees. The board of directors of RWA, in its discretion, is free to adopt or modify the recommendations of the Chief Executive Officer.
2007 Executive Compensation Components
For the fiscal year ended June 30, 2007, the main elements of compensation for the named executive officers were:
employees are grouped accordingly:
| | |
| | • | annual base salary;Branch Management — 22; |
| |
| | • | annual performance-based cash bonus plan;Sales and Marketing — 38; |
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| | |
| | • | historical stock option-based equity compensation.Branch Operations and Administration — 125; |
|
| • | Corporate Staff — 22; and |
|
| • | Senior Management — 7. |
RWA’s long-term compensation has consisted solely of one-time awards of stock options under its 2004 Employee Stock Option Plan, or ESOP. The ESOP was established in 2004 in conjunction with the purchase of Royal Wolf by Equity Partners, the private equity firm and former majority shareholder of RWA.
The board of directors of RWA follows no particular policy for the allocation of executive compensation between long-term compensation and current annual compensation. The RWA board also has no established policy with respect to the allocation between cash and non-cash compensation. The stock options previously granted by RWA were determined by the board of directors of RWA, including board representatives of Equity Partners, in consultation with senior management and the individual executives, including new hires such as Mr. Allan. The options were to become vested and exercisable only in conjunction with a “realization event” such as a sale or merger of RWA and, as such, the option grants bore no relationship to any other long-term goals of RWA or correlation with a possible decline in the value of RWA or any cost to RWA or benefit to the executives.
Base Salary
RWA provides executive officers a base salary to compensate them for services rendered during the fiscal year and in order to remain competitive in attracting and retaining qualified executives. Base salary for each named executive officer is determined based primarily on the negotiated base salaries called for in the executive’s written employment agreement, as adjusted based upon the board’s review of the executive’s compensation and the performance of the executive. Merit-based or inflation-based salary adjustments are considered annually as part of the board’s year-end review process in conjunction with the annual budget and performance forecasting of management, which is generally conducted during May of each year. As a general rule, base salaries constitute between approximately 70% to 90% of the maximum total annual compensation of RWA’s executive officers, including the cash bonuses described below.
Cash Bonus Program
The RWA board of directors has established an annual cash bonus program under which each executive officer is eligible to receive a cash bonus representing up to approximately 10% to 30% of his total annual cash compensation based upon RWA’s achievement of annual performance targets discussed below and, to a lesser extent, the board’s subjective evaluation of “key performance indicators” established for each executive officer. Of this cash bonus amount, a percentage ranging from approximately 70%, in the case of Messrs. McCann and Warren, to up to 100% in the case of Mr. Allan, is based upon RWA’s achievement of annual performance targets. At 90% of the target performance levels, executive officers are awarded approximately one-third of the portion of the total annual bonus amount attributable to the achievement of the performance targets. This percentage increases on a sliding scale to up to 100% of such bonus amount if RWA achieves 100% of the performance target. The balance of the maximum potential bonus is based upon the board’s evaluation of various key performance indicators established yearly for each executive officer. Key performance indicators may include such matters as achievement of targeted revenues for particular products, development of employee training programs and development or implementation of other new business initiatives.
The performance target levels for the award of cash bonuses generally are established by the board in consultation with the Chief Executive Officer in conjunction with RWA’s budgeting process for the subsequent fiscal year. In connection with the development of RWA’s annual budgets, target amounts of revenues and EBITDA are established using assumptions concerning factors that have a direct and measurable effect upon RWA’s financial and operating performance. EBITDA for this purpose is measured by RWA’s net income as shown on its annual audited financial statements, before deduction for interest, income taxes, depreciation and amortization as reflected in such financial statement. The targeted revenues and EBITDA for fiscal 2007 were approximately 38% and 200%, respectively, greater than RWA’s actual revenues and EBITDA for fiscal 2006.
The achievement of the cash bonus performance targets are measured by RWA’s annual results of operations as reflected in its annual audited financial statements, which have not yet been completed for the fiscal year ended June 30, 2007. Management of RWA believes that it is reasonably likely that RWA will achieve at least 90% of its
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targeted revenues and EBITDA and, therefore, that RWA will pay cash bonuses to its executive officers for fiscal 2007. Whether and to what extent RWA will pay such cash bonuses will not be determined, however, until approximately August or September of this year. For purposes of illustration only, the following sets forth the maximum annual cash bonuses for 2007 payable to each of the named executive officers of RWA:
| | | | | |
| | | Maximum 2007
| |
Name | | Cash Bonus | |
| |
| Robert Allan | | $ | 79,000 | |
| Peter McCann | | $ | 39,000 | |
| James Warren | | $ | 87,000 | |
| Anthony Moore | | $ | 28,000 | |
| Greg Baker | | $ | 20,000 | |
Equity-Based Incentives
In 2004, the board of directors of RWA established the ESOP in connection with the buyout of Royal Wolf by Equity Partners and the management shareholders of RWA. The purpose of the ESOP was to enable RWA to afford its executive officers an appropriate stake in the success of Royal Wolf following the buyout.
The initial stock option awards to the executive officers of RWA were determined by negotiation between the board of directors and the individual executive officers, in consultation with Michael Baxter, the former Chief Executive Officer and founding shareholder of RWA. In addition to the initial stock option awards, some number of stock options were reserved for future grant to new hires. The Chief Financial Officer of RWA also received from RWA’s majority shareholder, Equity Partners, a separate stock option with respect to shares that were held by Equity Partners.
All of the stock option grants were subject to vesting requirements and were exercisable at nominal prices only upon a “realization event” as a long-term incentive to the executives to increase the value of RWA and help to accomplish a realization event.
Summary Compensation Table
The following table summarizes the 2007 compensation paid or accrued with respect to the two individuals who served as RWA’s Chief Executive Officer and Chief Financial Officer during fiscal 2007 and to RWA’s three other most highly compensated executive officers who were serving as such on June 30, 2007:
| | | | | | | | | | | | | | | | | |
| | | | | | Salary
| | | Bonus
| | | Total
| |
Name and Principal Position | | Year | | | ($) | | | ($)(1) | | | ($) | |
| |
| Robert Allan | | | 2007 | | | | 236,402 | | | | — | | | | 236,402 | |
| Chief Executive Officer | | | | | | | | | | | | | | | | |
| Peter McCann | | | 2007 | | | | 213,075 | | | | — | | | | 213,075 | |
| Chief Financial Officer | | | | | | | | | | | | | | | | |
| James Warren | | | 2007 | | | | 204,880 | | | | — | | | | 204,880 | |
| Chief Operating Officer | | | | | | | | | | | | | | | | |
| Anthony Moore | | | 2007 | | | | 173,360 | | | | — | | | | 173,360 | |
| Executive General Manager | | | | | | | | | | | | | | | | |
| Greg Baker | | | 2007 | | | | 172,918 | | | | — | | | | 172,918 | |
| Controller | | | | | | | | | | | | | | | | |
| | |
(1) | | Cash bonuses for fiscal 2007 will be determined based upon the achievement of target performance levels as reflected in RWA’s annual audited financial statements for the year ended June 30, 2007. The bonus awards, if any, are expected to occur in August or September 2007. |
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Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards at fiscal year end for any of RWA’s named executive officers.
Options Exercised
The following table sets forth certain information regarding the exercise or vesting of equity awards during fiscal year 2007 and the amount realized on such exercise or vesting for each of the named executive officers:
| | | | | | | | | |
| | | Option Awards | |
| | | Number of Shares
| | | Value Realized
| |
| | | Acquired On Exercise
| | | on Exercise
| |
Name | | (#) | | | ($)(1) | |
| |
| Robert Allan | | | 44,570 | | | | 334,719 | (2) |
| Peter McCann | | | 43,203 | | | | 325,940 | |
| Greg Baker | | | 50,000 | | | | 375,498 | (3) |
| | |
(1) | | The table assumes that the value of the shares was equal to the amount paid to the option holders in connection with Bison-GE’s purchase of RWA shares on March 29, 2007 and any additional amounts, which are indicated by footnote, payable to the option holders in connection with the completion of the Royal Wolf acquisition. The amounts paid or payable to the option holders were based upon the purchase price for the RWA shares paid or payable by Bison-GE and us. |
| | |
(2) | | Of the amount shown, $83,683 will be payable in connection with the completion of the Royal Wolf acquisition. |
| | |
(3) | | Of the amount shown, $75,100 will be payable in connection with the completion of the Royal Wolf acquisition. |
Employment AgreementsAvailable Information
RWA has written employment agreements with each of the named executive officers. The employment agreements have no severance pay provisions, but require a minimum notice period of between three and six months for termination of the named executive officer. For a discussion of RWA’s employment agreement with Robert Alan, who will be one of our executive officers following the Royal Wolf acquisition, see the discussion under “Our Management Following the Acquisition — Employment Agreements” in this proxy statement.
Quantification of Termination Payments and Benefits
The table below reflects the amount of compensation payable to each of RWA’s named executive officers in the event of termination of such executive’s employment by his voluntary resignation or termination, by RWA’s termination of the executive’s employment without prior written notice as called for in the named executive officer’s employment agreement, including termination following a change in control, and in the event of the executive’s death or permanent disability. The amounts assume that such termination was effective as of June 30, 2006, and thus are estimates only of the amounts which would be paid out to RWA executives upon their termination. The actual amounts to be paid out can only be determined at the time of the termination of employment.Our Internet website address is: www.PacVan.com.
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Termination Payments and Benefits
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Termination by RWA
| | | | | | | | | | |
| | | | | | w/o Prior Written
| | | | | | | | | | |
| | | | | | Notice, Whether
| | | | | | | | | | |
| | | | | | before or After
| | | | | | | | | | |
| | | | | | Change in
| | | Voluntary
| | | | | | | |
Name | | Benefit | | | Control | | | Termination | | | Death | | | Disability | |
| |
| Robert Allan | | | Base Salary | | | $ | 118,200 | | | | — | | | | — | | | | — | |
| Chief Executive Officer | | | | | | | | | | | | | | | | | | | | |
| Peter McCann | | | Base Salary | | | $ | 53,269 | | | | — | | | | — | | | | — | |
| Chief Financial Officer | | | | | | | | | | | | | | | | | | | | |
| James Warren | | | Base Salary | | | $ | 51,220 | | | | — | | | | — | | | | — | |
| Chief Operating Officer | | | | | | | | | | | | | | | | | | | | |
| Anthony Moore | | | Base Salary | | | $ | 43,340 | | | | — | | | | — | | | | — | |
| Executive General Manager | | | | | | | | | | | | | | | | | | | | |
| Greg Baker | | | Base Salary | | | $ | 43,230 | | | | — | | | | — | | | | — | |
| Controller | | | | | | | | | | | | | | | | | | | | |
Director Compensation
The following table sets forth the compensation paid to RWA’s directors for fiscal 2007:
Director Compensation Table
| | | | | |
| | | Fees Earned or
| |
| | | Paid in Cash
| |
Name | | ($) | |
| |
| Paul Jeffrey | | $ | 30,075 | |
| Rajeev Dhawan | | $ | 51,566 | |
| Richard Gregson | | $ | 51,566 | |
| Michael Baxter | | $ | 7,092 | |
| Douglas Trussler | | $ | 7,092 | |
| Andreas Hildebrand | | $ | 7,092 | |
Related Party Transactions
During fiscal 2007, there were no transactions or proposed transactions between RWA and any “related person” within the meaning of Item 404 ofRegulation S-K of the SEC’s rules and regulations. Any proposed related-person transaction would be subject to the review and approval or ratification by the board of directors of RWA after disclosure of all pertinent information regarding the interest in the transaction of the related person. The board of directors of RWA has not sought to specifically define the types of transactions that are covered by such policy, and has not reduced to writing its review and approval policies regarding related-person transactions. Following the acquisition of Royal Wolf, all related-party transactions by RWA will be governed by our policies regarding review and approval of such transactions.
Future Compensation Policies and Procedures
Following the completion of the Royal Wolf acquisition, all decisions regarding the compensation of our executive officers, including any officers of RWA, will be made by the compensation committee of our board of directors in accordance with its executive compensation policies and procedures adopted from time to time. Such future policies and procedures have yet to be established, but will be consistent in all respects with the SEC’s rules and regulations and the AMEX requirements and the provisions of any written employment agreements between RWA and its executive officers. Such future policies and procedures will not necessarily bear any relationship with RWA’s historical executive compensation policies and procedures described above.
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INFORMATION ABOUT THE SELLERS
Equity Partners and the Management Shareholders
Prior to March 29, 2007, the shareholders of RWA consisted of the management shareholders and one other shareholder, Equity Partners Two Pty Limited, an Australian private equity firm, or Equity Partners. Pursuant to the acquisition agreement, Bison-GE acquired all of the RWA shares owned by Equity Partners and approximately 50% of the RWA shares owned by the management shareholders for purchase consideration equivalent to the consideration that was originally negotiated by us with Equity Partners and the management shareholders. The terms of our original acquisition agreement to purchase all of the RWA shares were determined by arm’s-length negotiations between us and Equity Partners and the management shareholders. We had no affiliation or relationship with Royal Wolf or any of its affiliates prior the signing of the original acquisition agreement.
The address of Equity Partners and the management shareholders is c/o RWA, Suite 201, Level 2,22-28 Edgeworth David Avenue, Hornsby, Hi-Tech, New South Wales, Australia 2077, and their telephone number there is011-612-9482-3466.
Bison-GE
Bison Capital Australia LP, or Bison-GE, is a Delaware limited partnership. Bison-GE is affiliated with Bison Capital Management, LLC, or Bison Capital, a private equity firm, and GE Asset Management Incorporated on behalf of the General Electric Pension Trust, which are affiliates of General Electric Corporation, or GE.
Bison Capital is a Los Angeles-based private equity firm. Ronald F. Valenta has known Douglas B. Trussler, one of the founders of Bison Capital, since 1999, when Mr. Trussler was employed by Windward Capital Management LLC, an affiliate of Windward Capital Partners II, L.P., a private equity fund. In April 2000, Mr. Valenta, the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., and other Mobile Storage shareholders sold a majority interest in Mobile Storage Group, Inc. to Windward Capital Partners II, L.P. Mr. Trussler subsequently left Windward Capital Partners II, L.P. in December 2000 to found Bison Capital in May 2001. James K. Hunt, the other co-founder of Bison Capital, was appointed by Windward Capital Partners II, L.P. to the board of directors of Mobile Storage Group, Inc. in 2002.
During Mr. Valenta’s tenure as the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., Mobile Storage Group, Inc. obtained equipment financing from a financing affiliate of GE, acquired lease fleets from GE-affiliated container companies and purchased containers from GE affiliates. All of the dealings between Mobile Storage Group, Inc. and GE affiliates were on an arm’s-length basis in the regular course of business of Mobile Storage Group, Inc. Other than as described above, neither we nor our directors, officers or other affiliates have any relationships with GE, Bison-GE, or GE’s other affiliates.
We arranged for Bison-GE’s purchase of the RWA shares as an accommodation to enable us to avoid the possible termination of the original acquisition agreement and permit us time to complete the proxy review process by the Securities and Exchange Commission and present the proposed Royal Wolf acquisition to a vote of our stockholders. The terms of Bison-GE’s participation and the other terms of the amended acquisition agreement and related agreements were determined by arm’s-length negotiations among the parties. Except as described above, neither we nor any of our officers or directors has any affiliation or relationship with Bison-GE or any of its affiliates.
Bison-GE’s address is c/o Bison Capital Asset Management LLC, 10877 Wilshire Boulevard, Suite 1520, Los Angeles, California 90024, and its telephone number is(310) 260-6570.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ROYAL WOLF
You should read the following discussion and analysis of Royal Wolf’s consolidated financial condition and results of operations together with Royal Wolf’s “Selected Historical Consolidated Financial Information” and consolidated financial statements and notes thereto that appear elsewhere in this proxy statement. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements.
The historical consolidated financial results of Royal Wolf described below are presented in Australian dollars.
Royal Wolf
Royal Wolf was formed by a management buyout with Equity Partners in December of 2003. The original and ongoing capital structure reflects the leveraged nature of the balance sheet as a result of the management buyout, and the large debt service payments for interest impaired Royal Wolf’s results of operations, significantly contributing to the net losses experienced during the year ended June 30, 2006 and six months ended June 30, 2005. Operating cash flow was utilized to grow the rental fleet from under 12,000 to 17,000 units currently as well as invested into product development and the addition of CSCs to deliver a full geographic venue for product across all of the states in Australia. However, the capital constraints of the buyout limited Royal Wolf’s opportunity to further grow its rental fleet. During 2004 and 2005, the growth of fleet inventory and working capital requirements were financed with additional indebtedness.
The last half of 2005 and the first six months of 2006 were marked by several product introductions such as a hazardous materials container unit, a containerized portable office unit and a containerized portable housing unit. The sales of these products was initially slow, and has increased during the last nine months leading to record level revenues and gross margin for the fiscal year ended June 30, 2006. The infrastructure requirements having been met, additional sales and leasing revenues were and are the objective of the management team along with acquiring and integrating local acquisitions which should provide additional synergies in future periods.
In 2005, Royal Wolf changed its financial reporting year-end date from December 31 to June 30. The periods compared in the following tables and in the following description of Royal Wolf’s “Results of Operations” are the six months ended December 31, 2006 and 2005, the twelve months ended June 30, 2006, the six months ended June 30, 2005, and the twelve months ended December 31, 2004. The results of operations for all periods have been derived from Royal Wolf’s historical financial statements and accompanying notes contained elsewhere in this proxy statement.
| | | | | | | | | | | | | | | | | | | | | |
| | | 6 Months
| | | 6 Months
| | | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| |
| | | December 31, 2006 | | | December 31, 2005 | | | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
| | | (In millions of Australian dollars) | |
| |
| Revenues: | | | | | | | | | | | | | | | | | | | | |
| Leasing | | $ | 11.0 | | | $ | 8.1 | | | $ | 17.5 | | | $ | 7.7 | | | $ | 14.2 | |
| Sale: | | | | | | | | | | | | | | | | | | | | |
| New units | | | 5.7 | | | | 3.1 | | | | 6.8 | | | | 0.4 | | | | — | |
| Rental equipment | | | 20.4 | | | | 16.0 | | | | 30.8 | | | | 13.3 | | | | 29.5 | |
| Other | | | 6.8 | | | | 5.5 | | | | 12.3 | | | | 5.5 | | | | 8.5 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | 43.9 | | | | 32.7 | | | | 67.4 | | | | 26.9 | | | | 52.2 | |
| Cost of Revenues: | | | | | | | | | | | | | | | | | | | | |
| Leasing | | | 2.6 | | | | 2.1 | | | | 4.5 | | | | 2.4 | | | | 4.7 | |
| Sale: | | | | | | | | | | | | | | | | | | | | |
| New units | | | 4.4 | | | | 2.3 | | | | 5.0 | | | | 0.3 | | | | — | |
| Rental equipment | | | 15.3 | | | | 12.1 | | | | 23.5 | | | | 9.6 | | | | 20.0 | |
| Other | | | 5.7 | | | | 5.4 | | | | 11.4 | | | | 4.3 | | | | 8.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 15.9 | | | | 10.8 | | | | 23.0 | | | | 10.3 | | | | 18.6 | |
| | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | |
| | | 6 Months
| | | 6 Months
| | | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| |
| | | December 31, 2006 | | | December 31, 2005 | | | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
| | | (In millions of Australian dollars) | |
| |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 15.6 | | | | 9.3 | | | | 20.3 | | | | 9.3 | | | | 14.9 | |
| Financial expenses (net) | | | 2.3 | | | | 1.6 | | | | 3.5 | | | | 1.0 | | | | 3.1 | |
| Other | | | — | | | | — | | | | — | | | | 0.2 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | |
| Profit (loss) before income taxes | | | (2.0 | ) | | | (0.1 | ) | | | (0.8 | ) | | | (0.2 | ) | | | 0.5 | |
| Income tax (benefit) | | | 0.8 | | | | 0.1 | | | | (0.5 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net profit (loss) | | $ | (2.8 | ) | | $ | (0.2 | ) | | $ | (0.3 | ) | | $ | (0.2 | ) | | $ | 0.5 | |
| | | | | | | | | | | | | | | | | | | | | |
The following table sets forth certain income and expenditure items as a percentage of total revenues for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | |
| | | 6 Months
| | | 6 Months
| | | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| | | Ended
| |
| | | December 31, 2006 | | | December 31, 2005 | | | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
| |
| Revenues: | | | | | | | | | | | | | | | | | | | | |
| Leasing | | | 25.1 | % | | | 24.8 | % | | | 25.9 | % | | | 28.6 | % | | | 27.2 | % |
| Sales: | | | | | | | | | | | | | | | | | | | | |
| New units | | | 13.0 | % | | | 9.5 | % | | | 10.2 | % | | | 1.5 | % | | | 0.0 | % |
| Rental equipment | | | 46.4 | % | | | 48.9 | % | | | 45.6 | % | | | 49.4 | % | | | 56.5 | % |
| Delivery, installation and other | | | 15.5 | % | | | 16.8 | % | | | 18.3 | % | | | 20.5 | % | | | 16.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales and services: | | | | | | | | | | | | | | | | | | | | |
| Leasing | | | 5.9 | % | | | 6.4 | % | | | 6.5 | % | | | 8.9 | % | | | 9.0 | % |
| Sales: | | | | | | | | | | | | | | | | | | | | |
| New units | | | 10.0 | % | | | 7.0 | % | | | 7.4 | % | | | 1.1 | % | | | 0.0 | % |
| Rental equipment | | | 34.9 | % | | | 37.1 | % | | | 34.8 | % | | | 35.7 | % | | | 38.3 | % |
| Other | | | 13.0 | % | | | 16.5 | % | | | 17.1 | % | | | 16.0 | % | | | 17.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 36.2 | % | | | 33.0 | % | | | 34.0 | % | | | 38.3 | % | | | 35.6 | % |
| Selling, general and administrative expenses | | | 35.5 | % | | | 28.4 | % | | | 30.1 | % | | | 34.6 | % | | | 28.5 | % |
| Financial expenses (net) | | | 5.3 | % | | | 4.9 | % | | | 5.2 | % | | | 3.8 | % | | | 5.9 | % |
| Other operating expenses | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.6 | % | | | 0.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Profit (loss) before income taxes | | | (4.6 | )% | | | (0.3 | )% | | | (1.3 | )% | | | (0.7 | )% | | | 0.9 | % |
| Income tax (benefit) | | | (1.8 | )% | | | (0.3 | )% | | | (0.8 | )% | | | (0.0 | )% | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net profit (loss) | | | (6.4 | )% | | | (0.6 | )% | | | (0.5 | )% | | | (0.7 | )% | | | 0.9 | % |
| | | | | | | | | | | | | | | | | | | | | |
105
Results of Operations
Six Months Ended December 31, 2006 Compared with the Six Months Ended December 31, 2005
Revenues for the six months ended December 31, 2006 were $43.9 million, an $11.2 million or 34.3% increase from revenues of $32.7 million in the six-month period ended December 31, 2005. The increase resulted from a $4.4 million or 27.5% increase in sales of rental equipment, a $2.6 million increase in sales of new products, and a $2.9 million or 35.8% increase in leasing revenue. Other revenues, which consist primarily of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $1.3 million or 23.6% from the six-month period of 2005. The foregoing increases include approximately $2.2 million of additional revenues generated by the assets that Royal Wolf acquired since December 2005.
The increases in revenues from sales and leasing are largely due to the continued growth in the industries that Royal Wolf serves, Royal Wolf’s penetration of those markets, and the enhanced capability of Royal Wolf to modify its containers, thereby increasing the potential market and uses of its products. The increase in sales of new products is primarily attributable to the launch of new products in late 2005.
The increase in leasing revenues for the six months ended December 31, 2006 resulted primarily from an increase in the number of products Royal Wolf had available for lease during the year, and to a lesser extent, to the increased utilization of the available products and increased rental rates. During the six months ended December 31, 2006, the number of products available for lease increased by approximately 2,700 units, of which approximately 1,700 units were acquired through the three acquisitions of businesses that Royal Wolf completed during the last six months of the year ended June 30, 2006. The increased number of products available during the fiscal current year is expected to continue to result in higher leasing revenues. The average monthly rental rate for the six months ended December 31, 2006 was up approximately 12% from the same period of the prior year.
Other revenues, including delivery and installation revenues, increased by $1.3 million for the six months ended December 31, 2006 from the six-month period ended December 31, 2005. The foregoing increase was primarily the result of significant additional revenues derived from delivery and installation activities.
Cost of revenues for the six months ended December 31, 2006 were $28.0 million, a $6.1 million or 27.9% increase from cost of revenues for the six-month period ended December 31, 2005. The increase resulted from a $3.2 million or 26.4% increase in cost of sales of rental equipment, a $2.1 million increase in cost of sales of new products, and a $0.5 million or 23.8% increase in leasing revenue cost of sales. Other revenue cost of sales, which consist primarily of cost of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $0.3 million or 5.6% from six-month period of 2005.
Gross profit for the six months ended December 31, 2006 was $15.9 million, a $5.1 million or 47.2% increase from the six-month period ended December 31, 2005 due to the increase in revenues. Gross profit margin as a percentage of sales increased from 33.0% for the six-month period ended December 31, 2005 to 36.2% in 2006 due to an increase in the gross margin percentage in leasing activities partially offset by overall competitive pricing pressures and lower margins on revenues generated from the sale of Royal Wolf’s containers. Leasing gross profit for the year increased by $2.4 million while leasing gross profit margin percentage increased by an additional 2.3%.
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Selling, general and administrative expense for the six months ended December 31, 2006 increased $6.3 million, or 67.7%, to $15.6 million from $9.3 million for the six-month period ended December 31, 2005. The following table gives a further breakdown by category:
| | | | | | | | | |
| | | 6 Months
| | | 6 Months
| |
| | | 31 December 2006 | | | 31 December 2005 | |
| |
| Manpower | | $ | 6.2 | | | $ | 4.7 | |
| Share based payments | | | 4.0 | | | | — | |
| Rent | | | 0.1 | | | | 0.1 | |
| CSC operating costs | | | 1.7 | | | | 1.5 | |
| Business promotion | | | 0.5 | | | | 0.6 | |
| Travel and meals | | | 0.6 | | | | 0.4 | |
| IT and Telco | | | 0.3 | | | | 0.3 | |
| Professional costs | | | 0.9 | | | | 0.5 | |
| Other | | | 0.6 | | | | 0.4 | |
| Other depreciation and amortisation | | | 0.7 | | | | 0.8 | |
| | | | | | | | | |
| | | $ | 15.6 | | | $ | 9.3 | |
| | | | | | | | | |
The share based payments expense in the six months ended December 31, 2006 of $4.0 million represents an adjustment to the liability to recognize the full fair value based on the full vesting of the options as a result of a realizing event on the purchase of approximately 80% of RWA by Bison-GE in March 2007. In addition, manpower expenses increased $1.5 million primarily due to additional employees resulting from the businesses Royal Wolf acquired during the year ended June 30, 2006 and from additional employees hired by Royal Wolf as it positioned itself for future growth at various of its customer service centers. Travel and meals expenses ($0.2 million) and professional costs ($0.4 million) also increased as a result of due diligence and legal costs relating to the proposed acquisition of Royal Wolf by General Finance Corporation.
Financial expenses for the six months ended December 31, 2006 increased by $0.7 million or 43.8% to $2.3 million from $1.6 million in the six-month period of December 31, 2005 due primarily to an increase in the amount borrowed during the period ended December 31, 2006 and to an increase in the rate of interest paid by Royal Wolf for a portion of the outstanding debt. As of December 31, 2006, Royal Wolf had $52.8 million of interest bearing indebtedness outstanding, compared to $41.0 million outstanding as of December 31, 2005. In addition, during the year ended June 30, 2006, Royal Wolf refinanced $10.0 million of indebtedness that bore interest at a rate of 7% per annum with indebtedness that bears interest at an annual rate of 15%.
Twelve Months Ended June 30, 2006 Compared with the Six Months Ended June 30, 2005 (Annualized)
Revenues for the twelve months ended June 30, 2006 were $67.4 million, a $13.6 million or 25.3% increase from revenues of $53.8 million in the annualized six-month period ended June 30, 2005. The increase resulted from a $4.2 million or 15.8% increase in sales of rental equipment, a $6.0 million increase in sales of new products, and a $2.1 million or 13.6% increase in leasing revenue. Other revenues, which consist primarily of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $1.3 million or 11.8% from annualized six-month period of 2005. The foregoing increases include approximately $2.2 million of additional revenues generated by the assets that Royal Wolf acquired since December 2005.
The increases in revenues from sales and leasing are largely due to the continued growth in the industries that Royal Wolf serves, Royal Wolf’s penetration of those markets, and the enhanced capability of Royal Wolf to modify its containers, thereby increasing the potential market and uses of its products. The increase in sales of new products is primarily attributable to the launch of new products in late 2005.
The increase in leasing revenues for the year ended June 30, 2006 resulted primarily from an increase in the number of products Royal Wolf had available for lease during the year and, to a lesser extent, to the increased utilization of the available products and increased rental rates. During the year ended June 30, 2006, the number of products available for lease increased by approximately 3,800 units, of which approximately 1,700 units were
107
acquired through the three acquisitions of businesses that Royal Wolf completed during the second half of the year. The increased number of products available during the current year is expected to continue to result in higher leasing revenues. Average core fleet utilization also contributed to increased leasing revenues, as the utilization rate for the year ended June 30, 2006 increased by approximately 3% from the same period of the prior year to approximately 88%. The average monthly rental rate for the year ended June 30, 2006 was up approximately 3% from the same period of the prior year.
Other revenues, including delivery and installation revenues, increased by $1.3 million for the year ended June 30, 2006 from the annualized six-month period ended June 30, 2005. The foregoing increase was primarily the result of significant additional revenues derived from delivery and installation activities, which increases were partially offset by a decrease in revenues from storage, repairs, commission and other miscellaneous items related to the acquisition of the remaining shares in the Royal Wolf Hi-Tech joint venture company in March 2006 and other operational changes.
Cost of revenues for the twelve months ended June 30, 2006 were $44.4 million, a $11.2 million or 33.7% increase from cost of revenues for the annualized six-month period ended June 30, 2005. The increase resulted from a $4.3 million or 22.4% increase in cost of sales of rental equipment, a $4.4 million increase in cost of sales of new products; offset by a $0.3 million or 6.3% decrease in leasing revenue cost of sales. Other revenue cost of sales, which consist primarily of cost of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $2.8 million or 32.6% from annualized six-month period of 2005.
Gross profit for the year ended June 30, 2006 was $23.0 million, a $2.4 million or 11.7% increase from the annualized six month period ended June 30, 2005 due to the increase in revenues. Gross profit margin as a percentage of sales decreased from 38.3% for the annualized six month period ended June 30, 2005 to 34.0% in 2006 due to overall competitive pricing pressures and lower margins on revenues generated from the sale of the company’s containers. The decrease in gross margins in sales activities was partially offset by in increase in the gross margin percentage in leasing activities. Leasing gross profit for the year increased by $2.4 million while leasing gross profit margin percentage increased by an additional 5.5% on an absolute basis. Of the increased leasing gross profit, $0.7 million related to the impact of the reduction in depreciation charge in 2006 due to revision of asset useful lives and residual values of container assets
Selling, general and administrative expenses for the year ended June 30, 2006 increased approximately $1.7 million, or 9.1%, to $20.3 million from $18.6 million for the annualized six-month period ended June 30, 2005. The following table gives a further breakdown by category:
| | | | | | | | | | | | | |
| | �� | 12 Months Ended
| | | 12 Months Ended
| | | | |
| | | June 30,
| | | June 30,
| | | Increase
| |
| | | 2006 | | | 2005 | | | (Decrease) | |
| |
| Manpower | | $ | 9.9 | | | $ | 9.6 | | | $ | 0.3 | |
| Rent | | | 0.3 | | | | 0.1 | | | | 0.2 | |
| CSC operating costs | | | 3.1 | | | | 3.9 | | | | (0.8 | ) |
| Business promotion | | | 1.1 | | | | 0.7 | | | | 0.4 | |
| Travel and meals | | | 0.9 | | | | 0.8 | | | | 0.1 | |
| IT and Telco | | | 0.6 | | | | 0.5 | | | | 0.1 | |
| Professional costs | | | 1.0 | | | | 1.0 | | | | 0.0 | |
| Other | | | 0.9 | | | | 0.5 | | | | 0.4 | |
| Other depreciation and amortization | | | 2.5 | | | | 1.5 | | | | 1.0 | |
| | | | | | | | | | | | | |
| | | $ | 20.3 | | | $ | 18.6 | | | $ | 1.7 | |
| | | | | | | | | | | | | |
This increase is primarily due to employee-related costs of $0.3 million from the increased number of employees resulting from both the additional businesses Royal Wolf acquired during 2006 and from additional employees hired by Royal Wolf as it positioned itself for future growth at various of its customer service centers; and increased rent expense of $0.2 million due to the growth as a result of acquiring additional premises through business acquisition.
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The increases in headcount were as follows:
| | | | |
|
Corporate Division — National Mining & Defense | | | 2 | |
| | | | |
Customer Service Centers
| | | | |
NSW | | | 4 | (acquisitions) |
Victoria | | | 8 | (acquisitions) |
Western Australia | | | 5 | |
Queensland | | | 9 | |
Northern Territory | | | 2 | |
| | | | |
| | | 30 | |
| | | | |
The additional persons employed by Royal Wolf as a result of acquisitions (including 2 at Queensland) occurred primarily during the last quarter of the year ended June 30, 2006.
Royal Wolf incurred additional business promotional expenses directed at new products of $0.4 million through greater yellow pages, newspapers and direct marketing costs. Other depreciation and amortization were greater in the year ended June 30, 2006 by $1.0 million primarily from additional container hire assets and increased infrastructure capital expenditures on branch display/showrooms, equipment, leasehold improvements and management information systems. These increases were offset somewhat by more efficient operations at customer service centers (CSC) which resulted in reduced costs of $0.8 million.
Financial expenses for the year ended June 30, 2006 increased by $1.5 million or 75.0% to $3.5 million from $2.0 million in the annualized six-month period of June 30, 2005 due primarily to an increase in the amount borrowed during the year ended June 30, 2006 and to an increase in the rate of interest paid by Royal Wolf for some of the outstanding debt. As of June 30, 2006, Royal Wolf had $46.1 million of interest bearing indebtedness outstanding, compared to $38.4 million outstanding as of June 30, 2005. In addition, during the year ended June 2006, Royal Wolf refinanced $10.0 million of indebtedness that bore interest at a rate of 7% per annum with indebtedness that bears interest at an annual rate of 15%.
The net loss for the year ended June 30, 2006 of $0.3 million is slightly less than the annualized $0.4 million for the six months ended June 30, 2005 primarily as a result of increased revenues and profitability from both leasing revenues and rental equipment sales and the benefit from the utilization of previously unrecognized deferred income tax assets. This increased profitability in 2006 was substantially offset by higher selling, general and administrative expenses incurred for growth positioning and increased financial expenses. Royal Wolf has been highly leveraged as a result of its management buyout in 2003.
Six Months Ended June 30, 2005 (Annualized) Compared with the Twelve Months Ended December 31, 2004
Revenues for the annualized six-month period ended June 30, 2005 were $53.8 million, a $1.6 million or 3.1% increase from revenues of $52.2 million in the twelve months ended December 31, 2004. The increase resulted from a $2.9 million or 9.8% decrease in sales of rental equipment, a $0.8 million increase in sales of new equipment, a $1.2 million or 8.5% increase in leasing revenue, and a $2.5 million or 29.4% increase in delivery, installation and other miscellaneous revenues from the twelve months ended December 31, 2004.
The decreases in sales of rental equipment is a result of the annualization process not taking into account the fact that the December six months is usually higher than the first six months. The corresponding increase in delivery and installation revenues are largely due to continued growth in the industry Royal Wolf serves and the enhanced capability of Royal Wolf’s container modification business. In addition, in the six-month annualized period ended June 30, 2005, Royal Wolf introduced new products for sale that were not offered in year ended December 31, 2004.
Leasing revenues increased due to an increase of an average for the periods of approximately 700 units on rent and to higher utilization rates and rental rates. Average core fleet utilization of leasing products for the six-month period ended June 30, 2005 decreased by approximately 1% to approximately 83% compared to the twelve months
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ended December 31, 2004. The average monthly rental rate for the six months ended June 30, 2005 was up approximately 7% from the twelve months ended December 31, 2004.
Other revenue, which includes revenues primarily from delivery and installation services, as well as revenues from storage, repairs, commission and other miscellaneous items, increased by $2.5 million in the annualized six-month period ended June 30, 2005 over the twelve month period ended December 31, 2004 due primarily to increased modification work activities, which are more time and labor intensive.
Cost of revenues for the annualized six-month period ended June 30, 2005 were $33.2 million, a $0.4 million or 1.2% decrease from cost of revenues for the twelve month period ended December 31, 2004. The decrease resulted from a $0.8 million or 4.0% decrease in cost of sales of rental equipment, a $0.6 million increase in cost of sales of new products, and a $0.1 million or 2.1% increase in leasing revenue cost of sales. Other revenue cost of sales, which consist primarily of cost of revenues derived from the delivery and installation of Royal Wolf’s products, decreased by $0.3 million or 3.4% from twelve months ended December 31, 2004.
Gross profit for the annualized six-month period ended June 30, 2005 was $20.6 million, a $2.0 million or 10.8% increase from the twelve months ended December 31, 2004. Gross profit margin percentage from the sales of rental equipment decreased in the annualized six-month period ended June 30, 2005 to 27.8% from 32.2% in the twelve months ended December 31, 2004. Gross margin as a percentage of sales increased primarily as leasing gross profits for the annualized six-month period ended June 30, 2005 increased by $1.1 million and the gross profit margin percentage on the company’s leasing activities increased by 1.9% on an absolute basis.
Selling, general and administrative expenses for the annualized six-month period ended June 30, 2005 increased approximately $3.7 million, or 24.8%, to $18.6 million from $14.9 million for the year ended December 31, 2004. the following table gives a further breakdown by category:
| | | | | | | | | | | | | |
| | | 12 Months Ended
| | | 12 Months Ended
| | | | |
| | | June 30,
| | | December 31,
| | | Increase
| |
| | | 2006 | | | 2004 | | | (Decrease) | |
| |
| Manpower | | $ | 9.6 | | | $ | 7.5 | | | $ | 2.1 | |
| Rent | | | 0.1 | | | | 0.1 | | | | 0.0 | |
| CSC operating costs | | | 3.9 | | | | 2.6 | | | | 1.3 | |
| Business promotion | | | 0.7 | | | | 0.5 | | | | 0.2 | |
| Travel and meals | | | 0.8 | | | | 0.7 | | | | 0.1 | |
| IT and Telco | | | 0.5 | | | | 0.7 | | | | (0.2 | ) |
| Professional costs | | | 1.0 | | | | 0.7 | | | | 0.3 | |
| Other | | | 0.5 | | | | 0.0 | | | | 0.5 | |
| Other depreciation and amortization | | | 1.5 | | | | 2.1 | | | | (0.6 | ) |
| | | | | | | | | | | | | |
| | | $ | 18.6 | | | $ | 14.9 | | | $ | 3.7 | |
| | | | | | | | | | | | | |
Selling, general and administrative expense for the annualized six-month period ended June 30, 2005 increased approximately $3.7 million or 24.8% to $18.6 million from $14.9 million for the year ended December 31, 2004. This increase is primarily associated with increased employee-related costs of $2.1 million and expansion of the customer service center infrastructure of $1.3 million, as Royal Wolf prepared for the launch of the new products and the full year impact of post management buyout operation.
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The increases in headcount were as follows:
| | | | |
|
Corporate Division
| | | | |
Road & Rail | | | 3 | |
Removalist | | | 1 | |
National Mining & Defense | | | 2 | |
| | | | |
| | | 6 | |
| | | | |
Customer Service Centers
| | | | |
NSW | | | 8 | |
Victoria | | | 13 | |
Western Australia | | | 3 | |
South Australia | | | 1 | |
Queensland | | | 5 | |
Northern Territory | | | 5 | |
| | | | |
| | | 35 | |
| | | | |
Operations | | | 2 | |
| | | | |
| | | 43 | |
| | | | |
Financial expenses for the annualized six-month period ended June 30, 2005 decreased by $1.1 million or 35.5% to $2.0 million from $3.1 million in the twelve month period ended December 31, 2004 due primarily to an exchange gain of $0.7m.
The net loss for the annualized six months ended June 30, 2005 of $0.4 million compares unfavorably to a net profit of $0.5 million for the year ended December 31, 2004 primarily as a result of higher selling, general and administrative expenses incurred for growth positioning, offset somewhat by reduced financial expenses. Royal Wolf has been highly leveraged as a result of its management buyout in 2003.
Liquidity and Capital Resources
Cash Flow for Fiscal 2006, 2005 and 2004
During 2004, 2005 and 2006, Royal Wolf’s principal sources of funds consisted of cash generated from its operations, borrowings (including core debt and a non-converting note) from Australia and New Zealand Banking Group Limited, or ANZ, Royal Wolf’s prime bankers, funds received from the issuance of B Class Notes and A Class shares of stock. Royal Wolf also financed a smaller portion of its capital requirements through finance leases and lease-purchase contracts.
Cash flow from operating activities of $5.8 million in 2004, $1.9 million in 2005 and $14.0 million in 2006 were largely generated by the rental of units from Royal Wolf’s lease fleet, the associated delivery and installation services from rental and sales activities and other products. The decrease in cash flow from operating activities for the six months ended June 30, 2005 was substantially the result of increased purchases of inventories and a decrease in payables. Other factors that contributed to the decrease in net cash provided by operating activities from 2004 to 2005 included increases in selling, general and administrative expense as Royal Wolf made significant investments in CSC infrastructure improvements and headcount growth in preparation for new product introduction and expanded operations.
Cash flow used in investing activities was $13.1 million in 2004, $13.1 million in 2005 and $25.9 million in 2006. Royal Wolf’s primary capital expenditures during these periods were for the discretionary purchase of new and used container fleet units for the lease fleet and units purchased through acquisitions of assets of complimentary businesses. During the twelve months ended June 30, 2006, funds expended in investing activities included the acquisition of assets of three complementary businesses, consisting of the following: In December 2005, Royal Wolf acquired the assets of Cairns-based Cape Containers for a purchase price of $0.8 million; in March 2006 Royal
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Wolf purchased the remaining 50% interest in Royal Wolf- Hi Tech, a Newcastle-based joint venture in which it already owned a 50% equity interest, for $1.1 million; and in April 2006, Royal Wolf acquired the assets of Melbourne-based Australian Container Network for $5.7 million. The purchase price of each of the foregoing acquisitions was paid by means of borrowings from ANZ.
Other capital expenditures included purchases of additional products for the lease fleet in the amounts of $12.0 million, $7.7 million and $18.1 million in 2004, 2005 and 2006, respectively, and capital expenditures of $1.3 million, $1.9 million and $1.1 million in 2004, 2005 and 2006, respectively, for branch display/showrooms, equipment, leasehold improvements and management information systems.
Net cash provided by financing activities was $5.0 million in 2004, $12.4 million in 2005, and $9.9 million in 2006. Net cash provided by financing activities for the three years consisted of net borrowings under Royal Wolf’s ANZ credit facility, term loans, notes and vendor financing arrangements, which were used to supplement cash flow from operating activities in the funding of capital expenditures, as well as the fleet purchases as described above.
Royal Wolf has also funded its liquidity needs through rental agreements and non-recourse loans involving its customers and Royal Wolf’s banks. In August 2004, Royal Wolf entered into two rental agreements with K&S Freighters Pty Limited, or K&S, with a total equipment value of approximately $2.0 million. The rental agreements have a term of five years and three years (with an option to extend for two years) and are funded in the form of an undisclosed principal/agency arrangement with BankWest (Royal Wolf’s bankers in 2004). Under these agreements, K&S pays a monthly rental until the end of the rental agreements, and BankWest bear 100% of the credit risk of the transaction. Royal Wolf has the option to purchase the equipment either upon the expiration of the rental term for $1, or if K&S defaults, for the amount shown as the amortized principal amount outstanding to BankWest. The rental agreement is assignable to Royal Wolf if BankWest’s debt is extinguished in full before the expiration of the lease term. The assignability of the rental agreement is applicable to both K&S transactions, where there is a five-year rental agreement but BankWest’s debt is extinguished in full inside the five-year period. The transactions between Royal Wolf and K&S apply to (i) a 70 curtainsider transaction in which BankWest’s debt is scheduled to be repaid full within 49 months, and (ii) a 12 Reefer transaction, in which BankWest’s debt is scheduled to be paid off in 58 months. At the end of these periods, the rental agreement will be assigned to Royal Wolf to receive full benefit of the remaining rental payments.
Royal Wolf has also entered into a $0.9 million non-recourse transaction with Wridgways Australia Limited, or Wridgways, a publicly-listed company in the moving and storage industry that is one of Royal Wolf’s five largest customers. The transaction is essentially a non-recourse loan from ANZ that Royal Wolf used to purchase 300 high cube containers. Royal Wolf then leased those containers to Wridgways using ANZ-specific leasing documentation. There is approximately $76,000 in surplus cash above the monthly P&I non-recourse payment due to RWA over the60-month term, which is excess cash sweep. The containers are reflected as an asset on Royal Wolf’s balance sheet, subject to depreciation. The loan bears interest at a rate of 8.85%per annum and is amortized over a period of five years. ANZ has a security interest (a mortgage) in the lease agreement between Royal Wolf and Wridgways.
Current Financing Arrangements
Pursuant to a five-year senior debt facility, dated December 17, 2004, as amended,Australia and New Zealand Banking Group (“ANZ”) has extended the following credit facilities to Royal Wolf:
Bank Overdraft. Royal Wolf has a bank overdraft facility of $1.0m to cover normal working capital needs. Interest on bank overdrafts is charged at the prevailing market rates, which is effectively the Australian bank bill reference rate (“BBSW”) plus 1.65%, on the amount outstanding from time to time. At June 30, 2006, the bank overdraft balance was $0.9 million, all due during fiscal year 2007.
Receivables Financing Facility. Royal Wolf has an accounts receivables working capital facility that allows the company, subject to certain terms, to access up to $7.5 million. The facility bears interest at a variable rate equal to base rate plus 1.65% per annum and a monthly fee of $5,000. At June 30, 2006, the receivables financing facility balance was $1.2 million, all due during fiscal year 2007.
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Secured Bank Loans. ANZ has agreed to make up to $43.0 million of secured bank loans available to Royal Wolf. The bank loans are payable either in December 2009 or June 2011 with various levels of loan amortization payment obligations. The availability of the secured loans is subject to annual review. The loans bear interest at the banks’ prime rates plus 1.10% - 1.35%, with interest payable quarterly. The bank loans are secured by a first ranking fixed and floating charge over the assets and undertakings of Royal Wolf. Under the terms of the Facility Agreement with ANZ, Royal Wolf is required to ensure compliance with numerous covenants in relation to various financial ratios, including consolidated interest coverage; consolidated reworked adjusted leverage; and consolidated debt service coverage. All of Royal Wolf’s containers are subject to the bank’s liens and are therefore restricted within the shores of Australia. At June 30, 2006, the secured bank loan balance was $23.9 million, of which $5.8 million is due during fiscal year 2007 and $18.1 million is due during fiscal years2008-2010.
The significant covenants of the ANZ credit facilities are as follows:
Financial Reports:
Annually
| | |
| • | The consolidated audited financial statements as soon as they are available, but not later than 120 days after the end of each financial year. |
|
| • | The consolidated annual projected balance sheet, profit and loss and cash flow forecast at the start of each financial year for the ensuing 12 months. |
|
| • | The annual certificate signed by two Directors certifying compliance with consolidated financial undertakings as soon as it is available, but not later than 120 days after the end of each financial year. |
|
| • | The consolidated CAPEX (Capital Expenditure) budget detailing non-discretionary and discretionary CAPEX at the start of each financial year for the ensuing 12 months. |
|
| • | Board approved business plan/budget for the ensuing 12 months, as soon as they are available but no later than 15 days before June 30 each year for consolidated entities. |
Quarterly
| | |
| • | The consolidated management accounts (balance sheet and profit and loss accounts) within 30 days after the end of each financial quarter (i.e., March, June, September, December). |
|
| • | The consolidated aged debtor, creditor and stock listings to be provided as soon as they are available but not later than 30 days after the end of each financial quarter (i.e., March, June, September, and December). |
Financial Covenants
(a) Consolidated Interest Cover: The consolidated interest cover ratio for each financial quarter on a rolling12-month basis will not, as at the compliance dates, be less than:
| | |
| • | 1.75:1 as at March 31, 2006. |
|
| • | 2.00:1 as at June 30, 2006, and thereafter. |
(b) Consolidated Adjusted Gearing Ratio: The consolidated adjusted gearing ratio for each financial year will not, as at the compliance date, exceed:
| | |
| • | 2.50:1 as at June 30, 2006, and thereafter. |
(c) Consolidated Debt Services Cover: The consolidated debt service cover for each financial quarter on a rolling12-month basis as shown below will not, as at the compliance date, fall below:
| | |
| • | 01.75:1 as at March 31, 2006, and thereafter. |
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Other Covenants
| | |
| • | Dividend payments are not to be made without prior written consent from ANZ. |
|
| • | All containers are to be restricted within the shores of Australia and the company’s Lease/Rental documentation should include this limitation. Any movement of containers outside the shores of Australia will require ANZ’s prior written consent. |
|
| • | Any additional off or on balance sheet liabilities are not to be made without prior written consent from ANZ. |
|
| • | Detailed schedule of containers with following information as soon as they are available, but no later than 30 days after the end of each financial month: |
| | |
| • | Held for hire/lease outlining type, number, acquisition cost and book value. |
|
| • | Held for sale outlining type, number, acquisition cost and book value. |
| | |
| • | A review of Royal Wolf’s inventory management systems to be conducted as at June 30 each year as part of the general audit. a copy of the report to be provided within 120 days. |
|
| • | Provision of loans or advances to directors, shareholders, related or associated companies is not to be made without prior written consent from ANZ. |
|
| • | Fair market value of orderly liquidated value of leased/hire containers is to be undertaken by a valuer appointed by and acceptable to Australia and New Zealand Banking Group as at June 30 of each year. |
|
| • | No interest or repayments to be paid to Equity Partners and ANZ Private Equity without written consent from ANZ. |
B Class Notes
In December 2003, Royal Wolf issued $4.1 million of B Class Notes to Equity Partners Two Pty Limited, as Trustee of Equity Partners 2 Trust, in connection with the management buyout of the company. The holders of these B Class Notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights. The B Class Notes are unsecured obligations that mature upon the occurrence of a sale event or as agreed between the B Class Note holders and Royal Wolf. Interest is either paid annually or compounds on a semi-annual basis. Under the senior debt facility agreement with ANZ, any payment of interest to the B Class Note holders must be approved by ANZ. In the event of a liquidation of Royal Wolf, the holders of B Class Notes rank above all shareholders and behind the holder of Royal Wolf’s non-convertible note, and are entitled to the proceeds of liquidation to the extent of the face value of the notes and any accumulated interest. At June 30, 2006, the B Class Notes balance (all noncurrent) was $6.7 million.
Non-Convertible Note
In September 2005, Royal Wolf issued a five-year, $10.0 million Non-Convertible Note to ANZ. The note bears interest at a rate of 15% per annum, with interest either paid annually or compounded on an annual basis. The Non-Convertible Note could mature earlier upon the occurrence of a sale event or as agreed between the issuer and Royal Wolf. In the event of a liquidation of Royal Wolf, ANZ, as the holder of the non-convertible note, ranks above all shareholders and ahead of the holders of B Class Notes, and therefore is entitled to the proceeds of liquidation to the extent of the face value of the notes and any accumulated interest. At June 30, 2006, the Non-Convertible Note balance (all noncurrent) was $10.9 million.
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The significant covenants of the Non-Convertible Note are as follows:
The issuer covenants that in respect of Royal Wolf (unless the Noteholder has given the Issuer its prior written consent to a variation to these covenants), if no moneys are owing under the ANZ Senior Debt Facility:
(a) Consolidated Interest Cover. The consolidated interest cover ratio for each financial quarter on a rolling12-month basis will not, as at the compliance dates, be less than:
| | | | | |
Quarter ended: | | Covenant value: |
| |
| December 2005 | | | 0 | .85:1 |
| March 2006 | | | 1 | .25:1 |
| June 2006 | | | 1 | .5:1 |
| September 2006, and thereafter | | | 2 | .00 |
| | |
| • | Consolidated Reworked Adjusted Gearing Ratio: The consolidated reworked adjusted gearing ratio for each financial year will not, as at the compliance date, exceed 2.00:1 as at June 30, 2006: and 1.50:1 as at June 30, 2007. |
|
| • | Consolidated Debt Service Cover Ratio: The consolidated debt service cover ratio for each financial quarter on a rolling12-month basis, as shown below, will not, as at the compliance date, fall below: |
| | | | | |
Quarter ended: | | Covenant value: |
| |
| December 2005 | | | 1 | .75 |
| March 2006, and thereafter | | | 2 | .00 |
| | |
| • | Consolidated actual revenue at the end of each financial quarter (i.e., March, June, September and December) will be within 90% of the budgeted consolidated revenue. |
In the opinion of management of Royal Wolf and our management, Royal Wolf’s cash from operations, current working capital position and its existing credit facilities will be sufficient to meet Royal Wolf’s operating cash requirements for the fiscal year ending June 30, 2007. However, we will require the consent of ANZ to the transactions contemplated under the acquisition agreement to the extent required to maintain its credit facilities following the acquisition, or enter into another credit facility acceptable to Bison-GE. In our discussion with ANZ, it has indicated its willingness to maintain these credit facilities. Further, GFN Australasia, our Australian subsidiary, as a condition of the acquisition agreement, contemplates obtaining from Bison Capital, subordinated debt financing in order to augment Royal Wolf’s working capital and for general corporate purposes, which may include future acquisitions. It is contemplated that the subordinated or reorganized debt financing would have a five and one-half year term, bear interest at 13.5% per annum, and provide the lender with 500,000 warrants to purchase shares of our common stock at an initial exercise price of $8.00 per share. We also expect that the covenants in the subordinated debt will be similar to the terms of the ANZ credit facility, that the subordinated debt holders will place limitations on our indebtedness and cash distributions, and that there will be an intercreditor agreement between the holders of the subordinated debt and ANZ.
Except as described above, Royal Wolf is not a party to any off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts. In addition, Royal Wolf has no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of Royal Wolf’s assets. Royal Wolf is in compliance with all covenants regarding any financing arrangements.
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The following is a summary of Royal Wolf’s contractual obligations as of June 30, 2006:
| | | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Fiscal Year Ending June 30, | |
| | | | | | | | | 2008-
| | | 2011-
| | | | |
Contractual Obligations | | Total | | | 2007 | | | 2010 | | | 2013 | | | 2014 and Thereafter | |
| | | (In thousands) | |
| |
| Facility leases | | $ | 2,126 | | | $ | 2,126 | | | $ | — | | | $ | — | | | $ | — | |
| Finance leases/arrangements, including interest | | | 2,736 | | | | 1,096 | | | | 1,640 | | | | — | | | | — | |
| Bank indebtedness and term loans — principal | | | 23,930 | | | | 5,831 | | | | 18,099 | | | | — | | | | — | |
| Bank indebtedness and term loans — interest | | | 4,168 | | | | 1,860 | | | | 2,308 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 28,098 | | | | 7,691 | | | | 20,407 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 32,960 | | | $ | 10,913 | | | $ | 22,047 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | |
Impact of Inflation
Royal Wolf believes that inflation has not had a material effect on its business.
Seasonality
Although demand from certain specific customer segments can be seasonal, Royal Wolf’s operations as a whole are not seasonal to any significant extent. Royal Wolf experiences a reduction in sales volumes to general industry during Australia’s summer holiday break from mid-December to the end of January, followed by February being a short working day month. However, this reduction in sales typically is counterbalanced by the increased lease revenues derived from the relocations industry, which experiences its seasonal peak of personnel relocations during this same summer holiday break.
Critical Accounting Policies and Estimates
General
Royal Wolf’s financial reports for 2006, 2005 and 2004 are general-purpose financial reports, which was prepared in accordance with the requirements of the Corporations Act 2001 (the Act) and Australian accounting standards adopted by the Australian Accounting Standards Board, or AASB. International Financial Reporting Standards, or IFRSs, form the basis of Australian accounting standards adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS, or AIFRS, to distinguish from previous Australian generally accepted accounting principles. The date of transition to AIFRS is for periods commencing on or after January 1, 2005, with a transition date on or after January 1, 2004 (due to restatement of comparatives). On January 20, 2005, ASIC issued a Subsection 340(1) Order granting the Company and its controlled entity relief from paragraph 323D(2)(b) of the Act and allowing a ‘transitional’ financial year of six months from January 1, 2005 to June 30, 2005, with each financial year thereafter being twelve months long. Consequently, due to the change in year end, Royal Wolf was required to adopt AIFRS from the accounting period ending June 30, 2005, with comparatives for the year ended December 31, 2004 and transition balance sheet at January 1, 2004 restated. The transition date to AIFRS is the same date it would have been had Royal Wolf not changed its year end to June 30. This, therefore, did not represent an early adoption of AIFRS.
The preparation of a financial report in conformity with Australian accounting standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity.
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The U.S. Securities and Exchange Commission defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Royal Wolf’s significant accounting policies are described in Note 1 to the Notes to Royal Wolf’s Consolidated Financial Statements for the year ended June 30, 2006. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However the following policies are considered to be critical within the Securities and Exchange Commission definition:
Revenue
Revenue is generally realized or realizable and earned when all of the following criteria have been met:
| | |
| • | persuasive evidence of an arrangement exists; |
|
| • | delivery has occurred; |
|
| • | the seller’s price to the customer is fixed or determinable; and |
|
| • | collectability is reasonable assured. |
Sale and modification of containers
Revenue from the sale and modification of containers is recognised based on invoiced amounts and is recognised in the income statement (net of returns, discounts and allowances) when the significant risks and rewards of ownership have been transferred to the buyer and it can be measured reliably. Risks and rewards are considered passed to the buyer at the time the goods are delivered to or retrieved by the customer. No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due, the amount cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods.
Hire of containers
Revenue from hire of containers is recognised in the period earned and is recorded based on the amount and term prescribed in the lease hire agreement. No revenue is recognised if there is significant uncertainty regarding recovery of the rental payments due.
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. The estimated useful lives in the current and comparative periods are as follows:
| | | | | |
| | | 2005 | | 2006 |
| |
Property, plant and equipment | | | | |
| Plant and equipment | | 3 - 10 years | | 3 - 10 years |
| Motor vehicles | | 3 - 10 years | | 3 - 10 years |
| Furniture and fittings | | 5 - 10 years | | 5 - 10 years |
Container hire fleet | | | | |
| Containers for hire | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
| Leased containers for hire (used) | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
| Leased containers for hire (new) | | 25 years (20% residual) | | 10 - 30 years (20-30% residual) |
Impairment of Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no
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longer amortized but is tested annually for impairment. For goodwill assets that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date. Royal Wolf assesses whether goodwill and intangibles with indefinite useful lives are impaired, which assessment occurs at least annually. These calculations involve an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. Intangible assets are tested for impairment where an indicator of impairment arises. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Negative goodwill arising on an acquisition is recognized directly in profit or loss.
Goodwill acquired has been allocated to one single cash-generating unit, being RWA. Goodwill has been assessed as having an infinite useful life and accordingly is not amortized. This asset is tested for impairment annually using the value in use model. Goodwill arose through the purchase of Royal Wolf Trading Australia Pty Limited from Triton Containers International Limited in 2003, and through the purchases of Royal Wolf Hi-Tech Pty Limited, and the business and assets of Cape Containers Pty Limited and Australian Container Network Pty Limited.
Trade and Other Receivables
Trade and other receivables are stated as amortized cost less impairment losses. The recoverable amount of the consolidated entity’s receivables carried at amortized cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate compounded at initial recognition of these financial assets). Receivables with a short duration are not discounted. Impairment of receivables is not recognized until objective evidence is available that a loss event has occurred. Receivables are individually assessed for impairment.
Inventories
Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business. Expenses of marketing, selling and distribution to customers, as well as costs of completion are estimated and are deducted from the estimated selling price to establish net realizable value.
Accounting Estimates and Judgments
The estimates and judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Revision of accounting estimates — Container for hire depreciation
The preparation of the financial statements requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
At the beginning of the financial year, Royal Wolf revised upwards the useful life of containers for hire. The financial impact of the revision results in depreciation expense for the year ended June 30, 2006 being $696,023 less than what it would have been if the previous useful life estimate had been applied. The financial impact of the revision in future periods is not disclosed as the effect cannot be reliably estimated at this point in time due to uncertainty over the timing of sale and existing containers and purchase of new containers.
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Foreign currency risk
Royal Wolf faces transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the unit’s measurement currency. The currency giving rise to this risk is primarily U.S. Dollars.
Royal Wolf has a bank account denominated in U.S. Dollars, into which customers pay their debts. This is a natural hedge against fluctuations in the exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian dollars.
Royal Wolf uses forward currency contracts and options to eliminate the currency exposures on the majority of its transactions denominated in foreign currencies, either by transaction if the amount is significant, or on a general cash flow hedge basis. The forward currency contracts and options are always in the same currency as the hedged item.
It is Royal Wolf’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge effectiveness. At June 30, 2006, Royal Wolf had hedged 100% of its foreign currency purchases for which firm commitments existed at the balance sheet date, extending to November 2006.
Issued standards not early adopted (AIFRS)
The following standards and amendments were available for early adoption but have not been applied by Royal Wolf in the consolidated financial statements:
| | |
| • | AASB 7Financial instruments: Disclosure(August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after January 1, 2007; |
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| • | AASB 2005-9Amendments to Australian Accounting Standards (September 2005) requires that liabilities arising from the issue of financial guarantee contracts are recognized in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after January 1, 2006; |
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| • | AASB 2005-10Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132Financial Instruments: Disclosures and Presentation, AASB 101Presentation of Financial Statements, AASB 114Segment Reporting, AASB 117Leases, AASB 139Financial Instruments: Recognition and Measurement, AASB 1First-time Adoption of Australian Equivalents to International Financial Reporting Standards, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after January 1, 2007. |
Royal Wolf plans to adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 financial year.
The initial application of AASB 7 and AASB 205-10 is not expected to have an impact on the consolidated financial results of Royal Wolf as the standard and the amendment are concerned only with disclosures.
The initial application of AASB 2005-9 could have an impact on the consolidated financial results of Royal Wolf as the amendment could result in liabilities being recognized for financial guarantee contracts that have been provided by Royal Wolf. However, the quantification of the impact is not known or reasonably estimable in the current financial year as an exercise to quantify the financial impact has not been undertaken by Royal Wolf to date.
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DIRECTORS AND MANAGEMENT FOLLOWING THE ACQUISITION
All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of executive our officers following the acquisition. Following the acquisition, therefore, our directors and executive officers will be as follows:
| | | | | | |
Name
| | Age | | Position
|
|
Ronald F. Valenta | | | 48 | | | Chief Executive Officer, Secretary and Director |
John O. Johnson | | | 46 | | | Chief Operating Officer |
Charles E. Barrantes | | | 55 | | | Executive Vice President and Chief Financial Officer |
Marc Perez | | | 43 | | | Controller |
Robert Allan | | | 51 | | | Chief Executive Officer, Royal Wolf Trading Australia Pty Limited |
Lawrence Glascott | | | 73 | | | Chairman of the Board of Directors |
David M. Connell | | | 63 | | | Director |
Manuel Marrero | | | 49 | | | Director |
James B. Roszak | | | 66 | | | Director |
Ronald F. Valentahas served as a director and as our Chief Executive Officer, Chief Financial Officer and Secretary since our inception. Mr. Valenta served as the President and Chief Executive Officer of Mobile Services Group, Inc., a portable storage company he founded in 1988 until 2003. In April 2000, Windward Capital Partners acquired a controlling interest in Mobile Services Group, Inc. through a recapitalization transaction. In August 2006, Welsh, Carson, Anderson & Stowe, through another recapitalization transaction, acquired a controlling interest in Mobile Services Group, Inc. Mr. Valenta served as the non-executive Chairman of the Board of Directors of Mobile Services Group, Inc. from March 2003 until August 2006, and as a director since that time. Mr. Valenta was the managing member of Portosan Company, LLC, a portable sanitation services company he founded in 1998, until 2004 when a majority of the assets of that company were sold to an affiliate of Odyssey Investment Partners, LLC. Mr. Valenta is currently Chairman of the Board of Directors for CMSI Capital Holdings, Inc., a private investment company he founded in 1991, Mobile Office Acquisition Corporation, the parent company of PacVan, Inc., a U.S. office modular and portable storage company, PV Realty LLC, a real estate company founded in 2000, and United Document Storage, LLC (formerly PortoShred LLC), a document storage and destruction company he formed in 2003. From 2003 to 2006, Mr. Valenta was also a director of the National Portable Storage Association, anot-for-profit entity dedicated to the needs of the storage industry. From 1985 to 1989, Mr. Valenta was a Senior Vice President with Public Storage, Inc., and from 1980 to 1985 Mr. Valenta was a manager with the accounting firm of Arthur Andersen & Co. in Los Angeles.
John O. Johnsonhas served as our Chief Operating Officer since November 2005. Mr. Johnson is a Managing Director of The Spartan Group, a boutique investment banking firm, which he co-founded in 2002. As a Managing Director, he is responsible for origination and execution of mergers and acquisition advisory work and capital raising for growth companies. Prior to founding The Spartan Group, Mr. Johnson served in multiple positions with Banc of America Securities from 1984 until 2002, culminating in his appointment as Managing Director in 1994. While at Banc of America Securities, he specialized in growth company banking coverage and leveraged buyouts and leveraged finance while ultimately becoming a Group Head. Mr. Johnson has served as an investment banker to various companies owned or operated by Mr. Valenta since 1997.
Charles E. Barrantesbecame our Executive Vice President and Chief Financial Officer on September 11, 2006. Prior to joining us, Mr. Barrantes was vice president and chief financial officer for Royce Medical Company from early 2005 to its sale in late 2005. From 1999 to early 2005, he was chief financial officer of Earl Scheib, Inc., a public company that operated over 100 retail paint and body shops. Mr. Barrantes has over 25 years of experience in accounting and finance, starting with more than a decade with Arthur Andersen & Co.
Marc Perezhas served as our Controller since November 2005. Mr. Perez has served as the controller for Portoshred, LLC, a mobile document destruction company, since September 2005. Prior to joining Portoshred,
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Mr. Perez served as controller for Portosan Company, LLC, a portable sanitation services company, from 2000 through September 2005. Prior to joining Portosan, Mr. Perez was a controller for Waste Management, Inc., a provider of comprehensive waste and environmental services in North America, from 1997 to 2000. Mr. Perez began his career out of college in 1988 with Browning Ferris Industries, a sanitation removal company and served as its controller until 1997.
Robert Allanhas been the Chief Executive Officer of Royal Wolf Trading Australia Pty Limited since February, 2006 and will continue in that capacity following the acquisition. As such, he will be deemed to be one of our executive officers. Mr. Allan joined Royal Wolf in April 2004 as its Executive General Manager. From 2000 until joining Royal Wolf, he served as Group General Manager of IPS Logistics Pty Ltd, a shipping and logistics company. From 1997 until 2000, Mr. Allan was employed as a Regional Director of Triton Container International, the world’s largest lessor of marine cargo containers to the international shipping industry. Mr. Allan has more than 30 years of experience in the container leasing and logistics industries.
Lawrence Glascotthas been the Chairman of the Board of Directors of the Company since November 2005. Mr. Glascott has served as a director of 99¢ Only Stores since 1996 where he currently serves on its Audit, Compensation and Nominating and Corporate Governance Committees. From 1991 to 1996 he was the Vice President — Finance of Waste Management International, an environmental services company. Prior thereto, Mr. Glascott was a partner at Arthur Andersen LLP and was in charge of the Los Angeles based Arthur Andersen LLP Enterprise Group practice for over 15 years.
David M. Connellhas been a director of the company since November 2005. Mr. Connell founded Cornerstone Corporate Partners, LLC, a consulting and advisory firm, in 1998. Prior to establishing Cornerstone Corporate Partners in 1998, Mr. Connell served as President and a member of the Board of Directors for Data Processing Resources Corporation, or DPRC, from 1992 to 1998. DPRC was a NASDAQ listed provider of information technology consulting services to Fortune 500 companies. Prior to his services with DPRC, from 1988 to 1993, Mr. Connell was engaged by Welsh, Carson, Anderson ; Stowe, a New York private equity firm to manage a group of portfolio companies. From 1990 to 1993, Mr. Connell served as Chairman and Chief Executive Officer of Specialized Mortgage Service, Inc., an information technology company serving the real estate, banking, and credit rating industries. From 1988 to 1990, he served as Chairman and Chief Executive Officer of Wold Communications, Inc., which later merged and became Keystone Communications, a leading satellite communications service provider.
Manuel Marrerohas been a director of the company since November 2005. Since January 2004, Mr. Marrero has worked as a financial and operations management consultant with several companies, principally focused in consumer products brand management. From May 2002 until January 2004, Mr. Marrero served as the Chief Financial Officer of Mossimo, Inc., and a designer and licensor of apparel and related products. From 1999 to 2001, Mr. Marrero was the Chief Operating Officer and Chief financial Officer of Interplay Entertainment Corp., a developer, publisher and distributor of interactive entertainment software, and the Chief Financial Officer of Precision Specialty Metals, Inc. from 1996 to 1999. Precision Specialty Metals is a light gauge conversion mill for flat rolled stainless steel and high performance alloy. He has served on the boards of Interplay OEM, Inc., Shiney Entertainment, Inc., Seed Internet Ventures, Inc., L.A. Top Producers, LLC, Friends of Rancho San Pedro and Tree People.
James B. Roszakhas been a director of the company since November 2005. Mr. Roszak has been a director of National RV Holdings, Inc. since June 2003 and his term expires in 2006. Mr. Roszak was employed by the Life Insurance Division of Transamerica Corporation, a financial services organization engaged in life insurance, commercial lending, leasing and real estate services, from June 1962 through his retirement as President of such division in June 1997. Mr. Roszak also served as interim Chief Executive Officer and a director of buy.com, an Internet retailer, from February 2001 through August 2001. He is also active as a Board of Trustees member of Chapman University.
In addition to Robert Allan, who will be deemed to be one of our executive officers following the acquisition, Peter McCann and James Warren, the Chief Financial Officer and Chief Operating Officer, respectively, of Royal Wolf, will be key employees of ours.
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Peter McCann, age 40, has served as the Chief Financial Officer of Royal Wolf since 2004. From 2002 until joining Royal Wolf, he was the Chief Financial Officer of Strathfield Group Limited, a consumer electronics company, and from 2000 until 2002 was the General Manager-Finance of Qantas Airways Limited, a commercial airline company. Mr. McCann has nearly 10 years of experience as a chief financial officer in both public and private companies and is a Chartered Accountant.
James Warren, age 55, has served as Chief Operating Officer of Royal Wolf since 1998. From 1985 until joining Royal Wolf, he was a Managing Director of Trans America Leasing, an intermodal container leasing company. From 1976 until 1985, he served in the same capacity with Flexi Van, also an intermodal container leasing company. Mr. Warren has over 21 years of operating experience in the container and shipping industries.
Employment Agreements
On September 11, 2006, we entered into an employment agreement with Charles E. Barrantes, under which he agrees to serve as our Executive Vice President and Chief Financial Officer. Under the employment agreement, Mr. Barrantes will receive a base annual salary of $200,000, and will be eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided the he is employed on the last day of such year. We will reimburse Mr. Barrantes up to $750 per month for health, dental, vision and supplemental disability premiums for himself and his family, because we do not currently provide employee benefits. Should we provide such benefits in the future, Mr. Barrantes will be entitled to participate on the same basis in all offered benefits or programs as any other employee.
Mr. Barrantes also received options to purchase an aggregate of 225,000 shares of common stock under our 2006 Stock Option Plan as of the date of commencement of his employment. The options have an exercise price of $7.30 per share (the closing sales price of the commons stock on the date of grant), vest in five equal annual installments and expire ten years from the date of grant. The options are subject to stockholder approval of the 2006 Stock Option Plan on or prior to August 28, 2007.
Mr. Barrantes employment agreement will terminate upon his death or in the event of his physical or mental disability which renders him unable to perform his duties for 60 consecutive days or 120 days in any twelve-month period. Mr. Barrantes may terminate his employment agreement at any time upon 30 days notice to us, and we may terminate it at any time upon notice to Mr. Barrantes. Mr. Barrantes will be entitled to a lump-sum severance payment of six months’ base salary if, prior to the later of August 31, 2007 or six months from the completion of our first business combination, we terminate his employment without “cause” or he terminates his employment for “good reason” (each, as defined).
Robert Allan serves as Chief Executive Officer of Royal Wolf Trading Pty Limited under an employment agreement that will continue indefinitely, unless terminated by Mr. Allan or Royal Wolf Trading Pty Limited upon at least six months’ notice. Under his employment agreement, Mr. Allan receives a base annual salary of $236,400 and is eligible to receive an annual performance bonus not to exceed $78,800 based upon the achievement of specified performance indicators. The maximum annual performance bonus is subject to increase based upon consumer price index increases. There is no severance or similar obligation to Mr. Allan under his employment agreement except that Royal Wolf may pay six months’ compensation to Mr. Allan in lieu of providing notice of termination of his employment as described above.
Director and Executive Compensation
Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million.
In addition to the 22,500 shares acquired by each of the directors prior to the offering, at present we pay each of our non-employee directors $1,500 for each meeting they attend. We also reimburse all of our officers and directors forout-of-pocket expenses incurred by them in connection with their activities on our behalf. If the acquisition is
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completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of the Compensation Committee of our board of directors. Except as described above, there is no current understanding or arrangement with respect to any compensation to our officers or directors.
Director Independence
The American Stock Exchange requires that a majority of our board must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
A majority of the directors on our board are “independent directors.” Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Audit Committee
Our board of directors has established an audit committee. The purpose of the audit committee is to represent and assist our board in its general oversight of our accounting and financial reporting processes, audits of the financial statements and internal control and audit functions. The audit committee is directly responsible for the appointment, compensation, retention, oversight and work of our independent auditor.
The audit committee consists of James B. Roszak, as chairman, Manuel Marrero and Lawrence Glascott, each of whom is an independent director and is “financially literate” under the American Stock Exchange listing standards and each of whom we believe qualifies as an “audit committee financial expert,” as defined in the rules and regulations of the Securities and Exchange Commission. The American Stock Exchange listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, we will certify to the American Stock Exchange that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience of background that results in the individual’s financial sophistication.
Nominating Committee
Our board of directors has established a Nominating Committee. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors.
The Nominating Committee consists of Manuel Marrero, as chairman, David M. Connell and James B. Roszak, each of whom is an independent director under the American Stock Exchange listing standards.
Compensation Committee
Our board of directors has established a Compensation Committee. The Compensation Committee is responsible for overseeing our executive compensation program.
The Compensation Committee consists of David M. Connell, as chairman, Manuel Marrero and James B. Roszak, each of whom is an independent director under the American Stock Exchange listing standards.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.
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Conflicts of Interest
You should be aware of the following potential conflicts of interest on the part of our directors and certain officers:
| | |
| • | Neither our directors nor Mr. Valenta or Mr. Johnson is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities. |
|
| • | In the course of their other business activities, our officers and directors may become aware of investment and business opportunities that may be appropriate for presentation to us and the other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular business opportunity should be presented. |
|
| • | Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those in which our company intends to engage. |
|
| • | Ronald F. Valenta, our Chief Executive Officer and Secretary, is the non-executive Chairman of the Board of Directors of Mobile Services Group, Inc. and Chairman of the Board of Directors of Port-O-Shred LLC and the managing member of Portosan, LLC. While none of our other existing stockholders has any affiliation with a specialty finance company, they may have such an affiliation in the future. |
|
| • | As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the Royal Wolf acquisition is not approved at the special meeting, or otherwise is not completed by April 3, 2008, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement. Mr. Valenta entered into the backup purchase agreement as an accommodation to us in order to facilitate our acquisition of Royal Wolf, and we believe that it presents no current conflict of interest on Mr. Valenta’s part. In the event, however, that the Royal Wolf acquisition is not completed and Mr. Valenta acquires Royal Wolf pursuant to the backup purchase agreement, it is possible that Royal Wolf could compete in Australia or other geographic markets with another specialty finance company that we might acquire pursuant to a possible alternative initial business combination. |
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
| | |
| • | the corporation could financially undertake the opportunity; |
|
| • | the opportunity is within the corporation’s line of business; and |
|
| • | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved in our favor.
To minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has agreed, until the earliest of a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company prior to any other entity, any business opportunity which may reasonably be required to be presented to our company under Delaware law, subject to any pre-existing fiduciary obligations he might have.
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In connection with the vote required for any business combination, our existing stockholders have agreed to vote their shares of common stock they owned prior to this offering in accordance with the majority of the shares of our common stock sold in this offering voted by the public stockholders. In addition, our officers and directors have agreed to waive their rights to participate in any liquidation from the trust account, but only with respect to those shares of common stock acquired prior to this offering. Any common stock acquired by our existing stockholders, officers and directors in the offering or aftermarket will be considered part of the holdings of the public stockholders. Except with respect to the conversion rights afforded to public stockholders, our existing stockholders, officers and directors will have the same rights as other public stockholders with respect to such shares, including voting rights in connection with a potential business combination. Therefore, they may vote such share on a proposed business combination any way they choose.
Summary Compensation Table
At present, we do not compensate any of our officers other than Mr. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. Following the acquisition, Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of our executive officers, and Peter McCann and James Warren may be deemed to be key employees.
The following table sets forth summary information concerning the compensation paid by us during the year ended December 31, 2006 and by Royal Wolf during the last three years ended June 30, 2007 to executive officers and key employees following the acquisition:
| | | | | | | | | | | | | | | |
Name | | Title | | Year | | Salary | | Bonus |
| |
| Charles E. Barrantes | | Chief Financial Officer | | | 2006 | (1) | | $ | 65,482 | (2) | | $ | — | |
| Robert Allan | | Chief Executive Officer | | | 2007 | | | $ | 236,402 | | | $ | — | |
| | | Royal Wolf Trading Australia Pty | | | 2006 | | | $ | 177,568 | | | $ | — | |
| | | Limited | | | 2005 | | | $ | 152,188 | | | $ | 7,486 | |
| Peter McCann | | Chief Financial Officer | | | 2007 | | | $ | 213,075 | | | $ | — | |
| | | Royal Wolf Trading Australia Pty | | | 2006 | | | $ | 204,880 | | | $ | — | |
| | | Limited | | | 2005 | | | $ | 197,000 | | | $ | 26,540 | |
| James Warren | | Chief Operating Officer | | | 2007 | | | $ | 204,880 | | | $ | — | |
| | | Royal Wolf Trading Australia Pty | | | 2006 | | | $ | 191,484 | | | $ | — | |
| | | Limited | | | 2006 | | | $ | 185,180 | | | $ | 39,400 | |
| | |
(1) | | Mr. Barrantes joined us in September 2006. |
|
(2) | | Includes $3,361 of reimbursed medical premiums. |
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BENEFICIALSECURITY OWNERSHIP OF SECURITIESCERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our common stock as of June 11, 2007,July 28, 2008, by (i) each person known by us to be the record date for the special meeting,beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each of our executive officers and after giving effect to the completiondirectors; and (iii) all of the Royal Wolf acquisition, by:
| | |
| • | Each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
|
| • | Each of our current executive officers and directors; and |
|
| • | All of our current executive officers and directors as a group; and |
our executive officers and directors as a group. Unless otherwise noted, we believe that each beneficial owner named in the table has sole voting and investment power with respect to the shares shown, subject to community property laws where applicable. An asterisk (*) denotes beneficial ownership of less than one percent.
| | | | | | | | | | | | | | | | | | | | | |
| | | Before the Acquisition | | After the Acquisition | | |
| | | Number
| | Percent
| | Number
| | Percent
| | |
Name | | of Shares(1) | | of Class(1) | | of Shares(1) | | of Class(1) | | |
| |
| Ronald F. Valenta(2) | | | 1,423,500 | | | | 13.6 | % | | | 2,605,466 | | | | 22.3 | % | | | | |
| John O. Johnson(3) | | | 356,250 | | | | 3.4 | % | | | 665,617 | | | | 6.2 | % | | | | |
| James B. Roszak | | | 22,500 | | | | (* | ) | | | 22,500 | | | | (* | ) | | | | |
| Lawrence Glascott | | | 22,500 | | | | (* | ) | | | 22,500 | | | | (* | ) | | | | |
| Manuel Marrero | | | 22,500 | | | | (* | ) | | | 22,500 | | | | (* | ) | | | | |
| David M. Connell | | | 22,500 | | | | (* | ) | | | 22,500 | | | | (* | ) | | | | |
| Marc Perez | | | 18,750 | | | | (* | ) | | | 18,750 | | | | (* | ) | | | | |
| Fir Tree, Inc.(4) | | | 898,525 | | | | 8.6 | % | | | 898,525 | | | | 8.6 | % | | | | |
535 Fifth Avenue, 31st Floor
New York, NY 10017 | | | | | | | | | | | | | | | | | | | | |
| Gilder, Gagnon, Howe & Co. LLC(5) | | | 1,076,540 | | | | 10.3 | % | | | 1,076,540 | | | | 10.3 | % | | | | |
| 1775 Broadway, 25th Floor | | | | | | | | | | | | | | | | | | | | |
| New York, New York 10019 | | | | | | | | | | | | | | | | | | | | |
| The Baupost Group, L.L.C.(6) | | | 538,700 | | | | 5.1 | % | | | 538,700 | | | | 5.1 | % | | | | |
| 10 St. James Avenue, Suite 2000 | | | | | | | | | | | | | | | | | | | | |
| Boston, Massachusetts 02116 | | | | | | | | | | | | | | | | | | | | |
| Olawalu Holdings, LLC(7) | | | 642,000 | | | | 6.1 | % | | | 642,000 | | | | 6.1 | % | | | | |
| 2863 S. Western Avenue | | | | | | | | | | | | | | | | | | | | |
| Palos Verdes, California 90275 | | | | | | | | | | | | | | | | | | | | |
| Ronald L. Havner, Jr.(8) | | | 444,250 | | | | 4.2 | % | | | 671,500 | | | | 6.2 | % | | | | |
LeeAnn R. Havner
The Havner Family Trust | | | | | | | | | | | | | | | | | | | | |
c/o Public Storage, Inc.
701 Western Avenue
Glendale, California 91201 | | | | | | | | | | | | | | | | | | | | |
| Jonathan Gallen(9) | | | 1,098,610 | | | | 10.5 | % | | | 1,098,610 | | | | 10.5 | % | | | | |
| All officers and directors as a group (eight persons)(10) | | | 1,888,500 | | | | 17.9 | % | | | 3,366,333 | | | | 38.1 | % | | | | |
| | | | | | | | | |
| | | Beneficial Ownership | |
| | | Number of
| | | Percent of
| |
Name | | Shares(1) | | | Class(1) | |
| |
| Ronald F. Valenta(2)(3) | | | 2,605,466 | | | | 18.1 | % |
| John O. Johnson(2)(4) | | | 665,617 | | | | 4.7 | % |
| James B. Roszak(2) | | | 22,500 | | | | (* | ) |
| Lawrence Glascott(2) | | | 22,500 | | | | (* | ) |
| Manuel Marrero(2) | | | 22,500 | | | | (* | ) |
| David M. Connell(2) | | | 22,500 | | | | (* | ) |
| Charles E. Barrantes(2)(5) | | | 90,000 | | | | (* | ) |
| Christopher Wilson(2) | | | 2,000 | | | | (* | ) |
| Robert Allan(6) | | | 800 | | | | (* | ) |
| Gilder, Gagnon, Howe & Co. LLC(7) | | | 2,294,424 | | | | 16.6 | % |
| Olowalu Holdings, LLC(8) | | | 1,076,514 | | | | 7.8 | % |
2863 S. Western Avenue
Palos Verdes, California 90275 | | | | | | | | |
| Ronald L. Havner, Jr.(9) | | | 718,500 | | | | 5.2 | % |
LeeAnn R. Havner
The Havner Family Trust | | | | | | | | |
c/o Karl Swaidan
Hahn & Hahn LLP
301 East Colorado Boulevard, Suite 900
Pasadena, California 91101 | | | | | | | | |
| Jonathan Gallen(10) | | | 1,905,000 | | | | 13.2 | % |
299 Park Avenue, 17th Floor
New York, New York 10171 | | | | | | | | |
| Neil Gagnon(11) | | | 1,797,012 | | | | 12.6 | % |
1370 Avenue of the Americas, Suite 2400
New York, New York 10019 | | | | | | | | |
| Jack Silver(12) | | | 2,503,200 | | | | 15.3 | % |
SIAR Capital LLC
660 Madison Avenue
New York, New York 10021 | | | | | | | | |
| Brencourt Advisors, LLC(13) | | | 691,200 | | | | 5.0 | % |
600 Lexington Avenue
8th Floor
New York, NY 10022 | | | | | | | | |
| All executive officers and directors as a group (nine persons) | | | 3,453,883 | | | | 23.5 | % |
| | |
| (1) | | We will have outstanding 10,500,000Based on 13,826,052 shares of common stock on June 11, 2007. Our outstanding warrants to purchase common stock are not currently exercisable, but will become exercisable uponoutstanding. In accordance with the closingrules of the Royal Wolf acquisition, if itSEC, person is approved at the special meeting and completed. The shares of common stock subjectdeemed to our outstanding warrants are excluded frombe the beneficial ownership information under “Beforeowner of shares that the Acquisition,” butperson may acquire within the following 60 days (such as upon exercise of options or warrants or conversion of convertible securities). These shares are deemed to be outstanding for purposes of computing the percentage ownership of the person |
126
| | |
| | holding beneficially owning such warrants,shares but not for purposes of computing the percentage of any other holder, under “After the Acquisition.” Any warrant shares are indicated by footnote.holder. |
|
| (2) | | Business address isc/o General Finance Corporation, 39 East Union Street, Pasadena, California 91103. |
87
| | |
(2)(3) | | Mr. Valenta’s business address is c/o General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101. The shares shown includeIncludes: (i) 13,500 shares owned by Mr. Valenta’s wife and minor children, as to which Mr. Valenta’s shares voting and investment power with his wife. Thewife; and (ii) 540,013 shares shown also include 1,181,966 shares subject to our warrants owned by Mr. Valenta.that may be acquired upon exercise of warrants. The shares shown exclude the shares referred to in note (7)(8), below. |
|
(3) | | The shares shown include 309,367 shares subject to our warrants held by Mr. Johnson. |
| |
| (4) | | Fir Tree, Inc. is the investment manager of both Fir Tree Recovery Master Fund, L.P., a Cayman Islands exempted limited partnership, and Sapling, LLC, a Delaware limited liability company. Fir Tree Recovery may direct the vote and disposition of 271,894 of theIncludes 260,348 shares shown. Fir Tree Value Master Fund, LP, a Cayman Islands exempted limited partnership, as the sole member of Sapling, LLC, may direct the vote and disposition of the 626,631 of the shares shown. Information is based upon a Schedule 13G filed with respect to our company with the Securities Exchange Commission on April 11, 2006. Based upon a review of other filings with the Securities and Exchange Commission, we have reason to believe that Jeffrey Tannenbaum, the President of Fir Tree, Inc., may be deemed to be a control personacquired upon exercise of Sapling, LLC and Fir Tree Recovery Master Fund, L.P.warrants. |
| |
| (5) | | Represents shares that may be acquired upon exercise of options. |
|
| (6) | | Business address is Suite 201, Level 2,22-28 Edgeworth David Avenue, Hornsby, New South Wales, Australia 2077 |
|
| (7) | | Information is based upon a Schedule 13G filed with respect to our company filed with the Securities and Exchange Commission on March 12, 2007.June 10, 2008. Gilder, Gagnon, Howe & Co. LLC is a New York limited liability and broker or dealer registered under the Securities Exchange Act of 1934. The shares shown include 23,72060,599 shares as to which Gilder, Gagnon, Howe & Co. LLC has sole voting power and 1,076,5402,233,825 shares as to which it shares voting and investment power. Of these 1,076,5402,294,424 shares, 930,3802,087,126 shares are held in customer accounts under which partners or employees of Gilder, Gagnon, Howe & Co. LLC have discretionary authority to dispose or direct the disposition of the shares, 102,440146,749 shares are held in accounts of its partners and 33,72060,599 shares are held in its profit-sharing plan. |
| |
(6)(8) | | Information is based upon a Schedule 13G with respect to our company filed with the Securities and Exchange Commission on February 13, 2007. The Baupost Group, L.L.C. is a registered investment advisor, of which SAK Corporation, a Massachusetts corporation, is the Manager. Seth A. Klarman is the sole director of SAK Corporation and a control person of The Baupost Group, L.L.C., and as such may be deemed to beneficially own the shares shown. The shares shown include shares purchased on behalf of various investment limited partnerships. |
|
(7) | | Information is based upon a Schedule 13G with respect to our companyl3G filed on FebruaryJune 27, 2007 with the Securities and Exchange Commission.2008. Olawalu Holdings, LLC or Olawalu,(“Olawalu”), is a Hawaiian limited liability company, of which Mr. Rick Pielago is the manager. Olawalu shares voting and investment power as to all of the shares shown with Lighthouse Capital Insurance Company, a Cayman Islands exempted limited company, and the Ronald Valenta Irrevocable Life Insurance Trust No. 1, a California trust, of which Mr. Pielago is trustee. The Ronald Valenta Irrevocable Life Insurance Trust No. 1 is an irrevocable family trust established by Mr.Ronald F. Valenta in December 1999 for the benefit of his wife at the time, any future wife, and their descendants. Mr. Valenta, himself, is not a beneficiary of the Trust, and neither he nor his wife or their descendants has voting or investment power, or any other legal authority, with respect to the shares shown. Mr. Valenta disclaims beneficial ownership of our shares held by the Trust. Mr. Pielago may be deemed to be the control person of Olawalu and the Ronald Valenta Irrevocable Life Insurance Trust No. 1. |
| |
(8)(9) | | Information is based upon a Schedule 13D Amendment filed on June 6, 2008. The shares shown include 7,00012,000 shares as to which Ronald L. Havner has sole voting power and 3,000 shares as to which his wife, LeeAnn R. Havner, has sole voting power. Mr. and Mrs. Havner are Co-Trustees of The Havner Family Trust. The Trust owns 434,250676,750 shares and warrants to purchase 227,25039,750 shares. As Co-Trustees of the Trust, Mr. and Mrs. Havner may behe deemed to beneficially own all of the shares held by the Trust. Information is based upon a Schedule 13D filed with respect to our company with the Securities and Exchange Commission on February 9, 2007. |
| | |
(9) |
| (10) | | Information is based upon a Schedule 13G with respect to our company filed on June 15, 2007 with the Securities and Exchange Commission.February 14, 2008. The shares shown are held by Ahab Partners, L.P., Ahab International, Ltd., Queequeg Partners, L.P., Queequeg, Ltd. and one or more other private funds managed by Mr. Gallen, whoGallen. The shares shown include 655,000 shares that may be acquired upon exercise of warrants. |
|
| (11) | | Information is based upon a Schedule 13G filed on February 13, 2008. The shares shown include: (i) 244,008 shares beneficially owned by Mr. Gagnon; (ii) 39,520 shares beneficially owned by Mr. Gagnon over which he has sole voting power and investmentshared dispositive power; (iii) 162,443 shares beneficially owned by Lois Gagnon, Mr. Gagnon’s wife, over which he has shared voting power and shared dispositive power; (iv) 3,510 shares beneficially owned by Mr. Gagnon and Mrs. Gagnon as joint tenants with respect to allrights of survivorship, over which he has shared voting power and shared dispositive power; (v) 38,888 shares held by the Lois E. and Neil E. Gagnon Foundation, of which Mr. Gagnon is a trustee and over which he has shared voting power and shared dispositive power; (vi) 60,163 shares held by the Gagnon Family Limited Partnership, of which Mr. Gagnon is a partner and over which lie has shared voting power and shared dispositive power; (vii) 48,320 shares held by the Gagnon Grandchildren Trust over which Mr. Gagnon has shared dispositive power but no voting power; (viii) 530,549 shares held by four hedge funds, of which Mr. Gagnon is either the principal executive officer of the manager or the managing member of a member of the general partner or the managing member: (ix) 1,605 shares shown.held by the Gagnon Securities LLC Profit Sharing Plan and Trust, of which Mr. Gagnon is a trustee; (x) 4,175 shares held by the Gagnon Securities LLC Profit Sharing Plan and Trust; and (xi) 663,831 shares held for certain customers of Gagnon Securities LLC, of which Mr. Gagnon is the managing member and the principal owner and over which he has shared dispositive power but no voting power. The shares shown include 465,279 shares that may be acquired upon exercise of warrants. |
12788
| | |
(10)(12) | | Excludes Robert Allan, the Chief Executive Officer of Royal Wolf, who will be deemed to be one of our executive officers after the acquisition,Information is based upon a schedule 13G filed February 12, 2008 and Peter McCann and James Warren, the Chief Financial Officer and the Chief Operating Officer, respectively, of Royal Wolf, who may be deemed to be key employees following the acquisition. Mr. Allan owns 800 shares of our common stock. None of the other individuals owns beneficially any shares of our common stock.upon subsequent filings on Form 4. The shares shown includeinclude: (i) 345,500 shares that may be acquired upon exercise of warrants held by Sherleigh Associates Inc. Defined Benefit Pension Plan, a totaltrust of 1,491,333which Mr. Silver is the trustee; (ii) 2,157,700 shares, subjectincluding 2,141,200 that may be acquired upon exercise of warrants held by Sherleigh Associates Inc. Profit Sharing Plan, a trust of which Mr. Silver is the trustee. |
|
| (13) | | Information is based upon a Schedule 13G filed on February 14, 2008 as an Investment Advisor with the Sole dispositive and power to our warrants owned by our directors and executive officers.vote or to direct the vote of 691,200 shares. |
STOCKHOLDER PROPOSALS
Any stockholder who intends to have a proposal considered for inclusion in the proxy statement to be distributed by us in connection with the 2008 annual meeting must submit the proposal to us on or before January 1,, 2008. The proposal must also comply with the other terms and conditions ofRule 14a-8 under the Securities Exchange Act of 1934 in order to be included in our proxy statement. A proposal that a stockholder intends to present at the annual meeting but does not desire to include in our proxy statement pursuant toRule 14a-8 will be considered untimely unless it is received by us not less than 60 days nor more than 90 days prior to the date of the annual meeting (provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given by us to our stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made). The proposal must also contain the information that is specified in Article I, Section 15 of our bylaws. All proposals described in this paragraph should be sent to Ronald F. Valenta, our Chief Executive OfficerChristopher A. Wilson, General Counsel and Secretary, at General Finance Corporation, 260 South Los Robles, Suite 217,39 East Union Street, Pasadena, California 91101.91103.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior toRonald F. Valenta, our IPO, we issued an aggregate of 1,875,000 shares of common stock to certain of our current officers and directors as set forth above under “Beneficial Ownership of Securities” at a purchase price of approximately $0.134 per share. These shares are being held in escrow with Continental Stock Transfer & Trust Company, as escrow agent, pursuant to an escrow agreement between us, our officers and directors and the escrow agent. These shares will not be transferable by our officers and directors, except to their spouses, children or trusts established for their benefit, and will only be released from escrow upon the earlier of one year after the completion of our initial business combination or the completion of a transaction after our initial business combination that results in our stockholders having the right to exchange their shares for cash or other securities.
We currently have an unsecured limited recourse line of credit agreement with Ronald J. Valenta, ourPresident, Chief Executive Officer, and a member of our board of directors beneficially owns approximately 18.1% of the outstanding common stock of General Finance. Mr. Valenta owns approximately 34.5% of the voting common stock of MOAC. Mr. Valenta is therefore an interested director under which we can borrow upDelaware law because he has a financial interest in MOAC, the company General Finance proposes to $3,000,000 from timeacquire. A special committee comprised of only independent directors of General Finance was created to time atformulate an annual interest rateindependent determination as to whether the acquisition of 8%. At May 31, 2007,Pac-Van would achieve our strategic goals and enhance stockholder value. If the outstanding amountacquisition of principal and accrued interest under the line of credit was $2,256,322. Borrowings under the line of credit will become due and payablePac-Van is completed, Mr. Valenta would receive approximately $17.5 million upon the first to occur of our initial business combination, an “event of default” (as defined), our liquidation or dissolution, and April 5, 2008, provided, however, that Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit. Subject to this limitation on recourse to the funds in the trust account, amounts outstanding under the line of credit may be repaid in whole or in pat at any time without penalty or premium. Neither Mr. Valenta nor our other officers or directors has any obligation to provide us any additional financing.
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the Royal Wolf acquisition is not approved at the special meeting, or otherwise is not completed by April 3, 2008, he will purchase from Bison-GE and the management shareholders allconsummation of the RWAMerger consisting of approximately $3.7 million in cash and approximately $13.8 million of shares of restricted General Finance common stock, valued at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms$7.50 per share for purposes of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement.Merger.
128
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities and Exchange Commission as required by the Securities Exchange Act of 1934, as amended. You may read and copy reports, proxy statements and other information filed by us with the Securities and Exchange Commission at the Securities and Exchange Commission public reference room located at Judiciary Plaza, 100 F Street, N.E., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at1-800-732-0330. You may also obtain copies of the materials described above at prescribed rates by writing to the Securities and Exchange Commission, Public Reference Section, 100 F Street N.E., Washington, D.C. 20549. You also may access information on us at the Securities and Exchange Commission web site containing reports, proxy statements and other information at:http://www.sec.gov.
89
If you would like additional copies of this proxy statement or the proxy card, or if you have questions about the acquisition, you should contact, orally or in writing:
| | | | | |
| John O. Johnson | | OR | | MacKenzie Partners, Inc. |
| Chief Operating Officer | | | | 105 Madison Avenue |
| General Finance Corporation | | | | New York, New York 10016 |
260 South Robles, Suite 21739 East Union Street | | | | Telephone: (800)322-2885 or |
Pasadena, California 9110191103 | | | | (212) 929-5500 (call collect) |
Telephone:(626) 584-9722 | | | | |
OTHER MATTERS
The board of directors of General Finance does not know of any matters to be presented at the special meeting other than those set forth in the notice of special meeting accompanying this proxy statement. However, if any other matters properly come before the meeting, the persons named in the enclosed proxy card intend to vote on such matters the shares they represent as the board of directors of General Finance may recommend.
Pursuant to the rules of the SEC, we and services that we employ to deliver communications to our stockholders are permitted to deliver to two or more stockholders sharing the same address a single copy of our proxy statement. Upon written or oral request, we will deliver a separate copy of the proxy statement to any stockholder at a shared address to which a single copy of each document was delivered and who wishes to receive separate copies of such documents in the future. Stockholders receiving multiple copies of such documents may likewise request that we deliver single copies of such documents in the future. Stockholders may notify us of their requests by calling or writing us at our investor relations firm at The MacKenzie Group, Inc., 105 Madison Avenue, New York, New York 10016, telephone(800) 322-2885 or (212) 929-5500.
It is important that your shares be represented at the meeting, regardless of the number of shares which you hold.You are, therefore, urged to execute promptly and return the accompanying proxy in the envelope which has been enclosed for your convenience.Stockholders who are present at the meeting may revoke their proxies and vote in person or, if they prefer, may refrain from voting in person and allow their proxies to be voted.
By Order of the Board of Directors
Sincerely,
John O. Johnson
Chief Operating Officer
Pasadena, California
, 2008
12990
If you have questions or need assistance voting your shares please contact:
105 Madison Avenue
New York, New York 10016
proxy@mackenziepartners.com
Call Collect:(212) 929-5500
or
Toll-Free(800) 322-2885
INDEX TO FINANCIAL STATEMENTS
General Finance Corporation Financial Statements
Our Transitional Report onForm 10-K for the six months ended June 30, 2007 and our Quarterly Report onForm 10-Q for the fiscal quarter ended March 31, 2008, including the financial statements and notes thereto, are incorporated by reference into this proxy statement.
Mobile Office Acquisition Corp. and Pac-Van, Inc. Financial Statements
| | | | | |
| | | Page |
| |
RWA HOLDINGS PTY LIMITEDMobile Office Acquisition Corp. and Subsidiary
d/b/a Pac-Van, Inc. (“Successor”) | | | | |
Unaudited as of and for the six months ended December 31, 2006 and December 31, 2005: | | | | |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
As of and for the year ended June 30, 2006, the six months ended June 30, 2005, and the year ended December 31, 2004: | | | | |
| | | F-14 | |
| | | F-15 | |
| | | F-16 | |
| | | F-17 | |
| | | F-18 | |
| | | F-19 | |
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED | | | | |
As of and for the year ended December 31, 2003: | | | | |
| | | F-70F-2 | |
| | | F-71F-3 | |
| | | F-72F-4 | |
| | | F-73F-5 | |
| | | F-6 | |
| | | F-74F-7 | |
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIPPac-Van, Inc (“Predecessor”) | | | | |
As of and for the year ended June 30, 2005 and the nine months ended March 31, 2006 and 2005 (unaudited): | | | | |
| | | F-93 | |
| F-14 | | | F-94 | |
| | | F-95F-15 | |
| Statements of Income — Period from January 1, 2006 to August 1, 2006 and Year Ended December 31, 2005 | | | F-16 | |
| | | F-17 | |
| | | F-18 | |
| | | F-97F-19 | |
Mobile Office Acquisition Corp. and Subsidiary
d/b/a Pac-Van, Inc. (“Successor”) | | | | |
| | | F-26 | |
| | | F-27 | |
| | | F-28 | |
| | | F-29 | |
F-1
RWA Holdings Pty Limited Unaudited Financial ReportFor the six months ended 31 December 2006 and 2005
| | | | | | | | | | | | | |
| | | | | | 31 December
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| |
| | | Note | | | 6 Months | | | 6 Months | |
| | | | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 30,502 | | | | 22,887 | |
| Hire of containers | | | | | | | 13,397 | | | | 9,774 | |
| | | | | | | | | | | | | |
| Total revenue | | | | | | | 43,899 | | | | 32,661 | |
| | | | | | | | | | | | | |
| Other income | | | | | | | 8 | | | | 21 | |
| Changes in inventories of finished goods and WIP | | | | | | | (655 | ) | | | 507 | |
| Purchases of finished goods and consumables used | | | | | | | (26,041 | ) | | | (21,396 | ) |
| Employee benefits expense | | | | | | | (10,197 | ) | | | (4,673 | ) |
| Depreciation and amortization expense | | | | | | | (2,035 | ) | | | (1,729 | ) |
| Other expenses | | | | | | | (4,755 | ) | | | (3,824 | ) |
| | | | | | | | | | | | | |
Results from operating activities | | | | | | | 224 | | | | 1,567 | |
| | | | | | | | | | | | | |
| Financial income | | | | | | | 330 | | | | 179 | |
| Financial expenses | | | | | | | (2,593 | ) | | | (1,828 | ) |
| | | | | | | | | | | | | |
Net financing costs | | | | | | | (2,263 | ) | | | (1,649 | ) |
| | | | | | | | | | | | | |
| Share of profit of associate | | | | | | | — | | | | — | |
| | | | | | | | | | | | | |
Profit/(loss) before tax | | | | | | | (2,039 | ) | | | (82 | ) |
| Income tax expense | | | | | | | (806 | ) | | | (96 | ) |
| | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | (2,845 | ) | | | (178 | ) |
| | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (2,845 | ) | | | (178 | ) |
| | | | | | | | | | | | | |
F-2
RWA Holdings Pty Limited Unaudited Financial Report
For the six months ended 31 December 2006 and 2005
| | | | | | | | | | | | | |
| | | | | | 31 December
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| |
| | | Note | | | 6 Months | | | 6 Months | |
| | | | | | A$’000 | | | A$’000 | |
| |
| Net income/(loss) recognized directly in equity | | | | | | | — | | | | — | |
| Profit/(loss) for the period | | | | | | | (2,845 | ) | | | (178 | ) |
| | | | | | | | | | | | | |
Total recognized income and expense for the period | | | | | | | (2,845 | ) | | | (178 | ) |
| | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (2,845 | ) | | | (178 | ) |
| | | | | | | | | | | | | |
F-3
RWA Holdings Pty Limited Unaudited Financial Report
As at 31 December 2006 and 2005
| | | | | | | | | | | | | |
| | | | | | 31 December
| | | 31 December
| |
| | | Note | | | 2006 | | | 2005 | |
| | | | | | A$’000 | | | A$’000 | |
| |
ASSETS |
| Cash and cash equivalents | | | | | | | 613 | | | | 941 | |
| Trade and other receivables | | | | | | | 15,795 | | | | 8,154 | |
| Inventories | | | | | | | 8,153 | | | | 3,517 | |
| | | | | | | | | | | | | |
Total current assets | | | | | | | 24,561 | | | | 12,612 | |
| | | | | | | | | | | | | |
| Receivables | | | | | | | 695 | | | | 1,033 | |
| Investments accounted for using the equity method | | | | | | | — | | | | 493 | |
| Property, plant and equipment | | | | | | | 3,409 | | | | 3,331 | |
| Container hire fleet | | | | | | | 47,039 | | | | 31,898 | |
| Intangible assets | | | | | | | 5,126 | | | | 4,456 | |
| | | | | | | | | | | | | |
Total non-current assets | | | | | | | 56,269 | | | | 41,211 | |
| | | | | | | | | | | | | |
Total assets | | | | | | | 80,830 | | | | 53,823 | |
| | | | | | | | | | | | | |
| |
LIABILITIES |
| Trade and other payables | | | | | | | 18,922 | | | | 6,794 | |
| Interest-bearing loans and borrowings | | | | | | | 8,776 | | | | 4,426 | |
| Current tax liability | | | | | | | — | | | | — | |
| Employee benefits | | | | | | | 5,276 | | | | 837 | |
| Provisions | | | | | | | 160 | | | | — | |
| | | | | | | | | | | | | |
Total current liabilities | | | | | | | 33,134 | | | | 12,057 | |
| | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 44,065 | | | | 36,608 | |
| Deferred tax liabilities | | | | | | | 1,396 | | | | 216 | |
| Employee benefits | | | | | | | 206 | | | | 295 | |
| Provisions | | | | | | | 13 | | | | 8 | |
| | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 45,680 | | | | 37,127 | |
| | | | | | | | | | | | | |
Total liabilities | | | | | | | 78,814 | | | | 49,184 | |
| | | | | | | | | | | | | |
Net assets | | | | | | | 2,016 | | | | 4,639 | |
| | | | | | | | | | | | | |
Equity | | | | | | | | | | | | |
| Issued capital | | | | | | | 4,550 | | | | 4,550 | |
| Retained earnings/(accumulated losses) | | | | | | | (2,866 | ) | | | 89 | |
| Reserves | | | | | | | 332 | | | | — | |
| | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 2,016 | | | | 4,639 | |
| | | | | | | | | | | | | |
F-4
RWA Holdings Pty Limited Unaudited Financial Report
For the six months ended 31 December 2006 and 2005
| | | | | | | | | | | | | |
| | | | | | 31 December
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| |
| | | Note | | | 6 Months | | | 6 Months | |
| | | | | | A$’000 | | | A$’000 | |
| |
Cash flows from operating activities | | | | | | | | | | | | |
| Cash receipts from customers | | | | | | | 48,289 | | | | 35,927 | |
| Cash paid to suppliers and employees | | | | | | | (42,216 | ) | | | (34,008 | ) |
| | | | | | | | | | | | | |
| Cash generated from operations | | | | | | | 6,073 | | | | 1,919 | |
| Interest paid | | | | | | | (1,955 | ) | | | (1,391 | ) |
| | | | | | | | | | | | | |
Net cash from operating activities | | | 2 | | | | 4,118 | | | | 528 | |
| | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | |
| Proceeds from sale of property, plant and equipment | | | | | | | 65 | | | | 36 | |
| Interest received | | | | | | | 98 | | | | 99 | |
| Acquisition of property, plant and equipment | | | | | | | (560 | ) | | | (490 | ) |
| Acquisition of container hire fleet | | | | | | | (9,894 | ) | | | (7,078 | ) |
| Acquisition of intangible assets | | | | | | | (127 | ) | | | (484 | ) |
| | | | | | | | | | | | | |
Net cash from investing activities | | | | | | | (10,418 | ) | | | (7,917 | ) |
| | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | |
| Payment of finance lease liabilities | | | | | | | (158 | ) | | | (111 | ) |
| Proceeds from borrowings | | | | | | | 4,975 | | | | 15,691 | |
| Repayment of borrowings | | | | | | | (817 | ) | | | (9,650 | ) |
| | | | | | | | | | | | | |
Net cash from financing activities | | | | | | | 4,000 | | | | 5,930 | |
| | | | | | | | | | | | | |
| Net increase / (decrease) in cash and cash equivalents | | | | | | | (2,300 | ) | | | (1,459 | ) |
| Cash and cash equivalents at beginning of period | | | | | | | (1,349 | ) | | | 695 | |
| | | | | | | | | | | | | |
Cash and cash equivalents at 31 December | | | | | | | (3,649 | ) | | | (764 | ) |
| | | | | | | | | | | | | |
F-5
RWA Holdings Pty Limited Unaudited Financial Report
| |
1. | Significant accounting policies |
The unaudited consolidated financial statements have been prepared on the accrual basis of accounting in accordance with the Australian equivalents to International Financial Reporting Standards (AIFRS). Certain information and footnote disclosures normally included in financial statements prepared in accordance with AIFRS have been omitted or condensed. It is management’s belief that the disclosures made are adequate to make the information presented not misleading and reflect all significant adjustments necessary for a fair presentation of financial position and results of operations for the periods presented. It is recommended that these consolidated financial statements be read in conjunction with the Group’s consolidated financial statements and notes thereto for the year ended June 30, 2006 included elsewhere in this proxy statement.
| |
2. | Reconciliation of cash flows from operating activities |
| | | | | | | | | |
| | | 31 December
| | | 31 December
| |
| | | 2006
| | | 2005
| |
| | | 6 Months | | | 6 Months | |
| | | A$’000 | | | A$’000 | |
| |
Cash flows from operating activities | | | | | | | | |
| Profit/(loss) for the period | | | (2,845 | ) | | | (178 | ) |
Adjustments for: | | | | | | | | |
| Gain on sale of property, plant and equipment | | | (8 | ) | | | (18 | ) |
| Foreign exchange (gain)/loss | | | (128 | ) | | | (79 | ) |
| Unrealised loss on forward exchange contracts | | | 66 | | | | — | |
| Unrealised gain on interest rate swap | | | (104 | ) | | | — | |
| Depreciation and amortisation | | | 2,041 | | | | 1,759 | |
| Investment income | | | (98 | ) | | | (99 | ) |
| Interest expense | | | 2,458 | | | | 1,797 | |
| Income tax (benefit)/ expense | | | 806 | | | | 96 | |
| Equity settled share based payment expenses | | | 30 | | | | — | |
| | | | | | | | | |
Operating profit before changes in working capital and provisions | | | 2,280 | | | | 3,278 | |
| (Increase)/ decrease in trade and other receivables | | | (5,509 | ) | | | (564 | ) |
| (Increase)/ decrease in inventories | | | (654 | ) | | | 507 | |
| Increase/ (decrease) in trade and other payables | | | 6,413 | | | | (1,407 | ) |
| Increase/ (decrease) in provisions and employee benefits | | | 3,544 | | | | 105 | |
| | | | | | | | | |
| | | | 6,073 | | | | 1,919 | |
| Interest (paid)/received | | | (1,955 | ) | | | (1,391 | ) |
| | | | | | | | | |
Net cash from operating activities | | | 4,118 | | | | 528 | |
| | | | | | | | | |
| |
3. | Reconciliation to U.S. GAAP |
The Group’s consolidated unaudited financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs) for the periods ended 31 December 2006 and 31 December 2005, which, as applied by the Group, differ in certain material respects from accounting standards
F-6
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
generally accepted in the United States of America (U.S. GAAP). The effects of the application of U.S. GAAP to net profit and shareholders’ equity are set out in the tables below:
RECONCILIATION OF NET PROFIT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | |
| | | | | | 31 Dec
| | | 31 Dec
| |
| | | | | | 2006
| | | 2005
| |
| | | Note | | | 6 months | | | 6 Months | |
| | | | | | A$’000 | | | A$’000 | |
| |
| Net profit/(loss) after tax as reported in the audited financial statements under AIFRS (restated) | | | | | | | (2,845 | ) | | | (178 | ) |
| Write-off of development costs | | | A | | | | (27 | ) | | | — | |
| Share based payment expense | | | C | | | | 157 | | | | (24 | ) |
Step-up on acquisition | | | D | | | | 24 | | | | 87 | |
| | | | | | | | | | | | | |
| Net loss according to US GAAP before tax impact of adjustments | | | | | | | (2,691 | ) | | | (115 | ) |
| Tax effect on US GAAP adjustment | | | B | | | | 2 | | | | (87 | ) |
| | | | | | | | | | | | | |
| Net loss under US GAAP | | | | | | | (2,689 | ) | | | (202 | ) |
| | | | | | | | | | | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | |
| | | | | | 31 Dec
| | | 31 Dec
| |
| | | Note | | | 2006 | | | 2005 | |
| | | | | | A$’000 | | | A$’000 | |
| |
| Total equity under AIFRS (restated) | | | | | | | 2,016 | | | | 4,639 | |
| Write-off of development costs | | | A | | | | (331 | ) | | | — | |
| Tax effect on US GAAP adjustment | | | B | | | | 99 | | | | — | |
| Share based payments expense | | | C | | | | — | | | | (134 | ) |
Step-up on acquisition | | | D | | | | (265 | ) | | | — | |
| | | | | | | | | | | | | |
| Shareholders’ equity under U.S. GAAP | | | | | | | 1,519 | | | | 4,505 | |
| | | | | | | | | | | | | |
F-7
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF SIX MONTHS 31 DECEMBER 2006 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 30,502 | | | | — | | | | 30,502 | |
| Hire of containers | | | | | | | 13,397 | | | | — | | | | 13,397 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 43,899 | | | | — | | | | 43,899 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | | | | | 8 | | | | — | | | | 8 | |
| Changes in inventories of finished goods and WIP | | | | | | | (655 | ) | | | — | | | | (655 | ) |
| Purchases of finished goods and consumables used | | | D | | | | (26,041 | ) | | | 14 | | | | (26,027 | ) |
| Employee benefits expense | | | C | | | | (10,197 | ) | | | 157 | | | | (10,040 | ) |
| Depreciation and amortization expense | | | D | | | | (2,035 | ) | | | 41 | | | | (1,994 | ) |
| Other expenses | | | A | | | | (4,755 | ) | | | (58 | ) | | | (4,813 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 224 | | | | 154 | | | | 378 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | | | | | 330 | | | | — | | | | 330 | |
| Financial expenses | | | | | | | (2,593 | ) | | | — | | | | (2,593 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (2,263 | ) | | | — | | | | (2,263 | ) |
| | | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (2,039 | ) | | | 154 | | | | (1,885 | ) |
| | | | | | | | | | | | | | | | | |
| Income tax benefit/(expense) | | | B,D | | | | (806 | ) | | | 2 | | | | (804 | ) |
| | | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (2,845 | ) | | | 156 | | | | (2,689 | ) |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (2,845 | ) | | | 156 | | | | (2,689 | ) |
| | | | | | | | | | | | | | | | | |
F-8
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF SIX MONTHS 31 DECEMBER 2005 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 22,887 | | | | — | | | | 22,887 | |
| Hire of containers | | | | | | | 9,774 | | | | — | | | | 9,74 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 32,661 | | | | — | | | | 32,661 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | | | | | 21 | | | | — | | | | 21 | |
| Changes in inventories of finished goods and WIP | | | | | | | 507 | | | | — | | | | 507 | |
| Purchases of finished goods and consumables used | | | | | | | (21,396 | ) | | | — | | | | (21,396 | ) |
| Employee benefits expense | | | C | | | | (4,673 | ) | | | (24 | ) | | | (4,697 | ) |
| Depreciation and amortization expense | | | | | | | (1,729 | ) | | | 87 | | | | (1,642 | ) |
| Other expenses | | | | | | | (3,824 | ) | | | — | | | | (3,824 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 1,567 | | | | 63 | | | | 1,630 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | | | | | 179 | | | | — | | | | 179 | |
| Financial expenses | | | | | | | (1,828 | ) | | | — | | | | (1,828 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (1,649 | ) | | | — | | | | (1,649 | ) |
| | | | | | | | | | | | | | | | | |
| Share of profit of associate | | | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (82 | ) | | | 63 | | | | (19 | ) |
| Income tax benefit/(expense) | | | | | | | (96 | ) | | | (87 | ) | | | (183 | ) |
| | | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (178 | ) | | | (24 | ) | | | (202 | ) |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (178 | ) | | | (24 | ) | | | (202 | ) |
| | | | | | | | | | | | | | | | | |
F-9
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 31 DECEMBER 2006 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Assets |
| Cash and cash equivalents | | | | | | | 613 | | | | — | | | | 613 | |
| Trade and other receivables | | | | | | | 15,795 | | | | — | | | | 15,795 | |
| Inventories | | | D | | | | 8,153 | | | | — | | | | 8,153 | |
| | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 24,561 | | | | — | | | | 24,561 | |
| | | | | | | | | | | | | | | | | |
| Receivables | | | | | | | 695 | | | | — | | | | 695 | |
| Property, plant and equipment | | | D | | | | 3,409 | | | | (16 | ) | | | 3,393 | |
| Container hire fleet | | | D | | | | 47,039 | | | | (396 | ) | | | 46,643 | |
| Intangible assets | | | A,F | | | | 5,126 | | | | (331 | ) | | | 4,795 | |
| | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 56,269 | | | | (743 | ) | | | 55,526 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 80,830 | | | | (743 | ) | | | 80,087 | |
| | | | | | | | | | | | | | | | | |
| |
Liabilities |
| Trade and other payables | | | | | | | 18,922 | | | | — | | | | 18,922 | |
| Interest-bearing loans and borrowings | | | | | | | 8,776 | | | | — | | | | 8,776 | |
| Employee benefits | | | | | | | 5,276 | | | | — | | | | 5,276 | |
| Provisions | | | | | | | 160 | | | | — | | | | 160 | |
| | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 33,134 | | | | — | | | | 33,134 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 44,065 | | | | — | | | | 44,065 | |
| Deferred tax liabilities | | | D | | | | 1,396 | | | | (246 | ) | | | 1,150 | |
| Employee benefits | | | C | | | | 206 | | | | — | | | | 206 | |
| Provisions | | | | | | | 13 | | | | — | | | | 13 | |
| | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 45,680 | | | | (246 | ) | | | 45,434 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 78,814 | | | | (246 | ) | | | 78,568 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 2,016 | | | | (497 | ) | | | 1,519 | |
| | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
| Issued capital | | | | | | | 4,550 | | | | | | | | 4,550 | |
| Accumulated losses | | | A-D,F | | | | (2,866 | ) | | | (165 | ) | | | (3,031 | ) |
| Reserves | | | D | | | | 332 | | | | (332 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 2,016 | | | | (497 | ) | | | 1,519 | |
| | | | | | | | | | | | | | | | | |
F-10
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 31 DECEMBER 2005 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | | | | |
| | | Note | | | AIFRS | | | Adjustments | | | | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | | | | A$’000 | |
| |
Assets |
| Cash and cash equivalents | | | | | | | 941 | | | | | | | | — | | | | 941 | |
| Trade and other receivables | | | | | | | 8,154 | | | | | | | | — | | | | 8,154 | |
| Inventories | | | | | | | 3,517 | | | | | | | | — | | | | 3,517 | |
| | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 12,612 | | | | | | | | — | | | | 12,612 | |
| | | | | | | | | | | | | | | | | | | | | |
| Receivables | | | | | | | 1,033 | | | | | | | | — | | | | 1,033 | |
| Investments accounted for using the equity method | | | | | | | 493 | | | | | | | | — | | | | 493 | |
| Property, plant and equipment | | | | | | | 3,331 | | | | | | | | — | | | | 3,331 | |
| Container hire fleet | | | | | | | 31,898 | | | | | | | | — | | | | 31,898 | |
| Intangible assets | | | | | | | 4,456 | | | | | | | | — | | | | 4,456 | |
| | | | | | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 41,211 | | | | | | | | — | | | | 41,211 | |
| | | | | | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 53,823 | | | | | | | | — | | | | 53,823 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
Liabilities |
| Trade and other payables | | | | | | | 6,794 | | | | | | | | — | | | | 6,794 | |
| Interest-bearing loans and borrowings | | | | | | | 4,426 | | | | | | | | — | | | | 4,426 | |
| Employee benefits | | | | | | | 837 | | | | | | | | — | | | | 837 | |
| | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 12,057 | | | | | | | | — | | | | 12,057 | |
| | | | | | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 36,608 | | | | | | | | — | | | | 36,608 | |
| Deferred tax liabilities | | | | | | | 216 | | | | | | | | — | | | | 216 | |
| Employee benefits | | | C | | | | 295 | | | | | | | | 134 | | | | 429 | |
| Provisions | | | | | | | 8 | | | | | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 37,127 | | | | | | | | 134 | | | | 37,261 | |
| | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 49,184 | | | | | | | | 134 | | | | 49,318 | |
| | | | | | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,639 | | | | | | | | (134 | ) | | | 4,505 | |
| | | | | | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | | | | | |
| Issued capital | | | | | | | 4,550 | | | | | | | | — | | | | 4,550 | |
| Retained profits | | | C,F | | | | 89 | | | | | | | | (134 | ) | | | (45 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,639 | | | | | | | | (134 | ) | | | 4,505 | |
| | | | | | | | | | | | | | | | | | | | | |
A. Development expenditure
Under AIFRS, the group capitalises certain development expenditure. U.S. GAAP required such costs to be expensed as incurred.
F-11
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
Under U.S. GAAP research and development costs are expensed as incurred. Under AIFRS, certain development costs are capitalised. This increases other expenses presented in accordance with U.S. GAAP by $27,000 in the six months ended 31 December 2006, and reduces the intangible assets at 31 December 2006 by $331,000.
| |
B. | Tax effect of U.S GAAP adjustments |
This item represents the tax effect of the adjustments in Note A at the Australian corporation tax rate of 30%. This reduces the income tax benefit presented in accordance with U.S. GAAP in the six months ended 31 December 2006 by $9,000, and increases deferred tax assets at 31 December 2006 by $100,000.
C. Share based payments expense
At 31 December 2006 the employee benefit liability has been adjusted to reflect the full entitlement to the employee share option plan which was calculated in accordance with a realization event which occurred on 30 March 2007. As a result there is no difference between AIFRS and US GAAP and as such the previous adjustment was reversed. This has decreased employee benefits expense by $157,000 in the 6 months to December 2006.
In previous periods an adjustment was required to calculate the fair value of the options that had vested prior to 1 January 2005. This had increased employee benefits expense presented in accordance with U.S. GAAP by $24,000 in the 6 months to 31 December 2005 and increased the employee benefit liability for cash settled share based payments by $157,000 at 30 June 2006 ( 31 December 2005 $134,000).
This adjustment has no tax impact.
| |
D. | Step acquisition of Royal Wolf Hi-Tech |
Under AIFRS, in accounting for the step acquisition of a controlling interest in an entity which was formerly treated as an associate and equity accounted, the assets and liabilities acquired are adjusted to fair value at the date control is obtained and the entity is consolidated. This gives rise to an asset revaluation reserve equating to the increase in fair value of net assets held from the original acquisition date to the date control is obtained. Under U.S. GAAP, the accounting for such a step acquisition requires a fair value adjustment for the relevant proportion of the net assets acquired to achieve control (in this case 50%) to be recognized. The resulting adjustment to conform with U.S. GAAP reduces the net assets acquired by $378,000 at 30 March 2006 and reduces the revaluation reserve recorded under AIFRS to nil. At 31 December 2006, net assets are reduced by $265,000, being a reduction in container assets of $396,000, a reduction in plant and equipment of $16,000, a reduction in asset revaluation reserve of $302,000, a reduction of $19,000 in retained earnings and a reduction in deferred tax liability of $146,000.
Net profit for the 6 months ended 31 December 2006 is increased by $17,000, as a result of reduced depreciation of $10,000 a reduction in the taxation charge of $7,000 and reduction in cost of goods sold of $14,000.
| |
E. | Reconciliation of cash flows |
Under AIFRS bank overdrafts are classified as cash and cash equivalents. Under US GAAP bank overdrafts are not classified as cash and cash equivalents for the purposes of statement of cash flows. Movements in bank overdrafts are classified for US GAAP purposes as financing cash flows. For U.S. GAAP purposes, cash balances are $613,000 at 31 December 2006 and $941,000 at 31 December 2005. Under U.S. GAAP financing cash flows are an inflow of $6,138,000 for the six months ending 31 December 2006 and $7,635,000 for the six months ending 31 December 2005. Further, due to the fact that development costs are expensed for U.S. GAAP but capitalized for
F-12
RWA Holdings Pty Limited Unaudited Financial ReportNotes to the consolidated financial statements — (Continued)
AIFRS, an adjustment of $27,000 is made to reduce operating cash inflows to $4,091,000 and increase investing cash outflows to $10,445,000 for the six months ending 31 December 2006.
| |
F. | Utilization of deferred tax assets not recognized in a prior business combination |
Under AIFRS, the recognition of a benefit arising from deferred tax assets and losses not recognized at the time of a business combination requires a credit to income tax expense and associated charge to goodwill amortization. Under USGAAP, the credit recognized is adjusted against goodwill directly.
| |
G. | Share-based payment transactions |
Certain directors and senior officers have been granted options over the ordinary shares of RWA Holdings Pty Limited.
The employee share option plan allows consolidated entity employees to acquire shares of the Company with both the company and employees having the option to settle with a cash equivalent. The fair value of options granted is recognised as an employee expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The liability is remeasured at each balance sheet date and at settlement date.
The share based payments expense in the six months ended December 31, 2006 of $4,028,000 represents an adjustment to the liability to recognize the full fair value based on the full vesting of the options as a result of a realizing event on the purchase of approximately 80% of RWA by Bison-GE in March 2007.
F-13F-1
Independent audit report to the members of RWA Holdings Pty LimitedAuditors’ Report
The Board of Directors and Stockholders
RWA Holdings Pty LimitedMobile Office Acquisition Corp. d/b/a Pac-Van, Inc.
We have audited the accompanying consolidated balance sheets of RWA Holdings Pty LimitedMobile Office Acquisition Corp. and subsidiariesSubsidiary d/b/a Pac-Van, Inc. as of June 30, 2006 and 2005, and December 31, 2004,2007 and 2006, and the related consolidated income statements, statements of recognized income, and expense,stockholders’ equity and cash flows for the periods then ended.year ended December 31, 2007 and for the five-month period from August 2, 2006 to December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Australia and the United States of America.States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of RWA Holdings Pty LimitedMobile Office Acquisition Corp. and subsidiaries as of June 30, 2006 and 2005, andSubsidiary d/b/a Pac-Van, Inc. at December 31, 2004,2007 and 2006, and the results of their operations and their cash flows for the periods thenyear ended December 31, 2007 and for the five-month period from August 2, 2006 to December 31, 2006, in conformity with Australian equivalents to International Financial Reporting Standards.
Australian equivalents to International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 27 to the consolidated financial statements.States.
As discussed in Note 1(w), the accompanying consolidated financial statements as of June 30, 2006 and 2005, and December 31, 2004 and for each of the periods in the two and a half year period ended June 30, 2006 have been restated.
/s/ Katz, Sapper & Miller, LLP
/s/ KPMGIndianapolis, Indiana
Sydney, Australia
October 20, 2006February 29, 2008
F-14F-2
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| | | 2004
| |
| | | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 46,097 | | | | 17,534 | | | | 35,463 | |
| Hire of containers | | | | | | | 21,290 | | | | 9,339 | | | | 16,756 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 67,387 | | | | 26,873 | | | | 52,219 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | 3 | | | | 35 | | | | 18 | | | | 31 | |
| Changes in inventories of finished goods and WIP | | | | | | | (3,475 | ) | | | (1,936 | ) | | | 1,740 | |
| Purchases of finished goods and consumables used | | | | | | | (40,243 | ) | | | (14,687 | ) | | | (34,437 | ) |
| Employee benefits expense | | | | | | | (10,157 | ) | | | (4,794 | ) | | | (7,525 | ) |
| Depreciation and amortisation expense | | | | | | | (4,480 | ) | | | (2,041 | ) | | | (3,943 | ) |
| Other expenses | | | 4 | | | | (6,411 | ) | | | (2,820 | ) | | | (4,568 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 2,656 | | | | 613 | | | | 3,517 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | 6 | | | | 552 | | | | 429 | | | | 118 | |
| Financial expenses | | | 6 | | | | (4,064 | ) | | | (1,457 | ) | | | (3,252 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,512 | ) | | | (1,028 | ) | | | (3,134 | ) |
| | | | | | | | | | | | | | | | | |
| Share of profit of associate | | | 11 | | | | — | | | | 172 | | | | 92 | |
| | | | | | | | | | | | | | | | | |
Profit/(loss) before tax | | | | | | | (856 | ) | | | (243 | ) | | | 475 | |
| Income tax benefit | | | 7 | | | | 525 | | | | 30 | | | | 4 | |
| | | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| |
ASSETS |
| ASSETS | | | | | | | | |
| Cash | | $ | 53,325 | | | $ | 64,682 | |
| Accounts receivable, net of allowances of $1,175,000 in 2007 and $975,000 in 2006 | | | 11,845,950 | | | | 9,409,029 | |
| Net investment in sales-type leases | | | 117,650 | | | | 287,416 | |
| Rental inventory, net | | | 94,708,614 | | | | 73,668,242 | |
| Note receivable-related party | | | 260,000 | | | | 350,000 | |
| Property and equipment, net | | | 2,048,374 | | | | 1,463,001 | |
| Other assets | | | 202,114 | | | | 373,832 | |
| Intangible assets, net | | | 2,663,219 | | | | 4,206,698 | |
| Goodwill | | | 39,161,675 | | | | 39,161,675 | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 151,060,921 | | | $ | 128,984,575 | |
| | | | | | | | | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 4,903,664 | | | $ | 5,330,808 | |
| Accrued liabilities | | | 4,003,683 | | | | 3,481,831 | |
| Unearned revenue and advance payments | | | 6,091,843 | | | | 4,560,261 | |
| Senior bank debt | | | 67,600,000 | | | | 55,000,000 | |
| Subordinated note payable | | | 24,303,977 | | | | 24,133,523 | |
| Deferred income taxes | | | 14,815,956 | | | | 11,563,897 | |
| Warrant obligation | | | 1,335,500 | | | | 937,500 | |
| | | | | | | | | |
| Total Liabilities | | | 123,054,623 | | | | 105,007,820 | |
| | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
| Common stock, Class A, $0.001 par value; 300,000 shares authorized, 225,000 shares issued and outstanding | | | 225 | | | | 225 | |
| Common stock, Class B, $0.001 par value; 50,000 shares authorized, 1,800 shares issued and outstanding | | | 2 | | | | 2 | |
| Additional paid-in capital | | | 22,679,773 | | | | 22,679,773 | |
| Retained earnings | | | 5,326,298 | | | | 1,296,755 | |
| | | | | | | | | |
| Total Stockholders’ Equity | | | 28,006,298 | | | | 23,976,755 | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 151,060,921 | | | $ | 128,984,575 | |
| | | | | | | | | |
The income statements are to be read in conjunction with the notes of the financial statements
set out on pages F-19 to F-69.See accompanying notes.
F-15F-3
For the year ended 30 June 2006
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| | | 2004
| |
| | | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Net income/(loss) recognised directly in equity | | | | | | | — | | | | — | | | | — | |
| Profit/(loss) for the period | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
Total recognised income and expense for the period | | | 19 | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | (Five Months)
| |
| | | 2007 | | | 2006 | |
| |
REVENUES | | | | | | | | |
| Leasing revenue | | $ | 47,035,305 | | | $ | 17,604,933 | |
| Sales of equipment and services | | | 20,220,120 | | | | 11,261,618 | |
| | | | | | | | | |
| Total Revenues | | | 67,255,425 | | | | 28,866,551 | |
| | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | |
| Cost of sales of equipment and services | | | 13,647,118 | | | | 8,274,005 | |
| Leasing, selling and general | | | 32,837,661 | | | | 13,347,747 | |
| Depreciation and amortization | | | 5,049,378 | | | | 1,952,596 | |
| | | | | | | | | |
| Total Costs and Expenses | | | 51,534,157 | | | | 23,574,348 | |
| | | | | | | | | |
| Income from Operations | | | 15,721,268 | | | | 5,292,203 | |
INTEREST EXPENSE | | | 8,425,166 | | | | 3,163,747 | |
| | | | | | | | | |
| Net Income before Provision for Income Taxes | | | 7,296,102 | | | | 2,128,456 | |
PROVISION FOR INCOME TAXES | | | 3,266,559 | | | | 831,701 | |
| | | | | | | | | |
NET INCOME | | $ | 4,029,543 | | | $ | 1,296,755 | |
| | | | | | | | | |
The statements of recognised income and expense are to be read in conjunction with the notes of the financial statements set out on pages F-19 to F-69.See accompanying notes.
F-16F-4
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | Note | | | 30 June 2006 | | | 30 June 2005 | | | 31 December 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
ASSETS |
| Cash and cash equivalents | | | 8 | | | | 777 | | | | 695 | | | | 3 | |
| Trade and other receivables | | | 9 | | | | 10,206 | | | | 7,876 | | | | 7,024 | |
| Inventories | | | 10 | | | | 7,498 | | | | 4,023 | | | | 2,140 | |
| | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 18,481 | | | | 12,594 | | | | 9,167 | |
| | | | | | | | | | | | | | | | | |
| Receivables | | | 9 | | | | 775 | | | | 839 | | | | 1,194 | |
| Investments accounted for using the equity method | | | 11 | | | | — | | | | 427 | | | | 255 | |
| Property, plant and equipment | | | 12 | | | | 3,599 | | | | 3,306 | | | | 1,812 | |
| Container hire fleet | | | 13 | | | | 38,491 | | | | 25,779 | | | | 22,447 | |
| Intangible assets | | | 14 | | | | 5,060 | | | | 4,207 | | | | 4,515 | |
| | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 47,925 | | | | 34,558 | | | | 30,223 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 66,406 | | | | 47,152 | | | | 39,390 | |
| | | | | | | | | | | | | | | | | |
| |
LIABILITIES |
| Trade and other payables | | | 15 | | | | 12,509 | | | | 8,228 | | | | 11,530 | |
| Interest-bearing loans and borrowings | | | 16 | | | | 8,939 | | | | 2,778 | | | | 1,425 | |
| Current tax liability | | | | | | | — | | | | — | | | | 791 | |
| Employee benefits | | | 17 | | | | 962 | | | | 801 | | | | 444 | |
| Provisions | | | 18 | | | | 300 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 22,710 | | | | 11,807 | | | | 14,190 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | 16 | | | | 37,194 | | | | 30,175 | | | | 20,614 | |
| Deferred tax liabilities | | | 7 | | | | 824 | | | | 119 | | | | 119 | |
| Employee benefits | | | 17 | | | | 567 | | | | 227 | | | | 308 | |
| Provisions | | | 18 | | | | 282 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 38,867 | | | | 30,529 | | | | 21,049 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 61,577 | | | | 42,336 | | | | 35,239 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
| | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
| Issued capital | | | 19 | | | | 4,550 | | | | 4,550 | | | | 3,672 | |
| Retained earnings/(accumulated losses) | | | 19 | | | | (65 | ) | | | 266 | | | | 479 | |
| Reserves | | | 19 | | | | 344 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Additional
| | | | | | Total
| |
| | | Common Stock | | | Paid-in
| | | Retained
| | | Stockholders’
| |
| | | Class A | | | Class B | | | Capital | | | Earnings | | | Equity | |
| |
BALANCE AT AUGUST 2, 2006 | | $ | 225 | | | $ | — | | | $ | 22,499,775 | | | $ | — | | | $ | 22,500,000 | |
| Issuance of Class B common stock | | | — | | | | 2 | | | | 179,998 | | | | — | | | | 180,000 | |
| Net income | | | — | | | | — | | | | — | | | | 1,296,755 | | | | 1,296,755 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE AT DECEMBER 31, 2006 | | | 225 | | | | 2 | | | | 22,679,773 | | | | 1,296,755 | | | | 23,976,755 | |
| Net income | | | — | | | | — | | | | — | | | | 4,029,543 | | | | 4,029,543 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE AT DECEMBER 31, 2007 | | $ | 225 | | | $ | 2 | | | $ | 22,679,773 | | | $ | 5,326,298 | | | $ | 28,006,298 | |
| | | | | | | | | | | | | | | | | | | | | |
The balance sheets are to be read in conjunction with the notes of the financial statements
set out on pages F-19 toF-69.See accompanying notes.
F-17F-5
For the year ended 30 June 2006
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June 2006
| | | 30 June 2005
| | | 31 December 2004
| |
| | �� | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Cash flows from operating activities | | | | | | | | | | | | | | | | |
| Cash receipts from customers | | | | | | | 71,375 | | | | 29,238 | | | | 56,324 | |
| Cash paid to suppliers and employees | | | | | | | (54,343 | ) | | | (25,334 | ) | | | (49,584 | ) |
| | | | | | | | | | | | | | | | | |
| Cash generated from operations | | | | | | | 17,032 | | | | 3,904 | | | | 6,740 | |
| Interest paid | | | | | | | (3,041 | ) | | | (1,270 | ) | | | (1,721 | ) |
| Income taxes received/(paid) | | | | | | | — | | | | (759 | ) | | | 781 | |
| | | | | | | | | | | | | | | | | |
Net cash from operating activities | | | 25 | | | | 13,991 | | | | 1,875 | | | | 5,800 | |
| | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | |
| Proceeds from sale of property, plant and equipment | | | | | | | 70 | | | | 24 | | | | 74 | |
| Interest received | | | | | | | 209 | | | | 104 | | | | 118 | |
| Acquisition of subsidiary, net of cash acquired | | | 24 | | | | (6,490 | ) | | | — | | | | — | |
| Acquisition of property, plant and equipment | | | 12 | | | | (1,119 | ) | | | (1,937 | ) | | | (1,254 | ) |
| Acquisition of container hire fleet | | | 13 | | | | (18,073 | ) | | | (7,725 | ) | | | (12,003 | ) |
| Acquisition of intangible assets | | | 14 | | | | (496 | ) | | | (25 | ) | | | (70 | ) |
| Payment of deferred purchase consideration | | | | | | | — | | | | (3,500 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
Net cash from investing activities | | | | | | | (25,899 | ) | | | (13,059 | ) | | | (13,135 | ) |
| | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | |
| Payment of finance lease liabilities | | | | | | | (756 | ) | | | (385 | ) | | | (1,910 | ) |
| Proceeds from borrowings | | | | | | | 24,736 | | | | 12,987 | | | | 19,682 | |
| Repayment of borrowings | | | | | | | (14,116 | ) | | | (1,071 | ) | | | (12,755 | ) |
| Proceeds from calls made on shares | | | | | | | — | | | | 878 | | | | — | |
| | | | | | | | | | | | | | | | | |
Net cash from financing activities | | | | | | | 9,864 | | | | 12,409 | | | | 5,017 | |
| | | | | | | | | | | | | | | | | |
| Net increase / (decrease) in cash and cash equivalents | | | | | | | (2,044 | ) | | | 1,225 | | | | (2,318 | ) |
| Cash and cash equivalents at beginning of period | | | | | | | 695 | | | | (530 | ) | | | 1,788 | |
| | | | | | | | | | | | | | | | | |
Cash and cash equivalents at 30 June | | | 8 | | | | (1,349 | ) | | | 695 | | | | (530 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | (Five Months)
| |
| | | 2007 | | | 2006 | |
| |
OPERATING ACTIVITIES | | | | | | | | |
| Net income | | $ | 4,029,543 | | | $ | 1,296,755 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Deferred income taxes | | | 3,252,059 | | | | 830,202 | |
| Depreciation of property and equipment and rental inventory | | | 3,447,753 | | | | 1,268,688 | |
| Amortization of intangible assets | | | 1,772,079 | | | | 754,931 | |
| Increase in value of warrant obligation | | | | | | | 398,000 | |
| Loss on disposals of property and equipment | | | 44,503 | | | | 16,588 | |
| (Increase) decrease in certain assets: | | | | | | | | |
| Accounts receivable | | | (2,436,921 | ) | | | (385,563 | ) |
| Net investment in sales-type leases | | | 169,766 | | | | 59,463 | |
| Other assets | | | 171,718 | | | | (156,269 | ) |
| Increase (decrease) in certain liabilities: | | | | | | | | |
| Accounts payable | | | (427,144 | ) | | | 80,578 | |
| Accrued liabilities | | | 521,852 | | | | 1,912,103 | |
| Unearned revenue and advance payments | | | 1,531,582 | | | | (682,416 | ) |
| | | | | | | | | |
| Net Cash Provided by Operating Activities | | | 12,474,790 | | | | 4,995,060 | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
| Purchases of rental inventory, net | | | (23,753,427 | ) | | | (6,986,718 | ) |
| Payments received on note receivable-related party | | | 90,000 | | | | 50,000 | |
| Purchases of property and equipment | | | (1,194,120 | ) | | | (278,045 | ) |
| | | | | | | | | |
| Net Cash (Used) by Investing Activities | | | (24,857,547 | ) | | | (7,214,763 | ) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
| Net increase in senior bank debt | | | 12,600,000 | | | | 1,300,000 | |
| Financing costs | | | (228,600 | ) | | | | |
| Proceeds from issuance of Class B common stock | | | | | | | 180,000 | |
| | | | | | | | | |
| Net Cash Provided by Financing Activities | | | 12,371,400 | | | | 1,480,000 | |
| | | | | | | | | |
NET DECREASE IN CASH | | | (11,357 | ) | | | (739,703 | ) |
CASH | | | | | | | | |
| Beginning of Period | | | 64,682 | | | | 804,385 | |
| | | | | | | | | |
| End of Period | | $ | 53,325 | | | $ | 64,682 | |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURES | | | | | | | | |
| Interest paid | | $ | 7,901,339 | | | $ | 1,649,426 | |
| Noncash investing and financing activities: | | | | | | | | |
| Interest expense related to valuation of warrant obligation | | | 398,000 | | | | | |
| Issuance of note receivable-related party for stock | | | | | | | 400,000 | |
The statements of cash flows are to be read in conjunction with the notes of the financial statements
set out on pages F-19 to F-69.See accompanying notes.
F-18F-6
RWA Holdings Pty Limited Financial Report
| |
1. NOTE 1 — | Significant accounting policiesSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
RWA Holdings Pty Limited (the ‘company’) is a proprietary company domiciled in Australia.
The accompanying consolidated financial reportstatements include the balances and transactions of the company for the financial year ended 30 June 2006 comprise the companyMobile Office Acquisition Corp. (Parent) and its subsidiarieswholly-owned subsidiary, Pac-Van, Inc. (together referred to as the ’consolidated entity’“Company”) since August 2, 2006. All material intercompany balances and transactions have been eliminated in the consolidated entity’s interest in associates.financial statements.
Doing business as “Pac-Van, Inc.,” the Company leases and sells mobile offices, modular buildings and storage units throughout the United States from its branch network locations in thirteen states. The financial report was authorisedCompany provides solutions for issue by the directors on 20 October 2006.customers in a wide range of industries including, construction, industrial, commercial, retail and government.
Change in year end
On 20 January 2005 the Australian Securities and Investments Commission (ASIC) issued a Subsection 340(1) Order granting the company and its controlled entity relief from paragraph 323D(2)(b)Effective August 2, 2006, Mobile Office Acquisition Corp. acquired 100% of the Actoutstanding capital stock of Pac-Van, Inc. The purchase price was approximately $98,038,000 plus the assumption of liabilities of approximately $22,797,000 and allowingtransactions costs of approximately $2,766,000. The acquisition was financed through a ‘transitional’ financial yearcombination of six months from 1 January 2005 to 30 June 2005, with each financial year thereafter being twelve months long. Consequently, comparative amountssenior lending, subordinated borrowings and contributed capital. The acquisition was accounted for under the income statement, changes in equity, cash flows and related notes are not entirely comparable.
| |
(a) | Statement of compliance |
The financial report has been preparedpurchase method of accounting, in accordance with the requirementsStatement of AustralianFinancial Accounting Standards (‘AASBs’) adopted by(SFAS) No. 141,Business Combinations.Accordingly, the Australian Accounting Standards Board (‘AASB’). International Financial Reporting Standards (‘IFRSs’) formacquisition cost has been allocated to the basispurchased assets and liabilities based on their respective fair values at the date of AASBs,acquisition. The fair value of assets and forliabilities acquired at August 2, 2006, totaled approximately $84,458,000; accordingly, the purposeCompany initially recorded goodwill of this report are called Australian equivalents to IFRS (‘AIFRS’) to distinguish from previous Australian generally accepted accounting principles (“AGAAP”). The financial reports of the consolidated entity also comply with IFRSs and interpretations adopted by the International Accounting Standards Board.
The financial report is presented in Australian dollars.approximately $39,143,000.
Issued standards not early adoptedEstimates:
The following standards Management uses estimates and amendments were available for early adoption but have not been applied by the consolidated entityassumptions in thesepreparing financial statements:
| | |
| • | AASB 7Financial instruments: Disclosure(August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after 1 January 2007; |
|
| • | AASB 2005-9Amendments to Australian Accounting Standards(September 2005) requires that liabilities arising from the issue of financial guarantee contracts are recognised in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after 1 January 2006; |
|
| • | AASB 2005-10Amendments to Australian Accounting Standards(September 2005) makes consequential amendments to AASB 132Financial Instruments: Disclosures and Presentation, AASB 101Presentation of Financial Statements, AASB 114Segment Reporting, AASB 117Leases, AASB 139Financial Instruments: Recognition and Measurement, AASB 1First-time Adoption of Australian Equivalents to International Financial Reporting Standards, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007. |
The consolidated entity plans to adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 financial year.
F-19
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
The initial application of AASB 7 and AASB 2005-10 is not expected to have an impact on the financial results of the consolidated entity as the standard and the amendment are concerned only with disclosures.
The initial application of AASB 2005-9 could have an impact on the financial results of the company and the consolidated entity as the amendment could result in liabilities being recognised for financial guarantee contracts that have been provided by the company and the consolidated entity. However, the quantification of the impact is not known or reasonably estimable in the current financial year as an exercise to quantify the financial impact has not been undertaken by the company and the consolidated entity to date.
The financial report is prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments held for trading, and financial instruments classified asavailable-for-sale.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective 31 January 2006) and in accordance with that Class Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated.
The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements,accounting principles generally accepted in the United States. Those estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the resultsdisclosure of which form the basis of making the judgements about carrying values ofcontingent assets and liabilities that are not readily apparent from other sources.and the reported revenues and expenses. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of Australian Accounting Standards that have a significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in note 1(v).
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report. The accounting policies have been applied consistently by all entities in the consolidated entity.
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(c) | Basis of consolidation |
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statementscould vary from the dateestimates that control commences until the date that control ceases.were used.
(ii) AssociatesRental Inventory and Other Long-lived Assets: Rental inventory consisting of mobile offices, modular buildings, storage trailers, storage containers and steps (“rental inventory or rental equipment”) acquired August 2, 2006, were recorded at their purchase cost as allocated based on information provided by an independent appraisal. Rental inventory acquired since August 2, 2006, is recorded at lower of invoice cost or market. Mobile offices and modular buildings are depreciated using the straight-line method over 20 years to a residual value of 50 percent of the original cost. Steps are depreciated using the straight-line method over 5 years with no residual value. Storage trailers are depreciated over 15 years and 10 years depending on the year of acquisition. Storage containers are depreciated using the straight-line method over 20 years to a residual value of 70 percent of the original cost.
AssociatesVehicles, office equipment and leasehold improvements are those entities in whichrecorded at historical cost. Depreciation is computed using the company has significant influence, but not control,straight-line method over the financial and operating policies. The consolidated financial statements includes the consolidated entity’s shareestimated useful life of the total
F-20
RWA Holdings Pty Limited Financial Report5 years.
Notes toLong-lived assets, including the consolidated financial statements — (Continued)
recognised gainsCompany’s rental inventory and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the consolidated entity’s share of losses exceeds its interest in an associate, the consolidated entity’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legalamortizable intangible assets, are reviewed for impairment whenever events or constructive obligations or made payments on behalf of an associate.
The consolidated entity’s investment in its associate is accounted for under the equity method of accounting in the consolidated financial statements. The financial statements of the associate are used by the consolidated entity to apply the equity method of accounting. The reporting dates of the associate and the consolidated entity are identical and both use consistent accounting policies.
The investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the consolidated entity’s share of net assets of the associate, less any impairment in value. The income statement reflects the consolidated entity’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the consolidated entity recognises its share of any changes and discloses this, when applicable in the statement of changes in equity.
(iii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the consolidated entity’s interest in the entity with adjustments made to the ‘Investments accounted for under the equity method’ and ‘Share of profit of associate’ accounts.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extentcircumstances indicate that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the associates and jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity’s interest in such entities is disposed of.
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(d) | Foreign currency transactions |
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined.
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(e) | Derivative financial instruments |
The consolidated entity may use derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.
F-21
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
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(f) | Property, plant and equipment |
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy (l)). The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads, where applicable.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
(ii) Subsequent costs
The consolidated entity recognises in the carrying amount of an itemasset may not be recoverable. Recoverability is measured by comparison of property, plant and equipment the costcarrying amount to future net undiscounted cash flows expected to be generated by the related asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of replacing part of such an item when the cost is incurred if it is probable that the future economic benefits embodied within the item will flowassets. To date, no adjustments to the consolidated entity and the costcarrying amount of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.long-lived assets have been required.
(iii) Leased assetsAmortizable Intangible Assets
Leases under whichconsist of deferred financing costs and the substantially all the risks and benefits incidental to ownership of the leased item are assumed by the consolidated entity are classified as finance leases. Other leases are classified as operating leases.
Finance leases
A lease asset and a lease liability equalvalue assigned to the present value of the minimum lease payments, or the fair value of the leased item, whichever is the lower,Company’s continuing customer base. Deferred financing costs are capitalised and recorded at the inception of the lease. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating leases
Payments made under operating leases are expensedbeing amortized on a straight-line basis over the term of the lease, except where an alternativeloans, approximately five years. The customer base is being amortized on a straight-line basis is more representativethrough 2013, management’s estimate of the pattern of benefits to be derived from the leased property. Where leases have fixed rate increases, these increases are accrued and amortised over the entire lease period, yielding a constant periodic expense for the entire termuseful life of the lease.customer base.
(iv) DepreciationGoodwill:
Depreciation is charged The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets deemed to the income statement on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment.have
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
F-22F-7
RWA Holdings Pty Limited Financial ReportMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Notesindefinite lives are not amortized, but are subject to impairment tests annually, or whenever an event or circumstances indicate the carrying amount may be impaired. The Company performed the required impairment tests of its goodwill in the fourth quarter of 2008, using the methodology prescribed by SFAS No. 142, and determined that the carrying value of its recorded goodwill did not exceed its fair value.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and dismantling rental equipment, as well as providing other ancillary products and services, and selling new and used equipment. Leasing revenue includes monthly rentals, initial lease services, ancillary products and services and end of lease services as earned. Leasing revenue is derived from leases classified as operating leases for which the initial term is generally 3 to 60 months. Costs associated with transportation, installation, and dismantling of rental equipment are recorded in leasing, selling and general expense. Unearned revenue includes end of lease services not yet performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units and steps, including delivery and installation revenue, is generally recognized upon the delivery to and acceptance by the customer. Certain arrangements to sell units under long-term construction-type sales contracts are accounted for under the percentage of completion method. Under this method, income is recognized in proportion to the incurred costs to date under the contract to estimated total costs. Sales of new units are typically covered by warranties provided by the manufacturer of the products sold.
The Company recognized revenue of approximately $6,541,000 in 2007 and $2,095,000 for the five-month period ended December 31, 2006, with related cost of sales of approximately $4,213,000 in 2007 and $1,304,000 in five-month period ended December 31, 2006 on the sale of rental units which were greater than one year old.
Accounts Receivable: The Company extends credit to its customers. Accounts receivable are recorded at net realizable value based on management’s estimates of uncollectible accounts recorded in the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on historical collection experience and a review of specific past due receivables. The Company charges late fees on past due accounts. The Company recognized income for late payment fees of approximately $462,000 in 2007 and $208,000 during the five-month period ended December 31, 2006.
Advertising Costsare expensed as incurred and totaled $539,000 in 2007 and $204,000 during the five-month period ended December 31, 2006.
Shipping and Handling Costsare expensed as incurred and included in cost of leasing services and cost of sales equipment and services.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and receivables under sales-type lease contracts. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. Receivables under sales-type lease contracts are secured by the leased mobile office, modular building or storage unit. A significant portion of the Company’s business activity is with companies in the construction and development industries. Total revenues from these industries were approximately $32,820,000 in 2007 and $12,891,000 during the five-month period ended December 31, 2006. As of December 31, 2007 and 2006, accounts receivable from these industries were approximately $5,283,000 and $5,385,000, respectively.
Sales Taxescollected from customers and remitted to state government agencies are shown on a net basis and are not included in sales or costs and expenses.
Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.
F-8
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-Based Compensation: The Company adopted Statement of Financial Accounting Standards No. 123(R),Share-Based Paymentin 2006, which requires companies to recognize the grant date fair value of stock options and other equity-based compensation issued to employees in their income statements. The adoption did not have a material effect on the Company’s consolidated financial statements — (Continued)statements.
Common Stock:The estimated useful livesParent has two classes of Common Stock: Class A and Class B, both with a par value of $0.001. Both classes have the same rights and privileges except that holders of Class B have no voting rights.
Fair Value of Financial Instruments: Because of their short-term nature, the amounts reported in the currentbalance sheet for cash, receivables and comparative periodsaccounts payable approximate fair value. Long-term debt approximates fair value as borrowing rates are as follows:based on market prices.
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| NOTE 2 — | | 2004-2005RENTAL INVENTORY
| | 2006
|
|
Property, plant and equipment
| | | | |
Plant and equipment | | 3 - 10 years | | 3 - 10 years |
Motor vehicles | | 3 - 10 years | | 3 - 10 years |
Furniture and fittings | | 5 - 10 years | | 5 - 10 years |
Container hire fleet
| | | | |
Containers for hire | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (used) | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (new) | | 25 years (20% residual) | | 10 - 30 years (20-30% residual) |
Rental inventory was comprised of the following at December 31, 2007 and 2006:
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| |
| Mobile offices, modular buildings and storage units | | $ | 96,525,406 | | | $ | 73,589,195 | |
| Steps | | | 1,641,864 | | | | 1,040,233 | |
| | | | | | | | | |
| | | | 98,167,270 | | | | 74,629,428 | |
| Less: Accumulated depreciation | | | (3,458,656 | ) | | | (961,186 | ) |
| | | | | | | | | |
| Total Rental Inventory | | $ | 94,708,614 | | | $ | 73,668,242 | |
| | | | | | | | | |
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(g) NOTE 3 — | Container hire fleetPROPERTY AND EQUIPMENT |
The consolidated entity has a container hire fleet primarily consistingProperty and equipment was comprised of refurbished, modifiedthe following at December 31, 2008 and manufactured shipping containers that are held long term and leased to customers under short-term operating lease agreements with varying terms. Depreciation is provided using the straight-line method over the units’ estimated useful life, after the date the unit is put in service, and are depreciated down to their estimated residual values. For depreciation rates, estimated useful lives and residual values, see above. In the opinion of management, estimated residual values do not cause carrying values to exceed net realisable value. The consolidated entity continues to evaluate these depreciation policies as more information becomes available from other comparable sources and its own historical experience.2007:
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| |
| Equipment | | $ | 368,876 | | | $ | 186,381 | |
| Vehicles | | | 1,873,943 | | | | 970,928 | |
| Leasehold improvements | | | 559,020 | | | | 494,913 | |
| | | | | | | | | |
| | | | 2,801,839 | | | | 1,652,222 | |
| Less: Accumulated depreciation | | | (753,465 | ) | | | (189,221 | ) |
| | | | | | | | | |
| Total Property and Equipment | | $ | 2,048,374 | | | $ | 1,463,001 | |
| | | | | | | | | |
Costs incurred on hire fleet containers subsequent to initial acquisition are capitalised when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the consolidated entity in future years, otherwise, expensed as incurred.
Containers in the hire fleet are available for sale, and are transferred to inventory prior to sale. Cost of sales of the hire fleet container is recognised as the depreciated cost at date of disposal.
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(h) NOTE 4 — | Intangible assetsAMORTIZABLE INTANGIBLE ASSETS |
(i) GoodwillIntangible assets subject to amortization consisted of the following at December 31, 2007 and 2006:
| | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | |
| | | Gross
| | | Accumulated
| | | Gross
| | | Accumulated
| |
| | | Amount | | | Amortization | | | Amount | | | Amortization | |
| |
| Customer base | | $ | 4,547,400 | | | $ | 2,263,009 | | | $ | 4,526,000 | | | $ | 754,348 | |
| Deferred financing costs | | | 679,695 | | | | 300,867 | | | | 472,495 | | | | 37,449 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 5,227,095 | | | $ | 2,563,876 | | | $ | 4,998,495 | | | $ | 791,797 | |
| | | | | | | | | | | | | | | | | |
Business combinations prior to 1 January 2004
Goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP.
Business combinations since 1 January 2004
All business combinations are accountedThe expected amortization expense for by applying the purchase method. Goodwill represents the difference between the costeach of the acquisitionnext five years is as follows: $1,013,992 in 2008, $627,750 in 2009, $410,503 in 2010, $280,154 in 2011 and the fair value of the net identifiable assets acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and not amortised but is tested annually for impairment (see accounting policy (l)). In respect of associates, the carrying amount of goodwill is included$143,566 in the carrying amount of the investment in the associate. Negative goodwill arising on an acquisition is recognised directly in profit or loss.2012.
F-23F-9
RWA Holdings Pty Limited Financial ReportMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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| NOTE 5 — | NET INVESTMENT IN SALES-TYPE LEASES |
Notes
At December 31, 2007, the future minimum lease payments, including interest, to be received under sales-type lease agreements were as follows:
| | | | | |
| | | Future Minimum
| |
Receivable In | | Lease Payments | |
| |
| 2008 | | $ | 138,285 | |
| 2009 | | | 10,575 | |
| 2010 | | | 7,080 | |
| 2011 | | | 4,130 | |
| | | | | |
| | | | 160,070 | |
| Less: Amount representing interest | | | 42,420 | |
| | | | | |
| Net Investment in Sales-type Leases | | $ | 117,650 | |
| | | | | |
The Company’s bank credit agreement includes a revolving line of credit and a swing line of credit. All borrowings under the consolidatedcredit agreement are due on August 23, 2012. The Company has pledged all business assets as collateral, including the assignment of the Company’s rights under leasing contracts with customers. The Company is required to maintain certain financial statements — (Continued)
(ii) Other intangible assetsratios and net worth requirements.
Other intangible assets that are acquired byInterest accrues on all outstanding borrowings under the consolidated entity areagreement at the lead lender’s prime lending rate or the LIBOR plus a stated margin ranging from 1.5% to 2.25% (totaling 7.03% at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (l)).
ExpenditureDecember 31, 2007) based on development activities, whereby research findings are assignedthe Company’s performance. In addition, the Company is required to a plan or design forpay an unused commitment fee equal to .25% of the production of new or substantially improved products and processes is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete the development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of overheads. Other development expenditure is recognised in the income statement as an expense when incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy l).
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
(iii) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
(iv) Amortisation
Amortisation is charged to the income statementaverage unused line calculated on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use.quarterly basis.
The estimated useful livesrevolving credit and swing lines are available for purchases of rental inventory and general operating purposes. The maximum aggregate amount available under the lines is $90,000,000 ($67,600,000 borrowed and outstanding at December 31, 2007) with borrowings limited to 85% of eligible accounts receivable net of reserves and allowances plus 85% of the net book value of all eligible inventory net of reserves and allowances. The credit agreement provides the Company with the ability to increase the revolving credit line up to $120,000,000 upon written request and no event of default. At December 31, 2007, the Company was in compliance with all loan covenants.
In connection with its acquisition of Pac-Van, Inc. on August 2, 2006, the Parent issued a senior subordinated secured note with an original principal balance of $25,000,000. The subordinated note matures on February 2, 2013, and requires quarterly interest only payments computed at 13%.
The subordinated note was issued with warrants entitling the holders to purchase 9,375 shares of common stock of the Parent (representing 4% of the issued outstanding common stock of the Parent) at $0.01 per share. The warrants expire on August 2, 2016. The warrants provide the holder with put rights upon the occurrence of a change in control, an event of non-compliance, or any time after August 2, 2012. The put price per share shall be an amount equal to the fair market value of the outstanding common stock at the exercise date. At inception, the warrants were recorded at their fair market value of $937,500. The subordinated notes were discounted by the warrant fair value and had a recorded value of $24,062,500. The discount is being amortized to interest expense over the term of the borrowings. In future periods, the Company will recognize a charge to earnings for increases, if any, in the currentvalue of the warrants to reflect the Company’s ultimate obligation to provide for the warrants under the agreement. In 2007, the Company recognized $398,000 in interest expense for the increase in the estimated obligation under the warrant agreement. No charge to earnings was recognized during the five-month period ended December 31, 2006.
F-10
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision for income taxes consisted of the following for the year ended December 31, 2007 and comparative periodsfor the five-month period ended December 31, 2006:
| | | | | | | | | |
| | | | | | (Five Months)
| |
| | | 2007 | | | 2006 | |
| |
| Deferred tax expense: | | | | | | | | |
| Federal | | $ | 2,776,148 | | | $ | 708,709 | |
| State | | | 475,911 | | | | 121,493 | |
| | | | | | | | | |
| Total | | | 3,252,059 | | | | 830,202 | |
| Current state tax expense | | | 14,500 | | | | 1,499 | |
| | | | | | | | | |
| Provision for Income Taxes | | $ | 3,266,559 | | | $ | 831,701 | |
| | | | | | | | | |
The Company’s deferred income tax liability was comprised of the following temporary differences at December 31, 2007 and 2006:
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| |
| Rental inventory | | $ | 23,905,985 | | | $ | 20,250,897 | |
| Net operating loss carryforwards | | | (8,607,254 | ) | | | (8,492,000 | ) |
| Accounts receivable | | | (246,000 | ) | | | (195,000 | ) |
| Other | | | (236,775 | ) | | | — | |
| | | | | | | | | |
| Net Deferred Income Tax Liability | | $ | 14,815,956 | | | $ | 11,563,897 | |
| | | | | | | | | |
At December 31, 2007, the Company had federal net operating loss carryforwards of approximately $20,993,000 which begin to expire in 2019.
Cash paid for income taxes approximated $14,500 in 2007 and $1,500 for the five-month period ended December 31, 2006.
The primary difference between the Company’s effective income tax expense reflected in the consolidated statements of income and the tax expense computed at the federal statutory rate is due to certain nondeductible expenses for income tax purposes.
| |
| NOTE 8 — | OPERATING LEASE COMMITMENTS |
The Company has various noncancellable operating leases for office space and storage facilities that expire at various dates through March 2011. Certain leases contain renewal options and escalation clauses. Rental expense for these leases was approximately $1,356,000 for 2007 and $554,000 for the five-month period ended December 31, 2006.
F-11
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future minimum rental payments required under noncancellable operating lease agreements are as follows:
| | | | | | | | | |
| | | Rental
| | | | |
Payable In | | Payments | | | | |
| |
| 2008 | | $ | 1,010,052 | | | | | |
| 2009 | | | 775,509 | | | | | |
| 2010 | | | 519,455 | | | | | |
| 2011 | | | 47,038 | | | | | |
| | | | | | | | | |
| | | $ | 2,352,054 | | | | | |
| | | | | | | | | |
| |
| NOTE 9 — | EMPLOYEE BENEFIT PLAN |
The Company sponsors a 401(k) retirement savings plan for eligible employees, which allows plan participants to defer a percentage of their compensation subject to the limits imposed by the Internal Revenue Code. The Plan allows the Company to make a discretionary contribution to the Plan each year on behalf of participants at a rate determined before the year begins. At the end of the Company’s fiscal year, an additional matching contribution may be made at the discretion of the Company’s Board of Directors. The Company’s contribution to the Plan was approximately $109,000 in 2007 and $37,000 during the five-month period ended December 31, 2006.
| |
| NOTE 10 — | STOCK OPTION PLAN |
The Parent maintains a stock option plan under which employees, officers and directors of the Company may be granted options to purchase non-voting common stock of the Parent at a price determined by the Board of Directors. The Parent has reserved 26,042 shares under the Plan. As of December 31, 2007, there had been no options exercised under the Plan. During 2006, 15,620 options were issued, of which none are exercisable. Options granted under the Plan generally have an exercise price equal to the fair market value of the non-voting common stock as of the date of grant and vest over a period of five years. The maximum term of the options is 10 years. The weighted average exercise price of stock options outstanding at December 31, 2007, was $100 per share with a weighted average contractual term of nine years.
The fair value for options granted by the Parent was estimated at the date of grant using a Black-Scholes option pricing model, with the following weighted-average assumptions:
| | | |
• GoodwillRisk-free interest rate | | indefinite4.0% |
• SoftwareDividend yield | | 30% |
| Expected life of the options | | 10 years |
• Development assetsVolatility | | 5 years or the products expected life cycle, as appropriate30% |
| |
(i) | Trade and other receivables |
TradeThe Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and other receivables are stated at amortised cost less impairment losses (see accounting policy (l)).
Inventories are stated atfully transferable. In addition, option valuation models require the lowerinput of costhighly subjective assumptions including expected stock price volatility. Because the Parent’s stock is not publicly traded and net realisable value. Net realisable value is the estimated selling priceits employee stock options have characteristics significantly different from those of traded options, and because changes in the ordinary coursesubjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of business. Expensesthe fair value of marketing, selling and distribution to customers, as well as costs of completion are estimated and are deducted from the estimated selling price to establish net realisable value.its employee stock options.
Costs are assigned to individual items of stock on the basis of specific identification, and include expenditure incurred in acquiring the inventories and bringing them to their existing condition and location.
| |
(k) | Cash and cash equivalents |
Cash and cash equivalents comprise cash balances and short term deposits. Bank overdrafts that are repayable on demand and form an integral partFair value of the consolidated entity’s cash managementoptions are included as a componentamortized to expense over the related vesting period. Because compensation expense is recognized over the vesting period, the initial impact on net income may not be representative of cashcompensation expense in future years. The Company recorded compensation expense of approximately $154,000 in 2007 and cash equivalents$26,000 for the purpose of the statement of cash flows.five-month period ended December 31, 2006, related to stock options granted in 2006.
F-24F-12
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statementsMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The carrying amounts of the consolidated entity’s assets, other than inventories (see accounting policy (j)) and deferred tax assets (see accounting policy (s)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (see accounting policy(l(i))).
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement, unless an asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis.
(i) Calculation of recoverable amount
The recoverable amount of the consolidated entity’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate compounded at initial recognition of these financial assets). Receivables with a short duration are not discounted.
Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Receivables are individually assessed for impairment.
The recoverable amount of the consolidated entity’s other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
(ii) Reversals of impairment
Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimate used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
| |
(m) | Interest bearing borrowings |
Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
F-25
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.
(i) Defined contribution superannuation funds
Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the income statement as incurred.
(ii) Long-term service benefits
The consolidated entity’s net obligation in respect of long-term service benefits, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the consolidated entity’s obligations.
(iii) Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.
(iv) Share-based payment transactions
Certain directors and senior officers have been granted options over the ordinary shares of RWA Holdings Pty Limited. Details of the interests of the directors and top five remunerated officers of the consolidated entity have been disclosed in the Directors’ report.
The employee share option plan allows consolidated entity employees to acquire shares of the Company with both the company and employees having the option to settle with a cash equivalent. The fair value of options granted is recognised as an employee expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The liability is remeasured at each balance sheet date and at settlement date.
The fair value of the options granted is measured using a binomial option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The volatility of the asset value is based upon the volatility of listed companies with a similar profile to the consolidated entity.
A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
F-26
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
(p) | Trade and other payables |
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing and are normally settled within 60 day terms.
Revenue is generally realised or realisable and earned when all of the following criteria have been met:
| | |
| • | persuasive evidence of an arrangement exists; |
|
| • | delivery has occurred; |
|
| • | the seller’s price to the customer is fixed or determinable; and |
|
| • | collectability is reasonable assured. |
Sale and modification of containers
Revenue from the sale and modification of containers is recognised based on invoiced amounts and is recognised in the income statement (net of returns, discounts and allowances) when the significant risks and rewards of ownership have been transferred to the buyer and it can be measured reliably. Risks and rewards are considered passed to the buyer at the time the goods are delivered to or retrieved by the customer. No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due, the amount cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods.
Hire of containers
Revenue from hire of containers is recognised in the period earned and is recorded based on the amount and term prescribed in the lease hire agreement. No revenue is recognised if there is significant uncertainty regarding recovery of the rental payments due.
Unearned revenue arises when transport charges for the return retrieval of a hired container or containers is billed in advance, while the actual retrieval has not yet occurred as the container is still on hire. The amount of unearned revenue at balance date was $565,000 (2005: $489,000, 2004: 470,000), and is included in trade and other payables.
Net financing costs comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the income statement (see accounting policy (e)). Borrowing costs are expensed as incurred and included in net financing costs.
Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established. The interest expense component of finance lease payments is recognised in the income statement using the effective interest method.
F-27
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax consolidated group with effect from 24 December 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is RWA Holdings Pty Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ’separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax consolidated group to the extent that it is probable that future taxable profits of the tax consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only.
F-28
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity.
The head entity in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.
| |
(t) | Goods and services tax |
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities that are recoverable from, or payable to, the ATO are classified as operating cash flows.
A segment is a distinguishable component of the consolidated entity that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
| |
(v) | Accounting estimates and judgments |
Management discussed with the Audit Committee the development, selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Revision of accounting estimates — Container for hire depreciation
The preparation of the financial report requires the making of estimations and assumptions that affect the recognised amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
F-29
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
At the beginning of the financial year, the consolidated entity revised upwards the useful life of containers for hire as outlined in note 1(f)(iv). The financial impact of the revision results in depreciation expense for the current year being $696,023 less than it would have been if the previous useful life estimate had been applied. The effect on net income for the year is an increase of $487,216. The financial impact of the revision in future periods is not disclosed as the effect cannot be reliably estimated at this point in time due to uncertainty over the timing of sale of existing containers and purchase of new containers.
Key sources of estimation uncertainty
Note 1(l) contains information about the assumptions and their risk factors relating to goodwill impairment. In note 20 detailed analysis is given of the foreign exchange exposure of the consolidated entity and risks in relation to foreign exchange movements.
Impairment of goodwill and intangibles with indefinite useful lives
The consolidated entity assesses whether goodwill and intangibles with indefinite useful lives are impaired at least annually in accordance with the accounting policy in note 14. These calculations involve an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated.
| |
(w) | Correction of prior period errors |
Where a material prior period error is discovered in a subsequent financial period such errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest prior period presented, the opening balances of assets, liabilities and equity for the earliest prior period presented are restated.
In the year ended 30 June 2006 an error was identified in the originally issued financial statements for the year ended 30 June 2006 relating to the treatment of deferred tax assets and liabilities at 30 June 2006 and at the date of acquisition of Royal Wolf Trading Australia Limited on 24 December 2003, and the subsequent recognition of the impact of tax base step up elections under AASB112Income Taxeson transition to Australian Equivalents to International Financial Reporting Standards at 1 January 2004. In addition, a trademark with a fair value of $398,000 subsumed within goodwill under previous GAAP has been reflected in the transition balance sheet at 1 January 2004 along with an associated deferred tax liability of $119,000. Accordingly, the opening balances at transition on 1 January 2004 have been amended and the impact of the adjustments reflected in the restated comparative information for the year ended 31 December 2004 and six months ended 30 June 2005 and restated current year information for the year ended 30 June 2006.
The impact of this is to reduce goodwill by $1,003,000, increase trademarks within intangible assets by $398,000 and reduce deferred tax liabilities by $605,000 at 1 January 2004, with no impact on retained earnings.
Australian Accounting Standards require any recognition of the benefit of deferred tax not recognised on a business combination entered into before the transition to AIFRS under the transition rules in AASB1 to be deducted from goodwill by means of a write off through the income statement. The goodwill impairment expense for the year ended 30 June 2006 is therefore increased by $907,000 (period ended 30 June 2005: $127,000; year
F-30
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
ended 31 December 2004: $547,000). The tax benefit in the year ended 30 June 2006 is reduced by $2,046,000 (period ended 30 June 2005: $29,000; year ended 31 December 2004: tax expense reduced by $519,000).
The impact on the balance sheet and income statement at and for the periods ended 30 June 2006, 30 June 2005 and 31 December is illustrated below
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 30 June
| | | | | | 30 June
| |
| | | Note | | | 2006 | | | Restatement | | | 2006 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Current assets | | | | | | | 18,481 | | | | — | | | | 18,481 | |
| | | | | | | | | | | | | | | | | |
| Other non-current assets | | | | | | | 42,865 | | | | — | | | | 42,865 | |
| Deferred tax assets | | | | | | | 127 | | | | (127 | ) | | | — | |
| Intangible assets | | | | | | | 7,246 | | | | (2,186 | ) | | | 5,060 | |
| | | | | | | | | | | | | | | | | |
| Total non current assets | | | | | | | 50,238 | | | | (2,313 | ) | | | 47,925 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 68,719 | | | | (2,313 | ) | | | 66,406 | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | | | | | 22,710 | | | | — | | | | 22,710 | |
| | | | | | | | | | | | | | | | | |
| Deferred tax liability | | | | | | | — | | | | 824 | | | | 824 | |
| Other non-current liabilities | | | | | | | 38,043 | | | | — | | | | 38,043 | |
| | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | | | | | 38,043 | | | | 824 | | | | 38,867 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 60,753 | | | | 824 | | | | 61,577 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 7,966 | | | | (3,137 | ) | | | 4,829 | |
| | | | | | | | | | | | | | | | | |
Total equity | | | | | | | 7,966 | | | | (3,137 | ) | | | 4,829 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 30 June
| | | | | | 30 June
| |
| | | Note | | | 2006 | | | Restatement | | | 2006 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Results from operating activities | | | | | | | 3,563 | | | | (907 | ) | | | 2,656 | |
| Net financing costs | | | | | | | (3,512 | ) | | | — | | | | (3,512 | ) |
| | | | | | | | | | | | | | | | | |
Profit/(loss) before tax | | | | | | | 51 | | | | (907 | ) | | | (856 | ) |
| Income tax benefit | | | | | | | 2,571 | | | | (2,046 | ) | | | 525 | |
| | | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | 2,622 | | | | (2,953 | ) | | | (331 | ) |
| | | | | | | | | | | | | | | | | |
F-31
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 30 June
| | | | | | 30 June
| |
| | | Note | | | 2005 | | | Restatement | | | 2005 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Current assets | | | | | | | 12,594 | | | | — | | | | 12,594 | |
| | | | | | | | | | | | | | | | | |
| Other non-current assets | | | | | | | 30,351 | | | | — | | | | 30,351 | |
| Deferred tax assets | | | | | | | — | | | | — | | | | — | |
| Intangible assets | | | | | | | 5,486 | | | | (1,279 | ) | | | 4,207 | |
| | | | | | | | | | | | | | | | | |
| Total non current assets | | | | | | | 35,837 | | | | (1,279 | ) | | | 34,558 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 48,431 | | | | (1,279 | ) | | | 47,152 | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | | | | | 11,807 | | | | — | | | | 11,807 | |
| | | | | | | | | | | | | | | | | |
| Deferred tax liability | | | | | | | 1,214 | | | | (1,095 | ) | | | 119 | |
| Other non-current liabilities | | | | | | | 30,410 | | | | — | | | | 30,410 | |
| | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | | | | | 31,624 | | | | (1,095 | ) | | | 30,529 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 43,431 | | | | (1,095 | ) | | | 42,336 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 5,000 | | | | (184 | ) | | | 4,816 | |
| | | | | | | | | | | | | | | | | |
Total equity | | | | | | | 5,000 | | | | (184 | ) | | | 4,816 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 30 June
| | | | | | 30 June
| |
| | | Note | | | 2005 | | | Restatement | | | 2005 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Results from operating activities | | | | | | | 740 | | | | (127 | ) | | | 613 | |
| Net financing costs | | | | | | | (1,028 | ) | | | — | | | | (1,028 | ) |
| Share of profit of associate | | | | | | | 172 | | | | — | | | | 172 | |
| | | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (116 | ) | | | (127 | ) | | | (243 | ) |
| Income tax benefit | | | | | | | 59 | | | | (29 | ) | | | 30 | |
| | | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (57 | ) | | | (156 | ) | | | (213 | ) |
| | | | | | | | | | | | | | | | | |
F-32
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 31 December
| | | | | | 31 December
| |
| | | Note | | | 2004 | | | Restatement | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Current assets | | | | | | | 9,167 | | | | — | | | | 9,167 | |
| | | | | | | | | | | | | | | | | |
| Other non-current assets | | | | | | | 25,708 | | | | — | | | | 25,708 | |
| Deferred tax assets | | | | | | | 625 | | | | (625 | ) | | | — | |
| Intangible assets | | | | | | | 5,667 | | | | (1,152 | ) | | | 4,515 | |
| | | | | | | | | | | | | | | | | |
| Total non current assets | | | | | | | 32,000 | | | | (1,777 | ) | | | 30,223 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 41,167 | | | | (1,777 | ) | | | 39,390 | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | | | | | 14,190 | | | | — | | | | 14,190 | |
| | | | | | | | | | | | | | | | | |
| Deferred tax liability | | | | | | | 1,868 | | | | (1,749 | ) | | | 119 | |
| Other non-current liabilities | | | | | | | 20,894 | | | | 36 | | | | 20,930 | |
| | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | | | | | 22,762 | | | | (1,713 | ) | | | 21,049 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 36,952 | | | | (1,713 | ) | | | 35,239 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,215 | | | | (64 | ) | | | 4,151 | |
| | | | | | | | | | | | | | | | | |
Total equity | | | | | | | 4,215 | | | | (64 | ) | | | 4,151 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Restated
| |
| | | | | | 31 December
| | | | | | 31 December
| |
| | | Note | | | 2004 | | | Restatement | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Results from operating activities | | | | | | | 4,064 | | | | (547 | ) | | | 3,517 | |
| Net financing costs | | | | | | | (3,134 | ) | | | | | | | (3,134 | ) |
| Share of profit of associate | | | | | | | 92 | | | | — | | | | 92 | |
| | | | | | | | | | | | | | | | | |
Profit before tax | | | | | | | 1,022 | | | | (547 | ) | | | 475 | |
| Income tax benefit/(expense) | | | | | | | (515 | ) | | | 519 | | | | 4 | |
| | | | | | | | | | | | | | | | | |
Profit after tax | | | | | | | 507 | | | | (28 | ) | | | 479 | |
| | | | | | | | | | | | | | | | | |
| |
2. NOTE 11 — | Segment informationRELATED PARTY TRANSACTIONS |
The consolidated entity operates predominantlyCompany pays a management and consulting fee to one of its stockholders. Management and consulting fees paid were $180,000 in one segment, being2007 and $75,000 for the salefive-month period ended December 31, 2006.
The Company has a note receivable from a related party in the amount of $260,000 at December 31, 2007 and leasing$350,000 at December 31, 2006. The note bears interest at LIBOR plus 1% per annum with required payments of freight containers$80,000 plus interest and container based storage and accommodation products and within one geographical segment, being Australia.is due on May 31, 2011.
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
| | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Net gain on disposal of property, plant and equipment | | | 28 | | | | 17 | | | | 28 | |
| Bad debts recovered | | | 7 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | | |
| | | | 35 | | | | 18 | | | | 31 | |
| | | | | | | | | | | | | |
F-33
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
| | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Cost of sales | | | 43,718 | | | | 16,623 | | | | 32,697 | |
| | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | |
| Operating lease payments | | | 1,174 | | | | 464 | | | | 793 | |
| Sundry occupancy costs | | | 143 | | | | 48 | | | | 77 | |
| Business promotion expenses | | | 1,148 | | | | 329 | | | | 495 | |
| Travel & accommodation | | | 859 | | | | 416 | | | | 676 | |
| IT & telecommunications | | | 559 | | | | 269 | | | | 662 | |
| Bad & doubtful debts | | | 234 | | | | 91 | | | | 55 | |
| Office supplies | | | 435 | | | | 208 | | | | 321 | |
| Inventory write-down | | | 146 | | | | 97 | | | | 34 | |
| Other | | | 1,713 | | | | 898 | | | | 1,455 | |
| | | | | | | | | | | | | |
| | | | 6,411 | | | | 2,820 | | | | 4,568 | |
| | | | | | | | | | | | | |
| |
5. | Auditors’ remuneration |
| | | | | | | | | | | | | |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
| | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Audit services | | | | | | | | | | | | |
| Auditors of the Company | | | | | | | | | | | | |
KPMG Australia | | | | | | | | | | | | |
| Audit and review of financial reports | | | 99 | | | | 95 | | | | 73 | |
| | | | | | | | | | | | | |
Other services | | | | | | | | | | | | |
| Auditors of the Company | | | | | | | | | | | | |
KPMG Australia | | | | | | | | | | | | |
| Other assurance services | | | — | | | | 18 | | | | — | |
| Taxation services | | | 20 | | | | — | | | | 35 | |
| | | | | | | | | | | | | |
| | | | 20 | | | | 18 | | | | 35 | |
| | | | | | | | | | | | | |
F-34
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
| | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Interest income | | | 209 | | | | 104 | | | | 118 | |
| Net gain on remeasurement of interest rate swap at fair value through profit or loss | | | 293 | | | | — | | | | — | |
| Net foreign exchange gain | | | 50 | | | | 325 | | | | — | |
| | | | | | | | | | | | | |
| Financial income | | | 552 | | | | 429 | | | | 118 | |
| | | | | | | | | | | | | |
| Interest expense | | | 4,034 | | | | 1,296 | | | | 2,862 | |
| Net foreign exchange loss | | | — | | | | — | | | | 390 | |
| Net loss on remeasurement of forward exchange contracts at fair value through profit or loss | | | 30 | | | | — | | | | — | |
| Net loss on remeasurement of interest rate swap at fair value through profit or loss | | | — | | | | 161 | | | | — | |
| | | | | | | | | | | | | |
| Financial expenses | | | 4,064 | | | | 1,457 | | | | 3,252 | |
| | | | | | | | | | | | | |
| Net financing costs | | | 3,512 | | | | 1,028 | | | | 3,134 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
Recognised in the Income Statement | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Current tax benefit | | | | | | | | | | | | |
| Current year | | | — | | | | (30 | ) | | | (4 | ) |
| Adjustments for prior years | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | — | | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | | |
Deferred tax expense | | | | | | | | | | | | |
| Origination and reversal of temporary differences | | | 382 | | | | 127 | | | | 547 | |
| Benefit from utilisation of unrecognised deferred tax assets | | | (907 | ) | | | (127 | ) | | | (547 | ) |
| | | | | | | | | | | | | |
| | | | (525 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total income tax benefit in income statement | | | (525 | ) | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | | |
Numerical reconciliation between tax expense and pre-tax net profit | | | | | | | | | | | | |
| Profit / (loss) before tax | | | (856 | ) | | | (243 | ) | | | 479 | |
| Income tax using the domestic corporation tax rate of 30% | | | (256 | ) | | | (73 | ) | | | 144 | |
| Increase in income tax expense due to: | | | | | | | | | | | | |
| Goodwill write off arising from benefit from deferred tax assets not recognized at date of previous business combinations | | | 272 | | | | 38 | | | | 164 | |
| Non-deductible expenses | | | 366 | | | | 132 | | | | 235 | |
| Decrease in income tax expense due to: | | | | | | | | | | | | |
| Benefit from utilisation of unrecognised deferred tax asset | | | (907 | ) | | | (127 | ) | | | (547 | ) |
| | | | | | | | | | | | | |
| Income tax benefit on pre-tax net profit | | | (525 | ) | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | | |
F-35
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets | | | Liabilities | | | Net | |
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| |
| | | 2006 | | | 2005 | | | 2004 | | | 2006 | | | 2005 | | | 2004 | | | 2006 | �� | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Property, plant and equipment | | | — | | | | — | | | | | | | | (1,997 | ) | | | (572 | ) | | | (321 | ) | | | (1,997 | ) | | | (572 | ) | | | (321 | ) |
| Interest bearing loans and borrowings | | | 125 | | | | 48 | | | | — | | | | — | | | | — | | | | — | | | | 125 | | | | 48 | | | | — | |
| Employee benefits | | | 368 | | | | 276 | | | | 214 | | | | — | | | | — | | | | — | | | | 368 | | | | 276 | | | | 214 | |
| Other items | | | 65 | | | | 270 | | | | 410 | | | | (119 | ) | | | (119 | ) | | | (119 | ) | | | (54 | ) | | | 151 | | | | 291 | |
| Tax value of loss carry-forwards | | | 734 | | | | 885 | | | | 731 | | | | — | | | | — | | | | — | | | | 734 | | | | 885 | | | | 731 | |
| Deferred tax valuation allowance | | | — | | | | (907 | ) | | | (1,034 | ) | | | — | | | | — | | | | — | | | | — | | | | (907 | ) | | | (1,034 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tax assets / (liabilities) | | | 1,292 | | | | 572 | | | | 321 | | | | (2,116 | ) | | | (691 | ) | | | (440 | ) | | | (824 | ) | | | (119 | ) | | | (119 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following:
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Tax losses | | | — | | | | 885 | | | | 731 | |
| Temporary differences | | | — | | | | 22 | | | | 303 | |
| | | | | | | | | | | | | |
| | | | — | | | | 907 | | | | 1,034 | |
| | | | | | | | | | | | | |
Deferred tax assets were not recognised in respect of these tax losses and temporary differences on the basis that it was not probable that the RWA Holdings Pty Limited tax consolidated group would generate sufficient taxable profit for the losses to be utilised and the deferred tax assets would reverse in the same periods as deferred tax liabilities.
| |
8. | Cash and cash equivalents |
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Bank balances | | | 20 | | | | 777 | | | | 695 | | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | 777 | | | | 695 | | | | 3 | |
| Bank overdrafts repayable on demand | | | 16 | | | | (2,126 | ) | | | — | | | | (533 | ) |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents in the statement of cash flows | | | | | | | (1,349 | ) | | | 695 | | | | (530 | ) |
| | | | | | | | | | | | | | | | | |
F-36
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
9. | Trade and other receivables |
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Current | | | | | | | | | | | | | | | | |
| Trade receivables | | | | | | | 9,298 | | | | 6,637 | | | | 6,136 | |
| Less: Impairment losses | | | | | | | (177 | ) | | | (102 | ) | | | (85 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 9,121 | | | | 6,535 | | | | 6,051 | |
| Receivables from related parties | | | | | | | — | | | | 74 | | | | 89 | |
| Lease receivable | | | 20 | | | | 335 | | | | 180 | | | | 165 | |
| Loan to related entity | | | | | | | — | | | | 260 | | | | — | |
| Fair value derivatives | | | | | | | 132 | | | | — | | | | — | |
| Other receivables and prepayments | | | | | | | 618 | | | | 827 | | | | 719 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 10,206 | | | | 7,876 | | | | 7,024 | |
| | | | | | | | | | | | | | | | | |
Non-current | | | | | | | | | | | | | | | | |
| Lease receivable | | | 20 | | | | 775 | | | | 839 | | | | 934 | |
| Loan to related entity | | | | | | | — | | | | — | | | | 260 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 775 | | | | 839 | | | | 1,194 | |
| | | | | | | | | | | | | | | | | |
The loan to the related entity was non-interest bearing and was repaid on 30 March 2006.
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Finished goods | | | 6,979 | | | | 3,740 | | | | 2,140 | |
| Work in progress | | | 519 | | | | 283 | | | | — | |
| | | | | | | | | | | | | |
| | | | 7,498 | | | | 4,023 | | | | 2,140 | |
| | | | | | | | | | | | | |
| |
11. | Investments accounted for using the equity method |
| |
(a) | Investments in associates |
The consolidated entity accounts for investments in associates using the equity method.
The consolidated entity had the following investment in associates:
| | |
Name of associate company: | | Royal Wolf Hi-Tech Pty Limited |
Principal activities: | | Sale, hire and modification of containers |
Reporting date: | | 30 June |
Ownership interest: | | 100% (2005: 50%; 2004: 50%) On 30 March 2006, the remaining 50% in Royal Wolf Hi-Tech Pty Limited was acquired by Royal Wolf Trading Australia Pty Limited — refer to the acquisitions of subsidiaries note 24. |
F-37
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Royal Wolf Hi-Tech Pty Limited did not have any capital or other commitments contracted but not provided for or payable (including operating lease commitments) at 30 June 2005. Royal Wolf Hi-Tech Pty Limited did not have any contingent liabilities at 30 June 2005, 31 December 2004. The following is summarized financial information of Royal Wolf Hi-Tech Pty Limited:
| | | | | | | | | |
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 31 December
| |
| | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | |
| |
| Revenues (100%) | | | 1,506 | | | | 1,558 | |
| Gross profit (100%) | | | 1,342 | | | | 1,092 | |
| Pretax profit (100%) | | | 491 | | | | 262 | |
| Profit (100%) | | | 344 | | | | 184 | |
| Share of associates net profit recognised | | | 172 | | | | 92 | |
| Current assets (100%) | | | 492 | | | | 502 | |
| Noncurrent assets (100%) | | | 1,180 | | | | 938 | |
| | | | | | | | | |
| Total assets (100%) | | | 1,672 | | | | 1,440 | |
| | | | | | | | | |
| Current liabilities (100%) | | | 644 | | | | 852 | |
| Noncurrent liabilities (100%) | | | 174 | | | | 78 | |
| | | | | | | | | |
| Total liabilities (100%) | | | 818 | | | | 930 | |
| Net assets as reported by associate (100%) | | | 854 | | | | 510 | |
| Share of associate’s net assets equity accounted | | | 427 | | | | 255 | |
Results of associates | | | | | | | | |
| Carrying value of investment in associate at beginning of year | | | 255 | | | | 163 | |
| Share of associate profit before income tax | | | 246 | | | | 131 | |
| Share of income tax expense | | | (74 | ) | | | (39 | ) |
| | | | | | | | | |
| Carrying value of investment in associate at end of year | | | 427 | | | | 255 | |
| | | | | | | | | |
F-38
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
12. | Property, plant and equipment |
| | | | | | | | | |
| | | | | | Plant and
| |
| | | | | | Equipment,
| |
| | | | | | Fixtures
| |
| | | Note | | | and Fittings | |
| | | | | | A$’000 | |
| |
Cost | | | | | | | | |
| Balance at 1 January 2004 (restated) | | | | | | | 1,151 | |
| Acquisitions | | | | | | | 1,254 | |
| Disposals | | | | | | | (69 | ) |
| | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | | | | | 2,336 | |
| | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | | | | | 2,336 | |
| Acquisitions | | | | | | | 1,937 | |
| Disposals | | | | | | | (35 | ) |
| | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | | | | | 4,238 | |
| | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | | | | | 4,238 | |
| Acquisitions | | | | | | | 1,119 | |
| Acquisitions through business combinations | | | 24 | | | | 326 | |
| Disposals | | | | | | | (107 | ) |
| | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | | | | | 5,576 | |
| | | | | | | | | |
F-39
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | |
| | Plant and
| |
| | Equipment,
| |
| | Fixtures and
| |
| | Fittings | |
| | A$’000 | |
|
Depreciation and impairment losses
| | | | |
Balance at 1 January 2004 (restated) | | | — | |
Depreciation charge for the period | | | (557 | ) |
Disposals | | | 33 | |
| | | | |
Balance at 31 December 2004 (restated) | | | (524 | ) |
| | | | |
Balance at 1 January 2005 (restated) | | | (524 | ) |
Depreciation charge for the period | | | (436 | ) |
Disposals | | | 28 | |
| | | | |
Balance at 30 June 2005 (restated) | | | (932 | ) |
| | | | |
Balance at 1 July 2005 (restated) | | | (932 | ) |
Depreciation charge for the period | | | (1,110 | ) |
Disposals | | | 65 | |
| | | | |
Balance at 30 June 2006 (restated) | | | (1,977 | ) |
| | | | |
Carrying amounts
| | | | |
At 1 January 2004 (restated) | | | 1,151 | |
| | | | |
At 31 December 2004 (restated) | | | 1,812 | |
| | | | |
At 1 January 2005 (restated) | | | 1,812 | |
| | | | |
At 30 June 2005 (restated) | | | 3,306 | |
| | | | |
At 1 July 2005 (restated) | | | 3,306 | |
| | | | |
At 30 June 2006 (restated) | | | 3,599 | |
| | | | |
F-40
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
13. | Container for hire fleet |
| | | | | | | | | |
| | | Note | | | A$’000 | |
| |
Cost | | | | | | | | |
| Balance at 1 January 2004 (restated) | | | | | | | 17,451 | |
| Acquisitions | | | | | | | 12,003 | |
| Transfers to inventory | | | | | | | (5,448 | ) |
| | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | | | | | 24,006 | |
| | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | | | | | 24,006 | |
| Acquisitions | | | | | | | 7,725 | |
| Transfers to inventory | | | | | | | (3,826 | ) |
| | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | | | | | 27,905 | |
| | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | | | | | 27,905 | |
| Acquisitions | | | | | | | 18,073 | |
| Acquisitions through business combinations | | | 24 | | | | 6,829 | |
| Transfers to inventory | | | | | | | (11,337 | ) |
| | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | | | | | 41,470 | |
| | | | | | | | | |
Depreciation and impairment losses | | | | | | | | |
| Balance at 1 January 2004 (restated) | | | | | | | — | |
| Depreciation charge for the period | | | | | | | (2,408 | ) |
| Transfers to inventory | | | | | | | 849 | |
| | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | | | | | (1,559 | ) |
| | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | | | | | (1,559 | ) |
| Depreciation charge for the period | | | | | | | (1,272 | ) |
| Transfers to inventory | | | | | | | 705 | |
| | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | | | | | (2,126 | ) |
| | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | | | | | (2,126 | ) |
| Depreciation charge for the period | | | | | | | (1,978 | ) |
| Transfers to inventory | | | | | | | 1,125 | |
| | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | | | | | 2,979 | |
| | | | | | | | | |
Carrying amounts | | | | | | | | |
| At 1 January 2004 (restated) | | | | | | | 17,451 | |
| | | | | | | | | |
| At 31 December 2004 (restated) | | | | | | | 22,447 | |
| | | | | | | | | |
| At 1 January 2005 (restated) | | | | | | | 22,447 | |
| | | | | | | | | |
| At 30 June 2005 (restated) | | | | | | | 25,779 | |
| | | | | | | | | |
| At 1 July 2005 (restated) | | | | | | | 25,779 | |
| | | | | | | | | |
| At 30 June 2006 (restated) | | | | | | | 38,491 | |
| | | | | | | | | |
F-41
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Software | | | Goodwill | | | Trademarks | | | Other | | | Total | |
| | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Cost | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 January 2004 (restated) | | | 944 | | | | 581 | | | | 398 | | | | — | | | | 1,923 | |
| Acquisitions through business combinations | | | — | | | | 3,500 | | | | — | | | | — | | | | 3,500 | |
| Other acquisitions | | | 70 | | | | — | | | | — | | | | — | | | | 70 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | 1,014 | | | | 4,081 | | | | 398 | | | | — | | | | 5,493 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | 1,014 | | | | 4,081 | | | | 398 | | | | — | | | | 5,493 | |
| Acquisitions | | | 25 | | | | — | | | | — | | | | — | | | | 25 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | 1,039 | | | | 4,081 | | | | 398 | | | | — | | | | 5,518 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | 1,039 | | | | 4,081 | | | | 398 | | | | — | | | | 5,518 | |
| Acquisitions through business combinations | | | — | | | | 1,749 | | | | — | | | | — | | | | 1,749 | |
| Other acquisitions | | | 133 | | | | — | | | | — | | | | 363 | | | | 496 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | 1,172 | | | | 5,830 | | | | 398 | | | | 363 | | | | 7,763 | |
| | | | | | | | | | | | | | | | | | | | | |
Amortisation and impairment losses | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 January 2004 (restated) | | | — | | | | — | | | | — | | | | — | | | | — | |
| Amortisation for the period | | | (431 | ) | | | — | | | | — | | | | — | | | | (431 | ) |
| Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (547 | ) | | | — | | | | — | | | | (547 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | (431 | ) | | | (547 | ) | | | — | | | | — | | | | (978 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | (431 | ) | | | (547 | ) | | | — | | | | — | | | | (978 | ) |
| Amortisation for the period | | | (206 | ) | | | — | | | | — | | | | — | | | | (206 | ) |
| Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (127 | ) | | | — | | | | — | | | | (127 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | (637 | ) | | | (674 | ) | | | — | | | | — | | | | (1,311 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | (637 | ) | | | (674 | ) | | | — | | | | — | | | | (1,311 | ) |
| Amortisation for the period | | | (464 | ) | | | — | | | | — | | | | (21 | ) | | | (485 | ) |
| Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (907 | ) | | | — | | | | — | | | | (907 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | (1,101 | ) | | | (1,581 | ) | | | — | | | | (21 | ) | | | (2,703 | ) |
| | | | | | | | | | | | | | | | | | | | | |
F-42
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Software | | | Goodwill | | | Trademarks | | | Other | | | Total | |
| | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Carrying amounts | | | | | | | | | | | | | | | | | | | | |
| At 1 January 2004 (restated) | | | 944 | | | | 581 | | | | 398 | | | | — | | | | 1,923 | |
| | | | | | | | | | | | | | | | | | | | | |
| At 31 December 2004 (restated) | | | 583 | | | | 3,534 | | | | 398 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | | | | | | |
| 1 January 2005 (restated) | | | 583 | | | | 3,534 | | | | 398 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | | | | | | |
| 30 June 2005 (restated) | | | 402 | | | | 3,407 | | | | 398 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | | | | | | |
| 1 July 2005 (restated) | | | 402 | | | | 3,407 | | | | 398 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | | | | | | |
| 30 June 2006 (restated) | | | 71 | | | | 4,249 | | | | 398 | | | | 342 | | | | 5,060 | |
| | | | | | | | | | | | | | | | | | | | | |
Goodwill
Goodwill acquired has been allocated to one single cash generating unit, being the consolidated entity. Goodwill is not amortised but tested for impairment annually using the value in use model. Goodwill arose through the purchase of Royal Wolf Trading Australia Pty Limited from Triton Containers International Limited in 2003, and through the purchases of Royal Wolf Hi-Tech Pty Limited, and the business and assets of Cape Containers Pty Limited and Australian Container Network Pty Limited (refer Note 24).
The recoverable amount of the RWA Holdings Pty Limited cash-generating unit is based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the 5 year budget. Cash flows for a further5-year period are extrapolated using a 5% growth rate, which the directors consider appropriate because this is a long-term business. A pre-tax discount rate of 13.7% has been used in discounting the projected cash flows.
Software
Software assets are capitalised at cost. This intangible asset has been assessed as having a finite useful life, and is amortised using the straight-line method over a period of 3 years (refer accounting policy (h)(iv)).
Trademarks
Trademarks are capitalised at cost and have been assessed as having an indefinite useful life and are tested for impairment at each period end.
Other
Other assets are capitalised at cost. This intangible asset has been assessed as having a finite useful life, and is amortised using the straight-line method over a period of 5 years (refer accounting policy (h)(iv)).
F-43
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
15. | Trade and other payables |
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Trade payables | | | | | | | 10,565 | | | | 5,870 | | | | 4,023 | |
| Other payables | | | | | | | 1,349 | | | | 1,708 | | | | 1,611 | |
| Unearned revenue | | | | | | | 565 | | | | 489 | | | | 470 | |
| Deferred consideration for controlled entity | | | | | | | — | | | | — | | | | 3,500 | |
| Fair value derivative | | | 20 | | | | 30 | | | | 161 | | | | — | |
| Related party — other payable | | | | | | | — | | | | — | | | | 1,926 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 12,509 | | | | 8,228 | | | | 11,530 | |
| | | | | | | | | | | | | | | | | |
| |
16. | Interest bearing loans and borrowings |
This note provides information about the contractual terms of the consolidated entity’s interest bearing loans and borrowings. For more information about the consolidated entity’s exposure to interest rate and foreign currency risk, refer note 20.
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Current liabilities | | | | | | | | | | | | | | | | |
| Bank overdraft | | | 8 | | | | 2,126 | | | | — | | | | 533 | |
| Current portion of bank loans | | | | | | | 5,831 | | | | 1,939 | | | | — | |
| Other loans | | | | | | | 73 | | | | 20 | | | | 343 | |
| Current portion of finance lease liabilities | | | | | | | 909 | | | | 819 | | | | 549 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 8,939 | | | | 2,778 | | | | 1,425 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Bank loan | | | | | | | 18,099 | | | | 22,364 | | | | 14,489 | |
| Non-convertible notes | | | | | | | 10,898 | | | | — | | | | — | |
| B class notes | | | | | | | 6,654 | | | | 5,422 | | | | 4,051 | |
| Finance lease liabilities | | | | | | | 1,543 | | | | 2,389 | | | | 2,074 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 37,194 | | | | 30,175 | | | | 20,614 | |
| | | | | | | | | | | | | | | | | |
F-44
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Financing facilities
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Bank overdraft | | | 1,020 | | | | 2,000 | | | | 1,000 | |
| Invoice financing facility | | | 7,500 | | | | — | | | | — | |
| Secured bank loans | | | 42,962 | | | | 29,280 | | | | 30,800 | |
| | | | | | | | | | | | | |
| | | | 51,482 | | | | 31,280 | | | | 31,800 | |
| | | | | | | | | | | | | |
Facilities utilised at reporting date | | | | | | | | | | | | |
| Bank overdraft | | | 934 | | | | — | | | | 533 | |
| Invoice financing facility | | | 1,192 | | | | — | | | | — | |
| Secured bank loans | | | 35,349 | | | | 24,303 | | | | 14,489 | |
| | | | | | | | | | | | | |
| | | | 37,475 | | | | 24,303 | | | | 15,022 | |
| | | | | | | | | | | | | |
Facilities not utilised at reporting date | | | | | | | | | | | | |
| Bank overdraft | | | 86 | | | | 2,000 | | | | 467 | |
| Invoice financing facility | | | 6,308 | | | | — | | | | — | |
| Secured bank loans | | | 7,613 | | | | 4,977 | | | | 16,311 | |
| | | | | | | | | | | | | |
| | | | 14,007 | | | | 6,977 | | | | 16,778 | |
| | | | | | | | | | | | | |
Financing arrangements
Bank overdrafts
The bank overdrafts of the consolidated entity are secured by a floating charge over the consolidated entity’s assets. Interest on bank overdrafts is charged at the prevailing market rates.
Invoice financing facility
The invoice finance facility of the consolidated entity is a facility whereby funds are made available based on a percentage of debtors outstanding net of any disallowed debts. The facility is secured by a floating charge over the debtors ledger. Interest is charged at the bank’s prime rate plus 1.65%.
Bank loans
Bank loans are denominated in Australian dollars. The bank loans amount in current liabilities comprises the portion of the consolidated entity’s bank loan payable within one year. The non-current bank loans are payable on or before 2010 on an equal instalment basis, and are subject to annual review. The loans bear interest at the Australian bank bill reference rate (“BBSW”) plus 1.10% - 1.35% (2005: 1.10%, 2004: 1.35%), payable monthly. Bank loans are secured by lease assets in the container fleet with a written down value of $18,143,000 (2005: $7,994,000, 2004: Nil) and are due and payable over the next five years. In the event of default, the assets revert to the bank.
Finance leases and hire purchase contracts
The consolidated entity’s lease liabilities are secured by the leased assets of $526,000 (2005: $601,000, 2004: 638,000). In the event of default, the assets revert to the lessor.
F-45
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
B class notes
Holders of B Class Notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings.
In the event of winding up of the Company, the holders of B Class Notes rank above all shareholders, but not the holders of non-convertible notes and are entitled to the proceeds of liquidation only to the extent of the face value of the notes and any accumulated interest.
Non-convertible notes
Holders of Non-convertible notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings.
In the event of winding up of the Company, the holders of non-convertible notes rank above all shareholders and are entitled to the proceeds of liquidation only to the extent of the face value of the notes and any accumulated interest.
Finance lease liabilities
Finance lease liabilities of the consolidated entity are payable as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2006
| | | 2005
| | | 2004
| |
| | | Restated | | | Restated | | | Restated | |
| | | Minimum
| | | | | | | | | Minimum
| | | | | | | | | Minimum
| | | | | | | |
| | | Lease
| | | | | | | | | Lease
| | | | | | | | | Lease
| | | | | | | |
| | | Payments | | | Interest | | | Principal | | | Payments | | | Interest | | | Principal | | | Payments | | | Interest | | | Principal | |
| | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Less than one year | | | 1,096 | | | | 187 | | | | 909 | | | | 1,081 | | | | 262 | | | | 819 | | | | 770 | | | | 221 | | | | 549 | |
| Between one and five years | | | 1,640 | | | | 97 | | | | 1,543 | | | | 2,666 | | | | 277 | | | | 2,389 | | | | 2,342 | | | | 268 | | | | 2,074 | |
| More than five years | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2,736 | | | | 284 | | | | 2,452 | | | | 3,747 | | | | 539 | | | | 3,208 | | | | 3,112 | | | | 489 | | | | 2,623 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The consolidated entity has finance leases and hire purchase contracts for various motor vehicles, containers and other assets. These leases have no terms of renewal or purchase options nor escalation clauses.
Under the terms of the Facility Agreement with Australia and New Zealand Banking Group Limited the consolidated entity undertakes to ensure compliance with covenants in relation to various financial ratios including consolidated interest cover; consolidated reworked adjusted gearing; and consolidated debt service cover.
F-46
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Current | | | | | | | | | | | | |
| Liability for annual leave | | | 775 | | | | 801 | | | | 444 | |
| Liability for long service leave | | | 187 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | 962 | | | | 801 | | | | 444 | |
| | | | | | | | | | | | | |
Non Current | | | | | | | | | | | | |
| Liability for long service leave | | | 257 | | | | 119 | | | | 272 | |
| Cash settled transactions | | | 310 | | | | 108 | | | | 36 | |
| | | | | | | | | | | | | |
| | | | 567 | | | | 227 | | | | 308 | |
| | | | | | | | | | | | | |
| Total employee benefits | | | 1,529 | | | | 1,028 | | | | 752 | |
| | | | | | | | | | | | | |
Defined contribution superannuation funds
The consolidated entity makes contributions to a defined contribution superannuation fund. The amount recognised as an expense was $789,000 for the financial year ended 30 June 2006 (2005: $321,000 (6 months), 2004: $613,000 (12 months)).
Share based payments
The consolidated entity has an employee share option plan (ESOP) for the granting of non-transferable options to certain key management personnel and senior employees with more than twelve months’ service at the grant date.
Options issued under the ESOP will vest in accordance with time frames specified individually per director or senior executive. No other conditions are precedent to the options vesting.
Other relevant terms and conditions applicable to the options granted under the ESOP include
| | |
| • | the exercise price for the options is nil for most employees, with one employee having options exercisable at $0.50 per share |
|
| • | the options expire on the expiry date or the termination date of the employee, whichever is the earlier |
|
| • | upon exercise, the nil price and $0.50 options will be settled in the unissued ordinary shares of RWA Holdings Pty Limited |
|
| • | the nil price options can be settled in cash at the option of the company or the holder and are only exercisable on an exercising or realisation event (see below) |
F-47
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
The number and weighted average exercise prices of share options is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted
| | | | | | | | | | | | Weighted
| | | | |
| | | Average
| | | | | | Weighted
| | | | | | Average
| | | | |
| | | Exercise
| | | Number of
| | | Average
| | | Number of
| | | Exercise
| | | Number of
| |
| | | Price
| | | Options
| | | Exercise Price
| | | Options
| | | Price
| | | Options
| |
| | | 12 Months
| | | 12 Months
| | | 6 Months
| | | 6 Months
| | | 12 Months
| | | 12 Months
| |
| | | 2006 | | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
| |
| Outstanding at the beginning of the period | | A$ | 0.08 | | | | 438,582 | | | A$ | 0.08 | | | | 452,982 | | | | N/A | | | | — | |
| Granted during the period | | | — | | | | 17,682 | | | | — | | | | — | | | A$ | 0.08 | | | | 452,982 | |
| Cancelled during the period | | | — | | | | (17,865 | ) | | | — | | | | — | | | | — | | | | — | |
| Exercised during the period | | A$ | 0.50 | | | | (14,400 | ) | | A$ | 0.50 | | | | (14,400 | ) | | | — | | | | — | |
| Expired during the period | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding at the end of the period | | A$ | 0.08 | | | | 423,999 | | | A$ | 0.08 | | | | 438,582 | | | A$ | 0.08 | | | | 452,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercisable at the end of the period | | | — | | | | 212,929 | | | | — | | | | 126,832 | | | | — | | | | 144,697 | |
The outstanding balance at 30 June 2006 is represented by:
| | |
| • | 363,117 options over ordinary shares with an exercise price of nil, exercisable as above until 31 August 2014, or earlier as appropriate |
|
| • | 43,200 options over ordinary shares with an exercise price of $0.50, exercisable as above until 17 May 2009, or earlier as appropriate |
|
| • | 17,682 options over ordinary shares with an exercise price of nil, exercisable as above until 19 Aug 2015, or earlier as appropriate |
The expiry dates for the share options outstanding at 30 June 2006 is between 3 and 9 years (2005: 4 and 9 years).
The nil price options if vested can be converted to ordinary shares in the company in the event of the issuance of a prospectus for the public listing of the company (an “exercising event”) or the sale of the company (a “realisation event”). Both the company and the holder have the option of settling the options in cash based on the issue price or market value of shares in the company.
During the year ended 30 June 2006, 17,682 options (2005: Nil, 2004: 452,982) were granted over ordinary shares.
During year ended 30 June 2006, 14,400 options (2005: 14,400, 2004: Nil) were exercised over ordinary shares already on issue.
During year ended 30 June 2006, 17,865 options (2005: Nil, 2004: Nil) were cancelled over ordinary shares.
The fair value of the options granted is measured using a binomial option pricing method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The volatility of the asset value is based upon the volatility of listed companies with a similar profile to the consolidated entity.
F-48
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Fair value of share options and assumptions:
| | | | | | | | | | | | | |
| | | Key Mgmt
| | | Key Mgmt
| | | Key Mgmt
| |
| | | Personnel
| | | Personnel
| | | Personnel
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Fair value at measurement date | | A$ | 1.086 | | | A$ | 0.695 | | | A$ | 0.575 | |
| | | | | | | | | | | | | |
| Share value | | A$ | 1.25 | | | A$ | 0.77 | | | A$ | 0.65 | |
| Weighted average exercise price | | A$ | 0.08 | | | A$ | 0.08 | | | A$ | 0.08 | |
| Expected volatility (based on volatility of similar but listed organisations) | | | 29.7 | % | | | 28.8 | % | | | 28.1 | % |
| Option life (based on date options are expected to be exercised) | | | 2.25 yrs | | | | 3.25 years | | | | 3.75 years | |
| Risk free rate (based on Australian Government Bonds) | | | 5.79 | % | | | 5.10 | % | | | 5.16 | % |
| | | | | | | | | | | | | |
| | | Leasehold
| | | | | | | |
| | | Makegood
| | | Deferred
| | | | |
| | | Costs | | | Consideration | | | Total | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Balance at 1 January 2004 (restated) | | | — | | | | — | | | | — | |
| Provisions made during the year | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | 8 | | | | — | | | | 8 | |
| Provisions made during the year | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | 8 | | | | — | | | | 8 | |
| Provisions made during the year | | | — | | | | 574 | | | | 574 | |
| | | | | | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | 8 | | | | 574 | | | | 582 | |
| | | | | | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | | | | | | | | | | |
| Current | | | — | | | | 300 | | | | 300 | |
| Non-current | | | 8 | | | | 274 | | | | 282 | |
| | | | | | | | | | | | | |
| | | | 8 | | | | 574 | | | | 582 | |
| | | | | | | | | | | | | |
Leasehold makegood costs
An obligation exists to restore a leasehold site after a fit-out at the head office location in Hornsby. The basis for accounting is set out in note (o) of the significant accounting policies.
The expected cost for the restoration is estimated at $10,000, and is expected to occur in 2009. This amount has been discounted using Australian government bond rates with similar maturities (2006: 5.8%, 2005: 5.2%, 2004: 5.2%).
F-49
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Deferred consideration
Deferred purchase consideration consists of consideration relating to the purchase of the business and assets of Australian Container Network Pty Limited.
For further information on the acquisition of Australian Container Network Pty Limited refer note 24.
Reconciliation of movement in capital and reserves attributable to equity holders of the parent
| | | | | | | | | | | | | | | | | |
| | | | | | Retained
| | | | | | | |
| | | | | | Earnings/
| | | Asset
| | | | |
| | | Share
| | | Accumulated
| | | Revaluation
| | | Total
| |
| | | Capital | | | Losses | | | Reserve | | | Equity | |
| | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Balance at 1 January 2004 (restated) | | | 3,672 | | | | — | | | | — | | | | 3,672 | |
| Total recognised income and expense | | | — | | | | 479 | | | | — | | | | 479 | |
| | | | | | | | | | | | | | | | | |
| Balance at 31 December 2004 (restated) | | | 3,672 | | | | 479 | | | | — | | | | 4,151 | |
| | | | | | | | | | | | | | | | | |
| Balance at 1 January 2005 (restated) | | | 3,672 | | | | 479 | | | | — | | | | 4,151 | |
| Call on issued shares | | | 878 | | | | — | | | | — | | | | 878 | |
| Total recognised income and expense | | | — | | | | (213 | ) | | | — | | | | (213 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at 30 June 2005 (restated) | | | 4,550 | | | | 266 | | | | — | | | | 4,816 | |
| | | | | | | | | | | | | | | | | |
| Balance at 1 July 2005 (restated) | | | 4,550 | | | | 266 | | | | — | | | | 4,816 | |
| Total recognised income and expense | | | — | | | | (331 | ) | | | — | | | | (331 | ) |
| Revaluation of assets on acquisition of controlled entity | | | — | | | | — | | | | 344 | | | | 344 | |
| | | | | | | | | | | | | | | | | |
| Balance at 30 June 2006 (restated) | | | 4,550 | | | | (65 | ) | | | 344 | | | | 4,829 | |
| | | | | | | | | | | | | | | | | |
Share capital
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| 2,160,000 Ordinary Shares | | | 1,080 | | | | 1,080 | | | | 1,080 | |
| 4,322,590 A Class Shares | | | 3,470 | | | | 3,470 | | | | 2,592 | |
| 100 Class C Shares | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | 4,550 | | | | 4,550 | | | | 3,672 | |
| | | | | | | | | | | | | |
| Movement in A Class Shares paid up value | | | | | | | No. ’000 | | | A$ | ’000 | |
| | | | | | | | | | | | | |
| At 1 January 2005 | | | | | | | 4,323 | | | | 2,592 | |
| During 2005, the consolidated entity took up a call of 20.3 cents per share | | | | | | | — | | | | 878 | |
| | | | | | | | | | | | | |
| At 30 June 2005 | | | | | | | 4,323 | | | | 3,470 | |
| | | | | | | | | | | | | |
F-50
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Terms and conditions
Ordinary Shares
Holders of Ordinary Shares rank pari passu with the A Class Shares in the declaration and payment of dividends and are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.
A Class Shares
Holders of A Class Shares rank pari passu with Ordinary shares in the declaration and payment of dividends and are entitled to one vote per share at shareholders’ meetings limited to 50% of the votes to be cast by shareholders.
In the event of winding up of the Company, A Class shareholders rank above ordinary shareholders and are fully entitled to the greater of any proceeds of liquidation and an amount equal to the issue price of the A Class Shares.
C Class Shares
Holders of C Class Shares are not entitled to receive any dividends prior to conversion to ordinary shares. The C Class shares shall not entitle the holder to a vote prior to conversion to ordinary shares. The C Class shares shall not entitle the holder to any proceeds on liquidation prior to conversion to ordinary shares.
The Company’s C Class shares are not transferable and will convert into ordinary shares in the event that all criteria specified in the shareholders’ agreement are satisfied, subject to the B Class Note holders receiving their return. The number of ordinary shares received on conversion of each C Class share is determined by reference to a profit formula.
| |
20. | Financial instruments |
Exposure to credit, interest rate and currency risks arises in the normal course of the consolidated entity’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates.
Credit risk
The consolidated entity trades only with recognised, creditworthy third parties.
It is the consolidated entity’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures.
In addition, receivable balances are monitored on an ongoing basis with the result that the consolidated entity’s exposure to bad debts is not significant.
For transactions that are not denominated in the measurement currency of the relevant operating unit, the consolidated entity does not offer credit terms without the specific approval of the Head of Credit Control.
With respect to credit risk arising from the other financial assets of the consolidated entity, which comprise cash and cash equivalents,available-for-sale financial assets and certain derivative instruments, the consolidated entity’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the
F-51
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
carrying amount of these instruments. As the counter party for derivative instruments is nearly always a bank, the Board has assessed this as a low risk.
There are no significant concentrations of credit risk within the consolidated entity.
Interest rate risk
The consolidated entity’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations.
The consolidated entity’s policy is to manage its interest cost using a mix of fixed and variable rate debt.
To manage this mix in a cost-efficient manner, the consolidated entity enters into interest rate swaps, in which the consolidated entity agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge changes in the interest rate of its commercial bill liability. The secured loan and interest rate swap have the same critical terms, including expiry dates. All movements in the fair values of these hedges are taken directly to the income statement.
At 30 June 2006, after taking into account the effect of interest rate swaps, 80.2% (2005: 72.7%, 2004: 97.6%) of the consolidated entity’s borrowings are at a fixed rate of interest.
Effective interest rates and repricing analysis
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | | Rate
| | | < 1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
30 June 2006 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease receivable | | | 9 | | | | 18.1 | % | | | 335 | | | | 380 | | | | 395 | | | | — | | | | 1,110 | |
| Finance lease liabilities | | | 16 | | | | 9.0 | % | | | (909 | ) | | | (1,104 | ) | | | (439 | ) | | | — | | | | (2,452 | ) |
| Other loans | | | 16 | | | | 4.2 | % | | | (73 | ) | | | — | | | | — | | | | — | | | | (73 | ) |
| Non-convertible notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (10,898 | ) | | | (10,898 | ) |
| B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (6,654 | ) | | | (6,654 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 8 | | | | 3.3 | % | | | 777 | | | | — | | | | — | | | | — | | | | 777 | |
| Bank loans | | | 16 | | | | BBSW + 1.10 | % | | | (4,396 | ) | | | (1,665 | ) | | | (10,737 | ) | | | — | | | | (16,798 | ) |
| Interest rate swap | | | 9 | | | | 6.0 | % | | | 132 | | | | — | | | | — | | | | — | | | | 132 | |
| Bank overdrafts | | | 16 | | | | BBSW + 1.65 | % | | | (2,126 | ) | | | — | | | | — | | | | — | | | | (2,126 | ) |
| Commercial bills | | | 16 | | | | 6.9 | % | | | (1,367 | ) | | | (1,425 | ) | | | (4,340 | ) | | | — | | | | (7,132 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | (7,627 | ) | | | (3,814 | ) | | | (15,121 | ) | | | (17,552 | ) | | | (44,114 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-52
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | | Rate
| | | < 1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
30 June 2005 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease receivable | | | 9 | | | | 18.1 | % | | | 180 | | | | 216 | | | | 623 | | | | — | | | | 1,019 | |
| Finance lease liabilities | | | 16 | | | | 9.2 | % | | | (819 | ) | | | (893 | ) | | | (1,496 | ) | | | — | | | | (3,208 | ) |
| Other loans | | | 16 | | | | 3.8 | % | | | (20 | ) | | | — | | | | — | | | | — | | | | (20 | ) |
| B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (5,422 | ) | | | (5,422 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 8 | | | | 3.5 | % | | | 695 | | | | — | | | | — | | | | — | | | | 695 | |
| Bank loans | | | 16 | | | | BBSW + 1.10 | % | | | (859 | ) | | | (869 | ) | | | (7,336 | ) | | | — | | | | (9,064 | ) |
| Commercial bills | | | 16 | | | | 5.7 | % | | | (1,080 | ) | | | (3,980 | ) | | | (10,179 | ) | | | — | | | | (15,239 | ) |
| Interest rate swap | | | 15 | | | | 5.9 | % | | | (161 | ) | | | — | | | | — | | | | — | | | | (161 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | (2,064 | ) | | | (5,526 | ) | | | (18,388 | ) | | | (5,422 | ) | | | (31,400 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | | Rate
| | | <1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
31 December 2004 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease receivable | | | 9 | | | | 18.1 | % | | | 165 | | | | 197 | | | | 737 | | | | — | | | | 1,099 | |
| Finance lease liabilities | | | 16 | | | | 9.2 | % | | | (549 | ) | | | (677 | ) | | | (1,397 | ) | | | — | | | | (2,623 | ) |
| Other loans | | | 16 | | | | 3.8 | % | | | (343 | ) | | | — | | | | — | | | | — | | | | (343 | ) |
| B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (4,051 | ) | | | (4,051 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalent | | | 8 | | | | 3.51 | % | | | 3 | | | | — | | | | — | | | | — | | | | 3 | |
| Bank overdraft | | | 8 | | | | ANZ Ref Rate — 1.0 | % | | | (533 | ) | | | — | | | | — | | | | — | | | | (533 | ) |
| Commercial bills | | | 16 | | | | 5.7 | % | | | — | | | | (3,479 | ) | | | (11,010 | ) | | | — | | | | (14,489 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | (1,257 | ) | | | (3,959 | ) | | | (11,670 | ) | | | (4,051 | ) | | | (20,937 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency risk
The consolidated entity has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the unit’s measurement currency. The currency giving rise to this risk is primarily U.S. Dollars.
The consolidated entity has a bank account denominated in US Dollars, into which customers pay their debts. This is a natural hedge against fluctuations in the exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian dollars.
The consolidated entity uses forward currency contracts and options to eliminate the currency exposures on the majority of its transactions denominated in foreign currencies, either by transaction if the amount is significant, or
F-53
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
on a general cash flow hedge basis. The forward currency contracts and options are always in the same currency as the hedged item.
It is the consolidated entity’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. At 30 June 2006, the consolidated entity had hedged 100% of its foreign currency purchases for which firm commitments existed at the balance sheet date, extending to November 2006.
Forecasted transactions
The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states them at fair value. The net fair value of forward exchange contracts used as hedges of forecasted transactions at 30 June 2006 was nil (2005: nil, 2004: nil). The Company does not have any forward exchange contracts hedging forecasted transactions.
Recognised assets and liabilities
Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognised in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognised as part of ’net financing costs’ (see note 6). The fair value of forward exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies at 30 June 2006 was $30,493 (2005: nil) for the consolidated entity recognised in fair value derivatives.
Sensitivity analysis
In managing interest rate and currency risks the consolidated entity aims to reduce the impact of short-term fluctuations on the consolidated entity’s earnings. Over the longer-term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings.
At 30 June 2006, it is estimated that a general increase of one percentage point in interest rates would decrease the consolidated entity’s profit before tax by approximately $93,000 (2005: $12,000, 2004: $5,000). Interest rate swaps have been included in this calculation.
It is estimated that a general increase of one percentage point in the value of the AUD against other foreign currencies would have decreased the consolidated entity’s profit before tax by approximately $307,000 for the year ended 30 June 2006 (2005: $122,000, 2004: $113,000), based on the actual transactions incurred in U.S. Dollars. The forward exchange contracts have been included in this calculation.
F-54
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Fair values
The fair values together with the carrying amounts shown in the balance sheet are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Carrying
| | | | | | Carrying
| | | | | | Carrying
| | | | |
| | | | | | Amount
| | | Fair Value
| | | Amount
| | | Fair Value
| | | Amount
| | | Fair Value
| |
| | | | | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 30 June
| | | 30 June
| | | 31 December
| | | 31 December
| |
| | | Note | | | 2006 | | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Cash and cash equivalents | | | 8 | | | | 777 | | | | 777 | | | | 695 | | | | 695 | | | | 3 | | | | 3 | |
| Trade and other receivables | | | 9 | | | | 9,739 | | | | 9,739 | | | | 7,362 | | | | 7,362 | | | | 6,770 | | | | 6,770 | |
| Receivable from related party | | | 9 | | | | — | | | | — | | | | 74 | | | | 74 | | | | 89 | | | | 89 | |
| Lease receivable | | | 9 | | | | 1,110 | | | | 1,110 | | | | 1,019 | | | | 1,019 | | | | 1,099 | | | | 1,099 | |
| Loan to related entity | | | 9 | | | | — | | | | — | | | | 260 | | | | 260 | | | | 260 | | | | 260 | |
| Interest rate swap | | | 9 | | | | 132 | | | | 132 | | | | (161 | ) | | | (161 | ) | | | — | | | | — | |
| Bank overdraft | | | 16 | | | | (2,126 | ) | | | (2,126 | ) | | | — | | | | — | | | | (533 | ) | | | (533 | ) |
| Trade and other payables | | | 15 | | | | (12,479 | ) | | | (12,479 | ) | | | (8,067 | ) | | | (8,067 | ) | | | (11,530 | ) | | | (11,530 | ) |
| Other loan | | | 16 | | | | (73 | ) | | | (73 | ) | | | (20 | ) | | | (20 | ) | | | (343 | ) | | | (343 | ) |
| Finance lease liabilities | | | 16 | | | | (2,452 | ) | | | (2,452 | ) | | | (3,208 | ) | | | (3,208 | ) | | | (2,623 | ) | | | (2,623 | ) |
| Bank loans | | | 16 | | | | (18,838 | ) | | | (18,838 | ) | | | (9,064 | ) | | | (9,064 | ) | | | — | | | | — | |
| Commercial bills | | | 16 | | | | (5,092 | ) | | | (5,092 | ) | | | (15,239 | ) | | | (15,239 | ) | | | (14,489 | ) | | | (14,489 | ) |
| Forward exchange contracts | | | 15 | | | | (30 | ) | | | (30 | ) | | | — | | | | — | | | | — | | | | — | |
| Non-convertible notes | | | 16 | | | | (10,898 | ) | | | (10,898 | ) | | | — | | | | — | | | | — | | | | — | |
| B class notes | | | 16 | | | | (6,654 | ) | | | (6,654 | ) | | | (5,422 | ) | | | (5,422 | ) | | | (4,051 | ) | | | (4,051 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | (46,884 | ) | | | (46,884 | ) | | | (31,771 | ) | | | (31,771 | ) | | | (25,348 | ) | | | (25,348 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table.
Derivatives
Forward exchange contracts and options are marked to market by discounting the contractual forward price and deducting the current spot rate. For interest rate swaps broker quotes are used. Those quotes are back tested using pricing models or discounted cash flow techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date.
F-55
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at interest rates implicit in the relevant lease agreements. These implicit interest rates are in line with current market rates.
Trade and other receivables/payables
For receivables / payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables / payables are discounted to determine the fair value.
Interest rates used for determining fair value
The entity uses the government yield curve as of 30 June 2006 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:
| | | | | | | |
| | | 30 June
| | 30 June
| | 31 December
|
| | | 2006 | | 2005 | | 2004 |
| |
| Derivatives | | 6.0% | | 6.0% | | N/A |
| Loans and borrowings | | 4.2% - 15.0% | | 3.8% - 15.0% | | 3.8% - 15.0% |
| Leases | | 9.0% | | 9.2% | | 9.2% |
| Receivables | | 18.1% | | 18.1% | | 18.1% |
Leases as lessee
The consolidated entity leases various office equipment and other facilities under operating leases. The leases have an average period of between one and four years, some with an option to renew the lease after that period. None of the leases includes contingent rentals. There are no restrictions placed upon the lessee by entering into these leases.
During the financial year ended 30 June 2006, $1,174,000 was recognised as an expense in the income statement in respect of operating leases (2005 (restated): $464,000, 2004 (restated): $793,000)
Non-cancellable operating lease rentals are payable as follows:
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Less than one year | | | 2,602 | | | | 2,323 | | | | 2,549 | |
| Between one and five years | | | 2,576 | | | | 1,725 | | | | 2,004 | |
| More than five years | | | 452 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | 5,630 | | | | 4,048 | | | | 4,553 | |
| | | | | | | | | | | | | |
F-56
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Leases as lessor
The consolidated entity leases containers on a daily basis in the ordinary course of business. These leases can vary in length from a minimum hire period of 30 days to up to five years and longer.
These non-cancellable operating leases have maturities of between 1 and 2 years. All leases include a clause to enable upward revision of the rental charge.
The consolidated entity has no other lessor relationships apart from those relating the rental of containers.
The future minimum lease payments under non-cancellable leases are as follows:
| | | | | | | | | | | | | |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006 | | | 2005 | | | 2004 | |
| | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Less than one year | | | 493 | | | | 165 | | | | 52 | |
| Between one and five years | | | 917 | | | | 1 | | | | — | |
| More than five years | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | 1,410 | | | | 166 | | | | 52 | |
| | | | | | | | | | | | | |
During the financial year ended 30 June 2006, $21,290,000 was recognised as income from the hire of containers in the income statement in respect of operating leases (2005: $9,339,000, 2004: $16,756,000).
| |
22. | Capital and other commitments |
There were no other commitments or contingencies of the consolidated entity for capital or otherwise not already disclosed elsewhere in the financial statements.
| |
23. | Consolidated entities |
| | | | | | | | | | | | | | | | | |
| | | | | | County of
| | | Ownership Interest | |
Subsidiaries | | Note | | | Incorporation | | | 2006 | | | 2004 - 2005 | |
| |
| Royal Wolf Trading Australia Pty Limited | | | | | | | Australia | | | | 100 | % | | | 100 | % |
| Royal Wolf Hi-Tech Pty Limited | | | 24 | | | | Australia | | | | 100 | % | | | 50 | % |
RWA Holdings Pty Limited is the ultimate Australian parent entity and ultimate parent entity of the consolidated entity.
| |
24. | Acquisitions of subsidiaries |
During the year the consolidated entity acquired the following businesses:
| | |
| • | Royal Wolf Hi-Tech Pty Limited |
|
| • | Australian Container Network Pty Ltd |
|
| • | Cape Containers Pty Limited |
On 30 March 2006, the consolidated entity acquired the remaining 50% of the shares in Royal Wolf Hi-Tech Pty Limited which it did not already own for $839,000 satisfied in cash. The company sells, hires and modifies containers. In the three months to 30 June 2006 the subsidiary contributed net loss of $26,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $69,563,000 (unaudited) and net loss would have been $409,000 (unaudited). The consolidated entity previously
F-57
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
acquired the initial 50% shares in Royal Wolf Hi-Tech Pty Limited. Goodwill of $132,000 has been recognised in respect of this initial acquisition.
On 16 December 2005, the consolidated entity acquired the business and assets of Cape Containers Pty Limited for $820,000 satisfied in cash. The company sells, and hires shipping containers. In the six months to 30 June 2006 the subsidiary contributed net profit of $92,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $67,962,000 (unaudited) and net loss would have been $264,000 (unaudited).
On 28 April 2006, the consolidated entity acquired the business and assets of Australian Container Network Pty Ltd for $5.5 million, of which $4.9 million was satisfied in cash. The consolidated entity has recognised a provision for the $0.6 million deferred consideration extending to August 2007. The company sells and hires containers. In the two months to 30 June 2006 the subsidiary contributed net profit of $67,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $71,222,000 (unaudited) and net profit would have been $4,000 (unaudited).
The acquisitions had the following effect on the consolidated entity’s assets and liabilities.
Acquiree’s net assets at the acquisition date
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Royal Wolf Hi-Tech | | | Australian Container Network | | | Cape Containers | |
| | | | | | | | | Fair
| | | | | | | | | Fair
| | | | | | | | | Fair
| | | | |
| | | | | | Recog-
| | | Value
| | | | | | Recog-
| | | Value
| | | | | | Recog-
| | | value
| | | | |
| | | | | | nised
| | | Adjust-
| | | Carrying
| | | nised
| | | Adjust-
| | | Carrying
| | | nised
| | | Adjust-
| | | Carrying
| |
| | | Note | | | Values | | | ments | | | Amounts | | | Values | | | ments | | | Amounts | | | Values | | | ments | | | Amounts | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Property, plant and equipment | | | | | | | 129 | | | | 31 | | | | 98 | | | | 195 | | | | 23 | | | | 172 | | | | 2 | | | | — | | | | 2 | |
| Container hire fleet | | | | | | | 1,768 | | | | 742 | | | | 1,026 | | | | 4,416 | | | | 2,707 | | | | 1,709 | | | | 645 | | | | 169 | | | | 476 | |
| Inventories | | | | | | | 105 | | | | 31 | | | | 74 | | | | 555 | | | | 169 | | | | 386 | | | | — | | | | — | | | | — | |
| Trade and other receivables | | | | | | | 232 | | | | — | | | | 232 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Cash and cash equivalents | | | | | | | 100 | | | | — | | | | 100 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Interest-bearing loans and borrowings | | | | | | | (501 | ) | | | — | | | | (501 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Deferred tax liability | | | | | | | (241 | ) | | | (241 | ) | | | — | | | | (870 | ) | | | (870 | ) | | | — | | | | (51 | ) | | | (51 | ) | | | — | |
| Trade and other payables | | | | | | | (243 | ) | | | — | | | | (243 | ) | | | — | | | | — | | | | — | | | | (18 | ) | | | — | | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net identifiable assets and liabilities | | | | | | | 1,349 | | | | 563 | | | | 786 | | | | 4,296 | | | | 2,029 | | | | 2,267 | | | | 578 | | | | 118 | | | | 460 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill on acquisitions | | | 14 | | | | 298 | | | | | | | | | | | | 1,209 | | | | | | | | | | | | 242 | | | | | | | | | |
| Consideration paid, satisfied in cash* | | | | | | | 839 | | | | | | | | | | | | 4,931 | | | | | | | | | | | | 820 | | | | | | | | | |
| Deferred consideration accrued | | | | | | | — | | | | | | | | | | | | 574 | | | | | | | | | | | | — | | | | | | | | | |
| Cash (acquired) | | | | | | | (100 | ) | | | | | | | | | | | — | | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash outflow | | | | | | | 739 | | | | | | | | | | | | 4,931 | | | | | | | | | | | | 820 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
* | | Includes legal fees amounting to $105,000 |
F-58
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Goodwill has arisen on the acquisitions because of customer relationships that did not meet the criteria for recognition as an intangible asset at the date of acquisition.
| |
25. | Reconciliation of cash flows from operating activities |
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | | | | 2006
| | | 2005
| | | 2004
| |
| | | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Cash flows from operating activities | | | | | | | | | | | | | | | | |
| Profit/(loss) for the period | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
Adjustments for: | | | | | | | | | | | | | | | | |
| Gain on sale of property, plant and equipment | | | | | | | (28 | ) | | | (17 | ) | | | (28 | ) |
| Foreign exchange (gain) / loss | | | | | | | (50 | ) | | | (325 | ) | | | 390 | |
| Unrealised loss on forward exchange contracts | | | | | | | 30 | | | | — | | | | — | |
| Unrealised gain on interest rate swap | | | | | | | (293 | ) | | | — | | | | — | |
| Depreciation and amortisation | | | | | | | 4,480 | | | | 2,041 | | | | 3,943 | |
| Share of associates net profit | | | | | | | — | | | | (172 | ) | | | (92 | ) |
| Investment income | | | | | | | (209 | ) | | | (104 | ) | | | (118 | ) |
| Interest expense | | | | | | | 4,034 | | | | 1,457 | | | | 3,252 | |
| Income tax (benefit) / expense | | | | | | | (525 | ) | | | (30 | ) | | | (4 | ) |
| Cash settled share based payment expenses | | | | | | | 203 | | | | 72 | | | | 36 | |
| | | | | | | | | | | | | | | | | |
Operating profit before changes in working capital and provisions | | | | | | | 7,311 | | | | 2,709 | | | | 7,858 | |
| (Increase) / decrease in trade and other receivables | | | | | | | (2,377 | ) | | | (592 | ) | | | (1,325 | ) |
| (Increase) / decrease in inventories | | | | | | | 6,611 | | | | (452 | ) | | | 3,910 | |
| Increase / (decrease) in trade and other payables | | | | | | | 4,412 | | | | 1,963 | | | | (3,747 | ) |
| Increase / (decrease) in provisions and employee benefits | | | | | | | 1,075 | | | | 276 | | | | 44 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | 17,032 | | | | 3,904 | | | | 6,740 | |
| Interest (paid)/received | | | | | | | (3,041 | ) | | | (1,270 | ) | | | (1,721 | ) |
| Income taxes paid | | | | | | | — | | | | (759 | ) | | | 781 | |
| | | | | | | | | | | | | | | | | |
Net cash from operating activities | | | | | | | 13,991 | | | | 1,875 | | | | 5,800 | |
| | | | | | | | | | | | | | | | | |
Transactions with key management personnel
No director has entered into a material contract with the Company or the consolidated entity and there were no material contracts involving directors’ interests.
In addition to their salaries, the consolidated entity also provides non-cash benefits to key management personnel. Executive directors also participate in the consolidated entity’s share option plan (refer Note 17).
F-59
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
Key management personnel compensation
The key management personnel compensations included in “employee benefits expense” in the income statements are as follows:
| | | | | | | | | | | | | |
| | | Restated
| | | Restated
| | | Restated
| |
| | | 30 June
| | | 30 June
| | | 31 December
| |
| | | 2006
| | | 2005
| | | 2004
| |
| | | 12 Months | | | 6 Months | | | 12 Months | |
| | | A$ | | | A$ | | | A$ | |
| |
| Short-term employee benefits | | | 1,613,765 | | | | 932,509 | | | | 1,342,148 | |
| Other long term benefits | | | — | | | | — | | | | — | |
| Post-employment benefits | | | 175,040 | | | | 98,820 | | | | 148,107 | |
| Termination benefits | | | — | | | | — | | | | — | |
| Share based payment | | | 92,675 | | | | 31,243 | | | | 17,643 | |
| | | | | | | | | | | | | |
| | | | 1,881,480 | | | | 1,062,572 | | | | 1,507,898 | |
| | | | | | | | | | | | | |
Non-key management personnel disclosures
Identity of related parties
The Consolidated entity has a related party relationship with its associates (see note 11), and with its key management personnel.
Associates
During the financial year ended 30 June 2005, associates purchased goods from the consolidated entity in the amount of $549,852 and sold goods to the consolidated entity in the amount of $4,576 and at 30 June 2005 associates owed the consolidated entity $334,021. Transactions with associates are priced on an arm’s length basis. During the financial year ended 30 June 2006, the consolidated entity repaid a loan of $260,000 received from one of its associates. No dividends were received from associates in the 2006 or 2005 financial year.
Other related parties
Key management personnel related parties
A number of key management persons of the Company, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of these entities.
A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with the other related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.
The aggregate amounts recognised during the year relating to other related parties were as follows:
| | | | | | | | | | | | | | | | | | | |
Key Management Person
| | | | | | | 30 June
| | | 30 June
| | | 31 December
| |
Related Party | | Transaction | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | | A$ | | | A$ | | | A$ | |
| |
| RW Logistic Pty Limited | | Sales revenue | | | (i | ) | | | — | | | | 45,191 | | | | 3,195,014 | |
| RW Logistic Pty Limited | | Inventory purchases | | | (i | ) | | | — | | | | 2,142,536 | | | | 1,311,593 | |
| | |
(i) | | While the Company itself has no interest in RW Logistic Pty Limited, this entity is related through common shareholders and directorships |
F-60
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
27. | Reconciliation to U.S. GAAP |
The Group’s consolidated financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs) for the periods ended 30 June 2006, 30 June 2005 and 31 December 2004, which, as applied by the Group, differ in certain material respects from accounting standards generally accepted in the United States of America (U.S. GAAP). The effects of the application of U.S. GAAP to net profit and shareholders’ equity are set out in the tables below:
RECONCILIATION OF NET PROFIT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | 30 June
| | | 30 June
| | | 31 Dec
| |
| | | | | | 2006
| | | 2005
| | | 2004
| |
| | | Note | | | 12 Months | | | 6 Months | | | 12 Month | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Net profit / (loss) after tax as reported in the audited financial statements under AIFRS (restated) | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| Write-off of development costs | | | 1 | | | | (304 | ) | | | — | | | | — | |
| Share based payment expense | | | 3 | | | | (47 | ) | | | (16 | ) | | | (94 | ) |
Step-up on acquisition | | | 4 | | | | 19 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net loss according to US GAAP before tax impact of adjustments | | | | | | | (663 | ) | | | (229 | ) | | | 385 | |
| Tax effect on US GAAP adjustment | | | 2 | | | | 91 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net income/(loss) under US GAAP | | | | | | | (572 | ) | | | (229 | ) | | | 385 | |
| | | | | | | | | | | | | | | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | 30 June
| | | 30 June
| | | 31 Dec
| |
| | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Total equity under AIFRS (restated) | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
| Writeoff of development costs | | | 1 | | | | (304 | ) | | | — | | | | — | |
| Tax effect on US GAAP adjustment | | | 2 | | | | 91 | | | | — | | | | — | |
| Share based payments expense | | | 3 | | | | (157 | ) | | | (110 | ) | | | (94 | ) |
Step-up on acquisition | | | 4 | | | | (325 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Shareholders’ equity under U.S. GAAP | | | | | | | 4,134 | | | | 4,706 | | | | 4,057 | |
| | | | | | | | | | | | | | | | | |
F-61
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 30 JUNE 2006 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 46,097 | | | | — | | | | 46,097 | |
| Hire of containers | | | | | | | 21,290 | | | | — | | | | 21,290 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 67,387 | | | | — | | | | 67,387 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | | | | | 35 | | | | — | | | | 35 | |
| Changes in inventories of finished goods and WIP | | | | | | | (3,475 | ) | | | — | | | | (3,475 | ) |
| Purchases of finished goods and consumables used | | | 4 | | | | (40,243 | ) | | | 9 | | | | (40,234 | ) |
| Employee benefits expense | | | 3 | | | | (10,157 | ) | | | (47 | ) | | | (10,204 | ) |
| Depreciation and amortisation expense | | | 4 | | | | (4,480 | ) | | | 912 | | | | (3,568 | ) |
| Other expenses | | | 1 | | | | (6,411 | ) | | | (304 | ) | | | (6,715 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 2,656 | | | | 570 | | | | 3,226 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | | | | | 552 | | | | — | | | | 552 | |
| Financial expenses | | | | | | | (4,064 | ) | | | — | | | | (4,064 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,512 | ) | | | — | | | | (3,512 | ) |
| | | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (856 | ) | | | 570 | | | | (286 | ) |
| | | | | | | | | | | | | | | | | |
| Income tax benefit/(expense) | | | 2,4 | | | | 525 | | | | (811 | ) | | | (286 | ) |
| | | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (331 | ) | | | (241 | ) | | | (572 | ) |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (331 | ) | | | (241 | ) | | | (572 | ) |
| | | | | | | | | | | | | | | | | |
F-62
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 30 JUNE 2005 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 17,534 | | | | — | | | | 17,534 | |
| Hire of containers | | | | | | | 9,339 | | | | — | | | | 9,339 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 26,873 | | | | — | | | | 26,873 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | | | | | 18 | | | | — | | | | 18 | |
| Changes in inventories of finished goods and WIP | | | | | | | (1,936 | ) | | | — | | | | (1,936 | ) |
| Purchases of finished goods and consumables used | | | | | | | (14,687 | ) | | | — | | | | (14,687 | ) |
| Employee benefits expense | | | 3 | | | | (4,794 | ) | | | (16 | ) | | | (4,810 | ) |
| Depreciation and amortisation expense | | | | | | | (2,041 | ) | | | 127 | | | | (1,914 | ) |
| Other expenses | | | | | | | (2,820 | ) | | | — | | | | (2,820 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 613 | | | | 111 | | | | 724 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | | | | | 429 | | | | — | | | | 429 | |
| Financial expenses | | | | | | | (1,457 | ) | | | — | | | | (1,457 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (1,028 | ) | | | — | | | | (1,028 | ) |
| | | | | | | | | | | | | | | | | |
| Share of profit of associate | | | | | | | 172 | | | | — | | | | 172 | |
| | | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (243 | ) | | | 111 | | | | (132 | ) |
| Income tax benefit/(expense) | | | | | | | 30 | | | | (127 | ) | | | (97 | ) |
| | | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (213 | ) | | | (16 | ) | | | (229 | ) |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | (213 | ) | | | (16 | ) | | | (229 | ) |
| | | | | | | | | | | | | | | | | |
F-63
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 31 DECEMBER 2004 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
| Revenue | | | | | | | | | | | | | | | | |
| Sale and modification of containers | | | | | | | 35,463 | | | | — | | | | 35,463 | |
| Hire of containers | | | | | | | 16,756 | | | | — | | | | 16,756 | |
| | | | | | | | | | | | | | | | | |
| Total revenue | | | | | | | 52,219 | | | | — | | | | 52,219 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | | | | | 31 | | | | — | | | | 31 | |
| Changes in inventories of finished goods and WIP | | | | | | | 1,740 | | | | — | | | | 1,740 | |
| Purchases of finished goods and consumables used | | | | | | | (34,437 | ) | | | — | | | | (34,437 | ) |
| Employee benefits expense | | | 3 | | | | (7,525 | ) | | | (94 | ) | | | (7,619 | ) |
| Depreciation and amortisation expense | | | | | | | (3,943 | ) | | | 547 | | | | (3,396 | ) |
| Other expenses | | | | | | | (4,568 | ) | | | — | | | | (4,568 | ) |
| | | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 3,517 | | | | 453 | | | | 3,970 | |
| | | | | | | | | | | | | | | | | |
| Financial income | | | | | | | 118 | | | | — | | | | 118 | |
| Financial expenses | | | | | | | (3,252 | ) | | | — | | | | (3,252 | ) |
| | | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,134 | ) | | | — | | | | (3,134 | ) |
| | | | | | | | | | | | | | | | | |
| Share of profit of associate | | | | | | | 92 | | | | — | | | | 92 | |
| | | | | | | | | | | | | | | | | |
Profit before tax | | | | | | | 475 | | | | 453 | | | | 928 | |
| Income tax benefit | | | 7 | | | | 4 | | | | (547 | ) | | | (543 | ) |
| | | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
| Equity holders of the parent | | | | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | | |
F-64
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 30 JUNE 2006 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | 777 | | | | — | | | | 777 | |
| Trade and other receivables | | | | | | | 10,206 | | | | — | | | | 10,206 | |
| Inventories | | | 4 | | | | 7,498 | | | | (20 | ) | | | 7,478 | |
| | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 18,481 | | | | (20 | ) | | | 18,461 | |
| | | | | | | | | | | | | | | | | |
| Receivables | | | | | | | 775 | | | | — | | | | 775 | |
| Property, plant and equipment | | | 4 | | | | 3,599 | | | | (19 | ) | | | 3,580 | |
| Container hire fleet | | | 4 | | | | 38,491 | | | | (451 | ) | | | 38,040 | |
| Intangible assets | | | 1,6 | | | | 5,060 | | | | (304 | ) | | | 4,756 | |
| | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 47,925 | | | | (774 | ) | | | 47,151 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 66,406 | | | | (794 | ) | | | 65,612 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| Trade and other payables | | | | | | | 12,509 | | | | — | | | | 12,509 | �� |
| Interest-bearing loans and borrowings | | | | | | | 8,939 | | | | — | | | | 8,939 | |
| Employee benefits | | | | | | | 962 | | | | — | | | | 962 | |
| Provisions | | | | | | | 300 | | | | — | | | | 300 | |
| | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 22,710 | | | | — | | | | 22,710 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 37,194 | | | | — | | | | 37,194 | |
| Deferred tax liabilities | | | 4 | | | | 824 | | | | (256 | ) | | | 568 | |
| Employee benefits | | | 3 | | | | 567 | | | | 157 | | | | 724 | |
| Provisions | | | | | | | 282 | | | | — | | | | 282 | |
| | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 38,867 | | | | (99 | ) | | | 38,768 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 61,577 | | | | (99 | ) | | | 61,478 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,829 | | | | (695 | ) | | | 4,134 | |
| | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
| Issued capital | | | | | | | 4,550 | | | | | | | | 4,550 | |
| Accumulated losses | | | 1-4,6 | | | | (65 | ) | | | (351 | ) | | | (416 | ) |
| Reserves | | | 4 | | | | 344 | | | | (344 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,829 | | | | (695 | ) | | | 4,134 | |
| | | | | | | | | | | | | | | | | |
F-65
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 30 JUNE 2005 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | 695 | | | | — | | | | 695 | |
| Trade and other receivables | | | | | | | 7,876 | | | | — | | | | 7,876 | |
| Inventories | | | | | | | 4,023 | | | | — | | | | 4,023 | |
| | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 12,594 | | | | — | | | | 12,594 | |
| | | | | | | | | | | | | | | | | |
| Receivables | | | | | | | 839 | | | | — | | | | 839 | |
| Investments accounted for using the equity method | | | | | | | 427 | | | | — | | | | 427 | |
| Property, plant and equipment | | | | | | | 3,306 | | | | — | | | | 3,306 | |
| Container hire fleet | | | | | | | 25,779 | | | | — | | | | 25,779 | |
| Intangible assets | | | 6 | | | | 4,207 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 34,558 | | | | — | | | | 34,558 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 47,152 | | | | — | | | | 47,152 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| Trade and other payables | | | | | | | 8,228 | | | | — | | | | 8,228 | |
| Interest-bearing loans and borrowings | | | | | | | 2,778 | | | | — | | | | 2,778 | |
| Employee benefits | | | | | | | 801 | | | | — | | | | 801 | |
| | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 11,807 | | | | — | | | | 11,807 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 30,175 | | | | — | | | | 30,175 | |
| Deferred tax liabilities | | | | | | | 119 | | | | — | | | | 119 | |
| Employee benefits | | | 3 | | | | 227 | | | | 110 | | | | 337 | |
| Provisions | | | | | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 30,529 | | | | 110 | | | | 30,639 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 42,336 | | | | 110 | | | | 42,446 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,816 | | | | (110 | ) | | | 4,706 | |
| | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
| Issued capital | | | | | | | 4,550 | | | | — | | | | 4,550 | |
| Retained profits | | | 3,6 | | | | 266 | | | | (110 | ) | | | 156 | |
| | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,816 | | | | (110 | ) | | | 4,706 | |
| | | | | | | | | | | | | | | | | |
F-66
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
RECONCILIATION OF 31 DECEMBER 2004 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$’000 | | | A$’000 | | | A$’000 | |
| |
Assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | 3 | | | | — | | | | 3 | |
| Trade and other receivables | | | | | | | 7,024 | | | | — | | | | 7,024 | |
| Inventories | | | | | | | 2,140 | | | | — | | | | 2,140 | |
| | | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 9,167 | | | | — | | | | 9,167 | |
| | | | | | | | | | | | | | | | | |
| Receivables | | | | | | | 1,194 | | | | — | | | | 1,194 | |
| Investments accounted for using the equity method | | | | | | | 255 | | | | — | | | | 255 | |
| Property, plant and equipment | | | | | | | 1,812 | | | | — | | | | 1,812 | |
| Container hire fleet | | | | | | | 22,447 | | | | — | | | | 22,447 | |
| Intangible assets | | | 6 | | | | 4,515 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 30,223 | | | | — | | | | 30,223 | |
| | | | | | | | | | | | | | | | | |
Total assets | | | | | | | 39,390 | | | | — | | | | 39,390 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| Trade and other payables | | | | | | | 11,530 | | | | — | | | | 11,530 | |
| Interest-bearing loans and borrowings | | | | | | | 1,425 | | | | — | | | | 1,425 | |
| Current tax liability | | | | | | | 791 | | | | — | | | | 791 | |
| Employee benefits | | | | | | | 444 | | | | — | | | | 444 | |
| | | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 14,190 | | | | — | | | | 14,190 | |
| | | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
| Interest bearing loans and borrowings | | | | | | | 20,614 | | | | — | | | | 20,614 | |
| Deferred tax liabilities | | | | | | | 119 | | | | — | | | | 119 | |
| Employee benefits | | | 3 | | | | 308 | | | | 94 | | | | 402 | |
| Provisions | | | | | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 21,049 | | | | 94 | | | | 21,143 | |
| | | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 35,239 | | | | 94 | | | | 35,333 | |
| | | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,151 | | | | (94 | ) | | | 4,057 | |
| | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
| Issued capital | | | | | | | 3,672 | | | | — | | | | 3,672 | |
| Retained earnings | | | 3,6 | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,151 | | | | (94 | ) | | | 4,057 | |
| | | | | | | | | | | | | | | | | |
F-67
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
1. | Development expenditure |
Under AIFRS, the group capitalises certain development expenditure as described in more detail in accounting policy note 1(h)(ii) to the consolidated financial statements. U.S. GAAP required such costs to be expensed as incurred.
Under U.S. GAAP research and development costs are expensed as incurred. Under AIFRS, certain development costs are capitalised. This increases other expenses presented in accordance with U.S. GAAP by $304,000 in the year ended 30 June 2006, and reduces the intangible assets at 30 June 2006 by the same amount.
| |
2. | Tax effect of U.S. GAAP adjustments |
This item represents the tax effect of the adjustments in Note 1 at the Australian corporation tax rate of 30%. This reduces the income tax benefit presented in accordance with U.S. GAAP in the year ended 30 June 2006 by $91,000, and increases deferred tax assets at 30��June 2006 by the same amount.
| |
3. | Share based payments expense |
AIFRSs grant a transitional exemption for the calculation of share based payments expense, in that compensation expense for shares and options that were granted between 1 January 2002 and 31 December 2004 that had vested by 1 January 2005 need not be recognised. The same exemption does not apply under U.S. GAAP, and accordingly an adjustment is required to calculate the fair value of the options that had vested prior to 1 January 2005. This has increased employee benefits expense presented in accordance with U.S. GAAP by $47,000 in the 12 months to 30 June 2006 (6 months to 30 June 2005 $16,000; 12 months to 31 December 2004 $94,000) and increased the employee benefit liability for cash settled share based payments by $157,000 at 30 June 2006 ( 30 June 2005 $110,000; 31 December 2004 $94,000). For further details on the employee share option plan and cash settled transactions, refer note 17. This adjustment has no tax impact.
Additional disclosures required by SFAS 123R are as follows: Liability at 30 June 2006 is $468,000; 30 June 2005 $218,000; 31 December 2004 $130,000. Compensation expense for the 12 months to 30 June 2006 $250,000; 6 months ended 30 June 2005 $88,000; 12 months to 31 December 2004 $130,000. Amount recognised for changes in fair value are $180,000 for twelve months to 30 June 2006; and $36,000 for six months to 30 June 2005.
The total compensation cost related to non vested awards not yet recognised is $63,000 and this will be recognised over a period of 1.2 years.
| |
4. | Step acquisition of Royal Wolf Hi-Tech |
Under AIFRS, in accounting for the step acquisition of a controlling interest in an entity which was formerly treated as an associate and equity accounted, the assets and liabilities acquired are adjusted to fair value at the date control is obtained and the entity is consolidated. This gives rise to an asset revaluation reserve equating to the increase in fair value of net assets held from the original acquisition date to the date control is obtained. Under U.S. GAAP, the accounting for such a step acquisition requires a fair value adjustment for the relevant proportion of the net assets acquired to achieve control (in this case 50%) to be recognised. The resulting adjustment to conform with U.S. GAAP reduces the net assets acquired by $378,000 at 30 March 2006 and reduces the revaluation reserve recorded under AIFRS to nil. At 30 June 2006, net assets are reduced by $325,000, being a reduction in container assets of $451,000, a reduction in plant and equipment of $19,000, a reduction in inventory of $20,000, a reduction in asset revaluation reserve of $344,000 and a reduction in deferred tax liability of $165,000.
Net profit for the 12 months ended 30 June 2006 is increased by $19,000, as a result of reduced depreciation of $5,000 a reduction in the taxation charge of $5,000 and reduction in cost of goods sold of $9,000.
F-68
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements — (Continued)
| |
5. | Reconciliation of cash flows |
Under AIFRS bank overdrafts are classified as cash and cash equivalents (see Note 8). Under US GAAP bank overdrafts are not classified as cash and cash equivalents for the purposes of statement of cash flows. Movements in bank overdrafts are classified for US GAAP purposes as financing cash flows. For U.S. GAAP purposes, cash balances are $777,000 at 30 June 2006, $695,000 at 30 June 2005, and $3,000 at 31 December 2004. Under U.S. GAAP financing cash flows are an inflow of $11,990,000 for the year ending 30 June 2006, $11,876,000 for the six months ending 30 June 2005 and $5,550,000 for the year ending 31 December 2004. Further, due to the fact that development costs are expensed for U.S. GAAP but capitalised for AIFRS, an adjustment of $304,000 is made to reduce operating cash inflows to $13,687,000 and increase investing cash outflows to $26,203,000 for the year ending 30 June 2006.
| |
6. | Utilisation of deferred tax assets not recognised in a prior business combination |
Under AIFRS, the recognition of a benefit arising from deferred tax assets and losses not recognised at the time of a business combination requires a credit to income tax expense and associated charge to goodwill amortisation. Under USGAAP, the credit recognised is adjusted against goodwill directly.
| |
28. | Subsequent eventsSUBSEQUENT EVENT |
On 12 September 2006February 1, 2008, the current shareholdersCompany entered into a Share Sale Deed with General Finance Corporation (GFC), a US based company with no substantial operations, for the sale of all of the issued capital of the company. There are certain conditions precedent that need to be satisfied before the transaction can complete. It is anticipated that the transaction will complete during the first quarter of calendar year 2007.
The aggregate considerationan asset purchase agreement for the acquisition is USD$87.4 million, which is subject to adjustment relating to the levels of the consolidated entity’s working capital, net tangible assetsrental fleet and container rental equipment, and outstanding obligations under a certain container lease program, as well as the costs and expenses incurred by the consolidated entity in connection with any acquisitions completed prior to the closing.accounts receivable of an unrelated third party. The aggregate consideration will increase by USD$570,000 if the preliminary proxy statement has not been cleared by the U.S. Securities and Exchange Commission (SEC) by January 17, 2007 and by an additional USD$570,000 if clearance has not been obtained by February 17, 2007.purchase price was approximately $3,872,000.
Of the aggregate consideration, the acquirer will pay the shareholders of the company at the closing cash in the amount of USD$83.6 million, as adjusted by the consideration adjustments, less the net debt of the consolidated entity as of the closing of the acquisition and increased if the proxy statement has not been cleared by the SEC by certain dates. The remaining USD$3.8 million of consideration will consist of USD$1.5 million of shares of common stock in GFC and a total of USD$2.3 million payable in cash in two equal instalments following the closing for a non-compete covenant from the company’s shareholders.
F-69F-13
INDEPENDENT AUDITORS’ REPORTIndependent Auditors’ Report
The Board of Directors and Stockholders
Royal Wolf Trading Australia Pty LimitedPac-Van, Inc.
We have audited the accompanying statementbalance sheets of financial position of Royal Wolf Trading Australia Pty Limited (the Company)Pac-Van, Inc. as of August 1, 2006 and December 31, 2003,2005, and the related statements of financial performanceincome, stockholders’ equity and cash flows for the seven-month period from January 1, 2006 to August 1, 2006 and for the year then ended all expressed in Australian dollars.December 31, 2005. 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 audit.audits.
We conducted our auditaudits in accordance with auditing standards generally accepted in Australia and the United States of America.States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,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 audit providesaudits 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 Royal Wolf Trading Australia Pty LimitedPac-Van, Inc. as of August 1, 2006 and December 31, 2003,2005, and the results of its operations and its cash flows for the seven-month period from January 1, 2006 to August 1, 2006 and for the year then ended December 31, 2005, in conformity with generally accepted accounting principles in Australia to the extent set out in note 1 to the financial statements.
Accounting principles generally accepted in Australia vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 25 to the financial statements.States.
As discussed in note 24, the accompanying financial statements as at December 31, 2003 and for the year ended December 31, 2003 have been restated.
/s/ Katz, Sapper & Miller, LLP
/s/ KPMGIndianapolis, Indiana
Sydney, Australia
October 20, 2006November 15, 2007
F-70F-14
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDPAC-VAN, INC.
BALANCE SHEETS
August 1, 2006 and December 31, 2005
A.B.N. 38 069 244 417
FOR THE YEAR ENDED 31 DECEMBER 2003
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | AUD $ | |
| |
| Revenues from sale and rental of goods | | | | | | | 39,062,025 | |
| Other revenue | | | | | | | 4,579,061 | |
| | | | | | | | | |
| Total Revenue | | | 2 | | | | 43,641,086 | |
| Purchases of finished goods including movements in inventory | | | | | | | (14,977,167 | ) |
| Employee expenses | | | | | | | (6,270,525 | ) |
| Container repair costs | | | | | | | (3,742,995 | ) |
| Repositioning, transport and storage costs | | | | | | | (3,170,501 | ) |
| Leasing expenses | | | | | | | (1,722,047 | ) |
| Borrowing costs | | | 3 | | | | (2,198,074 | ) |
| Depreciation and amortisation expenses | | | 3 | | | | (2,468,571 | ) |
| CSC yard costs | | | | | | | (1,189,385 | ) |
| Office rent, supplies and training costs | | | | | | | (794,518 | ) |
| Travel expenses | | | | | | | (505,581 | ) |
| Advertising expenses | | | | | | | (514,834 | ) |
| Communication expenses | | | | | | | (388,456 | ) |
| Professional fees | | | | | | | (334,671 | ) |
| Data processing expenses | | | | | | | (350,429 | ) |
| Other expenses from ordinary activities | | | | | | | (522,016 | ) |
| Correction of fundamental errors | | | 24 | | | | (1,634,440 | ) |
| Share of net profits of investment accounted for using the equity method | | | 11 | | | | 66,500 | |
| | | | | | | | | |
Profit from ordinary activities before related income tax expense | | | | | | | 2,923,376 | |
| Income tax charge relating to ordinary activities | | | | | | | (1,085,932 | ) |
| Correction of income tax related fundamental errors | | | 24 | | | | 773,077 | |
| | | | | | | | | |
| Total income tax expense relating to ordinary activities | | | 5 | (a) | | | (312,855 | ) |
| | | | | | | | | |
Net profit | | | | | | | 2,610,521 | |
| | | | | | | | | |
| | | | | | | | | |
| | | August 1,
| | | December 31,
| |
| | | 2006 | | | 2005 | |
| |
ASSETS |
ASSETS | | | | | | | | |
| Cash | | $ | 301,395 | | | $ | 76,490 | |
| Accounts receivable, net of allowance for doubtful accounts of $750,000 at August 1, 2006 and $700,000 at December 31, 2005 | | | 9,123,466 | | | | 8,543,955 | |
| Net investment in sales-type leases | | | 346,878 | | | | 215,580 | |
| Rental inventory, net | | | 67,800,680 | | | | 59,114,953 | |
| Property and equipment, net | | | 1,410,160 | | | | 1,155,984 | |
| Other assets | | | 217,563 | | | | 277,862 | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 79,200,142 | | | $ | 69,384,824 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 4,906,502 | | | $ | 4,389,222 | |
| Accrued liabilities | | | 1,782,236 | | | | 1,786,095 | |
| Unearned revenue and advance payments | | | 5,242,676 | | | | 3,835,235 | |
| Senior bank debt | | | 36,062,500 | | | | 33,100,000 | |
| Derivative obligation | | | | | | | 6,180 | |
| Subordinated notes payable | | | 4,522,000 | | | | 4,522,000 | |
| Deferred income taxes | | | 9,718,142 | | | | 7,770,526 | |
| | | | | | | | | |
| Total Liabilities | | | 62,234,056 | | | | 55,409,258 | |
| | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
| Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding | | | | | | | | |
| Common stock, Series A, $0.01 par value; 9,500,000 shares authorized, 2,000,000 shares issued and outstanding | | | 20,000 | | | | 20,000 | |
| Common stock, Series B, $0.01 par value; 500,000 shares authorized, 231,525 shares issued and outstanding | | | 2,315 | | | | 2,315 | |
| Additional paid-in capital | | | 2,273,735 | | | | 2,273,735 | |
| Stock options outstanding | | | 360,000 | | | | 360,000 | |
| Retained earnings | | | 14,310,036 | | | | 11,322,842 | |
| Accumulated other comprehensive loss | | | | | | | (3,326 | ) |
| | | | | | | | | |
| Total Stockholders’ Equity | | | 16,966,086 | | | | 13,975,566 | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 79,200,142 | | | $ | 69,384,824 | |
| | | | | | | | | |
The statement of financial performance is to be read in conjunction with the notes to the financial statements set out on pages F-74 to F-92.See accompanying notes.
F-71F-15
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDPAC-VAN, INC.
STATEMENTS OF INCOME
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
A.B.N. 38 069 244 417
AS AT 31 DECEMBER 2003
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | AUD $ | |
| |
Current assets | | | | | | | | |
| Cash assets | | | 6 | | | | 1,788,171 | |
| Receivables | | | 7 | | | | 5,204,625 | |
| Inventories | | | 8 | | | | 3,879,561 | |
| Other | | | 9 | | | | 1,206,013 | |
| | | | | | | | | |
Total current assets | | | | | | | 12,078,370 | |
| | | | | | | | | |
Non-current assets | | | | | | | | |
| Property, plant & equipment | | | 10 | | | | 19,547,044 | |
| Deferred tax assets | | | 5 | (c) | | | 942,348 | |
| Investments accounted for using the equity method | | | 11 | | | | 162,500 | |
| Intangible assets | | | 12 | | | | 1,475,517 | |
| Other non current assets | | | 13 | | | | 710,849 | |
| | | | | | | | | |
Total non-current assets | | | | | | | 22,838,258 | |
| | | | | | | | | |
Total assets | | | | | | | 34,916,628 | |
| | | | | | | | | |
Current liabilities | | | | | | | | |
| Payables | | | 14 | | | | 9,850,866 | |
| Interest bearing liabilities | | | 15 | | | | 788,297 | |
| Current tax liabilities | | | | | | | 793,793 | |
| Provisions | | | 16 | | | | 582,051 | |
| | | | | | | | | |
Total current liabilities | | | | | | | 12,015,007 | |
| | | | | | | | | |
Non-current liabilities | | | | | | | | |
| Interest bearing liabilities | | | 15 | | | | 15,437,785 | |
| Deferred tax liabilities | | | 5 | (b) | | | 942,348 | |
| Provisions | | | 16 | | | | 133,522 | |
| | | | | | | | | |
Total non-current liabilities | | | | | | | 16,513,655 | |
| | | | | | | | | |
Total liabilities | | | | | | | 28,528,662 | |
| | | | | | | | | |
Net assets | | | | | | | 6,387,966 | |
| | | | | | | | | |
Equity | | | | | | | | |
| Contributed equity | | | 17 | | | | 6,035,409 | |
| Retained earnings | | | 18 | | | | 352,557 | |
| | | | | | | | | |
Total equity | | | | | | | 6,387,966 | |
| | | | | | | | | |
| | | | | | | | | |
| | | (Seven Months)
| | | | |
| | | 2006 | | | 2005 | |
| |
REVENUES | | | | | | | | |
| Leasing revenue | | $ | 22,270,519 | | | $ | 32,158,208 | |
| Sales of equipment and services | | | 11,052,995 | | | | 18,847,929 | |
| | | | | | | | | |
| Total Revenues | | | 33,323,514 | | | | 51,006,137 | |
| | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | |
| Cost of sales of equipment and services | | | 7,816,428 | | | | 13,831,804 | |
| Leasing, selling and general | | | 17,406,712 | | | | 26,893,859 | |
| Depreciation and amortization | | | 1,395,231 | | | | 2,374,005 | |
| | | | | | | | | |
| Total Costs and Expenses | | | 26,618,371 | | | | 43,099,668 | |
| | | | | | | | | |
| Income from Operations | | | 6,705,143 | | | | 7,906,469 | |
INTEREST EXPENSE | | | 1,760,688 | | | | 2,671,668 | |
| | | | | | | | | |
| Net Income before Provision for Income Taxes | | | 4,944,455 | | | | 5,234,801 | |
PROVISION FOR INCOME TAXES | | | 1,957,261 | | | | 2,079,585 | |
| | | | | | | | | |
NET INCOME | | $ | 2,987,194 | | | $ | 3,155,216 | |
| | | | | | | | | |
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages F-74 to F-92.See accompanying notes.
F-72F-16
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDPAC-VAN, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
A.B.N. 38 069 244 417
FOR THE YEAR ENDED 31 DECEMBER 2003
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | AUD $ | |
| |
Cash flows from operating activities | | | | | | | | |
| Cash receipts in the course of operations | | | | | | | 38,227,988 | |
| Cash payments in the course of operations | | | | | | | (25,430,781 | ) |
| Interest received | | | | | | | 36,774 | |
| Borrowing costs paid | | | | | | | (2,198,074 | ) |
| | | | | | | | | |
Net cash provided by operating activities | | | 21 | | | | 10,635,907 | |
| | | | | | | | | |
Cash flows from investing activities | | | | | | | | |
| Proceeds on disposal of non current assets | | | | | | | 87,227 | |
| Payments for property plant and equipment | | | | | | | (12,482,892 | ) |
| | | | | | | | | |
Net cash used in investing activities | | | | | | | (12,395,665 | ) |
| | | | | | | | | |
Cash flows from financing activities | | | | | | | | |
| Finance lease payments | | | | | | | (5,330,080 | ) |
| Loan and promissory note repayments | | | | | | | (5,995,202 | ) |
| Proceeds from new borrowings | | | | | | | 14,535,753 | |
| Loan establishment costs | | | | | | | (450,849 | ) |
| | | | | | | | | |
Net cash provided by financing activities | | | | | | | 2,759,622 | |
| | | | | | | | | |
Net increase in cash held | | | | | | | 999,864 | |
Cash at beginning of year | | | | | | | 788,307 | |
| | | | | | | | | |
Cash at end of year | | | 6 | | | | 1,788,171 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | Additional
| | | Stock
| | | | | | Other
| | | Total
| |
| | | Common Stock | | | Paid-in
| | | Options
| | | Retained
| | | Comprehensive
| | | Stockholders’
| |
| | | Series A | | | Series B | | | Capital | | | Outstanding | | | Earnings | | | Loss | | | Equity | |
| |
BALANCE AT DECEMBER 31, 2004 | | $ | 20,000 | | | $ | 2,315 | | | $ | 2,273,735 | | | $ | 360,000 | | | $ | 8,167,626 | | | $ | (96,000 | ) | | $ | 10,727,676 | |
| Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | 3,155,216 | | | | — | | | | 3,155,216 | |
| Reclassification adjustment for cash flow hedges, net of taxes of $61,146 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 92,674 | | | | 92,674 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Comprehensive Income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,247,890 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AT DECEMBER 31, 2005 | | | 20,000 | | | | 2,315 | | | | 2,273,735 | | | | 360,000 | | | | 11,322,842 | | | | (3,326 | ) | | | 13,975,566 | |
| Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | 2,987,194 | | | | — | | | | 2,987,194 | |
| Reclassification adjustment for cash flow hedges, net of taxes of $2,854 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,326 | | | | 3,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Comprehensive Income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,990,520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AT AUGUST 1, 2006 | | $ | 20,000 | | | $ | 2,315 | | | $ | 2,273,735 | | | $ | 360,000 | | | $ | 14,310,036 | | | $ | — | | | $ | 16,966,086 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages F-74 to F-92.See accompanying notes.
F-73F-17
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDPAC-VAN, INC.
STATEMENTS OF CASH FLOWS
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
| | | | | | | | | |
| | | (Seven Months)
| | | | |
| | | 2006 | | | 2005 | |
| |
OPERATING ACTIVITIES | | | | | | | | |
| Net income | | $ | 2,987,194 | | | $ | 3,155,216 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Deferred income taxes | | | 1,957,261 | | | | 2,079,585 | |
| Depreciation and amortization | | | 1,395,231 | | | | 2,374,005 | |
| (Increase) decrease in certain assets: | | | | | | | | |
| Accounts receivable | | | (579,511 | ) | | | (2,165,388 | ) |
| Net investment in sales-type leases | | | (131,298 | ) | | | 127,299 | |
| Other assets | | | 60,299 | | | | 8,118 | |
| Increase (decrease) in certain liabilities: | | | | | | | | |
| Accounts payable | | | 517,280 | | | | 1,445,811 | |
| Accrued liabilities | | | (3,859 | ) | | | 677,626 | |
| Unearned revenue and advance payments | | | 1,407,441 | | | | 861,018 | |
| | | | | | | | | |
| Net Cash Provided by Operating Activities | | | 7,610,038 | | | | 8,563,290 | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
| Purchases of rental inventory, net | | | (9,874,246 | ) | | | (7,192,441 | ) |
| Purchases of property and equipment | | | (473,387 | ) | | | (683,555 | ) |
| | | | | | | | | |
| Net Cash (Used) by Investing Activities | | | (10,347,633 | ) | | | (7,875,996 | ) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
| Payments of subordinated notes payable | | | | | | | (250,000 | ) |
| Net increase (decrease) in senior bank debt | | | 2,962,500 | | | | (400,000 | ) |
| | | | | | | | | |
| Net Cash Provided (Used) by Financing Activities | | | 2,962,500 | | | | (650,000 | ) |
| | | | | | | | | |
NET INCREASE IN CASH | | | 224,905 | | | | 37,294 | |
CASH | | | | | | | | |
| Beginning of Year | | | 76,490 | | | | 39,196 | |
| | | | | | | | | |
| End of Year | | $ | 301,395 | | | $ | 76,490 | |
| | | | | | | | | |
See accompanying notes.
F-18
A.B.N. 38 069 244 417PAC-VAN, INC.
FOR THE YEAR ENDED
| |
| NOTE 1 — | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Pac-Van, Inc. (the Company) leases and sells mobile offices, modular buildings and storage units to industrial, commercial, retail, and construction oriented customers. The Company operates in Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Missouri, Nevada, North Carolina, Ohio, Pennsylvania, Tennessee and West Virginia with corporate offices located in Indianapolis, Indiana.
Estimates: Management uses estimates and assumptions in preparing financial statements in conformity with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates that were used.
Rental Inventory and Other Long-lived Assets: Rental inventory consists of mobile offices, modular buildings, storage units and steps stated at the lower of cost or market. Mobile offices, modular buildings and storage containers are depreciated using the straight-line method over twenty years to a residual value of fifty percent of the original cost. Steps are depreciated using the straight-line method over 5 years with no residual value. Storage trailers are depreciated over fifteen years and ten years depending on the year of acquisition.
Vehicles, office equipment and leasehold improvements are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives ranging from 5 to 10 years of the respective assets.
Long-lived assets, including the Company’s rental inventory, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the related asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. To date, no adjustments to the carrying amount of long-lived assets have been required.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and dismantling rental equipment, as well as providing other ancillary products and services, and selling new and used equipment. Leasing revenue includes monthly rentals, initial lease services, ancillary products and services and end of lease services as earned. Leasing revenue is derived from leases classified as operating leases for which the initial term is generally 3 to 60 months. Costs associated with transportation, installation, and dismantling of rental equipment are recorded in leasing, selling and general expense. Unearned revenue includes end of lease services not yet performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units, steps including delivery and installation revenue, is generally recognized upon the delivery to and acceptance by the customer. Certain arrangements to sell units under long-term construction-type sales contracts are recognized under the percentage of completion method. Under this method, income is recognized in proportion to the incurred costs to date under the contract to estimated total costs. Sales of new units are typically covered by warranties provided by the manufacturer of products sold.
The Company recognized revenue of approximately $3,760,000 and cost of sales of approximately $2,450,000 for the period from January 1, 2006 to August 1, 2006, and revenue of approximately $3,860,000 and cost of sales of approximately $2,740,000 for the year ended December 31, DECEMBER 20032005 on the sale of rental units which were greater than one year old.
Accounts Receivable: The Company extends credit to its customers located throughout the United States. Accounts receivable are recorded at net realizable value based on management’s estimates of uncollectible accounts recorded in the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on historical collection experience and a review of specific past due receivables. The Company charges late fees on past due accounts. The Company recognized income for late payment fees of approximately $276,000 for the period from January 1, 2006 to August 1, 2006 and approximately $371,000 for the year ended December 31, 2005.
F-19
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417PAC-VAN, INC.
NOTES TO THEFINANCIAL STATEMENTS — (Continued)
Advertising Costsare expensed as incurred and totaled $258,000 for the period from January 1, 2006 to August 1, 2006 and $421,000 for the year ended December 31, 2005.
Shipping and Handling Costsare expensed as incurred and included in cost of rental services and cost of sales equipment and services in the statement of income.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and receivables under sales-type lease contracts. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. Receivables under sales-type lease contracts are secured by the leased mobile office, modular building or storage unit. A significant portion of the Company’s business activity is with companies in the construction and development industries. Total revenues from companies in the construction and development industries were approximately $15,490,000 for the period from January 1, 2006 to August 1, 2006 and $27,145,000 for the year ended December 31, 2005. As of August 1, 2006 and December 31, 2005, accounts receivable from companies in the construction and development industries were approximately $4,285,000 and $5,240,000, respectively.
Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.
Stock-Based Compensation: In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R),Share Based Payment,which requires companies to recognize the grant date fair value of stock options and other equity-based compensation issued to employees in its income statement. The Company adopted this statement effective January 1, 2006. The adoption did not have a material effect on the financial statements.
Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(“APB No. 25”). Compensation cost for stock options, if any, was measured as the excess of the fair value of the Company’s stock over the amount an employee must pay to acquire the stock at the measurement date, as determined based on the terms of the award.
Fair Value of Financial Instruments: Because of their short-term nature, the amounts reported in the balance sheet for cash, receivables and accounts payable approximate fair value. Long-term debt approximates fair value as borrowing rates fluctuate based on quoted market prices.
Derivative Financial Instruments: The Company periodically enters into derivative transactions to protect against risk of interest rate movement. The Company does not engage in speculative derivate transactions for trading purposes. The Company uses reputable financial institutions with high credit ratings as counterparties.
The Company had one interest rate swap agreement at December 31, 2005, which had a notional amount of $6,000,000 and expired on February 6, 2006. The Company paid a fixed rate of 4.70% and received a floating rate equal to the three-month LIBOR.
The Company recognizes all derivatives on the balance sheet at fair value. The Company assesses whether the derivatives used in hedging transactions have been effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Changes in the fair value of derivatives that are highly effective and qualify as a cash flow hedge are recorded in other comprehensive income or loss. When it is determined that a derivative is not highly effective as a hedge and the derivative remains outstanding, the Company will recognize changes in the fair value in the statement of income currently.
F-20
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
At August 1, 2006, the Company’s fair value of interest rate swaps was $0. At December 31, 2005, the Company’s fair value of interest rate swaps was a liability of $6,180. The fair value of these cash flow hedges is reflected in stockholders’ equity as accumulated comprehensive loss, net of income taxes of $2,854.
Rental inventory was comprised of the following:
| | | | | | | | | | | | | |
| | | August 1,
| | | December 31,
| | | | |
| | | 2006 | | | 2005 | | | | |
| |
| Mobile offices, modular buildings and storage units | | $ | 76,562,853 | | | $ | 67,624,270 | | | | | |
| Steps | | | 1,877,929 | | | | 1,442,733 | | | | | |
| | | | | | | | | | | | | |
| | | | 78,440,782 | | | | 69,067,003 | | | | | |
| Less: Accumulated depreciation | | | (10,640,102 | ) | | | (9,952,050 | ) | | | | |
| | | | | | | | | | | | | |
| Total Rental Inventory | | $ | 67,800,680 | | | $ | 59,144,953 | | | | | |
| | | | | | | | | | | | | |
| |
| NOTE 3 — | PROPERTY AND EQUIPMENT |
Property and equipment was comprised of the following:
| | | | | | | | | |
| | | August 1,
| | | December 31,
| |
| | | 2006 | | | 2005 | |
| |
| Equipment | | $ | 1,313,512 | | | $ | 1,237,222 | |
| Vehicles | | | 1,853,932 | | | | 1,594,942 | |
| Leasehold improvements | | | 442,304 | | | | 342,138 | |
| | | | | | | | | |
| | | | 3,609,748 | | | | 3,174,302 | |
| Less: Accumulated depreciation | | | (2,199,588 | ) | | | (2,018,318 | ) |
| | | | | | | | | |
| Total Property and Equipment | | $ | 1,410,160 | | | $ | 1,155,984 | |
| | | | | | | | | |
| |
| NOTE 4 — | NET INVESTMENT IN SALES-TYPE LEASES |
At August 1, 2006, the future minimum lease payments, including interest, to be received using sales-type lease agreements were as follows:
| | | | | |
Receivable in
| | | |
Year Ending
| | Future Minimum
| |
August 1, | | Lease Payments | |
| |
| 2007 | | $ | 308,043 | |
| 2008 | | | 124,019 | |
| 2009 | | | 3,135 | |
| | | | | |
| | | | 435,197 | |
| Less: Amount representing interest | | | 88,319 | |
| | | | | |
| Net Investment in Sales-type Leases | | $ | 346,878 | |
| | | | | |
The Company’s bank credit agreement includes a capital expenditures revolving line of credit, working capital revolving line of credit and term loan availability. All borrowings under the credit agreement are due on June 30, 2008. The Company has pledged all business assets as collateral including the assignment of the Company’s rights under leasing contracts with customers. The Company is required to maintain certain financial ratios and net worth requirements.
F-21
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
Interest accrues on all borrowings under the agreement at the lead lender’s prime lending rate or the LIBOR plus a stated margin ranging from 2.0% to 2.75% (LIBOR was 5.38% as of August 1, 2006) based on the Company’s performance.
The capital expenditures line is available for purchases of rental inventory. The maximum amount available under the line is $30,500,000 ($30,500,000 borrowed and outstanding at August 1, 2006) with borrowings limited to 75% of rental units’ value plus 75% of transportation assets (limited to $300,000), as defined in the credit agreement.
The maximum amount available under the working capital line is $4,500,000 ($1,062,500 borrowed and outstanding at August 1, 2006) with borrowings limited to 80% of eligible accounts receivable as defined in the credit agreement.
The credit agreement has a term loan component, of which $4,500,000 was borrowed and outstanding at August 1, 2006. The term loan requires monthly principal payments of $62,500 through June 30, 2008, when the remaining principal balance is due and payable.
The Company’s subordinated debt requires monthly interest payments and consisted of the following:
| | | | | | | | | |
| | | August 1,
| | | December 31,
| |
| | | 2006 | | | 2005 | |
| |
| 12.5% notes payable due various dates in 2009 | | $ | 4,247,000 | | | $ | 4,247,000 | |
| 12.0% note payable due January, 2009 | | | 275,000 | | | | 275,000 | |
| | | | | | | | | |
| | | $ | 4,522,000 | | | $ | 4,522,000 | |
| | | | | | | | | |
The 12.5% subordinated notes payable allow the investor the right to require the Company to repay the notes in 2006 or anytime thereafter. These notes also contain warrants to purchase 10 Series B common shares per $1,000 of borrowings at $13.50 per share. The warrants are exercisable at any time and expire in 2009. As of August 1, 2006, no warrants have been exercised and no value has been assigned.
The 12.0% subordinated note payable allows the holder to require the Company to repay the entire note, in the event of a triggering event as defined in the agreement or anytime after June 30, 2004, and annually thereafter.
The total of subordinated notes due to stockholders at August 1, 2006 and December 31, 2005 was $3,160,000.
Cash paid for interest approximated $1,673,000 in for the period January 1, 2006 through August 1, 2006 and $2,670,000 for the year ended December 31, 2005, including interest paid to stockholders of approximately $232,500 and $395,000, respectively.
At August 1, 2006, the Company’s borrowings were payable as follows:
| | | | | |
Payable in
| | | |
Year Ending
| | | |
August 1, | | | |
| |
| 2007 | | $ | 750,000 | |
| 2008 | | | 35,312,500 | |
| 2009 | | | 4,522,000 | |
| | | | | |
| | | $ | 40,584,500 | |
| | | | | |
Effective August 2, 2006, the Company sold 100% of the outstanding stock (see Note 11). The acquisition was financed through a combination of senior lending, subordinated borrowings and contributed capital. The acquisition was accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations. Accordingly, the Company’s borrowing and capital structure was significantly impacted by the acquisition.
F-22
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
1. NOTE 6 — | Statement of significant accounting policiesINCOME TAXES |
This financial report is prepared in Australian dollars. The financial report was approved byprovision for income taxes for the directors on October 20, 2006. The significant policies that have been adopted inperiod from January 1, 2006 to August 1, 2006 and the preparationyear ended December 31, 2005, consisted of this financial report are:the following:
| | | | | | | | | |
| | | (Seven Months)
| | | | |
| | | 2006 | | | 2005 | |
| |
| Deferred tax expense: | | | | | | | | |
| Federal | | $ | 1,663,672 | | | $ | 1,767,647 | |
| State | | | 293,589 | | | | 311,938 | |
| | | | | | | | | |
| Provision for Income Taxes | | $ | 1,957,261 | | | $ | 2,079,585 | |
| | | | | | | | | |
a) Basis of preparation
The financial report is a general purpose financial report, which has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncementsCompany’s deferred income tax liability was comprised of the Australian Accounting Standards Board and the Corporations Act 2001.following:
| | | | | | | | | |
| | | August 1,
| | | December 31,
| |
| | | 2006 | | | 2005 | |
| |
| Rental inventory | | $ | 17,374,000 | | | $ | 16,640,000 | |
| Net operating loss carry forwards | | | (7,450,000 | ) | | | (8,466,000 | ) |
| Accounts receivable | | | (170,000 | ) | | | (160,000 | ) |
| Derivative obligation | | | — | | | | (2,854 | ) |
| Stock option compensation | | | (142,000 | ) | | | (142,000 | ) |
| Other | | | 106,142 | | | | (98,620 | ) |
| | | | | | | | | |
| Net Deferred Income Tax Liability | | $ | 9,718,142 | | | $ | 7,770,526 | |
| | | | | | | | | |
It has been prepared onAt August 1, 2006, the accrual basisCompany had federal net operating loss carry forwards of accounting as defined AASB 1001,Accounting Policies,using onapproximately $18,626,000 which begin to expire in 2017.
| |
| NOTE 7 — | OPERATING LEASE COMMITMENTS |
The Company leases two of its locations from companies in which its stockholders have an ownership interest. The leases expire in November 2010 and March 2011. The Company is responsible for all taxes, insurance, maintenance and utilities. Rental expense for these leases was approximately $86,000 for the historical cost conventionperiod from January 1, 2006 to August 1, 2006 and except where stated, does not take into account changing money values or fair values of non-current assets. The accounting policies have been consistently applied and, except where there is a change in accounting policy, are consistent with those of$215,000 for the previous year.year ended December 31, 2005.
The financial statements asCompany has various noncancellable operating leases for office space, storage facilities and rental units, that expire at 31stvarious dates through March 2011. Certain leases contain renewal options and escalation clauses. Rental expense for these leases was approximately $844,000 for the period from January 1, 2006 to August 1, 2006 and $1,310,000 for the year ended December 2003 have been prepared on a going concern basis.31, 2005.
b) Revenue recognitionThe future minimum rental payments required under noncancellable operating lease agreements are as follows:
| | | | | |
Payable in
| | | |
Year Ending
| | Rental
| |
August 1, | | Payments | |
| |
| 2007 | | $ | 748,194 | |
| 2008 | | | 759,215 | |
| 2009 | | | 612,502 | |
| 2010 | | | 739,683 | |
| 2011 | | | 235,108 | |
| | | | | |
| | | $ | 3,094,702 | |
| | | | | |
Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST) payable to the taxation authority.
Revenue from sale of goods is recognised (net of returns, discounts and allowances) when control of the goods passes to the customer, which is when the customer takes delivery of the goods.
Revenue from rental of goods is recognised in the period earned.
Unearned revenue arises when transport charges for the return retrieval of a hire container or containers is billed in advance, while the actual retrieval has not yet occurred as the container is still on hire.
Interest revenue is recognised as it accrues.
c) Borrowing costs
Borrowing costs include interest charges and the amortisation of ancillary costs incurred in connection with arrangement of borrowings. Interest charges are expensed when incurred. Ancillary costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings.
d) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the ATO are classified as operating cash flows.
F-74F-23
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417PAC-VAN, INC.
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
e) Income tax
| |
| NOTE 8 — | EMPLOYEE BENEFIT PLAN |
The Company sponsors a 401(k) retirement savings plan for eligible employees, which allows plan participants to defer a percentage of their compensation subject to the limits imposed by the Internal Revenue Code. The Plan allows the Company to make a discretionary contribution to the Plan each year on behalf of participants at a rate determined before the year begins. At the end of the Company’s fiscal year, an additional matching contribution may be made at the discretion of the Company’s Board of Directors. The Company’s contribution was approximately $60,000 for the period from January 1, 2006 to August 1, 2006 and $66,000 for the year ended December 31, 2005.
The Company has preferred stock, the terms of which may be determined from time to time by the directors of the Company prior to issuance, and common stock divided into two series: Series A and Series B. Each share of common stock is entitled to one vote for all matters submitted to a vote of the stockholders. Holders of Series B common stock are entitled to a preferential distribution on liquidation of the Company in an amount equal to $10 per share.
See Note 5 for discussion on warrants issued in connection with a private placement in 2001 to purchase common stock, none of which were exercised as of August 1, 2006.
| |
| NOTE 10 — | STOCK OPTION PLAN |
In December 1998, the Company adopted an employee stock option plan which provides that the Company may issue options for up to 160,000 shares of its common stock. Options under the Plan will be awarded with exercise prices at least equal to the fair value of the Company’s common stock on the date of the grant.
In December 1998, the Company issued options for 80,000 shares of Series A common stock at $2.50 per share to an employee of the Company, all of which are vested. In November 2000, the Company issued options for 24,000 shares of Series A common stock at $10.00 per share to employees of the Company. All stock options are fully vested.
The company adopts the liability method of tax effect accounting whereby the income tax expense is basedPlan and any unexercised options will expire on the operating profit adjusted for any permanent differences.
Timing differences, which arise due to the different accounting periods in which items of revenue and expense account as either a provision for deferred income taxDecember 30, 2008. There were no options granted or as a future income tax benefit at the rate of income tax applicable toexercised during the period from January 1, 2006 to August 1, 2006 or in which the benefit will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of the realisation of the benefit.year ended December 31, 2005.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposedfair value for options granted by the law.
f) Property, plant and equipment
Plant and equipment is brought to accountCompany was estimated at cost, less, where applicable, any accumulated depreciation. The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount for these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the employment of these assets and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts. If the carrying amount of a non-current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write down is expensed in the reporting period in which it occurs.
The costs incurred for initial restoration performed on containers before becoming operational in the lease stock are capitalised and depreciated over the useful lives of the containers.
All property, plant and equipment, excluding freehold land, are depreciated over their useful lives to the company. Assets are depreciated from the date of acquisition. Depreciation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future periods only.
The depreciation method and useful lives used for each class of property, plant and equipment are as follows:grant using a Black-Scholes option pricing model, with the following weighted-average assumptions:
| | | | | |
| Risk-free interest rate | | Life
| 4.0 | % |
| Dividend yield | | Method
| 0 | % |
|
Plant and equipmentExpected life of the options (years) | | 3 - 10 years | 4 | | straight line |
Motor vehicles | | 3 - 10 years | | straight line |
Furniture and fittings | | 5 - 10 years | | straight line |
Containers on hire | | 10 years | | straight line (20% residual) |
Leased containers on hire (used) | | 10 years | | straight line (20% residual) |
Leased containers on hire (new) | | 25 years | | straight line (20% residual) |
g) InventoriesThe Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company’s stock is not publicly traded and its employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Inventories, which consist primarilyFair value of containers heldthe options are amortized to expense over the related vesting period. Compensation expense related to stock options for sale, are measured at the lower of cost or net realisable value. Costs are assigned on a first in first out basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenses.period from January 1, 2006 to August 1, 2006 is immaterial to the Company’s financial statements.
F-75F-24
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417PAC-VAN, INC.
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
h) Receivables
| |
| NOTE 11 — | SUBSEQUENT EVENT |
Effective August 2, 2006, Mobile Office Acquisition Corp. acquired 100% of the outstanding stock ofPac-Van, Inc. The collectabilitypurchase price was approximately $98,038,000 plus the assumption of debts is assessed at balance dateliabilities and specific provision is made for any doubtful accounts.
i) Investments
Investmentstransactions costs of approximately $22,797,000 and $2,766,000, respectively. The acquisition was financed through a combination of senior lending, subordinated borrowings and contributed capital. The acquisition was accounted for using the equity method are carried at the lower of the equity accounted amount and recoverable amount. The company’s equity accounted share of the Associates’ net profit or loss is recognised in the consolidated statement of financial performance from the date significant influence commences until the date significant influence ceases. Other movements in reserves are recognised directly in consolidated reserves.
j) Employee benefits
Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, long service leave, annual leave and time in lieu which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Unvested sick leave entitlements have not been recognised as it is considered that sick leave taken in the future will not be greater than the entitlements that will accrue in the future.
Contributions are made by the company to employee superannuation funds and are charged as expenses when incurred.
k) Goodwill
Goodwill is initially recorded at the amount by whichunder the purchase price for a business exceedsmethod of accounting, in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations.Accordingly, the acquisition cost has been allocated to the purchased assets and liabilities based on their respective fair value attributed to its net assetsvalues at the date of acquisition. PurchasedThe fair value of assets and liabilities acquired at August 2, 2006, totaled approximately $84,458,000; accordingly, the buyer recorded goodwill is amortised on of approximately $39,143,000.
F-25
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a straight line basis over the period of 20 years. The balance is reviewed annuallyPAC-VAN, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2008 and any balance representing future benefits considered unlikely to be realised is written off. In assessing the recoverable amount, future cash flows are not discounted.2007
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
ASSETS |
ASSETS | | | | | | | | |
| Cash | | $ | 343,126 | | | $ | 246,884 | |
| Accounts receivable, net of allowances of $1,184,000 in 2008 and $973,000 in 2007 | | | 10,564,821 | | | | 8,877,760 | |
| Net investment in sales-type leases | | | 85,718 | | | | 261,834 | |
| Rental inventory, net | | | 100,773,326 | | | | 76,367,983 | |
| Note receivable-related party | | | 210,000 | | | | 295,000 | |
| Property and equipment, net | | | 2,150,528 | | | | 1,652,008 | |
| Other assets | | | 267,824 | | | | 318,798 | |
| Intangible assets, net | | | 2,404,372 | | | | 3,807,064 | |
| Goodwill | | | 39,504,975 | | | | 39,161,675 | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 156,304,690 | | | $ | 130,989,006 | |
| | | | | | | | | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
| LIABILITIES |
| Accounts payable | | $ | 5,246,298 | | | $ | 5,935,935 | |
| Accrued liabilities | | | 2,453,370 | | | | 2,025,907 | |
| Unearned revenue and advance payments | | | 6,773,357 | | | | 5,341,101 | |
| Senior bank debt | | | 71,750,000 | | | | 55,500,000 | |
| Subordinated note payable | | | 24,346,591 | | | | 24,176,136 | |
| Deferred income taxes | | | 15,392,790 | | | | 12,165,663 | |
| Warrant obligation | | | 1,441,000 | | | | 1,037,000 | |
| | | | | | | | | |
| Total Liabilities | | | 127,403,406 | | | | 106,181,742 | |
| | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
| Common stock, Class A, $0.001 par value; 300,000 shares authorized, 225,000 shares issued and outstanding | | | 225 | | | | 225 | |
| Common stock, Class B, $0.001 par value; 50,000 shares authorized, 1,800 shares issued and outstanding | | | 2 | | | | 2 | |
| Additional paid-in capital | | | 22,679,773 | | | | 22,679,773 | |
| Retained earnings | | | 6,221,284 | | | | 2,127,264 | |
| | | | | | | | | |
| Total Stockholders’ Equity | | | 28,901,284 | | | | 24,807,264 | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 156,304,690 | | | $ | 130,989,006 | |
| | | | | | | | | |
See accompanying notes.
F-26
l) Foreign currency transactionsMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three Months Ended March 31, 2008 and balances2007
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
REVENUES | | | | | | | | |
| Leasing revenue | | $ | 11,995,664 | | | $ | 10,337,328 | |
| Sales of equipment and services | | | 4,124,049 | | | | 4,648,129 | |
| | | | | | | | | |
| Total Revenues | | | 16,119,713 | | | | 14,985,457 | |
| | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | |
| Cost of sales of equipment and services | | | 2,876,142 | | | | 3,047,103 | |
| Leasing, selling and general | | | 8,548,427 | | | | 7,359,287 | |
| Depreciation and amortization | | | 1,125,425 | | | | 1,116,459 | |
| | | | | | | | | |
| Total Costs and Expenses | | | 12,549,994 | | | | 11,522,849 | |
| | | | | | | | | |
| Income from Operations | | | 3,569,719 | | | | 3,462,608 | |
INTEREST EXPENSE | | | 2,090,399 | | | | 2,000,833 | |
| | | | | | | | | |
| Net Income before Provision for Income Taxes | | | 1,479,320 | | | | 1,461,775 | |
PROVISION FOR INCOME TAXES | | | 584,334 | | | | 631,266 | |
| | | | | | | | | |
NET INCOME | | | 894,986 | | | | 830,509 | |
RETAINED EARNINGS | | | | | | | | |
| Beginning of Period | | | 5,326,298 | | | | 1,296,755 | |
| | | | | | | | | |
| End of Period | | $ | 6,221,284 | | | $ | 2,127,264 | |
| | | | | | | | | |
Foreign currency
See accompanying notes.
F-27
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2008 and 2007
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
OPERATING ACTIVITIES | | | | | | | | |
| Net income | | $ | 894,986 | | | $ | 830,509 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Deferred income taxes | | | 576,834 | | | | 601,766 | |
| Depreciation of property and equipment and rental inventory | | | 909,191 | | | | 759,438 | |
| Proceeds from the sale of property and equipment | | | 13,153 | | | | | |
| Amortization of intangible assets | | | 258,847 | | | | 399,634 | |
| Increase in value of warrant obligation | | | 105,500 | | | | 99,500 | |
| Loss on disposals of property and equipment | | | 17,268 | | | | | |
| (Increase) decrease in certain assets: | | | | | | | | |
| Accounts receivable | | | 1,342,597 | | | | 531,269 | |
| Net investment in sales-type leases | | | 31,932 | | | | 25,582 | |
| Other assets | | | (65,710 | ) | | | 55,034 | |
| Increase (decrease) in certain liabilities: | | | | | | | | |
| Accounts payable | | | 342,634 | | | | 605,127 | |
| Accrued liabilities | | | (1,550,313 | ) | | | (1,455,924 | ) |
| Unearned revenue and advance payments | | | 661,568 | | | | 780,840 | |
| | | | | | | | | |
| Net Cash Provided by Operating Activities | | | 3,538,487 | | | | 3,232,775 | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
| Purchases of rental inventory, net | | | (3,283,264 | ) | | | (3,285,508 | ) |
| Cash paid for assets of business acquired | | | (3,871,522 | ) | | | | |
| Payments received on note receivable-related party | | | 50,000 | | | | 55,000 | |
| Purchases of property and equipment | | | (293,900 | ) | | | (320,065 | ) |
| | | | | | | | | |
| Net Cash (Used) by Investing Activities | | | (7,398,686 | ) | | | (3,550,573 | ) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
| Net increase in senior bank debt | | | 4,150,000 | | | | 500,000 | |
| | | | | | | | | |
| Net Cash Provided by Financing Activities | | | 4,150,000 | | | | 500,000 | |
| | | | | | | | | |
NET INCREASE IN CASH | | | 289,801 | | | | 182,202 | |
CASH | | | | | | | | |
| Beginning of Period | | | 53,325 | | | | 64,682 | |
| | | | | | | | | |
| End of Period | | $ | 343,126 | | | $ | 246,884 | |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURES | | | | | | | | |
| Interest paid | | $ | 2,927,793 | | | $ | 2,710,141 | |
| Noncash financing activities: | | | | | | | | |
| Interest expense related to valuation of warrant obligation | | | 105,500 | | | | 99,500 | |
See accompanying notes.
F-28
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
| NOTE 1 — | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The accompanying unaudited condensed consolidated financial statements include the balances and transactions duringof Mobile Office Acquisition Corp. (Parent) and its wholly-owned subsidiary, Pac-Van, Inc. (together referred to as the period are converted“Company”). All material intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.
Doing business as “Pac-Van, Inc.,” the Company leases and sells mobile offices, modular buildings and storage units throughout the United States from its branch network locations in thirteen states. The Company provides solutions for customers in a wide range of industries including, construction, industrial, commercial, retail and government.
Effective February 1, 2008, the Company acquired the assets of US SpaceMaster Leasing, LP. The purchase price was approximately $3,872,000. The acquisition was accounted for under the purchase method of accounting, in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations. Accordingly, the acquisition cost has been allocated to Australian currencythe purchased assets and liabilities based on their respective fair values at the ratesdate of exchange applicable atacquisition. The fair value of assets and liabilities acquired on February 1, 2008, totaled approximately $3,529,000; accordingly, the datesCompany recorded goodwill of transactions. Amounts receivable and payable in foreign currencies at balance date are converted to the rates of exchange ruling at that date.approximately $343,000.
The gainsaccompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States applicable to interim financial information. Accordingly, they do not include all the information and losses from conversionfootnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of short-termmanagement, all adjustments (which include all subsequent normal and recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2008. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company for the year ended December 31, 2007.
Estimates: Management uses estimates and assumptions in preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, whether realised or unrealised, are included in operating profit before income tax as they arise.the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates that were used.
m) LeasesRental Inventory and Other Long-lived Assets:
Leases Rental inventory consisting of fixed assets, where substantially allmobile offices, modular buildings, storage trailers, storage containers and steps (“rental inventory or rental equipment”) acquired August 2, 2006, were recorded at their purchase cost as allocated based on information provided by an independent appraisal. Rental inventory acquired since August 2, 2006, is recorded at lower of invoice cost or market. Mobile offices and modular buildings are depreciated using the risks and benefits incidentalstraight-line method over 20 years to the ownershipa residual value of 50 percent of the asset, but notoriginal cost. Steps are depreciated using the legal ownership,straight-line method over 5 years with no residual value. Storage trailers are transferreddepreciated over 15 years and 10 years depending on the year of acquisition. Storage containers are depreciated using the straight-line method over 20 years to the company, are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the presentresidual value of the minimum lease payments, including any guaranteed residual values.
Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the entity will obtain ownership70 percent of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.original cost.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.
F-76F-29
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
A.B.N. 38 069 244 417d/b/a PAC-VAN, INC.
NOTES TO THEUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
n) Revisions of accounting estimates
Revisions to accounting estimatesVehicles, office equipment and leasehold improvements are recognised prospectively in current and future periods only.
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | $ | |
| |
2. Revenue from ordinary activities | | | | | | | | |
| Sale of goods revenue from operating activities | | | | | | | 25,972,618 | |
| Rental of goods revenue from operating activities | | | | | | | 13,089,407 | |
| | | | | | | | | |
| | | | | | | | 39,062,025 | |
| | | | | | | | | |
Other revenues: | | | | | | | | |
From operating activities | | | | | | | | |
| Interest | | | | | | | 36,774 | |
From outside operating activities | | | | | | | | |
| Gross proceeds from sale of non current assets | | | | | | | 87,227 | |
| Net foreign currency gain | | | | | | | 4,455,060 | |
| | | | | | | | | |
Total revenues from other activities | | | | | | | 4,579,061 | |
| | | | | | | | | |
Total revenue | | | | | | | 43,641,086 | |
| | | | | | | | | |
3. Profit from ordinary activities before income tax expense | | | | | | | | |
a) Individually significant revenues / (expenses) included in profit from ordinary activities before income tax expense | | | | | | | | |
| Net foreign currency gain | | | | | | | 4,455,060 | |
| Correction of fundamental errors | | | 24 | | | | (1,634,440 | ) |
b) Profit from ordinary activities before income tax expense has been arrived at after charging/(crediting) the following items | | | | | | | | |
| Depreciation of property, plant and equipment | | | | | | | 2,361,795 | |
| Amortisation of goodwill | | | | | | | 106,776 | |
| Borrowing Costs | | | | | | | 2,198,074 | |
| Employee leave entitlements | | | | | | | 341,442 | |
| Movement in inventory provision | | | | | | | 148,444 | |
| Movement in provision for doubtful debts | | | | | | | (67,620 | ) |
| Net gain on disposal of property, plant and equipment | | | | | | | 3,180 | |
| Net foreign currency gain | | | | | | | (4,455,060 | ) |
| Correction of fundamental errors | | | 24 | | | | 1,634,440 | |
4. Auditor’s remuneration | | | | | | | | |
| Auditors of the company — KPMG: | | | | | | | | |
| Audit services | | | | | | | 60,000 | |
| Taxation services | | | | | | | 112,616 | |
| Other services | | | | | | | 4,000 | |
| | | | | | | | | |
| | | | | | | | 176,616 | |
| | | | | | | | | |
F-77
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | $ | |
| |
5. Taxation | | | | | | | | |
a) Income tax expense | | | | | | | | |
| Prima facie income tax expense calculated at 30% on the profit from ordinary activities | | | | | | | (877,013 | ) |
| Decrease in income tax benefit due to: | | | | | | | | |
| Amortisation of goodwill | | | | | | | (32,033 | ) |
| Sundry items | | | | | | | (158,750 | ) |
| Prior year under provision | | | | | | | (18,136 | ) |
| | | | | | | | | |
| Income tax expense relating to ordinary activities before correction of fundamental errors | | | | | | | (1,085,932 | ) |
| | | | | | | | | |
| Correction of income tax related fundamental errors — current year | | | 24 | (ii) | | | (138,842 | ) |
| — prior year | | | 24 | (i) | | | 48,840 | |
| — prior year | | | 24 | (ii) | | | 863,079 | |
| | | | | | | | | |
| | | | | | | | 773,077 | |
| | | | | | | | | |
| Total income tax expense relating to ordinary activities | | | | | | | (312,855 | ) |
| | | | | | | | | |
b) Deferred tax liabilities | | | | | | | | |
Provision for deferred income tax | | | | | | | | |
| Provision for deferred income tax comprises the estimated expense at the applicable rate of 30% on the following items: | | | | | | | | |
| Difference in depreciation and amortisation of property, plant and equipment for accounting and income tax purposes | | | | | | | 942,348 | |
| | | | | | | | | |
| | | | | | | | 942,348 | |
| | | | | | | | | |
c) Deferred tax assets | | | | | | | | |
Future income tax benefit | | | | | | | | |
| Future income tax benefit comprises the estimated future benefit at the applicable rate of 30% on the following items: | | | | | | | | |
| Unrealised exchange losses not currently deductible | | | | | | | 36,227 | |
| Provisions and accrued employee entitlements not currently deductible | | | | | | | 449,032 | |
| Withholding tax accrual | | | | | | | 530,405 | |
| Sundry items | | | | | | | 65,526 | |
| Deferred tax assets not recognized | | | | | | | (138,842 | ) |
| | | | | | | | | |
| | | | | | | | 942,348 | |
| | | | | | | | | |
6. Cash assets | | | | | | | | |
| Cash at bank and on hand | | | | | | | 1,788,171 | |
| | | | | | | | | |
F-78
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | | | | Restated
| |
| | | Note | | | 2003 | |
| | | | | | $ | |
| |
7. Receivables | | | | | | | | |
Current | | | | | | | | |
| Trade debtors | | | | | | | 5,109,138 | |
| Provision for doubtful trade debtors | | | | | | | (129,594 | ) |
| | | | | | | | | |
| | | | | | | | 4,979,544 | |
| Other debtors | | | | | | | 40,270 | |
| Receivables from related entities | | | | | | | 184,811 | |
| | | | | | | | | |
| | | | | | | | 5,204,625 | |
| | | | | | | | | |
8. Inventories | | | | | | | | |
| Stock on hand | | | | | | | 3,998,561 | |
| Provision for diminution in value | | | | | | | (119,000 | ) |
| | | | | | | | | |
| | | | | | | | 3,879,561 | |
| | | | | | | | | |
9. Other current assets | | | | | | | | |
| Prepayments | | | | | | | 424,537 | |
| Income tax receivable | | | 24 | | | | 781,476 | |
| | | | | | | | | |
| | | | | | | | 1,206,013 | |
| | | | | | | | | |
10. Property, plant and equipment | | | | | | | | |
| Plant and equipment | | | | | | | | |
At cost | | | | | | | 3,055,315 | |
Accumulated depreciation | | | | | | | (1,105,041 | ) |
| | | | | | | | | |
| | | | | | | | 1,950,274 | |
| Motor Vehicles | | | | | | | | |
At cost | | | | | | | 286,972 | |
Accumulated depreciation | | | | | | | (141,920 | ) |
| | | | | | | | | |
| | | | | | | | 145,052 | |
| Owned containers on hire | | | | | | | | |
At cost | | | | | | | 19,517,682 | |
Accumulated depreciation | | | | | | | (3,549,454 | ) |
| | | | | | | | | |
| | | | | | | | 15,968,228 | |
| Leased containers on hire | | | | | | | | |
At cost | | | | | | | 1,600,307 | |
Accumulated depreciation | | | | | | | (116,817 | ) |
| | | | | | | | | |
| | | | | | | | 1,483,490 | |
Total property, plant and equipment | | | | | | | 19,547,044 | |
| | | | | | | | | |
F-79
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Reconciliations
| | | | | | | | |
Reconciliations of the carrying amounts for each class of plant and equipment are set out below: | | | | | | | | |
Plant and equipment
| | | | | | | | |
Carrying amount at beginning of year | | | | | | | 893,507 | |
Additions | | | | | | | 1,588,247 | |
Disposals | | | | | | | (57,271 | ) |
Depreciation | | | | | | | (474,209 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 1,950,274 | |
| | | | | | | | |
Motor vehicles
| | | | | | | | |
Carrying amount at beginning of year | | | | | | | 131,985 | |
Additions | | | | | | | 117,649 | |
Disposals | | | | | | | (26,776 | ) |
Depreciation | | | | | | | (77,806 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 145,052 | |
| | | | | | | | |
Owned containers on hire
| | | | | | | | |
Carrying amount at beginning of year | | | | | | | 3,937,150 | |
Additions | | | | | | | 7,461,995 | |
Transfers from leased containers | | | | | | | 7,591,395 | |
Transfers to inventory | | | | | | | (2,402,226 | ) |
Depreciation | | | | | | | (620,086 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 15,968,228 | |
| | | | | | | | |
Leased containers on hire
| | | | | | | | |
Carrying amount at beginning of year | | | | | | | 7,493,597 | |
Additions | | | | | | | 3,315,001 | |
Transfers to owned containers | | | | | | | (7,591,395 | ) |
Transfers to inventory | | | | | | | (544,019 | ) |
Depreciation | | | | | | | (1,189,694 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 1,483,490 | |
| | | | | | | | |
11. Investments accounted for using the equityrecorded at historical cost. Depreciation is computed using the straight-line method
| | | | | | | | |
The company has a 50% interest in Royal Wolf Hi-Tech Pty Limited, (the “Associate”) being a company that sells, hires and modifies shipping containers. Royal Wolf Hi-Tech Pty limited has a balance date of 30 June | | | | | | | | |
Results of Associate
| | | | | | | | |
The company’s share of the Associate’s result consists of: | | | | | | | | |
Revenue from ordinary activities | | | | | | | 1,056,578 | |
Expenses from ordinary activities | | | | | | | (990,078 | ) |
| | | | | | | | |
Net profit — accounted for using the equity method | | | | | | | 66,500 | |
F-80
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Movements in carrying amount of investment
| | | | | | | | |
Carrying amount of investments in Associates at beginning of year | | | | | | | 96,000 | |
Share of Associates’ net profit | | | | | | | 66,500 | |
Dividends received from Associate | | | | | | | — | |
| | | | | | | | |
Carrying amount of investments in Associates at end of year | | | | | | | 162,500 | |
| | | | | | | | |
The Associate has no future commitments for capital expenditure | | | | | | | | |
12. Intangible assets
| | | | | | | | |
Goodwill: | | | | | | | | |
At cost | | | | | | | 2,135,528 | |
Accumulated amortization | | | | | | | (660,011 | ) |
| | | | | | | | |
| | | | | | | 1,475,517 | |
| | | | | | | | |
13. Other non-current assets
| | | | | | | | |
Loan to related party | | | | | | | 260,000 | |
Loan establishment costs | | | | | | | | |
At cost
| | | | | | | 450,849 | |
Accumulated amortisation
| | | | | | | — | |
| | | | | | | | |
| | | | | | | 450,849 | |
| | | | | | | | |
| | | | | | | 710,849 | |
| | | | | | | | |
14. Payables
| | | | | | | | |
Trade creditors | | | | | | | 6,004,574 | |
Accruals | | | | | | | 3,441,646 | |
Unearned income | | | | | | | 404,646 | |
| | | | | | | | |
| | | | | | | 9,850,866 | |
| | | | | | | | |
15. Interest bearing liabilities
| | | | | | | | |
Current
| | | | | | | | |
Bank loan | | | | | | | 540,000 | |
Other loan | | | | | | | 113,928 | |
Lease liability | | | | | | | 134,369 | |
| | | | | | | | |
| | | | | | | 788,297 | |
| | | | | | | | |
Non-current
| | | | | | | | |
Bank loan | | | | | | | 12,040,000 | |
Other loan — parent entity | | | | | | | 1,955,753 | |
Lease liability | | | | | | | 1,442,032 | |
| | | | | | | | |
| | | | | | | 15,437,785 | |
| | | | | | | | |
F-81
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Financing arrangements
| | | | | | | | |
Facilities available at balance date
| | | | | | | | |
Finance leases | | | | | | | 4,576,401 | |
Secured bank loans | | | | | | | 13,500,000 | |
| | | | | | | | |
| | | | | | | 18,076,401 | |
Facilities utilised at reporting date
| | | | | | | | |
Finance leases | | | | | | | 1,576,401 | |
Secured bank loans | | | | | | | 12,580,000 | |
| | | | | | | | |
| | | | | | | 14,156,401 | |
Facilities not utilised at reporting date
| | | | | | | | |
Finance leases | | | | | | | 3,000,000 | |
Secured bank loans | | | | | | | 920,000 | |
| | | | | | | | |
| | | | | | | 3,920,000 | |
Secured bank loans
Bank loans are denominated in Australian dollars. The amount in current liabilities comprises the portion of the company’s bank loan payable within one year. The non-current bank loans are payable on or before 2008 in varying instalments with a balloon payment at the end, and are subject to annual review. The loans bear interest at the Bank Bill Swap Bid Rate (“BBSY”) as published daily by Reuters plus a margin of 1.75%, payable monthly. Bank loans are secured by a guarantee from RWA Holdings Pty Limited (the parent entity) and are due and payable over the next fiveestimated useful life of 5 years.
Finance leasesLong-lived assets, including the Company’s rental inventory and amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the related asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. To date, no adjustments to the carrying amount of long-lived assets have been required.
The company’s lease liabilities are payable overAmortizable Intangible Assetsconsist of deferred financing costs and the next five years and are secured by leased assets of $333,384. The lease liabilities bear interest at a weighted average rate of 11.8%. In the event of default, the assets revertvalue assigned to the lessor.
Other loan — parent entity
The balance payable to the parent entity is an unsecured loan, with no specified repayment terms. Interest is payable atCompany’s continuing customer base. Deferred financing costs are being amortized on a rate of 15%.
Loan covenants
Under the terms of the Senior Loan Facility agreement with Bank of Western Australia Limited the company undertakes to ensure compliance with covenants in relation to Financial Ratios; Minimum Gross Fixed Assets; Minimum Consolidated Net Worth; Container Utilisation Ratio and Book Valuestraight-line basis over the term of the agreement.loans, approximately five years. The loan covenant measurement datescustomer base is being amortized on a straight-line basis through 2013, management’s estimate of the useful life of the customer base.
Goodwill: The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests annually, or whenever an event or circumstances indicate the carrying amount may be impaired.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and dismantling rental equipment, as well as providing other ancillary products and services, and selling new and used equipment. Leasing revenue includes monthly rentals, initial lease services, ancillary products and services and end of lease services as earned. Leasing revenue is derived from leases classified as operating leases for which the initial term is generally 3 to 60 months. Costs associated with transportation, installation, and dismantling of rental equipment are recorded in leasing, selling and general expense. Unearned revenue includes end of lease services not yet performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units and steps, including delivery and installation revenue, is generally recognized upon the delivery to and acceptance by the customer. Certain arrangements to sell units under long-term construction-type sales contracts are accounted for under the percentage of completion method. Under this method, income is recognized in proportion to the incurred costs to date under the contract to estimated total costs. Sales of new units are typically covered by warranties provided by the manufacturer of the products sold.
Accounts Receivable: The Company extends credit to its customers. Accounts receivable are recorded at net realizable value based on management’s estimates of uncollectible accounts recorded in the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on historical collection experience and a review of specific past due receivables. The Company charges late fees on past due accounts.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and receivables under sales-type lease contracts. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. Receivables under sales-type lease contracts are secured by the leased mobile office, modular building or storage unit. A significant portion of the Company’s business activity is with companies in the construction and development industries. Total revenues from these industries were approximately $7,984,000 during the three-month period ended March 31, 2008 and $7,737,000 during the three-month period ended March 30 June, 30 September31, 2007. As of March 31, 2008 and 31 December in each year, commencing 31 March 2004.2007, accounts receivable from these industries were approximately $5,434,000 and $5,074,000, respectively.
F-82
F-30
ROYAL WOLF TRADING AUSTRALIA PTY LIMITEDMOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
A.B.N. 38 069 244 417d/b/a PAC-VAN, INC.
NOTES TO THEUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.
Stock-Based Compensation: For the issuance of stock options the Company follows the fair value provisions of Statement of Financial Accounting Standards No. 123(R),Share-Based Payment, which requires companies to recognize the grant date fair value of stock options and other equity-based compensation issued to employees in their income statements.
Common Stock: The Parent has two classes of Common Stock: Class A and Class B, both with a par value of $0.001. Both classes have the same rights and privileges except that holders of Class B have no voting rights.
| |
16. NOTE 2 — | ProvisionsRENTAL INVENTORY |
Rental inventory was comprised of the following at March 31, 2008 and 2007:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Mobile offices, modular buildings and storage units | | $ | 103,105,747 | | | $ | 76,743,138 | |
| Steps | | | 1,785,535 | | | | 1,120,864 | |
| | | | | | | | | |
| | | | 104,891,282 | | | | 77,864,002 | |
| Less: Accumulated depreciation | | | (4,117,956 | ) | | | (1,496,019 | ) |
| | | | | | | | | |
| Total Rental Inventory | | $ | 100,773,326 | | | $ | 76,367,983 | |
| | | | | | | | | |
| |
| NOTE 3 — | PROPERTY AND EQUIPMENT |
Property and equipment was comprised of the following at March 31, 2008 and 2007:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Equipment | | $ | 447,967 | | | $ | 213,524 | |
| Vehicles | | | 2,017,800 | | | | 1,252,475 | |
| Leasehold improvements | | | 581,046 | | | | 506,288 | |
| | | | | | | | | |
| | | | 3,046,813 | | | | 1,972,287 | |
| Less: Accumulated depreciation | | | (896,285 | ) | | | (320,279 | ) |
| | | | | | | | | |
| Total Property and Equipment | | $ | 2,150,528 | | | $ | 1,652,008 | |
| | | | | | | | | |
F-31
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| NOTE 4 — | AMORTIZABLE INTANGIBLE ASSETS |
Intangible assets subject to amortization consisted of the following at March 31, 2008 and 2007:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | | 2007 | |
| | | Gross
| | | Accumulated
| | | Gross
| | | Accumulated
| |
| | | Amount | | | Amortization | | | Amount | | | Amortization | |
| |
| Customer base | | $ | 4,547,400 | | | $ | 2,500,008 | | | $ | 4,526,000 | | | $ | 1,131,513 | |
| Deferred financing costs | | | 679,695 | | | | 322,715 | | | | 472,495 | | | | 59,917 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 5,227,095 | | | $ | 2,822,723 | | | $ | 4,998,495 | | | $ | 1,191,430 | |
| | | | | | | | | | | | | | | | | |
The expected amortization expense for each of the next five years ending March 31 is as follows: $912,081 in 2009, $573,438 in 2010, $377,916 in 2011, $352,896 in 2012 and $144,778 in 2013.
The Company’s bank credit agreement includes a revolving line of credit and a swing line of credit. All borrowings under the credit agreement are due on August 23, 2012. The Company has pledged all business assets as collateral, including the assignment of the Company’s rights under leasing contracts with customers. The Company is required to maintain certain financial ratios and net worth requirements.
Interest accrues on all outstanding borrowings under the agreement at the lead lender’s prime lending rate or the LIBOR plus a stated margin ranging from 1.5% to 2.25% (totaling 6.19% at March 31, 2008) based on the Company’s performance. In addition, the Company is required to pay an unused commitment fee equal to .25% of the average unused line calculated on a quarterly basis.
The revolving credit and swing lines are available for purchases of rental inventory and general operating purposes. The maximum aggregate amount available under the lines is $90,000,000 ($71,750,000 borrowed and outstanding at March 31, 2008) with borrowings limited to 85% of eligible accounts receivable net of reserves and allowances plus 85% of the net book value of all eligible inventory net of reserves and allowances. The credit agreement provides the Company with the ability to increase the revolving credit line up to $120,000,000 upon written request and no event of default. At March 31, 2008, the Company was in compliance with all loan covenants.
In connection with its acquisition of Pac-Van, Inc. on August 2, 2006, the Parent issued a senior subordinated secured note with an original principal balance of $25,000,000. The subordinated note matures on February 2, 2013, and requires quarterly interest only payments computed at 13%.
The subordinated note was issued with warrants entitling the holders to purchase 9,375 shares of common stock of the Parent (representing 4% of the issued outstanding common stock of the Parent) at $0.01 per share. The warrants expire on August 2, 2016. The warrants provide the holder with put rights upon the occurrence of a change in control, an event of non-compliance, or any time after August 2, 2012. The put price per share shall be an amount equal to the fair market value of the outstanding common stock at the exercise date. At inception, the warrants were recorded at their fair market value of $937,500. The subordinated notes were discounted by the warrant fair value and had a recorded value of $24,062,500. The discount is being amortized to interest expense over the term of the borrowings. In future periods, the Company will recognize a charge to earnings for increases, if any, in the value of the warrants to reflect the Company’s ultimate obligation to provide for the warrants under the agreement. During the three months ending March 31, 2008 and 2007, the Company recognized $105,500 and $99,500, respectively in interest expense for the increase in the estimated obligation under the warrant agreement.
F-32
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision for income taxes consisted of the following for the three-month periods ended March 31, 2008 and 2007:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Deferred tax expense: | | | | | | | | |
| Federal | | $ | 486,089 | | | $ | 513,703 | |
| State | | | 90,745 | | | | 88,063 | |
| | | | | | | | | |
| Total | | | 576,834 | | | | 601,766 | |
| Current state tax expense | | | 7,500 | | | | 29,500 | |
| | | | | | | | | |
| Provision for Income Taxes | | $ | 584,334 | | | $ | 631,266 | |
| | | | | | | | | |
The Company’s deferred income tax liability was comprised of the following temporary differences at March 31, 2008 and 2007:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Rental inventory | | $ | 25,122,779 | | | $ | 21,463,828 | |
| Net operating loss carryforwards | | | (9,174,272 | ) | | | (9,103,165 | ) |
| Accounts receivable | | | (246,000 | ) | | | (195,000 | ) |
| Other | | | (309,717 | ) | | | — | |
| | | | | | | | | |
| Net Deferred Income Tax Liability | | $ | 15,392,790 | | | $ | 12,165,663 | |
| | | | | | | | | |
| |
| NOTE 7 — | OPERATING LEASE COMMITMENTS |
The Company has various noncancellable operating leases for office space and storage facilities that expire at various dates through April 2013. Certain leases contain renewal options and escalation clauses. Rental expense for these leases was approximately $377,546 and $328,312 for the three-month periods ended March 31, 2008 and 2007, respectively.
Future minimum rental payments required under noncancellable operating lease agreements are as follows:
| | | | | |
Payable in
| | | |
Year Ended
| | Rental
| |
March 31, | | Payments | |
| |
| 2009 | | $ | 1,332,899 | |
| 2010 | | | 1,327,157 | |
| 2011 | | | 926,423 | |
| 2012 | | | 363,724 | |
| 2013 | | | 286,003 | |
| Thereafter | | | 6,200 | |
| | | | | |
| | | $ | 4,242,406 | |
| | | | | |
F-33
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| NOTE 8 — | STOCK OPTION PLAN |
The Parent maintains a stock option plan under which employees, officers and directors of the Company may be granted options to purchase non-voting common stock of the Parent at a price determined by the Board of Directors. The Parent has reserved 26,042 shares under the Plan. As of March 31, 2008, there had been no options exercised under the Plan. During the three-month periods ended March 31, 2008 and 2007, no options were issued. Options granted under the Plan generally have an exercise price equal to the fair market value of the non-voting common stock as of the date of grant and vest over a period of five years. The maximum term of the options is 10 years. The weighted average exercise price of stock options outstanding at March 31, 2008, was $100 per share with a weighted average contractual term of nine years. Fair value of the options are amortized to expense over the related vesting period.
| |
| NOTE 9 — | RELATED PARTY TRANSACTIONS |
The Company pays a management and consulting fee to one of its stockholders. Management and consulting fees paid were $45,000 for the three month periods ended March 31, 2008 and 2007, respectively.
The Company has a note receivable from a related party in the amount of $210,000 at March 31, 2008 and $295,000 at March 31, 2007. The note bears interest at LIBOR plus 1% per annum with required payments of $80,000 plus interest and is due on May 31, 2011.
| |
| NOTE 10 — | SUBSEQUENT EVENTS |
On April 2, 2008, the Company entered into an asset purchase agreement for the acquisition of rental fleet, accounts receivable, and other assets of an unrelated third party. The purchase price was approximately $2,855,000.
On June 6, 2008, the Company entered into an asset purchase agreement for the acquisition of rental fleet, accounts receivable, and other assets of an unrelated third party. The purchase price was approximately $1,825,000.
The purchase price of these asset purchases were financed through the Company’s revolving credit and swing lines with its bank.
F-34
ANNEX A
AGREEMENT AND PLAN OF MERGER
by and among
GENERAL FINANCE CORPORATION,
GFN NORTH AMERICA CORP.,
PAC-VAN, INC.,
THE MOAC STOCKHOLDERS
and
MOBILE OFFICE ACQUISITION CORP.
Dated as of July 28, 2008
TABLE OF CONTENTS
| | | | | | | | | |
| | | | | Page |
|
ARTICLE 1
THE MERGER |
| | Restated
Section 1.1
| | | The Merger | | | A-1 | |
| | | NoteSection 1.2 | | | 2003Closing | | | A-1 | |
| | Section 1.3 | | | Effective Time | $ | | A-1 | |
| Section 1.4 | | | Effects of the Merger | | | A-2 | |
| Section 1.5 | | | Certificate of Incorporation; Bylaws | | | A-2 | |
| Section 1.6 | | | Directors and Officers | | | A-2 | |
| |
ARTICLE 2
CONVERSION OF SHARES; STOCKHOLDERS MEETING |
| CurrentSection 2.1
| | | Merger Consideration | | | | | |
Employee entitlements | | | | | | | 582,051A-2 | |
| | | | | | | | | |
Non currentSection 2.2
| | | Conversion of Securities | | | | | |
Employee entitlements | | | | | | | 133,522A-3 | |
| | Section 2.3 | | | Treatment of MOAC Stock Options and Warrants | | | | |
Employee entitlements have been calculated using the following weighted averages | | | | | | | | |
Assumed rate of increase in wages and salary rates | | | | | | | 10 | % |
Settlement term (years) | | | | | | | 5 | |
The company contributes to defined contribution superannuation plans. During the year the company paid $599,341 to defined contribution plans. The employer contributions outstanding at balance date were $602. The total number of employees at balance date is 80.
| | | | | | | A-3 | |
| | Section 2.4 | | | Surrender of Shares; Distribution of Merger Consideration; Stock Transfer Books | Restated
| | A-3 | |
| | | NoteSection 2.5 | | | 2003Dissenting Shares | | | A-4 | |
| | Section 2.6 | | | No Further Ownership Rights in MOAC Stock | $ | | A-4 | |
| Section 2.7 | | | Withholding Taxes | | | A-4 | |
| Section 2.8 | | | Further Action | | | A-5 | |
| |
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND MOAC STOCKHOLDERS |
| Share capitalSection 3.1
| | | Organization; Charter Documents | | | | | |
6,035,409 fully paid ordinary shares | | | | | | | 6,035,409A-5 | |
| | | | | | | | | |
Ordinary Shares
Holders of Ordinary Shares are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Company, ordinary shareholders rank after all creditors and are fully entitled to any proceeds of liquidation.
| | | | | | | | | |
| Accumulated losses at beginning of year | | | | | | | (2,257,964 | ) |
| Net profit before correction of prior year fundamental errors | | | 24 | | | | 3,333,042 | |
| Correction of prior year fundamental errors | | | 24 | | | | (722,521 | ) |
| | | | | | | | | |
Retained earnings at end of year | | | | | | | 352,557 | |
| | | | | | | | | |
F-83
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
a) Finance lease payment and hire purchase commitments
| | | | | | | | | |
| Finance lease commitments are payable: | | | | | | | | |
| Within one year | | | | | | | 313,170 | |
| One year or later and no later than five years | | | | | | | 1,980,487 | |
| | | | | | | | | |
| | | | | | | | 2,293,657 | |
| Less: Future lease finance charges | | | | | | | (717,256 | ) |
| | | | | | | | | |
| | | | | | | | 1,576,401 | |
Lease liabilities provided for in the financial statements: | | | | | | | | |
| Current | | | 15 | | | | 134,369 | |
| Non-current | | | 15 | | | | 1,442,032 | |
| | | | | | | | | |
| Total lease liability | | | | | | | 1,576,401 | |
b) Non-cancellable operating lease expense commitments
| | | | |
Future operating lease commitments not provided for in the financial statements and payable: | | | | |
Within one year | | | 2,291,952 | |
One year or later and no later than five years | | | 695,825 | |
| | | | |
| | | 2,987,777 | |
| | | | |
The company leases various office equipment and other facilities under operating leases. The leases have an average period of between one and four years, some with an option to renew the lease after that period. None of the leases includes contingent rentals. There are no restrictions placed upon the lessee by entering into these leases.
c) Non-cancellable operating lease receivable commitments
| | | | |
Future operating lease rentals receivable: | | | | |
Within one year | | | 1,221,685 | |
One year or later and no later than five years | | | — | |
| | | | |
| | | 1,221,685 | |
| | | | |
The company leases containers on a daily basis in the ordinary course of business. These leases can vary in length from a minimum hire period of 30 days to up to five years and longer.
All leases include a clause to enable upward revision of the rental charge.
The company has no other lessor relationships apart from those relating to the rental of containers.
The company operates predominately in a single industry, being the sale and leasing of freight containers and container based storage and accommodation products, and one geographical segment, being Australia.
F-84
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | |
| | Restated
| |
| | 2003
| |
| | $ | |
|
21. Notes to the statement of cash flowsSection 3.2
| | | Capitalization of the Companies | | | A-5 | |
| a) Reconciliation of cashSection 3.3
| | | | |
For the purpose of the statement of cash flows, cash includes cash on hand and at bank. Cash as at the end of the financial year is reconciled to the related items in the statement of financial position as follows:Corporate Authorization; Board Approval | | | | |
Cash on hand and at bank | | | 1,788,171A-7 | |
| | | | | |
b) Reconciliation of net profit from ordinary activities after income tax to net cash provided by operating activities:Section 3.4
| | | | |
Net profitGovernmental Approvals | | | 2,610,521 | |
Add/(less) non cash items: | | | | |
Net gain on disposal of property, plant and equipment | | | (3,180 | ) |
Amortisation | | | 106,776 | |
Depreciation | | | 2,361,795 | |
Share of Associates’ net profit | | | (66,500 | ) |
Unrealised exchange gain | | | (120,755 | ) |
| | | | |
Net cash provided by operating activities before change in assets and liabilities | | | 4,888,657 | |
Changes in assets and liabilities: | | | | |
Decrease in current receivables | | | 134,818 | |
Decrease in current inventories | | | 1,554,400 | |
Increase in other assets | | | (232,631 | ) |
Increase in deferred tax assets | | | (229,288 | ) |
Increase in payables | | | 3,647,993 | |
Increase in income taxes payable | | | 793,793 | |
Decrease in deferred tax liabilities | | | (241,432 | ) |
Increase in provisions for employee entitlements | | | 319,597A-7 | |
| | | | | |
Net cash provided by operating activitiesSection 3.5
| | | 10,635,907Non-Contravention | | | A-7 | |
| | | | | |
Directors
The names of each person holding the position of director of the company during the financial year are as follows:
Mr. Gregory Baker
Mr. Michael Baxter
Mr. Robert Carey
Mr. Norman Fricker
Mr. Randolph Gilbert
Mr. Richard Gregson
Mr. Paul Jeffery
Mr. Peter Johnson
F-85
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
Mr. Robert Skinner
Mr. James Warren
Apart from the details disclosed in this note, no director has entered into a material contract with the company since the end of the previous financial year and there were no material contracts involving directors’ interests subsiding at year end.
Directors’ remuneration
The number of directors whose income from the company or any related party falls within the following bands:
| | | | | |
| | | 2003
| |
| | | No. | |
| |
| $ 0 - $ 9,999 | | | 5 | |
| $ 10,000 - $ 19,999 | | | 1 | |
| $ 70,000 - $ 79,999 | | | 1 | |
| $150,000 - $159,999 | | | 1 | |
| $320,000 - $329,999 | | | 1 | |
| $350,000 - $359,999 | | | 1 | |
| | | | | |
| Total income paid or payable to all Directors from the company or any related party | | $ | 908,879 | |
| | | | | |
Directors’ shareholdings
The relevant interests of directors and their director related entities in shares of the company at year end are as follows
| | | | |
| | Number Held
| |
| | 2003 | |
|
Ordinary shares | | | Nil | |
Other transactions with the company
From time to time directors of the company or their director-related entities may sell or purchase goods from the company. These purchases are on the same terms and conditions as those entered into by other company employees except that directors may not purchase on credit terms.
Interest in Associate
During the year, sales of $10,329 were made to the Associate and purchases of $556,674 were made from the Associate. At the end of the period, $184,811 was due and payable by the Associate, and $25 was due and payable to the Associate.
Parent entity
On 24 December 2003 the entire share capital of the company was acquired by RWA Holdings Pty Limited, a company incorporated in Australia for cash consideration of $5.8 million with payments of up to a further $3.5 million contingent on future events. Details of balances due to the parent entity are shown in note 15.
F-86
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
The company may enter into forward foreign exchange contracts, as appropriate, to hedge anticipated foreign currency purchases expected in the next 24 months within Board approved limits. The amount of anticipated future purchases is forecast in light of current conditions in foreign markets, commitments to suppliers and experience. The company held no contracts at balance date.
(i) As a result of an error, adjustments from earlier years in respect of underpayment of withholding tax on lease arrangements of $1,634,440 with a tax effect of a benefit of $48,840 have been recorded during the financial year ended 31 December 2003.
(ii) As a result of an error in prior years identified after the approval and filing of the statutory financial statements for the year ended 31 December 2003, a net deferred tax liability of $863,079 was incorrectly included in arriving at the total net deferred tax liability. This has been adjusted in these financial statements for the year ended 31 December 2003. The impact of this adjustment on the restated taxation charge for the year is an increase of $138,842.
The restated financial information for the financial year ended 31 December 2003 is presented below as if the fundamental error for tax related adjustments had not been made:
| | | | |
| | 2003
| |
| | $
| |
| | Restated | |
|
Profit from ordinary activities before related income tax expenseSection 3.6
| | | 4,557,816 | |
Total income tax expense relating to ordinary activities before effect of errorsFinancial Statements; No Undisclosed Liabilities; Internal and Disclosure Controls | | | (1,085,932 | ) |
Correction of fundamental error relating to current year taxation charge (see (ii) above)A-8 | | | (138,842 | ) |
| | | | | |
Restated income tax charge relating to ordinary activities | | | (1,224,774 | ) |
| | | | |
Net profit from ordinary activities after income tax expense attributable to members of the companySection 3.7
| | | 3,333,042Absence of Certain Changes | | | A-8 | |
| | | | | |
Accumulated losses at beginning of year — as previously reported | | | (2,257,964 | ) |
Correction of withholding tax on lease arrangements, net of $48,840 of tax (see (i) above) | | | (1,585,600 | ) |
| | | | |
Correction of opening deferred tax liability (see (ii) above) | | | 863,079 | |
| | | | |
Correction of fundamental errors, net of tax | | | (722,521 | ) |
| | | | |
Restated accumulated losses at beginning of year | | | (2,980,485 | ) |
Restated net profit from ordinary activities after income tax expense | | | 3,333,042 | |
| | | | |
Restated retained earnings at end of year | | | 352,557 | |
| | | | |
Total equitySection 3.8
| | | 6,387,966Insurance | | | A-8 | |
| | | | | |
| |
25. | Reconciliation to U.S. GAAP |
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (AGAAP) to the extent described in note 1 which, as applied by the Company, differ in certain significant
F-87
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
respects from U.S. GAAP. The effects of the application of U.S. GAAP to net profit and shareholders’ equity are set out in the tables below:
RECONCILIATION OF NET PROFIT TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Net profit after tax under AGAAP (restated) | | | 2,610,521 | |
Correction of prior period errors (net of tax) | | | 722,521 | |
Amortisation of goodwill | | | 106,776 | |
Straight lining of leases | | | (372 | ) |
| | | | |
Net income under U.S. GAAP | | | 3,439,446 | |
| | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Total equity under AGAAP (restated) | | | 6,387,966 | |
Amortisation of goodwill | | | 213,553 | |
Goodwill and intangible asset adjustments through impact of push-down accounting | | | (829,519 | ) |
Straight lining of leases | | | (5,310 | ) |
| | | | |
Shareholders’ equity under U.S. GAAP | | | 5,766,690 | |
| | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Opening shareholders’ equity at 1 January 2003 under U.S. GAAP | | | 2,327,244 | |
Net income under U.S. GAAP | | | 3,439,446 | |
| | | | |
Closing shareholders’ equity at 31 December 2003 | | | 5,766,690 | |
| | | | |
F-88
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
RECONCILIATION OF INCOME STATEMENT TO U.S. GAAP (IN AU$)
| | | | | | | | | | | | | | | | | |
| | | | | | Restated
| | | U.S. GAAP
| | | | |
| | | Note | | | AGAAP | | | Adjustments | | | U.S. GAAP | |
| | | | | | A$ | | | A$ | | | A$ | |
| |
| Revenues from sale and rental of goods | | | | | | | 39,062,025 | | | | — | | | | 39,062,025 | |
| Other revenue | | | | | | | 4,579,061 | | | | — | | | | 4,579,061 | |
| | | | | | | | | | | | | | | | | |
| Total Revenue | | | | | | | 43,641,086 | | | | — | | | | 43,641,086 | |
| Purchases of finished goods including movements in inventory | | | | | | | (14,977,167 | ) | | | — | | | | (14,977,167 | ) |
| Employee expenses | | | | | | | (6,270,525 | ) | | | — | | | | (6,270,525 | ) |
| Container repair costs | | | | | | | (3,742,995 | ) | | | — | | | | (3,742,995 | ) |
| Repositioning, transport and storage costs | | | | | | | (3,170,501 | ) | | | — | | | | (3,170,501 | ) |
| Leasing expenses | | | | | | | (1,722,047 | ) | | | (372 | ) | | | (1,722,419 | ) |
| Borrowing costs | | | | | | | (2,198,074 | ) | | | — | | | | (2,198,074 | ) |
| Depreciation and amortisation expenses | | | | | | | (2,468,571 | ) | | | 106,776 | | | | (2,361,795 | ) |
| CSC yard costs | | | | | | | (1,189,385 | ) | | | — | | | | (1,189,385 | ) |
| Office rent, supplies and training costs | | | | | | | (794,518 | ) | | | — | | | | (794,518 | ) |
| Travel expenses | | | | | | | (505,581 | ) | | | — | | | | (505,581 | ) |
| Advertising expenses | | | | | | | (514,834 | ) | | | — | | | | (514,834 | ) |
| Communication expenses | | | | | | | (388,456 | ) | | | — | | | | (388,456 | ) |
| Professional fees | | | | | | | (334,671 | ) | | | — | | | | (334,671 | ) |
| Data processing expenses | | | | | | | (350,429 | ) | | | — | | | | (350,429 | ) |
| Other expenses from ordinary activities | | | | | | | (522,016 | ) | | | — | | | | (522,016 | ) |
| Correction of fundamental errors | | | | | | | (1,634,440 | ) | | | 1,634,440 | | | | — | |
| Share of net profits of investment accounted for using the equity method | | | | | | | 66,500 | | | | — | | | | 66,500 | |
| | | | | | | | | | | | | | | | | |
Profit from ordinary activities before related income tax expense | | | | | | | 2,923,376 | | | | 1,740,844 | | | | 4,664,220 | |
| Income tax charge relating to ordinary activities | | | | | | | (1,085,932 | ) | | | (138,842 | ) | | | (1,224,774 | ) |
| Correction of income tax related fundamental errors | | | | | | | 773,077 | | | | (773,077 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total income tax expense relating to ordinary activities | | | | | | | (312,855 | ) | | | (911,919 | ) | | | (1,224,774 | ) |
| | | | | | | | | | | | | | | | | |
Net profit | | | | | | | 2,610,521 | | | | 828,925 | | | | 3,439,446 | |
| | | | | | | | | | | | | | | | | |
F-89
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
RECONCILIATION OF BALANCE SHEET TO U.S. GAAP (IN AU$)
| | | | | | | | | | | | | |
| | | Restated
| | | U.S. GAAP
| | | | |
| | | AGAAP | | | Adjustments | | | U.S. GAAP | |
| | | A$ | | | A$ | | | A$ | |
| |
Current assets | | | | | | | | | | | | |
| Cash assets | | | 1,788,171 | | | | — | | | | 1,788,171 | |
| Receivables | | | 5,204,625 | | | | — | | | | 5,204,625 | |
| Inventories | | | 3,879,561 | | | | — | | | | 3,879,561 | |
| Other | | | 1,206,013 | | | | — | | | | 1,206,013 | |
| | | | | | | | | | | | | |
Total current assets | | | 12,078,370 | | | | — | | | | 12,078,370 | |
| | | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | | |
| Property, plant & equipment | | | 19,547,044 | | | | — | | | | 19,547,044 | |
| Deferred tax assets | | | 942,348 | | | | (942,348 | ) | | | — | |
| Investments accounted for using the equity method | | | 162,500 | | | | — | | | | 162,500 | |
| Intangible assets | | | 1,475,517 | | | | (496,566 | ) | | | 978,951 | |
| Other non current assets | | | 710,849 | | | | (185,225 | ) | | | 525,624 | |
| | | | | | | | | | | | | |
Total non-current assets | | | 22,838,258 | | | | (1,624,139 | ) | | | 21,214,119 | |
| | | | | | | | | | | | | |
Total assets | | | 34,916,628 | | | | (1,624,139 | ) | | | 33,292,489 | |
| | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
| Payables | | | 9,850,866 | | | | 5,310 | | | | 9,856,176 | |
| Interest bearing liabilities | | | 788,297 | | | | — | | | | 788,297 | |
| Current tax liabilities | | | 793,793 | | | | — | | | | 793,793 | |
| Provisions | | | 582,051 | | | | — | | | | 582,051 | |
| | | | | | | | | | | | | |
Total current liabilities | | | 12,015,007 | | | | 5,310 | | | | 12,020,317 | |
| | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | |
| Interest bearing liabilities | | | 15,437,785 | | | | (185,225 | ) | | | 15,252,560 | |
| Deferred tax liabilities | | | 942,348 | | | | (822,948 | ) | | | 119,400 | |
| Provisions | | | 133,522 | | | | — | | | | 133,522 | |
| | | | | | | | | | | | | |
Total non-current liabilities | | | 16,513,655 | | | | (1,008,173 | ) | | | 15,505,482 | |
| | | | | | | | | | | | | |
Total liabilities | | | 28,528,662 | | | | (1,002,863 | ) | | | 27,525,799 | |
| | | | | | | | | | | | | |
Net assets | | | 6,387,966 | | | | (621,276 | ) | | | 5,766,690 | |
| | | | | | | | | | | | | |
Equity | | | | | | | | | | | | |
| Contributed equity | | | 6,035,409 | | | | | | | | 6,035,409 | |
| Retained profits/(accumulated losses) | | | 352,557 | | | | (621,276 | ) | | | (268,719 | ) |
| | | | | | | | | | | | | |
Total equity | | | 6,387,966 | | | | (621,276 | ) | | | 5,766,690 | |
| | | | | | | | | | | | | |
Amortisation of goodwill
Under AGAAP, goodwill is required to be amortised over a period not exceeding 20 years. Under U.S. GAAP (SFAS 142, Goodwill and Other Intangible Assets) however, goodwill amortisation was required to cease for
F-90
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
financial years commencing on or after 15 December, 2001. The result is a net adjustment of $213,553 to increase goodwill and shareholder’s equity at 31 December 2003. This increases the retained earnings at 1 January 2003 by $106,777, and increases net profit after tax for the 12 months ending 31 December 2003 and retained earnings at 31 December 2003 by a further $106,776. There is no tax impact of this adjustment.
Straight lining of leases
Under U.S. GAAP, leases with fixed price increases included in the terms and conditions are accrued and expensed evenly across the term of the lease. This is not a requirement of AGAAP. This has increased operating expenses by $372 for the year ending 31 December 2003, and reduced the opening balance of retained earnings by $4,938, in total reducing shareholders equity by $5,310 with no significant impact on tax charge.
Correction of errors
As further described in Note 24, under AGAAP, fundamental errors were corrected in the current period. U.S. GAAP requires restatement of comparatives for prior year errors with amounts related to periods prior to the earliest period presented reflected as an adjustment to opening retained earnings. The result is an increase in profit before income tax of $1,634,440 and increase in tax charge of $911,919 in the statement of financial performance for the year ended 31 December 2003, increasing opening retained earnings by $722,521.
Loan establishment costs
Under AGAAP loan establishment costs are shown separately as an asset in the statement of financial position. Under U.S. GAAP, loan establishment costs paid to the lender of $185,225 are deducted from the related non-current interest bearing liability of $12,040,000.
Deferred taxes
Under AGAAP deferred tax liabilities and assets are shown separately as an asset in the statement of financial position. Under U.S. GAAP deferred tax liabilities and assets are shown net where the amounts relate to the same taxable entity and jurisdiction.
Acquisition of the company by RWA Holdings Pty Limited
Under U.S. GAAP, purchase accounting adjustments at parent company level are pushed down to the acquired entity where substantially all the ownership changes as a result of a business combination. The purchase price for the company was $5,766,690 with up to a further $3,500,000 being payable dependent on future profit performance of the company.
Push down accounting is not required under AGAAP. The application of push down accounting under U.S. GAAP gives rise to the recognition of separable intangible assets of $398,000, and associated deferred tax liability of $119,400, a reduction in deferred tax liabilities of $1,518,817 due to tax base adjustments, a deferred tax valuation allowance of $1,518,817 and goodwill of $580,951 in the company. The original carrying amount of goodwill related to prior acquisitions of $1,689,070 is eliminated as part of the push down adjustments.
| |
26. | Events subsequent to balance date |
On 12 September 2006 the current shareholders of the parent entity, RWA Holdings Pty Limited, entered into a Share Sale Deed with General Finance Corporation (GFC), a US based company with no substantial operations, for the sale of all of the issued capital of the company. There are certain conditions precedent that need to be satisfied
F-91
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
before the transaction can complete. It is anticipated that the transaction will complete during the first quarter of calendar year 2007.
The aggregate consideration for the acquisition is USD$87.4 million, which is subject to adjustment relating to the levels of the company’s working capital, net tangible assets and container rental equipment, and outstanding obligations under a certain container lease program, as well as the costs and expenses incurred by the company in connection with any acquisitions completed prior to the closing. The aggregate consideration will increase by USD$570,000 if the preliminary proxy statement has not been cleared by the U.S. Securities and Exchange Commission (SEC) by January 17, 2007 and by an additional USD$570,000 if clearance has not been obtained by February 17, 2007.
Of the aggregate consideration, the acquirer will pay the shareholders of the parent entity at the closing cash in the amount of USD$83.6 million, as adjusted by the consideration adjustments, less the net debt of the company as of the closing of the acquisition and increased if the proxy statement has not been cleared by the SEC by certain dates. The remaining USD$3.8 million of consideration will consist of USD$1.5 million of shares of common stock in GFC and a total of USD$2.3 million payable in cash in two equal instalments following the closing for a non-compete covenant from the parent entity’s shareholders.
F-92
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
INDEPENDENT AUDIT REPORT
TO THE PARTNERS OF
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
Scope
We have audited the financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership for the financial year ended 30 June 2005 comprising the Income Statement, Balance Sheet, Statement of Cash Flows and notes to the financial statements.
The partners are responsible for the financial report and have determined that the accounting policies used and described in Note 1 to the financial statements are appropriate to meet the needs of the partners. We have conducted an independent audit of this financial report in order to express an opinion on it to the partners. No opinion is expressed as to whether the accounting policies used, and described in Note 1, are appropriate to the needs of the partners.
Our audit has been conducted in accordance with Australian Auditing Standards and the standards of the Public Company Accounting Oversight Board (United States) to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements and the partnership agreement so as to present a view which is consistent with our understanding of the partnership’s financial position, the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership:
(i) gives a true and fair view of the partnership’s financial position as at 30 June 2005 and of its performance for the financial year ended on that date; and
(ii) complies with Accounting Standards in Australia; and
(iii) other mandatory professional requirements.
PITCHER PARTNERS
/s/ A R FITZPATRICK
A R FITZPATRICK | | |
Partner | Melbourne | 20 February 2007 |
F-93
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2005
| | | | | | | | | | | | | | | | | | | | | |
| | | FOR THE NINE MONTHS ENDED
| | | | | | | | | | |
| | | MARCH 31, | | | | | | | | | | |
| | | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | | $ | | | $ | | | Notes | | | $ | | | $ | |
| | | (Unaudited) | | | | | | | | | (Unaudited) | |
| |
| Revenue | | | | | | | | | | | | | | | | | | | | |
| Sales revenue | | | 2,124,550 | | | | 1,939,861 | | | | 2 | | | | 2,671,720 | | | | 2,332,870 | |
| Other income | | | 1,441,418 | | | | 1,260,519 | | | | 2 | | | | 1,645,738 | | | | 1,464,086 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 3,565,968 | | | | 3,200,380 | | | | | | | | 4,317,458 | | | | 3,796,956 | |
| Cost of Sales | | | (2,493,091 | ) | | | (2,329,436 | ) | | | | | | | (3,103,609 | ) | | | (2,708,745 | ) |
| Marketing expenses | | | (43,105 | ) | | | (32,663 | ) | | | | | | | (40,048 | ) | | | (27,206 | ) |
| Administrative expenses | | | (580,584 | ) | | | (494,638 | ) | | | | | | | (742,906 | ) | | | (624,211 | ) |
| Other expenses | | | (123,976 | ) | | | (77,155 | ) | | | | | | | (102,376 | ) | | | (136,194 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | (3,240,756 | ) | | | (2,933,892 | ) | | | | | | | (3,988,939 | ) | | | (3,496,356 | ) |
| Finance costs | | | (63,754 | ) | | | (36,800 | ) | | | 3 | | | | (104,196 | ) | | | (40,065 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Profit before income tax expense | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
| Income tax | | | — | | | | — | | | | 1 | (i) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Profit from continuing operations | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
| | | | | | | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-94
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
| | | | | | | | | | | | | | | | | |
| | | AS AT
| | | | | | | | | | |
| | | MARCH 31,
| | | | | | | | | | |
| | | 2006
| | | | | | 2005
| | | 2004
| |
| | | $ | | | Notes | | | $ | | | $ | |
| | | (Unaudited) | | | | | | | | | (Unaudited) | |
| |
CURRENT ASSETS | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 200 | | | | 4 | | | | 100 | | | | 19,379 | |
| Trade receivables | | | 759,109 | | | | 5 | | | | 457,712 | | | | 417,560 | |
| Inventories | | | 390,529 | | | | 6 | | | | 754,245 | | | | 365,248 | |
| Other | | | 26,906 | | | | | | | | 29,848 | | | | 29,162 | |
| | | | | | | | | | | | | | | | | |
TOTAL CURRENT ASSETS | | | 1,176,744 | | | | | | | | 1,241,905 | | | | 831,349 | |
| | | | | | | | | | | | | | | | | |
NON-CURRENT ASSETS | | | | | | | | | | | | | | | | |
| Receivables | | | 1,323 | | | | 5 | | | | 1,323 | | | | 1,323 | |
| Financial assets at cost | | | 4 | | | | 7 | | | | 4 | | | | 4 | |
| Plant and equipment | | | 1,865,982 | | | | 8 | | | | 1,361,360 | | | | 1,113,328 | |
| Intangible assets | | | 1,039 | | | | 9 | | | | 18,048 | | | | 18,048 | |
| | | | | | | | | | | | | | | | | |
TOTAL NON-CURRENT ASSETS | | | 1,868,348 | | | | | | | | 1,380,735 | | | | 1,132,703 | |
| | | | | | | | | | | | | | | | | |
TOTAL ASSETS | | | 3,045,092 | | | | | | | | 2,622,640 | | | | 1,964,052 | |
| | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Trade and other payables | | | 348,774 | | | | 10 | | | | 528,412 | | | | 452,559 | |
| Short term borrowings | | | 903,118 | | | | 11 | | | | 717,142 | | | | 342,668 | |
| Provisions | | | 28,496 | | | | 12 | | | | 30,313 | | | | 25,744 | |
| | | | | | | | | | | | | | | | | |
TOTAL CURRENT LIABILITIES | | | 1,280,388 | | | | | | | | 1,275,867 | | | | 820,971 | |
| | | | | | | | | | | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Long term borrowings | | | 987,937 | | | | 11 | | | | 726,124 | | | | 564,259 | |
| Provisions | | | — | | | | 12 | | | | 29,875 | | | | 20,991 | |
| | | | | | | | | | | | | | | | | |
TOTAL NON-CURRENT LIABILITIES | | | 987,937 | | | | | | | | 755,999 | | | | 585,250 | |
| | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES | | | 2,268,325 | | | | | | | | 2,031,866 | | | | 1,406,221 | |
| | | | | | | | | | | | | | | | | |
NET ASSETS | | | 776,767 | | | | | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | | |
PARTNERS’ FUNDS | | | | | | | | | | | | | | | | |
| Current accounts | | | 776,767 | | | | 14 | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | | |
TOTAL PARTNERS’ FUNDS | | | 776,767 | | | | | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-95
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2005
| | | | | | | | | | | | | | | | | | | | | |
| | | FOR THE NINE MONTHS
| | | | | | | | | | |
| | | ENDED MARCH 31, | | | | | | | | | | |
| | | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | | $ | | | $ | | | Notes | | | $ | | | $ | |
| | | (Unaudited) | | | | | | | | | (Unaudited) | |
CASH FLOW FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Receipts from customers | | | 3,589,241 | | | | 3,527,964 | | | | | | | | 4,599,569 | | | | 4,000,642 | |
| Payments to suppliers and employees | | | (2,433,450 | ) | | | (2,821,295 | ) | | | | | | | (3,751,418 | ) | | | (3,291,005 | ) |
| Interest Paid | | | (33,971 | ) | | | (26,016 | ) | | | | | | | (104,196 | ) | | | (40,065 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 1,121,820 | | | | 680,653 | | | | 19 | (b) | | | 743,955 | | | | 669,572 | |
| | | | | | | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of plant and equipment | | | — | | | | 163,540 | | | | | | | | 313,443 | | | | 418,088 | |
| Payment for plant and equipment | | | (890,832 | ) | | | (439,344 | ) | | | | | | | (908,950 | ) | | | (614,169 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (890,832 | ) | | | (275,804 | ) | | | | | | | (595,507 | ) | | | (196,081 | ) |
| | | | | | | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| (Increase)/decrease in loans to directors | | | 78,638 | | | | 83,249 | | | | | | | | 68,342 | | | | 19,333 | |
| Repayment of borrowings/Lease repayments | | | (301,606 | ) | | | (286,809 | ) | | | | | | | (35,758 | ) | | | (385,935 | ) |
| Partnership distributions paid | | | (226,520 | ) | | | (229,688 | ) | | | | | | | (224,323 | ) | | | (260,535 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | (449,488 | ) | | | (433,248 | ) | | | | | | | (191,739 | ) | | | (627,137 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net decrease in cash held | | | (218,500 | ) | | | (28,399 | ) | | | | | | | (43,291 | ) | | | (153,646 | ) |
| Cash at beginning of financial year | | | 51,227 | | | | 79,626 | | | | | | | | 19,379 | | | | 173,025 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash at end of financial year | | | (167,273 | ) | | | 51,227 | | | | 19 | (a) | | | (23,912 | ) | | | 19,379 | |
| | | | | | | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-96
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
FOR THE YEAR ENDED 30 JUNE 2005 AND 30 JUNE 2004 (UNAUDITED)
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board.
This financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership is prepared in accordance with Australian Accounting Standards at 30 June 2005. The entity has evaluated the key differences in accounting policies that are expected to arise from adopting Australian Equivalents of International Financial Reporting Standards (AIFRS) and the key differences are considered immaterial. The transition date for first-time adoption of AIFRS is 1 July 2004.
The financial report has been prepared on an accruals basis and is based on historical costs. It does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair value of the consideration given in exchange for assets.
The following is a summary of the material accounting policies adopted by the entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.
(a) Revenue
Revenue from sale of goods is recognised upon the delivery of goods to customers.
Revenue from the rendering of a service, most commonly hiring of containers is recognised upon the delivery of the container to the customers and is charged monthly in arrears.
Interest revenue is recognised when it is received.
Other revenue is recognised when the right to receive the revenue has been established.
All revenue is stated net of the amount of goods and services tax (GST).
(b) Inventories
Inventories are measured at the lower of cost and net realisable value. Costs incurred in bringing each container to its present location and condition are accounted for as follows:
Work-in-progress — cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity.
Container stocks — actual purchase cost is allocated to each container on the basis of physical identification.
(c) Plant and Equipment
Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.
Plant and equipment
Plant and equipment is measured on the cost basis.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to present values in determining recoverable amounts.
F-97
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
Depreciation
The depreciable amount of all fixed assets are depreciated over their estimated useful lives to the entity commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.
Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.
Finance Leases
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.
Operating leases
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.
Lease incentives received under operating leases are recognised as a liability. Lease payments received reduced the liability.
(d) Intangibles
Goodwill
Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Formation costs
Formation costs are initially recorded at the purchase price. Formation costs are amortised on a straight line basis over the period of 20 years. The balances are reviewed annually and any balance representing future benefits the realisation of which is considered to be no longer probable are written off.
(e) Employee Benefits
Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.
(f) Impairment of assets
Assets with an indefinite useful life are not amortised but are tested annually for impairment in accordance with AASB 136. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever
F-98
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
events or circumstances arise that indicate that the carrying amount of the asset may be impaired. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and value in use.
(g) Comparative Figures
The partnership was audited for the first time for the financial year ended 30 June 2004. A qualified audit opinion was issued in relation to the 2004 financial statements relating to unaudited opening balances as at 1 July 2003 resulting in a qualified audit opinion being given as to the operating result for the 2004 year. As such, 2004 comparatives relating to the income statement and supporting notes to the accounts are unaudited.
(h) Financial Instruments
Classification
The company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss, loans and receivables,held-to-maturity investments, andavailable-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.
(i) Income tax
The entity is a partnership for accounting and income tax purposes. Under Australian Taxation Law the individual partner entity is assessed on its share of partnership taxable income. It is possible that the taxation liability will vary from partner to partner depending on individual circumstances. Therefore it is not appropriate to include an income tax expense or liability in the partnership accounts.
NOTE 2: REVENUE
| | | | | | | | | | | | | |
Operating activities | | | | | | | | | |
| |
| - sale of goods | | | | | | | 2,671,720 | | | | 2,332,870 | |
| - container hire revenue | | | | | | | 1,643,005 | | | | 1,373,439 | |
| - interest | | | 2 | (a) | | | 603 | | | | 3,720 | |
| - other revenue | | | | | | | 2,130 | | | | 86,927 | |
| | | | | | | | | | | | | |
| Total Revenue | | | | | | | 4,317,458 | | | | 3,796,956 | |
| | | | | | | | | | | | | |
| (a) Interest from: | | | | | | | | | | | | |
| - other persons | | | | | | | 603 | | | | 3,720 | |
| | | | | | | | | | | | | |
| | | | | | | | 603 | | | | 3,720 | |
| | | | | | | | | | | | | |
F-99
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 3: PROFIT FROM CONTINUING ACTIVITIES
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| Profit/(losses) before income tax has been determined after: | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Interest paid: | | | | | | | | | | | | |
| - other persons | | | | | | | 59,883 | | | | 40,065 | |
| Finance lease charges | | | | | | | 115,606 | | | | 69,871 | |
| | | | | | | | | | | | | |
| Total finance costs | | | | | | | 175,489 | | | | 109,936 | |
| Depreciation of non-current assets | | | | | | | | | | | | |
| - Plant and equipment | | | | | | | 32,696 | | | | 32,474 | |
| - Hire stock | | | | | | | 386,014 | | | | 366,023 | |
| - Motor vehicles | | | | | | | 25,820 | | | | 30,022 | |
| Amortisation of non-current assets: | | | | | | | | | | | | |
| - goodwill | | | | | | | — | | | | 1,001 | |
| | | | | | | | | | | | | |
| - Goodwill amortisation | | | | | | | — | | | | 1,001 | |
| Bad debts: | | | | | | | | | | | | |
| - trade debtors | | | | | | | 22,501 | | | | 12,281 | |
| - bad debts recovered | | | | | | | (1,744 | ) | | | (2,643 | ) |
| | | | | | | | | | | | | |
| Bad and doubtful debts | | | | | | | 20,757 | | | | 9,638 | |
| | | | | | | | | | | | | |
| Rental expense on operating leases | | | | | | | | | | | | |
| - minimum lease payments | | | | | | | 71,293 | | | | 69,871 | |
| | | | | | | | | | | | | |
| Rental expense on operating leases | | | | | | | 71,293 | | | | 69,871 | |
| Foreign currency translation losses (gains) | | | | | | | (386 | ) | | | (7,001 | ) |
| Net loss/(gain) on disposal of non-current assets | | | | | | | | | | | | |
| - Plant and equipment | | | | | | | (97,054 | ) | | | (139,514 | ) |
| | | | | | | | | | | | | |
NOTE 4: CASH AND CASH EQUIVALENTS
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| Cash on hand | | | | | | | 100 | | | | 100 | |
| Cash at bank | | | | | | | — | | | | 19,279 | |
| | | | | | | | | | | | | |
| | | | | | | | 100 | | | | 19,379 | |
| | | | | | | | | | | | | |
F-100
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 5: RECEIVABLES
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| CURRENT | | | | | | | | | | | | |
| Trade debtors | | | | | | | 456,537 | | | | 417,560 | |
| Other debtors | | | | | | | 1,175 | | | | — | |
| | | | | | | | | | | | | |
| | | | | | | | 457,712 | | | | 417,560 | |
| | | | | | | | | | | | | |
| NON-CURRENT | | | | | | | | | | | | |
| Amounts receivable from: | | | | | | | | | | | | |
| - associated companies | | | | | | | 1,323 | | | | 1,323 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| CURRENT | | | | | | | | | | | | |
| Work in progress at cost | | | | | | | 17,576 | | | | — | |
| Finished goods at cost | | | | | | | 736,669 | | | | 365,248 | |
| | | | | | | | | | | | | |
| | | | | | | | 754,245 | | | | 365,248 | |
| | | | | | | | | | | | | |
NOTE 7: FINANCIAL ASSETS AT COST
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| NON CURRENT | | | | | | | | | | | | |
| - Unlisted shares | | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | | |
(a) Classification | | | | | | | | | | | | |
| The carrying amounts of the above financial assets are classified as follows: | | | | | | | | | | | | |
| Designated at fair value on initial recognition | | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | | |
| | | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | | |
F-101
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 8: PLANT AND EQUIPMENT
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
Hire Container | | | | | | | | | | | | |
| At cost | | | | | | | 2,443,277 | | | | 2,021,887 | |
| Less accumulated depreciation | | | | | | | (1,314,423 | ) | | | (1,074,189 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 1,128,854 | | | | 947,698 | |
| | | | | | | | | | | | | |
Plant and Equipment | | | | | | | | | | | | |
| Plant and equipment | | | | | | | | | | | | |
| At cost | | | | | | | 166,813 | | | | 91,560 | |
| Less accumulated depreciation | | | | | | | (78,588 | ) | | | (78,825 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 88,225 | | | | 12,735 | |
| Motor vehicles | | | | | | | | | | | | �� |
| At cost | | | | | | | 227,772 | | | | 196,616 | |
| Less accumulated depreciation | | | | | | | (112,874 | ) | | | (87,054 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 114,898 | | | | 109,562 | |
| Office equipment | | | | | | | | | | | | |
| At cost | | | | | | | 14,515 | | | | 16,189 | |
| Less accumulated depreciation | | | | | | | (6,325 | ) | | | (6,286 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 8,190 | | | | 9,903 | |
| Computer equipment | | | | | | | | | | | | |
| At cost | | | | | | | 60,782 | | | | 90,905 | |
| Less accumulated depreciation | | | | | | | (39,589 | ) | | | (57,475 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 21,193 | | | | 33,430 | |
| | | | | | | | | | | | | |
| Total plant and equipment | | | | | | | 1,361,360 | | | | 1,113,328 | |
| | | | | | | | | | | | | |
(a) Movements in Carrying Amounts
Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year
| | | | | | | | | | | | | | | | | |
| | | Hire containers
| | | Plant & equipment
| | | Motor vehicles
| | | Office equipment
| |
2005 | | $ | | | $ | | | $ | | | $ | |
| |
| Balance at the beginning of the year | | | 947,698 | | | | 12,735 | | | | 109,562 | | | | 9,903 | |
| Additions | | | 783,558 | | | | 83,151 | | | | 31,156 | | | | 1,649 | |
| Disposals | | | (216,389 | ) | | | — | | | | — | | | | — | |
| Depreciation expense | | | (386,014 | ) | | | (7,661 | ) | | | (25,820 | ) | | | (3,362 | ) |
| | | | | | | | | | | | | | | | | |
| Carrying amount at end of year | | | 1,128,854 | | | | 88,225 | | | | 114,898 | | | | 8,190 | |
| | | | | | | | | | | | | | | | | |
F-102
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | Computer equipment
| | | Total
| |
2005 | | $ | | | $ | |
| |
| Balance at the beginning of the year | | | 33,430 | | | | 1,113,328 | |
| Additions | | | 9,436 | | | | 908,950 | |
| Disposals | | | — | | | | (216,389 | ) |
| Depreciation expense | | | (21,673 | ) | | | (444,530 | ) |
| | | | | | | | | |
| Carrying amount at the end of the year | | | 21,193 | | | | 1,361,360 | |
| | | | | | | | | |
NOTE 9: INTANGIBLE ASSETS
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| Goodwill at cost | | | | | | | 20,000 | | | | 20,000 | |
| Less accumulated impairment losses | | | | | | | (2,991 | ) | | | (2,991 | ) |
| | | | | | | | | | | | | |
| | | | | | | | 17,009 | | | | 17,009 | |
| Formation costs at cost | | | | | | | 1,039 | | | | 1,039 | |
| | | | | | | | | | | | | |
| | | | | | | | 18,048 | | | | 18,048 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| CURRENT | | | | | | | | | | | | |
Unsecured liabilities | | | | | | | | | | | | |
| Trade creditors | | | | | | | 383,490 | | | | 273,257 | |
| Sundry creditors and accruals | | | | | | | 144,922 | | | | 179,302 | |
| | | | | | | | | | | | | |
| | | | | | | | 528,412 | | | | 452,559 | |
| | | | | | | | | | | | | |
F-103
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| CURRENT | | | | | | | | | | | | |
Unsecured liabilities | | | | | | | | | | | | |
| Amounts payable to: | | | | | | | | | | | | |
| - partner related parties | | | | | | | 183,060 | | | | 147,661 | |
| | | | | | | | | | | | | |
Secured liabilities | | | | | | | | | | | | |
| Bank overdrafts | | | | | | | 24,012 | | | | — | |
| Bank loans | | | | | | | 210,591 | | | | — | |
| Hire purchase liability | | | 13 | | | | 299,479 | | | | 195,007 | |
| | | | | | | | | | | | | |
| | | | | | | | 534,082 | | | | 195,007 | |
| | | | | | | | | | | | | |
| | | | | | | | 717,142 | | | | 342,668 | |
| | | | | | | | | | | | | |
| NON-CURRENT | | | | | | | | | | | | |
Secured liabilities | | | | | | | | | | | | |
| Bank loans | | | | | | | 172,100 | | | | 90,054 | |
| Hire purchase liability | | | 13 | | | | 554,024 | | | | 474,205 | |
| | | | | | | | | | | | | |
| | | | | | | | 726,124 | | | | 564,259 | |
| | | | | | | | | | | | | |
There was a Registered Mortgage Debenture over the whole of Australian Container Network Pty Ltd As Nominee For The ACN Partnership assets including goodwill and uncalled capital and called but unpaid capital together with relative insurance policy assigned to the National Australia Bank Limited.
Deed of Priority.
Letter of Subordination.
Guarantee and Indemnity for $675,000.00 given by the partner entities and related individuals supported by a Registered Mortgage Debenture over the assets of the partner entities.
The above security was subsequently released upon the sale of the partnership business. Refer Subsequent Events Note 16.
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| CURRENT | | | | | | | | | | | | |
| Employee benefits | | | (a | ) | | | 30,313 | | | | 25,744 | |
| | | | | | | | | | | | | |
| NON-CURRENT | | | | | | | | | | | | |
| Employee benefits | | | (a | ) | | | 29,875 | | | | 20,991 | |
| | | | | | | | | | | | | |
| (a) Aggregate employee benefits liability | | | | | | | 60,188 | | | | 46,735 | |
| | | | | | | | | | | | | |
F-104
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 13: CAPITAL AND LEASING COMMITMENTS
| | | | | | | | | | | | | |
| | | Note | | | 2005 | | | 2004 | |
| |
| (a) Hire purchase commitments | | | | | | | | | | | | |
| Payable | | | | | | | | | | | | |
| - not later than one year | | | | | | | 349,143 | | | | 234,723 | |
| - later than one year and not later than five years | | | | | | | 604,687 | | | | 517,968 | |
| | | | | | | | | | | | | |
| Minimum hire purchase payments | | | | | | | 953,830 | | | | 752,691 | |
| Less future finance charges | | | | | | | (100,327 | ) | | | (83,479 | ) |
| | | | | | | | | | | | | |
| Total hire purchase liability | | | | | | | 853,503 | | | | 669,212 | |
| | | | | | | | | | | | | |
| Represented by: | | | | | | | | | | | | |
| Current liability | | | 11 | | | | 299,479 | | | | 195,007 | |
| Non-current liability | | | 11 | | | | 554,024 | | | | 474,205 | |
| | | | | | | | | | | | | |
| | | | | | | | 853,503 | | | | 669,212 | |
| | | | | | | | | | | | | |
| (b) Operating lease commitments | | | | | | | | | | | | |
| Non-cancellable operating leases contracted for but not capitalised in the financial statements: | | | | | | | | | | | | |
| Payable | | | | | | | | | | | | |
| - not later than one year | | | | | | | 28,300 | | | | 27,309 | |
| - later than one year and not later than five years | | | | | | | 68,481 | | | | 8,864 | |
| | | | | | | | | | | | | |
| | | | | | | | 96,781 | | | | 36,173 | |
| | | | | | | | | | | | | |
Partners’ current accounts
| | | | | | | | | | | | | |
| | | For the Nine
| | | | | | | |
| | | Months Ended
| | | | | | | |
| | | March 31, 2006 | | | | | | | |
| | | (Unaudited) | | | | | | | |
| |
Koleet Pty Ltd | | | | | | | | | | | | |
| Opening Balance | | | 253,350 | | | | 224,399 | | | | 137,554 | |
| Share of profits | | | 87,153 | | | | 74,774 | | | | 86,845 | |
| Drawings | | | (25,000 | ) | | | (45,823 | ) | | | — | |
| | | | | | | | | | | | | |
| Closing Balance | | | 315,503 | | | | 253,350 | | | | 224,399 | |
| | | | | | | | | | | | | |
Caraft Pty Ltd | | | | | | | | | | | | |
| Opening Balance | | | 113,844 | | | | 135,049 | | | | 48,204 | |
| Share of profits | | | 87,153 | | | | 74,774 | | | | 86,845 | |
| Drawings | | | (25,212 | ) | | | (95,979 | ) | | | — | |
| | | | | | | | | | | | | |
| Closing Balance | | | 175,785 | | | | 113,844 | | | | 135,049 | |
| | | | | | | | | | | | | |
Wellest Pty Ltd | | | | | | | | | | | | |
| Opening Balance | | | 223,580 | | | | 198,384 | | | | 111,539 | |
| Share of profits | | | 87,152 | | | | 74,775 | | | | 86,845 | |
| Drawings | | | (25,253 | ) | | | (49,579 | ) | | | — | |
| | | | | | | | | | | | | |
| Closing Balance | | | 285,479 | | | | 223,580 | | | | 198,384 | |
| | | | | | | | | | | | | |
| | | | 776,767 | | | | 590,774 | | | | 557,832 | |
| | | | | | | | | | | | | |
F-105
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 15: | RECONCILIATION OF U.S. GAAP |
The Partnership’s financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standard (AIFRSs) for the year ended 30 June 2005. The partners have considered whether the financial statements prepared on this basis differ materially from accounting standards generally accepted in the United States of America (U.S. GAAP). It was determined that the effects of the application of U.S. GAAP to net profit and partners’ equity was immaterial and therefore a reconciliation has not been considered necessary.
| |
NOTE 16: | EVENTS SUBSEQUENT TO REPORTING DATE |
The business of Australian Container Network partnership was purchased by Royal Wolf Trading Australia Pty Ltd on 28 April 2006. As part of the agreement Royal Wolf Trading Australia Pty Ltd purchased selected assets and assumed employee liabilities of the partnership together with the business trading name.
| |
NOTE 17: | PARTNERSHIP DETAILS |
The registered office of the nominee company is:
Australian Container Network Pty Ltd
C/- Pitcher Partners
Level 19, 15 William Street
Melbourne Vic 3000
| |
NOTE 18: | PARTNERS’ AND EXECUTIVES’ REMUNERATION |
| | | | | | | | | | | | | | | | | |
| | | Salary, fees and
| | | | | | | | | | |
2005 | | non-monetary benefits | | | Super-annuation | | | Equity | | | TOTAL | |
| |
| PARTNERS | | | | | | | | | | | | | | | | |
| Sebastian Cavarra | | | 59,881 | | | | 4,500 | | | | — | | | | 64,381 | |
| Wendy Cavarra | | | 87,060 | | | | 6,660 | | | | — | | | | 93,720 | |
| Joe Kolenda | | | 57,476 | | | | 4,500 | | | | — | | | | 61,976 | |
| Peter Welsh | | | 57,476 | | | | 4,500 | | | | — | | | | 61,976 | |
| | | | | | | | | | | | | | | | | |
| | | | 261,893 | | | | 20,160 | | | | — | | | | 282,053 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Salary, fees and
| | | | | | | | | | |
2004 | | non-monetary benefits | | | Super-annuation | | | Equity | | | TOTAL | |
| |
| PARTNERS | | | | | | | | | | | | | | | | |
| Sebastian Cavarra | | | 54,074 | | | | 4,050 | | | | — | | | | 58,124 | |
| Wendy Cavarra | | | 65,978 | | | | 4,410 | | | | — | | | | 70,388 | |
| Joe Kolenda | | | 54,441 | | | | 4,050 | | | | — | | | | 58,491 | |
| Peter Welsh | | | 51,276 | | | | 4,050 | | | | — | | | | 55,326 | |
| | | | | | | | | | | | | | | | | |
| | | | 225,769 | | | | 16,560 | | | | — | | | | 242,329 | |
| | | | | | | | | | | | | | | | | |
F-106
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 19: | CASH FLOW INFORMATION |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Nine
| | | | | | | | | | |
| | | Months Ended | | | | | | | | | | |
| | | March
| | | March
| | | | | | | | | | |
| | | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | | $ | | | $ | | | Note | | | $ | | | $ | |
| | | (Unaudited) | | | | | | | | | | |
| |
| (a) Reconciliation of cash | | | | | | | | | | | | | | | | | | | | |
| For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions, investments in money market instruments maturing within less than two months and net of bank overdrafts. | | | | | | | | | | | | | | | | | | | | |
| Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statement of financial position as follows: | | | | | | | | | | | | | | | | | | | | |
| Cash on hand | | | 200 | | | | 100 | | | | | | | | 100 | | | | 100 | |
| Cash at bank | | | — | | | | 51,127 | | | | | | | | — | | | | 19,279 | |
| Bank overdrafts | | | (168,719 | ) | | | — | | | | | | | | (24,012 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | (168,519 | ) | | | 51,227 | | | | | | | | (23,912 | ) | | | 19,379 | |
| (b) Reconciliation of cash flow from operations with profit from ordinary activities after income tax | | | | | | | | | | | | | | | | | | | | |
| Profit from ordinary activities after income tax | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
| Non-cash flows in profit from ordinary activities Amortisation | | | — | | | | — | | | | | | | | — | | | | 1,952 | |
| Depreciation | | | 402,780 | | | | 117,337 | | | | | | | | 444,530 | | | | 428,519 | |
| Net (gain)/loss on disposal of property, plant and equipment | | | 20,000 | | | | — | | | | | | | | (97,054 | ) | | | (139,514 | ) |
| Lease/HP charges | | | 8,619 | | | | — | | | | | | | | 78,980 | | | | 66,783 | |
| New leases entered into | | | 684,674 | | | | 364,513 | | | | | | | | 433,705 | | | | 592,466 | |
| Changes in assets and liabilities | | | | | | | | | | | | | | | | | | | | |
| Increase in receivables | | | (303,587 | ) | | | 13,871 | | | | | | | | (38,977 | ) | | | (13,494 | ) |
| Increase in other assets | | | 9,579 | | | | 445 | | | | | | | | (1,861 | ) | | | (5,234 | ) |
| Increase in inventories | | | 22,952 | | | | (115,016 | ) | | | | | | | (388,997 | ) | | | (55,526 | ) |
| increase/(decrease) in payables | | | (13,151 | ) | | | 69,815 | | | | | | | | 75,853 | | | | (513,649 | ) |
| Increase in provisions | | | 28,496 | | | | — | | | | | | | | 13,453 | | | | 46,735 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash flows from operations | | | 1,121,820 | | | | 680,653 | | | | | | | | 743,955 | | | | 669,573 | |
| | | | | | | | | | | | | | | | | | | | | |
F-107
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 20: | FINANCIAL INSTRUMENTS |
(a) Interest rate risk
The partnership’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Weighted
| |
| | | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2005
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
| |
(i) Financial assets | | | | | | | | | | | | | | | | | | | | |
| Cash | | | — | | | | — | | | | 100 | | | | 100 | | | | — | |
| Trade and other receivables | | | — | | | | — | | | | 457,712 | | | | 457,712 | | | | — | |
| Receivables — other related parties | | | — | | | | — | | | | 1,323 | | | | 1,323 | | | | — | |
| Unlisted shares | | | — | | | | — | | | | 4 | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total financial assets | | | — | | | | — | | | | 459,139 | | | | 459,139 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Weighted
| |
| | | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2005
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
| |
(ii) Financial liabilities | | | | | | | | | | | | | | | | | | | | |
| Bank overdraft | | | 24,012 | | | | — | | | | — | | | | 24,012 | | | | 12.1 | |
| Trade creditors | | | — | | | | — | | | | 383,490 | | | | 383,490 | | | | — | |
| Other creditors | | | — | | | | — | | | | 8,238 | | | | 8,238 | | | | — | |
| Bank and other loans | | | 382,691 | | | | — | | | | — | | | | 382,691 | | | | 8.3 | |
| Payable — director & director related parties | | | — | | | | 183,060 | | | | — | | | | 183,060 | | | | 15.0 | |
| Hire purchase | | | — | | | | — | | | | 853,503 | | | | 853,503 | | | | 7.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total financial liabilities | | | 406,703 | | | | 183,060 | | | | 1,245,231 | | | | 1,834,994 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Weighted
| |
| | | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2004
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
| |
(iii) Financial assets | | | | | | | | | | | | | | | | | | | | |
| Cash | | | 19,279 | | | | — | | | | 100 | | | | 19,379 | | | | 11.9 | |
| Trade and other receivables | | | — | | | | — | | | | 417,560 | | | | 417,560 | | | | — | |
| Receivables — other related parties | | | — | | | | — | | | | 1,323 | | | | 1,323 | | | | — | |
| Unlisted shares | | | — | | | | — | | | | 4 | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total financial assets | | | 19,279 | | | | — | | | | 418,987 | | | | 438,266 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
F-108
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Weighted
| |
| | | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2004
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
| |
(iv) Financial liabilities | | | | | | | | | | | | | | | | | | | | |
| Trade creditors | | | — | | | | — | | | | 273,257 | | | | 273,257 | | | | — | |
| Other creditors | | | — | | | | — | | | | 72,803 | | | | 72,803 | | | | — | |
| Bank and other loans | | | — | | | | — | | | | 90,054 | | | | 90,054 | | | | 10.8 | |
| Payable — director & director related parties | | | — | | | | — | | | | 147,661 | | | | 147,661 | | | | 15.0 | |
| Hire purchase | | | — | | | | — | | | | 669,212 | | | | 669,212 | | | | 7.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total financial liabilities | | | — | | | | — | | | | 1,252,987 | | | | 1,252,987 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements.
The entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the entity.
The net fair value of financial assets and financial liabilities approximates their carrying values as disclosed in the statement of financial position and notes to the financial statements.
The net fair value of listed investments have been valued at the quoted market bid price at balance date adjusted for transaction costs expected to be incurred. For other assets and other liabilities the net fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments, forward exchange contracts and interest rate swaps. Financial assets where the carrying amount exceeds net fair values have not been written down as the entity intends to hold these assets to maturity.
Aggregate net fair values and carrying amounts of financial assets and financial liabilities at balance date
| | | | | | | | | | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | Carrying Amount
| | | Net Fair Value
| | | Carrying Amount
| | | Net Fair Value
| |
| | | $ | | | $ | | | $ | | | $ | |
| |
| Financial assets | | | | | | | | | | | | | | | | |
| Financial assets at fair value through profit and loss | | | 4 | | | | — | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | 4 | | | | — | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | |
F-109
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | Carrying Amount
| | | Net Fair Value
| | | Carrying Amount
| | | Net Fair Value
| |
| | | $ | | | $ | | | $ | | | $ | |
| |
| Financial liabilities | | | | | | | | | | | | | | | | |
| Other loans and amounts due | | | 1,236,194 | | | | — | | | | 759,266 | | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | 1,236,194 | | | | — | | | | 759,266 | | | | — | |
| | | | | | | | | | | | | | | | | |
F-110
Annex A
| | | |
| | | Deed of Variation
(No. 3) |
| | | |
| | | to the Share Sale Deed relating to shares in
RWA Holdings Pty Limited |
| | | |
| | | |
| | | |
| | | Equity Partners Two Pty Limited (in its capacity as trustee
of Equity Partners 2 Trust) |
| | | FOMM Pty Limited |
| | | FOMJ Pty Limited |
| | | Cetro Pty Limited |
| | | TWCE Pty Limited |
| | | Michael Paul Baxter |
| | | James Harold Warren |
| | | Paul Henry Jeffery |
| | | Peter Linden McCann |
| | | GFN Australasia Finance Pty Limited |
| | | General Finance Corporation |
| | | Bison Capital Australia LP |
| | | |
AURORA PLACE, 88 PHILLIP STREET, SYDNEY
NSW 2000, DX 117 SYDNEY TEL: +61 2 9921 8888 FAX: +61 2 9921 8123
www.minterellison.com
Deed of Variation (No. 3)
| | | | |
Details
| | | A-3 | |
Agreed terms
| | | A-5 | |
1. Defined terms & interpretation
| | | A-5 | |
2. Variation
| | | A-5 | |
3. Continued operation of the Share Sale Deed as amended and restated
| | | A-5 | |
4. Miscellaneous
| | | A-5 | |
4.1 Costs | | | A-5 | |
4.2 Counterparts | | | A-5 | |
4.3 Entire agreement | | | A-5 | |
4.4 Governing law and jurisdiction | | | A-5 | |
Signing page
| | | A-6 | |
Annexure A — Amended and Restated Share Sale Deed
A-2
Details
Date
Parties
| | |
Name | | Equity Partners Two Pty Limited (as trustee of Equity Partners 2 Trust) |
ACN | | 093 766 280 |
Notice details | | Level 12, 60 Margaret Street, Sydney NSW 2000
Facsimile 02 8298 5150
Attention Rajeev Dhawan |
| | |
Name | | FOMM Pty Limited (as trustee of the FOMM Trust) |
ACN | | 106 818 231 |
Notice details | | 66 Lucinda Avenue, Wahroonga NSW 2076
Facsimile 02 9482 3477
Attention Michael Baxter |
| | |
Name | | FOMJ Pty Limited (as trustee of the FOMJ Trust) |
ACN | | 106 818 222 |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066
Facsimile 02 9482 3477
Attention James Warren |
| | |
Name | | Cetro Pty Limited (as trustee of the FOMP Trust) |
ACN | | 002 109 668 |
Notice details | | Level 2, 57 Grosvenor Street, Neutral Bay NSW 2089
Facsimile 02 9981 7145
Attention Paul Jeffery |
| | |
Name | | TCWE Pty Limited (as trustee of the McCann Family Trust) |
ACN | | 109 083 105 |
Notice details | | 9 Bunyana Avenue, Wahroonga NSW 2076
Facsimile 02 9482 3477
Attention Peter McCann |
| | |
Name | | Michael Paul Baxter |
Notice details | | 66 Lucinda Avenue, Wahroonga NSW 2076
Facsimile 02 9482 3477 |
| | |
Name | | James Harold Warren |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066
Facsimile 02 9482 3477 |
| | |
Name | | Paul Henry Jeffery |
Notice details | | 8/1150 Pittwater Road, Collaroy NSW 2107
Facsimile 02 9482 3477 |
| | |
Name | | Peter Linden McCann |
Notice details | | 9 Bunyana Avenue, Wahroonga NSW 2076
Facsimile 02 9482 3477 |
| | |
Name | | GFN Australasia Finance Pty Limited |
ACN | | 121 227 790 |
Notice details | | C/- General Finance Corporation, 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101
Facsimile +1 626 795 8090
Attention: Mr Ronald F Valenta |
| | |
Name | | General Finance Corporation |
Notice details | | 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101
Facsimile +1 626 795 8090
Attention: Mr Ronald F Valenta |
A-3
| | |
Name | | Bison Capital Australia LP(a limited partnership incorporated in accordance with the laws of Delaware, United States of America) |
Incorporation number | | 33-1158464 |
Short form name | | Bison-GE |
Notice details | | 10877 Wilshire Blvd. Suite 1520, Los Angeles, CA 90024
United States of America
Facsimile (310) 260 6576
Attention: Douglas B Trussler — Managing Member |
A-4
Background
A The parties to this deed (other than Bison-GE) are parties to a Share Sale Deed dated 12 September 2006 (as amended on 19 January 2007 and on 9 March 2007) relating to shares in RWA Holdings Pty Limited(Share Sale Deed).
B The parties have agreed to amend and restate the Share Sale Deed in accordance with the terms of this deed so that as and from the date of this deed it is in the form of the document contained inAnnexure Ato this deed (Amended and Restated Share Sale Deed).
Agreed terms
1. Defined terms & interpretation
In this deed, unless the context otherwise requires:
(a) a word or expression defined in the Share Sale Deed has the meaning given to it in the Amended and Restated Share Sale Deed;
(b) clauses 1.2 and 1.3 of the Amended and Restated Share Sale Deed apply to this deed, to the extent relevant, as if specifically incorporated in this deed; and
(c) to the extent of any inconsistency between this deed and the Amended and Restated Share Sale Deed, this deed will prevail.
2. Variation
(a) (a) On and with effect from the date of this deed, the Share Sale Deed is amended and restated so that on and from the date of this deed the Share Sale Deed shall be in the form of the document contained inAnnexure Ato this deed.
(b) The parties acknowledge and agree that the rights and obligations of the parties (other than Bison-GE) under the Share Sale Deed are now as set out in Amended and Restated Share Sale Deed.
(c) The parties acknowledge and agree that by its execution of this deed Bison-GE has assumed the rights and obligations under the Share Sale Deed that it is expressed to have under the Amended and Restated Share Sale Deed.
(d) Bison-GE agrees to be included as a party to the Amended and Restated Share Sale Deed and agrees to assume all of the rights and obligations applying to it as set out in the Amended and Restated Share Sale Deed.
3. Continued operation of the Share Sale Deed as amended and restated
Subject to the terms of this deed, the parties agree that the Share Sale Deed will continue in full force and effect in accordance with the terms of the document contained inAnnexure Ato this deed.
4. Miscellaneous
4.1 Costs
Save to the extent otherwise provided for in the Amended and Restated Share Sale Deed, each party must pay its own costs and expenses incurred in connection with the preparation and execution of this deed.
4.2 Counterparts
This deed may be executed in counterparts. All executed counterparts constitute one document.
4.3 Entire agreement
This deed constitutes the entire agreement between the parties in connection with its subject matter and supersedes all previous agreements or understandings between the parties in connection with its subject matter.
4.4 Governing law and jurisdiction
This deed is governed by the law of New South Wales and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of New South Wales.
A-5
Signing page
EXECUTED as a deed.
| | |
ExecutedbyEquity Partners Two Pty
Limited in its capacity as trustee of Equity Partners 2 Trust | | |
/s/ Richard Peter Gregson
| | /s/ Quentin Jones
|
Signature of director | | Signature of director/company secretary
(Please delete as applicable) |
Richard Peter Gregson | | Quentin Jones |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyFOMM Pty Limited (as trustee of the FOMM Trust) | | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the sole company secretary of the company. |
Michael Baxter | | |
Name of sole director and sole company secretary (print) | | |
| | |
ExecutedbyFOMJ Pty Limited (as trustee of the FOMJ Trust) | | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the sole company secretary of the company. |
James H. Warren | | |
Name of sole director and sole company secretary (print) | | |
| | |
ExecutedbyCetro Pty Limited in its capacity as trustee of the FOMP Trust | | |
| | |
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
Peter Henry Jeffrey | | |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyTCWE Pty Limited (as trustee of the McCann Family Trust) | | |
| | /s/ Alexandra Merton-McCann
|
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
Peter McCann | | Alexandra Merton-McCann |
Name of director (print) | | Name of director/company secretary (print) |
SignedbyMichael Paul Baxterin the presence of | | |
| | /s/ Michael Paul Baxter
|
Signature of witness | | Michael Paul Baxter |
Gregory Brian Baxter | | |
Name of witness (print) | | |
SignedbyJames Harold Warrenin the presence of | | |
| | /s/ James Harold Warren
|
Signature of witness | | James Harold Warren |
A-6
| | |
Yuka Yamasaki | | |
| | |
Name of witness (print) | | |
SignedbyPaul Henry Jefferyin the presence of | | |
| | |
| | |
/s/ Jonathan Roy Blaker
| | /s/ Paul Henry Jeffrey
|
Signature of witness | | Paul Henry Jeffrey |
| | |
| | |
/s/ Jonathan Roy Blaker
| | |
Name of witness (print) | | |
SignedbyPeter Linden McCannin the presence of | | |
| | |
| | |
/s/ Gregory Brian Baker
| | |
Signature of witness | | |
| | |
| | |
/s/ Gregory Brian Baker
| | /s/ Peter Linden McCann
|
| | |
Name of witness (print) | | Peter Linden McCann |
| | |
| | |
ExecutedbyGFN Australasia Finance Pty Limited | | |
| | |
| | |
/s/ John O. Johnson
| |
|
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
| | |
| | |
/s/ John O. Johnson
| |
|
Name of director | | Director/company secretary (print) |
| | |
| | |
ExecutedbyGeneral Finance Corporation | | |
| | |
| | |
/s/ John O. Johnson
| | |
Signature of director | | |
| | |
| | |
John O. Johnson | | |
| | |
| | |
Name of director | | |
BISON CAPITAL AUSTRALIA, L.P.
by
BISON CAPITAL AUSTRALIA GP, LLC,
a Delaware limited liability company
| | |
By: | /s/ Douglas B. Trussler | |
Name: Douglas B. Trussler
Its: Manager
A-7
Annexure A
Amended and Restated Share Sale Deed
Annexure to Deed of Variation (No. 3)
(As amended by Deeds of Variation dated
19 January 2007, 9 March 2007 and 30 March 2007)
Share sale deed
relating to shares in RWA Holdings Pty
Limited
Equity Partners Two Pty Limited (in its capacity as trustee of Equity Partners
2 Trust)(Equity Partners)
Cetro Pty Limited
FOMJ Pty Limited
FOMM Pty Limited
TCWE Pty Limited
(together theManagement Vendors)
The persons listed in Schedule 2(Guarantors)
GFN Australasia Finance Pty Limited(GFN)
General Finance Corporation(GFC)
Bison Capital Australia LP(Bison-GE)
AURORA PLACE, 88 PHILLIP STREET, SYDNEY
NSW 2000, DX 117 SYDNEY TEL: +61 2 9921 8888 FAX: +61 2 9921 8123
www.minterellison.com
A-1
Share sale deed
| | | | |
Details
| | A-6 |
Agreed terms
| | A-8 |
1.
| | Defined terms & interpretation | | A-8 |
1.1 | | Defined terms | | A-8 |
1.2 | | Interpretation | | A-15 |
1.3 | | Headings | | A-16 |
2.
| | Conditions | | A-16 |
2.1 | | Conditions to First Completion | | A-16 |
2.2 | | Conditions to Second Completion | | A-17 |
2.3 | | Benefit and Waiver of Conditions | | A-18 |
2.4 | | Conduct of the parties | | A-18 |
2.5 | | Failure of Condition and termination | | A-19 |
2.6 | | Extent of obligation to Fulfil Conditions | | A-20 |
2.7 | | GFC Stockholder Approval | | A-20 |
3.
| | Sale and purchase | | A-20 |
3.1 | | Agreement to sell and purchase First Tranche Sale Shares | | A-20 |
3.2 | | Agreement to sell and purchase Second Tranche Sale Shares | | A-20 |
4.
| | Fair Value and Purchase Price | | A-20 |
4.1 | | Fair Value | | A-20 |
4.2 | | First Tranche Amount | | A-21 |
4.3 | | Second Tranche Amount | | A-21 |
4.4 | | Deposit | | A-21 |
4.5 | | Adjustments | | A-21 |
4.6 | | Purchase Price | | A-23 |
4.7 | | Net Debt | | A-23 |
4.8 | | Cleared funds | | A-23 |
4.9 | | K & S Lease (Curtainsiders) | | A-23 |
4.10 | | Maximum amount payable by Bison-GE | | A-23 |
5.
| | Escrow | | A-24 |
5.1 | | Management Vendors Escrow | | A-24 |
5.2 | | Equity Partners Escrow | | A-24 |
5.3 | | Interest | | A-25 |
5.4 | | Effect of Second Completion | | A-25 |
6.
| | Completion | | A-25 |
6.1 | | First Completion — Time and place | | A-25 |
6.2 | | First Completion — Obligations of the Vendors | | A-25 |
6.3 | | Second Completion — Time and place | | A-26 |
6.4 | | Second Completion — Obligations of the Management Vendors | | A-26 |
6.5 | | Obligations of the Purchaser | | A-26 |
6.6 | | Simultaneous actions at Completion | | A-27 |
6.7 | | Records | | A-27 |
6.8 | | Information and Assistance Following Completion | | A-27 |
A-2
| | | | |
7.
| | Completion Accounts | | A-28 |
7.1 | | Completion Accounts | | A-28 |
7.2 | | Basis of preparation | | A-28 |
7.3 | | Access to information | | A-28 |
7.4 | | Review of Completion Accounts | | A-28 |
7.5 | | Dispute Resolution Procedure | | A-28 |
7.6 | | Costs | | A-29 |
8.
| | Obligations before First Completion | | A-29 |
8.1 | | Continuity of business | | A-29 |
8.2 | | Notice of Change | | A-30 |
8.3 | | SEC Proxy Filing | | A-30 |
9.
| | Warranties and Indemnities | | A-31 |
9.1 | | Warranties by Vendors and Bison-GE | | A-31 |
9.2 | | Vendors’ Indemnity | | A-31 |
9.3 | | Application of the Warranties | | A-31 |
9.4 | | Disclosure | | A-32 |
9.5 | | Acknowledgments | | A-32 |
9.6 | | No reliance | | A-32 |
9.7 | | Financial limits on Claims | | A-33 |
9.8 | | Time limits on Claims | | A-33 |
9.9 | | Maximum aggregate liability for Claims | | A-33 |
9.10 | | Duty to mitigate | | A-34 |
9.11 | | Rights of the Purchaser | | A-34 |
9.12 | | Benefits or credits received by the Company or the Purchaser | | A-34 |
9.13 | | Warranty payments | | A-34 |
9.14 | | Trade Practices Act | | A-34 |
9.15 | | Financial forecasts | | A-34 |
9.16 | | Additional limitations | | A-35 |
9.17 | | Vendors’ Tax Indemnity | | A-35 |
9.18 | | Limits to recovery | | A-35 |
9.19 | | Good faith negotiations in relation to disclosure of material items between signing and Completion | | A-36 |
9.20 | | Effect of Second Completion | | A-36 |
10.
| | K&S Lease Indemnity | | A-36 |
11.
| | ADF Contract | | A-37 |
12.
| | Environmental audit report | | A-37 |
13.
| | GFC Undertaking | | A-37 |
14.
| | Guarantee | | A-37 |
14.1 | | Guarantee and indemnity | | A-37 |
14.2 | | Enforcement against guarantors | | A-37 |
14.3 | | Continuing Guarantee | | A-37 |
14.4 | | Principal Obligations | | A-37 |
14.5 | | Obligations Absolute and Unconditional | | A-38 |
14.6 | | Winding-up or Bankruptcy of Management Vendor | | A-38 |
14.7 | | Indemnity in Respect of Management Vendors’ Obligations | | A-38 |
A-3
| | | | |
14.8 | | Payment under Indemnity | | A-38 |
14.9 | | General Application of Indemnity | | A-39 |
15.
| | Restraint | | A-39 |
15.1 | | Definitions | | A-39 |
15.2 | | Prohibited activities | | A-39 |
15.3 | | Duration of prohibition | | A-39 |
15.4 | | Geographic application of prohibition | | A-40 |
15.5 | | Interpretation | | A-40 |
15.6 | | Exceptions | | A-40 |
15.7 | | Acknowledgments | | A-40 |
15.8 | | Payment of Restraint Amount | | A-40 |
16.
| | Representations by the Purchaser and GFC | | A-41 |
16.1 | | Representations | | A-41 |
16.2 | | Application of representations by the Purchaser and GFC | | A-41 |
17.
| | Equity Partners limitation of liability | | A-41 |
17.1 | | Limited capacity | | A-41 |
17.2 | | Limited rights to sue | | A-41 |
17.3 | | Exceptions | | A-42 |
17.4 | | Limitation on authority | | A-42 |
18.
| | GST | | A-42 |
18.1 | | Interpretation | | A-42 |
18.2 | | GST gross up | | A-42 |
18.3 | | Reimbursements | | A-42 |
18.4 | | Tax invoice | | A-42 |
19.
| | Announcements | | A-42 |
19.1 | | Announcements | | A-42 |
20.
| | Notices and other communications | | A-43 |
20.1 | | Service of notices | | A-43 |
20.2 | | Effective on receipt | | A-43 |
21.
| | Miscellaneous | | A-43 |
21.1 | | Vendors’ Representatives | | A-43 |
21.2 | | Alterations | | A-43 |
21.3 | | Approvals and consents | | A-43 |
21.4 | | Assignment | | A-43 |
21.5 | | Costs | | A-43 |
21.6 | | Stamp duty and other duties | | A-44 |
21.7 | | Survival | | A-44 |
21.8 | | Counterparts | | A-44 |
21.9 | | No merger | | A-44 |
21.10 | | Entire agreement | | A-44 |
21.11 | | Further action | | A-44 |
21.12 | | Severability | | A-44 |
21.13 | | Waiver | | A-44 |
21.14 | | Governing law and jurisdiction | | A-44 |
21.15 | | Specific performance | | A-44 |
A-4
| | | | |
22.
| | Trusts | | A-44 |
23.
| | Certain Covenants | | A-44 |
23.1 | | Senior Subordinated Notes | | A-44 |
23.2 | | Bison-GE Expenses | | A-45 |
23.3 | | GFC Trust Account | | A-45 |
Schedule 1 — Shareholdings and Respective Proportions
| | A-46 |
Schedule 2 — Guarantors
| | A-47 |
Schedule 3 — Directors and Secretaries to resign and to be appointed
| | A-47 |
Schedule 4 — Title and Capacity Warranties
| | A-47 |
Schedule 5 — Business Warranties
| | A-48 |
Schedule 6 — Leased Premises
| | A-55 |
Schedule 7 — Intellectual Property Rights
| | A-56 |
Schedule 8 — Due Diligence Index
| | A-57 |
Schedule 9 — Accounts
| | A-58 |
Schedule 10 — K&S Lease (Curtainsiders)
| | A-59 |
Schedule 11 — K&S Lease (Reefers)
| | A-60 |
Schedule 12 — Worked examples of Purchase Price adjustments
| | A-61 |
Schedule 13 — Michael Baxter Consultancy Agreement
| | A-62 |
Schedule 14 — Bison-GE/GFN Shareholders Agreement
| | A-63 |
Schedule 15 — Bison-GE/Management Vendors Shareholders Agreement
| | A-64 |
Schedule 16 — Legal Opinion
| | A-65 |
Schedule 17 — Subscription deed
| | A-67 |
Signing page
| | A-68 |
A-5
Details
| | |
Date | | 12 September 2006 |
|
Parties | | |
|
Name | | Equity Partners Two Pty Limited (as trustee of Equity Partners 2 Trust) |
ACN | | 093 766 280 |
Short form name | | Equity Partners |
Notice details | | Level 12, 60 Margaret Street Sydney NSW 2000
Facsimile 02 8298 5150
Attention Rajeev Dhawan |
|
Name | | FOMM Pty Limited (as trustee of the FOMM Trust) |
ACN | | 106 818 231 |
Notice details | | 66 Lucinda Avenue, Wahroonga NSW 2076
Facsimile 02 9482 3477
Attention Michael Baxter |
|
Name | | FOMJ Pty Limited (as trustee of the FOMJ Trust) |
ACN | | 106 818 222 |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066
Facsimile 02 9482 3477
Attention James Warren |
|
Name | | Cetro Pty Limited (as trustee of the FOMP Trust) |
ACN | | 002 109 668 |
Notice details | | Level 2, 57 Grosvenor Street,
Neutral Bay NSW 2089
Facsimile 02 9981 7145
Attention Paul Jeffery |
|
Name | | TCWE Pty Limited (as trustee of the McCann Family Trust) |
ACN | | 109 083 105 |
Notice details | | 9 Bunyana Avenue WAHROONGA NSW 2076
Facsimile 02 9482 3477
Attention Peter McCann |
together theManagement Vendors
| | |
Name | | Each person listed in Schedule 2 |
Short form name | | Each aGuarantorand collectively, theGuarantors |
|
Name | | GFN Australasia Finance Pty Limited |
ACN | | 121 227 790 |
|
Short form name | | GFN |
Notice details | | C/- General Finance Corporation, 260 So. Los Robles Avenue, Suite #217
Pasadena, California 91101
Facsimile +1 626 795 8090
Attention: Mr Ronald F Valenta |
A-6
| | |
Name | | General Finance Corporation |
Short form name | | GFC |
Notice details | | 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101
Facsimile +1 626 795 8090
Attention: Mr Ronald F Valenta |
|
Name | | Bison Capital Australia LP(a limited partnership incorporated in accordance with the laws of Delaware, United States of America) |
Incorporation number | | 33-1158464 |
Short form name | | Bison-GE |
Notice details | | 10877 Wilshire Blvd. Suite 1520, Los Angeles, CA 90024
United States of America |
|
| | Facsimile (310) 260 6576
Attention: Douglas B Trussler — Managing Member |
Background
A As at the date of this deed, the issued shares in the Company are held by the Original Vendors as set out in Schedule 1.
B The Company owns all the issued shares in Royal Wolf Trading Australia Pty Limited. Royal Wolf Trading Australia Pty Limited owns all the issued shares in Royal Wolf Hi-Tech Pty Limited.
C GFN is a wholly owned subsidiary of GFC.
D The Original Vendors have agreed to sell the First Tranche Sale Shares to Bison-GE and the Management Vendors and Bison-GE have agreed to sell the Second Tranche Sale Shares to GFN in each case on the terms and conditions set out in this deed.
E The fair market value of the Group is equal to the enterprise value of the Group and is equal to the total amount payable by GFN on acquiring all of the Second Tranche Sale Shares under this agreement which is A$116,500,000.00 comprised of the following:
(i) the amount of the Net Debt;
(ii) the Purchase Price; and
(iii) the Restraint Amount referred to in clause 15.1(c).
F Each Guarantor owns or controls a Management Vendor. The Purchasers have entered into this deed at the request of the Guarantors and each Guarantor has agreed to guarantee the obligations of the relevant Management Vendor in accordance with this deed.
A-7
Agreed terms
1. Defined terms & interpretation
1.1 Defined terms
In this deed:
Accountsmeans the consolidated balance sheet of the Group as at the Accounts Date and the consolidated profit and loss statement and consolidated statement of cash flows of the Group for the financial year ended on the Accounts Date together with the notes to, and the reports of the directors in respect of, those accounts copies of which are included as Schedule 9.
Accounts Datemeans 30 June 2006.
ADF Contractmeans the Australian Defence Force Urban Operations Training Facility Contract(s) tendered for by the Group but not yet, as at the date of this deed, been awarded.
ANZ Facilitymeans:
(a) the senior debt facility dated 17 December 2004 between Royal Wolf Trading, Australia and New Zealand Banking Group Limited (’ANZ’) and others as varied in accordance with several Variation Letters from ANZ to the Company, including on 13 June 2006;
(b) the Non Convertible Note facility between the Company, Australia and New Zealand Banking Group Limited and others; and
(c) any other moneys owing by the Group to ANZ.
Authorisationsmeans any consent, licence, approval, notarisation, registration, permission or authorisation.
Associated Personmeans, in relation to a Vendor, a company controlled by that Vendor and, in relation to a Guarantor, means a company controlled by that Guarantor or that Guarantor’s spouse.
Backup Purchase Agreementmeans the agreement to be entered into between Ronald F Valenta, Bison-GE and the Management Vendors before the First Completion Date, in the form agreed by Bison-GE and the Management Vendors.
B Class Notesmeans the non-convertible notes issued by the Company to Equity Partners under the terms of the shareholders agreement governing the affairs of the Company.
Bison-GE Completion Amountmeans the sum of (i) through (iv) below:
(i) US$45,000,000; plus
(ii) Interest on US$45,000,000 for the period from First Completion Date to Second Completion Date calculated at the rate of 18% per annum on daily rests (but not capitalised); plus
(iii) to the extent paid by Bison-GE, the Restraint Amount (in US$) plus interest on that amount for the period from the date the Restraint Amount, or any portion thereof, is paid by Bison-GE to Second Completion Date calculated at the rate of 18% per annum on daily rests (but not capitalised); plus
(iv) 2.5% of the sum of the amounts determined pursuant to paragraphs (i), (ii) and (iii) above if Second Completion takes place within 6 months of First Completion or 3% of those amounts if Second Completion takes place more than 6 months after First Completion.
Bison-GE Completion Paymentmeans, collectively, the sum of (a) (i) cash in the amount of the Bison-GE Completion Amount, minus (ii) the U.S. dollar equivalent of the Retained Interest, minus, (iii) any interest earned by Bison-GE on that portion of the US$45,000,000 not paid at the First Completion from the First Completion Date to the date paid to the Vendors, and (b) the Retained Interest.
Bison-GE Maximum Amountmeans A$55,178,792.
A-8
Bison-GE Subscription Amountmeans A$10,830,919, being the aggregate amount required to put the Company in funds to, on First Completion, pay-out the B Class Notes, cancel the Options and buy back the CFO Shares.
Budgetmeans the budget adopted by the board of the Company in relation to the Business, a copy of which is included in the Data Room.
Businessmeans the business of hire, sales and modification of portable storage containers, freight containers, portable container buildings and portable container offices carried on by the Group as at the date of this deed and as at First Completion.
Business Daymeans:
(a) for receiving a Notice under clause 20, a day that is not a Saturday, Sunday, public holiday or bank holiday in the place where the Notice is received; and
(b) for all other purposes, a day that is not a Saturday, Sunday, public holiday or bank holiday in New South Wales.
Business Hoursmeans from 9.00am to 5.00pm on a Business Day.
Business Warrantiesmeans each of the representations and warranties set out in Schedule 5.
Cashmeans the amount of cash together with accrued interest on such cash, of the Group as at close of business on the First Completion Date.
CFO Sharesmeans:
(a) 187,200 ordinary shares; and
(b) 8 C Class shares,
in the capital of the Company held by Equity Partners as bare trustee pursuant to clause 3.5 of the shareholders agreement governing the affairs of the Company.
Claimincludes a claim, notice, demand, action, proceeding, litigation, investigation, judgment, damage, loss, cost, expense or liability however arising, whether present, unascertained, immediate, future or contingent, whether based in contract, tort or statute and whether involving a third party or a party to this deed.
Companymeans RWA Holdings Pty Limited ACN 106 913 964.
Completionmeans First Completion or Second Completion, as the context may require.
Completion Accountsmeans the consolidated balance sheet and profit and loss statement of the Group as at the close of business on the First Completion Date to be prepared in accordance with clause 7.1.
Conditionsmeans the conditions set out in clause 2.
Container Rental Equipment Amount meansA$46,879,000.
Corporations Actmeans theCorporations Act 2001(Cth).
Data Roommeans:
(a) the hard copies of the documents contained in Folders 6, 7, 8, 9, 10, 12, 13, 18, 22 and 23 as identified in the Due Diligence Index and exhibited hereto;
(b) the two CD-ROMs containing copies of the documents contained in Folder 29 as identified in the Due Diligence Index; and
(c) the other documents contained on the CD-ROM entitled ‘Data Room’,
delivered by the Original Vendors to GFN and to Bison-GE containing the information in relation to the Group made available in the data room established at the offices of Equity Partners in Sydney from 2 July 2006 to 5 September 2006.
A-9
Depositmeans the amount(s) paid by GFN to the Vendors’ Representatives pursuant to clause 4.4.
Determination Datemeans the fifth Business Day after the date on which the Completion Accounts, the amount of Net Debt, the Completion Container Rental Equipment Amount, the Net Tangible Assets Amount, the Working Capital Amount and the K&S Lease Adjustment Amount become final and binding on the Original Vendors and each Purchaser under this deed.
Disclosure Documentsmeans:
(a) this deed;
(b) the Disclosure Letter;
(c) all written material made available in the Data Room as specifically identified in the Due Diligence Index; and
(d) the Phase 1 environmental audit report commissioned by GFC in relation to the Group.
Disclosure Lettermeans:
(a) the letter from the Original Vendors addressed to GFN and dated and delivered to GFN on or before the date of this deed and includes all of its schedules and annexures, a copy of which has also been provided to Bison-GE; and
(b) a letter from the Management Vendors addressed to GFN and dated on or before the Second Completion Date, which discloses matters against the Business Warranties, and includes all of its schedules and annexures.
Due Diligence Indexmeans the index of due diligence materials attached as Schedule 8.
Dutymeans any stamp duty or similar charge which is imposed by any Government Authority and includes any interest, fine, penalty, charge or other amount which is imposed in relation to such duty.
Employeesmeans all of the persons employed by the Group as at First Completion.
Encumbranceincludes mortgage, charge, lien, restriction against transfer, encumbrance, trust and other third party interest, including a finance or operating lease or hire purchase agreement.
Equity Partners Escrow Amountmeans A$2 million.
Escrow Accountmeans the separate interest bearing bank accounts to be opened in Australia with Australia and New Zealand Banking Group Limited (or such other bank as the parties may agree):
(a) in the name of Minter Ellison, subject to the joint instructions of Equity Partners and Bison-GE, which will be established at First Completion and:
(i) within 30 days after First Completion, transferred into an account in the joint names of Equity Partners and Bison-GE; and
(ii) at Second Completion transferred into an account in the joint names of Equity Partners and GFN; and
(b) in the joint names of the Management Vendors and GFN which will be established at Second Completion in the joint names of the Management Vendors and GFN,
referred to in clauses 5.1 and 5.2.
Estimated Net Debtmeans A$59,869,303, being the Vendors’ reasonable estimate of the likely Net Debt at First Completion.
First Completionmeans completion of the sale and purchase of the First Tranche Sale Shares to Bison-GE as contemplated by this deed.
First Completion Datemeans the date on which First Completion occurs.
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First Completion Paymentmeans A$116,500,000 less:
(a) A$10,623,666; less
(b) Estimated Net Debt; less
(c) the Deposit, less
(d) the Equity Partners Escrow Amount; less
(e) the Restraint Amount.
First Tranche Sale Sharesmeans such of the Sale Shares held by Equity Partners and by the Management Vendors as more particularly described in Part B of Schedule 1.
Fundsmeans the superannuation funds to which the Group makes contributions in relation to its Employees as at the date of this deed.
Government Authoritymeans any government, governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity and includes any other person authorised by Law to give consents, or impose requirements, in connection with the environment.
Groupmeans the Company, Royal Wolf Trading and Royal Wolf Hi-Tech Pty Limited, ACN 079 735 050 andGroup Companymeans any one of them.
GSThas the meaning it has in the GST Act.
GST Actmeans theA New Tax System (Goods and Services Tax) Act 1999 (Cth).
Independent Accountantmeans a chartered accountant or firm of chartered accountants appointed under clause 7.5.
Industrial Instrumentmeans any industrial award, collective agreement or other form of agreement made or taken to exist under an industrial law (including theWorkplace Relations Act 1996).
Intellectual Property Rightsmeans all rights conferred under statute, common law or equity in relation to:
(a) patents, copyright, registered and unregistered designs, trademarks, domain names, business names and confidential information; and
(b) any application or right to apply for registration of any of the rights referred to in paragraph (a).
K&S Lease (Curtainsiders)means the lease between K&S Freighters Pty Limited and Royal Wolf Trading in relation to the lease by Royal Wolf Trading of 70 curtainsider containers, a copy of which is attached as Schedule 10.
K&S Lease (Reefers)means the lease between K&S Freighters Pty Limited and Royal Wolf Trading in relation to the lease by Royal Wolf Trading of 12 reefers, a copy of which is attached as Schedule 11.
K&S Lease Adjustment Amounthas the meaning in clause 4.9.
Key Employeesmeans Robert Allan, Peter McCann and James Warren.
Lawincludes any law, regulation, authorisation, ruling, judgment, order or decree of any Government Authority and any statute, regulation, proclamation, ordinance or by-law in Australia or any other jurisdiction.
Leased Premisesmeans the premises used or occupied by the Group as set out in Schedule 6.
Leasesmeans the leases to which a Group Company is a party in respect of the Leased Premises.
Management Escrow Amountmeans A$5 million.
Management Vendors Respective Proportionsmeans the respective proportions of the Management Vendors, as between themselves, set out in the sixth column of Part A of Schedule 1.
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Management Vendors Second Completion Paymentmeans the sum of:
(a) A$10,623,666;
(b) plus or minus 27.68% of the total amount of the adjustments calculated pursuant to clauses 4.5 and 4.9);
(c) plus interest on the amount referred to in paragraph (a) above (less the Management Vendors Escrow Amount) for the period from the First Completion Date to the Second Completion Date and interest for the amount referred to in paragraph (b) above for the period between the Determination Date and the Second Completion Date, such interest calculated at the rate of 18% per annum on daily rests (but not capitalised) provided that if the amount referred to in paragraph (b) is a negative amount then such amount shall be reduced from the amount referred to in paragraph (a) for the purposes of calculating such interest.
Material Adverse Effectmeans a material adverse effect occurring in respect of the assets, liabilities or profitability of the Group taken as a whole in the period on and from the Accounts Date to First Completion or from First Completion to Second Completion (as the case may be), but excluding the effects of changes that are generally applicable to the Australian economy. A matter will not be regarded as a Material Adverse Effect unless it has, or would be reasonably likely to have, an adverse effect on the earnings before interest, tax, depreciation and amortisation of the Group of more than 15 per cent in any 12 month period.
Net Debtmeans the amount calculated as follows:
B — A
where:
A = Cash; and
B = all debt which the Group has at the close of business on the First Completion Date including but not limited to:
(i) the aggregate amount owed by the Group under the ANZ Facility (including any accrued but unpaid interest) or to any other bank; plus
(ii) the aggregate amount (principal and accrued interest) owed by the Group in relation to the B Class Notes; plus
(iii) all other interest bearing debt or finance leases of the Group; plus
(iv) the amount (if any) of outstanding, deferred purchase price, consulting or non-compete or earn-out payment obligations of the Group under completed acquisition agreements; plus
(v) dividends or other distributions declared by the Group but not yet paid; plus
(vi) the amounts required to cash out and cancel all of the Options; plus
(vii) all amounts owing to ANZ under a finance lease in respect to Wridgways Australia Ltd; plus
(viii) all amounts owing in relation to the K&S Lease (Reefers); plus
(ix) the costs and expenses of the Vendors which are paid by the Company in accordance with clause 21.5(a); plus
(x) the outstanding bonus amount agreed to be paid by the Company to Norman Fricker (the former chairman of the Group);
but excluding the following:
(i) moneys owing to suppliers in the ordinary course of business;
(ii) amounts owing under any operating leases;
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(iii) any debt disclosed by the Vendors to the Purchaser before the date of this deed in relation to the K&S Lease (Curtainsiders) and any liabilities associated with that lease; and
(iv) any amounts owing by the Group in relation to any assets acquired in satisfaction of the Group’s obligations under the ADF Contract less any deposits received by the Group in relation to the ADF Contract.
Net Tangible Assets Amountmeans total assets (less all intangibles) less total liabilities of the Group as set out in the Completion Accounts (excluding the amount required to cash out the Options, the costs and expenses of the Vendors which are paid by the Company in accordance with clause 21.5(a), the outstanding bonus amount paid by the Company to Norman Fricker, the consideration payable by the Company to Equity Partners in relation to the buy-back of the CFO Shares.
New Shareholders Agreementmeans a shareholders agreement to be entered into between Bison-GE and the Management Vendors on or before the First Completion Date in the form of Annexure C.
NTA Amountmeans A$2,700,000.
Optionsmeans:
(a) the options granted to employees of the Group over unissued shares in the Company under the terms of the RWA employee share option plan; and
(b) the options granted to Peter McCann over ordinary and Class C shares held on trust by Equity Partners under the terms of the service contract between Peter McCann and Royal Wolf Trading and the shareholders agreement governing the affairs of the Company.
Original Vendorsmeans collectively Equity Partners and the Management Vendors.
Purchase Pricefor the First Tranche Shares has the meaning set out in clause 4.2(a) and for the Second Tranche Shares has the meaning set out in clause 4.3(a).
Purchasermeans:
(a) in relation to First Completion and the First Tranche Sale Shares, Bison-GE; and
(b) in relation to Second Completion and the Second Tranche Sale Shares, GFN.
Recordsmeans all documents, books, files, reports, registers, copies of taxation returns, accounts and plans belonging or relating exclusively to or used by any Group Company.
Related Management Vendormeans, in respect of a Guarantor, the Management Vendor set out opposite the name of the Guarantor in Schedule 2.
Retained Interestmeans, 16.0% of the debt and equity invested by GFC or any affiliate thereof (including the Deposit) prior to the Second Completion which amounts are necessary to complete the Second Completion and pay GFN’s obligations under this deed, which investments after the First Closing shall be upon terms that are to be mutually agreed by Bison-GE and GFN but will at GFN’s option include at least 50% debt and which, upon issuance to Bison-GE, shall result in Bison-GE owning 13.8% of the total issued share capital of GFN and any debt securities issued to GFC or any affiliate thereof.
Respective Proportionsmeans the respective proportions of the Vendors as set out in the sixth column of Schedule 1.
Restraint Amounthas the meaning given to that term in clause 15.1(c).
Royal Wolf Tradingmeans Royal Wolf Trading Australia Pty Limited ACN 069 244 417.
Sale Sharesmeans:
(a) in relation to the Original Vendors and First Completion, the First Tranche Sale Shares; and
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(b) in relation to Bison-GE and the Management Vendors and Second Completion, the Second Tranche Sale Shares.
Second Completionmeans completion of the sale and purchase of the Second Tranche Sale Shares to GFN contemplated by this deed.
Second Completion Datemeans the date on which Second Completion occurs.
Second Completion Paymentmeans the Bison-GE Completion Payment and the Management Vendors Second Completion Payment.
Second Tranche Sale Sharesmeans the Sale Shares to be sold by the Management Vendors and Bison-GE as is more particularly described in Part C of Schedule 1 (and for the avoidance of doubt includes the D Class share in the Company issued to Bison-GE pursuant to clause 4.7).
SGAAmeans theSuperannuation Guarantee Administration Act 1992 (Cth).
Subsidiariesmeans Royal Wolf Trading and Royal Wolf Hi-Tech Pty Limited.
Superannuation Guarantee ChargeorSGCmeans the superannuation guarantee charge imposed by theSuperannuation Guarantee Charge Act 1992and theSuperannuation Guarantee (Administration) Act 1992.
Taxmeans all forms of taxes, duties, imposts, charges, withholdings, rates, levies or other governmental impositions of whatever nature and by whatever authority imposed, assessed or charged together with all costs, charges, interest, penalties, fines, expenses and other additional statutory charges, incidental or related to the imposition.
Title and Capacity Warrantiesmeans each of the representations and warranties set out in Schedule 4.
Vendorsmeans:
(a) in relation to the First Tranche Sale Shares and First Completion, collectively, the Original Vendors; and
(b) in relation to the Second Tranche Sale Shares and Second Completion, the Management Vendors and (except to the extent specified in clause 9.20(a)), Bison-GE.
Vendors’ Representativesmeans up to the date that is 5 Business Days after the Determination Date, Paul Jeffery or such other person appointed in writing from time to time by the Management Vendors and Rajeev Dhawan or such other person appointed from time to time by Equity Partners and after the date which is 5 Business days after the Determination Date means such person or persons appointed in writing from time to time by the Management Vendors.
Warrantiesmeans each of:
(a) the Business Warranties;
(b) the Title and Capacity Warranties;
(c) the indemnity in clause 9.2;
(d) the indemnity in clause 9.16;
(e) the indemnity in clause 10; and
(f) the warranty given by the Management Vendors in clause 8.3.
Working Capital Amountmeans current assets (excluding cash and deposits relating to ADF Contract) less current liabilities (excluding interest bearing debt (other than in relation to assets acquired by the Group in satisfaction of its obligations under the ADF Contract (if awarded)), finance leases, overdrafts and bank vendor financing).
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1.1 Interpretation
In this deed, except where the context otherwise requires:
(a) the singular includes the plural and vice versa, and a gender includes other genders;
(b) another grammatical form of a defined word or expression has a corresponding meaning;
(c) a reference to a clause, paragraph, schedule or annexure is to a clause or paragraph of, or schedule or annexure to, this deed, and a reference to this deed includes any schedule or annexure;
(d) a reference to a document or instrument includes the document or instrument as novated, altered, supplemented or replaced from time to time;
(e) a reference to$, A$,$A,dollarorA$is to Australian currency;
(f) a reference to time is to Sydney, Australia time;
(g) a reference to a party is to a party to this deed, and a reference to a party to a document includes the party’s executors, administrators, successors and permitted assigns and substitutes;
(h) a reference to a person includes a natural person, partnership, body corporate, association, governmental or local authority or agency or other entity;
(i) a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them;
(j) a word or expression defined in the Corporations Act has the meaning given to it in the Corporations Act;
(k) any agreement, representation, warranty, indemnity or undertaking made or given by the Original Vendors binds and is given by them severally in their Respective Proportions;
(l) the meaning of general words is not limited by specific examples introduced byincluding,for exampleor similar expressions;
(m) a rule of construction does not apply to the disadvantage of a party because the party was responsible for the preparation of this deed or any part of it;
(n) if a day on or by which an obligation must be performed or an event must occur is not a Business Day, the obligation must be performed or the event must occur on or by the next Business Day;
(o) a reference to ’as far as the Vendors/Equity Partners are aware’ or words to that effect means:
(i) in relation to Equity Partners, the actual knowledge of Equity Partners after having made due and proper enquiry of the Guarantors; and
(ii) in relation to the Management Vendors, the actual knowledge of the Guarantors,
(iii) but excluding any facts or circumstances in which any such person has constructive knowledge only; and
(p) a reference to‘the date of this deed’ is to 12 September 2006.
1.2 Headings
Headings are for ease of reference only and do not affect interpretation.
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2. Conditions
2.1 Conditions to First Completion
First Completion of the sale and purchase of the First Tranche Sale Shares under this deed is subject to the following conditions precedent being satisfied on or before the First Completion Date:
(a) the written consent to the change in control of the Company is obtained by the Vendors to the extent required under the ANZ Facility;
(b) execution of the New Shareholders Agreement by the parties to it;
(c) no event occurring which has a Material Adverse Effect;
(d) Triton Container International Limited(Triton) gives, to the extent required under the relevant agreement, its consent to the change of control of Royal Wolf Trading arising as a result of the transaction contemplated by this deed as required under the container operating leases between Triton and Royal Wolf Trading and Triton confirms there are no present breaches of these agreements;
(e) Triton CSA International B.V. gives, to the extent required under the relevant agreement, its consent to the deemed assignment of the trademark licence agreement between Triton CSA International B.V. and Royal Wolf Trading such consent being in relation to a deemed assignment to either GFN, Bison-GE or Ronald Valenta;
(f) cancellation of all Options;
(g) the Vendors providing written evidence to each Purchaser that:
(i) the Vendors and the Company have terminated the shareholders agreement governing the operation of the Company dated 10 December 2003 (as amended);
(ii) the service contract between the relevant Group Company and Michael Baxter has been terminated; and
(iii) Mike Baxter has waived all claims he may have against the relevant Group Company as a result of the termination his service contract;
(h) the amendment of the service contracts for each of the Key Employees such that references to any shareholders agreement and any employee share option plan are deleted from those service contracts;
(i) all Key Employees entering into a deed with Royal Wolf Trading and each Purchaser pursuant to which they confirm that Royal Wolf Trading is not in default pursuant to their respective service contracts and that they have no claim against Royal Wolf Trading on any account other than for their current entitlements under such service contracts;
(j) the CFO Shares are bought back by the Company under Part 2J.1 of the Corporations Act; and
(k) the rights attaching to the Class C Shares are varied and, following such variation, the Class C Shares in the capital of the Company are converted into the number of ordinary shares specified in Part B of Schedule 1;
(l) the rights attaching to the Class A Shares are varied such that, immediately following First Completion, the Class A Shares in the capital of the Company will convert into 4,322,590 ordinary shares;
(m) Ronald F Valenta (and agreed affiliates) enters into the Backup Purchase Agreement with Bison-GE and the Management Vendors; and
(n) the Subscription Deed, in the form contained in Schedule 17, is entered into between the Company and Bison-GE in relation to the subscription by Bison-GE for a D Class Share in the capital of the Company for the Bison-GE Subscription Amount.
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2.2 Conditions to Second Completion
(a) The obligation of Bison-GE and the Management Vendors to sell the Second Tranche Sale Shares and the obligation of GFN to purchase the Second Tranche Sale Shares is subject to the condition precedent that the stockholders of GFC shall have approved such transaction on the basis described in clause 2.7 (and GFC shall provide to Bison-GE and the Management Vendors written evidence of such approval).
(b) The obligation of the Management Vendors to sell the Second Tranche Sale Shares at the Second Completion is subject to the condition precedent that a notice is issued in writing by, or on behalf of, the Treasurer of the Commonwealth of Australia stating that the Commonwealth Government does not object to the parties entering into and completing this deed.
(c) The obligation of GFN to purchase the Second Tranche Sale Shares at the Second Completion is subject to the following conditions precedent (if not already satisfied in relation to First Completion), namely:
(i) no event occurring which has a Material Adverse Effect;
(ii) a notice is issued in writing by, or on behalf of, the Treasurer of the Commonwealth of Australia stating that the Commonwealth Government does not object to the parties entering into and completing this deed;
(iii) Triton gives, to the extent required under the relevant agreement, its consent to the change of control of Royal Wolf Trading arising as a result of the transaction contemplated by this deed as required under the container operating leases between Triton and Royal Wolf Trading and Triton confirms there are no present breaches of these agreements.
(iv) Triton CSA International B.V. gives, to the extent required under the relevant agreement, its consent to the deemed assignment of the trademark licence agreement between Triton CSA International B.V. and Royal Wolf Trading.
(v) each of the landlords to the Leases numbered 1, 2, 5, 10, 12, 13, 14 and 16 in Schedule 6 give their written consent to change of control in a form reasonably acceptable to the Purchaser.
(vi) cancellation of all Options;
(vii) the Vendors providing written evidence to the Purchaser that:
(A) the Vendors and the Company have terminated the shareholders agreement governing the operation of the Company dated 10 December 2003 (as amended);
(B) the service contract between the relevant Group Company and Michael Baxter has been terminated; and
(C) Mike Baxter has waived all claims he may have against the relevant Group Company as a result of the termination his service contract;
(viii) the amendment of the service contracts for each of the Key Employees such that references to any shareholders agreement and any employee share option plan are deleted from those service contracts;
(ix) all Key Employees entering into a deed with Royal Wolf Trading and the Purchaser pursuant to which they confirm that Royal Wolf Trading is not in default pursuant to their respective service contracts and that they have no claim against Royal Wolf Trading on any account other than for their current entitlements under such service contracts;
(x) the CFO Shares are bought back by the Company under Part 2J.1 of the Corporations Act;
(xi) Bison-GE has not waived any of the conditions precedent to First Completion (as set out in clause 2.1) unless GFN has consented to such waiver in writing.
(xii) ANZ has entered into a subordination agreement with Bison-GE with respect to a senior subordinated note facility to be made to the Group Companies by Bison-GE;
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(xiii) the written consent to the change in control of the Company is obtained by the Vendors to the extent required under the ANZ Facility and the ANZ Facility remains in place and full force and effect or another finance facility acceptable to Bison-GE is in place and is in full force and effect.;
(xiv) Bison-GE shall have complied with its obligations under clause 23.1 of this deed;
(xv) Bison-GE shall have entered into a shareholders agreement with GFC and GFN in the form of the agreement set out in Schedule 14; and
(xvi) Bison-GE shall have entered into a shareholders agreement with the Management Vendors in the form of the agreement set out in Schedule 15; and
(xvii) Bison-GE shall have complied in all material respects with all covenants and agreements under this deed required to have been complied with at or prior the Second Completion.
(d) The obligation of Bison-GE to sell the Second Tranche Sale Shares registered in its name at the Second Completion is subject to the following conditions precedent (if not already satisfied in relation to First Completion), namely:
(i) a notice is issued in writing by or on behalf of the Treasurer of the Commonwealth of Australia stating that the Commonwealth Government does not object to the parties entering into and completing this deed;
(ii) ANZ has entered into a subordination agreement with Bison-GE with respect to a senior subordinated note facility to be made to the Group Companies by Bison-GE in a form acceptable to Bison-GE;
(iii) the written consent to the change in control of the Company is obtained by the Vendors to the extent required under the ANZ Facility and the ANZ Facility remains in place and full force and effect or another finance facility acceptable to Bison-GE is in place and is in full force and effect;
(iv) Bison-GE shall have received a legal opinion in form and content satisfactory to Bison-GE addressing the matters set forth in Schedule 16 to this deed;
(v) GFN and GFC shall have complied with their obligations under clause 23.1 and 23.2 of this deed;
(vi) GFN and GFC shall have complied in all material respects with all covenants and agreements under this deed required to have been complied with at or prior the Second Completion.
(vii) Bison-GE shall have entered into a shareholders agreement with GFC and GFN in the form of the agreement set out in Schedule 14.
(e) GFN acknowledges that the Conditions referred to in clauses 2.2(c)(iii) to (x) inclusive and (xiii) have been satisfied on or before the First Completion Date.
2.3 Benefit and Waiver of Conditions
(a) The Conditions in clauses 2.1(a), (b), (c), (d), (e), (f), (g), (h), (i), (j) and (k) are for the benefit of Bison-GE.
(b) The Conditions in clauses 2.1(b) and (l) are for the benefit of both Bison-GE and the Original Vendors.
(c) The Condition in clause 2.2(c)(ii) is for the benefit of both Bison-GE and the Management Vendors.
(d) A Condition may only be waived in writing by the party entitled to the benefit of that Condition and will be effective only to the extent specifically set out in that waiver provided that Bison-GE may not waive any Condition set out in clause 2.1 without GFN’s written consent.
2.4 Conduct of the parties
(a) Each party must use all reasonable efforts within its own capacity to ensure that each Condition in clause 2.1 is fulfilled as soon as reasonably practicable and in any event before 5:00pm on 30 March 2007.
(b) Bison-GE, GFN and the Management Vendors must use all reasonable efforts within their own capacity to ensure that each Condition in clause 2.2 is fulfilled as soon as reasonably practicable.
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(c) The parties must keep each other informed of progress in achieving satisfaction of each of the Conditions and of any circumstances which may result in any Condition not being satisfied in accordance with its terms.
(d) GFN agrees to act reasonably and to provide reasonable assistance to the Vendors in obtaining the requisite change of control consents contemplated in clauses 2.1(d) and 2.1(e)
(e) Without limiting clause 2.4(c), GFN and GFC agree to provide the Management Vendors and Bison-GE on a timely basis or upon written request with written updates of any material developments regarding the preparation, filing and approval of the proxy statements and GFC stockholder approval referred to in clause 2.2(a).
(f) The parties must, immediately upon becoming aware that the last of the Conditions has been satisfied or waived (in accordance with clause 2.2(e)), exchange written acknowledgements confirming that fact and confirming the date on which Completion will occur.
2.5 Failure of Condition and termination
(a) If any of the Conditions in clause 2.1 are not satisfied before 5:00pm on 30 March 2007 or such later date as the Vendors may agree in their discretion, then the Vendors have the right (but not the obligation) to immediately terminate this deed by notice in writing to Bison-GE and GFN.
(b) Subject to clause 2.5(h), if the Condition in clauses 2.2(a) is not satisfied by 5:00 pm on September 1, 2007 (California USA time) then the Management Vendors, Bison-GE or GFN shall have the right (but not the obligation) to immediately terminate the obligation of Bison-GE, the Management Vendors and GFN to complete the sale and purchase of the Second Tranche Sale Shares by notice in writing to the other parties (other than Equity Partners).
(c) Subject to clause 2.5(h), if GFC holds a special meeting of its stockholders at which the proposal to acquire the Second Tranche Shares is considered and voted upon and GFC stockholder approval is not obtained at such special meeting in terms of clause 2.7, the Management Vendors, Bison-GE or GFN shall have the right to immediately terminate the obligations of the Management Vendors, Bison-GE and GFN to complete the sale and purchase of the Second Tranche Sale Shares by notice in writing to the other parties (other than Equity Partners).
(d) Subject to clause 2.5(h), if the Condition in clause 2.2(b) is not satisfied prior to or within 20 Business Days following the satisfaction of the Condition in clause 2.2(a) then the Management Vendors shall have the right (but not the obligation) to immediately terminate the obligations of the Management Vendors and GFN under this deed to complete the sale and purchase of the Second Tranche Sale Shares registered in their names by notice in writing to Bison-GE and GFN.
(e) Subject to clause 2.5(h), if any of the Conditions in clause 2.2(c) are not satisfied prior to or within 20 Business Days following the satisfaction of the Condition in clause 2.2(a), then or such later date as GFN shall have the right (but not the obligation) to immediately terminate the obligations of the Management Vendors, Bison-GE and GFN under this deed to complete the sale and purchase of the Second Tranche Sale Shares by notice in writing to Bison-GE and the Management Vendors.
(f) Subject to clause 2.5(h), if any of the Conditions in clause 2.2(d) are not satisfied prior to or within 20 Business Days following the satisfaction of the Condition in clause 2.2(a), then Bison-GE have the right (but not the obligation) to immediately terminate the obligations of the Management Vendors, Bison-GE and GFN under this deed to complete the sale and purchase of the Second Tranche Sale Shares by notice in writing to the Management Vendors and GFN.
(g) Notwithstanding clause 2.5(h), if Second Completion shall not have occurred by April 4, 2008, then this deed, and the obligations of all parties under it in relation to the sale and purchase of the Second Tranche Sale Shares, will automatically terminate on that date, without the need for any party to give any notice of termination to any other party.
(h) A party that is in default of its obligations with respect to the satisfaction of any of the Conditions in clause 2.2 shall not be entitled to exercise any rights that it might otherwise have under this clause 2.5 to terminate any of the obligations of itself or any other party with respect to the completion of the sale and purchase of the Second Tranche Shares.
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2.6 Extent of obligation to Fulfil Conditions
The obligation imposed on a party by clause 2.4(a) does not require the party to waive any Condition.
2.7 GFC Stockholder Approval
For the purposes of clause 2.2 the stockholders of GFC will be taken to have approved the purchase of the Second Tranche Sale Shares if and only if the following three conditions are met:
(a) such purchase is approved by the affirmative vote of the holders of a majority of the shares of GFC common stock present and entitled to vote at the special meeting with respect to such purchase;
(b) such purchase is approved by the affirmative vote of the holders of a majority of the shares of GFC common stock issued in GFC’s initial public offering that are voted with respect to such purchase; and
(c) the holders of 20% or more of GFC common stock issued in GFC’s initial public offering do not vote against such purchase and exercise their conversion rights under GFC’s certificate of incorporation.
3. Sale and purchase
3.1 Agreement to sell and purchase First Tranche Sale Shares
The Management Vendors and Equity Partners agree to sell to Bison-GE and Bison-GE agrees to buy from the Management Vendors and Equity Partners the First Tranche Sale Shares:
(a) for the amount calculated in respect of that Vendor in accordance with clause 4.2;
(b) free from Encumbrances;
(c) with all rights, including dividend and voting rights, attached to them;
(d) on the First Completion Date; and
(e) subject to this deed.
3.2 Agreement to sell and purchase Second Tranche Sale Shares
Each Management Vendor and Bison-GE agrees to sell to GFN and GFN agrees to buy from each Management Vendor and Bison-GE the Second Tranche Sale Shares:
(a) for the Management Vendors Second Completion Payment payable to the Management Vendors in the Management Vendors Respective Proportions and the Bison-GE Completion Payment payable to Bison-GE respectively;
(b) free from Encumbrances (other than, in the case of Bison-GE only, any Encumbrances that existed on the date such Shares were acquired by Bison-GE);
(c) with all rights, including dividend and voting rights, attached to them;
(d) on the Second Completion Date; and
(e) subject to this deed.
4. Fair Value and Purchase Price
4.1 Fair Value
The fair market value of the Group is equal to the enterprise value of the Group and is equal to the total amount payable by GFN under this agreement to acquire the Second Tranche Shares which is A$116,500,000 comprised of the following:
(a) the amount of the Net Debt;
(b) the Purchase Price; and
(c) the Restraint Amount referred to in clause 15.1(c).
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4.2 First Tranche Amount
(a) The purchase price for the First Tranche Sale Shares is:
(i) the First Completion Payment; plus
(ii) the Deposit; plus
(iii) the Equity Partners Escrow Amount; plus
(iv) the amount (if any) payable by the Company to the Original Vendors pursuant to clause 4.7; less
(v) the amount (if any) payable by the Original Vendors to Bison-GE or the Company pursuant to clause 4.9,
subject to adjustment under clause 4.5.
(b) The purchase price payable to each Vendor for its First Tranche Sale Shares is the dollar amount specified opposite the name of that Vendor in column 3 of Part B of Schedule 1 (being that Vendor’s share of the First Completion Payment) plus the percentage of the total amount of the adjustments payable pursuant to clause 4.5 set opposite the name of that Vendor in column 4 of Part B of Schedule 1.
4.3 Second Tranche Amount
(a) The purchase price for the Second Tranche Sale Shares is:
(i) the Second Completion Payment; plus
(ii) the Management Escrow Amount.
(b) The total purchase price for the Second Tranche Sale Shares shall be paid as follows:
(i) the Bison-GE Completion Payment to Bison-GE in respect of the Sale Shares being sold by Bison-GE at Second Completion; and
(ii) the Management Vendors Second Completion Payment to the Management Vendors in the Management Vendors’ Respective Proportions in respect of the balance of the Second Tranche Sale Shares.
4.4 Deposit
(a) GFN has paid an amount of A$550,000 in cash to the Vendors’ Representatives or their nominee as a non-refundable deposit within 1 Business Day of the date of this deed.
(b) The parties acknowledge that GFN has paid the following additional amounts in cash to the Vendors’ Representatives or their nominee as a non-refundable deposit as follows:
(i) A$250,000 on 30 November 2006;
(ii) A$250,000 on 31 December 2006; and
(iii) A$250,000 on 31 January 2007.
(c) The Management Vendors and Equity Partners acknowledge and agree that the Deposit has been paid by the Vendor’s Representatives to the Vendors or the Company (if the Vendors so determine) (in their Respective Proportions) or in such proportion as the Vendors may agree.
4.5 Adjustments
(a) If the Net Tangible Assets Amount (as determined by reference to the Completion Accounts) is less than the relevant NTA Amount then on the Determination Date the Original Vendors (in their Respective Proportions) must pay an amount equal to the shortfall to Bison-GE and the Purchase Price will be decreased accordingly.
(b) If the Working Capital Amount (as determined by reference to the Completion Accounts) is less than A$3,000,000, then on the Determination Date the Original Vendors (in their Respective Proportions) must, subject
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to clause 4.5(j), pay an amount equal to the shortfall to Bison-GE and the Purchase Price will be decreased accordingly.
(c) If the gross amount of container rental equipment at First Completion as determined by reference to the Completion Accounts:
(i) is greater than the Container Rental Equipment Amount then on the Determination Date but subject to clause 4.10 Bison-GE must pay an amount equal to the excess to the Original Vendors (in their Respective Proportions) and the Purchase Price will be increased accordingly; or
(ii) is less than the Container Rental Equipment Amount then on the Determination Date the Original Vendors (in their Respective Proportions) must pay an amount equal to the shortfall to Bison-GE and the Purchase Price will be decreased accordingly.
(d) If the Net Debt (as determined by reference to the Completion Accounts) is:
(i) less than the Estimated Net Debt then on the Determination Date, subject to clause 4.10 Bison-GE must pay an amount equal to the difference to the Original Vendors in their Respective Proportions and the Purchase Price will be increased accordingly; or
(ii) greater than the Estimated Net Debt, then on the Determination Date, the Original Vendors in their Respective Proportions must pay an amount equal to the difference to Bison-GE and the Purchase Price will be reduced accordingly.
(e) The parties agree that any payments to be made pursuant to clauses 4.5(a), (b), (c) and (d) and clauses 4.7 and 4.9 will be netted off so that only one payment of the appropriate net amount will be payable by the relevant party.
(f) Bison-GE agrees that it may not reduce or set-off any amounts payable to the Original Vendors under this clause 4.5 against any Claims made by Bison-GE against the Original Vendors under this deed.
(g) All adjustments required to be paid under this clause 4.5, and under clause 4.9, will be paid in cash and:
(i) if the adjustment payment is owed by the Purchaser to the Vendors, then the total amount of the adjustment payment that is payable on the Determination Date is the aggregate of such percentages set out in column 4 of Part B of Schedule 1, and the adjustment payment will be payable to the Vendors in the proportions set out in column 4 of Part B of Schedule 1;
(ii) the balance of the adjustment amount (referred to in paragraph (b) of the definition of Management Vendors Completion Payment) will be payable to the Management Vendors at Second Completion;
(iii) if the adjustment payment is owed by the Vendors to the Purchaser, then the total amount of the adjustment payment that is payable on the Determination Date will be payable by the Vendors to the Purchaser in the proportions set out in column 4 of Part B of Schedule 1;
(iv) the balance of the adjustment amount will be payable to the Purchaser by the Management Vendors at Second Completion;
(h) Subject only to paragraph (j) below, the parties acknowledge and agree that each of paragraphs (a) to (d) above operate separately and independently from each of the other of those paragraphs, so that an adjustment may be made in respect of the same subject matter or item under one or more of those paragraphs.
(i) For completeness, worked examples of the adjustments contemplated by clauses 4.5 and 4.9 are set out in Schedule 12.
(j) The Original Vendors will be entitled to offset against their obligation to pay Bison-GE in respect of any shortfall in Working Capital under clause 4.5(b) an amount equal to the excess Net Tangible Assets Amount (being the amount by which the Net Tangible Assets Amount exceeds the NTA Amount), up to a maximum set-off amount of A$250,000.
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4.6 Purchase Price
The Purchase Price for the First Tranche Sale Shares must be paid subject to the adjustments under clauses 4.5, 4.7 and 4.9 to the Vendors in cash.
4.7 Net Debt
(a) On the First Completion Date, subject to the limitations of clause 4.10, Bison-GE must subscribe for one D Class share in the capital of the Company having the rights set out in the constitution of the Company adopted on First Completion at a subscription price equal to the Bison-GE Subscription Amount. The execution of the Subscription Deed referred to in clause 2.1(n) by Bison-GE constitutes an irrevocable application to subscribe, on First Completion, for that D Class share in the capital of the Company.
(b) The Original Vendors represent and warrant that immediately upon the Company receiving the Bison-GE Subscription Amount:
(i) the redemption of the B Class Notes will have been completed in full (by paying the issue price and all accrued interest on the B Class Notes to Equity Partners);
(ii) all of the Options will have been cancelled on the basis that 75% of this amount is paid on First Completion and the balance on July 31, 2007; and
(iii) the buy-back of the CFO Shares will have been completed.
4.8 Cleared funds
All cash payments under this clause 4 must be paid by bank cheque or payable in immediately available funds to a single bank account nominated by the Original Vendors in full and final satisfaction of the Purchaser’s obligations to make cash payments to the Original Vendors under this clause 4.
4.9 K& S Lease (Curtainsiders)
If the outstanding balance owing under the K & S Lease (Curtainsiders) at First Completion exceeds A$482,000, the Original Vendors (in their Respective Proportions) must pay the excess (theK&S Lease Adjustment Amount) to Bison-GE on the Determination Date as a reduction in the Purchase Price.
4.10 Maximum amount payable by Bison-GE
(a) Notwithstanding any other provision in this deed (except clause 15.8(b)) or in any other document entered into between any of the parties, the maximum aggregate amount that Bison-GE will be required to pay under this deed (whether in payment of the First Completion Amount or any amount that it is required to pay to the Vendors or to pay or procure to be provided to the Company or any other person) will not exceed the Bison-GE Maximum Amount.
(b) To the extent that Bison-GE is required to pay or procure any further amounts to be paid to the Original Vendors, the Company or any other person under this deed in excess of the Bison-GE Maximum Amount, subject to clause 15.8(b), that amount will be paid by GFN in accordance with clause 4.10(c), (d) and (e).
(c) On and from Second Completion any outstanding payment or procurement obligations of Bison-GE under this deed shall apply as if GFN (and not Bison-GE) purchased the First Tranche Sale Shares on the First Completion Date and GFN was named as the party required to pay or procure the payment of all amounts referred to in this deed.
(d) If it is determined that the Bison -GE Maximum Amount will be exceeded then as regards the amount of the adjustments due to the Original Vendors pursuant to clause 4.5, all monies that are available up to the Bison-GE Maximum Amount shall be paid as a first priority to Equity Partners and as a second priority to the Management Vendors.
(e) If, after making payments in the above order of priority, there is any shortfall in the amount payable to:
(i) Equity Partners, such shortfall will become payable to Equity Partners by GFN at Second Completion and on the basis that such shortfall will carry interest at the rate of 18% per annum (calculated on daily rests and not capitalised) from the Date of Determination ; and/or
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(ii) the Management Vendors, such shortfall shall be added to the Management Vendors Second Completion Payment on the basis that it carries interest at the rate of 18% per annum (calculated on daily rests and not capitalised) from the Date of Determination.
(f) If the Second Completion Date occurs prior to the Determination Date then any net adjustments to be paid to the Original Vendors shall be paid by GFN (and Bison-GE shall have no liability to pay any such adjustments) and any adjustments to be paid to Bison-GE shall be paid to GFN (and Bison-GE shall have no entitlement to such adjustments).
(g) Bison-GE represents and warrants to each of the Vendors and to GFN that on or before the First Completion Date it will be capitalised to not less than US$45 million.
5. Escrow
5.1 Management Vendors Escrow
(a) The Management Vendors irrevocably consent to GFN paying or dealing with the Management Escrow Amount in accordance with clause 5.1(b).
(b) The Management Vendors and GFN agree and must procure that the Management Escrow Amount is paid on Second Completion and released as follows:
(i) first, in payment and discharge to the Purchaser of any Claim made by the Purchaser under the Warranties against the Management Vendors (or against the Guarantors under clause 14), which Claim has been agreed, settled or finalised in accordance with clause 9;
(ii) on the first anniversary of the date of this deed, the amount (if any) by which A$1,250,000 exceeds the amount of any outstanding Claims made by the Purchaser against the Management Vendors under the Warranties or any Claims which have been agreed, settled or finalised will be released to the Management Vendors in the Management Vendors Respective Proportions on that date;
(iii) on the date that is 18 months after the date of this deed, the amount remaining in the Escrow Account, together with any accrued interest, that is not subject to any outstanding Claim or Claims made by the Purchaser against the Management Vendors under the Warranties will be released to the Management Vendors in the Management Vendors Respective Proportions on that date; and
(iv) if any or all of the Management Escrow Amount remains after the Claim or Claims referred to in clause 5.1(b)(iii) have been agreed, settled or finalised, that amount (together with any interest) will be released to the Management Vendors in the Management Vendors Respective Proportions immediately following such agreement, settlement or finalisation of the relevant Claim.
(c) The Management Vendors agree that they are not entitled to satisfy their obligations to pay any amounts payable by the Management Vendors to the Purchaser under clause 4.5 out of the Management Escrow Amount.
(d) The Purchaser agrees that it must first satisfy the total amount of all Claims made by it against the Management Vendors from the Management Escrow Amount before the Purchaser becomes entitled to recover any other cash in respect of a damages Claim from the Management Vendors.
5.2 Equity Partners Escrow
(a) Equity Partners irrevocably consents to Bison-GE paying the Equity Partners Escrow Amount in accordance with clause 5.2(b).
(b) Equity Partners and Bison-GE agree and must procure that the Equity Partners Escrow Amount is paid on First Completion and released as follows:
(i) first, in payment and discharge to the Purchaser of any Claim made by the Purchaser against Equity Partners under the Warranties, which Claim has been agreed, settled or finalised in accordance with clause 9;
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(ii) on the first anniversary of the date of this deed, the amount (if any) by which A$500,000 exceeds the amount of any outstanding Claims made by the Purchaser against Equity Partners under the Warranties or any Claims which have been agreed, settled or finalised will be released to Equity Partners on that date;
(iii) on the date that is 18 months after the date of this deed, the amount remaining in the Escrow Account, together with any accrued interest, that is not subject to any outstanding Claim or Claims made by the Purchaser against Equity Partners under the Warranties will be released to Equity Partners on that date; and
(iv) if any or all of the Escrow Amount remains after the Claim or Claims referred to in clause 5.2(b)(iii) have been agreed, settled or finalised, that amount (together with any interest) will be released to Equity Partners immediately following such agreement, settlement or finalisation of the relevant Claim.
(c) Equity Partners agrees that it is not entitled to satisfy its obligations to pay any amounts payable by Equity Partners to the Purchaser under clause 4.5 out of the Equity Partners Escrow Amount.
(d) The Purchaser agrees that it must first satisfy the total amount of all Claims made by it against Equity Partners from the Equity Partners Escrow Amount before the Purchaser becomes entitled to recover any other cash in respect of a damages Claim from Equity Partners.
5.3 Interest
(a) The Management Vendors will be entitled to all interest earned on the Management Escrow Amount.
(b) Equity Partners will be entitled to all interest earned on the Equity Partners Escrow Amount.
5.4 Effect of Second Completion
For the avoidance of doubt, the parties agree that on and from Second Completion the Equity Partners Escrow Amount (or the remaining balance thereof) shall be held in the Escrow Account in the joint names of Equity Partners and GFN and that the provisions of clauses 5.2 and 5.3 shall thereafter apply as if GFN (and not Bison-GE) purchased the First Tranche Sale Shares.
6. Completion
6.1 First Completion — Time and place
First Completion will take place on or prior to March 30, 2007 at the offices of Minter Ellison, Aurora Place, 88 Phillip Street, Sydney, NSW 2000 or such other time and place agreed by the parties in writing.
6.2 First Completion — Obligations of the Vendors
At or before First Completion the Vendors must:
(a) deliver to the Purchaser duly executed and completed transfers in favour of the Purchaser of the First Tranche Sale Shares in registrable form, together with the relevant share certificates for cancellation;
(b) produce to the Purchaser any power of attorney or other authority under which the transfers of the First Tranche Sale Shares are executed together with an irrevocable consent and waiver by any person with a right of pre-emption in relation to the First Tranche Sale Shares;
(c) cause the board of directors of the Company to resolve that the transfers of the First Tranche Sale Shares together with relevant share certificates, be approved and registered (subject only to the payment of stamp duties or other Taxes of a similar nature) and the transaction of any other business of which the Purchaser may give notice prior to the First Completion Date;
(d) cause the boards of directors of each Group Company to resolve to approve the matters referred to in clauses 6.2(c), (e), (f) and (g);
(e) cause the persons named in the fourth and fifth columns of Schedule 3 to be appointed as directors and secretary (as applicable) of the Company and each respective Group Company with effect from First Completion (subject to receipt by the Vendors of consents to act from each such person);
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(f) cause the resignation of the persons named in the second and third columns of Schedule 3 as directors and secretary (as applicable) of each Group Company, with effect from First Completion;
(g) cause the revocation, with effect from First Completion, of all authorities relating to bank accounts of each Group Company;
(h) deliver to the Purchaser or otherwise make available at the registered office of the Company, all Records (other than those which the Vendors are entitled to retain under clause 6.7). The Vendors must ensure that the register of members of each Group Company is accurate and up to date;
(i) deliver to the Purchaser or otherwise make available at the registered office of the Company the common seal (if any) of each Group Company;
(j) procure each of the Key Employees to enter into deeds containing the matters referred to in clause 2.1(i);
(k) deliver evidence of the release of the equitable mortgage existing over certain of the Sale Shares held by Cetro Pty Limited, FOMJ Pty Limited and FOMM Pty Limited created pursuant to an Equitable Mortgage of Shares between those Vendors, Triton CSA International B.V and others; and
(l) do all other things necessary or desirable to transfer the First Tranche Sale Shares and complete any other transaction contemplated by this deed, including delivering new share certificates with respect to the First Tranche Sale Shares to the Purchaser, to place the Purchaser in effective control of the Group and the Business.
6.3 Second Completion — Time and place
Second Completion will take place within 5 Business Days of the Condition in clause 2.2(a) being satisfied (and all of the other Conditions in clause 2.2 being satisfied or waived) at the offices of Blake Dawson Waldron, Level 36, 225 George Street, Sydney 2000 or such other time and place agreed by the Vendors and the Purchaser in writing.
6.4 Second Completion — Obligations of the Management Vendors
At or before Second Completion each of the Management Vendors and Bison-GE severally in respect of the Second Tranche Sale Shares registered in their own names must:
(a) deliver to the Purchaser duly executed and completed transfers in favour of the Purchaser of those Second Tranche Sale Shares in registrable form, together with the relevant share certificates for cancellation;
(b) produce to the Purchaser any power of attorney or other authority under which the transfers of the Second Tranche Sale Shares are executed together with an irrevocable consent and waiver by any person with a right of pre-emption in relation to those Second Tranche Sale Shares;
(c) cause the board of directors of the Company to resolve that the transfers of those Second Tranche Sale Shares together with relevant share certificates, be approved and registered (subject only to the payment of stamp duties or other Taxes of a similar nature) and the transaction of any other business of which the Purchaser may give notice prior to the Second Completion Date;
(d) do all other things necessary or desirable to transfer those Second Tranche Sale Shares and complete any other transaction contemplated by this deed, including delivering new share certificates with respect to those Second Tranche Sale Shares to the Purchaser, to place the Purchaser in effective control of the Group and the Business; and
(e) agree to the termination and release of the New Shareholders Agreement.
6.5 Obligations of the Purchaser
(a) At First Completion, the Purchaser must:
(i) pay the First Completion Payment, in accordance with clause 4.6;
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(ii) pay to the Company the aggregate subscription amount for the D Class shares subscribed for by the Purchaser pursuant to clause 4.7(a);
(iii) pay the Equity Partners Escrow Amount into the Escrow Account; and
(iv) deliver a deed in a form reasonably acceptable to the Original Vendors under which the Purchasers release all directors and officers of the Group Companies from all liabilities incurred by them in their capacities as officers of the Group other than for gross negligence, wilful misconduct or fraud and pursuant to which all such directors release the Group Companies from any Claim any such directors may have against any Group Company.
(b) At Second Completion the Purchaser must:
(i) pay the Second Completion Payment, in accordance with clause 4.6; and
(ii) pay the Management Escrow Amount into the Escrow Account.
(c) The Purchaser agrees that it may not reduce or set off against its obligation to pay the First Completion Payment or the Second Completion Payment any Claims made by the Purchaser against the Vendors under this deed.
(d) The Purchasers agree that the D Class share issued to Bison-GE pursuant to clause 4.7 will not affect the amount of the Management Vendors Second Completion Payment.
6.6 Simultaneous actions at Completion
(a) In respect of First Completion:
(i) the obligations of the parties under this deed are interdependent;
(ii) all actions required to be performed will be taken to have occurred simultaneously on the First Completion Date; and
(iii) the Purchaser need not complete the purchase of any of the First Tranche Sale Shares unless the purchase of all the First Tranche Sale Shares is completed simultaneously.
(b) In respect of Second Completion:
(i) the obligations of the parties under this deed are interdependent;
(ii) all actions required to be performed will be taken to have occurred simultaneously on the Second Completion Date; and
(iii) the Purchaser may not acquire any of the Second Tranche Sale Shares from the Management Vendors unless it has simultaneously acquired the Second Tranche Sale Shares from Bison-GE.
6.7 Records
After First Completion and after Second Completion, the Vendors may retain copies of any Records necessary for the Vendors to comply with any applicable law (including, without limitation, any applicable Tax law) and to prepare Tax or other returns required of them by law.
6.8 Information and Assistance Following Completion
(a) For 90 days after First Completion and Second Completion (if applicable), if Bison-GE or GFN gives the Vendors (or any of them) notice(‘Assistance Notice’) so requesting the Vendors must furnish the Purchaser with such information relating to the Business in the possession and control of that Vendor specified in the Assistance Notice.
(b) Michael Baxter agrees to assist Bison-GE and GFN (at the Company’s cost) with transition issues for a 360 day period following First Completion on the terms and conditions contained in the Consultancy Agreement contained in Schedule 13 (Michael Baxter Consultancy Agreement). The payments due under the Michael Baxter
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Consultancy Agreement shall commence immediately following the Second Completion Date but on the basis that such agreement commenced on the First Completion Date.
7. Completion Accounts
7.1 Completion Accounts
GFN must as soon as practicable, and in any event no later than 20 Business Days, after the First Completion Date procure that the Group prepares and gives the Vendors’ Representatives a profit and loss statement as at the First Completion Date together with a balance sheet for the Group as at the close of business on the First Completion Date in relation to the period from 1 July 2006 up to the close of business on the First Completion Date (both days inclusive).
7.2 Basis of preparation
(a) The Completion Accounts must be prepared and the amount of the Net Debt, the Container Rental Equipment Amount, the Net Tangible Assets Amount, the Working Capital Amount and the K&S Lease Adjustment Amount, must be calculated on the same basis as the Accounts.
7.3 Access to information
GFN must ensure that all reasonable information and assistance requested by the Vendors’ Representatives is given to them to review the draft Completion Accounts and must permit the Vendors’ Representatives and the Vendors’ advisers to have reasonable access to, and take extracts from, or make copies of, the Records to review the Completion Accounts.
7.4 Review of Completion Accounts
If the Vendors’ Representatives do not dispute the Completion Accounts within ten Business Days after the date on which they are given a copy of the draft Completion Accounts (Final Objection Date) those accounts will be taken to be the final Completion Accounts and the amount of the Net Debt, the Completion Container Rental Equipment Amount, the Net Tangible Assets Amount, the Working Capital Amount and the K&S Lease Adjustment Amount in those accounts will be final and binding on the parties. If the Vendors’ Representatives dispute the Completion Accounts before the Final Objection Date, the dispute will be determined in accordance with clause 7.5.
7.5 Dispute Resolution Procedure
(a) If the Vendors’ Representatives dispute the Completion Accounts, the Vendors’ Representatives must give GFN a notice(Dispute Notice) before the Final Objection Date setting out:
(i) reasonable details of each matter in dispute; and
(ii) the reasons why each matter is disputed.
(b) Within ten Business Days of the Vendors’ Representatives giving GFN a Dispute Notice, GFN must give the Vendors’ Representatives a response in writing on the disputed matters(Response).
(c) If the dispute has not been resolved within ten Business Days of the Purchaser giving the Response to the Vendors’ Representatives, the dispute must promptly be submitted for determination to the Independent Accountant to determine the matter or matters in dispute.
(d) The Independent Accountant must be agreed by the Vendors’ Representatives and the Purchaser. If the Vendors and the Purchaser cannot agree within ten Business Days of the expiry of the period in clause 7.5(c), then the Independent Accountant will be nominated, at the request of either the Vendors or the Purchaser, by the President of the Institute of Chartered Accountants (Sydney Branch).
(e) The disputed matters must be referred to the Independent Accountant by written submission which must include the draft Completion Accounts, the Dispute Notice, the Response and an extract of the relevant provisions of this deed. The Independent Accountant must also be instructed to finish its determination no later than ten Business Days after its appointment (or another period agreed in writing by the Vendors’ Representatives and the Purchaser). Each party shall be entitled to make such written submissions as it deems fit.
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(f) The parties must promptly supply the Independent Accountant with any information, assistance and cooperation requested in writing by the Independent Accountant in connection with its determination. All correspondence between the Independent Accountant and a party must be copied to the other parties.
(g) The Independent Accountant must act as an expert and not as an arbitrator and its written determination will be final and binding on the parties in the absence of manifest error and the Completion Accounts will be deemed to be amended accordingly and will be taken to comprise the final Completion Accounts.
7.6 Costs
The costs of the Independent Accountant (if instructed) will be borne by the Vendors (in their Respective Proportions) as to one-half and by GFN as to one-half.
8. Obligations before First Completion
8.1 Continuity of business
Equity Partners and the Management Vendors must, to the extent within their respective powers as shareholders of the Company and through their board representation, procure that, until First Completion; and Bison-GE must (as regards the matters set out insub-clauses (c) and (d) only), and the Management Vendors must to the extent within their respective powers as shareholders of the Company and through their board representation procure that between the First Completion and the Second Completion, each Group Company:
(a) manages and conducts its Business as a going concern with all due care and in accordance with normal and prudent practice (having regard to the nature of the Business and the past practice of the Group Company);
(b) uses its reasonable efforts to maintain the profitability of the Business;
(c) does not acquire (or agree to acquire) any shares in any corporation or the business and assets of any corporation without the prior written consent of GFN; and
(d) does not (except as provided in the Budget), without the prior consent by notice of the Purchaser (such consent not to be unreasonably withheld or delayed), either:
(i) enter into, terminate or alter any term of any material contract or commitment with a value of A$100,000 or more;
(ii) other than in the ordinary course of the Business, incur any material liabilities of A$50,000 or more;
(iii) other than in the ordinary course of its Business and other than in respect of any securities granted or to be granted by any Group Company in favour of Australia and New Zealand Banking Group Limited or its related entities, dispose of, agree to dispose of, encumber or grant an option over any of its assets;
(iv) hire or terminate the employment of any senior employee or alter the terms of employment (including the terms of superannuation or any other benefit) of any senior employee whose salary package is A$150,000 or more;
(v) allot or issue or agree to allot or issue any share or any security convertible into any share;
(vi) declare or pay any dividend or make any other distribution of its assets or profits;
(vii) alter or agree to alter its constitution; or
(viii) pass any special resolution.
This clause 8.1 and the obligations of Bison-GE and the Management Vendors hereunder shall terminate upon the termination of their obligations to complete the sale of the Second Tranche Shares under clause 2.5.
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8.2 Notice of Change
(a) Where before First Completion an event occurs which has or may have a Material Adverse Effect the Management Vendors and Equity Partners must, immediately upon becoming aware of that event, give notice to each Purchaser describing the event in reasonable detail known to the Management Vendors and Equity Partners.
(b) Where between First Completion and Second Completion an event occurs that has a Material Adverse Effect, the Management Vendors must, immediately upon becoming aware of that event, give notice to Bison-GE and the Purchaser describing the event in reasonable details known to the Management Vendors.
8.3 SEC Proxy Filing
(a) The Vendors acknowledge that GFC has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act’), and as such is subject to certain reporting and filing obligations with the United States Securities and Exchange Commission (‘SEC’). In connection with the transactions contemplated by this deed, these filing and reporting obligations will include filing and obtaining SEC approval of a proxy statement to be sent to the shareholders of GFC and the filing of aForm 8-K upon announcement, material developments concerning and upon closing of the transactions (the ‘SEC Filings’). These documents must include business and financial information regarding the Company, including audited annual and unaudited interim financial statements.
(b) The Management Vendors, in the Management Vendor’s Respective Proportions, covenant to GFC that the information provided (or procured to be provided) by the Management Vendors relating to the Group in any preliminary or definitive proxy statement filed with the SEC in connection with the transactions contemplated by this deed and which information is specifically identified in writing by GFC will not contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading.
(c) GFC agrees to indemnify the Vendors against any Claim against the Vendors to the extent that:
(i) any preliminary or definitive proxy statement or any other document filed with the SEC in connection with the transactions contemplated by this deed contained any statement which, at the time and in the light of the circumstances under which it was made, was false or misleading with respect to any material fact or omitted to state any material fact necessary in order to make the statements therein not false or misleading (excluding any statement based on information which is warranted by the Management Vendors under clause 8.5(b); and
(ii) the final proxy statement did not comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.
(d) GFC will duly dispatch and post the notice of meeting to its stockholders as soon as legally practicable after the proxy statement is approved by SEC and will use its best efforts to cause such meetings to occur no later than 30 days from the date of mailing the notices. GFC’s board of directors will recommend to stockholders the approval of the purchase of the Second Tranche Sale Shares and GFC must include such recommendation in the proxy statement.
(e) The Management Vendors agree to provide such business and financial information and financial statements regarding the Group as GFC may reasonably request for the SEC Filings and to respond to SEC comments in connection therewith, and to cause (to the extent they are able to do so) its auditors to provide such signed reports and consents as may be required for such SEC Filings.
(f) GFC agrees that it will promptly provide copies to and consult with the Management Vendors in the preparation of any written responses with respect to any comments or requests received from SEC, and the Management Vendors will, prior to filing, have the right to review and comment on the SEC Filings made at or prior to Completion. GFC will not file any SEC Filings with the SEC containing information relating to the Group without the prior written consent of Paul Jeffery as representative of the Management Vendors with respect to the information relating to the Group, which consent shall not be unreasonably withheld or unreasonably delayed.
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9. Warranties and Indemnities
9.1 Warranties by Vendors and Bison-GE
(a) The Management Vendors and Equity Partners represent and warrant to each Purchaser, in respect of itself and the Sale Shares held by it only, that each of the Title and Capacity Warranties is true and accurate on its terms at the date of this deed and the First Completion Date and will be true and accurate:
(i) in respect of the First Tranche Sale Shares, on the First Completion Date; and
(ii) in respect of the Second Tranche Sale Shares, on the Second Completion Date; and.
(b) Bison-GE represents and warrants to GFN and GFC, in respect of itself and the Sale Shares held by it only, that based upon the truth and completeness of the Title and Capacity Warranties of the Original Vendors given with respect to the First Tranche Shares acquired by it and sold by Bison-GE at the Second Completion Date, each of the Title and Capacity Warranties given by it is true and correct as to itself on its terms at the Second Completion Date.
(c) Each Management Vendor severally represents and warrants to each Purchaser that each of the Business Warranties is true and accurate on its terms at the date of this deed and will be true and accurate on the First Completion Date.
(d) Each Management Vendor severally represents and warrants to each Purchaser that each of the Business Warranties is, so far as each Management Vendor is aware, true and accurate on its terms at the Second Completion Date.
(e) Equity Partners represents and warrants to each Purchaser that each of the Business Warranties is, so far as Equity Partners is aware, true and accurate on its terms at the date of this deed and will be true and accurate on the First Completion Date.
(f) GFN and GFC acknowledge and agree that Bison-GE does not and will not make any Business Warranties. Each of Bison-GE and the Vendors acknowledges and agrees that if the Second Completion occurs, all rights of Bison-GE in respect of representations and warranties by the Vendors, and covenants and agreements of the Vendors, under this deed shall be deemed assigned to GFN with the effect that GFN may enforce such rights directly against the Vendors. After Second Completion Bison-GE agrees to co-operate with GFN (at GFN’s cost and expense) in the enforcement of such rights, and agrees to promptly deliver to GFN any payments (for damages, indemnification or otherwise) received by Bison-GE in connection with such rights after reimbursement of all costs and expenses incurred by it .
9.2 Vendors’ Indemnity
Equity Partners and the Management Vendors indemnify and agree to keep indemnified the Purchaser against any Claim against the Purchaser to the extent that the Claim gives rise to a breach of any of the Business Warranties (including, without limitation, any Claim suffered or incurred by the Purchaser by reason of the Shares being worth less than they would have been worth had that breach not occurred). If Second Completion occurs:
(a) Equity Partners, the Management Vendors and Bison-GE agree that the benefit of such indemnity shall be for the benefit of and shall be directly enforceable by GFN as if made directly to GFN; and
(b) Bison-GE agrees to co-operate with GFN (at GFN’s cost and expense) in the enforcement of such rights, and agrees to promptly deliver to GFN any payments (for damages, indemnification or otherwise) received by Bison-GE in connection with such rights.
9.3 Application of the Warranties
Each of the Warranties:
(a) remains in full force and effect after First Completion and Second Completion respectively;
(b) is separate and independent and is not limited by reference to any other Warranty; and
(c) is given as an inducement to GFN, Bison-GE and GFC to enter into this deed.
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9.4 Disclosure
(a) The Warranties are given subject to and qualified by, and the Purchaser is not entitled to claim that any fact, matter or circumstance causes any of the Warranties to be breached if and to the extent, but only to the extent, that the fact, matter or circumstance is fairly disclosed in the Disclosure Documents. This clause does not apply to any disclosure relating to the statutory records of any Group Company (and in particular their Members register).
(b) The parties agree that the second Disclosure Letter referred to in paragraph (b) of the definition of Disclosure Letter will not qualify the warranties given on First Completion, nor will any disclosure in that second Disclosure Letter that constitutes a Material Adverse Effect be taken into account in determining whether the condition precedent in clause 2.2(c)(i) is satisfied.
9.5 Acknowledgments
The Purchaser acknowledges and agrees with the Vendors that:
(a) the Warranties are the only warranties that the Purchaser has relied on in entering into this deed;
(b) without limiting clause 9.15, no warranty or representation, expressed or implied, is given in relation to any information or expression of intention or expectation nor any forecast, budget or projection contained or referred to in the Disclosure Documents; and
(c) to the extent permitted by law, all other warranties, representations and undertakings (whether express or implied and whether oral or in writing) made or given by any Group Company or their respective employees, customers, agents or representatives are expressly excluded.
9.6 No reliance
(a) The Purchaser acknowledges, and represents and warrants to the Vendors, that:
(i) no representations, warranties, promises, undertakings, statements or conduct:
(A) have induced or influenced the Purchaser to enter into, or agree to any terms or conditions of, this deed;
(B) have been relied on in any way as being accurate by the Purchaser;
(C) have been warranted to the Purchaser as being true; or
(D) have been taken into account by the Purchaser as being important to its decision to enter into, or agree to any or all of the terms of, this deed,
except, in the case of the Purchaser, those expressly set out in this deed (including in the Warranties);
(ii) it has entered into this deed after satisfactory inspection and investigation of the affairs of the Group, including a reasonable review of all the Disclosure Documents; and
(iii) it has made, and it relies upon, its own reasonable searches, enquiries and evaluations in respect of the Business (including in connection with any financial analysis or modelling conducted by the Purchaser or any of their representatives or advisers), except to the extent expressly set out in this deed (including in the Warranties).
(b) The parties acknowledge that the Vendors are not under any obligation to provide the Purchaser or its advisers with any information (including financial information) on the future performance or prospects of the Group. If the Purchaser has received opinions, estimates, projections, business plans, budget information or forecasts in connection with the Group (including in connection with any financial analysis or modelling conducted by the Purchaser or any of their representatives or advisers), the Purchaser acknowledges and agrees that:
(i) there are uncertainties inherent in attempting to make these opinions, estimates, projections, business plans, budgets and forecasts and the Purchaser is familiar with these uncertainties;
(ii) the Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all opinions, estimates, projections, business plans, budgets and forecasts furnished to it; and
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(iii) the Vendors are not liable under any Claim arising out of or relating to any opinions, estimates, projections, business plans, budgets or forecasts in connection with the Group.
(c) GFN and GFC confirm and agree that they have requested Bison-GE to enter into its obligations under this Deed and accordingly no act or omission on the part of Bison-GE under or in respect of this deed will:
(i) impair, limit or affect any rights of Bison-GE; nor
(ii) prevent, constrain or limit Bison-GE from taking any action,
with respect to GFN or GFC or any of their affiliates in any other transaction or circumstance or under any other agreement or document whatsoever.
9.7 Financial limits on Claims
(a) The Vendors have no liability for a Claim for a breach of Warranty:
(b) unless the amount of the Claim in respect of that breach is A$20,000 or more; and
(c) until the aggregate of all Claims under all Warranties of A$20,000 or more exceeds A$375,000, in which event the Purchaser may claim the whole amount, not just the excess over A$375,000.
9.8 Time limits on Claims
(a) Subject to clause 9.7(b), a Vendor will have no liability for breach of any Warranty, unless the Purchaser has given written notice of the Claim(Claim Notice) to that Vendor on or before the date that is 18 months after the date of this deed other than a Claim under 9.8(b) and the Claim has been settled or legal proceedings in a court of competent jurisdiction in respect of the Claim have been commenced by the Purchaser against that Vendor within twelve months of the date of the relevant Claim Notice.
(b) A Vendor will have no liability for breach of the Warranties in clauses 1, 3 and 6 of Schedule 5 unless the Purchaser has given written notice of the Claim to that Vendor on or before the date that is five years after the date of this deed.
9.9 Maximum aggregate liability for Claims
(a) Subject to clauses 9.9(b) and (c), the maximum aggregate liability of each Vendor (including legal costs and expenses incurred in defending a Claim from a third party), as a result of Claims for breach of:
(i) the Title and Capacity Warranties given by that Vendor is an amount equal to that Vendor’s Respective Proportion of the Purchase Price; and
(ii) the Business Warranties is an amount equal to that Vendor’s Respective Proportion of 20 percent of A$115,000,000,
provided that the aggregate amount which the Purchasers may recover against that Vendor in respect of all Claims under both paragraphs (i) and (ii) above and in relation to any other breach of this deed by that Vendor (including, without limitation, clauses 9.2, 9.16 and 10) is an amount equal to that Vendor’s Respective Proportion of the Purchase Price.
(b) Subject to clause 9.9(c), the maximum aggregate liability of each Management Vendor (including legal costs and expenses incurred in defending a Claim from a third party) as a result of all Claims notified to the Management Vendors in accordance with clause 9.8 before Second Completion for breach of:
(i) the Title and Capacity Warranties given by that Management Vendor is an amount equal to 57.85 per cent of that Management Vendor’s Respective Proportion of the Purchase Price; and
(ii) the Business Warranties is an amount equal to 57.85 per cent of 20 percent of that Management Vendor’s Respective Proportion of A$115,000,000,
provided that the aggregate amount which the Purchasers may recover against that Management Vendor before Second Completion in respect of all Claims under both paragraphs (i) and (ii) above and in relation to any other
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breach of this deed by that Management Vendor (including, without limitation, clauses 9.2, 9.16 and 10) is an amount equal to 57.85 per cent of that Vendor’s Respective Proportion of the Purchase Price.
(c) Notwithstanding clause 9.9(b), on and with effect from Second Completion, the aggregate amount which the Purchasers may recover against a Management Vendor will be the amount set out in clause 9.9(a) including in relation to any Claim Notices given before Second Completion.
9.10 Duty to mitigate
(a) The Purchaser acknowledges and agrees that it must itself take, and must procure that the Group Companies take, all reasonable steps to mitigate all and any loss which arises due to a breach by the Vendors of any provision of this deed including any breach of Warranty (which, for the avoidance of doubt, includes the indemnities in clauses 9.2, 9.16 and 10).
(b) Without limiting clause 9.9(a)(i), the Purchaser must take all reasonable steps to resist and defend, in the name of the relevant Group Company, any third party Claims.
9.11 Rights of the Purchaser
If the Purchaser makes a Claim under any Warranty (which, for the avoidance of doubt, includes a Claim under any of clauses 9.2, 9.16 and 10):
(a) the Purchaser at reasonable and regular intervals must provide the Original Vendors with written reports concerning the conduct, negotiation, control, defenceand/or settlement of the Claim;
(b) the Purchaser must afford the Original Vendors the opportunity to consult with the Purchaser on matters of significance in relation to the conduct, negotiation and settlement of the Claim; and
(c) the Original Vendors must render to the Purchaser, at the Purchaser’s reasonable expense, all such assistance as the Purchaser may reasonably require in disputing any Claim.
9.12 Benefits or credits received by the Company or the Purchaser
If any payment in respect of a Claim under the Warranties is made to the Purchaser by, or on behalf of, a Vendor, and after the payment is made the Purchaser or any Group Company receives or is entitled to any benefit or credit in relation to the subject matter of the Claim (including payment under any insurance policy), then the Purchaser:
(a) must immediately notify the Vendor of the likely benefit or credit; and
(b) pay to the Vendor an amount equal to the amount (net of expenses and Tax) of the likely benefit or credit received by the Purchaser or Group companies (as the case may be).
9.13 Warranty payments
Any payment made in respect of a Claim for breach of a Warranty is deemed to be a reduction in the Purchase Price.
9.14 Trade Practices Act
To the extent permitted by law, the Purchaser agrees not to make, and waives any right it may have to make, any claim against the Vendors under section 52 of theTrade Practices Act 1974(Cth) or the corresponding provision of any State or Territory enactment.
9.15 Financial forecasts
The parties acknowledge and agree that the Warranties do not apply to any financial forecasts, projections, opinions of future performance or other statements relating to financial prospects of the Group that have been provided by the Vendors or which are contained in the Budget. No warranty is given or representation made that any such financial forecast, projection or opinion will be met or achieved. Any such information that has been provided to the Purchaser was provided for information purposes only.
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9.16 Additional limitations
The liability of the Vendors in respect of any Claim in respect of the Warranties is reduced to the extent that:
(a) the subject matter of any Claim is provided for in the Accounts or is taken into account in calculating the amount of the Net Debt, the Completion Container Rental Equipment Amount, the Net Tangible Assets Amount, the Working Capital Amount or the K&S Lease Adjustment Amount;
(b) the Claim has arisen as a result of, or in consequence of, any voluntary act, omission, transaction or arrangement of or on behalf of the Purchaser or any Group Company after Completion except in relation to those acts or omissions conducted in the ordinary course of business or required by any law, regulation or contractual arrangement;
(c) the Claim is as a result of or in respect of, or where the Claim arises from any increase in the rate of Tax liable to be paid or any imposition of Tax not in effect at the date of this deed;
(d) GFC or the Purchaser have actual knowledge of the facts giving rise to the Claim and in circumstances where it would be reasonable for the Purchaser to conclude that there was a breach of Warranty;
(e) the Claim occurs or is increased as a result of legislation not in force or in effect at the date of this deed; or
(f) the Claim occurs as a result of a change after the date of this deed in any law or interpretation of law.
9.17 Vendors’ Tax Indemnity
The Original Vendors indemnify and agree to keep indemnified until 5 years after the date of this deed, the Purchaser against:
(a) any amounts which either or both a Group Company and the Purchaser may be called upon to pay in respect of any assessment, reassessment, amended assessment, default assessment, penalty, fine or any other obligation in respect of Taxes of the Group Company in respect of any year of income ended 30 June preceding the First Completion Date and in respect of the period commencing on 1 July 2006 and ending on the First Completion Date which have not been paid prior to the Accounts Date or fully provided for in the Accounts or in the Completion Accounts;
(b) any increased liability for Tax payable by the Purchaser (in relation to a Group Company)and/or the Group for any reason in respect of any year of income up to and inclusive of the year of income ended on 30 June immediately preceding the First Completion Date from that amount already paid or to be provided for in the Accounts arising out of any act done or omitted to be done by a Group Company on or before the First Completion Date; and
(c) any Taxes payable by a Group Company during the period from the Accounts Date to the First Completion Date arising as a result of the actions of a Group Company during that period which are not in the ordinary and proper course of business and which are not provided for in the Accounts or in the Completion Accounts.
9.18 Limits to recovery
The Purchaser acknowledges and agrees that it may not recover any amounts from the Vendors in relation to more than one of the following:
(a) a breach of any of the Business Warranties; and/or
(b) a breach of any of the Title and Capacity Warranties; and/or
(c) the indemnity in clause 9.2; and/or
(d) the indemnity in clause 9.17; and/or
(e) the indemnity in clause 10,
(f) in relation to the same set of facts or circumstances.
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9.19 Good faith negotiations in relation to disclosure of material items between signing and Completion
The parties acknowledge and agree that if a fact, matter or circumstance occurs after the date of this deed but before First Completion or Second Completion that constitutes a breach of a Warranty or Warranties, being a fact, matter or circumstance that did not exist at the date of this deed, then while neither the Vendors nor the Purchaser will have any right to terminate this Deed in respect of the relevant breach, the following provisions will operate:
(a) the Original Vendors will be entitled to disclose the relevant fact, matter or thing to the Purchaser;
(b) except as stated in clause 9.4(b), other than in respect of matters disclosed in the Disclosure Letter relating to Second Completion, such disclosure will not constitute a disclosure against the Warranties for the purposes of clause 9.4; and
(c) other than in respect of matters disclosed in the Disclosure Letter relating to Second Completion, the parties agree to negotiate in good faith before Completion with a view to reaching a mutually acceptable resolution (which may possibly involve an appropriate reduction in the Purchase Price) in lieu of the Purchaser making a claim for breach of the Warranties against the Vendors.
9.20 Effect of Second Completion
For the avoidance of doubt:
(a) the parties agree that Bison-GE will have no obligations as a ‘Vendor’ under this clause 9;
(b) the parties agree that on and from Second Completion the provisions of clauses 9.1 to 9.19 shall apply as if GFN (and not Bison-GE) purchased the First Tranche Sale Shares and Equity Partners and the Management Vendors gave the Warranties to GFN (and not to Bison-GE);
(c) Bison-GE assigns the benefit of the Warranties to GFN;
(d) GFN agrees that the Warranties and title to the First Tranche Shares are provided on ‘as is’ basis and that Bison-GE accepts no responsibility for any limitations in the scope of any Warranty or defect in title which it inherited from the Original Vendors.
(e) Equity Partners and the Management Vendors acknowledge and agree that the benefit of the Warranties may be assigned by Bison-GE to GFN or to Ronald F Valenta or any affiliate of Ronald F Valenta as contemplated in the Backup Purchase Agreement.
10. K&S Lease Indemnity
(a) Subject to clause 10(b), for so long as Royal Wolf Trading has obligations under the K&S Lease (Curtainsider), Equity Partners and the Management Vendors (in their Respective Proportions) indemnify the Group for all liabilities suffered or incurred by the Group in relation to an event of default occurring under the K&S Lease (Curtainsider) on or after First Completion.
(b) The indemnity in clause 10(a) only applies on the basis that:
(i) the K&S Lease (Curtainsider) is not amended or varied after First Completion;
(ii) the term of the K&S Lease (Curtainsider) is not extended;
(iii) Royal Wolf Trading continues to perform all of its obligations under the K&S Lease (Curtainsider) which are due to be performed on or after First Completion;
(iv) Royal Wolf Trading does not cause the K&S Lease (Curtainsider) to be breached, either wilfully or negligently, after First Completion; and
(v) the Purchaser procures that Royal Wolf Trading takes, all reasonable actions to mitigate any Claim under the K&S Lease (Curtainsider).
(c) In the event that the indemnity in this clause 10(a) is invoked, the parties agree to use their best endeavours to procure that Royal Wolf Trading assigns the benefit of the K&S Lease (Curtainsider) to a nominee of the Vendors.
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11. ADF Contract
The parties acknowledge that, in the period prior to First Completion, the Group may enter into and comply with its obligations under the ADF Contract (if awarded) subject to the Vendors consulting with the Purchaser on negotiations (if any) relating to the ADF Contract.
12. Environmental audit report
Without affecting clause 9, the Vendors acknowledge and agree that the Purchaser does not give any warranty or make any representation in relation to the completeness or accuracy of the Phase 1 environmental audit report commissioned by GFC in relation to the Group or the methodology adopted by Consulting Earth Scientists in preparing that report.
13. GFC Undertaking
(a) GFC undertakes, subject to all of the Conditions being satisfied or waived in accordance with clause 2.3, to ensure that the Purchaser is provided with sufficient funding to enable it to meet its obligations under this deed (including, without limitation, the obligations in clause 6.5).
(b) GFC undertakes to ensure and will ensure that GFN complies with all of its obligations under this deed.
(c) The Vendors have agreed to enter into this deed with GFC and the Purchaser in reliance on the undertaking in clause 13(a) and 13(b).
14. Guarantee
14.1 Guarantee and indemnity
Each Guarantor, in respect of its Related Management Vendor only and to the extent of that Related Management Vendor’s Respective Proportion only, unconditionally and irrevocably:
(a) guarantees to the Purchaser the due and punctual performance and observance by its Related Management Vendor of all of the obligations contained in or implied under this deed that must be performed and observed by its Related Management Vendor (whether present, future, actual or contingent)(Guaranteed Obligations); and
(b) indemnifies the Purchaser against all losses, damages, costs and expenses which the Purchaser may now or in the future suffer or incur consequent on or arising directly or indirectly out of any breach or non-observance by its Related Management Vendor of a Guaranteed Obligation.
14.2 Enforcement against guarantors
The Purchaser must first satisfy the total amount of any Claims made by it against the Guarantor from the proceeds remaining in the Escrow Account (if any) before it becomes entitled to recover any other cash in respect of a damages Claim from a Guarantor.
14.3 Continuing Guarantee
This Guarantee is a continuing guarantee and indemnity notwithstanding any settlement of account, intervening payment or other matter or thing whatever and is irrevocable until discharged pursuant to the terms of this deed.
14.4 Principal Obligations
The Guaranteed Obligations
(a) are principal obligations and not ancillary or collateral to any other obligation; and
(b) may be enforced against the relevant Guarantor without the Purchaser being required to exhaust any remedy it may have against the Vendor or to enforce any guarantee or security interest it may hold with respect to the Guaranteed Obligations.
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14.5 Obligations Absolute and Unconditional
The Guaranteed Obligations are absolute and unconditional and the liability of the relevant Guarantor under this deed extends to and is not affected by anything which, but for this provision, might operate to exonerate it from the Guaranteed Obligations in whole or in part including, without limitation, any one or more of the following (whether occurring with or without the consent of any person):
(a) the grant to the Management Vendor, the Guarantor or any other person of any time, waiver or other indulgence or concession or any whole or partial discharge or release of the Management Vendor, the Guarantor or any other person;
(b) any transaction or arrangement that may take place between the Purchaser and the Management Vendor, the Guarantor or any other person;
(c) the winding up or bankruptcy or death of, or the appointment of an administrator to, the Management Vendor, the Guarantor or any other person;
(d) the Guaranteed Obligations being or becoming wholly or partially illegal, void, voidable, unenforceable or disclaimed by a liquidator or trustee in bankruptcy;
(e) the failure by the Purchaser to give notice to the Guarantor of any default by the Management Vendor or any other person;
(f) any legal limitation, disability, incapacity or other circumstance related to the Management Vendor, the Guarantor or any other person;
(g) any laches, acquiescence, delay, acts, omissions or mistake on the part of or suffered by the Purchaser or any other person in relation to this deed;
(h) the Purchaser becoming a party to any compromise or scheme or assignment of property by or relating to the Management Vendor or the Guarantor or the acceptance by the Purchaser of any dividend or sum of money under such compromise, scheme or assignment;
(i) any judgment or rights which the Purchaser may have or exercise against the Management Vendor, the Guarantor or any other person;
(j) if the Management Vendor or the Guarantor is a trustee, any breach of trust or any variation of the terms of the trust or its determination.
14.6 Winding-up or Bankruptcy of Management Vendor
If the Management Vendor is wound up or bankrupted, the Guarantor irrevocably authorises the Purchaser (but without any obligation on the part of the Purchaser) to:
(a) prove for all moneys which the Guarantor has paid under this guarantee; and
(b) retain and carry to a suspense account and appropriate at the Purchaser’s discretion any dividends and other moneys received in respect of satisfaction of the Guaranteed Obligations,
until the Guaranteed Obligations have been irrevocably paid and discharged in full.
14.7 Indemnity in Respect of Management Vendors’ Obligations
The Guarantor unconditionally indemnifies the Purchaser against any loss which the Purchaser may suffer because the Guaranteed Obligations are unenforceable or disclaimed by a liquidator or trustee in bankruptcy in whole or in part.
14.8 Payment under Indemnity
The Guarantor shall pay to the Purchaser on demand a sum equal to any loss in respect of which it indemnifies the Purchaser under this clause including any moneys (or any moneys which if recoverable would have formed part of the Guaranteed Obligations) which are not or may not be recoverable.
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14.9 General Application of Indemnity
The indemnities given by the Guarantor under this clause shall apply to any Guaranteed Obligations which are not or may not be recoverable:
(a) whether by reason of any legal limitation, disability or incapacity of or affecting the Vendor or any other person;
(b) whether the transactions or any of them relating to those moneys were void, illegal, voidable or unenforceable; and
(c) whether or not any of the relevant matters or facts were or ought to have been within the knowledge of the Purchaser.
15. Restraint
15.1 Definitions
In this clause 15:
(a) Covenantormeans each of Equity Partners and the Management Vendors;
(b) engage inmeans to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier; and
(c) Restraint Amountmeans A$3 million payable by the Purchaser to the Covenantors in accordance with clause 15.8.
15.2 Prohibited activities
In consideration for the payment of the Restraint Amount, the Covenantors must not and must procure that each of its Associated Persons does not do any of the following:
(a) engage in a business that competes with the Business;
(b) solicit, canvass, approach or accept an approach from a person who was at any time during the 12 months ending on the First Completion Date a customer of the Group with a view to obtaining their custom in a business that is in competition with the Business; or
(c) interfere with the relationship between the Group and its customers, employees or suppliers;
(d) induce or help to induce an Employee to leave their employment; or
(e) disclose or use to their advantage or to the disadvantage of any Group Company, itself or by any of its Associated Persons any of the trade secrets or any confidential information relating to a Group Company or its Business.
15.3 Duration of prohibition
(a) The undertakings in clause 15.2 begin on the First Completion Date and end:
(b) 5 years after the First Completion Date;
(c) 4 years after the First Completion Date;
(d) 3 years after the First Completion Date;
(e) 2 years after the First Completion Date;
(f) 1 year after the First Completion Date,
other than the undertaking in clause 15.2(e) which shall not have an end date.
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15.4 Geographic application of prohibition
The undertakings in clause 15.2 apply only if the activity prohibited by clause 15.2 occurs within:
(a) Australia and New Zealand;
(b) All states and Territories of Australia;
(c) All capital cities in Australia and New Zealand.
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15.5 Interpretation
Clauses 15.2, 15.3 and 15.4 have effect together as if they consisted of separate provisions, each being severable from the other. Each separate provision results from combining each undertaking in clause 15.2, with each period in clause 15.3, and combining each of those combinations with each area in clause 15.4. All combinations apply cumulatively. Each combination must be read down to the extent necessary to be valid. If any combination cannot be read down to that extent, it must be severed. If any of those separate provisions is invalid or unenforceable for any reason, the invalidity or unenforceability does not affect the validity or enforceability of any of the other separate provisions or other combinations of the separate provisions of clauses 15.2, 15.3 and 15.4.
15.6 Exceptions
This clause 15 does not restrict:
(a) a Covenantor from performing any employment with the Group;
(b) a Covenantor from holding five per cent or less of the shares of a listed company;
(c) a Covenantor recruiting a person in response to a newspaper, web page or other public employment advertisement that is not made with the intention of soliciting the employment of a particular employee of the Group;
(d) Equity Partners holding an interest in another business which competes with the Business(Competing Business) provided that the Competing Business does not derive more than 10% of its revenue from activities which compete with the Business and provided that Equity Partners disposes of its interest in the Competing Business within 6 months of the Competing Business deriving more than 10% of its revenue from activities which compete with the Business.
15.7 Acknowledgments
Each Covenantor acknowledges that:
(a) all the prohibitions and restrictions in this clause 15 are reasonable in the circumstances and necessary to protect the goodwill of the Business;
(b) damages are not an adequate remedy if a Covenantor breaches this clause 15; and
(c) the Purchaser may apply for injunctive relief if a Covenantor breaches or threatens to breach this clause 15.
15.8 Payment of Restraint Amount
(a) The Restraint Amount is payable in cash by the Purchaser or the Company to the Vendors without counterclaim or set-off as follows:
(i) on the first anniversary of the First Completion Date:
(A) A$750,000 to Equity Partners; and
(B) A$750,000 to the Management Vendors;
(ii) on the second anniversary of the First Completion Date:
(A) A$750,000 to Equity Partners; and
(B) A$750,000 to the Management Vendors.
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(b) For the avoidance of doubt, Bison-GE is obligated to pay the amounts due to Equity Partners under clause 15.8(a) in full irrespective of whether payment of the whole or any part of such payments to Equity Partners means that the aggregate of all payments made by Bison-GE under this deed exceed the Bison-GE Maximum Amount. That is, clause 4.10 does not apply to the obligations of Bison-GE to make payments to Equity Partners under clause 15.8(a).
(c) For the avoidance of doubt, Bison-GE is not obligated to pay the amounts due to the Management Vendors under clause 15.8(a) if and to the extent that payment of the whole or any part of such payments to the Management Vendors would along with all other payments made under this deed by Bison-GE exceed the Bison-GE Maximum Amount.
(d) Equity Partners and the Management Vendors acknowledge and agree that after Second Completion the sole liability to pay any amount under this deed including without limitation the Restraint Amount shall rest with GFN (and not Bison-GE).
16. Representations by the Purchaser and GFC
16.1 Representations
Each of the Purchaser and GFC represent and warrant to each of the Vendors that each of the following statements will be true and accurate on the First Completion Date and the Second Completion Date:
(a) they are validly existing under the laws of their place of incorporation or registration;
(b) they have the power to enter into and perform their obligations under this deed and to carry out the transactions contemplated by this deed;
(c) they have taken all necessary action to authorise their entry into and performance of this deed and to carry out the transactions contemplated by this deed (subject to GFC obtaining stockholder approval on the basis set out in clause 2.7); and
(d) their obligations under this deed are valid and binding and enforceable against them in accordance with their terms.
16.2 Application of representations by the Purchaser and GFC
Each of the representations and warranties made by the Purchaser and GFC under clause 16.1 remains in full force and effect on and after First Completion and Second Completion.
17. Equity Partners limitation of liability
17.1 Limited capacity
Subject to clause 17.3, Equity Partners Two Pty Limited(Trustee) enters into this deed solely in its capacity as trustee of the Equity Partners 2 Trust(Trust). A liability arising under or in connection with this deed is limited to, and can be enforced against the Trustee, only to the extent to which it can be satisfied out of the assets of the Trust out of which the Trustee is actually indemnified for the liability. This limitation of the liability of the Trustee applies despite any other provision of this deed (other than clause 17.3) and extends to all liabilities and obligations of the Trustee in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to this deed.
17.2 Limited rights to sue
Subject to clause 17.3, no party may sue the Trustee in any capacity other than in its capacity in relation to the Trust, including to seek the appointment of a receiver (except in relation to property of the Trust), a liquidator, an administrator, or any similar person to the Trustee or prove in any liquidation, administration or arrangement of or affecting the Trustee (except in relation to property of the Trust).
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17.3 Exceptions
The provisions of clauses 17.1 and 17.2 do not apply to any obligation or liability of the Trustee to the extent that it is not satisfied because there is a reduction in the extent of the Trustee’s indemnification out of the assets of the Trust as a result of the Trustee’s fraud, negligence or breach of trust.
17.4 Limitation on authority
No attorney, agent, receiver or receiver and manager appointed in accordance with this deed has authority to act on behalf of the Trustee in a way which exposes the Trustee to any personal liability, and no act or omission of any such person will be considered fraud, negligence or breach of trust of the Trustee for the purpose of clause 17.3.
18. GST
18.1 Interpretation
In this clause 18, a word or expression defined in theA New Tax System (Goods and Services Tax) Act 1999(Cth) has the meaning given to it in that Act.
18.2 GST gross up
If a party makes a supply under or in connection with this deed in respect of which GST is payable, the consideration for the supply but for the application of this clause 18.2(GST exclusive consideration) is increased by an amount equal to the GST exclusive consideration multiplied by the rate of GST prevailing at the time the supply is made.
18.3 Reimbursements
If a party must reimburse or indemnify another party for a loss, cost or expense, the amount to be reimbursed or indemnified is first reduced by any input tax credit the other party is entitled to for the loss, cost or expense, and then increased in accordance with clause 18.2.
18.4 Tax invoice
A party need not make a payment for a taxable supply made under or in connection with this deed until it receives a tax invoice for the supply to which the payment relates.
19. Announcements
19.1 Announcements
A party must not make or authorise a press release or public announcement relating to the negotiations of the parties or the subject matter or provisions of this deed unless:
(a) it is required to be made by law or the rules of a recognised investment exchange or by contract and before it is made that party has:
(i) notified the other parties to this deed; and
(ii) given the other parties to this deed at least two Business Days to comment on the contents of, and the requirement for, such press release or public announcement; or
(b) it has the prior written approval of Equity Partners, the Purchaser and Management Vendors (which approval may not be unreasonably withheld); or
(c) Equity Partners Two Pty Limited wishes or must, in satisfaction of its reporting obligations, issue a release or notice to investors or shareholders of Equity Partners or to the members of advisory and investment committees of funds managed by Equity Partners.
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20. Notices and other communications
20.1 Service of notices
(a) A notice, demand, consent, approval or communication under this deed(Notice) must be:
(b) in writing, in English and signed by a person duly authorised by the sender; and
(c) hand delivered or sent by prepaid post or facsimile to the recipient’s address for Notices specified in the Details, as varied by any Notice given by the recipient to the sender.
20.2 Effective on receipt
A Notice given in accordance with clause 20.1 takes effect when taken to be received (or at a later time specified in it), and is taken to be received:
(a) if hand delivered, on delivery;
(b) if sent by prepaid post, the second Business Day after the date of posting (or the seventh Business Day after the date of posting if posted to or from a place outside Australia); and
(c) if sent by facsimile, when the sender’s facsimile system generates a message confirming successful transmission of the entire Notice unless, within eight Business Hours after the transmission, the recipient informs the sender that it has not received the entire Notice,
but if the delivery, receipt or transmission is not on a Business Day or is after 5.00pm on a Business Day, the Notice is taken to be received at 9.00am on the next Business Day.
21. Miscellaneous
21.1 Vendors’ Representatives
(a) The Original Vendors agree that when this document provides that any power may be exercised by, any decision may be made by, any action may be performed by, any notice may be given by, or any consent may be given by the Vendors’ Representatives:
(b) then that power may be exercised by, that decision may be made by, that action may be performed by, that notice may be given by and that consent may be given by the Vendors’ Representatives for and on behalf of all the Original Vendors; and
(c) the Purchasers may rely on the exercise, decision, action, notice or consent of the Vendors’ Representatives in relation to any such matters as having been given on behalf of all the Original Vendors.
21.2 Alterations
This deed may be altered only in writing signed by each party.
21.3 Approvals and consents
Except where this deed expressly states otherwise, a party may, in its discretion, give conditionally or unconditionally or withhold any approval or consent under this deed.
21.4 Assignment
A party may only assign this deed or a right under this deed with the prior written consent of each other party unless otherwise provided herein.
21.5 Costs
(a) The Vendors’ costs and expenses of negotiating, preparing and executing this deed will be paid by the Company and, following the Second Completion Date, GFC and GFN.
(b) GFN and GFC must pay its own costs and expenses of negotiating, preparing, stamping and executing this deed including the costs and expenses of preparing the proxy statement referred to in clause 2.2 and the costs and expenses of Horwath and Horwath and KPMG.
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21.6 Stamp duty and other duties
Any stamp duty, duties or other taxes of a similar nature (including fines, penalties and interest) in connection with this deed or any transaction contemplated by this deed, must be paid by GFN.
21.7 Survival
Any indemnity or any obligation of confidence under this deed is independent and survives termination of this deed. Any other term by its nature intended to survive termination of this deed survives termination of this deed.
21.8 Counterparts
This deed may be executed in counterparts. All executed counterparts constitute one document.
21.9 No merger
The rights and obligations of the parties under this deed do not merge on completion of any transaction contemplated by this deed.
21.10 Entire agreement
This deed and the documents referred to in this deed constitute the entire agreement between the parties in connection with its subject matter and supersede all previous agreements or understandings between the parties in connection with its subject matter.
21.11 Further action
Each party must do, at its own expense, everything reasonably necessary (including executing documents) to give full effect to this deed and any transactions contemplated by it.
21.12 Severability
A term or part of a term of this deed that is illegal or unenforceable may be severed from this deed and the remaining terms or parts of the term of this deed continue in force.
21.13 Waiver
A party does not waive a right, power or remedy if it fails to exercise or delays in exercising the right, power or remedy. A single or partial exercise of a right, power or remedy does not prevent another or further exercise of that or another right, power or remedy. A waiver of a right, power or remedy must be in writing and signed by the party giving the waiver.
21.14 Governing law and jurisdiction
This deed is governed by the law of New South Wales and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of New South Wales.
21.15 Specific performance
Nothing in this deed is intended to exclude a party from seeking the remedy of specific performance in relation to Completion.
22. Trusts
The Management Vendors covenant with each other party that they have full, complete, valid and unfettered authority and power to enter into this deed pursuant to the trusts for which they are the trustees including the power to give a guarantee and to enter into all the terms, conditions and covenants herein on its part contained or implied and that the entering into of this deed is in the due administration of such trusts.
23. Certain Covenants
23.1 Senior Subordinated Notes
Bison Capital Equity Partners II, LP (“Bison Equity’’) has submitted to GFC and GFN that certain proposal letter dated January 30, 2007 as amended on March 28, 2007 (the ’Proposal Letter’) that has been accepted by GFN
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and GFC. The Proposal Letter contemplates a loan of $20 million to GFN to be evidenced by senior subordinated notes and, as additional consideration, the lender would receive a warrant to purchase 500,000 shares of the common stock of GFC. Bison Equity is an affiliate of Bison-GE. At the Second Completion, GFN shall issue the senior subordinated notes and GFC shall issue the warrant to Bison Equity or its affiliate designee and Bison-GE shall loan or cause Bison Equity or its affiliate designee to loan $20 million to GFN, all on the terms and conditions set forth in the Proposal Letter (except that the interest rate shall be 13.5% per annum). The loan agreement, senior subordinated notes, the warrant and all other documentation shall be in form and substance consistent with the terms of the Proposal Letter.
23.2 Bison-GE Expenses
If the Second Completion occurs, GFN and GFC shall reimburse Bison-GE and their affiliates for all reasonable costs and expenses incurred in connection with the purchase and sale of the Sale Shares, the financing contemplated by clause 24.2 of this deed and the agreements entered into with Ronald F Valenta regarding Mr Valenta’s obligation to purchase the Bison-GE Sale Shares.
23.3 GFC Trust Account
Each Vendor severally on behalf of itself and its successors and assigns, hereby:
(i) acknowledges and agrees that until Second Completion under no circumstance shall it have any right, title or interest in or to any of the funds in the Trust Account established by GFC in connection with its initial public offering of securities for the benefit of holders of GFC common stock issued in such initial public offering, or any funds distributed from the Trust Account to the holders of securities issued in GFC’s initial public offering;
(ii) hereby irrevocably waives any claim that it might have to funds in the Trust Account, and any funds distributed from the Trust Account to the holders of securities issued in GFN’s initial public offering, at law or in equity; and
(iii) agrees not to make any such claim, and agrees to indemnify and hold GFC harmless from any such claim made by or on behalf of it.
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Schedule 1 — Shareholdings and Respective Proportions
PART A — Shares in the Company as at the date of this deed
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | 7
| |
| | | | | | | | | | | | | | | | | | %
| |
| | | | | | | | | | | | | | | | | | Management
| |
| | | Shares Held in the Company as at the Date of this Deed | | | | | | 6
| | | Vendors
| |
1
| | 2
| | | 3
| | | 4
| | | 5
| | | Respective
| | | Respective
| |
Name | | Ordinary | | | Class A | | | Class C | | | Rights | | | Proportions | | | Proportions | |
| |
| Equity Partners Two Pty Limited (as trustee of Equity Partners 2 Trust) | | | | | | | 4,322,590 | | | | | | | | — | | | | 53.01 | % | | | — | |
| FOMM Pty Limited (as trustee of the FOMM Trust) | | | 777,600 | | | | | | | | 36 | | | | — | | | | 18.52 | % | | | 39.42 | % |
| FOMJ Pty Limited (as trustee of the FOMJ trust) | | | 583,200 | | | | | | | | 27 | | | | — | | | | 13.89 | % | | | 29.56 | % |
| Cetro Pty Limited (as trustee of the FOMP Trust) | | | 583,200 | | | | | | | | 27 | | | | — | | | | 13.89 | % | | | 29.56 | % |
| TCWE Pty Limited (as trustee of the McCann family Trust) | | | 28,800 | | | | | | | | 2 | | | | 43,200 Ordinary shares 2 C class shares | | | | 0.69 | % | | | 1.46 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL | | | 1,972,800 | | | | 4,322,590 | | | | | | | | | | | | 100 | | | | 100 | |
PART B — First Tranche Sale Shares
| | | | | | | | | | | | | |
| | | | | | | | | % Share of
| |
| | | | | | First Completion
| | | Adjustment Payment
| |
| | | | | | Payment
| | | Under Clause 4.5
| |
Name | | Sale Shares | | | $ | | | and Clause 4.9 | |
| |
| Equity Partners Two Pty Limited | | | 4,322,590 Class A shares | | | | 28,432,454 | | | | 34.33 | |
| FOMM Pty Limited | | | 873,611 ordinary shares | | | | 5,746,300 | | | | 14.97 | |
| FOMJ Pty Limited | | | 655,208 ordinary shares | | | | 4,309,725 | | | | 11.23 | |
| Cetro Pty Limited | | | 655,208 ordinary shares | | | | 4,309,725 | | | | 11.23 | |
| TCWE Pty Limited | | | 32,356 ordinary shares | | | | 212,826 | | | | 0.55 | |
Total | | | 6,538,973 shares | | | | 43,011,030 | | | | 72.32 | |
PART C — Second Tranche Sale Shares
| | |
Name
| | Sale Shares
|
|
FOMM Pty Limited | | 636,616 ordinary shares |
FOMJ Pty Limited | | 477,462 ordinary shares |
Cetro Pty Limited | | 477,462 ordinary shares |
TCWE Pty Limited | | 23,578 ordinary shares |
Bison GE | | 6,538,973 ordinary shares |
Bison GE | | 1 class D share |
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Schedule 2 — Guarantors
| | | | |
Full Name
| | Notice Details | | Related Management Vendor |
|
Michael Paul Baxter | | 66 Lucinda Avenue, Wahroonga NSW 2076 | | FOMM Pty Limited |
James Harold Warren | | 10 Sofala Avenue, Riverview NSW 2066 | | FOMJ Pty Limited |
Paul Henry Jeffery | | 8/1150 Pittwater Road Collaroy NSW 2107 | | Cetro Pty Limited |
Peter Linden McCann | | 9 Bunyana Avenue Wahroonga NSW 2076 | | TWCE Pty Limited |
Schedule 3 — Directors and Secretaries to resign and to be appointed
| | | | | | | | | |
| | | | | 3
| | 4
| | 5
|
1
| | 2
| | Secretaries to
| | Directors to be
| | Secretaries to be
|
Company Name | | Directors to Resign | | Resign | | Appointed | | Appointed |
| |
| RWA Holdings Pty Limited | | Richard Gregson
Rajeev Dhawan | | — | | Douglas Trussler
Andreas Hildebrand | | — |
| Royal Wolf Trading Australia Pty Limited | | Richard Gregson
Rajeev Dhawan | | — | | Douglas Trussler
Andreas Hildebrand | | — |
| Royal Wolf Hi-Tech Pty Limited | | — | | — | | Douglas Trussler
Andreas Hildebrand | | — |
Schedule 4 — Title and Capacity Warranties
1. Each Vendor has full power, capacity, authority and all necessary consents to enter into and perform its obligations under this deed.
2. This deed will, when executed by the Vendors, constitute binding obligations of the Vendors in accordance with their respective terms.
3. The execution, delivery and performance by the Vendors of this deed will not:
(a) result in a breach of any provision of the constitution of a Vendor; or
(b) result in a breach of, or constitute a default under, any instrument to which a Vendor is a party or by which a Vendor is bound and which is material in the context of the transactions contemplated by this deed.
4. No:
(a) meeting has been convened, resolution proposed, petition presented or order made for the winding up of the Vendor; or
(b) receiver, receiver and manager, provisional liquidator, liquidator or other officer of the Court has been appointed in relation to all or any material assets of the Vendor.
5. Each Vendor:
(a) is not insolvent within the meaning of section 95 of the Corporations Act;
(b) has not stopped paying its debts as and when they fall due; and
(c) is not subject to voluntary administration under Part 5.3A of the Corporations Act.
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6. Each Vendor warrants that it is the registered holder and the sole legal owner of the Sale Shares set out opposite its name in Schedule 1.
7. Each Vendor warrants that there is no option, right to acquire or Encumbrance over or affecting such Sale Shares or any of them.
Schedule 5 — Business Warranties
Warranty 1 — The Group
1.1 (Status) Each Group Company is duly incorporated and validly exists under the laws of the jurisdiction in which it was incorporated.
1.2 (No insolvency event):
(a) No meeting has been convened, resolution proposed, petition presented or order made for the winding up of the Company or any Group Company;
(b) No receiver, receiver and manager, provisional liquidator, liquidator or other officer of the Court has been appointed in relation to all or any material assets of the Company or any Group Company; and
(c) Each Vendor and Group Company:
(i) is not insolvent within the meaning of section 95 of the Corporations Act;
(ii) has not stopped paying its debts as and when they fall due; and
(iii) is not subject to voluntary administration under Part 5.3A of the Corporations Act.
(d) No writ of execution exists against any Group Company.
| | |
| 1.3 | (Sale Shares)The Sale Shares: |
(a) will, as at Completion, comprise the entire issued share capital of the Company;
(b) are fully paid; and
(c) were validly issued.
1.4 There are no agreements, arrangements or understandings in force or securities issued which call for the present or future issue of, or grant to any person the right to require the issue of, any shares in the Company.
1.5 The shares in the Subsidiaries which have been issued by the Subsidiaries are:
(a) held by and beneficially owned by the Company (in the case of Royal Wolf Trading) or Royal Wolf Trading (in the case of Royal Wolf Hi-Tech Pty Limited); and
(b) are free from any security or third party interest.
1.6 There are no agreements, arrangements or understandings in force or securities issued which require the present or future issue of, or grant to any person the right to require the issue of, any shares or other securities in any of the Subsidiaries.
1.7 No Group Company:
(a) has any subsidiary (other than a Subsidiary);
(b) holds or beneficially owns any share or other security of any other company (other than a Subsidiary);
(c) is a member of any partnership, joint venture or unincorporated association; or
(d) has any branch or any permanent establishment outside Australia.
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1.8 Each Group Company has full power and authority to own its property and assets and to conduct its Business in all relevant jurisdictions and does not own property or assets or conduct any business in any place other than those places.
1.9 The register of members of each Group Company contains a true and accurate record of its members from time to time.
1.10 All statutory books and records of each Group Company have been properly kept and are up to date with true and accurate entries and records.
1.11 Each Group Company:
(a) has complied with all legal requirements for the filing of returns, particulars, notices and other documents with all government and regulatory authorities;
(b) has complied with all legal requirements in relation to the conduct of its Business; and
(c) has conducted its Business and its affairs generally in accordance with all applicable laws, orders, regulations, by-laws and other requirements.
1.12 Since the Accounts Date, no dividend in respect of any capital of a Group Company has been declared or paid nor has there been any other distribution of property or assets to members of the Group Company since the Accounts Date.
1.13 The Vendors are entitled to, and will, receive and be paid the Purchase Price in the respective amounts set out opposite their names in the sixth column of Schedule 1 (the Respective Proportions), notwithstanding that they hold the Sale Shares in different proportions.
Warranty 2 — Accounts
2.1 The Accounts give a true and fair view of the financial position of the Group as at the Accounts Date, and of the assets, liabilities and the results of operations of the Group for the period to which the Accounts relate.
2.2 The Accounts were prepared with due and reasonable care, in accordance with the accounting policies, principles and bases of preparation stated in those Accounts.
2.3 There has been no material change to the financial position of any Group Company or of the assets, liabilities or the results of operations of any Group Company since the Accounts Date.
Warranty 3 — Taxation
Compliance
3.1 The Group has not and will not have any liability for Tax in respect of the period ending on the Completion Date except for Tax for which provision has been made in the Accounts or Tax incurred in the ordinary course of business since the Accounts Date and provided for in the Completion Accounts.
3.2 Each Group Company has:
(a) complied with all obligations imposed on the Group Company by any Tax law;
(b) filed, lodged or submitted all Tax returns and information regarding Tax and Tax matters as and when required by Tax law or requested by any Tax authority or as agreed with their tax agent with true and full disclosure of all relevant matters; and
(c) maintained sufficient and accurate records and all other information required to support all Tax returns and information which has been or may be filed, lodged or submitted to any Tax authority or is required to be kept under any Tax law.
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Stamp duty
3.3 All documents required to be created by each Group Company under a law relating to stamp duty or a Tax of a similar nature, have been created and have had stamp duty or other Taxes of a similar nature paid in full in accordance with all applicable laws.
3.4 All documents which are liable to stamp duty or a Tax of a similar nature, or necessary to establish the title of each Group Company to an asset, have had stamp duty or other Taxes of a similar nature paid in full in accordance with all applicable laws.
GST
3.5 No Group Company is a party to any contract, deed, arrangement or understanding in respect of which it is or will become liable to pay GST without being entitled to increase the consideration payable under the contract, deed, arrangement or understanding or otherwise seek reimbursement so that the Group Company retains the amount it would have retained but for the imposition of GST.
3.6 Each Group Company:
(a) is registered for GST under the GST law;
(b) has complied in all respects with the GST law; and
(c) is not in default of any obligation to make any payment or return (including any Business Activity Statement) or notification under the GST law.
3.7 Each Group Company has correctly and on a timely basis, returned GST on all taxable supplies and has no outstanding GST liabilities.
3.8 Each Group Company has correctly claimed input tax credits on all creditable acquisitions and has held valid tax invoices in each relevant tax period in which the input tax credits were claimed and continues to hold those tax invoices as required by law.
3.9 All Instalment Activity Statements have been duly and punctually lodged.
Consolidated group
3.10 The Group is a tax consolidated group within the meaning ofPart 3-90 of theIncome Tax Assessment Act 1997(Cth) and the Company is the “head company’’ (within the meaning ofsection 703-15 of theIncome Tax Assessment Act 1997(Cth)) of that tax consolidated group.
3.11 No election has been made by the Company in the United States to treat the Company as anything other than an association taxable as a corporation for United States Federal Income Tax purposes.
Warranty 4 — Stock/Lease Fleet
4.1 All stock is:
(a) either in the physical possession of the Company or in transit;
(b) in all material respects, in good and marketable condition.
4.2 The level of stock is sufficient to meet and is not materially surplus to the requirements of the Business.
4.3 The stock can be sold in the ordinary and normal course of trading in the Business in the time period within which the Business would expect to sell it.
4.4 As at Completion, the Group will have at least 15,000 container units in a rental ready condition of which approximately 3,500 container units are cross hired.
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Warranty 5 Litigation
5.1 No Group Company is involved in any litigation or arbitration proceedings and, so far as the Vendors are aware, there are no facts likely to give rise to any such proceedings.
5.2 There is no unsatisfied judgment, order, arbitral award or decision of any court, tribunal or arbitrator against any Group Company or any of the assets of the Group or the Shares.
Warranty 6 — Environment
6.1 In this Warranty 6:
(a) Contaminantmeans a solid, liquid or gaseous substance, odour, heat, sound, vibration or radiation which is or may be:
(i) harmful or potentially harmful to the health, welfare, safety or property of human beings;
(ii) poisonous, harmful, or potentially harmful to animals or plants; or
(iii) detrimental to any beneficial use made of the Environment.
(b) Environmentmeans the physical factors of the surrounds of human beings including the land, waters, atmosphere, climate, sound, odours, place, the biological factors of animals and plants and the social factors of aesthetics.
(c) Environmental Authorisationmeans any authorisation, approval, permit, licence, consent, registration or authority required by any Environmental Law.
(d) Environmental Lawmeans a law regulating or otherwise relating to the Environment including land use, planning, pollution of the atmosphere, water or land waste, the storage and handling of chemicals, Hazardous Substances, or any other aspect of protection of the Environment.
(e) Hazardous Substancemeans any substance which is, or may be, hazardous, toxic, dangerous or polluting or which is regulated by any law relating to the Environment.
6.2 There is no Contaminant:
(a) present in, on or under any of the Leased Premises; or
(b) in, on or under any other part of the Environment which has originated or emanated from the Leased Premises.
6.3 All Environmental Authorisations, necessary to operate the Business:
(a) have been obtained;
(b) are in full force and effect in all material respects;
(c) have been complied with in all material respects; and
(d) are not being appealed by any person.
6.4 No fact or circumstance exists which:
(a) could lead to any Environmental Authorisation necessary to operate the Business being modified, suspended, revoked or not renewed; or
(b) would cause the Group to be in breach of any Environmental Law.
Warranty 7 — Employees
7.1 As far as the Vendors are aware, each Group Company has complied with, and continues to comply with, all obligations arising under law, equity, statute (including occupational health and safety, annual leave, long service
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leave, tax, superannuation, workers compensation and industrial laws) and all Industrial Instruments with respect to its current and former employees and contractors.
7.2 No Group Company has been served with notice of a Claim, prosecution, proceedings or dispute by any statutory body, union or any current or former employee or contractor (including with respect to occupational health and safety or workers’ compensation) nor is any Vendor aware of any threatened Claim or any facts of circumstances which could give rise to any such Claim.
7.3 There are no payments due by any Group Company in connection with the redundancy of any employee.
Warranty 8 — Material Contracts
8.1 As far as the Vendors are aware, no substantial reduction in revenue is likely to occur by reason of the change in control of the Group as a result of the transaction contemplated by this deed, or as a result of a failure to comply with any minimum requirements imposed by third party suppliers to the Group.
8.2 Full details of all material contracts entered into by any Group Company have been fully disclosed to the Purchaser in writing as part of the Disclosure Documents. A material contract means:
(a) any contract that relates to, or is likely to relate to, revenue or costs in any financial year of $100,000 or more;
(b) any contract which (irrespective of quantitative value), might reasonably be expected to be material to a prudent intending purchaser of the Business, including any contract between a Vendor on the one hand, and a Group Company on the other hand.
8.3 As far as the Vendors are aware, no Group Company is a party to any material contract of which it or any other party is in default or, but for the requirements of notice or lapse of time or both, would be in default.
8.4 Each Group Company has duly complied with and fulfilled all the material obligations and duties that it owes under any material contract to which it is party.
8.5 As far as the Vendors are aware, no event has occurred which may be grounds for termination of any material contract to which a Group Company is a party.
Warranty 9 — Plant and Equipment
9.1 As at Completion, the Group will own all of the assets, plant and equipment and fixtures and fittings (Plant and Equipment) that are required to conduct the Business, provided that all finance lease and other leasing obligations have been repaid at Completion.
9.2 As far as the Vendors are aware, the Plant and Equipment is in a good and reasonable state of repair and condition and it is in satisfactory working order, has been regularly maintained and is currently sufficient for the purposes of conducting the Business.
9.3 As at Completion, all of the Plant and Equipment will be free and clear from all Encumbrances.
9.4 As far as the Vendors are aware, all finished goods of each Group Company comply with statutory requirements and are of merchantable quality.
Warranty 10 — Compliance with laws
10.1 As far as the Vendors are aware, each Group Company has complied in all material respects with all applicable laws.
10.2 As far as the Vendors are aware, the Group holds all necessary licences (including statutory licences) and consents, planning permissions, authorisations and permits for the proper carrying on of its Business in all their aspects and all of those licences, consents, permissions, authorisations and permits:
(a) have been fully paid up;
(b) have been fully complied with;
A-52
(c) are in full force and effect; and
(d) are not liable to be revoked or not renewed.
10.3 As far as the Vendors are aware, there are no facts or circumstances involving any Group Company or its affairs which are likely to result in the revocation of or variation in any material respect of any permit, licence, authority or consent held by it.
10.4 As far as the Vendors are aware, no permit, licence, authority or consent held by any Group Company would be adversely affected by, or liable to be terminated revoked or varied in any material respect by reason of, a change in the ownership of any Group Company.
Warranty 11 — Records
As far as the Vendors are aware, the Records:
(a) are in the physical possession of the Company;
(b) are located at the Leased Premises;
(c) include all records required under, or to comply with or support any return or claim under, any applicable law (including any Tax law and the Corporations Act);
(d) have been properly and accurately prepared and maintained in all material respects in accordance with all applicable laws and areup-to-date where legally required; and
(e) do not contain material inaccuracies or discrepancies of any kind.
Warranty 12 — Disclosure Documents
Without limiting anything in clause 9 and subject to clauses 9.4(b), 9.5(b) and 9.14:
12.1 the factual information contained in the Disclosure Documents is not false, misleading or deceptive in any material respect;
12.2 the Vendors have not omitted to include any information in the Disclosure Documents the omission of which renders any of the Disclosure Documents misleading in any material respect; and
12.3 the facts set out in the Recitals and in Schedules 1, 4, 5, 7 and 8 and Schedule 9 are true, complete and accurate in all respects.
Warranty 13 — Compliance programs
As far as the Vendors are aware, each Group Company has in place compliance programs with respect to:
(a) occupational health and safety;
(b) discrimination and harassment in the work place; and
(c) consumer legislation,
which are necessary to comply with applicable regulatory or statutory requirements.
Warranty 14 — Superannuation
14.1 Each Group Company has fully complied with all of its obligations, duties and liabilities pursuant to the SGAA (including Part 3A of the SGAA), including its obligations in relation to the prescribed minimum level of superannuation contributions for each person employed by the Group and it is not liable to pay a Superannuation Guarantee Charge liability in respect of any superannuation contributions or entitlements for its Employees.
14.2 As far as the Vendors are aware, completion under this deed will not cause an increase in the obligations of any Group Company to make contributions to the Funds or result in any increase in benefits payable to Employees from the Funds.
A-53
Warranty 15 — Insurance
15.1 The Disclosure Documents contain details of all material insurances in respect of the assets and businesses of each Group Company, each such insurance is in force, the premiums that have fallen due for payment have been paid or paid in accordance with payment plan in force between each Group Company and Hunter Premium Funding at Completion and, so far as the Vendors are aware, nothing has been done or omitted to be done which would make any of them void, voidable or unenforceable in respect of any Claim.
15.2 There is no Claim outstanding under an insurance contract of the Group companies which is material to the Group as a whole.
15.3 No Group Company has been notified by any insurer that it is required or is advisable for it to carry out any maintenance, repairs or other works in relation to any of its assets.
Warranty 16 — Intellectual Property
16.1 Schedule 8 is a complete and accurate list of all Intellectual Property Rights ownedand/or used (as applicable) in connection with the Business and comprise all of the intellectual property rights required to conduct the Business.
16.2 The Group ownsand/or uses (as specified in Schedule 8) all right, title and interest throughout Australia in the Intellectual Property Rights. No Group Company has licensed any of the Intellectual Property Rights to any person and has not assigned, or in any way disposed of, any right, title or interest in the Intellectual Property Rights.
16.3 The Intellectual Property Rights are valid and enforceable throughout Australia. The relevant Group Company has taken all necessary steps to obtain and maintain appropriate registrations for the Intellectual Property Rights and to protect and defend the Intellectual Property Rights.
16.4 As far as the Vendors are aware, neither the carrying on of the Business nor the use of the Intellectual Property Rights:
(a) infringes, or is alleged to infringe, the Intellectual Property Rights or rights or other rights of any third party;
(b) is, or is alleged to be, in breach of any obligation of confidence owed to any third party; or
(c) is resulting, or so far as the Vendors are aware, is alleged to be resulting, in a breach of any obligation that a Group Company owes to any third party (including a breach of contract).
Warranty 17 — Real property
17.1 No Group Company owns, holds, or is the occupier, lessee or tenant of or has any interest in any real property except for the Leased Property.
17.2 Where the interest of a Group Company in a property is a leasehold:
(a) the lease is a valid, legal and binding obligation in accordance with its terms;
(b) the Group Company has duly complied with and fulfilled all its material obligations and duties under the lease; and
(c) so far as the Vendors are aware, no event has occurred which may be grounds for termination of the lease.
A-54
Schedule 6 — Leased Premises
| | | | | | | | |
No.
| | | Address | | Landlord Details | | Tenant |
|
| 1. | | | Sydney (Corporate Office)
Suite 202 Level 2
22-28 Edgeworth David Ave Hornsby NSW 2077 | | GPF No. 3 Pty Ltd | | Royal Wolf Trading |
| 2. | | | Sydney
‘Bonds Road Business Park’
111 Bonds Rd
Roselands NSW 2196 | | Tyne Container Services Pty Ltd | | Royal Wolf Trading |
| 3. | | | Canberra
15-23 Silva Avenue
Queanbeyan NSW 2620 | | Movements International Movers (ACT) Pty Ltd | | Royal Wolf Trading |
| 4. | | | Central Coast
117 Gavenlock Rd
Tuggerah NSW 2259 | | David Weaver | | Royal Wolf HI-Tech Pty Ltd |
| 5. | | | Newcastle
Lot 401 Pacific Hwy
Heatherbrae NSW 2324 | | Trutek Administration Pty Limited | | Royal Wolf Hi-Tech Pty Limited |
| 6. | | | Brisbane
33 Weyba Street
Banyo QLD 4014 | | George Aufferber & Maria Anna Aufferber | | Royal Wolf Trading |
| 7. | | | Cairns
Lot 2 Maconachie
Woree QLD 4870 | | Swain Family Investments Pty Ltd | | Royal Wolf Trading |
| 8. | | | Gold Coast
180 Heslop Road
Gaven QLD 4211 | | Storco Pty Ltd | | Royal Wolf Trading |
| 9. | | | Townsville
754-762 Ingham Rd
Bohle QLD 4818 | | Ferry Property | | Royal Wolf Trading |
| 10. | | | National Mining & Defence Office
C/o Strang International
936 Nudgee Road
Northgate QLD 4013 | | Strang International Pty Ltd | | Royal Wolf Trading |
| 11. | | | Melbourne (West)
195 Fairbairn Road
Sunshine West VIC 3020 | | Epic Bond Pty Ltd | | ACN Containers Pty Limited |
| 12. | | | Melbourne (Production Facility)
2 Pearl Street
Brooklyn VIC 3012 | | P&V Industries Pty Ltd | | Royal Wolf Trading |
| 13. | | | Melbourne (East)
2159 Dandenong Road
Clayton VIC 3168 | | MPM Leasing | | Royal Wolf Trading |
| 14. | | | Adelaide
Cnr Francis St & Eastern Pde
Gillman SA 5013 | | James Matra Pty Ltd | | Royal Wolf Trading |
| 15. | | | Perth
19 Mooney Street
Bayswater WA 6053 | | F & C Cardaci | | Royal Wolf Trading |
A-55
| | | | | | | | |
No.
| | | Address | | Landlord Details | | Tenant |
|
| 16. | | | Darwin
13 Berrimah Road
Berrimah NT 0828 | | Chan Ling Lam | | Royal Wolf Trading |
| 17. | | | Tasmania
39 Howard Road
Derwent Park Hobart TAS 7009 | | Thorpe Interstate Shipping | | Royal Wolf Trading |
Schedule 7 — Intellectual Property Rights
Royal Wolf Central Coast
Royal Wolf — AA Container Sales & Hire
Cape Containers
ACN Containers
Australian Container Network
Trademark number trade mark 1066769.
royalwolf.com.au
acncontainers.com.au
austcontainer.com.au
None
None
A-56
Schedule 12 — Worked examples of Purchase Price adjustments
(Clause 4.5(i))
A-57
Worked Example as per November 2006 Balance Sheet
Attachment 1
Net Tangible Assets Amount
| | | | |
Total Assets
| | | | |
TotalReal Property; Title to Assets | | | 70,983,000 | |
minus Intangible Assets | | | 6,922,000A-9 | |
| | | | | |
Total Assets | | | 64,061,000 | |
| | | | |
Net Tangible AssetsSection 3.10
| | | | |
Total Assets (excluding Intangibles)Company Intellectual Property | | | 64,061,000 | |
minus Total Liabilities | | | 61,786,000 | |
plus Amount required to Cash out the Options | | | — | |
plus Amount required to buy back unallocated CFO Shares | | | — | |
plus Warranty Insurance Premium | | | — | |
plus Chairman’s bonus | | | 250,000A-9 | |
| | | | | |
Total | | | 2,525,000 | |
| | | | |
| | | | | | | | | | | | | |
NTA Adjustment Calculation | | SSD | | Actual | | Adjustment* |
| |
| NTA | | | 2,700,000 | | | | 2,525,000 | | | | 175,000 | |
| | |
* | | No upward adjustment as per Clause 4.3(a) |
SSD Reference Table
| | | | | | | | | | | | | | | | | | | | | | | |
31-Oct | | 30-Nov | | 31-Dec | | 31-Jan-07 | | 28-Feb-07 | | 31-Mar-07 |
| |
| | 2,700,000 | | | | 2,700,000 | | | | 2,700,000 | | | | 2,700,000 | | | | 2,700,000 | | | | 2,700,000 | |
Notes to the Calculation of the Adjustment:
(a) — Net Tangible Assets Amount
Net Tangible Assets Amount means:
| |
• | Total Assets less Intangible Assets as per completions accounts |
|
• | Minus Total Liabilities as per completion accounts excluding: |
| | |
| – | the amount provided to cancel the options in the Completion Accounts but not paid as at Completion |
|
| – | the amount required to buy-back the unallocated CFO shares. Note this is likely to occur pre-completion. |
|
| – | Any unpaid insurance premium relating to Warranty Insurance |
|
| – | Any unpaid performance fee relating to the Chairman’s bonus |
A-58
Worked Example as per November 2006 Balance Sheet
Attachment 2
Working Capital Amount
| | | | |
Current AssetsSection 3.11
| | | | |
Total Current AssetsLitigation | | | 14,499,000 | |
minus cash | | | 3,152,000 | |
minus deposits relating to ADF | | | —A-10 | |
| | | | | |
Net Current Assets | | | 11,347,000 | |
| | | | |
Current LiabilitiesSection 3.12
| | | | |
Total Current LiabilitiesTaxes | | | 14,902,000 | |
minus Bank Overdraft (Current) | | | — | |
minus Bank Debt (Current) | | | 5,831,000 | |
minus Bank Vendor Financing (Current) | | | 711,000 | |
minus Finance Lease Other (Current) | | | 646,000 | |
plus ADF Contract related debt (Current) | | | —A-10 | |
| | | | | |
Net Current Liabilities | | | 7,714,000 | |
| | | | |
Working CapitalSection 3.13
| | | 3,633,000Employee Benefit Plans | | | A-11 | |
| | Section 3.14 | | | |
| | | | | | | | | | | | | |
Working Capital Adjustment | | SSD | | | Actual | | | Adjustment* | |
| |
| Working Capital Amount | | | 3,000,000 | | | | 3,633,000 | | | | — | |
| | |
* | | No upward adjustment as per Clause 4.3(a) |
SSD Reference Table
| | | | | | | | | | | |
| 31-Oct | | 30-Nov | | 31-Dec | | 31-Jan-07 | | 28-Feb-07 | | 31-Mar-07 |
| |
| 3,000,000 | | 3,000,000 | | 2,168,000 | | 3,000,000 | | 3,000,000 | | 3,000,000 |
Notes to the Calculation of the Adjustment:
(b) Working Capital Amount means:
Current Assets (as per Completion accounts) excluding Cash and deposits relating to ADF Contract.
Minus Current Liabilities as per Completion Accounts excluding:
Bank Overdraft
Bank Debt
Bank Vendor Financing
Finance Lease Other
Plus any interest bearing liability debt incurred in relation to assets acquired by the Group in satisfaction of it obligations under the ADF Contract.
A-59
Worked Example as per November 2006 Balance Sheet
Attachment 3
Container Rental Equipment
| | | | | | | | | | | | | |
Containers Adjustment | | SSD | | Actual | | Adjustment |
| |
| Completion Containers Rental Equipment Amount | | | 46,414,000 | | | | 47,319,000 | | | | 905,000 | |
SSD Reference Table
| | | | | | | | | | | | | | | | | | | | | | | |
31-Oct | | 30-Nov | | 31-Dec | | 31-Jan-07 | | 28-Feb-07 | | 31-Mar-07 |
| |
| | 45,703,000 | | | | 46,414,000 | | | | 47,004,000 | | | | 46,640,000 | | | | 46,624,000 | | | | 46,879,000 | |
Notes to the Calculation of the Adjustment:
(c) — Container Rental Equipment
| |
| Calculation of Gross Purchases of Container Rental Equipment for the period from 1 July 2006 to Completion: Is equivalent to the Cost of Container Rental Equipment excluding Accumulated Depreciation as per the Balance Sheet in the Completion Accounts. For the avoidance of doubt this equals [$41,470,000] plus the sum of the Gross Purchases of Container Rental equipment for the period from 1 July 2006 to Completion as per the Cashflow contained in the Completion Accounts. |
A-60
Worked Example as per November 2006 Balance Sheet
Attachment 4
Net Debt
| | | | | | | |
Item | | Net Debt Calculation | | | |
| |
| | | Current Liabilities | | | | |
| 1 | | Bank Overdraft | | | — | |
| 2 | | plus Bank Debt | | | 5,831,000 | |
| 3 | | plus Bank Vendor Financing | | | 711,000 | |
| 4 | | plus Finance Lease Other | | | 646,000 | |
| | | | | | | |
| | | Non-Current Liabilities | | | | |
| 5 | | plus Bank Debt | | | 25,143,000 | |
| 6 | | plus Bank Vendor Financing | | | 856,000 | |
| 7 | | plus ANZ Sub Capital Note | | | 11,788,000 | |
| 8 | | plus Finance Lease Other | | | 312,000 | |
| 9 | | Plus B Class Notes | | | 7,041,000 | |
| | | | | | | |
| 10 | | plus Acquisition costs outstanding | | | 160,000 | |
| 11 | | plus Dividends | | | — | |
| 12 | | plus Amounts required to cash out the options | | | 310,000 | |
| 13 | | plus the Vendors transaction costs | | | 300,000 | |
| | | | | | | |
| | | plus Warranty Insurance Premium | | | — | |
| | | plus Chairman’s bonus | | | 250,000 | |
| | | plus Amount required to buy back the unallocated CFO Shares | | | | |
| 14 | | minus Cash | | | 3,152,000 | |
| 15 | | minus outstanding K&S (Curtainsiders) | | | 579,000 | |
| 16 | | minus ADF related debt | | | — | |
| | | | | | | |
| | | Net Debt | | | 49,617,000 | |
| | | | | | | |
| | | | | | | | | | | | | |
Net Debt Adjustment | | SSD | | | Actual | | | Adjustment | |
| |
| Net Debt | | | 49,617,000 | | | | 49,617,000 | | | | — | |
SSD Reference Table
| | | | | |
| 31-Oct | | 30-Nov | | 31-Dec |
| |
| 49,617,000 | | 49,617,000 | | 49,617,000 |
Reconciliation to Definition of Net Debt as per SSD:
| Compliance with Laws; Permits | | | | |
B(i) — ANZ Facility = items 1, 2, 5, 7 | | | 42,762,000 | |
B(ii) — B Class Note = item 9 | | | 7,041,000 | |
B(iii) — other interest bearing debt/ finance leases = items 3, 4, 6 & 8 | | | 2,525,000 | |
B(iv) — remaining acquisition payments = item 10 | | | 160,000 | |
B(v) — Dividends or other distributions = item 11 | | | — | |
B(vi) — Amount to cash out Options = item 12 | | | 310,000 | |
B(vii) — Wridgeways Lease = included in B(iii) | | | | |
B(viii) — K&S Lease (reefers) = included in B(iii) | | | | |
B(ix) — Transactions expenses not yet paid = item 13 | | | 300,000 | |
Warranty Insurance | | | — | |
Chairman’s bonus | | | 250,000 | |
Buyback of CFO Shares | | | | |
Less | | | | |
A. — Cash = item 14 | | | (3,152,000 | ) |
(iii) K&S Lease (Curtainsiders) = item 15 | | | (579,000 | ) |
(iv) — ADF Debt | | | —A-13 | |
| | Section 3.15 | | | |
Net DebtEnvironmental Matters | | | 49,617,000A-13 | |
| | Section 3.16 | | | Companies Material Contracts |
A-61
Notes to the Calculation of the Adjustment:
Net Debt — Calculation as per Definition
Equals:
The sum of the following line items in the Balance Sheet of the completion Accounts:
Current Liabilities:
Bank Overdraft
Bank Debt
Bank Vendor Financing
Finance Lease Other
Non-Current Liabilities:
Bank Debt
Bank Vendor Financing
ANZ Sub Capital Note
Finance Lease Other
B Class Notes
Plus:
| | |
| • | Acquisition costs outstanding — This is limited to the Acquisitions completed as at date of signing the Share Sale Agreement. The only liability outstanding is the deferred consideration payable for the acquisition of ACN which is $160,000 due 30 June 2007. |
|
| • | Dividends or other distributions declared by the group but not yet paid. |
|
| • | Amounts required to cash out all of the options — this is equivalent to the provision in the accounts which is estimated to be [$4,178,000]. This amount is included in the Balance Sheet line items “Employee Obligations” (Current & Non-Current), but does not form the total amount of these line items. |
|
| • | The Vendors’ costs and expenses of negotiating, preparing and executing this deed which are to be paid by the company and which are unpaid as at Completion. This amount will be included in Trade Creditors. |
|
| • | Any unpaid insurance premium relating to Warranty Insurance |
|
| • | Any unpaid performance fee relating to the Chairman’s bonus |
|
| • | The amount required to buyback the unallocated CFO Shares (only include if the payment has not yet occurred). |
Minus:
| | |
| • | The outstanding lease liability associated with the K&S (Curtainsiders) as per the amortization schedule referred to in clause 4.8. |
|
| • | Cash as per the Balance Sheet of the Completion Accounts. |
|
| • | Any amounts owing by the group in relation to any assets acquired in satisfaction of the Group’s obligations under the ADF Contract less any deposits received by the Group in relation to the ADF Contract |
A-62
Worked Example as per November 2006 Balance Sheet
Attachment 5
K&S Lease (Curtainsiders)
| | | | | | | | | | | | | |
K&S Lease Adjustment | | SSD | | Actual* | | Adjustment |
| |
| K&S lease | | | 579,000 | | | | 579,000 | | | | — | |
| | |
* | | As per the Amortisation Schedule relating to this lease |
SSD Reference Table
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31-Oct | | 30-Nov | | 31-Dec | | 31-Jan-07 | | 28-Feb-07 | | 31-Mar-07 |
| |
| | | | 602,000 | | | | 579,000 | | | | 555,000 | | | | 531,000 | | | | 507,000 | | | | 482,000 | |
A-63
Schedule 13 — Michael Baxter Consultancy Agreement
A-64
CONSULTANCY AGREEMENT
Made 2006
PARTIES:
(1) ROYAL WOLF TRADING AUSTRALIA PTY LIMITED, ACN 069 244 417(RWTA)
(2) MICHAEL BAXTER(You)
Position and Duties
(a) You shall be engaged as a Consultant.
(b) You shall undertake such tasks and duties as the Company may from time to time direct and in particular advise on strategic issues relating to the business and operations of RWTA and its subsidiary.
Commencement
This agreement shall commence on settlement of the Share Sale Deed and continue for a period of 12 months thereafter.
Hours of Work
You will be expected to work as necessary to complete or perform your duties up to a maximum of 50 hours per quarter.
Remuneration
You shall be entitled to be paid a consultancy fee of $4,166.00 per month plus GST payable on the last business day of each month.
Tax Invoice
You must be registered for GST and must submit a proper tax invoice to RWTA for your consultancy fees as a precondition of being paid your consultancy fees.
Consultant
You shall be engaged as an independent contractor and not as an employee and you shall not be entitled to sick leave or holidays and RWTA shall not be obliged to make any superannuation contributions.
Out of Pocket Travel Allowance
Expenses reasonably incurred on behalf of RWTA will be reimbursed on presentation of vouchers or invoices and should where possible be agreed prior to any expenditures being made.
Worker’s Compensation
Your employment will be covered by RWTA’s workers compensation insurance policy.
A-65
Confidentiality
You agree that you will not at any time either during the continuance of your employment or after termination of your employment for any reason divulge any of the Confidential information of RWTA to any other company , person or persons without the previous consent in writing of RWTA. You will not use or attempt to use any Confidential information which you may acquire in the course of your employment in any manner which may injure or cause loss or be calculated to injure or cause loss to RWTA.
Confidential information is any information of RWTA that is reasonably regarded as confidential and not in the public domain which includes but is not limited to:
| | |
| • | RWTA’s client and/or customer database |
|
| • | Financial information and profit margins |
|
| • | Remuneration packages of RWTA’s staff, agents and distributors |
|
| • | Sensitive pricing information |
|
| • | Manufacturing methods |
|
| • | Research data or results of research |
|
| • | Information which RWTA receive from third parties in confidence |
|
| • | Technical information and know-how |
|
| • | Intellectual property |
|
| • | Any other information reasonably regarded as confidential which comes into your possession for the purposes of, or as a result of the provision of services under this Agreement |
|
| • | Any notes, reports or documents created by you which utilizes or contains any of the information set out above, whether stored or storable in computer data file format or recorded in any other form. |
On the termination of this agreement, you are required to return to RWTA all confidential Information in material form, those parts of records or notes based on confidential information and all RWTA property, which is in your possession or control.
Non-Competition During Employment
You agree that you will not, during the course of your employment, directly or indirectly, in any capacity whatsoever, carry on, advise, provide services to or be engaged, concerned or interested in or associated with any business or activity which is competitive with any business carried on by RWTA or its subsidiaries.
Non-Competition After Conclusion of Employment
You agree that you will not, without written consent of RWTA anywhere within the Territory, during the following periods after the termination or expiration of your employment:
(a) One (1) year
(b) Two (2) years
(c) Three (3) years
(d) Four (4) years
(e) Five (5) years.
| | |
| • | Directly or indirectly in any capacity whatsoever, carry on, advise, provide services to or be engaged, concerned or interested in or associated with any business or activity which is competitive with or similar to any business carried on by RWTA or any of its subsidiaries at the date of termination of your employment; and |
A-66
| | |
| • | Canvass, solicit or endeavour to entice away from RWTA any person who or which at any time during the employment or at any date of termination of the employment was or is a client or customer or supplier of RWTA or of any of its subsidiaries or any other person or organisation who is in the habit of dealing with RWTA or any of its subsidiaries: and |
|
| • | Solicit, interfere with or endeavour to entice away an employee of RWTA or any of its subsidiaries; and |
|
| • | Counsel, procure or otherwise assist any person to do any of the acts referred to insub-paragraphs (b) and (c) of this paragraph. |
Territory shall mean Australia and New Zealand.
Termination of Employment
RWTA may terminate the employment by giving notice to you effective immediately and without payment of any salary other than the salary accrued to the date of the termination, where at any time you:
(i) Have committed any act of wilful or serious misconduct.
(ii) Are in breach of any of the terms and conditions of your employment.
(iii) Are continually or significantly neglectful of your duties under the employment or of any proper order or direction.
Governing Law and Jurisdiction
This agreement is governed by the laws of New South Wales. Each party irrevocably submits to the exclusive jurisdiction of the courts of New South Wales.
Severance
In the event that this Agreement is invalid or unenforceable, the remainder of this Agreement shall continue in full force.
| | | A-13 | |
| | | |
/s/ James Warren | | /s/ Michael Baxter |
Royal Wolf Trading Australia Pty LimitedSection 3.17
| | Michael Baxter |
A-67
Signing page
| | |
EXECUTEDas a deed. | | |
ExecutedbyEquity Partners Two Pty
Limited in its capacity as trustee of Equity
Partners 2 Trust | | |
| | /s/ Quentin Jones
|
Signature of director | | Signature of director/company secretary
(Please delete as applicable) |
Rajeev Dhawan | | Quentin Jones |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyFOMM Pty Limited (as trustee
of the FOMM Trust) | | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the
sole company secretary of the company |
Michael BaxterFinders’ Fees | | |
Name of sole director and sole company secretary (print) | A-14 | |
| | | |
ExecutedSection 3.18byFOMJ Pty Limited (as trustee
of the FOMJ Trust)
| | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the
sole company secretary of the company |
James H. WarrenTakeover Statutes | | |
Name of sole director and sole company secretary
(print) | A-14 | |
| | | |
ExecutedSection 3.19byCetro Pty Limited (as trustee
of the FOMP Trust)
| | |
| | |
Signature of director | | Signature of director/company secretary
(Please delete as applicable) |
Paul JeffreyTransactions with Affiliates | | |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyTCWE Pty Limited (as trustee
of the McCann Family Trust) | | |
| | /s/ Alexandra Merton-McCann
|
Signature of director | | Signature of director/company secretary
(Please delete as applicable) |
Peter McCann | | Alexandra Merton-McCann |
Name of director (print) | | Name of director/company secretary (print) |
| | |
SignedbyMichael Paul Baxterin the
presence of | | |
| | /s/ Michael Paul Baxter
|
Signature of witness | | Michael Paul Baxter |
Maya Port | | |
Name of witness (print) | | |
A-68
| | |
SignedbyJames Harold Warrenin the
presence of | A-15 | |
| | | |
/s/ Maya Port
Signature of witness | | /s/ James Harold Warren
James Harold Warren |
| | |
Maya PortName of witness (print) | | |
| | |
SignedbyPaul Henry Jefferyin the
presence of | | |
| | |
/s/ Maya Port
Signature of witness | | /s/ Paul Henry Jeffrey
Paul Henry Jeffrey |
| | |
Maya PortName of witness (print) | | |
| | |
SignedbyPeter Linden McCannin the
presence of | | |
| | |
/s/ Maya Port
Signature of witness | | /s/ Peter Linden McCann
Peter Linden McCann |
| | |
Maya PortName of witness (print) | | |
| | |
ExecutedbyGFN Australasia Finance Pty
Limited | | |
| | |
/s/ John O. Johnson
Signature of director | | /s/ Robert Charles Barnes
Signature of director/company secretary
(Please delete as applicable) |
| | |
John O. Johnson | | Robert Charles BarnesName of director/company secretary (print) |
| | |
ExecutedbyGeneral Finance Corporation | | |
| | |
/s/ John O. Johnson
Signature of authorised officer | | |
| | |
John O. Johnson
Name of authorised officer | | |
BISON CAPITAL AUSTRALIA, L.P.
by
BISON CAPITAL AUSTRALIA GP, LLC,
a Delaware limited liability company
By: /s/ Douglas B. Trussler
Name: Douglas B. Trussler
Its: Manager
A-69
Annex BSection 3.20
General Finance Corporation
GFN Australasia Holdings Pty Limited
and
Bison Capital Australia, L.P.
and
GFN Australasia Finance Pty Limited
Shareholders Agreement
TABLE OF CONTENTS
| | | Labor Matters | | | | A-15 | |
| | | | | | Page No. |
|
1
| | Definitions and interpretation | | | B-3 | |
| | 1.1 | | Definitions | | | B-3 | |
| | 1.2 | | Interpretation | | | B-5 | |
| | 1.3 | | Business Day | | | B-6 | |
| | 1.4 | | Inconsistency with Constitution | | | B-6 | |
2
| | Termination of previous agreements | | | B-6 | |
3
| | Share capital | | | B-7 | |
| | 3.1 | | Share Capital | | | B-7 | |
| | 3.2 | | Rights of Shares | | | B-7 | |
4
| | Acknowledgements by Shareholders | | | B-7 | |
5
| | Shareholder funding of the Company | | | B-7 | |
| | 5.1 | | No obligation to contribute additional funds | | | B-7 | |
6
| | Disposal of Securities | | | B-7 | |
| | 6.1 | | Restriction on disposition | | | B-7 | |
| | 6.2 | | Permitted transfers | | | B-7 | |
| | 6.3 | | Restraint of transfer of Shares | | | B-7 | |
7
| | Put and Call Options | | | B-8 | |
| | 7.1 | | Put Option | | | B-8 | |
| | 7.2 | | Call Options | | | B-8 | |
| | 7.3 | | Purchase Price | | | B-8 | |
| | 7.4 | | Closing | | | B-9 | |
| | 7.5 | | Liquidity Default | | | B-9 | |
8
| | Shareholders Meetings | | | B-10 | |
| | 8.1 | | Quorum | | | B-10 | |
| | 8.2 | | Adjourned Meetings | | | B-10 | |
| | 8.3 | | Transactions Requiring Approval of Bison-GE | | | B-10 | |
| | 8.4 | | Dividend Policy | | | B-11 | |
9
| | Directors | | | B-11 | |
| | 9.1 | | Composition of Board of Directors | | | B-11 | |
| | 9.2 | | Appointment of Alternates | | | B-11 | |
| | 9.3 | | Observer Rights | | | B-11 | |
| | 9.4 | | Appointment of Chairman | | | B-11 | |
10
| | Meetings of Directors | | | B-11 | |
| | 10.1 | | Notice of Meetings | | | B-11 | |
| | 10.2 | | Board Papers | | | B-11 | |
| | 10.3 | | Meetings by Written Resolution | | | B-12 | |
| | 10.4 | | Location and Travel Expenses | | | B-12 | |
| | 10.5 | | Frequency of Meetings | | | B-12 | |
| | 10.6 | | Board meetings | | | B-12 | |
| | 10.7 | | Reports | | | B-12 | |
B-1A-i
| | | | | | | | | |
| | | | | | | Page No. |
| |
| 11Section 3.21
| | Management of the Company | Payments | | | B-12A-15 | |
| | | 11.1 | | The Board | | | B-12 | |
| | 11.2 | | Committees | | | B-13 | |
| | 11.3 | | Deed of Access and Indemnity | | | B-13 | |
12Section 3.22
| | Representations and Warranties | Disclosure | | | B-13A-15 | |
|
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB |
| | | 12.1 | | Representations and Warranties | | | B-13 | |
| | 12.2 | | Application of Representations and Warranties | | | B-13 | |
13Section 4.1
| | Indemnification | Organization and Release by GFCPower | | | B-13A-15 | |
| | | 13.1 | | Indemnification | | | B-13 | |
| | 13.2 | | Enforceability | | | B-14 | |
14Section 4.2
| | Termination | Corporate Authorization | | | B-14A-15 | |
| 15Section 4.3
| | General | Governmental Authorization | | | B-14A-16 | |
| | | 15.1Section 4.4 | | Notices | Non-Contravention | | | B-14A-16 | |
| | | 15.2Section 4.5 | | Governing law and jurisdiction | Information Supplied | | | B-15A-16 | |
| | | 15.3Section 4.6 | | Prohibition and enforceability | Litigation | | | B-15A-16 | |
| | | 15.4Section 4.7 | | Waivers | Finder’s Fees | | | B-15A-16 | |
| | | 15.5Section 4.8 | | Variation | Sub | | | B-15A-16 | |
| | | 15.6Section 4.9 | | Amendment | Public Filings | | | B-15A-16 | |
| | | 15.7Section 4.7 | | Cumulative rights | Valid Issuance | | | B-15A-16 | |
| | | 15.8Section 4.8 | | Assignment | Disclosure | | | B-15A-16 | |
|
ARTICLE 5
COVENANTS |
| | | 15.9Section 5.1 | | Further assurances | Interim Operations of the Companies | | | B-15A-17 | |
| | | 15.10Section 5.2 | | Entire agreement | Access to Information | | | B-15A-19 | |
| | | 15.11Section 5.3 | | Counterparts | Regulatory and Consent Matters | | | B-16A-19 | |
| | | 15.12Section 5.4 | | Relationship of parties | Employee Matters | | | B-16A-20 | |
| | | 15.13Section 5.5 | | Investments in Competitive Businesses | Stockholders Meeting | | | B-16A-20 | |
| | | SCHEDULE 1 — SHARE CAPITALSection 5.6
| | | S-1Additional Agreements | | | A-20 | |
| | | SCHEDULE 2 DEED OF ACCESSIONSection 5.7
| | | S-2Publicity | | | A-20 | |
| | | 1Section 5.8 | | Interpretation | Notification of Certain Matters | | | S-2A-20 | |
| | | 2Section 5.9 | | New Shareholder | Proxy Statement | | | S-2A-21 | |
| | | 3Section 5.10 | | Third party benefit | Cooperation | | | S-3A-21 | |
| | | 4Section 5.11 | | Release | Appraisal Rights Expenses | | | S-3A-22 | |
| | | 5Section 5.12 | | Consent | Confidentiality | | | S-3A-22 | |
| | | 6Section 5.13 | | Address | No Shop | | | S-3A-22 | |
| | | 7Section 5.14 | | Governing law | MOAC Stockholder Approval | | | S-3A-22 | |
|
ARTICLE 6
CONDITIONS |
| | | 8Section 6.1 | | Counterparts | Conditions to the Obligations of Each Party | | | S-3A-23 | |
| Section 6.2 | | | Conditions to the Obligations of Parent and Sub | | | A-24 | |
| Section 6.3 | | | Conditions to the Obligations of the Companies and MOAC Stockholders | | | A-25 | |
|
ARTICLE 7
SURVIVAL; INDEMNIFICATION |
| Section 7.1 | | | Survival | | | A-26 | |
| Section 7.2 | | | Post-Closing Indemnification | | | A-26 | |
| Section 7.3 | | | Payments under Holdback Note | | | A-28 | |
| Section 7.4 | | | Procedures | | | A-29 | |
B-2A-ii
THIS SHAREHOLDERS AGREEMENTis made on 2007
PARTIES
GFN AUSTRALASIA HOLDINGS PTY LIMITED
of [insert address]
(“GFNH”)
and
Bison Capital Australia, L.P.
of [insert address]
(“Bison-GE”)
(each aShareholder and collectively theShareholders)
and
General Finance Corporation
of
260 South Los Robles, Suite 217
Pasadena, CA 91101
(“GFC”)
GFN AUSTRALASIA FINANCE PTY LIMITED
of [insert address]
(“Company”)
BACKGROUND
The Shareholders wish to regulate the operation of the Company on the terms set out in this Agreement.
AGREED TERMS
1 Definitions and interpretation
1.1 Definitions
In this Agreement, unless the context requires otherwise:
“Affiliate” means in relation to a party, any person directly or indirectly controlling, controlled by or under common control with that party. For the purposes of this definition, “control” of a party means the power, either directly or indirectly, either
(a) to vote 50% or more of the securities having voting power for the election of directors of such party;
(b) to direct or cause the direction of the management and policies, or investment decisions (by contract or otherwise) of such party; or
(c) in the case of the Company or GFNH, the officers and directors of GFNH.
“Bison-GE Percentage” means, as of any date of determination, the ratio, expressed as a percentage, of the Bison-GE Sale Shares to the total outstanding Shares of the Company.
“Bison-GE Sale Shares Price” means that portion of the Bison-GE Completion Payment (as defined in the Share Sale Deed) that is not paid in cash by the Company. If in the context used, Bison-GE is selling less than all of the Shares received as part of the Bison-GE Completion Payment, the Bison-GE Sale Shares Price shall be proportionately reduced.
“Board” means the Board of Directors of the Company.
B-3
“Business Day” means a day on which banks are open for domestic business in Los Angeles excluding Saturdays, Sundays and public holidays.
“Commencement Date” means the date of this Agreement.
“Company” means GFN Australasia Finance Pty Limited.
“Company EBITDA” means, in respect of the applicable period, the sum of: (i) earnings before interest, tax, depreciation and amortization, of the Company and its consolidated subsidiaries, calculated in accordance with GAAP; plus (ii) any expenses that would be classified on the consolidated income statement of the Company as “extraordinary items” under GAAP.
“Company Group” means the Company and its Subsidiaries.
“Constitution” means the Company’s constitution dated August 14, 2006 as amended or replaced from time to time.
“Corporations Act” means theCorporations Act 2001(Cth).
“Covered Business” means the sale and lease of portable storage containers, portable container buildings and freight containers, as such Covered Business may from time to time change with the agreement of the Company and the Shareholders.
“Covered Territory” means that part of the world south of Guam, west of Hawaii or east of Viet Nam.
“Deed of Accession” means a deed substantially in the form of the deed of accession set out in Schedule 2 or such other form as may be agreed to by the Company and the Shareholders.
“Determination Period” means with respect to determination of the Put Purchase Price, the First Call Option Purchase Price or the Second Call Option Purchase Price, the12-month period ending on the last day of the calendar month preceding the calendar month in which the Put Option Exercise Notice, the First Option Call Exercise Notice or the Second Call Option Exercise Notice was delivered.
“Director” means a director of the Company.
“Dispose” means any dealing with a Security, including but not limited to, a sale, transfer, assignment, trust, encumbrance, option, swap, any alienation of all or any part of the rights attaching to a Security or interest in a Security, and includes any attempt to so deal or the taking of any steps for the purpose of so dealing.
“Financial Benefit” has the meaning given to that term in the Corporations Act.
“GFC Trading Multiple” means, as of any date of determination, the quotient of (i) (x) the product of (x) the average closing sale price of the common shares of GFC that are publicly traded on the principal securities exchange on which they are traded on each business day during the20-day trading period ending one trading day prior to such date of determination,multiplied by (y) the number of fully diluted common shares of GFC outstanding during the fiscal quarter most recently ended (for purposes of this subclause (y), the number of fully diluted common shares of GFC shall be calculated on the same basis as GFC calculates, and calculated using the same information regarding common shares and common share equivalents and derivatives as GFC uses to calculate, fully diluted shares for purposes of reporting fully diluted earnings per share in GFC’s then most recent quarterly or annual periodic filing with the US Securities and Exchange Commission (provided, that if the number of fully diluted common shares of GFC has increased or decreased by more than 1% of the number of fully diluted shares outstanding since the date of the most recent periodic filing, the number of fully diluted shares for purposes of this subclause (y) shall correspondingly be increased or decreased)),plus (z) the Net Debt of GFC,divided by (ii) the EBITDA of GFC (determined on consolidated basis) for the12-month period most recently ended.
“Governmental Agency” means any government or any governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity.
B-4
“Net Debt” of any entity means, as of any date of determination, short-term and long-term third party indebtedness (inclusive of any debt due to any Shareholder or Affiliate of any Shareholder) of such entityminus any cash or cash equivalents of such entity, calculated in accordance with GAAP.
“Permitted Expenses” means payments of up to US $1,000,000 in any12-month period made by the Company Group to GFC or any Related Party of GFC (other than to members of the Company Group) for expenses; provided, that if at any time GFC or GFNH (either directly or through any Related Party other than a member of the Company Group) acquires or establishes another business or company, Permitted Expenses in any12-month period shall be multiplied by the Reduction Percentage on a prospective basis. For purposes of the foregoing, the“Reduction Percentage” shall be that percentage obtained by dividing the revenues of the Covered Business by the total revenues of GFC (determined on a consolidated basis in accordance with GAAP); provided that Permitted Expenses shall never be less than US $500,000. Payments on debt owed to GFC, GFNH and their Affiliates, and dividends and distributions to Shareholders with respect to their Shares are not expenses included in Permitted Expenses so long as (x) such debt or Shares are, in each case, issued with the approval of Bison-GE (to the extent such approval is required hereunder), and (y) such debt or Shares were not issued in consideration of the forgiveness, payment or deferral of administrative expense payments, reimbursements or distributions made by any member of the Company Group to GFC or any Related Party of GFC.
“Related Body Corporate” has the meaning ascribed to that term in the Corporations Act.
“Related Party” in respect of a Shareholder has the meaning given to the term “related entity” in the Corporations Act.
“RWA”means RWA Holdings Pty, Limited.
“Securities” means Shares or other securities that are convertible into Shares, including, without limitation, options and convertible notes.
“Share” means a share issued in the capital of the Company.
“Share Sale Deed” means the Share Sale Deed dated September 12, 2006 relating to shares in RWA, as from time to time amended, including the Deeds of Variation dated January 19, 2007, March 9, 2007 and March [ ], 2007.
“Shareholder” means each person or entity that executes this Agreement as a Shareholder under this Agreement, for so long as that person or entity owns Shares. The initial Shareholders are Bison-GE and GFNH.
“Subsidiaries” means any corporate entities which are directly or indirectly majority owned by the Company.
1.2 Interpretation
In this Agreement, headings and boldings are for convenience only and do not affect the interpretation of this Agreement and, unless the context otherwise requires:
(a) words importing the singular include the plural and vice versa;
(b) words importing a gender include any gender;
(c) where a word or phrase is defined in this Agreement, other parts of speech and grammatical forms of that word or phrase have a corresponding meaning;
(d) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any Governmental Agency;
(e) a reference to any thing (including, but not limited to, any right) includes a part of that thing but nothing in this clause 1.2(e) implies that performance of part of an obligation constitutes performance of the obligation;
B-5
(f) a reference to a clause, party, annexure, exhibit or schedule is a reference to a clause of, and a party, annexure, exhibit and schedule to, this Agreement and a reference to this Agreement includes any annexure, exhibit and schedule;
(g) a reference to a statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws amending, consolidating or replacing it, whether passed by the same or another Governmental Agency with legal power to do so, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;
(h) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document;
(i) a reference to a party to a document includes that party’s successors and permitted assigns;
(j) a covenant or agreement on the part of 2 or more persons binds them jointly and severally;
(k) a reference to an agreement includes an undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing;
(l) a reference to an asset includes all property of any nature, including, but not limited to, a business, and all rights, revenues and benefits;
(m) a reference to a document includes any agreement in writing, or any certificate, notice, instrument or other document of any kind;
(n) a reference to a month is a reference to a calendar month;
(o) a reference to a dollar amount shall, unless specified to the contrary, be in US dollars (US$);
(p) all references to any accounting principle, financial statement calculation or similar reference shall be determined in accordance with United States generally accepted accounting principles, consistently applied (“GAAP”);
(q) a reference to a body, other than a party to this Agreement (including, without limitation, an institution, association or authority), whether statutory or not:
(i) which ceases to exist, or
(ii) whose powers or functions are transferred to another body,
is a reference to the body which replaces it or which substantially succeeds to its powers or functions;
(r) words and phrases defined in the Share Sale Deed shall (unless defined herein or the context otherwise requires) have the same meaning where used herein.
1.3 Business Day
Where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding Business Day.
1.4 Inconsistency with Constitution
If there is any inconsistency between this Agreement and the Constitution, this Agreement prevails. At the request of any party, the other parties must cause the Constitution to be amended to overcome any such inconsistency.
2 Termination of previous agreements
Each of the parties other than Bison-GE confirms that all previous shareholders agreements in relation to the Company have been terminated and that this Agreement is the only shareholders agreement which governs the relationship between the Shareholders.
B-6
3 Share capital
3.1 Share Capital
The parties acknowledge that as at the Commencement Date, the Share capital of the Company will consist of [ ] Shares held by the Shareholders listed in Schedule 1.[who will provide?]
3.2 Rights of Shares
Each Share confers the same rights as each other Share, subject to this Agreement.
4 Acknowledgements by Shareholders
The Shareholders unconditionally and irrevocably acknowledge and agree that:
(a) the Board will be responsible for the management of the Company in its absolute discretion, including all decisions regarding capital, customers, revenues, purchases, sales, staffing and expenditures; and
(b) no representations have been made to the Shareholders as to the future performance, conduct, continuation or profitability of the Company or the current or future value at any time of the Securities.
5 Shareholder funding of the Company
5.1 No obligation to contribute additional funds
No Shareholder will be required to contribute additional share capital, extend credit, provide any security or any guarantee or otherwise make any financial accommodation available in relation to the Company.
6 Disposal of Securities
6.1 Restriction on disposition
A Shareholder must not Dispose of any legal or equitable interest in a Security except as permitted by this Agreement.
6.2 Permitted transfers
A Shareholder may Dispose of any of its Securities if that transfer is of the entire legal and beneficial interest in those Securities and the proposed Disposition (including the proposed transferee) is first approved in writing by the other Shareholder. [Note: actual signed agreement will be modified if Bison-GE determines, prior to the Second Completion Date under the Share Sale Deed, to have the securities held by its partners (or their Related Party assignees that are “accredited investors”; among other things, agreement will contain provision that all consents and approvals, and the election to exercise the “Put Option,” will be made by one designated entity; in addition, those entities will have the right, after not less than 8 years after the closing, to distribute the Shares to their respective partners, managers, members, shareholders, officers and directors so long as the voting of such shares is retained by the current partners of Bison-GE)].
6.3 Restraint of transfer of Shares
(a) The Company must refuse to register the transfer of any Security unless the transferee has entered into a Deed of Accession (unless the transferee is already a Shareholder), and that transfer is permitted by this Agreement.
(b) Subject to clause 6.3(c), the Company must not decline to register the transfer of any Security which otherwise qualifies under clause 6.3(a).
(c) The Company may require the transferor or the person named as transferee in any transfer lodged for registration to provide the Company with such information and evidence as the Company considers necessary or relevant to determine whether a particular transfer of Securities is permitted under this Agreement. If that information or evidence is not provided to the satisfaction of the Company within 20 Business Days after that request, the Company may refuse to register the transfer in question.
B-7
7 Put and Call Options
7.1 Put Option
(a) Bison-GE Put Option. In accordance with the terms and conditions set forth herein, at any time following the second anniversary of the Second Completion Date (as defined in the Share Sale Deed), Bison-GE shall have the right and option (the“Put Option”) to elect to cause GFNH and GFC (the obligations of which shall be joint and several hereunder) to purchase from Bison-GE (and from any permitted transferee thereof), and upon such election Bison-GE (and any such permitted transferee) shall sell and transfer to GFC and GFNH, all and not less than all of the Securities in the Company held by Bison-GE and such person(s) (the“Bison-GE Sale Shares”).
(b) Manner of Exercise. Subject to the terms and conditions of this Section 7, the Put Option may be exercised by the delivery by Bison-GE of a written notice (the“Put Option Exercise Notice”) to GFNH and GFC stating that Bison-GE is exercising the Put Option and containing instructions for the payment of the Put Option Purchase Price (as defined below). The Put Purchase Price (defined below) shall be paid in full in accordance with the provisions of this Section 7. The Put Option Exercise Notice shall be irrevocable.
7.2 Call Options.
(a) First Call Option.
(i) At any time prior to the third anniversary of the Second Completion Date and provided that Bison-GE shall not have previously exercised the Put Option, in accordance with the terms and conditions set forth in this Section 7, GFNHand/or GFC shall have the right and option to elect (the“First Call Option”) to cause Bison-GE (and any of its permitted transferees) to sell and transfer to GFNH or GFC (as the case may be) the Bison-GE Sale Shares.
(ii) Manner of Exercise. Subject to the terms and conditions of this Section 7, the First Call Option may be exercised by the delivery by GFNH or GFC of a written notice (the“First Call Option Exercise Notice”) to Bison-GE stating that GFNH or GFC is exercising the First Call Option. The First Call Option Purchase Price (as defined below) shall be paid in full in accordance with the provisions of this Section 7. The First Call Option Exercise Notice shall be irrevocable.
(b) Second Call Option.
(i) At any time following the third anniversary of the Second Completion Date, in accordance with the terms and conditions set forth in this Section 7, GFNHand/or GFC shall have the right and option to elect (the“Second Call Option”) to cause Bison-GE (and any of its permitted transferees) to sell and transfer to GFNH or GFC (as the case may be) the Bison-GE Sale Shares.
(ii) Manner of Exercise. Subject to the terms and conditions of this Section 7, the Second Call Option may be exercised by the delivery by GFNHand/or GFC of a written notice (the“Second Call Option Exercise Notice”) to Bison-GE stating that GFNHand/or GFC is exercising the Second Call Option. The Second Call Purchase Price (as defined below) shall be paid in full in accordance with the provisions of this Section 7. The Second Call Option Exercise Notice shall be irrevocable.
(c) Exercise of Put Option after Call Option. If within 15 days after delivery of the First Call Option Exercise Notice or the Second Call Option Exercise Notice Bison-GE delivers a Put Option Exercise Notice, the Bison-GE Sale Shares shall be sold pursuant to the Put Option, and not the First or Second Call Option, provided that the Closing shall occur no later than 30 Business Days delivery of the First Call Option Exercise Notice or Second Call Option Exercise Notice, as the case may be.
7.3 Purchase Price.
(a) Put Purchase Price. The purchase price (the“Put Purchase Price”) for the Bison-GE Sale Shares in connection with the exercise of the Put Option shall be the amount that is the greatest of the following:
(i) the amount equal to the Bison-GE Percentagemultiplied by the product of (x) 8.25multiplied by (y) the sum of Company EBITDA for the Determination Period plus all administrative expense payments or reimbursements made by any member of the Company Group to GFC or any Related Party of
B-8
GFC (other than members of the Company Group) in respect of such period,minus (z) the Net Debt of the Company Group;
(ii) the amount equal to the Bison-GE Percentagemultiplied by the product of (x) the GFC Trading Multiplemultiplied by (y) the Company EBITDA for the Determination Period,minus (z) the Net Debt of the Company Group; or
(iii) the Bison-GE Sale Shares Price.
(b) First Call Option Purchase Price. The purchase price (the“First Call Option Purchase Price”) for the Bison-GE Sale Shares in connection with the exercise of the First Call Option shall be equal to the product of (x) 2.75multiplied by (y) the Bison-GE Sale Shares Price
(c) Second Call Option Purchase Price. The purchase price (the“Second Call Option Purchase Price”) for the Bison-GE Sale Shares in connection with the exercise of the Second Call Option shall be equal to the greater of the following:
(i) the amount equal to the Bison-GE Percentagemultiplied by the product of (x) 8.75multiplied by (y) Company EBITDA for the Determination Period plus all administrative expense payments or reimbursements made by any member of the Company Group to GFC or any Related Party of GFC (other than members of the Company Group) in respect of such period,minus (z) the Net Debt of the Company Group; or
(ii) the amount equal to the Bison-GE Percentagemultiplied by the product of (x) the GFC Trading Multiplemultiplied by (y) the sum of Company EBITDA for the Determination Period,minus (z) the Net Debt of the Company Group.
(d) Payment of Purchase Price. The Put Purchase Price, First Call Option Price and Second Call Option Price shall be paid in cash in immediately available US dollar denominated funds in the United States.
(e) Date of Determination. The date of determination of the Put Purchase Price, First Call Option Price and Second Call Option Price shall be the date of delivery of the Put Option Exercise Notice, the First Call Option Exercise Notice or the Second Call Option Exercise Notice, as the case may be.
7.4 Closing
GFNH and GFC shall have the right to determine which of them shall purchase the Bison-GE Sale Shares or in what amounts either shall purchase, and shall have the right to have such Shares purchased by any other nominee (GFNH, GFCand/or such other nominee, the“Purchaser), provided that such nomination shall not relieve GFNH and GFC of its obligation to pay the purchase price in full in cash for the Bison-GE Sale Shares. The consummation of the Put Option to the Purchaser or the First or Second Call Option by the Purchaser pursuant to this Section 10 (the“Closing”) shall take place at the offices of Sheppard, Mullin, Richter & Hampton, LLP at 333 South Hope Street, 48th Floor, Los Angeles, California, 90071 (or at such other place upon which Bison-GE and GFC shall agree), on the date (the“Closing Date”) that is no later than thirty (30) Business Days after the date the Put Option Exercise Notice is delivered to GFNH and GFC or the First or Second Call Option Exercise Notice (as applicable) is delivered to Bison-GE, as applicable. At the Closing, the Purchaser must deliver to Bison-GE by wire transfer of immediately available funds the applicable Purchase Price.
7.5 Liquidity Default
If GFNH and GFC fail to consummate a Closing in accordance with this Section 7 as a result of liquidity issues which, after commercially reasonable efforts, GFNH and GFC are unable to resolve, then GFNH and GFC shall use commercially reasonable efforts to consummate such Closing as soon as possible thereafter but no later than three (3) months after the failed Closing Date; provided, that the multiples set forth in Sections 7.3(a)(i)(x) and (c)(i)(x) shall be increased to 9.25 and 9.75, respectively, and the Put Purchase Price or the First Call Option Purchase Price, as applicable, shall be recalculated accordingly. The multiples shall continue to increase by 1.0 for each12-month period in which GFNH and GFC fail to consummate a Closing in accordance with this Section 7. If the new Purchase Price calculated in accordance with the foregoing sentences is higher than the Purchase Price with respect to the failed Closing, then the Closing shall be consummated at such higher price.
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8 Shareholders Meetings
8.1 Quorum
The presence at any meeting of Shareholders, in person or by proxy, of the holders of record of a majority of the Shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law.
8.2 Adjourned Meetings
If within half an hour after the time appointed for the holding of a meeting of Shareholders, a quorum is not present, the meeting must be adjourned to the same time and at the same place fourteen (14) days later and each of the Shareholders must be notified immediately by facsimile message of such adjournment. If at such adjourned meeting a quorum is not present within half an hour of its commencement any Shareholder present at such meeting shall constitute a quorum for the purpose of the transaction of business.
8.3 Transactions Requiring Approval of Bison-GE
Without the prior written consent of Bison-GE (which consent may be granted or declined in its absolute discretion), neither the Company nor any member of the Company Group may:
(a) (Assets)sell, transfer, assign or dispose of material assets (either tangible or intangible) except in the ordinary course of the Covered Business or other business to which Bison-GE has consented in accordance with clause 8.3(f);
(b) (Auditor)appoint or remove any auditor;
(c) (Related Party Transactions) enter into, modify or amend any transaction with a Related Party of the Company, including a transaction to provide any Financial Benefit to any Related Party other than: (i) Permitted Expenses; (ii) remuneration and expense reimbursement paid in the ordinary course of Covered Business in the Covered Territory; (iii) the purchase and sale of assets at market rates among Affiliates of the Company in the ordinary course of Covered Business in the Covered Territory; and (iv) the note(s) to be issued by the Company to GFCand/or GFNH to obtain the funds to pay the purchase price for the RWA shares purchased from Bison-GE pursuant to the Share Sale Deed, which note(s) are on terms consented to in good faith by Bison-GE. For this purpose, a“Related Party” of the Company shall not include any other member of the Company Group;
(d) (Further Issues)issue, allot, sell, pledge or grant any right to have issued, allotted, sold, pledged or granted any debt (other than senior indebtedness), shares or Securities of any member of the Company Group, or redeem, repay any amounts owing, buy back or amend or modify the rights attaching to any shares in the capital of any member of the Company Group except: (i) the pledge of such Securities to secure senior indebtedness obtained by one or more members of the Company Group or to secure a guaranty of senior indebtedness by one or more members of the Company Group; and (ii) issuances, allotments, pledges, redemptions, repayments, or buy backs among members of the Company Group;
(e) (Dividends)declare, set aside for payment or pay any dividend or distribution with respect to any of the capital of the Company (for avoidance of doubt, this covenant does not prohibit dividends or distributions with respect to the capital of any other member of the Company Group);
(f) (Scope of Business)change the nature or scope of the business of the Company Group as a whole or commence any new business which is not ancillary or incidental to the Covered Business or any other business conducted by the Company Group with the written consent of Bison-GE;
(g) (Merge)merge or amalgamate with any person, or otherwise engage in a transaction that results in a change in control of the Company, except for mergers and amalgamations among members of the Company Group; or
(h) (Agreements)enter into any agreement to do any of the foregoing.
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8.4 Dividend Policy
The adoption of, or amendment or modification to, a dividend policy by the Company or any Subsidiary shall require the approval of the Board.
9 Directors
9.1 Composition of Board of Directors
(a) The Board will be comprised of a maximum of five (5) Directors elected from time to time by the holders of more than 50% of the Shares.
9.2 Appointment of Alternates
(a) Each of the Shareholders shall be entitled to appoint an alternate for each Director they appoint to the Board.
(b) Every alternate Director shall be entitled to receive notices of meetings of Directors. The alternate Director shall be entitled to attend and (in the absence of the Director with respect to which it serves as an alternate) vote at any such meeting in the absent Director’s place.
(c) Where any alternate Director is also a Director inhis/her own right that Director will have a separate vote on behalf of the Directorhe/she is representing in addition tohis/her own vote.
(d) An alternate Director must vacate that office immediately if the Director for whom the alternate Director acts as alternate ceases to be a Director.
9.3 Observer Rights
Bison-GE will have the right to send one non-voting representative on its behalf (the“Observer”) to attend all meetings of the Board, including all committees thereof, solely in a non-voting observer capacity. The Company will furnish to the Observer copies of all notices, minutes, consents, board package materials and other materials (including the reports delivered pursuant to Article 10) that it makes available to its Directors as and when such materials are provided to its Directors. The Observer may participate in discussions of matters under consideration by the Board and any matters brought before any committee thereof but will not be entitled to vote on any matter presented to the Board. Bison-GE will have the right to remove and replace its Observer in its sole discretion and to designate a substitute representative if such Observer is unable or unwilling to attend any of the Board’s meetings, including any committees thereof.
9.4 Appointment of Chairman
A Chairman must be chosen and appointed by the Board as soon as possible after the Commencement Date. Until that time, Ronald F. Valenta will act as Chairman.
10 Meetings of Directors
10.1 Notice of Meetings
Unless the Directors otherwise agree, notice of every meeting must be given to every Director, the company secretary and every Observer in writing at least five (5) days before the date of the proposed meeting.
10.2 Board Papers
Without limiting clause 10.1, unless otherwise agreed by the Board, the Company must provide to each of the Directors and the Observer for consideration at least three (3) Business Days prior to any Board meeting:
(a) monthly management reports containing such information as to its financial and business affairs as any Director or the Observer may reasonably require (including cash flow position and projections); and
(b) a CEO’s report.
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10.3 Meetings by Written Resolution
If a majority of the Directors have signed a document — which for these purposes may be a facsimile transmission — containing a statement that they are in favour of a resolution of the Directors in the terms set out in the document, a resolution in those terms shall be deemed to have been passed at a meeting of the Directors held at the date and at the time at which the document was last signed by a Director. For the purposes of this clause two or more separate documents containing statements in identical terms, each of which is signed by one or more Directors, shall together be deemed to constitute one document containing a statement in those terms signed by those Directors on the respective days on which they signed the separate documents.
10.4 Location and Travel Expenses
The meetings of Directors shall be held in Australia or California or by teleconference or video link unless the Board resolves otherwise. In addition to any other fees paid to Directors under this Agreement, the Company must bear and pay such reasonable travel (coach airfare), accommodation and other expenses as may be incurred by the Directors and Observers for the purpose of travelling to and attending Board meetings.
10.5 Frequency of Meetings
Unless the Directors otherwise agree, without limitation to a Director’s right under the Constitution of the Company to convene a meeting at any time, the Directors must meet at least four (4) times each financial year at regular intervals and otherwise as may be mutually agreed from time to time.
10.6 Board meetings
At all meetings of Directors: (a) each Director in attendance in person or by alternate has one vote; (b) a resolution of the Board is carried upon a majority of votes; (c) only resolutions specified in the relevant notice of Board meeting may be passed at any Board meeting unless all Directors agree otherwise; and (d) minutes of each Board meeting will be circulated to the Directors within a reasonable time after such meeting, and will be approved by the Board at the next Board meeting and certified by the chairperson as being so approved.
10.7 Reports
The Company shall provide to each Shareholder (i) as soon as available, but in any event within forty-five (45) days after the end of each fiscal quarter of the Company, copies of the consolidated balance sheets of the Company and its subsidiaries as at the end of such quarter, and consolidated statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries, for such quarter and for the portion of the fiscal year ending with such quarter, in each case prepared in accordance with the Accounting Standards applicable to periodic financial statements generally, subject to changes resulting from normal year-end adjustments and (ii) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Company, copies of the consolidated balance sheets of the Company and its subsidiaries as at the end of such year, and consolidated statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries for such year, in each case prepared in accordance with the Accounting Standards applicable to periodic financial statements generally, and accompanied by an opinion thereon of independent certified public accountants of recognized international standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the persons being reported upon and their results of operations and cash flows and have been prepared in conformity with the Accounting Standards.
11 Management of the Company
11.1 The Board
The Board shall be responsible for the overall direction and control of the management of the Company and the formulation of the policies to be applied in the conduct of the business. Similarly, management of any other member of the Company Group is vested in the board of directors of that member.
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11.2 Committees
The Board may delegate any of its powers to a committee of Directors.
The provisions of this clause shall apply mutatis mutandis to all other members of the Company Group.
11.3 Deed of Access and Indemnity
The Company and each of the officers of the Company from time to time shall execute a Deed of Access and Indemnity between the relevant officer and the Company.
12 Representations and Warranties
12.1 Representations and Warranties
Each of the parties represents and warrants to the other parties as at the date of this Agreement that:
(a) it is duly incorporated and the execution, delivery and performance of this Agreement does not violate its constitution;
(b) it has the power and has taken all corporate and other action required, to enter into this Agreement and to authorise the execution and delivery of this Agreement and the performance of its obligations;
(c) this Agreement constitutes a valid and legally binding obligation of it in accordance with its terms; and
(d) the execution, delivery and performance of this Agreement does not violate any existing law or any document or agreement to which it is a party or which is binding on it or any of its assets.
12.2 Application of Representations and Warranties
All representations and warranties in this Agreement:
(a) survive the execution and delivery of this Agreement;
(b) remain in full force and effect for the term of this Agreement; and
(c) are given with the intent that liability under those representations and warranties is not to be confined to breaches discovered prior to the date of this Agreement.
13 Indemnification and Release by GFC
13.1 Indemnification.
GFC shall pay, indemnify, defend, and hold Bison-GE and each of its officers, directors, partners, trustees, members, advisors (including, without limitation, attorneys, accountants and financial advisors), employees, agents,attorneys-in-fact and controlling persons (each, an“Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, losses, damages, including, but not limited to, punitive, exemplary, consequential or indirect damages and liabilities of any kind, and all reasonable attorneys’ fees and disbursements and other costs and expenses actually incurred in connection therewith, or for recovery under directors’ and officers’ liability insurance policies maintained by GFC (as and when they are incurred and irrespective of whether suit is brought), whether or not brought by a third party (collectively“Claims”), at any time asserted against, imposed upon, or incurred by any of them (i) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of the Share Sale Deed or the transactions contemplated thereby, including, without limitation, any failure to obtain consent or approval to consummate the transactions contemplated by the Share Sale Deed or breach of any representation, warranty, covenant or agreement made by GFC or GFNH (but not any other party) in the Share Sale Deed, (ii) with respect to the acquisition of Sale Shares (as such term is defined in the Share Sale Deed), and (iii) with respect to any investigation, litigation, or proceeding related to this Agreement or any act, omission, event, or circumstance in any manner related thereto including, but not limited to, in connection with the enforcement of the indemnification obligations set forth herein (all the foregoing, collectively, the“Indemnified Liabilities”). The foregoing to the contrary notwithstanding, GFC shall have no obligation to any Indemnified Person under this Section 13.1 with
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respect to any Indemnified Liability: (a) arising or resulting from Bison-GE’s breach of any its representations, warranties, covenants and agreements under the Share Sale Deed (but not with respect to any covenant or agreement of Bison-GE in the Share Sale Deed that is assumed by the Company as of the Second Closing and for which Bison-GE was not in default as of the date of the assumption), this Agreement or any other agreement; or (b) that a court of appropriate jurisdiction in a final and non-appealable determination determines to have resulted from the willful misconduct or fraud of such Indemnified Person (such determination being hereinafter referred to as a“Final Willful Misconduct Determination”). This Section 13.1 shall survive the termination of this Agreement.
13.2 Enforceability.
THE INDEMNIFICATION PROVISIONS IN THIS SECTION 13 SHALL BE ENFORCEABLE REGARDLESS OF WHETHER THE LIABILITY IS BASED UPON PAST, PRESENT OR FUTURE ACTS, CLAIMS OR LAWS (INCLUDING ANY PAST, PRESENT OR FUTURE BULK SALES LAW, ENVIRONMENTAL LAW, FRAUDULENT TRANSFER ACT, OCCUPATIONAL SAFETY AND HEALTH LAW OR PRODUCTS LIABILITY, SECURITIES OR OTHER LAW) AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE PERSON SEEKING INDEMNIFICATION.
14 Termination
This Agreement terminates on the earliest to occur of:
(a) there being only one Shareholder in the Company; or
(b) each of the parties agreeing in writing to terminate this Agreement.
15 General
15.1 Notices
(a) Any notice or other communication including, but not limited to, any request, demand, consent or approval, to or by a party to this Agreement:
(i) must be in legible writing and in English addressed as shown below:
(A) if to GFNHand/or GFC:
Attention:
Address:
Facsimile: ;
(B) if to Bison-GE:
Attention:
Address:
Facsimile: ;
(C) if to the Company:
Attention:
Address:
Facsimile: ;
or as specified to the sender by any party by notice;
(ii) where the sender is a company, must be signed by an officer or under the common seal of the sender;
(iii) is regarded as being given by the sender and received by the addressee:
(A) when actually received by the addressee; or
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(B) if by facsimile transmission, whether or not legibly received, when transmitted to the addressee,
but if the delivery or receipt is on a day which is not a Business Day or is after 4.00 pm (addressee’s time) it is regarded as received at 9.00 am on the following Business Day; and
(iv) can be relied upon by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee believes it to be genuine, correct and authorised by the sender.
(b) A facsimile transmission is regarded as legible unless the addressee telephones the sender within one Business Day after transmission is received or regarded as received under clause 15.1(a)(iii) and informs the sender that it is not legible.
(c) In this clause 15.1, a reference to an addressee includes a reference to an addressee’s officers, agents or employees or any person reasonably believed by the sender to be an officer, agent or employee of the addressee.
15.2 Governing law and jurisdiction
This Agreement is governed by the laws of California.
15.3 Prohibition and enforceability
(a) Any provision of, or the application of any provision of, this Agreement or any Power which is prohibited in any jurisdiction is, in that jurisdiction, ineffective only to the extent of that prohibition.
(b) Any provision of, or the application of any provision of, this Agreement which is void, illegal or unenforceable in any jurisdiction does not affect the validity, legality or enforceability of that provision in any other jurisdiction or of the remaining provisions in that or any other jurisdiction.
15.4 Waivers
Waiver of any power or right under this Agreement:
(a) must be in writing signed by the party entitled to the benefit of that power or right; and
(b) is effective only to the extent set out in that written waiver.
15.5 Variation
A variation of any term of this Agreement must be in writing and signed by the parties.
15.6 Amendment
This Agreement may only be amended by the written consent of each Shareholder who holds more than 5% of the Company’s outstanding shares and who is adversely affected by such amendment.
15.7 Cumulative rights
The Powers are cumulative and do not exclude any other right, power, authority, discretion or remedy of the parties.
15.8 Assignment
Rights arising out of or under this Agreement are not assignable by a party without the prior written consent of every other party, which consent must not be unreasonably withheld.
15.9 Further assurances
Each party must do all things and execute all further documents necessary to give full effect to this Agreement.
15.10 Entire agreement
This Agreement supersedes all previous agreements in respect of its subject matter and embodies the entire agreement between the parties.
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15.11 Counterparts
(a) This Agreement may be executed in any number of counterparts.
(b) All counterparts, taken together, constitute one instrument.
(c) A party may execute this Agreement by signing any counterpart.
15.12 Relationship of parties
Neither party is the partner, agent, employee or representative of any other party and neither party has the power to incur any obligations on behalf of, or pledge the credit of, any other party
15.13 Investments in Competitive Businesses
(a) GFC agrees that without the prior written consent of Bison-GE, it will not, either directly or through one or more Affiliates other than the Company Group (“Non-Company Group Affiliates”), purchase equity interests in, merge with, or purchase all or substantially all of the assets of (or otherwise acquire the business of), any entity that during the Relevant Period, derived more than 20% of its revenues from the Covered Business in the Covered Territory (a“Covered Acquisition”) or, if not engaging in the Covered Business in the Covered Territory during the Relevant Period, has developed any written or other formal plans, projects or proposals to engage in the Covered Business in the Covered Territory, and has presented such plans, projects or proposals to its board of directors (or similar governing body), which plans or proposals provide that such entity will likely generate more than 20% of its revenues from the Covered Business in the Covered Territory during the following 24 months. For this purpose, the“Relevant Period” shall mean the12-month period ending on the last day of the calendar quarter immediately preceding the calendar quarter in which GFCand/or its Non-Company Group Affiliates enter into an agreement for such purchase of equity interests or assets or merger.
(b) Bison-GE L.P. acknowledges and agrees that: (i) GFC and its Non-Company Group Affiliates may purchase equity interests in, merge with, or purchase all or substantially all of the assets of any entity that during the Relevant Period derived less than 20% of its revenues from the Covered Business in the Covered Territory; (ii) GFC and its Affiliates may engage in the Covered Business anywhere in the world, provided that if GFC acquired such Affiliate in a Covered Acquisition, such Affiliate must be a member of the Company Group; (iii) any action or activity by GFCand/or its Non-Company Group Affiliates under subparagraphs (i) or (ii) shall not be deemed a breach of this Agreement, or the breach or violation of any fiduciary or other obligation or duty by GFC or its Affiliates or any officers or directors thereof or of any member of the Company Group to Bison-GE L.P. or any of its permitted transferees; and (iv) subject to clause 8.3, neither GFC nor any of its Affiliates shall have any obligation or duty whatsoever to offer the opportunity to Bison-GE L.P. or any of its Affiliates to invest in, purchase, finance or participate in any purchase of equity interests in, merger with, or purchase of all or substantially all of the assets of, any entity. Notwithstanding the foregoing, in no event shall the business, assets or properties of the Company Group be used to support, nor shall any members of the Company Group enter into transactions with, those businesses, operations and Affiliates of GFC and its Affiliates that conduct the Covered Business but which are excluded from this Agreement as a result of this Section 15.13.
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SCHEDULE 1 — SHARE CAPITAL
| | | | | | | | | |
Shareholder
| | Number of Shares | | | % of Share Capital | Page |
|
| Section 7.5 | | | Exclusive Post-Closing Remedy | | | A-30 | |
| Section 7.6 | | | Liability Limitations | | | A-30 | |
| |
ARTICLE 8
TERMINATION |
| Section 8.1 | | | Termination | | | A-30 | |
| Section 8.2 | | | Notice of Termination; Effect of Termination | | | A-31 | |
| Section 8.3 | | | Expenses; Termination Fees | | | A-31 | |
|
ARTICLE 9
MISCELLANEOUS |
| Section 9.1 | | | Definitions | | | A-32 | |
| Section 9.2 | | | Amendment and Modification | | | A-34 | |
| Section 9.3 | | | Notices | | | A-34 | |
| Section 9.4 | | | Interpretation | | | A-35 | |
| Section 9.5 | | | Counterparts | | | A-35 | |
| Section 9.6 | | | Entire Agreement; No Third Party Beneficiaries | | | A-35 | |
| Section 9.7 | | | Severability | | | A-35 | |
| Section 9.8 | | | Specific Performance | | | A-35 | |
| Section 9.9 | | | Governing Law | | | A-36 | |
| Section 9.10 | | | Assignment | | | A-36 | |
| Section 9.11 | | | Reliance | | | A-36 | |
| Section 9.12 | | | Knowledge | | | A-36 | |
| Section 9.13 | | | Waiver of Jury Trial | | | A-36 | |
| Section 9.14 | | | Waiver | | | A-36 | |
| Section 9.15 | | | Attorney’s Fees | | | A-36 | |
| Section 9.16 | | | Arbitration | | | A-36 | |
|
List of Exhibits |
| Exhibit A | | | MOAC Stockholders | | | | |
| Exhibit B | | | Pledge Agreement | | | | |
| Exhibit C | | | Holdback Note | | | | |
| Exhibit D | | | Stockholders Agreement | | | | |
| Exhibit E | | | First Amendment to Employment Agreement of Theodore Mourouzis | | | | |
| Exhibit F | | | General Release | | | | |
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SCHEDULE 2
DEEDAGREEMENT AND PLAN OF ACCESSIONMERGER
THIS DEEDAGREEMENT AND PLAN OF MERGER (this“Agreement”) dated as of July 28, 2008 is madeentered into by and among GENERAL FINANCE CORPORATION, a Delaware corporation (“Parent”), GFN NORTH AMERICA CORP., a Delaware corporation(“Sub”), PAC-VAN, INC., an Indiana corporation(“Pac-Van”), MOBILE OFFICE ACQUISITION CORP., a Delaware corporation(“MOAC”) (each of MOAC and Pac-Van are referred to individually as a“Company” and collectively as the day“Companies”), and the stockholders of MOAC whose names appear inExhibit A attached hereto (each a“MOAC Stockholder” and collectively the“MOAC Stockholders”), with reference to the following facts:
WHEREAS, the Board of Directors of MOAC has approved this Agreement and determined that the merger of MOAC with and into Sub (theBETWEEN:“Merger”), including the consideration to be paid for each of the outstanding shares (collectively, the“Shares”) of (A) Class A Common Stock of MOAC (the“Class A MOAC Common Stock”) and (B) Class B Common Stock of MOAC (the“Class B MOAC Common Stock”, and together with the Class A Common Stock, the“MOAC Common Stock”) in the Merger, is fair and advisable to and in the best interests of MOAC and its stockholders;
WHEREAS, the Merger is intended to qualify as a “reorganization” as described in Section 368 of the Internal Revenue Code of 1986, as amended (theGFNH AUSTRALASIA FINANCE PTY LIMITED“Code”), and this Agreement is intended to constitute a “plan of reorganization” within the meaning of the regulations promulgated under Section 368 of the Code;
(“Company”)
WHEREAS, the duly appointed and authorized Special Committee of the Board of Directors of Parent and the Board of Directors of Sub have approved, and deem it fair and advisable and in the best interests of the disinterested stockholders of Parent, to enter into, this Agreement and the Merger; and
[OUTGOING ENTITY]WHEREAS, the parties desire for the Merger to be a tax free reorganization (except to the extent of cash and the Holdback Note (as defined below) issuable pursuant to this Agreement) in accordance with the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows:
[NEW SHAREHOLDER]SECTION 1
andTHE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement, and in accordance with the Delaware General Corporation Law[each other Shareholder](“DGCL”), at the Effective Time, the Merger shall be consummated. As a result of the Merger, the separate corporate existence of MOAC shall cease and Sub shall continue as the surviving corporation of the Merger (the“Surviving Corporation”). The Surviving Corporation shall continue to be governed by the laws of the State of Delaware.
Section 1.2 Closing . Upon the terms and subject to the conditions set forth in this Agreement, the closing of the Merger (theWHEREAS:“Closing”) shall take place at 10:00 a.m. Pacific Daylight Time on a date (the“Closing Date”) which shall be the first business day after satisfaction or waiver of the conditions set forth in Article 6, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions, at the offices of Parent located at 39 East Union Street, Pasadena, California 91103, or at such other time, date or place as agreed to in writing by the parties hereto. Notwithstanding any approval of this Agreement by the stockholders of MOAC, no agreement among the parties to change the place, time or date of the Closing shall require the approval of the stockholders of MOAC.
ASection 1.3 Effective Time. On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing the certificate of merger (the“Certificate of Merger”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL. The Companydate and its Shareholderstime of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (or such later time as shall be agreed to by the parties hereto and is specified in the Certificate of Merger) will be the“Effective Time.”
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Section 1.4 Effects of the Merger. The Merger shall have executed a Shareholders Agreement dated [ ] (the“Shareholders Agreement”)the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, immunities, powers and franchises of MOAC and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of MOAC and Sub shall become the debts, liabilities and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation; Bylaws.
B The New Shareholder wishes(a) At the Effective Time and without any further action on the part of MOAC or Sub, the Certificate of Incorporation of Sub as amended to acquire all [a portion]date and as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Shares (the“Transferred Shares”) of [ ] (the“Outgoing Entity”).Surviving Corporation until thereafter amended as provided therein and under the DGCL.
C It is a condition(b) At the Effective Time and without any further action on the part of MOAC or Sub, the bylaws of Sub, as amended, as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the certificate of incorporation of the Surviving Corporation and as provided therein and under the Shareholders AgreementDGCL.
Section 1.6 Directors and Officers. At the Closing, the bylaws of Sub shall specify that the New Shareholderboard of directors of Sub shall consist of between three (3) and Outgoing Entity execute this Accession Deed.five (5) members and the directors shall be elected by Parent to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.
NOW THIS DEED WITNESSES AS FOLLOWS:SECTION 2
1 InterpretationCONVERSION OF SHARES; STOCKHOLDERS MEETING
1.1 Section 2.1 ForMerger Consideration. The aggregate consideration payable to holders of Shares (other than Dissenting Shares) in connection with the purposesMerger(“Merger Consideration”) shall be: (A) (x) One Hundred Fifty-Eight Million Eight Hundred Thousand Dollars ($158,800,000)plusthe aggregate purchase price and transaction costs of any acquisitions(“Interim Acquisitions”) completed by Pac-Van, during the period commencing the date of this Deed:Agreement and ending on the Effective Time,minus(B) the principal which is borrowed from LaSalle Bank National Association(“LaSalle Bank”) under the senior secured credit facility of Pac-Van(“Credit Facility”) (which principal shall not exceed Eighty-Six Million Dollars ($86,000,000)plusany indebtedness incurred under the Credit Facility to complete the Interim Acquisitions) and accrued but unpaid interest on such principal,minus(C) the principal which is borrowed from SPV Capital Funding, L.L.C., as assignee of Laminar Direct Capital L.P.(“SPV Capital”) pursuant to a senior subordinated promissory note issued by Pac-Van (the“Subordinated Note”) (which principal shall not exceed Twenty-Five Million Dollars ($25,000,000)) (the“Senior Subordinated Loan”) and accrued but unpaid interest on such principal andminus(D) any other indebtedness for borrowed money of MOAC and Pac-Van (other than indebtedness under the Credit Facility and the Subordinated Note). The Merger Consideration will be paid to the stockholders of MOAC and each holder of a cancelled MOAC Stock Option(“Eligible Stock Option Holder”) as follows (allocated among such stockholders and optionholders in accordance with the allocation set forth on Section 2.1 of the Companies Disclosure Schedules:
(i) a total of up to Twenty-One Million Five Hundred Thousand Dollars ($21,500,000) (the“Cash”) via wire transfer of immediately available funds;
(ii) Four Million (4,000,000) shares of restricted common stock of Parent (the“Parent Common Stock”) valued at Seven Dollars Fifty Cents ($7.50) per share, which shall include shares of restricted Parent Common Stock with an aggregate value of Eight Million Five Hundred Thousand Dollars ($8,500,000) valued at Seven Dollars Fifty Cents ($7.50) per share (the“Pledged Shares”) which will be pledged by each MOAC Stockholder to secure the indemnification obligations under this Agreement of such MOAC Stockholder pursuant to the pledge agreement in the form ofExhibit B attached hereto (the“Pledge Agreement”); and
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(iii) a subordinated, unsecured promissory note of Sub in the form ofExhibit C attached hereto (the“Holdback Note”) with a principal value of One Million Five Hundred Thousand Dollars ($1,500,000) bearing interest of 8% per annum payable semi-annually.
Section 2.2 Conversion of Securities. At the Effective Time by virtue of the Merger and without any action on the part of any party, each Share held in the treasury of MOAC immediately prior to the Effective Time shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto. At the Effective Time by virtue of the Merger and without any action on the part of any party, each share of common stock of Sub issued and outstanding immediately prior to the Effective Time and all rights in respect thereof shall be converted into and become one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.
Section 2.3 Treatment of MOAC Stock Options.
(a) termsAt the Effective Time, each then outstanding option or right to purchase Shares (collectively,“MOAC Stock Options”), granted or issued pursuant to MOAC’s 2006 Stock Option Plan(“MOAC Stock Option Plan”), which are then vested or exercisable, shall be cancelled by MOAC and each Eligible Stock Option Holder shall be entitled to receive from the Surviving Corporation (and, if necessary, Parent shall provide funds to the Surviving Corporation sufficient for such payments) in consideration for the cancellation of such MOAC Stock Option an amount in cash equal to the following (the“Stock Option Consideration”): the product of (i) the number of shares of MOAC Common Stock previously subject to such MOAC Stock Option and (ii) the excess, if any, of the Per Share Merger Consideration with respect to the shares described in clause (i) over the exercise price per share of MOAC Common Stock subject to such MOAC Stock Option.
(b) Except as provided herein or as otherwise agreed to by the parties, all stock incentive plans and any other plan, program or arrangement providing for the issuance or grant of any interest in respect of the Shares shall terminate as of the Effective Time, and MOAC shall, prior to the Effective Time, ensure that following the Effective Time no holder of any MOAC Stock Option or any other equity-based right shall have any right to acquire equity securities of MOAC or the Surviving Corporation.
Section 2.4 Surrender of Shares; Distribution of Merger Consideration; Stock Transfer Books.
(a) Upon surrender by a MOAC Stockholder to Parent of the certificate representing the shares held by such stockholder (each“MOAC Certificate”) and delivery of a letter of transmittal in form and substance reasonably satisfactory to Parent and the MOAC Stockholders and instructions for use in effecting the surrender of the MOAC Certificates for payment of the Merger Consideration therefor immediately prior to the Effective Time, the Surviving Corporation shall cause to be delivered to each holder of a MOAC Certificate (collectively with the Eligible Stock Option Holder,“Eligible Stockholder”) the portion of the Merger Consideration to which such shares represented by such MOAC Certificate are entitled to receive in accordance with the allocation set forth in Section 2.1 of the Companies Disclosure Schedules (the“Per Share Merger Consideration”) less any amounts required to be withheld under Section 2.7 as follows:
(i) At the Effective Time, the Cash and the Holdback Note; and
(ii) As soon as practicable after the Effective Time (or such later date when a MOAC Stockholder surrenders such MOAC Stockholder’s share certificate(s)), stock certificates representing the Parent Common Stock.
(b) Parent shall retain possession of the Pledged Shares pursuant to the terms and conditions of the Pledge Agreement.
(c) Upon the delivery to Parent of the MOAC Certificates, the MOAC Certificates shall be cancelled. Until so surrendered, each MOAC Certificate will represent, from and after the Effective Time, only the right to receive the Per Share Merger Consideration as contemplated by this Section 2.4(a). No interest shall be paid or accrued for the benefit of holders of the MOAC Certificates on the Merger Consideration payable upon the surrender of the MOAC Certificates. If payment of the Per Share Merger Consideration is to be made to a Person other than the Person in
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whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Per Share Merger Consideration to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. As used in this Agreement,“Person” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in the Shareholders’ AgreementSecurities Exchange Act of 1934, as amended (the“Exchange Act”)).
(d) In the event any MOAC Certificates shall have been lost, stolen or destroyed, Parent shall deliver in exchange for such lost, stolen or destroyed MOAC Certificates, upon the same meanings whenmaking of an affidavit of that fact by the holder thereof, the Per Share Merger Consideration to which the holder thereof is entitled pursuant to this Article 2.
(e) Immediately prior to the Effective Time the Warrants shall be cancelled and the holder of the Warrants shall receive the proceeds payable to cancel the Warrants (which equal the amount the holders of the Warrants would have received if the Warrants were exercised in connection with the Merger) set forth in Section 2.1 of the Companies Disclosure Schedules attached hereto.
(f) At the close of business on the Closing Date, the stock transfer books of MOAC shall be closed and thereafter there shall be no further registration of transfers of shares of MOAC Common Stock on the records of MOAC. From and after the Effective Time, the holders of MOAC Certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein.
Section 2.5 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, Shares that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted in favor of or consented to the Merger and who shall have delivered a written demand for appraisal of such shares of MOAC Common Stock in the time and manner provided in Section 262 of the DGCL and shall not have failed to perfect, and shall not have effectively withdrawn or lost, their rights to appraisal and payment under the DGCL (the“Dissenting Shares”) shall not be converted into the right to receive the Per Share Merger Consideration, but shall be entitled to receive the fair value of their Shares as shall be determined pursuant to Section 262 of the DGCL;provided,however, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder’s Shares shall thereupon be deemed to have been converted, at the later of the time of such failure to perfect, withdrawal or loss of right or the Effective Time, into the right to receive the Per Share Merger Consideration set forth in Section 2.4, without any interest thereon.
(b) MOAC shall deliver to Parent prompt notice of any notices of intent to assert appraisal rights and to demand payment or withdrawals of notices of intent to assert appraisal rights and to demand payment and will not, except with the prior written consent of Parent, which consent shall not be unreasonably withheld, conditioned or delayed, settle or compromise, offer to settle or compromise any such notices or voluntarily make any payment with respect to any notice of intent to demand payment for Shares.
(c) After the Effective Time, the Surviving Corporation shall be responsible for payment with respect to Dissenting Shares and for compliance with Section 262 of the DGCL.
Section 2.6 No Further Ownership Rights in MOAC Stock. All payments of the Per Share Merger Consideration made upon surrender of MOAC Certificates in accordance with the terms hereof shall be deemed to have been made in full satisfaction of all rights pertaining to the Shares subject to such MOAC Certificate and there shall be no further registration of transfers on the records of the Surviving Corporation of Shares which were outstanding as of the Closing. If, after the Closing, MOAC Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this SECTION 2.
Section 2.7 Withholding Taxes.
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(a) Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold from the Per Share Merger Consideration otherwise payable to an Eligible Stockholder pursuant to Section 2.4 such amounts as Parent or the Surviving Corporation is required to deduct and withhold with respect to the making of such payment under the Code, or under any applicable provision of any law, statute, ordinance, rule, code, or regulation of any Governmental Authority(“Law”). To the extent that amounts are so withheld, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares or MOAC Stock Options, as the case may be, in respect of which such deduction and withholding was made by Parent or the Surviving Corporation, respectively.
Section 2.8 Further Action. At and after the Effective Time, the officers and directors of Parent and the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of MOAC, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of MOAC and Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
Each of the Companies hereby represents and warrants to Parent and Sub as follows:
Section 3.1 Organization; Charter Documents.
(a) Organization. Each of MOAC and Pac-Van is a corporation duly organized and validly existing under the Laws of the jurisdiction of its incorporation, and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Companies is duly qualified or licensed to do business and is in good standing (where applicable) in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing has not had and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (as defined below). Section 3.1(a) of the Disclosure Schedules attached hereto (the“Companies Disclosure Schedules”) sets forth a list of each jurisdiction in which each of the Companies is qualified or licensed to do business.
As used in this Deed; andAgreement, the term“Material Adverse Effect” means, when used with reference to one or more events, changes, circumstances or effects, a material adverse effect on the business, operations, assets, liabilities or financial condition of the Companies taken as a whole, other than events, changes, circumstances or effects that arise out of or result from economic factors generally affecting the economy or financial markets as a whole or the industries in which either of the Companies operates which do not disproportionately impact the Companies.
(b) Subsidiaries. Except as set forth in Section 3.1(b) of the Companies Disclosure Schedules, neither of the Companies has a Subsidiary or any other entities in which such Company owns, directly or indirectly, any shares of capital stock, equity or membership interests.
As used in this Agreement, the term“Subsidiary” means, when used with reference to any entity, any corporation or other organization, whether incorporated or unincorporated, (i) of which such party or any other Subsidiary of such party is a general or managing partner or (ii) the outstanding voting securities or interests of which, having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such entity or by any one or more of its Subsidiaries.
(c) Charter Documents. Each of the Companies has delivered to Parent a true and correct copy of each of the articles or certificate of incorporation and bylaws, each as amended to date of such Company (collectively, the
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“Company Charter Documents”) and each such instrument is in full force and effect. Neither Company is in violation of any of the provisions of Clause 1.2its Company Charter Documents.
Section 3.2 Capitalization of the Companies.
(a) MOAC Capitalization. The authorized capital stock of MOAC consists of (i) 350,000 shares of Common Stock, par value $0.001 (A) issuable in a series designated “Class A Common Shares” consisting of 300,000 shares, of which 225,000 shares are issued and outstanding, (B) issuable in a series designated “Class B Common Shares” consisting of 50,000 shares, of which 1,800 shares are issued and outstanding; (C) 26,042 shares of Class B Common Stock are reserved for issuance upon the exercise of outstanding MOAC Stock Options; and (D) 9,375 shares of MOAC Common Stock are reserved for issuance pursuant to warrants of MOAC (the“Warrants”) issued to Laminar Direct Capital, L.P., which has been assigned to SPV Capital; and (ii) no shares of Preferred Stock are issued and outstanding. All outstanding shares of MOAC Common Stock are, and all shares which may be issued pursuant to the plans and agreements applicable to MOAC Stock Options will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable and not issued in violation of, nor subject to, preemptive rights or similar rights. Except for the shares and Warrants described in this Section 3.2(a) and the MOAC Stock Options, there are no outstanding (A) shares of capital stock or other voting securities of MOAC, (B) securities of MOAC convertible into or exchangeable or exercisable for shares of capital stock or voting securities of MOAC, (C) options, warrants, restricted stock, restricted stock units, preemptive or similar rights, subscriptions or other rights, convertible securities, agreements, arrangements or commitments of any character to acquire (or obligating MOAC to issue, register, transfer or sell) any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of MOAC or obligating MOAC to grant, extend or enter into any such option, warrant, restricted stock units, subscription or other right, convertible security, agreement, arrangement or commitment or (D) no equity equivalents, interests in the ownership or earnings of MOAC or other similar rights (the items in clauses (A), (B), (C) and (D) being referred to collectively as the“MOAC Securities”). Except for redemption of the Warrants, MOAC does not have any obligation, commitments or arrangements to redeem, repurchase or otherwise acquire any of the MOAC Securities, including as a result of the transactions contemplated by this Agreement or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person. There are no voting trusts or registration rights or other agreements or understandings to which MOAC is a party with respect to the voting or disposition of the capital stock of MOAC, other than the Shareholders’ Agreement shall applydated as of August 2, 2006, among MOAC, the MOAC Stockholders, Theodore Mourouzis, Laminar Direct Capital L.P. and D. E. Shaw Laminar Portfolios, L.L.C.
(b) Pac-Van Capitalization. The authorized capitalization of Pac-Van consists of (i) 10,000,000 shares of common stock, par value $0.001, (A) issuable in a series designated “Class A Common Shares” consisting of 9,500,000 shares of which no shares are issued and outstanding and (B) issuable in a series designated “Class B Common Shares” consisting of 500,000 shares, of which 10 shares are issued and outstanding and (ii) 5,000,000 shares of preferred stock, par value at $0.001, of which no shares are issued and outstanding. All outstanding shares of Pac-Van have been duly authorized, validly issued, fully paid and non-assessable and not issued in violation of, nor subject to, preemptive rights or similar rights. Except for the interpretationshares described in this Section 3.2(b), there are no outstanding (A) shares of capital stock or other voting securities of Pac-Van, (B) securities of Pac-Van convertible into or exchangeable or exercisable for shares of capital stock or voting securities of Pac-Van, (C) options, warrants, restricted stock, restricted stock units, preemptive or similar rights, subscriptions or other rights, convertible securities, agreements, arrangements or commitments of any character to acquire (or obligating Pac-Van to issue, register, transfer or sell) any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of Pac-Van or obligating Pac-Van to grant, extend or enter into any such option, warrant, restricted stock units, subscription or other right, convertible security, agreement, arrangement or commitment or (D) no equity equivalents, interests in ownership or earnings of Pac-Van or other similar rights (the items in clauses (A), (B), (C) and (D) being referred to collectively as the“Pac-Van Securities” and collectively with the MOAC Securities, the“Company Securities”). Pac-Van does not have any obligation, commitments or arrangements to redeem, repurchase or otherwise acquire any of the Company Securities, including as a result of the transactions contemplated by this Agreement or to provide funds to
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or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person. There are no voting trusts or registration rights or other agreements or understandings to which Pac-Van is a party with respect to the voting or disposition of the capital stock of Pac-Van.
(c) Indebtedness. Section 3.2(c) of the Companies Disclosure Schedules sets forth a complete and correct list, as of the date of this Deed, mutatis mutandis.Agreement, of each Contract pursuant to which any Indebtedness (other than Companies credit cards) of the Companies is outstanding or may be incurred, together with the amount outstanding thereunder as of the date of this Agreement. No Contract pursuant to which any Indebtedness of the Companies is outstanding or may be incurred provides for the right to vote (or is convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which the stockholders of the Companies may vote.
1.2As used in this Agreement, the term“Contract” means any agreement, contract, subcontract, lease, binding understanding, indenture, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect.
As used in this Agreement, the term“Indebtedness” means (i) indebtedness for borrowed money, whether secured or unsecured, (ii) obligations under conditional or installment sale or other title retention Contracts relating to purchased property, (iii) capitalized lease obligationsand/or (iv) guarantees of any of the foregoing of another Person.
Section 3.3 In this Deed (including the Recitals) unless inconsistent with the subject matter or unless the context otherwise requires:Corporate Authorization; Board Approval.
(a) “Registration Date”Corporate Authorization. meansEach of the Companies has all necessary corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by the Companies of this Agreement and the consummation by the Companies of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action, except the approval of this Agreement and the Merger by a majority of the outstanding shares of Class A MOAC Common Stock, which approval, once delivered pursuant to Section 5.14 hereof, is the only vote of holders of any class or series of securities necessary to approve this Agreement and the Merger. This Agreement has been duly executed and delivered by MOAC and, assuming the due authorization, execution and delivery by Parent and Sub, constitutes a valid and binding agreement of MOAC, enforceable against MOAC in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar Laws affecting creditors rights generally from time to time in effect).
(b) Board Approval. The Board of Directors of MOAC has, at a meeting duly called and held on or prior to the date on whichhereof, (i) determined and declared that this Agreement and the transferMerger are fair to, advisable and in the best interests of Shares fromMOAC and its stockholders, and (ii) adopted and approved this Agreement and the Outgoing EntityMerger, and (iii) directed that this Agreement and the Merger be submitted to MOAC’s stockholders for approval.
Section 3.4 Governmental Approvals. The execution, delivery and performance by MOAC of this Agreement, and the consummation by MOAC of the transactions contemplated hereby, require no action, permit, license, authorization, certification, consent, approval, concession or franchise by or in respect of, or filing with, any federal, state, or local U.S. or foreign government, court, administrative agency, commission, arbitrator or other governmental or regulatory agency or authority (a“Governmental Authority”) other than: (i) the filing of the Certificate of Merger with respect to the New Shareholder is registered;Merger with the Secretary of State of the State of Delaware; and (ii) such other consents, approvals, Orders, authorizations, registrations, declarations, filings, notices and permits set forth on Section 3.4 of the Companies Disclosure Schedules.
Section 3.5 “Outgoing Entity”Non-Contravention. means [ ].Except as set forth in Section 3.5 of the Companies Disclosure Schedules, the execution, delivery and performance by MOAC of this Agreement do not, and the consummation of the transactions contemplated hereby will not: (i) contravene, conflict with or violate the MOAC Charter Documents; (ii) subject to obtaining the Company Requisite Vote and obtaining all the consents, approvals and authorizations specified in clauses (i) and (ii) of Section 3.4, contravene or conflict with or constitute a violation of any provision of any Law, or any outstanding order, writ, judgment, injunction, ruling, determination, award or decree by or with any
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Governmental Authority(“Order”) binding upon or applicable to the Companies or by which any of their respective properties are bound or affected; (iii) subject to obtaining all the consents, approvals and authorizations specified in Section 3.5 of the Companies Disclosure Schedules, constitute a default (or an event which with notice, the lapse of time or both would become a default) under or give rise to a right of termination, cancellation, modification or acceleration of any right or obligation of the Companies, or cause increased liability or fees or the loss of a material benefit or imposition of a penalty under (A) any Contract or (B) any Companies Permit; or (iv) result in the creation or imposition of any liens, charges, security interests, options, claims, pledges, licenses, limitations in voting rights or other encumbrances of any nature whatsoever (collectively,“Liens”) on any asset of the Companies.
2Section 3.6 New ShareholderFinancial Statements; No Undisclosed Liabilities.
(a) Each of the financial statements listed on Section 3.6(a) of the Companies Disclosure Schedules (including, in each case, any related notes thereto) as of their respective dates (the“Company Financials”): (i) complied as to form in all material respects with all applicable accounting requirements, (ii) were prepared in accordance with United States generally accepted accounting principles(“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and (iii) fairly presented the consolidated financial condition of MOAC as at the respective dates thereof and the consolidated results of the MOAC’s operations and cash flows for the periods indicated. The New Shareholderconsolidated balance sheet of MOAC as of December 31, 2007 is hereinafter referred to herein as the“Company Balance Sheet,” and December 31, 2007 is hereinafter referred to herein as the“Company Balance Sheet Date”. Except as noted in the opinions contained in the Company Financials, the Company Financials and opinions were rendered without qualification or exception and were not subject to any contingency. No event has occurred since the preparation of the Company Financials that would require a restatement of the Company Financials under GAAP other than by reason of a change in GAAP.
(b) Except as set forth in the Companies Disclosure Schedules, neither of the Companies has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) except (i) liabilities or obligations disclosed or provided for in the Company Financials or the notes thereto, (ii) liabilities or obligations incurred in the ordinary course of business or otherwise that individually or in the aggregate have not had and would not reasonably be expected to have a Material Adverse Effect, (iii) express obligations or liabilities under Contracts entered into prior to the date of this Agreement, (iv) express obligations or liabilities under Contracts entered into after the date of this Agreement, provided that such Contracts are permitted under this Agreement, (v) liabilities included in Working Capital and (vi) commitments entered into after the date of this Agreement to purchase fleet or equipment for lease or sale set forth in Section 3.6(b) of the Companies Disclosure Schedules.
Section 3.7 Absence of Certain Changes. Except as disclosed in Section 3.7 of the Companies Disclosure Schedules, since the Company Balance Sheet Date, the businesses of the Companies have been conducted in all material respects in the ordinary course of business consistent with past practice, and there has not been any change, development, event, condition, occurrence or effect that individually or in the aggregate has had or would reasonably be expected to have (a) a Material Adverse Effect or (b) a material adverse impact on the ability of the Companies to consummate the Merger. Since the Company Balance Sheet Date, except as (i) specifically contemplated by this Agreement or (ii) set forth in Section 3.7 of the Companies Disclosure Schedules, there has not occurred any action, event or failure to act that, if it had occurred after the date of this Agreement, would have required the consent of Parent under Section 5.1.
Section 3.8 Insurance. Section 3.8 of the Companies Disclosure Schedules contains a complete list of all policies of fire, liability, workers’ compensation and from the Registration Date,other forms of insurance owned or held by or for the benefit of the CompanyCompanies. Copies of all insurance policies applicable to the Companies have been delivered to Parent. Except as set forth in Section 3.8 of the Companies Disclosure Schedules: (i) all such policies are in full force and each other Shareholder:
(a) ratifieseffect and becomes a party towere in full force and agreeseffect during the periods of time such insurance policies are purported to be bound by the Shareholders’ Agreement in respecteffect; (ii) neither of the Transferred Shares;
(b) takesCompanies is in breach or default (including any such breach or default with respect to the payment of premiums or the giving of notice), and acceptsno event has occurred which, with notice or the assignmentlapse of time or both, would constitute such a breach or default, or permit termination or modification, under any policy; (iii) all premiums due thereon have been paid and transfer to it of all rights and benefits and assumes the obligations and agrees to be bound by allneither of the terms, conditions, restrictions, covenants and obligationsCompanies has received any notice of thecancellation,
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Outgoing Entitytermination or non-renewal of any such policy; (iv) all such insurance policies are customary in scope and amount of coverage for the business of the Companies; (v) all appropriate insurers under such insurance policies have been notified of all potentially insurable losses and pending litigation and legal matters, and no such insurer has informed the Companies of any denial of coverage or reservation of rights thereto; and (vi) neither of the Companies has received any written notice of cancellation of any insurance policy maintained in favor of the Companies nor has it been denied insurance coverage, in either case, in the past five years.
Section 3.9 Real Property; Title to Assets.
(a) Owned Real Property. Neither of the Companies owns fee simple title to any real property.
(b) Real Property Leases. Section 3.9(b) of the Companies Disclosure Schedules contains a true and complete list of all leases, subleases, sub-subleases, licenses and other agreements under which the Companies lease, sublease, license, use or occupy (whether as landlord, tenant, subtenant other occupancy arrangement) or has the right to use or occupy, now or in the future, any real property(“Real Property Leases”). The Companies have previously furnished to Parent true, correct and complete copies of all Real Property Leases. Each Real Property Lease constitutes the valid and legally binding obligation of the Company, enforceable against the Companies in accordance with its terms. With respect to each Real Property Lease (i) there is no default or event which, with notice or lapse of time or both, would constitute a default on the part of Companies, or, to the knowledge of the Companies any other party thereto; (ii) except as set forth on the Section 3.9(b) of the Companies Disclosure Schedules, neither of the Companies has assigned, sublet or transferred its leasehold interest; (iii) each of the Companies enjoys peaceful and undisturbed possession under all leases of real property and all of such leases are valid and in full force and effect; and (iv) there are no pending or, to the knowledge of the Companies, threatened condemnation proceedings relating to any real property leased or used by the Companies. Each of the Companies has a good and valid leasehold interest in each Real Property Lease free and clear of all Liens, except as disclosed on Section 3.9(b) of the Companies Disclosure Schedules.
(c) Personal Property. Except as set forth in Section 3.9(c) of the Companies Disclosure Schedules, each of the Companies owns or leases all furniture, fixtures, equipment, inventory, rental fleet, operating supplies and other personal property (the“Personal Property”) necessary to carry on its businesses as now being conducted. The Personal Property, other than inventory and rental fleet, is in good and usable condition except for reasonable wear and tear. All inventory consists of items usable or saleable in the ordinary course of business. All rental fleet consists of items rentable in accordance with industry standards or historic Companies business practice. Other than Personal Property leased to customers, or inventory held by vendors or manufacturers, in the ordinary course of business as of the date hereof, no Personal Property, or other assets used in the business of the Companies, are located at any locations other than the locations subject to the Real Property Leases listed in Section 3.9 of the Companies Disclosure Schedules. The Personal Property is not subject to any Liens, except as set forth in Section 3.9(c) of the Companies Disclosure Schedules,
Section 3.10 Company Intellectual Property. Section 3.10 of the Companies Disclosure Schedules lists all registrations or applications for registration of any Companies Intellectual Property and all material Companies Intellectual Property (as defined below). To the knowledge of the Companies, all material Companies Intellectual Property (as defined below) is valid, subsisting and enforceable in all respects and each of the Companies owns or has the right to use all material Companies Intellectual Property (as defined below) free and clear of all Liens, except as disclosed in Section 3.10 of the Companies Disclosure Schedules. (i) No Action is pending or, to the knowledge of the Companies, threatened against or affecting the Companies or any of their respective properties, which challenges the validity or use of, or the ownership by, the Companies of the Companies Intellectual Property (as defined below); (ii) neither of the Companies has knowledge of any infringement or infringing use of any of the Companies Intellectual Property (as defined below) or licenses by any Person; and (iii) neither of the Companies received any claim or notice from any Person alleging that an infringement, misappropriation or violation of any intellectual property right or other proprietary right of such person has occurred or will result from the conduct of the business of the Companies or from the signing and execution of this Agreement or the consummation of the transactions contemplated hereby, and to the knowledge of the Companies, no such infringement, misappropriation or violation has occurred or will occur.
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As used in this Agreement, the term“Companies Intellectual Property” means (i) all domestic and foreign patents, trademarks, service marks, copyrights, trade names, domain names and all licenses running to or from the Companies relating to the Companies’ businesses or owned by the Companies, (ii) all common law trademarks, service marks, copyrights and copyrightable works (including databases, software and Internet site content), trade names, brand names and logos; and (iii) all trade secrets, inventions, formulae, data, improvements, know-how, confidential information, material computer programs (including any source code and object code) documentation, engineering and technical drawings, processes, methodologies, trade dress, and all other proprietary technology utilized in or incidental to the businesses of the Company, and all common law rights relating to the foregoing.
Section 3.11 Litigation.
(a) Except as set forth in Section 3.11 of the Companies Disclosure Schedules, there is no action, suit, investigation, claim, charge or proceeding(“Actions”) pending against, or to the knowledge of the Companies, threatened against or affecting, the Companies or any of their respective assets, properties or rights (a) by, before or with any other Governmental Authority or (b) by or with any other Person. As of the date of this Agreement, no officer or director of the Companies is a defendant in any Action commenced by stockholders of either of the Companies with respect to the performance of his or her duties as an officerand/or director of the Companies. Except as set forth in Section 3.11 of the Companies Disclosure Schedules, there exist no Contracts with any of the directors and officers of the Companies that provide for indemnification by the Company. Neither the Companies nor any of their respective properties or assets is or are subject to any Order.
(b) Neither of the Companies has been charged with, convicted of or pleadednolo contendereto a crime nor, to the knowledge of the Companies, have any criminal charges been threatened by a Governmental Authority against the Companies. To the knowledge of the Companies, no officer or employee of the Companies has been charged with, convicted of or pleaded nolo contendre to a crime with respect to actions taken in the scope of his or her duties as an officer or employee of either of the Companies nor have any criminal charges been threatened by a Governmental Authority against any such Person with respect to actions taken in the scope of his or her duties as an officer or employee of either of the Companies. Neither of the Companies is subject to a governmental order or a party to a settlement agreement or agreement with a Governmental Authority that would, after the Closing, apply to any of the businesses, properties or assets of the Companies, Parent or any of Parent’s Affiliates, nor is any such order or agreement being threatened against the Companies.
Section 3.12 Taxes.
Except as set forth on Section 3.12 of the Companies Disclosure Schedules:
(a) The Companies and each affiliated group (within the meaning of Section 1504 of the Code) of which each of the Companies is a member, has timely filed (or has had timely filed on its behalf, taking into account all applicable extensions) all Tax Returns required by applicable Law to be filed by it. All such Tax Returns are correct and complete in all material respects and correctly and accurately set forth the amount of any Taxes relating to the applicable period. Each of the Companies has timely paid (or has had timely paid on its behalf) all Taxes due and owing (whether or not shown on any Tax Return) and has established an adequate reserve for the payment of all Taxes not yet due and owing in the Company Financials in accordance with GAAP.
(b) Each of the Companies has withheld and paid to the applicable Governmental Authority all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
(c) None of the Tax Returns of the Companies filed on or after January 1, 2000 have been examined by any Taxing Authority and no audit, action, proceeding or assessment is pending or threatened by any such Taxing Authority against either of the Companies. No written claim has been made since January 1, 2000 by any Taxing Authority in any jurisdiction (other than jurisdictions where either of the Companies files Tax Returns) that it is or may be subject to taxation by that jurisdiction.
(d) As of the Closing Date, neither of the Companies will be a party to, be bound by or have any obligation under any tax allocation, tax sharing, tax indemnity or similar agreement with respect to Taxes.
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(e) There are no Liens for Taxes upon any of the assets of the Companies (other than Taxes not yet due and payable).
(f) Neither of the Companies (i) has been a member of an “affiliated group” (as defined in Section 1504(a) of the Code) (other than a group the common parent of which is MOAC) or (ii) has no liability for Taxes of any Person (other than the Companies) arising from the application of Treasury RegulationsSection 1.1502-6 or any analogous provision of state, local or foreign Law, or as a transferee or successor, by contract, or otherwise.
(g) Neither of the Companies has granted any waiver of any federal, state, local or foreign statute of limitations with respect to, or any extension of a period for the assessment of, any Tax or otherwise taken any action to defer liability for Taxes to any taxable period ending after the Closing Date.
(h) Neither of the Companies will be required to include any item of income in, or exclude any deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax Law) executed on or prior to the Closing Date; (iii) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign Tax Law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
(i) Neither of the Companies has distributed stock of another entity, or had its stock distributed by another entity, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or 361 of the Code.
(j) Neither of the Companies has engaged in any transaction that could give rise to (i) a disclosure obligation with respect to any Person under Section 6111 of the Code or the regulations promulgated thereunder, (ii) a list maintenance obligation with respect to any Person under Section 6112 of the Code or the regulations promulgated thereunder, or (iii) a disclosure obligation as a “reportable transaction” under Section 6011 of the Code and the promulgated regulations thereunder.
(k) Neither of the Companies is required to make any payments in connection with transactions or events contemplated by this Agreement or are a party to an agreement that would require it to make any payments that would not be fully deductible by reason of Section 162(m) of the Code.
As used in this Agreement, the term“Taxes” means any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or Personal Property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, service use, license, value added, capital, net worth, payroll, profits, employment, severance, stamp, occupation, premium, environmental, custom duties, disability, registration, alternative or add-on minimum, estimated, franchise, transfer and recording taxes, fees and charges, and any other taxes, assessment or similar charges imposed by any Taxing Authority and any interest or penalties or additional amounts, if any, attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments whether or not disputed.
As used in this Agreement, the term“Taxing Authority” means the Internal Revenue Service or any other taxing authority, whether domestic or foreign, including any state, county, local or foreign government or any subdivision or taxing agency thereof.
As used in this Agreement, the term“Tax Return” means any report, return, document, claim for refund, declaration or other filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes.
Notwithstanding anything to the contrary contained herein, the Companies are not making any representations regarding the tax treatment of the Merger or any liability for taxes on the part of either Company as a result of the Merger.
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Section 3.13 Employee Benefit Plans.
(a) There are no benefit plans, arrangements, practices, contracts or agreements (including, without limitation, employment agreements, change of control employment agreements and severance agreements or plans, incentive compensation, bonus, stock option, restricted stock, stock appreciation rights and stock purchase plans) of any type, whether oral or written, (including but not limited to any plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended(“ERISA”), contributed to or maintained by either of the Companies or any trade or business, whether or not incorporated, that together with the Companies would be deemed a “controlled group” within the meaning of Section 4001(a)(14) of ERISA (an“ERISA Affiliate”), for the benefit of any current or former director, officer, employee or independent contractor of the Companies or any ERISA Affiliate (collectively,“Business Employees”) or with respect to which either of the Companies has or may have a liability, other than those listed on Section 3.13(a) of the Companies Disclosure Schedules (the“Benefit Plans”). Except as disclosed in Section 3.13(a) of the Companies Disclosure Schedules, neither the Companies nor any ERISA Affiliate has adopted or announced any formal plan or commitment, whether legally binding or not, to create any additional Benefit Plan or modify or change any existing Benefit Plan that would materially increase the liability of the Companies or any ERISA Affiliate to any Business Employee.
(b) Except as set forth in Section 3.13(b) of the Companies Disclosure Schedules, with respect to each Benefit Plan, (i) if intended to qualify under Section 401(a), 401(k) or 403(a) of the Code, such plan has received, or an application is pending for, a determination letter from the Internal Revenue Service that such plan so qualifies, and its trust is exempt from taxation under section 501(a) of the Code and neither of the Companies knows of any event that would have an adverse effect on such qualification (or that would cause such plan not to receive such a favorable determination letter); (ii) such plan has been established, operated and administered in all material respects in accordance with its terms and applicable Law; (iii) no breaches of fiduciary duty have occurred; (iv) other than routine claims for benefits, no proceedings or disputes are pending, or, to the knowledge of the Companies, threatened; (v) no prohibited transaction (within the meaning of Section 406 of ERISA) has occurred; (vi) all contributions and premiums due (including any extensions for such contributions and premiums) have been made in full; (vii) no such plan has incurred or will incur any “accumulated funding deficiency,” as such term is defined in Section 412 of the Code, whether or not waived; (viii) no plan is a “defined benefit plan,” as such term is defined in Section 3(35) of ERISA, or is covered by Section 4063 or 4064 of ERISA; and (ix) no administrative investigation, audit or other administrative proceeding by the Department of Labor, the Pension Benefit Guaranty Corporation (or any successor entity thereto) (the“PBGC”), the Internal Revenue Service or other governmental agencies are pending, threatened or in progress (including, without limitation, any routine requests for information from the PBGC).
(c) Neither of the Companies nor any ERISA Affiliate has incurred any liability under Title IV of ERISA since the effective date of ERISA that has not been satisfied in full (including Sections 4063, 4064 and 4069 of ERISA) and to the knowledge of the Companies, no reasonable basis for any such liability exists.
(d) Except as set forth in Section 3.13(d)(i) of the Companies Disclosure Schedules, the consummation of the transactions contemplated by this Agreement will not entitle any Business Employee to a severance or any other payment or accelerate the time of payment or vesting, or increase the amount, of compensation or benefits due to any individual with respect to any Benefit Plan or otherwise limit or restrict the right of the Companies or the Surviving Corporation to merge, amend or terminate any of the Benefit Plans. Except for those individuals as set forth in Section 3.13(d)(ii) of the Companies Disclosure Schedules, no director, officer or other employee of either of the Companies will, as a result of the consummation of the transactions contemplated by this Agreement, be entitled to receive “excess parachute payments” (as such term is defined in Section 280G of the Code). The aggregate amount of all payments and benefits that constitute “parachute payments” (as such term is defined in Section 280G of the Code) payable as a result of the transactions described herein, either along or together with another event such as termination of employment, will not, in the aggregate exceed zero. Except as set forth in Section 3.13(d)(iii) of the Companies Disclosure Schedules, by no later than December 31, 2008, no Business Employee shall have any right to any payment, award or benefit under any Benefit Plan that could give rise to the imposition of any tax on the Business Employee under Section 409A of the Code.
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(e) The Companies have delivered or made available to Parent accurate and complete copies of all texts, summary plan descriptions, trust agreements and other related summaries, communications, and agreements including all amendments to the foregoing (and a written description of any unwritten plans or agreements); the two most recent annual reports; the most recent annual and periodic accounting of plan assets; the most recent determination letter received from the Internal Revenue Service; and the two most recent actuarial reports, to the extent any of the foregoing may be applicable to a particular Benefit Plan.
(f) Each individual who renders services to the Companies who is classified by the Companies, as having the status of an independent contractor or other non-employee status for any purpose (including for purposes of taxation and tax reporting and under Benefit Plans) is properly so characterized.
(g) None of the Benefit Plans provide for postretirement welfare benefits (other than those required to be provided under Section 4980B of the Code) to be provided to any Business Employee now or in the future, and neither of the Companies has any obligation to make payment to or with respect to any former Business Employee pursuant to any previous retiree medical benefit.
Section 3.14 Compliance with Laws; Permits.
(a) Compliance with Laws. (i) Each of the Companies has conducted its business, and is, in compliance with all Orders and Laws and corporate policies applicable thereto and (ii) no notice, Action or assertion has been received by the Companies or, to the knowledge of either of the Companies, has been filed, commenced or threatened against the Companies alleging any violation of any Law applicable to it or by which its properties are bound or affected.
(b) Companies Permits. Each of the Companies holds all licenses, franchises, permits, certificates, approvals and authorizations from Governmental Authorities necessary for the lawful conduct of its business except where the failure to hold the same individually or in the aggregate has not had and would not reasonably be expected to have a Material Adverse Effect (collectively, the“Company Permits”). Section 3.14(b) of the Companies Disclosure Schedules sets forth a true and complete list of all Companies Permits. To the knowledge of the Companies, each of the Companies is in compliance in all material respects with the terms of all Company Permits. Neither of the Companies has received written notice from any Governmental Authority that either of the Companies is or may become a party to or subject to any proceeding seeking to revoke, suspend or otherwise limit any such Company Permit.
Section 3.15 Environmental Matters. Except as disclosed in Section 3.15 of the Companies Disclosure Schedules, (i) both of the Companies are, and at all times prior, were in compliance with all applicable Environmental Laws except for instances of non compliance that have been resolved prior to the date of this Agreement, (ii) no notice, notification, demand, request for information, citation, summons or Order has been received by, no complaint has been filed against or received, no penalty has been assessed against, and no investigation, action, claim, suit, proceeding or review is pending or threatened by any Person against, either of the Companies with respect to any matters relating to or arising out of any Environmental Law that has not been resolved prior to the date of this Agreement, (iii) no Hazardous Substance has been discharged, disposed of, arranged to be disposed of, dumped, injected, pumped, deposited, spilled, leaked, emitted, released or threatened to be released at, on, under or form any property or facility now or previously owned, leased or operated by the Companies, and (iv) there are no Environmental Liabilities. For purposes of this Section, the term “Companies” shall include any entity which is, in whole or in part, a predecessor of either of the Companies.
As used in this Agreement, the term“Environmental Laws” means any and all federal, state, local and foreign Law (including common law), Order or any agreement with any Governmental Authority or other third party, relating to human health and safety, the environment, natural resources or to pollutants, contaminants, wastes or chemicals or toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials.
As used in this Agreement, the term“Environmental Liabilities” means any and all liabilities or obligations of or relating to either of the Companies of any kind whatsoever, whether accrued, contingent, absolute, determined,
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determinable or otherwise, which (i) arise under or relate to matters covered by Environmental Laws and (ii) arise from or relate to actions occurring or conditions existing on or prior to the Closing Date.
As used in this Agreement, the term“Hazardous Substances” means any pollutant, contaminant, waste or chemical or any toxic, radioactive, corrosive, reactive or otherwise hazardous substance, waste or material, or any substance having any constituent elements displaying any of the foregoing characteristics, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance, waste or material regulated under any Environmental Laws.
Section 3.16 Companies Material Contracts. All Companies Material Contracts are legal, valid and binding and in full force and effect, except to the extent they have previously expired in accordance with their terms, and are enforceable by the Companies in accordance with their respective terms. The applicable Company has performed in all material respects all obligations required to be performed by it to date under the Company Material Contracts and is not (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder and, to the knowledge of the Companies, no other party to any of the Company Material Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. Neither of the Companies has received any communication from any party to a Company Material Contract or on behalf of any such party that either of the Companies is in default under a Company Material Contract or such party intends to cancel, terminate or fail or renew such Company Material Contract. Section 3.16(a) of the Companies Disclosure Schedules contains a complete and correct a list of all the Company Material Contracts. True and correct copies of the Company Material Contracts have been delivered to Parent, except copies of the leases described in clause (a)(xi) of this subsection were not delivered to Parent.
(a) As used in this Agreement, the term“Company Material Contract” means:
(iii) any Contract (other than a Contract described in one of the other provisions of this definition without regard to any percentage or numerical limitation contained therein) that involved annual expenditures during the Company’s fiscal year ended December 31, 2008 by either of the Companies in excess of $25,000 (or involves payments in excess of $25,000 in the aggregate under the Contract) and that is not otherwise cancelable by either of the Companies without any financial or other penalty on180-days’ or less notice;
(iv) any Contract that contains any express material restriction on the ability either of the Companies to compete or to provide any products or services generally or in any market segment or any geographic area or that would obligate either of the Companies or affiliates to provide its services or products to a counterparty on terms at least as favorable to such counterparty as, or otherwise by comparison to, those which are offered to any other counterparty;
(v) any Contract or arrangement (other than between or among the Companies) under which either of the Companies has (i) incurred any indebtedness for borrowed money that is currently outstanding or (ii) given any guarantee in respect of indebtedness for borrowed money;
(vi) any Contract or license pursuant to which either of the Transferred SharesCompanies obtains any Company Intellectual Property that are necessary for the marketing, distribution or sale of any of its products or pursuant to which either of the Companies has granted exclusive rights to any Company Intellectual Property;
(vii) any partnership or joint venture agreement to which either the Companies is a party;
(viii) any Contract which is reasonably likely to prohibit or materially delay the consummation of the transactions contemplated by this Agreement;
(ix) any agreement of indemnification;
(x) any agreement which contains a fixed penalty or liquidated damages clause for late performance or other default by either the Companies;
(xi) any agreement with any Business Employee;
(xii) any powers of attorney granted by either of the Companies; and
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(xiii) any purchase order or lease for inventory or rental fleet under which either of the Companies is the purchaser or lessee.
Section 3.17 Finders’ Fees. No investment banker, broker, finder, other intermediary or other Person is entitled to any fee or commission from either of the Companies in connection with the consummation of the transactions contemplated by this Agreement.
Section 3.18 Takeover Statutes. To the Companies’ knowledge, no “fair price,” “moratorium,” “control share acquisition” or other similar anti-takeover statute or regulation or any anti-takeover provision the certificate of incorporation or bylaws of either of Company is applicable to the Merger or the other transactions contemplated by this Agreement. Each of the Boards of Directors of the Companies have taken all action so that Parent and Sub will not be prohibited from entering into a “merger” or “business combination” (as such term is used in the DGCL) with the Company as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby.
Section 3.19 Transactions with Affiliates. Except as set forth in Section 3.19 of the Companies Disclosure Schedules, there are no Contracts or transactions between either the Companies, on the one hand, and any (a) executive officer or director of either of the Companies, (b) record or beneficial owner of five percent (5%) or more of the voting securities of either of the Companies or (c) Affiliate of any such executive officer, director or record or beneficial owner, on the other hand.“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by or under common control with such specified Person. The term “control” (including with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
Section 3.20 Labor Matters.
(a) Neither of the Companies is a party to or otherwise bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or other labor organization, nor is either of the Companies the subject of any proceeding asserting that either of the Companies has committed an unfair labor practice or seeking to compel it to bargain with any labor union or other labor organization nor has there been since January 1, 2002 or is there pending or, to the knowledge of either of the Companies, threatened any labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving either of the Companies.
(b) Since January 1, 2002, neither of the Companies has taken any action that would constitute a “mass layoff,” “mass termination” or “plant closing” within the meaning of the United States Worker Adjustment and Retraining Notification Act (the“WARN Act”) or would otherwise trigger notice requirements or liability under any federal, local, state or foreign plant closing notice or collective dismissal Law.
Section 3.21 Payments.
Neither of the Companies has, directly or indirectly, paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official, Governmental Authority or other Person, in the United States or any other country, which is in any manner related to the business or operations of either of the Companies which either of the Companies knows or has reason to believe to have been illegal under any federal, state or local Law of the United States or the Laws of any other country having jurisdiction; and neither of the Companies has participated, directly or indirectly, in any boycotts or other similar practices affecting any of its actual or potential customers or which violate any applicable Law.
Section 3.22 Disclosure.
The representations and warranties of the Companies herein or in any document, exhibit, statement, certificate or schedule furnished by or on behalf of the Companies to Parent or Sub as required by this Agreement, do not contain and will not contain any untrue statement of a material fact and do not omit and will not omit to state any
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material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to MOAC and the MOAC Stockholders as set forth below.
Section 4.1 Organization and Power. Parent and Sub are each a corporation duly organized, validly existing and in good standing under the Shareholders’Laws of the State of Delaware.
Section 4.2 Corporate Authorization. Each of Parent and Sub has all necessary power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Except for the affirmative vote of the stockholders of Parent required under the DGCL to approve this Agreement, the Merger and the transactions contemplated by this Agreement, the execution, delivery and performance by Parent and Sub of this Agreement and the consummation by Parent and Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action, including by resolution of the Board of Directors of Sub and a duly authorized and appointed special committee of the Board of Directors of Parent, and have been adopted by Parent as the sole stockholder of Sub. This Agreement has been duly executed and delivered by each of Parent and Sub and, assuming the due authorization, execution and delivery by the Companies, constitutes a valid and binding agreement of each of Parent and Sub, enforceable against Parent and Sub, as applicable, in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar Laws affecting creditors’ rights generally from time to time in effect and to general principles of equity, good faith and fair dealing, regardless of whether in a proceeding at equity or at Law).
Section 4.3 Governmental Authorization. The execution, delivery and performance by Parent and Sub of this Agreement, and the consummation by Parent and Sub of the transactions contemplated hereby, require no action by or in respect of, or filing with, any Governmental Authority other than: (i) the filing of the Certificate of Merger with respect to the Merger with the Secretary of State of the State of Delaware; (ii) filings and notices not required to be made or given until after the Effective Time; and (iii) such other consents, approvals, Orders, authorizations, registrations, declarations and filings the failure of which are subsistingto be obtained or made individually or in the aggregate would not reasonably be expected to impair the ability of Parent or Sub to perform their obligations hereunder, or prevent, impede, interfere with or hinder or delay the consummation of the transactions contemplated hereby.
Section 4.4 Non-Contravention. The execution, delivery and performance by Parent and Sub of this Agreement do not, and the consummation by Parent and Sub of the transactions contemplated hereby will not: (i) contravene or conflict with any provision of each of Parent’s and Sub’s certificate of incorporation and bylaws; (ii) assuming compliance with the matters referred to in Section 4.3, contravene or conflict with or constitute a violation of any provision of any Law or Order binding upon or applicable to Parent or Sub; (iii) constitute a default (or an event which with notice, lapse of time or both would become a default) under or give rise to a right of termination, cancellation or acceleration of any right or obligation of Parent or Sub under (A) any provision of any material Contract binding upon Parent or Sub or (B) any material license, franchise or permit held by Parent or Sub; or (iv) result in the creation or imposition of any Lien on any asset of Parent or Sub, other than, in the case of clauses (ii), (iii) and (iv), any such contraventions, conflicts, violations, defaults, rights of termination, cancellation or acceleration or Liens that individually or in the aggregate would not reasonably be expected to impair the ability of Parent or Sub to perform their obligations hereunder, or prevent, impede, interfere with or hinder or delay the consummation of the transactions contemplated hereby.
Section 4.5 Information Supplied. None of the information supplied or to be supplied by Parent or Sub for inclusion or incorporation by reference in the Proxy Statement or any amendment or supplement thereto will contain, at the date the Proxy Statement or incurredany amendment or arise onsupplement thereto is first mailed to stockholders of
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Parent and fromat the time of registrationthe Stockholders Meeting, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the New Shareholder;circumstances under which they were made, not misleading.
Section 4.6 Litigation. As of the date of this Agreement, there is no action, suit, investigation or proceeding pending against, or to the knowledge of Parent, threatened against or affecting, Parent or Sub or any of their respective properties which, individually or in the aggregate, would reasonably be expected to impair the ability of Parent or Sub to perform their obligations hereunder, or prevent, impede, interfere with or hinder or delay the consummation of the transactions contemplated hereby.
Section 4.7 Finder’s Fees. The Companies will not be responsible for any fee or commission to any investment banker, broker, finder, other intermediary or other Person upon consummation of the transactions contemplated by this Agreement based on arrangements made by or on behalf of Parent or Sub.
Section 4.8 Sub. Sub is a newly-formed wholly-owned Subsidiary of Parent that has engaged in no business activities other than as specifically contemplated by this Agreement.
Section 4.9 Public Filings.
All required forms, reports, statements and documents of Parent filed with the Commission as required under the Securities Act of 1933 or the Securities Exchange Act of 1934 (collectively the“Parent Reports”), have complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. As of their respective dates, the Parent Reports did not contain 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. The consolidated financial statements of Parent as of and for the six months ended June 30,2007 and the quarters ended since June 30, 2007 (collectively the “Financial Statements”) included or incorporated by reference in the Parent Reports were prepared in accordance with GAAP (except, as to the quarterly financials, for normal year-end adjustments), and present fairly the financial position, results of operations and changes in financial position of Parent and its consolidated subsidiaries as of the dates and for the periods indicated. Except as noted in the opinions contained in the Financial Statements, such Financial Statements and opinions were rendered without qualification or exception and were not subject to any contingency.
Section 4.10 Valid Issuance
When issued in accordance with this Agreement , the shares of Parent Common Stock included as part of the Merger Consideration will be duly authorized, validly issued, fully paid and non assessable and not issued in violation of, nor subject to, preemptive rights or similar rights.
Section 4.11 Disclosure.
The representations and warranties of Parent and Sub herein or in any document, exhibit, statement, certificate or schedule furnished by or on behalf of Parent or Sub to the Companies as required by this Agreement, do not contain and will not contain any untrue statement of a material fact and do not omit and will not omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.
SECTION 5
COVENANTS
Section 5.1 Interim Operations of the Companies. Each of the Companies covenants and agrees that, except (i) as expressly provided in this Agreement, (ii) with the prior written consent of Parent, or (iii) as set forth in Section 5.1 of the Companies Disclosure Schedules, after the date hereof and prior to the Effective Time:
(a) Except for any payment by the Companies (including prepayment) of Indebtedness prior to the Effective Time, the business of the Companies shall be conducted in the ordinary course of business consistent with past
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practice and the Companies shall use all reasonable efforts to preserve their respective business organizations intact and maintain their respective existing relations with material customers, suppliers, employees, creditors and business partners;
(b) Neither of the Companies shall, directly or indirectly, split, combine or reclassify its outstanding common stock;
(c) confirmsNeither of the Companies shall: (i) amend or propose to amend its articles or certificate of incorporation or bylaws or similar organizational documents; (ii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock; (iii) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of MOAC or Pac-Van, other than issuances of MOAC Common Stock pursuant to exercises of MOAC Stock Options; (iv) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any assets other than the sale of assets in the ordinary course consistent with past practice; or (v) except for the redemption of the Warrants as required by Section 2.4(e) hereof, redeem, purchase or otherwise acquire directly or indirectly any of its capital stock;
(d) the Companies shall not: (i) grant any increase in the compensation (whether annual base salary or wages or bonus opportunities or amounts) payable or to become payable by the Companies to any Business Employee (excluding executive officers who shall be given no increases) other than scheduled annual merit increases in annual base salary or wages in the ordinary course of business consistent with past practice in an amount not to exceed 4% in the aggregate for all such Business Employees given such scheduled increases; (ii) adopt or enter into any new, or amend or otherwise increase or terminate, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan, agreement or arrangement or redeem, pay for or offer any consideration for stock options (provided, however, the Companies may accelerate the vesting of any stock options granted during 2006); (iii) hire any new officers, executives or employees at or above the level of vice president (except to replace an officer, executive or employee) or terminate the employment of any officers, executives or employees at or above the level of vice president (except for cause), or promote any officers, executives or employees to, or at or above the level of, vice president (except to replace an officer, executive or employee);
(e) the Companies shall not permit any insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated;
(f) the Companies shall not: (i) incur or assume any debt under the Credit Facility in excess of Eighty-Six Million Dollars ($86,000,000) or any debt under the Senior Subordinated Loan in the principal amount in excess of Twenty-Five Million Dollars ($25,000,000); (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any Person (other than the Companies); (iii) make any loans, advances or capital contributions to, or investments in, any other Person; or (iv) make any capital expenditure or commitment therefor other than in the ordinary course of business consistent with past practice and in accordance the Company’s budgeted capital expenditures for calendar year 2008 set forth in Section 5.1 of the Companies Disclosure Schedules;
(g) the Companies shall not change any of the accounting methods, policies, procedures, practices or principles used by it unless required by GAAP;
(h) the Companies will not adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of the Companies other than the Merger;
(i) the Companies shall not merge or consolidate with any other Person or Persons, acquire assets or capital stock of any Person or Persons with aggregate purchase price in excess of Ten Million Dollars ($10,000,000) (which calculation of purchase price shall include the assumption of Indebtedness) (other than the acquisition of inventory in the ordinary course of business consistent with past practice) or sell, license or otherwise dispose of any of its assets or business (other than the sales of inventory in the ordinary course of business consistent with past practice);
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(j) the Companies shall not enter into any joint venture, partnership or other similar arrangement;
(k) the Companies shall not (i) enter into any Contract that if existing on the date hereof would be a “Company Material Contract” other than Contracts with suppliers and customers in the ordinary course consistent with past practice, (ii) terminate, amend, supplement or modify in any material respect any Company Material Contract to which either of the Companies is a party, (iii) waive, release, cancel, allow to lapse, convey, encumber or otherwise transfer any rights or claims under any Company Material Contract, (iv) change incentive policies or payments under any Company Material Contract existing on the date hereof or entered into after the date hereof, or (v) enter into any Contract relating to the disposition of assetsand/or capital stock except as permitted by Section 5.5;
(l) the Companies shall not settle or compromise any (i) material Action, whether administrative, civil or criminal, in law or in equity or (ii) any claim under any insurance policy for the benefit of the Companies;
(m) the Companies shall not waive or fail to enforce any provision of any confidentiality agreement or standstill or similar agreement to which it is a party;
(n) the Companies shall not make or change any elections with respect to Taxes, amend any Tax Returns, change any annual Tax accounting period, adopt or change any Tax accounting method, enter into any closing agreement, settle or compromise any proceeding with respect to any Tax claim or assessment, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Companies, take any action that would have the effect of deferring any liability for Taxes to any taxable period ending after the Closing Date, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax;
(o) the Companies shall not pay, discharge or satisfy any claim, liability or obligation (including contingent claims, liabilities and obligations), other than in the ordinary course of business consistent with past practice; provided, however, the Companies shall pay accounts payable and other obligations when they become due and payable in the ordinary course of business consistent with past practices;
(p) the Companies shall not enter into any material line of business other than the line of business in which the Companies are currently engaged as of the date of this Agreement;
(q) the Companies shall not engage in any material transaction with any officer, director, stockholder of MOAC or other Affiliate of MOAC or any of its Subsidiaries;
(r) the Companies shall maintain their respective books of account and records in the usual and ordinary manner, and in conformity with its past practices;
(s) the Companies shall deliver to Parent any notice of default or breach by any party to any Company Material Contract or Indebtedness of the Companies;
(t) the Companies shall withhold all Taxes required to be withheld and remitted by or on behalf of the Companies in connection with amounts paid or owing to any employee or other Person, and pay such Taxes to the proper Governmental Authority or set aside such Taxes in accounts for such purpose; and
(u) the Companies will not enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the actions prohibited under the foregoing clauses (b) through (p) above).
Section 5.2 Access to Information.
(a) The Companies shall afford, and shall cause its stockholders, affiliates, subsidiaries, officers and agents to afford, Parent and the officers, employees, accountants, counsel, financing sources and other representatives of Parent, reasonable access, during normal business hours, during the period prior to the Effective Time, to all of its properties, books, contracts, commitments and records (including any Tax Returns or other Tax related information pertaining to the Companies), personnel (including outside accountants and attorneys), business, customers and suppliers, and, during such period, the Companies shall furnish promptly to Parent all other information concerning its business, properties and personnel as Parent may reasonably request. Notwithstanding any of the foregoing,
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neither Parent nor any of its employees, accountants, counsel, financing sources or other representatives shall contact any stockholders, employees (other than Ted Mourouzis), agents, customers, suppliers or vendors of a Company regarding a Company or the transactions contemplated by this Agreement without the prior written consent of Ted Mourouzis, which consent shall not be unreasonably withheld.
(b) Parent shall have provided to Ronald L. Havner, Jr.(“Havner”), management of Pac-Van and representatives of the stockholders of MOAC access to management of Parent and such due diligence regarding Parent reasonably requested by such persons.
(c) No investigation pursuant to Section 5.2(a) or (b) shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties
Section 5.3 Regulatory and Consent Matters.
(a) As soon as practicable after the date of this Agreement, the Companies shall make all necessary notifications, filings with or applications to any Governmental Authority and submit requests for consents under Contracts required in order to complete the transactions contemplated by this Agreement.
(b) As soon as practicable after the date of this Agreement, the Companies shall make all necessary notifications under the WARN Act.
(c) Subject to Section 5.6, each of the Companies and Parent shall (i) use its commercially reasonable efforts to diligently prosecute all notices, filings, applications or requests made pursuant to Section 5.3, (ii) furnish to the other parties such information and assistance as such parties reasonably may request in connection with the preparation or prosecution of any such notices, filings, applications or requests and (iii) keep the other parties promptly apprised of any communications with, and inquiries or requests for information from, such Governmental Authorities or third parties with respect to the transactions contemplated hereby.
Section 5.4 Employee Matters. All provisions contained herein with respect to Business Employees, Benefit Plans, and any rights thereunder are included for the sole benefit of Parent and the Companies and shall not create any right (i) in any other Person, including, without limitation, any Business Employees or any beneficiary thereof or (ii) to continued employment of any Business Employee with the Surviving Corporation on or after the Effective Time.
Section 5.5 Stock Options. Upon the Closing the Compensation Committee of Parent shall grant non-qualified stock options to acquire up to 400,000 shares of Parent Common Stock to certain employees of Pac-Van with such terms and conditions as the Compensation Committee shall approve.
Section 5.6 Additional Agreements . Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable Laws and regulations or otherwise, or to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the Merger and the other transactions contemplated by this Agreement. Notwithstanding the foregoing, the parties hereby agree and acknowledge that commercially reasonable efforts under this Section 5.6 or under Section 5.3 shall not require, or be construed to require, Parent or the Companies or other affiliates to (i)(A) offer, sell or hold separate pending divesture, or agree to offer, sell or hold separate pending divestiture, or (B) consent to any such offer, sale, holding or agreement, before or after the Effective Time, of any businesses, operations or assets, or interests in any businesses, operations or assets, of Parent, the Companies or the Surviving Corporation (or any of their respective affiliates), or (ii) take or agree to take any other action or agree or consent to any limitation or restrictions on or changes in any such businesses, operations or assets of Parent, the Companies or the Surviving Corporation (or any of their respective affiliates). In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of the Parent, Sub and MOAC shall use all reasonable efforts to take, or cause to be taken, all such necessary actions.
Section 5.7 Publicity. Except as required by Law in connection with obtaining any stockholder approval, so long as this Agreement is in effect, prior to Closing, neither of the Companies, on the one hand, nor Parent or Sub,
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on the other hand, shall issue or cause the publication of any press release or other public statement or announcement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party, except as may be required by Law or pursuant to the obligations of any party hereto under a listing agreement with any national securities exchange, and in such case shall use all reasonable efforts to consult with the other party prior to such release or announcement being issued.
Section 5.8 Notification of Certain Matters. The Companies shall give prompt notice to Parent of (a) the occurrence, or non-occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty of the Companies contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time and (b) any material failure of either of the Companies to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder;provided,however, that the delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. In addition, the Companies shall give prompt notice to Parent of any communication received by the Companies from, or on behalf of, any party to a Company Material Contract that such party intends to cancel, terminate or fail or renew such Company Material Contract. Parent shall give prompt notice to the Companies of (i) the occurrence, or non occurrence of any event the occurrence or non occurrence of which would cause any representation or warranty of Parent and Sub contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time and (ii) any material failure of Parent to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
Section 5.9 Parent Stockholders Meeting.
(a) Parent shall:
(i) take all action, in accordance with the DGCL and all other applicable Law and Parent’s charter documents, necessary to duly call, give notice of, hold and convene a special meeting of holders of Parent Common Stock as soon as practicable after the date of this Agreement, to consider and vote on the approval of this Agreement and the Merger and the issuance of the Parent Common Stock issuable pursuant to this Agreement (collectively, the “Proposals”) (the“Stockholders Meeting”);
(ii) include in the Proxy Statement the recommendation of its Board of Directors that the stockholders of Parent vote in favor the Proposals; and
(iii) use its commercially reasonable efforts to solicit from all stockholders of Parent approval of the Proposals and take all other actions reasonably necessary, or in the reasonable judgment of Parent advisable, to secure the approval of the Proposals by Parent’s stockholders under applicable Law.
(b) As promptly as reasonably practicable following the date hereof, Parent shall file with the Securities and Exchange Commission (the “Commission”) under the Securities Exchange Act of 1934, as amended, and shall use commercially reasonable efforts to have cleared by the Commission, proxy solicitation materials (including a proxy statement and related form of proxy) with respect to the Stockholders Meeting. Parent shall cause the proxy solicitation materials to be mailed to the holders of Parent Common Stock as promptly as practicable after approval thereof by the Commission. The term “Proxy Statement” shall mean such proxy statement and all amendments or supplements thereto, if any, similarly mailed. The Companies will provide Parent with any information that may be reasonably requested in order to effectuate the preparation and mailing of the Proxy Statement pursuant to this Section 5.9. Parent will provide the Companies and its counsel with a reasonable opportunity to review the Proxy Statement prior to its mailing and shall include in such document or response all comments reasonably proposed by the Companies. The Proxy Statement shall include a recommendation of the Board of Directors to approve the proposals set forth in the Proxy Statement.
(c) Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement, the Companies or Parent, as the case may be, will promptly inform the other party of such occurrence and Parent shall mail to the holders of Parent Common Stock such amendment or supplement. Each of Parent and
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the Companies shall cooperate with respect to, and Parent shall provide the Companies (and their counsel) with a reasonable opportunity to review and comment on, any amendment or supplement to the Proxy Statement. The information provided and to be provided by Parent, Sub and the Companies, respectively, for use in the Proxy Statement shall not contain, on the date the Proxy Statement is first mailed to the holders of Parent Common Stock and on the date of the Parent’s stockholders meeting, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Companies, Parent and Sub each agree to correct any information provided by it for use in the Proxy Statement which shall have become false or misleading in any material respect.
Section 5.10 Cooperation.
(a) Without limiting the generality of Section 5.3, Parent and the Companies shall together, or pursuant to an allocation of responsibility to be agreed between them, coordinate and cooperate (i) in connection with the preparation of the Proxy Statement and (ii) in seeking any necessary actions, consents, approvals or waivers of any Governmental Authority or third parties as contemplated hereby or making any such filings, furnishing information required in connection therewith or with the Proxy Statement and seeking timely to obtain any such actions, consents, approvals or waivers if necessary.
(b) Without limiting the generality of Section 5.2 and Section 5.3, prior to the Closing, each of the Companies shall provide and shall use its reasonable best efforts to cause its officers, employees, representatives and advisors, including legal and accounting, of the Companies to, provide all cooperation reasonably requested by Parent in connection with the financing of the transactions contemplated by this Agreement, including, without limitation, using reasonable best efforts to cause (i) appropriate officers and employees to be available on a customary basis to meet with prospective lenders and investors in presentations, meetings, road shows and due diligence sessions, to assist with the preparation of disclosure documents in connection therewith, to execute and deliver any pledge and security documents, other definitive financing documents, or other certificates, legal opinions or documents as may be reasonably requested by Parent and (ii) its independent accountants and counsel to provide assistance to Parent, including providing consent to Parent to prepare and use their audit reports relating to the Companies, at the cost of Parent, to provide any necessary “comfort letters”.
Section 5.11 Appraisal Rights Expenses. In the event there are Dissenting Shares with respect to the Merger, the Surviving Corporation shall pay for all expenses incurred to resolve the liability of the Companies to the holders thereof.
Section 5.12 Confidentiality. Each of the parties to this Agreement shall hold, and shall cause its officers, employees, agents and representatives, including, without limitation, attorneys, accountants, consultants and financial advisors (collectively“Representatives”) who obtain such information to hold, in confidence, and not use for any purpose other than evaluating the transactions contemplated by this Agreement, any information(“Confidential Information”) of any party to this Agreement or any of the MOAC Stockholders obtained in connection with this Agreement or the transactions contemplated hereby, which for the purposes hereof shall not include any information which (i) is or becomes generally available to the public other than as a result of disclosure by a party to this Agreement or one of its Representatives in violation of its obligations under this subsection, (ii) becomes available to a party to this Agreement or one of its Representatives on a nonconfidential basis from a source, other than the person which alleges the information is confidential or such person’s representatives, which has represented that such source is entitled to disclose it or (iii) was known to a party to this Agreement or one of its Representatives on a nonconfidential basis prior to its disclosure to another party to this Agreement or one of its Representatives hereunder. If this Agreement is terminated, at the request of a party to this Agreement, the other party or parties who have received Confidential Information pursuant to this Agreement shall deliver, and cause its Representatives to deliver, all Confidential Information to the party disclosing such Confidential Information that is recorded in any medium of expression (including copies or extracts thereof).
Section 5.13 No Shop . Neither the Companies nor any of the officers, directors, affiliates, representatives or agents of the Companies will directly or indirectly negotiate, cooperate in any manner with any other Person to
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facilitate, or agree to, any sale of stock or assets of the Companies (other than sales of inventory in the ordinary course of business) or any other transaction which would result in a change in control or have the effect, directly or indirectly, of frustrating the completion of the Merger on the terms hereof; provided, however, should either of the Companies receive an offer or inquiry regarding such a sale of stock or assets(“Unsolicited Offer”) in spite of the agreement in this Section and the Board of Directors of MOAC is advised in good faith by outside legal counsel that their fiduciary duty requires consideration of such Unsolicited Offer, then the Companies may consider such Unsolicited Offer and provide the offeree information. Upon receipt of any Unsolicited Offer, the Companies will each promptly notify Parent orally and in writing that an Unsolicited Offer was made and, unless the Companies are advised in good faith in writing by counsel that to do so would violate a binding obligation of confidentiality or non-disclosure to which the Companies may be bound and was entered into prior to the date hereof, provide to Parent a copy of the ShareholdersUnsolicited Offer, reasonable detail regarding the nature of such Unsolicited Offer and the Companies’ response thereto.
Section 5.14 MOAC Stockholder Approval. The MOAC Stockholders hereby agree to approve the Merger and the consummation of the transactions contemplated by this Agreement togetherby written consent (the“Written Consent”) immediately following the execution and delivery of this Agreement by all parties hereto and to deliver to Parent a certified copy of such Written Consent. The MOAC Stockholders hereby agree, as stockholders, not to revoke, or take any other action to negate or cancel, such Written Consent.
Section 5.15 Tax Free Reorganization. The Merger is intended to qualify as a “reorganization” as described in Section 368 of the Code, and this Agreement is intended to constitute a “plan of reorganization” within the meaning of the regulations promulgated under Section 368 of the Code and none of Parent, Sub or MOAC shall take a position on any tax return or other statement or report to any government or taxing authority inconsistent with such intention unless required to do so by applicable Tax law.
Section 5.16 Limitation on Liability of MOAC Stockholders. Notwithstanding anything to the contrary contained herein, the MOAC Stockholders shall not have any liability prior to the Closing for a breach of this Agreement by either Company. The provisions of this Section 5.16 shall not affect the covenants of the MOAC Stockholders set forth in this Agreement, including, without limitation, the indemnification provisions set forth in Article 7 hereof.
SECTION 6
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party. The obligations of the Companies, on the one hand, and Parent and Sub, on the other hand, to consummate the Merger are subject to the satisfaction of the following conditions:
(a) any notification period under the WARN Act shall have expired;
(b) all applicable waiting periods under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the transactions contemplated by this Agreement shall have expired or been terminated and any filing with, or consent of, any Governmental Authority or third party necessary to complete the Merger in compliance with all Laws and all Contracts applicable to the Companies shall have been made or obtained;
(c) each of the Companies, Parent and Sub shall reasonably believe that (i) the Merger will qualify as a “reorganization” as described in Section 368 of the Code and (ii) this Agreement constitutes a “plan of reorganization” within the meaning of the regulations promulgated under Section 368 of the Code;
(d) no Action before, or investigation, by any Governmental Authority shall have been commenced, no Governmental Authority shall have issued any Order, decree or ruling and no Action by any Governmental Authority or any other Person shall have been filed against Parent, the Companies or Sub seeking to restrain, enjoin, rescind, prevent or change the transactions contemplated hereby or questioning the enforceability,
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validity or legality of any of such transactions or seeking damages in connection with any of such transactions and there shall not be any statute, rule or regulation, restraining, enjoining or prohibiting the consummation of the Merger;
(e) Every party who receives Merger Consideration pursuant to this Agreement shall have executed and delivered to Parent the general release substantially in the form ofExhibit F attached hereto;
(f) Pac Van and the lenders under the Credit Facility shall have entered into amendments to the agreements governing the Credit Facility which (i) consent to the Merger, (ii) consent to the “change of control” contemplated by the Merger and the transactions contemplated by this Agreement, (iii) increase the “permitted payments” to permit the payment of an annual management fee of One Million Five Hundred Thousand Dollars ($1,500,000) to Parent and to permit the payment of all sums owed under the Holdback Note, (iv) provide for a Thirty Million Dollar ($30,000,000) increase in commitments from the lenders under the Credit Facility, (v) establish June 30 as the fiscal year end of Pac-Van and the Affiliates of Pac-Van, (vi) shall not require Pac-Van or any other party to pay to the lenders under the Credit Facility or any other party fees, costs or expenses except as agreed in writing by Pac-Van and such lenders prior to the date of this Agreement and (vii) other than changes set forth in this Section 6.1(f), shall not amend or alter the terms and conditions governing the Credit Facility as of the date of this Agreement; and
(g) All of the parties to the agreements governing the Senior Subordinated Loan shall have entered into amendments to such agreements which (i) permit the increase of the lenders’ commitments under the Credit Facility as contemplated by Section 6.1(f), (ii) consent to the “change of control” contemplated by the Merger and the transactions contemplated by this Agreement, (iii) increase the “permitted payments” to permit the payment of an annual management fee of One Million Five Hundred Thousand Dollars ($1,500,000) to Parent and to permit the payment of all sums owed under the Holdback Note, (iv) establish June 30 as the fiscal year end of Pac-Van and the Affiliates of Pac-Van, (v) shall not require Pac-Van or any other party to pay to SPV Capital or any other party fees, costs or expenses except as agreed in writing by Pac-Van and SPV Capital prior to the date of this Agreement, (vi) restate all documents to which MOAC is a party to reflect that the Surviving Corporation is the party to such agreements and (vii) other than changes set forth in this Section 6.1(g), shall not amend or alter the terms and conditions governing the Senior Subordinated Loan as of the date of this Agreement.
Section 6.2 Conditions to the Obligations of Parent and Sub. The obligations of Parent and Sub to consummate the Merger are subject to the satisfaction (or waiver by Parent) of the following further conditions:
(a) the representations and warranties of the Companies shall have been true and accurate in all respects (in the case of any representation or warranty containing any materiality or Material Adverse Effect qualification) or in all material respects (in the case of any representation or warranty without any materiality or Material Adverse Effect qualification) as of the date of this Agreement and the Effective Time as if made at and as of such time (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period); notwithstanding the foregoing, it is acknowledged and agreed by the Companies that the failure of any of the representations and warranties set forth in Section 3.11(b) and Section 3.14(a) to be true and correct shall be deemed incorrect in a material respect;provided,however, that if Parent reasonably determines that a verbal statement by a Governmental Authority constitutes a threat of criminal charges by a Governmental Authority against any employee of the Companies with respect to actions taken in the scope of his or her duties or against the Companies or a threat that the Companies would be subject to a governmental order or a party to a settlement agreement or corporate integrity agreement with a Governmental Authority that would, after the Closing, apply to any of the businesses, properties or assets of the Companies, Parent or any of Parent’s affiliates, the Companies shall have thirty (30) days to cure the facts or circumstances which are a basis for such charge or agreement but only if such cure eliminates such charge or agreement;provided,further, that such cure period may be extended by mutual agreement of the parties hereto;provided,further, that notwithstanding the foregoing, any such cure period shall automatically terminate two business days prior to the Outside Date. At any time prior to the Closing, the Companies shall be entitled to deliver to
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Parent and Sub revised Companies Disclosure Schedules (the“Revised Companies Disclosure Schedules”). If the Revised Companies Disclosure Schedules are delivered to Buyers and the Closing occurs, the representations and warranties set forth herein shall be subject to the Revised Companies Disclosure Schedules, and the term “Companies Disclosure Schedules” shall mean the Companies Disclosure Schedules attached hereto as modified by the Revised Companies Disclosure Schedules;
(b) the Companies shall have performed in all material respects its obligations hereunder required to be performed by it at or prior to the Effective Time;
(c) the Companies shall have furnished Parent with a certificate dated the Closing Date to the effect that the conditions set forth in Section 6.2(a) and (b) have been satisfied;
(d) at a meeting of the stockholders of Parent duly called and held for such purpose, the holders of a majority of the Parent Common Stock present and entitled to vote at such meeting shall have approved by affirmative vote the Proposals;
(e) the ratio (expressed as a percentage) equal to the aggregate number of Shares held by Persons who have perfected their appraisal rights pursuant to the DGCL divided by the aggregate number of Shares issued and outstanding immediately prior to the Closing shall not be greater than 10%;
(f) the Companies shall have delivered to Parent evidence reasonably satisfactory to Parent of the resignation of all directors of the Companies effective at the Effective Time;
(g) since December 31, 2007, there shall not have been any material adverse change in the financial condition, operating profits, backlog, assets, liabilities, operations, business prospects, applicable regulations, employee relations or customer or supplier relations of the Companies;
(h) the Companies shall have delivered to Parent a copy of the resolutions adopted by the Board of Directors of the Companies approving this Agreement and the Merger, certified by their respective Secretaries;
(i) At the Closing, the Companies shall not have any Indebtedness except as disclosed pursuant to Section 3.2(c) or as permitted under this Agreement; Parent shall have received amendments, satisfactory to Parent, of any agreements between Pac-Van and the employees of Pac-Van which contains provisions triggered by the consummation of the Merger or which would terminate upon the consummation of the Merger;
(j) each stockholder who will receive shares of Parent Common Stock as part of the Merger Consideration and Parent shall have executed and delivered that certain Stockholders Agreement substantially in the form ofExhibit D attached hereto;
(k) Theodore Mourouzis and Pac-Van shall have executed and delivered that certain First Amendment to Employment Agreement substantially in the form ofExhibit E attached hereto;
(l) All MOAC Stock Options shall have been exercised or terminated pursuant to this Agreement;
(m) The Companies shall have current assets (including cash) minus current liabilities, including unearned revenue(“Working Capital”) at Closing, not more negative than negative Four Million Dollars ($4,000,000) less the amount of accounts payable associated with each modular building project sale greater than $500,000 that has not been invoiced as of the Closing;
(n) The Companies shall have delivered to Parent a certificate setting forth the Working Capital of the Companies as of the Closing (the“Working Capital Certificate”), and Parent shall have approved the Working Capital Certificate;
(o) Each of the MOAC Stockholders shall have executed and delivered to Parent the Pledge Agreement substantially in the form ofExhibit B;
(p) Parent and Sub, in their sole discretion, shall have approved the Revised Companies Disclosure Schedules; and
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(q) The Companies shall have delivered to Parent the Written Consent executed by all holders of Class A Common Stock of MOAC.
Section 6.3 Conditions to the Obligations of the Companies. The obligations of the Companies to consummate the Merger are subject to the satisfaction (or waiver by MOAC) of the following further conditions:
(a) the representations and warranties of Parent and Sub shall be true and accurate as of the date of this Agreement and the Effective Time as if made at and as of such time (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period), except where the failure of such representations and warranties to be so true and correct would not individually or in the aggregate reasonably be expected to materially impair the ability of Parent and Sub to consummate the Merger and the other transactions contemplated hereby;
(b) each of Parent and Sub shall have performed in all material respects all of the respective obligations hereunder required to be performed by Parent or Sub, as the case may be, at or prior to the Effective Time;
(c) Parent shall have furnished the Company with a certificate dated the Closing Date signed on its behalf by an officer to the effect that the conditions set forth in Section 6.3(a) and (b) have been satisfied;
(d) the board of directors of Parent shall have elected Havner to serve on the board of directors of Parent as a class C director (who would stand for reelection at the Parent annual stockholder meeting in 2009) effective immediately after the Effective Time and Parent shall have entered into an indemnification agreement with Havner substantially similar to the agreements with existing directors of Parent;
(e) the lenders under the Senior Subordinated Loan shall agree that no consent, closing or similar fees shall be payable from the Companies or Parent to the lenders in connection with the Merger and Pac-Van shall be responsible for reimbursing the lenders for reasonable legal fees and expenses incurred by lenders in connection with the Merger in an amount not to exceed $50,000;
(f) each stockholder who will receive shares of Parent Common Stock as part of the Merger Consideration and Parent shall have executed and delivered that certain Stockholders Agreement substantially in the form ofExhibit D attached hereto;
(g) since December 31, 2007, there shall not have been any material adverse change in the financial condition or results of operations, assets or liabilities of Parent;
(h) Parent and Sub shall have delivered to MOAC Stockholders an excerpt of the resolutions adopted by the Board of Directors of Sub and the special committee of the Board of Directors of Parent approving this Agreement and the Merger, certified by their respective Secretaries;
SECTION 7
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival.
(a) Representations of Parent. The representations and warranties contained in Sections 4.4(i), 4.9 and 4.10 and the first two sentences of Section 4.2 are referred to herein as the“Parent Excluded Representations.” (i) All representations and warranties made by Parent and Sub in this Agreement or any document or certificate delivered pursuant hereto by Parent or Sub shall survive the Closing for a period ending twenty (20) months after the Closing Date, (ii) the Parent Excluded Representations shall survive the Closing for a period ending on the third anniversary of the Closing Date and (iii) any claim for indemnification related to a breach of representation and warranty which constitutes fraud or involves intentional tortious conduct shall survive until the period ending on the fifth anniversary of the Closing. The right of any Company Indemnified Person to recover Losses on any claim for a breach of representation and warranty shall not be affected by the termination of any representations and
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warranties as set forth above provided that notice of the existence of such claim has been given by the Company Indemnified Person to the Parent prior to such termination.
(b) Representations of the Companies. The representations and warranties contained in Sections 3.3(b), 3.5(i), 3.12, 3.15, the first three sentences of Section 3.3(a), the last sentence of Section 3.9(b), the last sentence of Section 3.9(c) and the second sentence of Section 3.10 are referred to herein as the“Company Excluded Representations.” (i) All representations and warranties made by either Company in this Agreement or any document or certificate delivered pursuant hereto by either Company, other than the Company Excluded Representations, shall survive the Closing for a period ending twenty (20) months after the Closing Date, (ii) the Company Excluded Representations shall survive the Closing for a period ending on the third anniversary of the Closing Date and (iii) any claim for indemnification related to a breach of representation and warranty which constitutes fraud or involves intentional tortious conduct shall survive until the period ending on the third anniversary of the Closing. The right of any Parent Indemnified Person to recover Losses on any claim for a breach of representation and warranty shall not be affected by the termination of any representations and warranties as set forth above provided that notice of the existence of such claim has been given by the Parent Indemnified Person to the MOAC Stockholders prior to such termination.
Section 7.2 Post-Closing Indemnification.
(a) Indemnification by MOAC Stockholders. From and after the Closing, and subject to the limitations herein, the MOAC Stockholders, severally (in the manner provided in Section 7.2(b)(iii) hereof) but not jointly, shall indemnify and hold harmless the Surviving Corporation, Sub and Parent and their directors, officers, employees, agents, Affiliates, successor and assigns (each a“Parent Indemnified Person”and, collectively, the“Parent Indemnified Persons”) for, from, and against, and pay and reimburse each Parent Indemnified Person for, all demands, claims, Actions or causes of action, Orders, obligations, deficiencies, proceedings (formal or informal) assessments, Tax, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties, disbursements and expenses (including any fees and costs of attorneys and accountants) not otherwise paid by or recovered from an applicable policy (or policies) of insurance (collectively,“Losses”) (i) arising out of the breach of any representation or warranty of either of the Companies contained in or made pursuant to this Agreement, or (ii) arising out of the breach by either of the Companies, or the failure by either of the Companies to perform, any of the covenants or other agreements contained in this Agreement or any other agreement executed by either of the Companies in connection with this Agreement to be performed by either of the Companies prior to or at the Closing, or arising out of a breach, or failure to perform by a MOAC Stockholder of any of its covenants or other agreements contained in this Agreement or any other agreements executed by such MOAC Stockholder, or (iii) provided that written notice of such claim is delivered to the MOAC Stockholders prior to twenty (20) months after the Closing Date, relating to any liabilities or obligations of either of the Companies, whether known, unknown, contingent or otherwise, (A) owed for any period ending on or before the Closing Date or (B) arising from facts or circumstances existing prior to the Closing, except, in both cases, liabilities or obligations disclosed in the Companies Disclosure Schedules, accrued liabilities included in the calculation of the Working Capital set forth in the Working Capital Certificate, forward commitments to purchase rental fleet set forth in the Companies Disclosure Schedules and any contingent liability under any Contract entered into prior to the Closing which arises solely due to events which occur after the Closing. With respect to any Losses potentially recoverable under a policy or policies of insurance of Pac-Van, Pac-Van will make a claim with respect thereto under the applicable insurance policy or policies if the Losses in question are covered in whole or in part by such insurance policy or policies. If a MOAC Stockholder pays a Loss which is subsequently also paid under such insurance, then Parent will reimburse such MOAC Stockholder for payment of the insured Loss up to the amount it receives from the insurance company less expenses and fees incurred in connection with obtaining such payments from the insurer, but only if there are no pending indemnification claims. Notwithstanding anything to the contrary contained herein, the MOAC Stockholders shall have no indemnification obligation of any kind for any taxes payable by Pac-Van or the Surviving Corporation as a result of the Merger.
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(b) Limitations on Indemnity by MOAC Stockholders. If any Parent Indemnified Person becomes potentially entitled to any indemnification for Losses pursuant to Section 7.2(a) of this Agreement, the amount that such Parent Indemnified Person is entitled to recover in connection therewith shall nevertheless be limited as follows:
(i) No Losses shall be payable for a claim under Section 7.2(a) until the total of all Losses under claims under Section 7.2(a) exceed $500,000 (the“Deductible”), it being understood that all Losses shall accumulate until such time or times as the aggregate of Losses exceed the Deductible, whereupon the Parent Indemnified Persons shall be entitled to indemnification hereunder for all Losses including those up to the Deductible; provided, however, the Deductible shall not apply to Losses relating to a breach of any representation and warranty which constitutes fraud or involves intentional tortious conduct, and
(ii) The maximum amount payable by each MOAC Stockholder for Losses under Section 7.2(a) shall be (A) the value of the Pledged Shares, if any, issued to such MOAC Stockholder (assuming a per share price of $7.50) and (B) the principal amount of the Holdback Note, if any, issued to such MOAC Stockholder; provided, however, the maximum amount payable by each MOAC Stockholder for Losses under Section 7.2(a) related to claims for a breach of a Company Excluded Representation or a breach of any representation and warranty which constitutes fraud or involves intentional tortious conduct shall be the sum of (1) the value of the Parent Common Stock, if any, issued to such MOAC Stockholder (assuming a per share price of $7.50) plus (2) the principal amount of the Holdback Note, if any, issued to such MOAC Stockholder plus (3) the portion of Cash paid to such MOAC Stockholder.
(iii) Claims for Losses by a Parent Indemnified Person shall be payable pro-rata by each MOAC Stockholder based on the ratio of the maximum amount payable by such MOAC Stockholder for the type of claim at issue to the maximum amounts payable by all MOAC Stockholders for the type of claim at issue. In addition, no MOAC Stockholder shall have any liability or obligations for any covenant of, or a breach by, another MOAC Stockholder hereunder or under any agreement executed in connection herewith.
In addition, the disclosure of any act, omission or event in this Agreement, or in any Schedule, Companies Disclosure Schedules or Exhibit of this Agreement, or in any agreement executed in connection with this Agreement, shall not be a defense to a MOAC Stockholder from, or serve as any limitation on any Parent Indemnified Person to make, claims under Section 7.2(a)(ii), nor shall any knowledge or information of, or acquired by or on behalf of, Parent or Sub through due diligence from, or serve as any limitation on any Parent Indemnified Person to make, claims under this Agreement.
(c) Indemnification by Parent. From and after the Closing, and subject to the limitations herein, Parent shall indemnify and hold harmless each MOAC Stockholder and his or its respective shareholders, partners, directors, officers, employees, agents, Affiliates, successors and assigns (each a“Company Indemnified Person�� and, collectively, the“Company Indemnified Persons”) for, from, and against, and pay and reimburse each Company Indemnified Person for, all Losses (i) arising out of the breach of any representation or warranty of Parent or Sub contained in or made pursuant to this Agreement (except as provided in this last sentence of this subsection (c)), (ii) arising out of the breach by Parent or Sub, or the failure by Parent, Sub or Surviving Corporation to perform, any of the covenants or other agreements contained in this Agreement or any other agreement executed by Parent, Sub or Surviving Corporation in connection with this Agreement to be performed by Parent, Sub or Surviving Corporation prior to, at or after the Closing or (iii) arising out any claim brought by a stockholder of Parent (other than a party issued Parent Common Stock pursuant to this Agreement) relating to the Merger, other than any of the following claims, for which Parent will have no duty to indemnify any Company Indemnified Person: any claim arising in connection with fraud, intentional tortious conduct or an allegation that either of the Companies or any officer, director, stockholder or employee of either of the Companies provided information in Companies Disclosure Schedules or the Revised Companies Disclosure Schedule or information used in or in the preparation of the Proxy Statement which contained any untrue statement of a material fact or which omitted any material fact necessary in order to make such statements not misleading. Notwithstanding anything to the contrary herein, Parent shall not have any obligation to indemnify Ronald F. Valenta(“Valenta”) or Kaiser Investments Limited with respect to any breach of the representations set forth in Section 4.9 hereof. No stockholder of MOAC other than the MOAC Stockholders shall have any obligation under this Agreement to indemnify any Parent Indemnified Person.
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(d) Limitations on Indemnity by Parent. If any Company Indemnified Person becomes potentially entitled to any indemnification for Losses pursuant to Section 7.2(c) of this Agreement, the amount that such Company Indemnified Person is entitled to recover in connection therewith shall nevertheless be limited as follows:
(i) Other than with respect to breaches of payment obligations under Article 2 or with respect to claims under 7.2(c)(iii), first, no Losses shall be payable for a claim under Section 7.2(c)(i) or (ii) until the total of all Losses under claims under Section 7.2(c)(i) or (ii) exceed the Deductible, it being understood that all Losses shall accumulate until such time or times as the aggregate of Losses exceed the Deductible, whereupon the Company Indemnified Persons shall be entitled to indemnification hereunder for all Losses including those up to the Deductible; provided, however, the Deductible shall not apply to Losses relating to a breach of any representation and warranty which constitutes fraud or involves intentional tortious conduct.
(ii) Other than with respect to breaches of payment obligations under Article 2 or with respect to claims under 7.2(c)(iii), the maximum amount payable by Parent and Sub to each stockholder of MOAC for Losses under Section 7.2(c) shall be (A) the value of the Pledged Shares, if any, issued to such MOAC Stockholder (assuming a per share price of $7.50) and (B) the principal amount of the Holdback Note, if any, issued to such MOAC Stockholder; provided, however, the maximum amount payable by Parent and Sub for Losses under Section 7.2(c) related to claims for a breach of a Parent Excluded Representation or a breach of any representation and warranty which constitutes fraud or involves intentional tortious conduct shall be the sum of (1) the value of the Parent Common Stock, if any, issued to such MOAC Stockholder (assuming a per share price of $7.50) plus (2) the principal amount of the Holdback Note, if any, issued to such MOAC Stockholder plus (3) the portion of Cash, if any, paid to such MOAC Stockholder.
In addition, the disclosure of any act, omission or event in this Agreement, or in any Schedule or Exhibit of this Agreement, or in any agreement executed in connection herewith shall not be a defense to Parent from, or serve as any limitation on any Company Indemnified Person to make, claims under Section 7.2(c)(ii), nor shall any knowledge or information of, or acquired by or on behalf of, a MOAC Stockholder through due diligence or otherwise be a defense to Parent from, or serve as any limitation on any Company Indemnified Person to make, claims under this Agreement.
Section 7.3 Payments of Losses.
(a) All Losses set forth in the Claim Notice provided to a MOAC Stockholder shall be paid first, by an offset against the unpaid principal amount of the Holdback Note (if any) issued to such MOAC Stockholder and then, by the surrender and cancellation of Parent Common Stock pledged pursuant to the Pledge Agreement with such Parent Common Stock being valued at $7.50 per share for the purpose of determining the amount of Parent Common Stock to be surrendered and cancelled to satisfy the indemnification obligations of the MOAC Stockholder (however, in lieu of such surrender of Parent Common Stock, the MOAC Stockholder may pay the Losses in cash). If the claim in a Claim Notice is not a Disputed Claim, the Losses set forth in such Claim Notice shall be payable at the end of the Objection Period. If the claim in a Claim Notice is a Disputed Claim as to an Indemnifying Person, payment of all amounts determined pursuant to Section 7.4(a) to be owed by such Indemnifying Person to an Indemnified Person shall be made within five days after the earlier of (1) delivery of written notice by such Indemnifying Person admitting the indemnification claim described in a Claim Notice, (2) the making of a binding agreement approved by such an Indemnifying Person and the Indemnified Person, or (3) the determination of such liability and amount by the arbitrator. Notwithstanding anything to the contrary contained herein, whether or not a Third Party Claim is a Disputed Claim, if no MOAC Stockholder has assumed the defense of a Third Party Claim to which Section 7.2(a) applies, the Parent Indemnified Persons, at their election, shall be entitled to offset against the Pledged Shares and unpaid principal amount of the Holdback Note issued to each MOAC Stockholder the portion of the fees and costs, including attorneys’ fees and costs, incurred by an Indemnified Person to defend such Third Party Claim, whether or not suit is brought. All payments of Losses are subject to the limitations set forth in Section 7.2(b).
(b) No payments under the Holdback Note shall limit in any way the obligations of the MOAC Stockholders who receive such payments to indemnify Parent Indemnified Persons pursuant to this Article 7.
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(c) If a MOAC Stockholder pays Losses under this Agreement, such MOAC Stockholder shall be subrogated to, and shall be entitled to enforce (or cause either Company or the Surviving Corporation to enforce) any rights, remedies or claims either Company or the Surviving Corporation may have under the Merger Agreement dated July 12, 2006 among MOAC, PVI Acquisition Corporation, Pac-Van, Brent Claymon, Scott Claymon and Matthew Claymon (the“Claymon Agreement”); provided, however, if paying Losses would prejudice the rights to make a claim under the Claymon Agreement, then, if requested by a MOAC Stockholder, Pac Van or the Surviving Corporation shall bring an Action for indemnity under the Claymon Agreement on the conditions that (i) the MOAC Stockholder deposits an amount equal to its share of the Losses in question in an escrow mutually acceptable to Parent and such MOAC Stockholder pending resolution of the claim for indemnity under the Claymon Agreement, (ii) such MOAC Stockholder shall indemnify Parent and the Surviving Corporation and their respective directors, officers and affiliates for all Losses incurred in connection with such Action and (iii) the Surviving Corporation shall select counsel for such Action, provided such counsel is reasonably acceptable to such MOAC Stockholder. The costs and expenses incurred by either Company or the Surviving Corporation in bringing a claim against the Claymons at the request of a MOAC Stockholders under this clause shall be paid severally, and not jointly and severally, by the requesting MOAC Stockholders if not paid by the Claymons pursuant to the Claymon Agreement.
Section 7.4 Procedures.
(a) For purposes hereof, a“Third Party Claim” is a claim asserted against an Indemnified Person by a person other than a party to this Agreement. A Person that has (or believes that it has) a claim for indemnification under this SECTION 7(“Indemnified Person”) shall give written notice to the person who has the indemnification obligation (each, an“Indemnifying Person” and collectively, the“Indemnifying Persons”) (a“Claim Notice”), requesting indemnification and describing in reasonable detail to the extent then known the nature of the indemnification claim being asserted by the Indemnified Person, providing therein an estimate of the amount of Losses attributable to the claim to the extent feasible (which estimate may be but shall not necessarily be conclusive of the final amount of such claim), and also providing therein the basis for and factual circumstances surrounding the Indemnified Person’s request for indemnification under this SECTION 7; provided, however, if the claim relates to a breach of an obligation by one Indemnifying Person only, then the Claim Notice only needs to be delivered to such Indemnifying Person. A copy of all papers served on or received by the Indemnified Person with respect to a Third Party Claim, if any, shall be attached to the Claim Notice. The failure of an Indemnified Person to properly deliver a Claim Notice to the Indemnifying Person with respect to a Third Party Claim shall not defeat or prejudice the indemnification rights under this Article 7 of such Indemnified Person with respect to the related Third Party Claim unless and except to the extent that the resulting delay is materially prejudicial to the defense of the Third Party Claim or the amount of Losses associated therewith. The Indemnifying Persons to whom a Claim Notice is delivered shall, within twenty (20) days (or 15 days if the claim is a Third Party Claim) after delivery of a Claim Notice (the “Objection Period”) to them, deliver written notice to the Indemnified Person whether such Indemnifying Person admits or disputes the claim described in the Claim Notice, and in the case of a Third Party Claim, whether the Indemnifying Person (or Persons) will assume the defense of the Third Party Claim. If an Indemnifying Person to whom a Claim Notice is delivered notifies the Indemnified Person in writing that he disputes such claim for indemnification, or that he admits the entitlement of the Indemnified Person to indemnification under this SECTION 7 with respect thereto but disputes the amount of the Losses in connection therewith, prior to the expiration of the Objection Period, then as to such Indemnifying Person the indemnification claim described in the Claim Notice shall be a disputed indemnification claim (a“Disputed Claim”) that must be resolved by an agreement between such Indemnifying Person and Parent or by arbitration in accordance with this Agreement.
(b) If any Indemnifying Person elects prior to the expiration of the Objection Period in a written notice to the Indemnified Person who delivered the Claim Notice to assume the defense of a Third Party Claim, then (i) the Indemnifying Persons shall vigorously defend the Third Party Claim with counsel approved by the Indemnified Person (which approval shall not be unreasonably withheld), and (ii) the Indemnifying Persons shall not enter into any settlement of the Third Party Claim unless such settlement is approved in writing by the Indemnified Person (which approval may not be unreasonably withheld or delayed). If no Indemnifying Person elects prior to the expiration of the Objection Period in a written notice to the Indemnified Person who delivered the Claim Notice to assume the defense of a Third Party Claim, then the Indemnified Person may defend the Third Party Claim with
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counsel of its choice and may enter into a settlement thereof without seeking or obtaining approval of the Indemnifying Persons as to counsel employed or for the making of such settlement.
Section 7.5 Exclusive Post-Closing Remedy. After the Closing, and except for any non-monetary, equitable relief to which any Indemnified Person may be entitled, the rights and remedies set forth in this Agreement shall constitute the sole and exclusive rights and remedies of the Indemnified Persons under or with respect to the matters subject to indemnification under Section 7.2 of this Agreement.
Section 7.6 Liability Limitations. In no event shall any Indemnified Person be, under or in respect of this Agreement (but not with respect to matters appropriately pursued outside of the provisions of this Agreement), entitled to recover punitive or exemplary damages. Except to the extent of a claim for fraud or intentional tortious conduct, which claims are not released by any party hereunder, Parent, Sub and the Companies hereby waive as to each former officer and director of the Companies, from and after the Closing, any and all claims and causes of action for any breach or alleged breach of fiduciary obligation by such officer or director to the Companies or its stockholders which arise directly from the transactions contemplated by this Agreement. Further, effective at the Effective Time, each of the MOAC Stockholders, in his or its capacity as a stockholder of the MOAC, hereby waives any claims he or it may have, as a stockholder of the Companies as of the Effective Time, against the Companies or their board of directors or officers, including under any Law.
SECTION 8
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, and except as provided below, whether before or after any approval of this Agreement by the stockholders of Parent:
(a) by mutual written consent duly authorized by the respective Boards of Directors of the Companies, Sub and Parent;
(b) by either Company or Parent if:
(i) the Merger has not been consummated by November 1, 2008 (the“Outside Date”);provided,however, that the right to terminate this Agreement under this Section 1.1(a)(xxi) shall not be available to any party whose failure to perform any covenant or obligation, or breach of a representation and warranty, under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date; or
(ii) a permanent injunction or other similar order of a court of competent jurisdiction or other competent Governmental Authority, in each case located in the United States, preventing the consummation of the transactions contemplated by this Agreement shall have been entered and shall have become final and non-appealable, provided that the party seeking to terminate this Agreement pursuant to this clause shall have used reasonable best efforts to resist, resolve or lift, as applicable, such injunction or other similar order;
(c) by the Companies:
(i) if a breach by Parent or Sub of any representation, warranty, covenant or agreement contained in this Agreement shall have occurred, which breach, in the aggregate with all other such breaches, if any, would give rise, to a failure of the conditions set forth in Section 6.3(a) or (b) hereof and which is not cured within thirty (30) days following written notice to the party committing such breach or by its nature or timing cannot be cured by the Outside Date; or
(ii) since December 31, 2007, there shall have been any material adverse change in the financial condition or results of operations, assets or liabilities of Parent.
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(d) by Parent:
(i) if a breach by either of the Companies of any representation, warranty, covenant or agreement contained in this Agreement shall have occurred, which breach, in the aggregate with all other such breaches, if any, would give rise to a failure of the conditions set forth in Section 6.2(a) or Section 6.2(b) hereof and cannot be cured by and which is not cured within thirty (30) days following written notice to the party committing such breach or by its nature or timing cannot be cured by the Outside Date; or
(ii) since December 31, 2007, a material adverse change in the financial condition, operating profits, backlog, assets, liabilities, operations, business prospects, applicable regulations, employee relations or customer or supplier relations of either of the Companies has occurred; or
(iii) the requisite approval of the stockholders of Parent to the Proposals shall not have been obtained at the Stockholders Meeting.
Section 8.2 Notice of Termination; Effect of Termination.
(a) Notice of Termination. The party hereto desiring to terminate this Agreement pursuant to Section 8.1 shall give written notice of such termination to the other party, specifying the provision hereof pursuant to which such termination is affected.
(b) Effect of Termination. If this Agreement is terminated pursuant to Section 8.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto, except that (i) the agreements contained in this Section 8.2, Section 8.3, Article VIII and in the Confidentiality Agreement shall survive the termination hereof and (ii) no such termination shall relieve any party of any liability or damages resulting from any breach by that party of this Agreement.
Section 8.3 Expenses. Except for the expenses set forth in Section 8.3 of the Companies Disclosures Schedules which will be borne by Parent or as agreed by the parties in writing, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees, cost or expense whether or not the Merger is consummated. If the Merger is not consummated, Parent will reimburse MOAC and Pac-Van for the reasonable fees and costs incurred in connection with an appraisal of the assets of MOAC and Pac-Van requested by Parent.
SECTION 9
MISCELLANEOUS
Section 9.1 Definitions. The following terms are defined in the section of this Agreement set forth after each such term below:
| | |
| AAA | | 9.16(a) |
| Actions | | 3.11 |
| Affiliate | | 3.19 |
| Agreement Preamble Benefit Plans | | 3.13(a) |
| Business Employees | | 3.13(a) |
| Cash | | 2.1(a)(i) |
| Certificate of Merger | | 1.3 |
| Claim Notice | | 7.4(a) |
| Class A MOAC | | |
| Common Stock | | Recitals |
| Class B MOAC | | |
| Common Stock | | Recitals |
| Closing | | 1.2 |
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| | |
| Closing Date | | 1.2 |
| Code | | 2.3(b) |
| Companies | | Preamble |
| Companies Disclosure Schedule | | 3.1(a) |
| Companies Intellectual Property | | 3.10 |
| Company | | Preamble |
| Company Balance Sheet | | 3.6(a) |
| Company Balance Sheet Date | | 3.6(a) |
| Company Charter Documents | | 3.1(c) |
| Company Excluded Representations | | 7.1(b) |
| Company Financials | | 3.6(a) |
| Company Indemnified Person | | 7.2(c) |
| Company Indemnified Persons | | 7.2(c) |
| Company Material Contract | | 3.16(a) |
| Company Permits | | 3.14(b) |
| Company Securities | | 3.2(b) |
| Confidential Information | | 5.12 |
| Contract | | 3.2(c) |
| Credit Facility | | 2.1(a) |
| Deductible | | 7.2(b)(i) |
| Demand Notice | | 9.16(b)(i) |
| Disputed Claim | | 7.4(a) |
| Dissenting Shares | | 2.5(a) |
| DGCL | | 1.1 |
| Effective Time | | 1.3 |
| Eligible Stockholder | | 2.4(a) |
| Eligible Stock Option Holder | | 2.1(a) |
| Environmental Laws | | 3.15 |
| Environmental Liabilities | | 3.15 |
| ERISA | | 3.13(a) |
| ERISA Affiliate | | 3.13(a) |
| Exchange Act | | 2.4(b) |
| GAAP | | 3.6(a) |
| Governmental Authority | | 3.4 |
| Hazardous Substances | | 3.15 |
| Havner | | 5.2(b) |
| Holdback Note | | 2.1(a)(iv) |
| Indebtedness | | 3.2(c) |
| Indemnified Person | | 7.4(a) |
| Indemnifying Person | | 7.4(a) |
| Interim Acquisitions | | 2.1(a) |
| LaSalle Bank | | 2.1(a) |
| Law | | 2.7 |
| Liens | | 3.5 |
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| | |
| Losses | | 7.2(a) |
| Material Adverse Effect | | 3.1(a) |
| Merger | | Recitals |
| Merger Consideration | | 2.1(a) |
| MOAC | | Preamble |
| MOAC Certificate | | 2.4(a) |
| MOAC Common Stock | | Recitals |
| MOAC Securities | | 3.2(a) |
| MOAC Stockholders | | Preamble |
| MOAC Stock Options | | 2.3(a) |
| MOAC Stock Option Plan | | 2.3(a) |
| Non-Recommendation Determination | | 5.5(b) |
| Order | | 3.5 |
| Outside Date | | 8.1(b)(i) |
| Pac-Van | | Preamble |
| Pac-Van Securities | | 3.2(b) |
| Parent | | Preamble |
| Parent Common Stock | | 2.1(a)(ii) |
| Parent Excluded Representations | | 7.1(a) |
| Parent Indemnified Person | | 7.2(a) |
| Parent Indemnified Persons | | 7.2(a) |
| PBGC | | 3.13(b) |
| Per Share Merger Consideration | | 2.4(a) |
| Person | | 2.4(b) |
| Personal Property | | 3.9(c) |
| Pledge Agreement | | 2.1(a)(iii) |
| Pledged Shares | | 2.1(a)(iii) |
| Proposal | | 5.9(a) |
| Proxy Statement | | 5.9(b) |
| Real Property Leases | | 3.9(b) |
| Representatives | | 5.12 |
| Requesting Party | | 9.16(b)(i) |
| Responding Party | | 9.16(b)(i) |
| Revised Companies Disclosure Schedule | | 6.2(a) |
| Senior Subordinated Loan | | 2.1(a) |
| SPV Capital | | 2.1(a) |
| Stockholders Meeting | | 5.5(a) |
| Shares | | Recitals |
| Stock Option Consideration | | 2.3(a) |
| Sub | | Preamble |
| Subordinated Note | | 2.1(a) |
| Subsidiary | | 3.1(b) |
| Superior Proposal | | 5.5(b) |
| Surviving Corporation | | 1.1 |
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| | |
| Tax Return | | 3.12 |
| Taxes | | 3.12 |
| Taxing Authority | | 3.12 |
| Third Party Claim | | 7.4(a) |
| Unsolicited Offer | | 5.13 |
| WARN Act | | 3.20(b) |
| Warrants | | 3.2(a) |
| Working Capital | | 6.2(s) |
| Written Consent | | 5.14 |
Section 9.2 Amendment and Modification. This Agreement may be amended, modified and supplemented only by written agreement of all of the parties hereto.
Section 9.3 Notices. All notices and other communications hereunder shall be in writing and shall be given personally, by facsimile, by certified mail postage pre-paid or by an overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
General Finance Corporation
Attention: Christopher A. Wilson, Esq.
39 East Union Street
Pasadena, California 91103
Telephone:(626) 584-9722
Facsimile:(626) 795-8090
with a copy to:
Troy Gould LLP
Attention: Alan Spatz, Esq.
1801 Century Park East
16th Floor
Los Angeles, CA 90067
Telephone:(310) 789-1231
Facsimile:(310) 789-1431
(b) if to the Companies, to:
Pac-Van, Inc.
2995 South Harding Street
Indianapolis, IN 46225
Attention: Theodore Mourouzis
Telephone:(317) 489-4778
Facsimile:(317) 791-2029
with a copy to:
Jeffer Mangels Butler & Marmaro LLP
1900 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067
Attn: Frederick W. Gartside
Telephone:(310) 203-8080
Telecopy:(310) 203-0567
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Notices shall be deemed received (i) in the case of personal delivery, when delivered, (ii) in the case of facsimile transmission, upon confirmation of receipt, (iii) in the case of mailing, on the third business day after mailing and (iv) in the case of or overnight delivery, upon confirmation of receipt.
Section 9.4 Interpretation. Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation”. As used in this Agreement, the term “affiliate(s)” shall have the meaning set forth inRule 12b-2 of the Exchange Act. For purposes of this Agreement, words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. As used in this Agreement, the terms “hereof”, “herein”, and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all Schedules hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph and Schedule references are to the Articles, Sections, paragraphs and Schedules to this Agreement unless otherwise specified herein. Unless specified herein, all references to any period of days shall be deemed to be the relevant number of calendar days. As used in this Agreement, the terms “dollars” or “$” means United States dollars. As used in this Agreement, the term “cash” means dollars in immediately available funds. The parties have jointly participated in the negotiating and drafting of this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.
Section 9.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when a counterpart has been signed by each of the parties hereto and delivered to the other parties, it being understood that all parties need not sign the same counterpart. A facsimile of an executed counterpart of this Agreement shall be deemed to be an original executed counterpart of this Agreement.
Section 9.6 Entire Agreement; No Third Party Beneficiaries. This Agreement and the Confidentiality Agreement (including the exhibits hereto and the documents and the instruments referred to herein and therein): (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, and (b) are not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Notwithstanding the foregoing, the Indemnified Persons shall be deemed third party beneficiaries of Article 7 hereof.
Section 9.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.
Section 9.8 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties hereto shall be entitled to the remedy of specific performance of the terms hereof, in addition to any other remedy at law or equity.
Section 9.9 Governing Law. This Agreement and the transactions contemplated hereby, and all disputes between the parties under or related to this Agreement or the facts and circumstances leading to its execution, whether in contract, tort or otherwise, shall be governed by and construed in accordance with the internal Laws of the State of Delaware, applicable to contracts executed in and to be performed entirely within the State of Delaware.
Section 9.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned Subsidiary of Parent;provided,however, that no such assignment shall relieve Parent from any of its obligations hereunder. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
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Section 9.11 Reliance. The representations and warranties of the Companies, Parent and Sub contained in this Agreement, and all other agreements or certificates delivered in connection herewith, constitute the sole and exclusive representations and warranties of the Companies to Parent and Sub and of Parent and Sub to the Companies in connection with this Agreement and the transactions contemplated hereby, and each of the Companies, Parent and Sub acknowledges that all implied representations and warranties are specifically disclaimed and may not be relied upon or serve as a basis for the claim against the Companies, Parent and Sub.
Section 9.12 Knowledge. When used herein the phrase “to the knowledge of” a Person or to the Person’s knowledge or similar phrases, when used with respect to the Companies, means the actual knowledge after reasonable inquiry of Valenta or Theodore Mourouzis.
Section 9.13 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING AFTER THE EFFECTIVE TIME IN RELATION TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
Section 9.14 Waiver. No delay or failure by any party hereto in exercising any of its rights, remedies, powers or privileges under this Agreement or at law or in equity and no custom, practice or course of dealing between or among any of such parties or any other person shall be deemed a waiver by such party of any such rights, remedies, powers or privileges, even if such delay or failure is continuous or repeated. No single or partial exercise of any right, remedy, power or privilege shall preclude any other or further exercise thereof by any such party or the exercise of any other right, remedy, power or privilege by such party, including, without limitation, the right of such party subsequently to demand exact compliance with the terms of this Agreement. The waiver by any party of any condition or of any subsequent breach of the same or any other term, covenant or condition herein contained shall not be deemed to be a waiver of any other condition or of any subsequent breach of the same or any other term, covenant or condition herein contained. No waiver shall be effective unless made in writing by the waiving party.
Section 9.15 Attorney’s Fees. The prevailing party(ies) in any litigation, arbitration, bankruptcy, insolvency or other proceeding (the “Proceeding”) relating to the enforcement or interpretation of this Agreement may recover from the unsuccessful party(ies) all costs, and actual attorney’s fees (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards will contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees.
SECTION 9.16 Arbitration.
(a) Notwithstanding anything to the contrary contained in this Agreement, all claims, disputes and controversies between the parties arising only prior to the Effective Time out of or in connection with this Agreement relating to the validity, construction, performance, breach, enforcement or termination hereof or otherwise (except for claims for equitable relief, including, without limitation, injunctive relief) shall be resolved by binding arbitration in Los Angeles, California, in accordance with this Section 9.16 and, to the extent not inconsistent herewith, the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association(“AAA”).
(b) Any arbitration called for by this Section 9.16 shall be conducted in accordance with the following procedures:
(i) A party (the“Requesting Party”) may demand arbitration pursuant to this Section 9.16(b)(i) at any time by giving written notice of such demand (the“Demand Notice”) to the other party (the“Responding Party”), which Demand Notice shall describe in reasonable detail the nature of the claim, dispute or controversy.
(ii) Within fifteen (15) days after the giving of a Demand Notice, the Requesting Party and the Responding Party shall select and designate one reputable, disinterested individual willing to act as an arbitrator of the claim, dispute or controversy in question in accordance with the rules of AAA.
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(iii) The presentations of the parties in the arbitration proceeding shall be commenced and completed within sixty (60) days after the selection of the arbitrator pursuant to Section 9.16(b)(ii) above, and the arbitrator shall render his decision in writing within thirty (30) days after the completion of such presentations.
(iv) The arbitrator shall have the discretion to include in its decision a direction that all or part of the attorneys’ fees and costs of a partyand/or the costs of such arbitration are paid by the other party. On the application of a party before or after the initial decision of the arbitrator, and proof of its attorneys’ fees and costs, the arbitrator shall order the other party to make any payments directed pursuant to the preceding sentence.
(c) Any decision rendered by the arbitrator pursuant to this Section 9.16 shall be final and binding on, and nonappealable by, the parties hereto, and judgment thereon may be entered by any state or federal court of competent jurisdiction.
(d) Arbitration shall be the exclusive method available for resolution of claims, disputes and controversies arising out of or related to this Agreement (except for claims for equitable relief, including, without limitation, injunctive relief), and the parties stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding in any court of before any administrative or arbitration tribunal with respect to any such claim, controversy or dispute. The provisions of this Section 9.16 shall survive the consummation of the transactions contemplated hereby.
(e) Nothing contained herein shall be deemed to give the arbitrator any authority, power or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
MOBILE OFFICE ACQUISITION CORP.
Theodore M. Mourouzis,
Authorized Representative
PAC-VAN, INC.
Theodore M. Mourouzis, President
GENERAL FINANCE CORPORATION
Name:
GFN NORTH AMERICA CORP.
Name:
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STOCKHOLDERS:
Ronald F. Valenta
Ronald L. Havner, Jr.
D. E. SHAW LAMINAR PORTFOLIOS, L.L.C.
Name:
Title:
KAISER INVESTMENTS LIMITED
Name:
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EXHIBIT A
Exhibit A
MOAC Stockholders
D. E. Shaw Laminar Portfolios, L.L.C.
Kaiser Investments Limited
Ronald L. Havner, Jr.
Ronald F. Valenta
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EXHIBIT B
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this“Pledge Agreement”) is made and entered into as of , 2008 by and among each of the undersigned pledgors (each, individually a“Pledgor” and, collectively, the“Pledgors”), GENERAL FINANCE CORPORATION, a Delaware corporation(“Parent”), and GFN NORTH AMERICA CORP., a Delaware corporation(“Sub” and collectively with Parent, the“Buyers”).
WITNESSETH:
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the“Merger Agreement”) dated July 22, 2008 by and among Buyers, PAC-VAN, INC., an Indiana corporation(“Pac-Van”), MOBILE OFFICE ACQUISITION CORP., a Delaware corporation(“MOAC”) and the Pledgors, MOAC has been merged with and into Sub (the“Merger”), and each Pledgor will receive the shares of common stock of Parent set forth onSchedule I hereto (as to each Pledgor, the“Pledged Shares”), other shares of common stock of Parent not subject to this Agreement and other consideration in exchange for their stock in MOAC;
WHEREAS, the Merger Agreement requires that each Pledgor pledge the Pledged Shares in favor of Buyers to secure the payment of the indemnification obligations of such Pledgor under Article 7 of the Merger Agreement; and
WHEREAS, Buyers have required, as a condition to entering into the Merger Agreement, that Pledgors (i) pledge to Buyers, and grant to Buyers a security interest in, the Pledged Collateral (as defined herein) and (ii) execute and deliver this Pledge Agreement in order to secure the payment by each Pledgor of its Secured Obligations.
AGREEMENT
NOW THEREFORE, in consideration of the premises and in order to induce Buyers to enter into the Merger Agreement, each Pledgor hereby agrees with Buyers as follows:
Section 1 Defined Terms.The following terms shall have the following respective meanings:
“Additional Shares” has the meaning specified in Section 8(b) hereof.
“Pledged Collateral” has the meaning specified in Section 2 hereof.
“Pledged Shares” has the meaning specified in the recitals hereof.
“Secured Obligations” has the meaning specified in Section 2 hereof.
“Securities Act” has the meaning specified in Section 12 hereof.
“UCC” has the meaning specified in Section 3 hereof.
All other capitalized terms used herein and not otherwise defined herein shall have the meanings given in the Merger Agreement, or, if not defined therein, the meanings set forth in the UCC, except where the context otherwise requires.
Section 2 Pledge. Each Pledgor hereby pledges to Buyers, for their benefit, and grants to each Buyer, for their benefit, a continuing first priority and perfected security interest in, its right, title and interest in and to the following (collectively, the “Pledged Collateral”):
(a) the Pledged Shares of such Pledgor, the Additional Shares applicable to such Pledgor’s Pledged Shares and any certificates representing the Pledged Shares of such Pledgorand/or the Additional Shares applicable to such Pledgor’s Pledged Shares; and
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(b) the proceeds (equal to $7.50 per share) of any sale of the Pledged Shares of such Pledgorand/or the Additional Shares applicable to such Pledgor’s Pledged Shares.
Section 3 Security For Obligations. As to each Pledgor, this Pledge Agreement secures, and the Pledged Collateral of such Pledgor is collateral security for, the prompt payment in full when due of all Losses (as defined in the Merger Agreement) payable to Buyers from such Pledgor now or hereafter existing under Article 7 of the Merger Agreement and all amendments, extensions or renewals thereof (all such obligations under Article 7 of the Merger Agreement being collectively referred to herein as the “Secured Obligations”). Cancellation of shares included in the Pledged Collateral shall be done solely in accordance with Section 7.3 of the Merger Agreement. If a Pledgor pays a Secured Obligation in cash in lieu of permitting Buyers to retain Pledged Shares as payment of such Secured Obligation, the number of shares included in the Pledged Collateral (assuming a $7.50 value per share) equal to the cash payment made by such Pledgor shall no longer be pledged to Buyers and Buyers shall promptly deliver to such Pledgor the certificates for such shares with the legend relating to this Pledge Agreement removed therefrom.
Section 4 Delivery Of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Buyers pursuant hereto. Such certificates or instruments shall be in suitable form for transfer by delivery, or shall be accompanied by instruments of transfer or assignment in blank (or such other documents or agreements necessary to give Buyers “control” within the meaning of the UCC (as defined below)), all in form and substance reasonably satisfactory to Buyers. “UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of Delaware or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests in the Pledged Collateral;provided,that to the extent that the UCC is used to define any term herein or in any other documents and information which it requiressuch term is defined differently in connection with this transaction; anddifferent Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.
(d) confirmsSection 5 Representations And Warranties. Each Pledgor represents and warrants as to the Pledged Collateral pledged by it has not relied and will not rely on any other party in respect of the legality, validity, effectiveness, adequacy, accuracy or completeness of any of those documents or that information.
3 Third party benefit
The parties each acknowledge and agree that:as follows:
(a) Such Pledgor is the provisionslegal and beneficial owner of the Pledged Collateral pledged by it, free and clear of any Lien on the Pledged Collateral.
(b) Upon the delivery to Buyers of the Pledged Collateral pledged by such Pledgor and the filing of a UCC-1 financing statement, the pledge of such Pledged Collateral pursuant to this Deed are intended to bePledge Agreement will create a valid and perfected first priority Lien in such Pledged Collateral securing the payment of such Pledgor’s Secured Obligations for the benefit of certain persons, someBuyers.
(c) No authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is required either for the pledge by such Pledgor of who are not partiesPledged Collateral pursuant to this Deed(“Third Party Beneficiaries”);Pledge Agreement or for the execution, delivery or performance of this Pledge Agreement by such Pledgor.
(b) Third Party Beneficiaries are entitled(d) Such Pledgor has full power and authority to enter into this Pledge Agreement and has the right to pledge and grant a security interest in the Pledged Shares pledged by it and the other Pledged Collateral pledged by it, in each case as provided by this Pledge Agreement.
(e) This Pledge Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws affecting the rights and remedies of creditors generally and by general equitable principles.
Section 6 Further Assurances. Each Pledgor agrees that at any time and from time to time, at its expense, it will promptly execute and deliver, or cause to be executed and delivered, all stock powers, assignments, acknowledgments, financing statements, instruments and documents and take all further action, at the Buyers’ request, that Buyers reasonably deem necessary or advisable in order to perfect any security interest granted or purported to be granted hereby or to enable Buyers to exercise and enforce their rights and remedies hereunder with respect to any Pledged Collateral pledged by such Pledgor and to carry out the provisions and purposes hereof. Each
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Pledgor will, promptly upon request, provide to Buyers all information and evidence it may reasonably request concerning the Pledged Collateral pledged by such Pledgor to enable Buyers to enforce the provisions of this Deed; andPledge Agreement.
(c) this Deed operates as a deed poll in relation to those Third Party Beneficiaries.
4Section 7 ReleaseVoting Rights; Sale Proceeds.
The Outgoing Entity ceases,(a) Each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares pledged by such Pledgor or any part thereof for any purpose not inconsistent with effectthe terms of this Pledge Agreement;provided,however, that no Pledgor shall exercise or shall refrain from exercising any such right if such action or inaction could reasonably be expected to adversely affect the validity, priority or perfection of the security interests granted hereunder or would otherwise be inconsistent with or violate any provisions of this Pledge Agreement.
(b) Any and all cash or other proceeds (equal to $7.50 per share) paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Shares, shall in each case be delivered forthwith to an escrow agent pursuant to an escrow agreement, both of which shall be mutually satisfactory to the selling Pledgor and Buyers to hold as Pledged Collateral and shall, if received by a Pledgor, be received in trust for the benefit of the Buyers, be segregated from the Registration Date,other property or funds of such Pledgor, and be forthwith delivered to such escrow as Pledged Collateral in the same form as so received (with any necessary or requested endorsement). The selling Pledgors shall bear all fees and costs of such escrow. Any amounts received paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Shares in excess of $7.50 per share shall be retained by the selling Pledgor and shall not be subject to this Agreement in any manner.
Section 8 Transfers And Other Liens; Additional Shares.
(a) Each Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral unless the proceeds of such sale up to $7.50 per share are delivered to escrow pursuant to Section 6(b) and such sale is made in accordance with the Stockholders Agreement of even date herewith among Pledgors, Parent and other persons named therein; (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest granted under this Pledge Agreement; or (iii) enter into any agreement or understanding that purports to or may restrict or inhibit Buyers’ rights or remedies hereunder, including, without limitation, Buyers’ right to retain the Pledged Collateral. In connection with any sale of the Pledged Collateral in accordance with clause (i) of this subsection, Buyers shall deliver to the selling Pledgor the certificates for the Pledged Collateral being sold.
(b) Each Pledgor agrees that it will deliver to Buyers hereunder, promptly upon its acquisition thereof, any and all additional shares of stock received as a result of a split or subdivision of such Pledgor’s Pledged Shares(“Additional Shares”).
Section 9 Buyers May Perform. If any Pledgor fails to perform any agreement contained herein, either Buyer may itself perform, or cause performance of, such agreement, and the reasonable expenses of Buyers incurred in connection therewith shall be payable by such Pledgor.
Section 10 No Assumption Of Duties; Reasonable Care. The rights and powers granted to Buyers hereunder are being granted in order to preserve and protect Buyers’ security interest in and to the Pledged Collateral granted hereby and shall not be interpreted to, and shall not, impose any duties on Buyers in connection therewith except the duty to exercise reasonable care in the custody and preservation of the Pledged Collateral in its possession. Buyers shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which Buyers accords its own property, it being understood that Buyers shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Buyers have or are deemed to have knowledge of such matters or (ii) taking any necessary steps to preserve rights benefitsagainst any parties with respect to any Pledged Collateral.
Section 11 Subsequent Changes Affecting Pledged Collateral. Each Pledgor represents to Buyers that it has made its own arrangements for keeping informed of changes or potential changes affecting the Pledged
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Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, payments of interestand/or principal, reorganization or other exchanges, tender offers and voting rights), and each Pledgor agrees that Buyers shall have no responsibility or liability for informing such Pledgor hereunder of any such changes or potential changes or for taking any action or omitting to take any action with respect thereto.
Section 12 Remedies Upon Default. If a Pledgor shall have failed to pay a Secured Obligation of such Pledgor under Article 7 of the Merger Agreement and such failure shall be continuing, the Pledged Shares of such Pledgor in the amount of such Secured Obligation (assuming a per share price of $7.50) shall be cancelled in accordance with the Merger Agreement.
Section 13 Attorney’s Fees. The prevailing party(ies) in any litigation, arbitration, bankruptcy, insolvency or other proceeding (the “Proceeding”) relating to the enforcement or interpretation of this Agreement may recover from the unsuccessful party(ies) all costs, and actual attorney’s fees (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards will contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees.
Section 14 Security Interest Absolute. All rights of Buyers and the security interests hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional irrespective of, and unaffected by any exchange, surrender, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations.
Section 15 Miscellaneous Provisions.
Section 15.1 Notices. All notices, approvals, consents or other communications required or desired to be given hereunder shall be in the form and manner, and delivered to the Pledgors (or any of them) and to the Buyers and to any other courtesy copy addressees, at their respective addresses set forth inSection 9.3 of the Merger Agreement.
Section 15.2 Headings. The headings in this Pledge Agreement are for purposes of reference only and shall not affect the meaning or construction of any provision of this Pledge Agreement.
Section 15.3 Severability. The provisions of this Pledge Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Pledge Agreement in any jurisdiction.
Section 15.4. Amendments, Waivers and Consents. Any amendment of this Pledge Agreement shall not be effective unless the same shall be in writing and signed by Buyers and the Pledgors affected by such amendment. Any waiver of any provision of this Pledge Agreement and any consent to any departure by the Pledgors from any provision of this Pledge Agreement shall not be effective unless the same shall be in writing and signed by the waiving party and then such amendment or waiver shall be effective only in the specific instance and for the specific purposes for which given.
Section 15.5 Interpretation of Agreement. Time is of the essence in each provision of this Pledge Agreement of which time is an element. To the extent a term or provision of this Pledge Agreement conflicts with the Merger Agreement and is not dealt with herein with more specificity, the Merger Agreement shall control with respect to the subject matter of such term or provision. Acceptance of or acquiescence in a course of performance rendered under this Pledge Agreement shall not be relevant in determining the meaning of this Pledge Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection.
Section 15.6 Continuing Security Interest; Transfer of Notes and Secured Obligations. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force
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and effect until full and final payment (including after twenty (20) months after the Closing Date) of the Secured Obligations, (ii) be binding upon each Pledgor, its successors, transferees and assigns and (iii) inure, together with the rights and remedies of Buyers hereunder, to the benefit of the successors, transferees and assigns of Buyers.
Section 15.7 Reinstatement. To the maximum extent permitted by law, this Pledge Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by Buyers in respect of the Transferred Shares underSecured Obligations is rescinded or must otherwise be restored or returned by Buyers upon the Shareholders’ Agreement.insolvency, bankruptcy, dissolution, liquidation or reorganization of any Pledgor or any other Person or upon the appointment of any receiver, intervenor, conservator, trustee or similar official for any Pledgor or any other Person or any substantial part of its assets, or otherwise, all as though such payments had not been made.
5Section 15.8 ConsentSurvival of Provisions. All representations, warranties and covenants of the Pledgors contained herein shall survive the execution and delivery of this Pledge Agreement, and shall terminate upon the termination hereof.
The Company consentsSection 15.9 Authority of Buyers. Buyers shall have and be entitled to exercise all powers hereunder which are specifically granted to Buyers by the transferterms hereof, together with such powers as are reasonably incident thereto. Buyers may perform any of Shares fromtheir duties hereunder or in connection with the Outgoing EntityPledged Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the New Shareholder and agrees to executeadvice of counsel concerning all such further documentsmatters. Buyers and take such further action as maytheir directors, officers, employees, attorneys and agents shall be necessaryentitled to give full effectrely on any communication, instrument or document reasonably believed by it or them to be genuine and correct and to have been signed or sent by the terms thereof.proper person or persons.
6Section 15.10 AddressRelease; Termination of Agreement.
For This Pledge Agreement shall terminate on the purposesthird anniversary of the Shareholders’ Agreementdate hereof (the“Termination Date”); provided, however, if indemnification claims are pending on the addressTermination Date under Section 7.2(a) of the New Shareholder toMerger Agreement, then this Pledge Agreement shall terminate on the date on which all notices, consents, requests and other documents required to be given or sent shall be as follows:
[insert the addresssuch pending indemnification claims are paid in accordance with Article 7 of the New Shareholder].
7 Governing law
This DeedMerger Agreement. At such termination date, Buyers shall, be governedat the request and expense of Buyers, reassign and redeliver to each Pledgor all of the Pledged Collateral pledged by and interpretedsuch Pledgor hereunder without any legend referencing this Pledge Agreement which has not been retained or applied by Buyers in accordance with the laws forterms hereof. Such reassignment and redelivery shall be without warranty by or recourse to Buyers, except as to the time being in forceabsence of any prior assignments by Buyers of their interest in the StatePledged Collateral, and shall be at the expense of Victoria and each party, including the New Shareholder, submits to the non-exclusive jurisdiction of the Courts of or exercising jurisdiction in that State.Buyers.
8Section 15.11 CounterpartsCounterparts.
This DeedPledge Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when so executed and delivered, shall be deemed an original but all of which shall together constitute one and the same instrument.agreement.
Section 15.12 Governing Law; Arbitration; Jury Trial Waiver.
THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE (AS OPPOSED TO THE CONFLICT-OF-LAWS PROVISIONS); PROVIDED THAT ISSUES WITH RESPECT TO CREATION, PERFECTION OR ENFORCEMENT OF LIENS UNDER ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC OF THE STATE OF DELAWARE;PROVIDED THAT BUYERS AND THE PLEDGORS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES, ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT, SHALL BE DETERMINED BY BINDING ARBITRATION PURSUANT TO THE TERMS AND CONDITIONS OF SECTION 9.16 OF THE MERGER AGREEMENT, SUBJECT TO THE EXCEPTIONS SET FORTH IN SECTION 9.16 OF THE MERGER AGREEMENT.
No provision of Section 10.12(b) shall limit the right of Buyers to exercise self-help remedies such as setoff, foreclosure against or sale of any personal property collateral or security, or obtaining provisional or ancillary
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remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration.
Section 15.13 Waiver Of Jury Trial. SUBJECT TO THE PROVISIONS OF SECTION 16.13(d), EACH PLEDGOR AND BUYER EACH IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE AGREEMENT, THE MERGER AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ASSIGNEE. EACH PLEDGOR AND BUYER AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS PLEDGE AGREEMENT OR THE MERGER AGREEMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS PLEDGE AGREEMENT AND THE MERGER AGREEMENT.
Section 15.14 Limitation Of Liability. No Pledgor shall have any liability or obligation for any covenant of, or breach hereof by, any other Pledgor. Without limiting the generality of the foregoing, no Pledged Collateral pledged by a Pledgor shall be security for any obligations of any other Pledgor. No claim may be made by any party hereto against any other party hereto, or the affiliates, directors, officers, officers, employees, or agents of such parties, for punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Pledge Agreement or the Merger Agreement, or any act, omission or event occurring in connection therewith, and each party hereto hereby waives, releases and agrees not to sue upon any claim for such punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, Pledgors and Buyers have each caused this Pledge Agreement to be duly executed and delivered as of the date first above written.
BUYERS:
GENERAL FINANCE CORPORATION
Name:
GFN NORTH AMERICA CORP.
Name:
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PLEDGORS:
Ronald F. Valenta
Ronald L. Havner, Jr.
D. E. SHAW LAMINAR PORTFOLIOS, L.L.C.
Name:
KAISER INVESTMENTS LIMITED
Name:
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EXHIBIT A
PLEDGE AMENDMENT
This Pledge Amendment dated is delivered pursuant toSection 8(c) of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement (the“Pledge Agreement”) dated as of July 22, 2008 among the undersigned and General Finance Corporation, a Delaware corporation(“Parent”), and GFN North America Corp., a Delaware corporation(“Sub” and collectively with Parent,“Buyers”); capitalized terms defined therein being used herein as therein defined and that the shares and other instruments listed on this Pledge Amendment shall be deemed to be part of the Pledged Collateral and shall secure all Secured Obligations of the undersigned.
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Date: | | By:
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Exhibit C
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY TO THE EXTENT THAT SUCH ACT APPLIES TO A TRANSFER OR DISPOSAL, NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
GFN NORTH AMERICA CORP.
8% SUBORDINATED PROMISSORY NOTE
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| $1,500,000.00 | Los Angeles, California
, 2008 |
FOR VALUE RECEIVED, GFN NORTH AMERICA CORP., a Delaware corporation (the“Maker), hereby promises to pay to the order of D. E. SHAW LAMINAR PORTFOLIOS, L.L.C., a Delaware limited liability company(“D. E. Shaw”), or its registered assigns (along with D. E. Shaw, each a“Holder”), on the date which is twenty (20) months after the date hereof (the“Maturity Date”) the principal sum of $1,500,000.00, or in the case of a prepayment, such portion thereof being prepaid, with interest thereon from time to time as provided herein.
This 8% Subordinated Promissory Note (this“Note”) is the unsecured promissory note of Maker referred to in that certain Agreement and Plan of Merger (the“Merger Agreement”) dated as of date hereof by and among the General Finance Corporation, a Delaware corporation(“General Finance”), Maker, Pac-Van, Inc., an Indiana corporation(“Pac-Van”), Mobile Office Acquisition Corp., a Delaware corporation(“MOAC”), and certain stockholders of MOAC, and is subject to the provisions of the Merger Agreement. Capitalized terms used herein without definition are used herein with the meanings ascribed to such terms in the Merger Agreement. The acceptance of this Note by Holder is subject to the execution and delivery to Holder of (i) a subordination agreement with the lenders under the Credit Facility and the Senior Subordinated Loan (the“Lenders”) mutually satisfactory to the Lenders, Holder and Maker and (ii) terms in the Credit Facility and Senior Subordinated Loan permitting the indebtedness under this Note and permitting the payments required hereunder on terms mutually satisfactory to the Lenders, Holder and Maker.
1. Interest.
(a) Subject toSection 1(b) hereof, the Maker promises to pay interest in cash on the principal amount of this Note from time to time outstanding (the“Principal Amount”) at the per annum rate equal to eight percent (8%) (the“Scheduled Interest Rate”). All accrued interest payable pursuant to thisSection 1(a) shall be due and payable semi-annually in arrears or, if any such date shall be a Saturday, Sunday or other day on which banks located in Los Angeles, California are authorized or required by law to close (a“Business Day”), on the next succeeding Business Day to occur after such date (the“Interest Payment Date”), beginning six months after the date of this Note, and shall be paid in immediately available funds to an account designated by the Holder. All interest payable pursuant to thisSection 1(a) shall accrue and be paid in United States dollars.
(b) Upon the occurrence of any of the following (each an“Event of Default”) (i) Maker fails to make any payment of principal as and when due (whether at the Maturity Date, upon acceleration or required prepayment or otherwise) or (ii) Maker fails to make any payment of interest, premium, if any, fees, costs, expenses or other amounts due hereunder within three (3) Business Days after the date when due, then Maker shall pay interest on the unpaid principal balance of and accrued and unpaid interest on this Note at a rate per annum (the“Default Rate”) equal to twelve (12%) from the date that an Event of Default commences until such time as such Event of Default is cured or waived; provided, however, in the case of an Event of Default under clause (i) the Default Rate shall be equal to fourteen percent (14%).
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(c) Interest payable under this Note shall accrue from and including the date of issuance through and until repayment of the principal and payment of all accrued interest and premium, if any, in full. All interest payable under this Note shall accrue on a semi-annual basis and be computed on the basis of a three hundred sixty (360)-day year of twelve (12) thirty (30)-day months.
2. Prepayments.
(a) Maker may prepay the unpaid principal balance of this Note at any time. Any prepayment of this Note under thisSection 3 shall also include all accrued and unpaid interest on the outstanding principal balance of this Note through and including the date of prepayment.
(b) If any of the following conditions occurs and is continuing, the Holder, by notice to Maker, may declare the principal of and accrued interest on the Note to be immediately due and payable: (i) General Finance shall cease to own and control at least 100% of the outstanding all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of Maker’s capital, whether now outstanding or issued or acquired after the Closing Date, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership, interests in a trust, interests in other unincorporated organizations or any other equivalent of such ownership interest (collectively,“Capital Securities”), (ii) Maker shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Capital Securities of each of its subsidiaries; (iii) the sale of substantially all of the assets of Maker, (iv) the sale, in one transaction or in a series of transactions, of General Finance to an independent third party or group of independent third parties pursuant to which such party or parties acquire equity securities of General Finance representing more than 50% voting power of all outstanding equity securities or (v) any Change of Control (as defined under the Credit Facility, as amended from time to time) occurs.
3. Security. The obligations of Maker to Holder existing under this Note are unsecured.
4. Manner of Payment. Payments of principal, interest and other amounts due under this Note shall be made no later than 12:00 p.m. (noon) (Los Angeles time) on the date when due and in lawful money of the United States of America (by wire transfer in funds immediately available at the place of payment) to such account as the Holder may designate in writing to the Maker. Any payments received after 12:00 p.m. (noon) (Los Angeles time) shall be deemed to have been received on the next succeeding Business Day. Any payments due hereunder which are due on a day which is not a Business Day shall be payable on the first succeeding Business Day and such extension of time shall be included in the computation.
5. Maximum Lawful Rate of Interest. The rate of interest payable under this Note shall in no event exceed the maximum rate permissible under applicable law. If the rate of interest payable on this Note at any time exceeds the maximum rate permitted under applicable law, then the rate provided for in this Note shall be increased to the maximum rate provided for under applicable law for such period as is required so that the total amount of interest received by the Holder is that which would have been received by the Holder but for the operation of the first sentence of thisSection 5.
6. Maker’s Waivers; Assignment and Transfer. Maker hereby waives presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices of any kind to which it may be entitled under applicable law or otherwise. Holder may transfer all or any portion of this Note to any Affiliate without the consent of Maker and, after an Event of Default occurs, Holder may transfer all or any portion of this Note to any Person that is not a competitor of the Maker or an Affiliate of a competitor of the Maker. Subject to the prior sentence, without the prior written consent of Maker, which shall not to be unreasonably withheld, Holder shall not assign or transfer to one or more Persons all or any portion of this Note or any portion thereof or any rights hereunder. Upon surrender of this Note at Maker’s principal executive office for registration of any such assignment or transfer, accompanied by a duly executed instrument of transfer, Maker shall, at its expense and within three (3) Business Days of such surrender, execute and deliver one or more new notes of like tenor in the requested principal denominations and in the name of the assignee or assignees and bearing the legend set forth on the face of this Note, and this Note shall promptly be canceled.
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7. Costs of Collection. The Maker agrees to pay all costs and expenses, including the reasonable fees and expenses of any attorneys, accountants and other experts retained by the Holder, which are expended or incurred by the Holder following an Event of Default in connection with the enforcement of this Note or the collection of any sums due hereunder whether or not suit is commenced.
8. Extension of Time. Holder, at its option, may extend the time for payment of this Note, postpone the enforcement hereof, or grant any other waiver without affecting Holder’s right to recourse against the Borrower, which right is expressly reserved.
9. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
10. Choice of Jurisdiction. The Maker hereby consents and agrees that all actions, suits or other proceedings arising under or in connection with this Note or any other related document shall be finally settled by arbitration pursuant to Section 9.16 of the Merger Agreement. The arbitration shall be conducted in Los Angeles, California.
11. WAIVER OF JURY TRIAL. MAKER AND HOLDER HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING BROUGHT TO RESOLVE ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATING TO THIS NOTE, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION, SUIT OR OTHER PROCEEDING.
12. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable substantially impair the benefits of the remaining provisions hereof.
13. Headings. The headings in this Note are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, this Subordinated Promissory Note is executed as of the date first above written.
GFN NORTH AMERICA CORP.,
a Delaware corporation
Name:
Title:
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Exhibit D
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this“Agreement”) dated , 2008 is entered into by and among General Finance Corporation, a Delaware corporation (the“Company“), and the stockholders of Company listed onSchedule I attached hereto (each a“Stockholder“ and collectively, the“Stockholders“).
WITNESSETH:
WHEREAS, in connection with the consummation of the merger (the“Merger”) and the transactions contemplated by that certain Agreement and Plan of Merger (the“Merger Agreement”) dated , 2008(“Merger Agreement Date”) by and among Company, GFN North America Corp., a Delaware corporation, Mobile Office Acquisition Corp., a Delaware corporation(“MOAC”), Pac-Van, Inc., an Indiana corporation, and certain stockholders of MOAC (the“MOAC Stockholders”), shares of restricted common stock of Company were issued to the Stockholders as set forth in Schedule I attached hereto;
WHEREAS, it is a condition to the consummation of the transactions contemplated by the Merger Agreement that, upon the Closing, the Company and Stockholders enter into this Agreement; and
WHEREAS, the Company and the Stockholders each desire to enter into this Agreement to set forth the rights relating to any the Common Stock held by the Stockholders and to limit the sale, transfer, hypothecation, encumbrance or other disposition of Common Stock and to provide for certain arrangements regarding the management of the Company as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person; provided that, for the purposes of this definition, “control”, as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“AMEX” means the American Stock Exchange.
“Board” means the Board of Directors of the Company.
“Business Day” means any day, other than a Saturday, Sunday or other day on which banks located in Los Angeles, California are authorized or required by Law to close.
“Closing” means the consummation of the merger contemplated by the Merger Agreement.
“Common Stock” means the common stock of the Company, par value $0.0001 per share.
“Demand Notice” shall have the meaning set forth in Section 3.1(b) of this Agreement.
“Demand Registration Statement” shall have the meaning set forth in Section 3.1(b) of this Agreement.
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“Demand Request” shall have the meaning set forth in Section 3.1(b) of this Agreement.
“Demanding Stockholder” shall have the meaning set forth in Section 3.1(b) of this Agreement.
“Effective Time” means the date and time of the filing of the certificate of merger with the Secretary of State of the State of Delaware (or such later time as shall be agreed to by the parties hereto and is specified in the certificate of merger) pursuant to the Merger Agreement.
“Equity Securities” means all shares of Common Stock of the Company, all securities, directly or indirectly, convertible into or exchangeable for shares of Common Stock of the Company and all options, warrants, and other rights to purchase or otherwise, directly or indirectly, acquire from the Company shares of Common Stock, or securities convertible into or exchangeable for shares of Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
“GAAP” shall mean United States generally accepted accounting principles consistently applied by the Company and its Subsidiaries throughout the periods indicated.
“Governmental Entity” shall mean any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.
“Havner” shall mean Ronald L. Havner, Jr.
“Holders’ Counsel” shall have the meaning set forth in the definition of “Registration Expenses.”
“Incidental Registration” shall have the meaning set forth in Section 3.2(a) of this Agreement.
“Laminar” means D. E. Shaw Laminar Portfolios, L.L.C.
“Law” means any statute, law, common law, order, ordinance, rule or regulation of any Governmental Entity.
“Merger” shall have the meaning set forth in the first recital to this Agreement.
“Merger Agreement” shall have the meaning set forth in the first recital to this Agreement.
“Merger Agreement Date” shall have the meaning set forth in the first recital to this Agreement.
“Original Stockholder” shall mean each Person that is either (a) a Stockholder as of the date hereof or (b) a Permitted Transferee pursuant to a Transfer effected in accordance with clause (i), (ii) or (iii) of Section 2.2(a) of this Agreement.
“Permitted Transfer” shall have the meaning set forth in Section 2.2(a) of this Agreement.
“Permitted Transferee” shall have the meaning set forth in Section 2.2(a) of this Agreement.
“Person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a limited liability partnership, a trust, an incorporated organization or any other entity or organization, including a Governmental Entity.
“Registrable Securities” shall mean only shares of Common Stock acquired by the Stockholders pursuant to the Merger Agreement to the extent such shares have not been previously registered and sold pursuant to an effective registration statement and any other shares of Common Stock that may be received in respect of any of the foregoing securities; provided, that any Registrable Securities shall cease to be Registrable Securities:
(i) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement;
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(ii) when such securities shall have been transferred pursuant to Rule 144 under the Securities Act (or any successor provision); or
(iii) when such securities shall have ceased to be outstanding.
“Registration” shall mean the Shelf Registration, each Required Registration and each Incidental Registration.
“Registration Expenses” shall mean all expenses incident to the Company’s performance of or compliance with Article III including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of any Registrable Securities), expenses of printing certificates for any Registrable Securities in a form eligible for deposit with the Depository Trust Company, internal expenses, and fees and disbursements of counsel for the Company and its independent certified public accountants (including the expenses of any management review, cold comfort letters or any special audits required by or incident to such performance and compliance), securities acts liability insurance (if the Company elects to obtain such insurance), the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, fees and expenses of other Persons retained by the Company, the fees and expenses of one (1) counsel not to exceed $50,000 (the“Holders’ Counsel”) selected by the holders of a majority of the Registrable Securities to be included in such Registration; but not including any underwriting fees, discounts or commissions attributable to the sale of securities or fees and expenses of counsel representing the holders of Registrable Securities included in such Registration (other than the Holders’ Counsel) incurred in connection with the sale of Registrable Securities.
“Required Registration” shall have the meaning set forth in Section 3.1(b) of this Agreement.
“Sale of the Company” means:
(i) any consolidation or merger of the Company or a Subsidiary of the Company in which the shares of Common Stock are converted into cash, securities or other property;
(ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company and its Subsidiaries; or
(iii) any Person has become the beneficial owner (within the meaning ofRule 13d-3 promulgated under the Exchange Act) of shares of the capital stock of the Company representing greater than 50% of the outstanding voting power of the Company.
“SEC” shall mean, at any time, the Securities and Exchange Commission or any other federal agency at such time administering the Securities Act.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Selection Date” shall mean the date that is sixty (60) days prior to the date on which the Company distributes to its stockholders the proxy statement relating to each applicable annual meeting.
“Shelf Registration” shall have the meaning set forth in Section 3.1(a) of this Agreement.
“Shelf Registration Lapse Date” shall mean the date, if any, that (x) the Company is not permitted to file or maintain aForm S-3 in connection with the Shelf Registration in accordance with Section 3.1(a), or (y) the Shelf Registration expired in accordance with Section 3.1(a)(i) and not all Registrable Securities registered in such Shelf Registration have been sold.
“Shelf Registration Statement”shall have the meaning set forth in Section 3.1(a) of this Agreement.
“Standstill Period”shall have the meaning set forth in Section 2.3(a) of this Agreement.
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“Standstill Securities”shall mean any Equity Securities of the Company, other than options to purchase Common Stock issued pursuant to Company stock option plans and shares of Common Stock issued upon exercise of such stock options and shares subject to warrants owned by a Stockholder as of the Merger Agreement Date.
“Stockholder”shall have the meaning set forth in the preamble to this Agreement, subject to Section 2.2 hereof.
“Subject Stockholder”shall mean each of Havner, Valenta and Laminar and each of their respective Permitted Transferees pursuant to a Transfer described in clause (iii) of Section 2.2(a).
“Subsidiary”or“Subsidiaries”shall mean, with respect to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through one or more Subsidiaries of such Person has more than a 50% equity interest.
“Transaction Documents”shall mean, collectively, (i) this Agreement, (ii) the Merger Agreement, and (iii) that certain pledge agreement executed by Company and the Stockholders and (iv) each other agreement, instrument and document delivered pursuant to or in connection with any of the transactions contemplated by the documents described in clauses (i) through (iii) of this definition.
“Transfer”shall have the meaning set forth in Section 2.1(a) of this Agreement.
“Valenta”means Ronald F. Valenta.
ARTICLE II
TRANSFER OF EQUITY SECURITIES
Section 2.1 Restrictions.
(a) No Stockholder shall, voluntarily or involuntarily, directly or indirectly, sell, assign, donate, hypothecate, pledge, encumber, grant a security interest in or in any other manner transfer, any Registrable Securities, in whole or in part, or any other right or interest therein, or enter into any transaction which results in the economic equivalent of a transfer of Registrable Securities to any Person (each such action, a“Transfer”) except pursuant to a Permitted Transfer.
(b) From and after the dates hereof, all certificates or other instruments representing Registrable Securities held by each Stockholder shall bear legend which shall state:
(i) “The sale, transfer, hypothecation, assignment, pledge, encumbrance or other disposition of this share certificate and the shares Common Stock represented hereby are restricted by and are subject to all of the terms, conditions and provisions of that certain Stockholders Agreement, dated as of [ ], 2008, by and between General Finance Corporation and the stockholders party thereto, which agreement is on file at the principal offices of General Finance Corporation.”
(ii) “The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or pursuant to any state securities laws. The securities have been acquired for investment and may not be sold or transferred except in compliance with the registration requirements of the Securities Act of 1933, as amended, and applicable state securities laws or pursuant to an exemption therefrom.”
(c) Any attempt to transfer any Registrable Security which is not in accordance with this Agreement shall be null and void and the Company agrees that it will not cause, permit or give any effect to any Transfer of any Registrable Securities to be made on its books and records unless such Transfer is permitted by this Agreement and has been made in accordance with the terms hereof.
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(d) Each Stockholder agrees that it will not effect any Transfer of Registrable Securities unless such Transfer is a Permitted Transfer and is made (i) pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act or pursuant to Rule 144 or Rule 144A promulgated under the Securities Act and (ii) in accordance with all applicable Laws (including, without limitation, all securities laws).
(e) The restrictions contained in this Section 2.1 shall expire on the first anniversary of the date of this Agreement.
Section 2.2 Permitted Transfers.
(a) Notwithstanding anything to the contrary contained herein and subject to Sections 2.2(b) and 2.2(c), a Stockholder may at any time effect any of the following Transfers (each a“Permitted Transfer”, and each transferee of such Stockholder in respect of such Transfer, a“Permitted Transferee”):
(i) any Transfer of any or all Registrable Securities held by a Stockholder who is a natural Person following such Stockholder’s death by will or intestacy to such Stockholder’s legal representative, heir or legatee;
(ii) any Transfer of any or all Registrable Securities held by a Stockholder who is a natural Person as a gift or gifts during such Stockholder’s lifetime to such Stockholder’s spouse, children, grandchildren or a trust or other legal entity for the exclusive benefit of such Stockholder or any one or more of the foregoing; or
(iii) any Transfer of any or all Registrable Securities held by a Stockholder to any Affiliate of such Stockholder;provided, that any such Affiliate shall Transfer such Registrable Securities to the Stockholder from whom the Registrable Securities were originally received or acquired within five (5) calendar days after ceasing to be an Affiliate of such Stockholder.
(b) In any Transfer referred to above in clauses (i), (ii) or (iii) of Section 2.2(a), the Permitted Transferee shall agree in writing to be bound by all of the provisions of this Agreement, shall execute and deliver to the Company a counterpart to this Agreement, and shall hold all such Registrable Securities as a “Stockholder” hereunder as if such Permitted Transferee was an original signatory hereto and shall be deemed to be a party to this Agreement.
(c) Notwithstanding anything to the contrary contained in this Agreement, while such Stockholder serves as a director or officer of Company, at all times during the Company’s customary black-out periods (i.e., relating to the public release of quarterly or annual financial information) shall not sell any Equity Securities other than during any period when the directors and officers of the Company are not prohibited from selling Equity Securities pursuant to the written policies and procedures of the Company governing transfers of Equity Securities by such officers and directors during such ordinary black-out periods as may be in effect from time to time. Provided that the pledge of Common Stock complied with this Section 2.2(c) when pledged, foreclosure by a pledgee on Common Stock shall not violate this Section 2.2(c).
Section 2.3 Standstill.
For the period (theDEED“Standstill Period”) commencing on the date hereof and ending on June 30, 2009, no Subject Stockholder shall, and each Subject Stockholder shall cause its Affiliates not to, unless expressly agreed in writing, in advance, by Company, directly or indirectly, in any manner whatsoever:
(a) acquire, announce an intention to acquire, offer or propose to acquire, solicit an offer to sell or agree to acquire, or enter into any arrangement or undertaking to acquire, directly or indirectly, by purchase, or otherwise, record or direct or indirect beneficial ownership interest in any Standstill Securities or other securities of the Company or any of its Subsidiaries or any direct or indirect rights, warrants or options to acquire record or direct or indirect beneficial ownership of any securities or assets of the Company or any of its Subsidiaries;
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(b) make, effect, initiate, cause or participate in any take-over bid, tender offer, exchange offer, merger, consolidation, business combination, recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction involving Company or any of its Subsidiaries;
(c) other than as a director or officer of the Company, solicit, make, effect, initiate, cause, or in any way participate in, directly or indirectly, any solicitation of proxies or consents from any holders of any securities of Company or any of its Subsidiaries or call or seek to have called any meeting of stockholders of Company or any of its Subsidiaries;
(d) form, join or participate in, or otherwise encourage the formation of, any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any securities of Company or any of its Subsidiaries that are not Standstill Securities;
(e) arrange, facilitate, or in any way participate, directly or indirectly, in any financing for the purchase of any securities Company or any of its Subsidiaries that are not Standstill Securities;
(f) (i) act, directly or indirectly, to seek control or direct the board of directors, stockholders, policies or affairs of the Company or any of its Subsidiaries; (ii) solicit, propose, seek to effect or negotiate with any other Person with respect to any form of business combination transaction involving Company or any take-over bid, tender, exchange offer, merger, consolidation, recapitalization, restructuring, liquidation, dissolution, or other extraordinary transaction involving Company or any of its Subsidiaries; or (iii) disclose an intent, purpose, plan or proposal with respect to an acquisition of Company, or any securities or assets of Company or any of its Subsidiaries that are not Standstill Securities;
Notwithstanding anything to the contrary in this Section 2.3, each Subject Stockholder shall be permitted to sell its Equity Securities in any Sale of the Company that has been approved by the board of directors of Company and which recommendation has not been withdrawn.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 Required Registrations.
(a) Shelf Registration Statement. Company shall file a registration statement under the Securities Act on or about June 30, 2009 covering all of the Registrable Securities then held by the Stockholders onForm S-3 or such other available forms (the“Shelf Registration”), provided that each such Stockholder desiring to participate in such Shelf Registration shall comply with Section 3.8 hereof, and to have such Registration Statement declared effective to enable the resale of such Registrable Securities after June 30, 2009 on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (the“Shelf Registration Statement”) through AMEX or such other market as may be the principal market on which the Registrable Securities are then quoted or listed. Company will use all commercially reasonable efforts to cause the Shelf Registration Statement to remain continuously effective under the Securities Act until the earlier of the date on which all Registrable Securities held by the Stockholders shall have either (i) been sold in accordance with this Section 3.1(a) or (ii) ceased to be outstanding.
(b) Required Registrations. If at any time after (i) the Shelf Registration Lapse Date or (ii) the Company fails to maintain the Shelf Registration continuously effective pursuant to Section 1(a) hereof, Company shall be requested in writing, which writing shall specify the Registrable Securities to be registered and, if applicable, the intended method of disposition thereof (a“Demand Request”), by Havner, Valenta or Laminar (each a“Demanding Stockholder”), to effect a registration under the Securities Act of Registrable Securities held by such Stockholders (each, a“Required Registration”), then Company shall promptly use all commercially reasonable efforts to effect such Required Registration by filing, at Company’s option, either aForm S-1 orForm S-3 registration statement (a“Demand Registration Statement”);provided the Company shall not be required to comply with more than one (1) Demand Request during any twelve (12) month period. Each of Havner, Valenta and Laminar may only exercise one (1) Demand Request under this Agreement;provided,however, that a
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request or registration shall not count as one of the Demand Requests (or Required Registrations) until it has become effective, and neither the last nor any subsequent Demand Requests (or Required Registrations) shall count as one of the Demand Requests (or Demand Registrations) unless the holders of Registrable Securities are able to register and sell at least 85% of the Registrable Securities requested to be included in such registration;provided, that in any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Required Registration whether or not it has become effective and whether or not such registration has counted as one of the Required Registrations hereunder. Subject to the provisos in the preceding sentence, the Company shall only be obligated to comply with three (3) Demand Requests in total. Upon receipt by Company of a Demand Request, Company shall deliver a written notice (a“Demand Notice”) to each Stockholder who did not make such Demand Request stating that Company intends to comply with a Demand Request and informing each such Stockholder of its right to include Registrable Securities in such Required Registration. Within ten (10) Business Days after receipt of a Demand Notice, each Stockholder shall have the right to request in writing that Company include all or a specific portion of the Registrable Securities held by such Stockholder in such Required Registration. Notwithstanding anything to the contrary set forth herein, Company shall be obligated to effect any one or more of such Required Registrations pursuant to a Shelf Registration Statement if the Demanding Stockholder so requests in connection with any Demand Request.
(c) Selection of Underwriters. In the event that the Registrable Securities to be registered pursuant to a Required Registration are to be disposed of in an underwritten public offering, the underwriters of such public offering shall be one or more underwriting firms of nationally recognized standing selected by the Company and reasonably acceptable to the Demanding Stockholder. In the event Company elects to file a Demand Registration Statement onForm S-3 and the underwriters, if any, in such public offering or the Demanding Stockholder requests that Company provide disclosures otherwise required in connection with aForm S-1 registration statement, then Company shall include in such Demand Registration Statement such “long form” disclosures.
(d) Priority on Required Registrations. In the event that, in the case of any Required Registration, the managing underwriter for the public offering contemplated by Section 3.1(b) shall advise Company in writing (with a copy to each holder of Registrable Securities requesting sale) that, in such underwriter’s opinion, the amount of securities requested to be included in such Required Registration would adversely affect the public offering and sale (including pricing) of such Registrable Securities (such writing to state the basis of such opinion and the approximate number of Registrable Securities that may be included in such public offering without such effect), Company will include in such Required Registration the number of Registrable Securities that the Company is so advised can be sold in such public offering, in the following amounts:
(i) first,all Registrable Securities requested to be sold by holders of Registrable Securities pursuant to Section 3.1(b)pro rataamong such holders on the basis of the number of Registrable Securities owned by each such holders; and
(ii) second,securities proposed to be sold by Company for its own account.
(e) Black Out Period. Notwithstanding any other provision of this Agreement to the contrary, if the Board reasonably determines that the registration and distribution of Registrable Securities (i) would reasonably be expected to impede, delay or interfere with, or require premature disclosure of, any material financing, offering, acquisition, merger, corporate reorganization, or other significant transaction or any negotiations, discussions or pending proposals with respect thereto, involving Company or any of its Subsidiaries, or (ii) would require disclosure of non-public material information, the disclosure of which would reasonably be expected to adversely affect Company, Company shall (x) be entitled to postpone the filing or effectiveness or suspend the effectiveness of a registration statementand/or the use of any prospectus for a period of time not to exceed one hundred twenty (120) days and (y) promptly give the Stockholders written notice of such postponement or suspension (which notice need not specify the nature of the event giving rise to such suspension); provided, that Company shall not utilize the right described in Section 3.1(b) more than once in any twelve (12) month period. Notwithstanding anything to the contrary set forth herein, any application of the provisions of Section 2.2(c) of this Agreement that results in a postponement of the effectiveness of a registration statement pursuant to this Section 3.1(e) shall not be included in calculating the120-day period.
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Section 3.2 Incidental Registration.
(a) Filing of Registration Statement. If, at any time after the first anniversary of the date hereof, the Company proposes to register, for its own account or for the account of any other Person any of its securities (an“Incidental Registration”) under the Securities Act (other than pursuant to a registration statement onForm S-4 orForm S-8 or any successor forms thereto) for sale to the public, it will at each such time give prompt written notice to all Stockholders of its intention to do so, which notice shall be given at least thirty (30) days prior to the date that a registration statement relating to such registration is proposed to be filed with the SEC. Upon the written request of any Stockholder to include Registrable Securities held by it that are not otherwise covered by the Shelf Registration Statement or a Demand Registration Statement in such Incidental Registration (which request shall (i) be made within fifteen (15) days after the receipt of any such notice, and (ii) specify the Registrable Securities intended to be included by such holder), Company will use all commercially reasonable efforts to effect the registration of all Registrable Securities that Company has been so requested to register by such Stockholder; provided,however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, Company shall determine for any reason to terminate such registration statement and not to register such securities, Company may, at its election, give written notice of such determination to each such holder and, thereupon, shall be relieved of its obligation to register any Registrable Securities of such Persons in connection with such registration.
(b) Selection and Use of Underwriters. Underwriters, if any, in connection with any offering pursuant to this Section 3.2 shall be selected at the sole and exclusive discretion of Company. No Stockholder shall Transfer any Registrable Securities included in the Incidental Registration other than through the underwriter or underwriters so selected by Company.
(c) Priority on Incidental Registrations. If the managing underwriter for the offering contemplated by this Section 3.2 shall advise Company in writing that, in such underwriter’s opinion, the number of securities requested to be included in such Incidental Registration would adversely affect the offering and sale (including pricing) of such securities, Company shall include in such Incidental Registration the number of securities that Company is so advised can be sold in such offering, in the following amounts and order of priority:
(i) first,securities proposed to be sold by Company for its own account;
(ii) second,securities proposed to be sold for persons who triggered such Incidental Registration under a demand right; and
(ii) third,securities proposed to be sold by all other persons pro rata among such persons.
Section 3.3 Registration Procedures.
Company will use all commercially reasonable efforts to effect the Shelf Registration and Required Registration pursuant to Section 3.1 and each Incidental Registration pursuant to Section 3.2, and to cooperate with the sale of such Registrable Securities in accordance with such registration statements as quickly as reasonably practicable, and Company will as expeditiously as reasonably practicable:
(a) subject to the rights of Company set forth in Section 3.2(a), prepare and file with the SEC the registration statement and use all commercially reasonable efforts to cause the Registration to become effective;
(b) subject, in the case of an Incidental Registration, to the proviso to Section 3.2(a), prepare and file with the SEC such amendments and post-effective amendments to any registration statement and any prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until such time as all of such Registrable Securities have been disposed of in accordance with such registration statement and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
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(c) furnish, upon request, at no charge to the holders of the Registrable Securities, to each holder of Registrable Securities to be included in such Registration and the underwriter or underwriters, without charge, at least one copy of the signed registration statement and any post-effective amendment thereto, and such number of conformed copies thereof and such number of copies of the prospectus (including each preliminary prospectus and each prospectus filed under Rule 424 under the Securities Act), any amendments or supplements thereto and any documents incorporated by reference therein, as such holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities being sold by such holder (it being understood that Company consents to the use of the prospectus and any amendment or supplement thereto by each holder of Registrable Securities covered by such registration statement and the underwriter or underwriters, in connection with the offering and sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto);
(d) promptly notify each holder of the Registrable Securities to be included in such Registration and the underwriter or underwriters:
(i) of any stop order or other order suspending the effectiveness of any registration statement, issued or threatened by the SEC in connection therewith, and take all commercially reasonable actions required to prevent the entry of such stop order or to remove it or obtain withdrawal of it at the earliest possible moment if entered;
(ii) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective;
(iii) of any written request by the SEC for amendments or supplements to such registration statement or prospectus or additional information;
(iv) of the receipt by Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; and
(v) following it becoming aware thereof, notify the Stockholders of the occurrence of any event that makes any statement made in a registration statement or prospectus untrue in any material respect or that requires the making of any changes in a registration statement or prospectus so that, in such regard, it shall not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements (in the case of a prospectus, in light of the circumstances under which they were made), not misleading;
(e) if requested by the managing underwriter or underwriters, promptly incorporate in a prospectus supplement or post-effective amendment such information relating to such underwriting as the managing underwriter or underwriters reasonably request to be included therein; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;provided,however, that Company shall not be required to take any action pursuant to this Section 3.3(e) that would, in the opinion of counsel to the Company, violate applicable Law;
(f) on or prior to the date on which a Registration is declared effective, use all commercially reasonable efforts to register or qualify, and cooperate with the holders of Registrable Securities to be included in such Registration, the underwriter or underwriters, if any, and their counsel, in connection with the registration or qualification of the Registrable Securities covered by such Registration for offer and sale under the securities or “blue sky” laws of each state and other jurisdiction of the United States as any such holder or underwriter reasonably requests in writing; use all commercially reasonable efforts to keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the period such registration statement is required to be kept effective; and do any and all other acts or things reasonably
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necessary or advisable to enable the disposition of the Registrable Securities in all such jurisdictions reasonably requested to be covered by such Registration.
(g) in connection with any sale pursuant to a Registration, cooperate with the holders of Registrable Securities to be included in such Registration and the managing underwriter or underwriters, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends including, without limitation, those set forth in Section 2.1) representing securities to be sold under such Registration, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such holders may request;
(h) use all commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities within the United States and having jurisdiction over Company or any Subsidiary as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, as applicable, to consummate the disposition of such securities;
(i) use all commercially reasonable efforts to obtain such legal opinions and auditors’ consents as may be required by applicable Law;
(j) otherwise comply with all applicable rules and regulations of the SEC, and make generally available to its security holders (as contemplated by Section 11(a) under the Securities Act) an earnings statement satisfying the provisions of Rule 158 under the Securities Act no later than ninety (90) days after the end of the twelve (12) month period beginning with the first month of Company’s first fiscal quarter commencing after the effective date of the registration statement, which statement shall cover said twelve (12) month period;
(k) use all commercially reasonable efforts to cause its senior executive officers to participate in “road shows” at the request of the underwriters in connection with a Required Registration;provided, that such senior executive officers shall not be required to participate in “road shows” for more than two (2) Required Registrations;
(l) register the Registrable Securities on trading on AMEX, or such other national securities exchange or NASDAQ where the Common Stock is registered for public trading;
(m) provide copies to Stockholders of “cold comfort” letters or other documents provided to underwriters; and
(n) prior to filing of a registration statement with the SEC, deliver to the Stockholders and counsel for the Stockholders a copy of such registration statement.
Section 3.4 Registration Expenses.
Company will pay all Registration Expenses in connection with each registration of Registrable Securities, including, without limitation, any such registration not effected by the Company.
Section 3.5 Indemnification; Contribution.
(a) Company shall indemnify, to the fullest extent permitted by applicable Law, each holder of Registrable Securities, its officers, directors, partners, employees and agents, if any, and each Person, if any, who controls such holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, resulting from any violation by Company of the provisions of the Securities Act or any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented if amended or supplemented) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus, in light of the circumstances under which they were made) not misleading, except to the extent that such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in, or by any omission or alleged omission from, information concerning any holder of Registrable Securities furnished in writing to Company by such holder expressly for use
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therein. No action or failure to act on the part of the underwriters (whether or not such underwriter is an Affiliate of any holder of Registrable Securities) shall affect the obligations of Company to indemnify any holder of Registrable Securities or any other Person pursuant to the preceding sentence. In connection with any underwritten offering pursuant to Section 3.2, Company agrees to enter into an underwriting agreement in customary form with the applicable underwriters, and Company agrees to indemnify such underwriters, their officers, directors, employees and agents, if any, and each Person, if any, who controls such underwriters within the meaning of Section 15 of the Securities Act to the same extent as herein before provided with respect to the indemnification of the holders of Registrable Securities; provided that Company shall not be required to indemnify any such underwriter, or any officer, director or employee of such underwriter or any Person who controls such underwriter within the meaning of Section 15 of the Securities Act, to the extent that the loss, claim, damage, liability (or proceedings in respect thereof) or expense for which indemnification is claimed results from such underwriter’s failure to send or give a copy of an amended or supplemented final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such amended or supplemented final prospectus prior to such written confirmation and the underwriter was provided with such amended or supplemented final prospectus.
(b) In connection with any registration statement in connection with an offering in which a holder of Registrable Securities is participating, each such holder, severally and not jointly, shall indemnify, to the fullest extent permitted by applicable Law, Company, each underwriter and their respective officers, directors, employees and agents, if any, and each Person, if any, who controls Company or such underwriter within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact in, or any omission or alleged omission of a material fact required to be stated in, the registration statement or prospectus or preliminary prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein (in the case of any prospectus, in light of the circumstances under which they were made) not misleading, but only to the extent that such untrue statement is contained in, or such omission is from, information so concerning a holder furnished in writing by such holder expressly for use therein;provided that such holder’s obligations hereunder shall be limited to an amount equal to the net proceeds to such holder of the Registrable Securities sold pursuant to such registration statement.
(c) Any Person entitled to indemnification under the provisions of this Section 3.5 shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any settlement made without its consent (which shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any registration statement provided for under this Article III shall so provide. In the event an indemnifying party shall elect not to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim.
(d) If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (ii) if the allocation provided by clause (i) above is not permitted by applicable Law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Notwithstanding the foregoing, no holder of Registrable Securities shall be required to contribute any amount in excess of the amount such holder would have been required to pay to an indemnified party if the indemnity under Section 3.5(b) were available. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from
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any Person who was not guilty of such fraudulent misrepresentation. The obligation of any Person to contribute pursuant to this Section 3.5 shall be several and not joint.
(e) An indemnifying party shall make payments of all amounts required to be made pursuant to the foregoing provisions of this Section 3.5 to or for the account of the indemnified party from time to time promptly upon receipt of bills or invoices relating thereto or when otherwise due or payable.
(f) The indemnity and contribution agreements contained in this Section 3.5 shall remain in full force and effect regardless of any investigation made by or on behalf of a participating holder of Registrable Securities, its officers, directors, agents or any Person, if any, who controls such holder as aforesaid, and shall survive the Transfer of Equity Securities by such holder and the termination of this Agreement for any reason.
Section 3.6 Holdback Agreements.
Each Stockholder agrees not to sell, make any short sale of, grant any option for the purchase of, or otherwise dispose of any Equity Securities, other than those Registrable Securities included in such Registration pursuant to Section 3.1 or 3.2(a), for the seven (7) days prior to and the ninety (90) days after the effectiveness of the registration statement pursuant to which such offering shall be made (or such longer periods as may be advised by the underwriter with respect to the applicable offering but in any event not to exceed thirty (30) days prior to and ninety (90) days after the effectiveness of such registration statement). Company agrees that it and its executive officers will be subject to the holdback period requested by the underwriters of a Required Registration, if any, pursuant to this Section 3.6 to the extent that such underwriters determine such holdback by Company and its executive officers is reasonably necessary for the successful offering and sale of all Registrable Securities in connection with such registration.
Section 3.7 Availability of Information.
The Company shall cooperate with each Stockholder who is a holder of any Registrable Securities in supplying such information as may be reasonably necessary for such holder to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of an exemption from the Securities Act for the sale of any Registrable Securities.
Section 3.8 Information Concerning Stockholders.
It shall be a condition precedent to the obligations of the Company to include the Registrable Securities of any selling Stockholder in any registration statement or prospectus, as the case may be, that such selling Stockholder shall take the actions described in this Section 3.8:
(a) each selling Stockholder that has requested inclusion of its Registrable Securities in any registration statement shall furnish to the Company in writing all information as may be necessary to make the information previously furnished to the Company by such Stockholder, in light of the circumstances under which it was made, not misleading, any other information regarding such Stockholder and the distribution of such Registrable Securities as may be required to be disclosed in the prospectus or registration statement under applicable Law or pursuant to SEC comments and any information otherwise reasonably requested from time to time by the Company to comply with applicable Law or regulations, including, without limitation, (i) the then current name and address of such Stockholder(s), (ii) the aggregate number of Registrable Securities requested to be registered, (iii) the total number of Registrable Securities then held by such Stockholder(s), (iv) the intended means of distribution, and (v) any other information required to be disclosed with respect to such Stockholder or such Stockholder’s Registrable Securities in the registration statement or related prospectus by the Securities Act;
(b) each selling Stockholder shall promptly (i) following it becoming aware thereof, notify the Company of the occurrence of any event that makes any statement made in a registration statement or prospectus regarding such selling Stockholder untrue in any material respect or that requires the making of any changes in a registration statement or prospectus so that, in such regard, it shall not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements (in the
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case of a prospectus, in light of the circumstances under which they were made), not misleading and (ii) in connection with providing such notice, provide the Company with such information in its possession as may be required to enable the Company to prepare a supplement or post-effective amendment to any such registration statement or a supplement to such prospectus;
(c) with respect to any registration statement for an underwritten offering, the inclusion of a Stockholder’s Registrable Securities therein shall be conditioned, at the managing underwriter’s request, upon the execution and delivery by such Stockholder of an underwriting agreement as may be negotiated by the Company;
(d) any sale of any Registrable Securities by any Stockholder shall constitute a representation and warranty by such Stockholder that the prospectus delivered by such Stockholder does not as of the time of such sale contain any untrue statement of a material fact relating to the information expressly provided in writing by such Stockholder for inclusion in such prospectus and that such prospectus does not as of the time of such sale omit to state any material fact relating to the information expressly provided in writing by such Stockholder for inclusion in such prospectus necessary to make the statements in such prospectus, in light of the circumstances under which they were made, not misleading; and
(e) no Stockholder shall use, distribute or otherwise disseminate any “free writing prospectus”, as defined in Rule 405 under the Securities Act, in connection with the sale of Registrable Shares under the Shelf Registration Statement, without the prior written consent of the Company.
ARTICLE IV
BOARD OF DIRECTORS OF THE COMPANY
Section 4.1 Composition.
(a) At the Effective Time, the Company shall expand the size of the Board so that the number of members on the Board is equal to six (6) and shall appoint Havner, whose term will end at the annual meeting of stockholders of the Company held in 2009.
ARTICLE V
MISCELLANEOUS
Section 5.1 Entire Agreement.
This Agreement, including the schedules hereto and any other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
Section 5.2 Table of Contents; Captions.
The table of contents and the Article and Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.
Section 5.3 Counterparts.
This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument.
Section 5.4 Notices.
Any notice or other communication required or permitted under this Agreement shall be deemed to have been duly given (i) five (5) Business Days following deposit in the mails if sent by registered or certified mail, postage prepaid, (ii) when sent, if sent by facsimile transmission, if receipt thereof is confirmed by telephone, (iii) when
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delivered, if delivered personally to the intended recipient and (iv) two (2) Business Days following deposit with a nationally recognized overnight courier service, in each case addressed as follows:
If to Company, to:
General Finance Corporation
39 East Union Street
Pasadena, CA 91103
Facsimile:(626) 795-8090
and if to any of the Stockholders, to the addresses or facsimile numbers set forth opposite each of their names on Schedule I attached hereto; or such other addresses or number as shall be furnished in writing by any such party.
Section 5.5 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the Company, the Stockholders and their respective successors and Permitted Transferees. Any or all of the rights of a Stockholder under this Agreement may be assigned or otherwise conveyed by any Stockholder only in connection with a Transfer of Equity Securities which is in compliance with this Agreement.
Section 5.6 Governing Law.
The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof.
Section 5.7 Submission to Jurisdiction.
(a) Each of the parties hereto hereby irrevocably acknowledges and consents that any legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement may be brought in the courts of the State of California, County of Los Angeles or in the United States District Court for the Central District of California and each of the parties hereto hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each party hereby further irrevocably waives any claim that any such courts lack jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that any such court lacks jurisdiction over such party. Each party irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its address for notices set forth in Section 5.4, such service to become effective ten (10) days after such mailing. Each party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other documents contemplated hereby that service of process was in any way invalid or ineffective. Subject to Section 5.7(b), the foregoing shall not limit the rights of any party to serve process in any other manner permitted by law.
(b) The parties hereto agree that any judgment obtained by any party hereto or its successors or assigns in any action, suit or proceeding referred to above may, in the discretion of such party (or its successors or assigns), be enforced in any jurisdiction, to the extent permitted by applicable Law.
(c) The parties hereto agree that the remedy at law for any breach of this Agreement may be inadequate and that should any dispute arise concerning any matter hereunder, this Agreement shall be enforceable in a court of equity by an injunction or a decree of specific performance. Such remedies shall, however, be cumulative and nonexclusive, and shall be in addition to any other remedies which the parties hereto may have.
(d) The prevailing party or parties in any legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement shall be entitled to receive from the losing party or parties all costs and expenses, including reasonable counsel fees, incurred by the prevailing party or parties.
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Section 5.8 Third Party Beneficiaries.
Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto, provided, however, the persons entitled to indemnification under Section 3.5 shall be third-party beneficiaries hereof.
Section 5.9 Confidentiality.
Each Stockholder hereby agrees that it shall keep (and shall use all commercially reasonable efforts to cause its directors, officers, general and limited partners, employees, representatives and outside advisors and its Affiliates to keep) all non-public information relating to Company received by it in connection with any Registration confidential except information which (a) becomes known to such Stockholder from a source, other than Company, its directors, officers, employees, representatives or outside advisors, which source, to the actual knowledge of such Stockholder, is not obligated to Company to keep such information confidential or (b) is or becomes generally available to the public through no breach of this Agreement by such Stockholder. Company and each Stockholder agrees that (i) such non-public information may be communicated to the directors, officers, general and limited partners, employees, representatives, outside advisors and Affiliates of such Stockholder and (ii) such Stockholder will use all commercially reasonable to cause its directors, officers, general and limited partners, employees, representatives, outside advisors or Affiliates to keep such non-public information confidential. Notwithstanding the foregoing, a Stockholder may disclose non-public information if required to do so upon request for disclosure pursuant to a federal or state freedom of information statute or by a court of competent jurisdiction or by any governmental agency; provided however, that, to the extent permitted by law, prompt notice of such required disclosure be given to Company prior to the making of such disclosure so that Company may seek a protective order or other appropriate remedy. In the event that such protective order or other remedy is not obtained, the Stockholder required to disclose the non-public information will disclose only that portion which such party is legally required to be disclosed and will request that confidential treatment be accorded such portion of the non-public information.
Section 5.10 Amendments; Waivers.
No provision of this Agreement may be amended, modified or waived without the prior written consent of the Company and holders of more than ninety percent (90%) of the issued and outstanding Registrable Securities, collectively. Notwithstanding the foregoing, the addition of parties to this Agreement in accordance with its terms shall not be deemed to be an amendment, modification or waiver requiring the consent of any Stockholder.
Section 5.11 No Strict Construction.
The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
Section 5.12 Specific Performance.
Company and each Stockholder agrees that irreparable damages would occur to Company or such Stockholder, as the case may be, if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each of Company and each Stockholder shall be entitled to seek an injunction or injunctions to prevent actual breaches of this Agreement by Company or the Stockholders, as the case may be, and to enforce specifically the terms and provisions hereof in the courts referenced in Section 5.7 (or, on a preliminary basis in order to preserve the status quo pending a decision of the courts referenced in Section 5.7, or in order to enforce a judgment of the courts referenced in Section 5.7, in any court of competent jurisdiction), in addition to having any other remedies to which the Company or such Stockholder is entitled at law or in equity and without the necessity of proving damages or posting a bond or other security.
Section 5.13Several Liability
No Stockholder shall have any liability or obligations hereunder for any covenant of, or breach hereof by, any other Stockholder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
GENERAL FINANCE CORPORATION
Name:
STOCKHOLDERS:
Name:
Name:
Name:
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Schedule I
STOCKHOLDERS
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EXECUTEDName of StockholderbyGFNH AUSTRALASIA
| | )Number of Shares | | |
FINANCE PTY LIMITEDNotice Address
| | ) | | |
| | | | | |
Signature of director | | | | Signature of director / company secretary
(delete as applicable) |
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Name of director (print) | | | | Name of director / company secretary (print) |
EXECUTEDby[NEW SHAREHOLDER] | | ) | | |
| | ) | | |
| | | | |
Signature of director | | | | Signature of director / company secretary
(delete as applicable) |
| | | | |
Name of director (print) | | | | Name of director / company secretary (print) |
| | | | |
EXECUTEDby[OUTGOING ENTITY] | | ) | | |
| | ) | | |
| | | | |
Signature of director | | | | Signature of director / company secretary
(delete as applicable) |
| | | | |
Name of director (print) | | | | Name of director / company secretary (print) |
| | | | |
EXECUTEDas anAGREEMENT
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SIGNEDon behalf of Bison Capital | | ) | | |
Australia, L.P. | | ) | | |
| | ) | | |
| | ) | | |
By: Bison Capital Australia GP, LLC | | | | |
| | | | |
By: | | | | |
| | | | |
Its: | | | | |
| | | | |
Signature of witness | | | | Signature of representative |
| | | | |
Name of witness (print) | | | | Name of representative (print) |
| | | | |
EXECUTEDbyGENERAL FINANCE | | ) | | |
CORPORATION | | ) | | |
By: | | | | |
Its: | | | | |
S-4A-71
| | | | |
) | | | | ) |
EXECUTEDbyGFNH AUSTRALASIA | | ) | | |
FINANCE PTY LIMITED | | ) | | |
| | | | |
Signature of director | | | | Signature of director/company secretary (delete as applicable) |
| | | | |
Name of director (print) | | | | Name of director/company secretary (print) |
| | | | |
EXECUTEDbyGFNH AUSTRALASIA | | ) | | |
HOLDINGS PTY LIMITED | | ) | | |
| | | | |
Signature of director | | | | Signature of director/company secretary
(delete as applicable) |
| | | | |
Name of director (print) | | | | Name of director/company secretary (print) |
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Annex C
BACK UP PURCHASE AGREEMENTExhibit E
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS BACK UP PURCHASEFIRST AMENDMENT TO EMPLOYMENT AGREEMENT ((this“Agreement”Amendment”) is made on the 29th dayentered into as of March, 2007,July 22, 2008 by and among the Bison Capital Australia, L.P.between Pac-Van, Inc., a Delaware limited partnership (thean Indiana corporation“Bison/GE Partnership”), Ronald Valenta, individually (“Valenta”), Kaiser Investments Limited, a Bermuda Company (the“Kaiser Trust”), FOMM Pty Limited (as trustee of the FOMM Trust) (“Trust 1”), FOMJ Pty Limited (as trustee of the FOMJ Trust) (“Trust 2”), Cetro Pty Limited (as trustee of the FOMP Trust) (“Trust 3”(“Pac-Van”), and TCWE Pty Limited (as trustee of the McCann Family Trust) (alongTheodore M. Mourouzis(“Employee” and collectively with Trust 1, Trust 2 and Trust 3,Pac-Van, the“Management Shareholders”Parties”).
RECITALS
WHEREAS, the Management Shareholders, the Bison/GE Partnership, Equity Partners Two Pty Limited (in its capacity as trustee of Equity Partners 2 Trust), General Finance Corporation (“GFC”) and GFN Australasia Finance Pty Limited (“GFN”) are parties toParties entered into that certain Share Sale DeedEmployment Agreement dated as of even date herewithAugust 1, 2006 (the“Share Sale Deed”Original Agreement”). Terms capitalized but undefined herein shall have the meanings given to such terms in the Share Sale Deed.; and
WHEREAS, under the Share Sale Deed, GFC has agreed to cause GFN to acquire all of the shares of RWA Holdings Pty Limited (“Royal Wolf”) held by the Bison/GE Partnership and any Persons to whom the Bison/GE Partnership has transferred such shares (the“Bison/GE RW Shares”) in accordance with the Shareholders Agreement by and between the Bison/GE Partnership and the Management Shareholders dated of even date herewith (the“New Shareholders’ Agreement”).
WHEREAS, under the Share Sale Deed, GFC has also agreed to cause GFN to acquire all of the shares of Royal Wolf held by the Management Shareholders that are not acquired by the Bison/GE Partnership as of the date hereof under the Share Sale Deed (the“Management Shareholder RW Shares”). GFC’s and GFN’s obligation to acquire the Bison/GE RW Shares and the Management Shareholder RW Shares under the Share Sale Deed shall be referred to herein as the“Sale Deed Purchase Obligation.”
WHEREAS, the parties desire to enter into this Agreement to provide for certain Valenta indemnification obligations to the Bison/GE Partnership with respect to the transactions contemplated by the Share Sale Deed and in connection with the Bison/GE Partnership’spotential acquisition dispositionof Pac-Van by General Finance Corporation (“GFN”), the Parties desire to amend the Original Agreement as set forth herein, and ownership of Royal Wolf Shares,desire that, except as set forth in this Amendment, the Original Agreement shall remain in full force and also to obligate Valenta to acquire the Bison/GE RW Shares and the Management Shareholder RW Shares as further provided herein if GFN does not acquire the Shares (defined below) from the Bison/GE Partnership and the Management Shareholders pursuant to the Sale Deed Purchase Obligation (a“Sale Deed Purchase Termination”).effect.
NOW THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of therespective representations, warranties, covenants, agreements and covenants contained herein, Valenta,conditions hereinafter set forth, and other good and valuable consideration, the Kaiser Trust,receipt and sufficiency of which are hereby acknowledged, the Management Shareholders (as applicable) and the Bison/GE Partnershipparties hereto hereby agree as follows:
ARTICLE 1
SALE DEED PURCHASE TERMINATION
1.11. Sale Deed Purchase TerminationDefinitions. If a Sale Deed Purchase Termination has occured, then ValentaCapitalized terms used herein and not otherwise defined herein shall have the obligationmeanings ascribed to cause an entity controlled by Valenta (“Valenta Sub”)them in the Original Agreement (without regard to this Amendment).
2. Amendment. Reference hereby is made to the Agreement and Plan of Merger of even date herewith, among Pac-Van, Mobile Office Acquisition Corp., to acquire all, but not less than all,GFN and the other parties named therein (the “Merger Agreement”). If, and only if, the Merger (as defined in the Merger Agreement) occurs, then on the Effective Time (as defined in the Merger Agreement), Section 2 of the Bison/GE RW SharesOriginal Agreement is hereby amended and the Management Shareholder RW Shares as providedrestated in Article 2 below or, if the Bison/GE Partnership so elects, as provided in Article 3 (such obligation the“Valenta Acquisition Obligation”). The Bison/GE Partnership shall promptly give written notice of the Sale Deed Purchase Termination to Valenta (the“Termination Notice”). Within 10 business days of his receipt of the Termination Notice, Valenta shall (a) transfer and at all times maintain US$5,000,000 in a deposit account at a financial institution satisfactory to the Bison/GE Partnership, and (b) deliver to the Bison/GE Partnership and the Management Shareholders a fully executed control agreement in respect of such deposit account in form and substance satisfactory to the Bison/GE Partnership and the
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Management Vendors, which control agreement shall create a fully perfected lien on such deposit account in favor of the Bison/GE Partnership and the Management Shareholders.
ARTICLE 2
VALENTA EXCHANGE OBLIGATION
2.1 Exchange Obligation. In order to satisfy the Valenta Acquisition Obligation, Valenta shall have the obligation (the“Exchange Obligation”) within the time periods prescribed herein and after receipt of a Termination Notice to cause Valenta Sub to enter into an exchange with the Bison/GE Partnership and the Management Shareholders whereby Valenta Sub will acquire from the Bison/GE Partnership and from the Management Shareholders (and from any other Person to whom Royal Wolf shares have been transferred by the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement) all but not less than all of the Royal Wolf shares held by the Bison/GE Partnership, the Management Shareholders and by such other Persons (the“Shares”) in return for the payment to the Bison/GE Partnership and the Management Shareholders by Valenta of the Exchange Amount (defined below) and the Management Shareholders (and any other Person to whom Royal Wolf shares shall have been transferred by the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement) shall exchange the Shares with Valenta Sub in return for the payment by Valenta Sub to the Bison/GE Partnership and the Management Shareholders of the Exchange Amount all as provided herein. The exchange of the Shares in return for the Exchange Amount in connection with the Exchange Obligation shall be referred to herein as the“Exchange.”
Valenta shall utilize all efforts and take all actions necessary to consummate the Exchange or the Buyout (defined below), as applicable, under this Agreement. Such efforts shall include but not be limited to causing each of Valenta’s affiliates, subsidiaries and any entities over which he exercises influence, control or direction, to discharge and support his obligations under this Agreement, including by causing such affiliates or entities to purchase from the Bison/GE Partnership and the Management Shareholders for the Buyout Amount (defined below) any Shares that Valenta Sub is obligated to acquire pursuant to its Buyout Obligation hereunder.
2.2 Exchange Amount. The payment (the“Exchange Amount”) for the Shares in connection with the Exchange shall beentirety as follows:
“2. To the Management Shareholders in accordance with the Management Vendors Respective Proportions:
(a) cash (in US$) equal to the Management Vendors Second Completion Payment with the interest calculated thereon as provided in the Share Sale Deed accruing until the dateTerm of the Exchange hereunder plus any portion of the Restraint Amount owed to the Management Vendors under Section 15.8 of the Share Sale Date that remains unpaid.
To the Bison/GE Partnership:
(b) that number of shares of the most senior class of equity of Valenta Sub that equals 30% of all classes of Valenta Sub capital stock calculated on a fully diluted basis (assuming exercise, exchange or conversion in full of all options, warrants, and any other convertible or derivative securities, or securities exchangeable for such stock and the application of any anti-dilution or similar adjustments affecting such stock) (the“Retained Interest”) subject to the following:
(i) immediately following the issuance of the Retained Interest and the Notes (as defined below), the total debt of Valenta Sub (calculated on a consolidated basis with Royal Wolf) does not exceed 5.0 times the sum of (A) earnings before interest, taxes, depreciation and amortization and (B) extraordinary and non-recurring expenses of Royal Wolf as determined in accordance with Australian International Financial Reporting Standards for the12-month period that most recently ended (the“VS Leverage Ratio”). If the VS Leverage Ratio exceeds 5.0, then Valenta and Valenta Sub will contribute such amount of cash into Royal Wolf (without any corresponding charges into the parties respective equity or debt ownership positions) such that, immediately following such contribution, the VS Leverage Ratio does not exceed 5.0.
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(ii) The valuation of the Retained Interest shall be equal to 42.86% of the total cash invested by Valenta and Valenta Sub under Section 2.2(a) and underSections 2.2(c)(i)-(c)(iii) plusthe sum of (A) any amounts actually advanced by Valenta to GFC and used by GFC to make deposits of the Purchase Price with RWA under the Share Sale Deed (the“Advance Deposits”)and (B)the Advance Deposits multiplied by the following: (A)(1) the number of days elapsed from the First Completion Date through and including the date of the Exchangedividedby (2) 360,multipliedby (B) 18%. By way of example only, if the Valenta Sub invests $30.0 million to complete the transaction whereby the Management Shareholders are purchased in full pursuant to the Second Closing as defined in the Share Deed Agreement, Bison Capital will retain $12.87 million of equity alongside the Valenta Sub, provided that pro forma leverage is less than 5.0x;
(c) cash (in US$) equal to:
(i) US$45,000,000;plus.
(ii) interest on US$45,000,000 for the period from First Completion Date to the Exchange Closing calculated at the rate of 18% per annum on daily rests (but not capitalised); plus
(iii) the US$ value of any portion of the Restraint Amount paid by the Bison/GE Partnership plus interest on such amount calculated at the rate of 18% per annum on daily rests (but not capitalised) beginning as of the date of the payment of the Restraint Amount or portion thereof by the Bison/GE Partnership and ending on the Exchange Closing; plus
(iv) 2.5% of the sum of the amounts determined pursuant to paragraphs (i), (ii) and (iii) above if the Exchange Closing takes place within 6 months of First Completion or 3% of those amounts if the Exchange Closing takes place more than 6 months after First Completion ; less
(v) the US$ amount of the Retained Interest; less
(vi) the US$ principal value of the Notes; and
(d) US$15,8000,000 in Bison Capital Senior Subordinated Notes (the “Notes”) and a warrant to acquire Valenta Sub shares, which warrant shall be for 3.2% of Valenta Sub (calculated on a fully diluted basis) and which warrant shall have a strike price (in the aggregate) of not more than the 3.2% of the equity value used to determine the value of the Retained Interest (the “Warrant”) each in form and substance satisfactory to the Bison/GE Partnership and in accordance with, and subject to the documentation contemplated by, the proposal letter between GFC, GFN and Bison Equity of even date herewith, attached hereto as ExhibitC (the “Amended LOI”), notwithstanding the fact the term of such Amended LOI may be expired, to the same extent and the same effect as if Valenta and Valenta Sub rather than GFC and GFN were always a party thereto. If the Warrants are not exercised then the Repayment Premium in the Amended LOI shall apply.
2.3 Covenants of Valenta and the Bison/GE Partnership.
(a) Valenta must:
(i) At the Exchange Closing (as defined below), enter into a shareholders agreement with the Bison/GE Partnership with respect to their ownership of Valenta Sub in the form attached hereto as Exhibit A(the“Valenta/Bison/GE Shareholders’ Agreement”), and cause any other shareholder of Valenta Sub to enter into the Valenta/Bison/GE Shareholders’ Agreement;
(ii) At the Exchange Closing, pay all stamp duty, GST and other transfer taxes associated with the Exchange;
(iii) At the Exchange Closing, cause Royal Wolf to pay to the Bison/GE Partnership the US$ amount of the expenses of Bison Capital Equity Partners II-A, L.P., Bison Capital Equity Partners II-B, L.P., GE Asset Management Incorporated, General Electric Pension Trust, and the Bison/GE Partnership incurred in connection with the transactions contemplated by the Share Sale Deed, this Agreement, any payments, fees, costs or expenses made after the First Completion Date under the Share Sale Deed (including, without limitation,
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any payment of the Restraint Amount) and those costs, fees and expenses required to be reimbursed in connection with the Notes and the Warrant as set forth in the Amended LOI (the“Bison/GE Transaction Expenses”). If Royal Wolf fails to pay the Bison/GE Transaction Expenses Valenta shall be directly obligated to pay such expenses,provided that the legal fees subject to reimbursement by Valenta and Valenta Sub for services received during the period following delivery of the Termination Notice through and including the Exchange Closing shall not exceed $175,000 (the“Fee Cap”),provided, that the Fee Cap shall not apply if the Exchange Closing fails to occur;
(iv) At the Exchange Closing, represent and warrant to the Bison/GE Partnership and the Management Vendors in writing the “Representations” contained in Section 16.1 of the Share Sale Deed in connection with Valenta Sub’s acquisition of the Shares and also represent and warrant and cause Valenta Sub to represent and warrant in writing to the Bison/GE Partnership and the Management Vendors that neither Valenta nor Valenta Sub has actual knowledge of any facts giving rise to any Claim or potential Claim under the Share Sale Deed where it would be reasonable for Valenta or Valenta Sub to conclude that there was a breach of a Warranty and neither GFC nor GFN have violated, breached or taken any action that conflicts with the terms and provisions of the Share Sale Deed;
(v) Immediately prior to payment of the Retained Interest, represent and warrant to the Bison/GE Partnership in writing that (1) Valenta Sub’s only liabilities, debt or obligations other than under this Agreement are the Notes, (2) the controlling shareholder of Valenta Sub is Valenta unless the Bison/GE Partnership consents, in its sole discretion, in writing to the issuance of interests in Valenta Sub to such other person or persons, and (3) no other person has any right or option to acquire any shares or interests in Valenta Sub; and
(vi) Cause Valenta Sub prior to and at the payment of the Retained Interest to (1) have liabilities, debt and obligations only under this Agreement and the Notes, (2) cause the controlling shareholder of Valenta Sub (other than the Bison/GE Partnership) to be Valenta unless otherwise approved in writing by the Bison/GE Partnership, (3) to only have one class of shares issued and outstanding, (4) be in the form and have the structure and capitalization that is mutually satisfactory to the Bison/GE Partnership and Valenta, and (5) to not issue and not have issued or agreed to issue any rights or options to acquire any shares or interests in Valenta Sub (the covenants in items (i) through (vi) immediately above and along with Valenta’s obligation to pay the Exchange Amount, the“Valenta Covenants”).
(b) The Bison/GE Partnership and the Management Shareholders, as applicable, must take the following actions:.
(i) At the Exchange Closing, the Bison/GE Partnership must enter into the Valenta/Bison/GE Shareholders’ Agreement;
(ii) At the Exchange Closing, the Bison/GE Partnership must represent and warrant in writing to Valenta and Valenta Sub as of the Exchange Closing that (a) the provisions of this Article 2 applicable to the Bison/GE Partnership are valid and binding and enforceable against the Bison/GE Partnership in accordance with its terms, and (b) the Bison/GE Partnership and the Persons to whom the Bison/GE Partnership transferred Shares in accordance with the New Shareholders’ Agreement, if applicable, are, subject to the truth and accuracy of the Title and Capacity Warranties of the Original Vendors in the Share Sale Deed, the sole registered and sole legal owners of the Royal Wolf shares that are being exchanged by the Bison/GE Partnership in connection with the Exchange (the“Bison/GE Representations and Warranties”) (the covenants in the above items (i) and (ii) along with the Bison/GE Partnership’s obligation to deliver the Shares in accordance herewith, the“Bison/GE Covenants”); and
(iii) At the Exchange Closing, each of the Management Shareholders must represent and warrant in writing to Valenta and Valenta Sub as of the Exchange Closing that (a) the provisions of this Article 2 applicable to such Management Shareholder are valid and binding and enforceable against such Management Shareholder, and (b) such Management Shareholder and the Persons to whom such Management Shareholder transferred Shares in accordance with the New Shareholders’ Agreement, if applicable, are the sole registered and sole legal owners of the Royal Wolf shares that are being exchanged by such Management Shareholder in
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connection with the Exchange (the“Management Shareholders’ Representations and Warranties”) (the covenants in this item (iii) along with the Management Shareholders’ respective obligations to deliver their respective Shares in accordance herewith, the“Management Shareholder Covenants”).
2.4 Exchange Closing Conditions.
(a) Valenta Sub shall not be obligated to acquire the Shares held by the Bison/GE Partnership and its transferees as provided in the New Shareholders’ Agreement pursuant to the Exchange unless the Bison/GE Partnership has complied with the Bison/GE Covenants.
(b) Valenta Sub shall not be obligated to acquire the Shares held by the Management Shareholders and their transferees in accordance with the New Shareholders’ Agreement pursuant to the Exchange unless the Management Shareholders have complied with the Management Shareholder Covenants.
(c) The Bison/GE Partnership, the Management Shareholders and any of the transferees of Royal Wolf shares from the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement shall not be obligated to sell the Shares to Valenta Sub unless:
(i) Valenta and Valenta Sub have complied with the Valenta Covenants;
(ii) ANZ enters into a subordination agreement with respect to the Notes that is acceptable to the Bison/GE Partnership; and
(iii) the ANZ Facility remains in place and is in full force and effect or another facility acceptable to the Bison/GE Partnership is in place and is in full force and effect.
(d) If the Bison/GE Partnership waives any of the closing conditions in Section 2.4(c) (other than those contained in Section 2.3(a)(ii) and 2.3(a)(iv) with respect to the “Representations” contained in Section 16.1 of the Share Sale Deed) and sells its Shares to the Valenta Sub, then the Management Shareholders shall also be obligated to sell their respective Shares to the Valenta Sub in accordance with the terms hereof, regardless of whether such closing conditions have been satisfied.
(e) If the Bison/GE Partnership and the persons to whom it has transferred Shares in accordance with the New Shareholders Agreement sell their Shares to Valenta Sub in accordance with the terms hereof but the Management Shareholders are unable to satisfy the closing conditions in Section 2.4(b), then at the request of the Bison/GE Partnership, Valenta and the Valenta Sub shall use commercially reasonable efforts to enforce the Management Shareholder Covenants necessary to satisfy such closing conditions.
2.5 Exchange ClosingEmployment. The consummation of the Exchange pursuant to this Article 2 (the“Exchange Closing”) shall take place at the offices of Sheppard, Mullin, Richter & Hampton, LLP at 333 South Hope Street, 48th Floor, Los Angeles, California, 90071 (or at such other place upon which Bison/GE Partnership and Valenta shall agree), on the date (the“Exchange Closing Date”) that is no later than ninety (90) calendar days after the delivery of the Termination Notice. At the Exchange Closing, Valenta must deliver to the Bison/GE Partnership and the Management Shareholders by wire transfer of immediately available funds their respective cash portion of the Exchange Amount and must deliver to the Bison/GE Partnership the Notes, Warrant and certificates representing the Retained Interest portion of the Exchange Amount against the simultaneous delivery the certificates representing the Shares, and a duly executed transfer in favour of Valenta Sub. At the Exchange Closing, Valenta Sub shall be substituted for the Bison/GE Partnership as the Purchaser under the Share Sale Deed and the Bison/GE Partnership shall have no further duties, obligations or liabilities of any type, kind or nature under the Share Sale Deed.
ARTICLE 3
VALENTA BUYOUT OBLIGATION/SUBORDINATION BY MANAGEMENT SHAREHOLDERS
3.1 Buyout Obligation. If Valenta fails to satisfy the Valenta Acquisition Obligation pursuant to the Exchange Obligation by the Exchange Closing Date or within the time period prescribed in Section 4.1(c), then in accordance with the terms and conditions set forth herein, the Bison/GE Partnership may elect, by giving written
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notice to Valenta after the failure of Valenta to consummate the Exchange Closing as provided herein (the“Buyout Notice”), to require Valenta to satisfy the Valenta Acquisition Obligation by causing Valenta Sub to acquire from the Bison/GE Partnership and from the Management Shareholders (and from any other Person to whom Royal Wolf shares have been transferred by the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement) the Shares (the“Buyout Obligation”) in return for the payment to the Bison/GE Partnership and the Management Shareholders by Valenta of the Buyout Amount (defined below) and the Bison/GE Partnership and the Management Shareholders (and any other Person to whom Royal Wolf shares shall have been transferred by the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement) shall sell the Shares to Valenta Sub for the payment by Valenta Sub to the Bison/GE Partnership and the Management Shareholders of the Buyout Amount. The sale of the Shares for the Buyout Amount in connection with the Buyout Obligation shall be referred to herein as the“Buyout.”
The Bison/GE Partnership may elect, by giving written notice to Valenta within ten (10) business days after the failure of Valenta to consummate the Exchange Closing by the Exchange Closing Date or within the time period prescribed in Section 4.1(c), to terminate the Valenta Acquisition Obligation, at which point Valenta’s obligation to consummate the Valenta Acquisition ObligationEmployee’s employment under this Agreement shall terminate. Nocommence on August 1, 2006 and shall end on July 31, 2010(“Initial Term”) or such termination shall affect any other right or obligation of any of the parties hereunder
Neither Valenta, Valenta Sub or any of their subsidiaries or affiliates shall have any rights in Royal Wolf, its subsidiaries, affiliates, assets or the Shares or any right to acquire any interest or interests in the Shares, Royal Wolf, its assets or its subsidiaries or affiliates under this Agreement unless Valenta Sub consummates the Exchange or the Buyout in accordance with the terms and provisions of this Agreement.
3.2 Buyout Amount. The payment for the Shares in connection with the Buyout (the“Buyout Amount”) shall be as follows:
(a) To the Management Shareholders in accordance with the Management Vendors Respective Proportions: cash (in US$) equal to the Management Vendors Second Completion Payment with the interest calculated thereon as provided in the Share Sale Deed accruing until theearlier date of the Buyout hereunder plus any portion of the Restraint Amount owed to the Management Vendorson which Employee’s employment is terminated under Section 15.8 of the Share Sale Date that remains unpaid.
(b) To the Bison/GE Partnership: US$62,500,000 plus any amounts paid by the Bison/GE Partnership under the Share Sale Deed that along with all other amounts paid thereunder by the Bison/GE Partnership (including any portion of the Restraint Amount paid by the Bison/GE Partnership (other than that portion included within Bison/GE Transaction Expenses that is reimbursed under 3.3(c)) exceed US$45,000,000 (the“Bison/GE Buyout Amount”).
3.3 Covenants of Valenta
Valenta must:
(a) At the Buyout Closing (defined below), pay to the Management Shareholders and the Bison/GE Partnership the Buyout Amount;
(b) At the Buyout Closing, pay all stamp duty, GST and other transfer taxes associated with the Buyout.
(c) At the Buyout Closing, pay or cause Royal Wolf to pay to the Bison/GE Partnership the US$ amount of the Bison/GE Transaction Expenses;
(d) At the Buyout Closing, represent and warrant and cause Valenta Sub to represent and warrant to the Bison/GE Partnership and the Management Shareholders in writing the “Representations” contained in Section 16.1 of the Share Sale Deed in connection with Valenta Sub’s acquisition of the Shares and must also represent and warrant and cause Valenta Sub to represent and warrant in writing to the Bison/GE Partnership and the Management Shareholders that neither Valenta nor Valenta Sub has actual knowledge or any facts giving rise to any Claim or potential Claim where it would be reasonable for Valenta or Valenta Sub to conclude that there was a breach of a Warranty and neither GFC nor GFN have violated, breached or taken any action that conflicts with the terms and provisions of the Share Sale Deed (the covenants in the above items
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(a) through (d) along with Valenta’s obligation to deliver the Buyout Amount in accordance herewith, the“Valenta Buyout Covenants”).
3.4 Covenants of the Bison/GE Partnership and the Management Shareholders.
(a) At the Buyout Closing, the Bison/GE Partnership must represent and warrant in writing to Valenta and Valenta Sub as of the Buyout Closing that (a) the provisions of this Article 3 applicable to the Bison/GE Partnership are valid and binding and enforceable against the Bison/GE Partnership in accordance with its terms, and (b) the Bison/GE Partnership and the Persons to whom the Bison/GE Partnership transferred Shares in accordance with the New Shareholders’ Agreement, if applicable, are, subject to the truth and accuracy of the Title and Capacity Warranties of the Original Vendors in the Share Sale Deed, the sole registered and sole legal owners of the Royal Wolf shares that are being exchanged by the Bison/GE Partnership in connection with the Buyout (the“Bison/GE Buyout Representations and Warranties”) (the covenants in the above items (a) and (b) along with the Bison/GE Partnership’s obligation to deliver the Shares in accordance herewith, the“Bison/GE Buyout Covenants”); and
(b) At the Buyout Closing each of the Management Shareholders must represent and warrant in writing to Valenta and Valenta Sub as of the Buyout Closing that (a) the provisions of this Article 3 applicable to such Management Shareholder are valid and binding and enforceable against such Management Shareholder, and (b) such Management Shareholder and the Persons to whom such Management Shareholder transferred Shares in accordance with the New Shareholders’ Agreement, if applicable, are the sole registered and sole legal owners of the Royal Wolf shares that are being exchanged by such Management Shareholder in connection with the Buyout (the“Management Shareholders’ Buyout Representations and Warranties”) (the covenants in this item (b) along with the Management Shareholders’ respective obligations to deliver the Shares in accordance herewith, the“Management Shareholder Buyout Covenants”).
3.5 Buyout Closing Conditions.
(a) Valenta Sub shall not be obligated to acquire the Shares held by the Bison/GE Partnership and its transferees in accordance with the New Shareholders’ Agreement pursuant to the Buyout unless the Bison/GE Partnership has complied with the Bison/GE Buyout Covenants.
(b) Valenta Sub shall not be obligated to acquire the Shares held by the Management Shareholders and their transferees in accordance with the New Shareholders’ Agreement pursuant to the Buyout unless the Management Shareholders have complied with the Management Shareholder Buyout Covenants.
(c) The Bison/GE Partnership, the Management Shareholders and any of the transferees of Royal Wolf shares from the Bison/GE Partnershipand/or the Management Shareholders in accordance with the New Shareholders’ Agreement shall not be obligated to sell the Shares to Valenta Sub unless Valenta and Valenta Sub have complied with the Valenta Buyout Covenants.
3.6 Buyout Closing. The consummation of the Buyout pursuant to this Article 3 (the“Buyout Closing”) shall take place at the offices of Sheppard, Mullin, Richter & Hampton, LLP at 333 South Hope Street, 48th Floor, Los Angeles, California, 90071 (or at such other place upon which Bison/GE Partnership and Valenta shall agree), on the date (the“Buyout Closing Date”) that is no later than eighteen (18) months after the First Completion Date. At the Buyout Closing, Valenta must deliver to the Bison/GE Partnership and the Management Shareholders by wire transfer of immediately available funds their respective portions of the Buyout Amount against the simultaneous delivery of certificates representing the Shares, and a duly executed transfer in favour of Valenta Sub. At the Buyout Closing, Valenta Sub shall be substituted for the Bison/GE Partnership as the Purchaser under the Share Sale Deed and the Bison/GE Partnership shall have no further duties, obligations or liabilities of any type, kind or nature under the Share Sale Deed.
3.7 Subordination by the Management Shareholders. Each of the Management Shareholders covenants and agrees that (i) all payments and performance of the Obligations owed to the Management Shareholders by Valenta, Valenta Suband/or the Kaiser Trust under this Agreement or any other document executed in connection with the transactions contemplated hereby, including any extensions, amendments or other modifications to such Obligations (collectively, the“Subordinated Obligations”) and (ii) any Liens granted to any Management Shareholder in support of such Subordinated Obligations, shall be subordinated to (i) the prior indefeasible payment
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in full, in cash, of all Obligations owed to the Bison/GE Partnership by Valenta, Valenta Suband/or the Kaiser Trust under this Agreement or any other document executed in connection with the transactions contemplated hereby, including any extensions, amendments or other modifications to such Obligations (collectively, the“Senior Obligations”) and (ii) any Liens granted to the Bison/GE Partnership in support of such Subordinated Obligations. Each of the Management Shareholders, Valenta and the Kaiser Trust further agree that:
(a) Management Shareholders shall not receive proceeds from, and Valenta, Valenta Sub and the Kaiser Trust shall not make, perform, satisfy or comply with any Subordinated Obligation to the extent such would require payment of any amounts to the Management Shareholders prior to the indefeasible payment in full, in cash, of all Senior Obligations;
(b) All liens granted by Valenta, Valenta Sub or the Valenta Trust in their respective assets in favor of the Management Shareholder shall, prior to the indefeasible payment in full, in cash, of all Senior Obligations, be subordinate to any liens the Bison/GE Partnership has or would otherwise be entitled to under this Agreement. None of Valenta, Valenta Sub or the Valenta Trust shall grant any liens in their respective assets in favor of any Person other than the Bison/GE Partnership and the Management Shareholders without the prior written consent of the Management Shareholders and, prior to the indefeasible payment in full, in cash, of all Senior Obligations, the Bison/GE Partnership, in each case in their sole respective discretion;
(c) Any Lien that exists in favor of the Management Shareholder shall, prior to the indefeasible payment in full, in cash, of all Senior Obligations, be subordinate, junior and inferior and postponed in priority, operation and effect to the priority, operation and effect of all of the Liens securing all or any part of the Senior Obligations, notwithstanding the perfection, order of perfection or failure to perfect or failure to maintain the perfection of any such Lien or the filing or recording, order of filing or recording or failure to file or record any instrument or other document in any filing or recording office in any jurisdiction;
(d) upon any distribution of assets in the event of any dissolution or winding up or total or partial liquidation or reorganization, whether voluntary or involuntary, or adjustment or protection or relief or composition of Valenta, Valenta Sub or the Kaiser Trust, or their respective debts, or in any bankruptcy, insolvency, receivership, arrangement, reorganization, relief or other proceeding of Valenta, Valenta Sub or the Kaiser Trust or upon an arrangement for the benefit of creditors of Valenta, Valenta Sub or the Kaiser Trust or any other marshalling of the assets and liabilities of Valenta, Valenta Sub or the Kaiser Trust, all amounts payable under or on account of the Senior Obligations shall first be paid indefeasibly in full, in cash, before the holders of Subordinated Obligations shall be entitled to receive any distribution of assets;
(e) until the Senior Obligations are paid indefeasibly in full, in cash, or unless requested in writing by the Bison/GE Partnership, the Management Shareholders shall not, without the Bison/GE Partnership’s prior written consent, given in its sole and absolute discretion: (i) assert, collect or enforce the Subordinated Obligations or any of the amounts due thereunder, or exercise any right of set-off; or (ii) commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Valenta, Valenta Sub or the Kaiser Trust or any administrative, legal or equitable action that might adversely affect Valenta, Valenta Sub or the Kaiser Trust or its interest, including, without limitation, any administrative, legal or equitable action which is intended to or which results in the entry of a decree or order for relief in respect of Valenta, Valenta Sub or the Kaiser Trust under any Debtor Relief Law; and
(f) if any Management Shareholder receives any payment in violation of this Section, such Management Shareholder shall hold the proceeds from any such payment in trust for the Bison/GE Partnership and immediately on becoming aware of such violation pay such amounts to the Bison/GE Partnership.
ARTICLE 4
OBLIGATIONS UPON FAILURE TO CLOSE
4.1 Valenta Obligations Upon Failure to Close the Exchange Obligationand/or the Buyout Obligation.
(a) Notwithstanding any other provision of this Section 4.1, if Valenta fails to comply with Article 8 to the satisfaction of the Bison/GE Partnership beginning immediately upon a Security Triggering Event under
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subsection (a) of the definition of “Security Triggering Event” (the“Further Assurances Default”), then Valenta must immediately consummate the Buyout (i.e., the Buyout Closing is to occur immediately upon such failure to comply with Article 8) regardless of whether Valenta was at such time obligated to satisfy the Valenta Acquisition Obligation pursuant to the Exchange Obligation or the Buyout Obligation. Failure to immediately consummate the Buyout after a Further Assurances Default shall be deemed to be an Event of Default and Liquidated Damages shall accrue until the consummation of the Buyout with such Liquidated Damages due upon consummation of the Buyout. To be clear, Liquidated Damages shall begin to accrue immediately upon the failure to consummate the Buyout after a Further Assurances Default regardless of any cure period under Section 12.12 of this Agreement. If a Buyout Notice has not otherwise already been delivered, no Buyout Notice must be delivered to Valenta in order to trigger Valenta’s obligations under this Section 4.1(a).
(b) If Valenta must satisfy the Valenta Acquisition Obligation pursuant to the Exchange Obligation and the Exchange Closing has not occurred within ninety (90) days after the Sale Deed Purchase Termination and such ninety (90) day period ends after the first anniversary of the First Completion,then Valenta shall not be entitled to satisfy the Valenta Acquisition obligation pursuant to the Exchange Obligation and must, if so elected by the Bison/GE Partnership in a Buyout Notice, satisfy such obligation pursuant to the Buyout Obligation. Subject to Section 4.1(a), a Buyout that must be consummated under this Section 4.1(b) must be consummated, subject to the time frame in Section 3.6, within one-hundred eighty (180) days after the date that is ninety (90) days after the Sale Deed Purchase Termination.
(c) If Valenta must satisfy the Valenta Acquisition Obligation pursuant to the Exchange Obligation and the Exchange Closing has not occurred within ninety (90) days after the Sale Deed Purchase Termination, then the Exchange Closing may, subject to Section 4.1(a), still occur if such Exchange Closing occurs within one (1) year after the First Completion. If the Exchange is not consummated within one (1) year after the First Completion as provided in this Section 4.1(c), then Valenta shall not be entitled to satisfy the Valenta Acquisition Obligation pursuant to the Exchange Obligation and must, if so elected by the Bison/GE Partnership in a Buyout Notice, satisfy such obligation pursuant to the Buyout Obligation. A Buyout that must be consummated under this Section 4.1(c) must, subject to Section 4.1(a), be consummated within one-hundred eighty (180) days after the date that is one (1) year after the First Completion.
(d) Any failure to consummate a Buyout within the time periods prescribed in this Section 4.1 and Section 3.6, as applicable, shall be deemed to be an Event of Default and Liquidated Damages shall accrue beginning on such Event of Default until the consummation of the Buyout with such Liquidated Damages due upon consummation of the Buyout. To be clear, Liquidated Damages, if they have not already begun to accrue as a result of another event under this Section 4.1, shall begin to accrue immediately upon the failure to consummate the Buyout as provided herein regardless of any cure period under Section 12.12 of this Agreement.
4.2 Valenta Management Shareholder Re-imbursement Obligations. If Valenta Sub must satisfy the Valenta Acquisition Obligation and Valenta Sub fails to consummate the Exchange Obligation or the Buyout Obligation as required hereunder, and thereafter Bison/GE Partnership causes the Management Shareholders to sell their Royal Wolf shares pursuant to a drag-along sale under the New Shareholders’ Agreement or the Management Shareholders otherwise sell their shares to a third party, then, in addition to any damages or remedies the Management Shareholders would otherwise be entitled to, Valenta and Valenta Sub shall be jointly and severally obligated to pay the Management Shareholders the difference between the consideration the Management Shareholders received for their Royal Wolf shares in connection with such drag-along or other sale, and the consideration they would have received had Valenta Sub consummated the Exchange Obligation or Buyout Obligation as required in this Agreement.
4.3 Management Shareholder Drag Along Rights.
(a) Drag Along Right. If in connection with a Buyout Valenta Sub has acquired pursuant to this Agreement all of the Shares held by the Bison/GE Partnership and the persons to whom it has transferred Shares in accordance with the New Shareholders’ Agreement but Valenta Sub does not, in accordance with this Agreement, acquire all of the Shares held by the Management Shareholders and the persons to whom the Management Shareholders have transferred Shares in accordance with the New Shareholders’ Agreement (the“Management Shareholder Transferees” and along with the Management Shareholders the“Remaining Management Shareholders”),
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the Remaining Management Shareholder(s) holding not less than 60% of the Shares held by the Remaining Management Shareholder(s) that are not acquired by Valenta Sub as required in this Agreement may exercise the Drag-Along rights with respect to Valenta Sub’s ownership of Shares as provided in this Section 4.3.
(b) Drag Along Offer. Following the failure of Valenta Sub to acquire all of the Shares held by the Management Shareholders in connection with a Buyout, if the Remaining Management Shareholder(s) holding not less than 60% of all Shares held by the Remaining Management Shareholders receive a Buy Out Offer from an Offeror, then the Remaining Management Shareholder (or those Remaining Management Shareholders) that hold more than 60% of the Shares held by the Remaining Management Shareholders may give to each other Remaining Management Shareholder and Valenta Sub a Drag Along Notice.
(c) An Alternative Purchaser. An Alternative Purchaser may within 5 Business Days of receipt of a Drag Along Notice elect by notice in writing to each Receiving Shareholder to acquire all of the Shares held by the Receiving Shareholders on the terms and conditions specified in the Buy Out Offer. The notice must be accompanied by a deposit of 10% of the consideration payable to the Receiving Shareholders by the Alternative Purchaser based on the terms and conditions of the Buy Out Offer.
(d) Sale to Alternative Purchaser. If an Alternative Purchaser has complied with the requirements of Section 4.3(c), the Receiving Shareholders must sell their Shares free from all Security Interests to the Alternative Purchaser. Completion of the sale must take place on the date that is 20 Business Days after the date of the Drag Along Notice. If more than one Alternative Purchaser has complied with the requirements of Section 4.3(c), the Receiving Shareholders must sell their Shares to the Alternative Purchasers free from all Security Interests in proportion to the number of Shares held by each Alternative Purchaser.
(e) Sale to Offeror. If no Alternative Purchaser complies with the requirements of Section 4.3(c) each Remaining Management Shareholder and Valenta Sub, on the later of 5 Business Days after receipt of a Drag Along Notice and the receipt from the Offeror of the consideration payable to that Remaining Management Shareholder and Valenta Sub on the terms and conditions of the Buy Out Offer, must sell its Shares to the Offeror free from all Security Interests.
(f) Completion. A Remaining Management Shareholder (and Valenta Sub) who is required by this Section 4.3 to sell its Shares must deliver to the purchaser of those Shares, on the date the sale is to take place in accordance with this Section 4.3, duly executed transfers and share certificates in respect of the Shares, together with signed dischargesand/or releases as are necessary for those Shares to be transferred free of all Security Interests.
(g) Default. If a Remaining Management Shareholderand/or Valenta Sub fails to sell its Shares as required by this Section 4.3 or fails to deliver the documents required by this Section 4.3 within the time periods specified, the Remaining Management Shareholder not in default under this Section 4.3 holding the greatest proportion of the Shares held by all Remaining Management Shareholders is irrevocably appointed as the attorney of the other Remaining Management Shareholders and Valenta Sub to do all things and execute all documents on behalf of that Remaining Management Shareholderand/or Valenta Sub to effect compliance by that Remaining Management Shareholder or Valenta Sub of its obligations. Each Remaining Management Shareholder and Valenta Sub (and Valenta on behalf of Valenta Sub) ratify and confirm all such actions carried out on its behalf by the attorney or attorneys
(h) Definitions. Solely for the purposes provided in this Section 4.3, the following terms shall have the following meanings:
“Drag Along Notice” means a notice that:
(1) is in writing;
(2) sets out the details of a Buy Out Offer;
(3) is signed by the Remaining Management Shareholder(s) giving the notice; and
(4) states that the Management Shareholder(s) giving the notice has or will accept the Buy Out Offer in respect of all of its Securities.
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“Buy Out Offer” means a bona fide offer to acquire all of the Shares from another person. The consideration for such an offer may be in the form of cash, shares or other valuable consideration. If the consideration is not in the form of cash, the offer must state the cash value of that consideration as determined by an independent valuer.
“Alternative Purchaser” means a Remaining Management Shareholder other than a Selling Shareholder.
“Offeror” means a person who makes a Buy Out Offer.
“Receiving Shareholder” means Valenta Sub and the Remaining Management Shareholders other than an Alternative Purchaser.
“Security Interest” solely for the purpose of Section 4.3 means any mortgage, pledge, lien, hypothecation, charge or other form of security interest or interest in the nature of a security interest whatsoever.
(j) To the extent the Remaining Management Shareholders do not receive consideration in return for their Shares upon consummation of the sale of Shares in accordance with this Section 4.3 that is equal to the consideration they would have received for such Shares upon the consummation of the Buyout, Valenta shall cause Valenta Sub and the Kaiser Trust, and Valenta Sub and Kaiser Trust shall be obligated to, pay to the Remaining Management Shareholders that portion of the proceeds received by Valenta Sub from the sale of its Shares in accordance with this Section 4.3 in order to ensure that the Remaining Management Shareholders receive the consideration for the sale of their Shares that they would have received upon consummation of the Buyout, as applicable (the“Consideration Deficit Payment”). If Valenta Sub does not receive sufficient proceeds in connection with a sale of Shares under this Section 4.3 to pay the entire Consideration Deficit Payment to the Remaining Management Shareholders, then Valenta and the Kaiser Trust shall promptly pay to the Remaining Management Shareholders the amount of the Consideration Deficit Payment that remains unpaid. The rights under this Section 4.3 shall be without prejudice to any rights or remedies the Management Shareholders may have against Valenta, Valenta Sub or the Kaiser Trust for any breach6 of this Agreement by Valenta or the Kaiser Trust.(the“Expiration Date”).”
(k) Valenta may terminateNothing contained herein shall obligate the Management Shareholders’ rights under this Section 4.3 by payment in fullparties to the Merger Agreement to complete the Merger. If the Merger Agreement is terminated prior to completion of the Consideration Deficit Payment to the Management Shareholders.
ARTICLE 5
ADDITIONAL DEFINITIONS
As used herein, the following terms have the meanings set forth below:
“Asset Disposition” means a sale, lease, license, consignment, transfer or other disposition of property of Valenta or the Kaiser Trust, including a disposition of property in connection with a sale-leaseback transaction or synthetic lease, other than any sale, lease, license, consignment, transfer or other disposition of cash.
“Collateral” means and includes all present and future right, title and interest of Valenta or the Kaiser Trust, or any one or more of them, in or to any property or assets whatsoever, and all rights and powers of Valenta or the Kaiser Trust, or any one or more of them, to transfer any interest in or to any property or assets whatsoever, whether now or hereafter acquired and wherever the same may from time to time be located, including, without limitation, any and all of the following property:
(a) All present and future accounts, accounts receivable, agreements, contracts, leases, contract rights, payment intangibles, rights to payment, instruments, documents, chattel paper (whether tangible or electronic), promissory notes, security agreements, guaranties, letters of credit,letter-of-credit rights, undertakings, surety bonds, insurance policies (whether or not required by the terms of any of the documents executed in connection with the transactions contemplated herein), commercial tort claims, notes and drafts, any rights from or through any federal or state government agency or program, and all forms of obligations owing to Valenta or the Kaiser Trust or in which Valenta or the Kaiser Trust may have any interest, however created or arising and whether or not earned by performance;
(b) All present and future general intangibles, all tax refunds of every kind and nature to which Valenta or the Kaiser Trust now or hereafter may become entitled, however arising, all other refunds, and
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all deposits, credits, reserves, loans, royalties, cost savings, deferred payments, goodwill, choses in action, liquidated damages, rights to indemnification, trade secrets, computer programs, software, customer and supplier lists, patents (including any applications therefor), licenses, copyrights (including any applications therefor), technology, processes, proprietary information, rights to or in employee or other pension, retirement or similar plans and the assets thereof, retained and unearned insurance premiums, rights and claims under insurance policies, and all insurance proceeds of which Valenta or the Kaiser Trust is a beneficiary;
(c) All present and future: (i) trademarks, trade names, trade styles, service marks, all prints and labels on which said trademarks, trade names, trade styles and service marks appear, have appeared, or will appear, and all designs and general intangibles of a like nature, all applications, registrations, and recordings relating to the foregoing in the United States Patent and Trademark Office (“USPTO”) or in any similar office or agency of the United States of America, any state thereof, or any political subdivision thereof, or in any other countries, and all reissues, extensions, and renewals thereof (the “Trademarks”), and (ii) the goodwill of the business symbolized by each of the Trademarks, including, without limitation, all customer lists and other records relating to the distribution of products or services bearing the Trademarks (that portion of the Collateral described in the foregoing clauses (i) and (ii) is referred to herein as the “Trademark Collateral”), and all present and future patents, whether foreign or domestic, applications, registrations, and recordings relating to such patents in the USPTO or in any similar office or agency of the United States of America, any state thereof, or any political subdivision thereof, or in any other countries, and all reissues, extensions, and renewals thereof (the “Patents”, and collectively with the Trademark Collateral, the “IP Collateral”).
(d) Whether characterized as accounts, general intangibles or otherwise, all rents (including, without limitation, prepaid rents, fixed, additional and contingent rents), issues, profits, receipts, earnings, revenue, income, security deposits, occupancy charges, hotel room charges, cabana charges, casino revenues, show ticket revenues, food and beverage revenues, room service revenues, merchandise sales revenues, parking, maintenance, common area, tax, insurance, utility and service charges and contributions, instruction fees, membership charges, restaurant and snack bar revenues;
(e) All present and future deposit accounts of Valenta or the Kaiser Trust, including, without limitation, any demand, time, savings, passbook or like account maintained by Valenta or the Kaiser Trust with any bank, savings and loan association, credit union or like organization, and all money, cash and cash equivalents of Valenta or the Kaiser Trust, whether or not deposited in any such deposit account;
(f) All present and future books and records, including, without limitation, books of account and ledgers of every kind and nature, all electronically recorded data relating to Valenta or the Kaiser Trust or the business thereof, all receptacles and containers for such records, and all files and correspondence;
(g) All present and future goods, including, without limitation, all consumer goods, farm products, inventory, equipment, catalogs, machinery, tools, molds, dies, furniture, furnishings, fixtures, trade fixtures, motor vehicles, aircraft, documented and undocumented vessels, ships and other watercraft, and all other goods used in connection with or in the conduct of Valenta’s or the Kaiser Trust’s business including all goods as defined in Section 9102(a)(44) of the Uniform Commercial Code;
(h) All present and future inventory and merchandise, including, without limitation, all present and future goods held for sale or lease or to be furnished under a contract of service, all raw materials, work in process and finished goods, all packing materials, supplies and containers relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts or documents of title relating to any of the foregoing;
(i) All present and future stocks, investment property, bonds, debentures, securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts, commodity accounts, subscription rights, options, warrants, puts, calls, certificates, investment property, partnership interests, limited liability company membership or other interests, joint venture interests,
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certificates of deposit, investmentsand/or brokerage accounts and all rights, preferences, privileges, dividends, distributions, redemption payments, or liquidation payments with respect thereto;
(j) All present and future accessions, appurtenances, components, repairs, repair parts, spare parts, replacements, substitutions, additions, issueand/or improvements to or of or with respect to any of the foregoing;
(k) All other present and future tangible and intangible property of Valenta or the Kaiser Trust;
(l) All present and future rights, remedies, powersand/or privileges of Valenta or the Kaiser Trust with respect to any of the foregoing, including the right to make claims thereunder or with respect thereto; and
(m) Any and all proceeds and products of any of the foregoing, including, without limitation, all money, accounts, payment intangibles, general intangibles, deposit accounts, promissory notes, documents, instruments, certificates of deposit, chattel paper, investment property,letter-of-credit-rights, goods, insurance proceeds, claims by Valenta or the Kaiser Trust against third parties for past, present and future infringement of the Trademark Collateral or any license with respect thereto, and any other tangible or intangible property received upon the sale or disposition of any of the foregoing.
“Debt” means, as applied to any Person, without duplication, (a) all items that would be included as liabilities on a balance sheet in accordance with GAAP, including capital leases; (b) all contingent obligations; (c) all reimbursement obligations in connection with letters of credit issued for the account of such Person; and (d) in the case of Valenta or the Kaiser Trust, the Obligations. The Debt of a Person shall include any recourse Debt of any partnership in which such Person is a general partner or joint venturer.
“Debtor Relief Laws” means, collectively, the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“GAAP” means generally accepted accounting principles in effect in the United States from time to time.
“Guarantied Obligations” means, collectively, all obligations guaranteed hereunder or under any document executed in connection with the transactions contemplated herein, including without limitation, the Obligations and, to the extent Valenta and the Kaiser Trust are deemed to be sureties with respect to such obligations, the obligations of any other Person for which Valenta or the Kaiser Trust has granted an indemnification to the Bison/GE Partnershipand/or the Management Shareholders, including without limitation the obligations referred in Article 12.2.
“Lien” means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge or other encumbrance of any kind.
“Liquidated Damages” means an amount to be paid, not as a penalty, where the parties have determined that damages are uncertain and not capable of being ascertained by any satisfactory or known rule.
“Liquidity” means, as of any date of determination the aggregate amount of (a) unrestricted cash or cash equivalents, (b) amounts in deposit accounts in United States federally insured depositories, and (c) readily marketable securities.
“Obligations” means, collectively, any and all existing and future indebtedness, obligations and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees indemnities, damages, costs, expenses or otherwise, of Valenta or the Kaiser Trust to the Bison/GE Partnership and the Management Shareholders underMerger, this Agreement or other document, instrument, certificate or agreement now or hereafter
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delivered by Valenta or the Kaiser Trust or any other Person to the Bison/GE Partnership or the Management Shareholders in connection with any transactions relating hereto, including without limitation the Valenta Acquisition Obligation and the indemnification obligations set forth in Article 12.2 (including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, attorneys’ fees and expenses incurred by the Bison/GE Partnership in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness, obligations and liabilities may be or hereafter become unenforceable orAmendment shall be an allowed or disallowed claim under any proceeding or case commenced by or against Valenta, the Kaiser Trust or any other Person under any Debtor Relief Law,void and including interest that accrues after the commencement by or against Valenta, the Kaiser Trust, or any other Person of any proceeding under any Debtor Relief Laws.
“Person” means any individual or entity, including a trustee, corporation, limited liability company, general partnership, limited partnership, joint stock company, trust estate, unincorporated organization, business association, firm, joint venture, governmental agency, or other entity.
“Security Triggering Event” means: (a) 90 days following the termination of the Sale Deed Purchase Termination or (b) any Event of Default occurs that has not otherwise been cured within ten (10) business days after the date of such Event of Default to the satisfaction of the Bison/GE Partnership, provided that in no event shall a Security Triggering Event occur prior to July 31, 2007.
“Total Net Worth” means, at any date of determination, an amount equal to (a) Total Assets minus (b) Total Liabilities, and shall be determined in accordance with GAAP, on a consistent basis with the latest financial statements of Valenta and the Kaiser Trust.
“Total Assets” means total assets of Valenta and any trusts for his benefit, determined in accordance with GAAP, on a basis consistent with the latest financial statements of Valenta and the Kaiser Trust delivered to affiliates of the Bison/GE Partnership, provided that in no event shall the assets of any irrevocable life insurance trusts be included in the calculation of Total Assets.
“Total Liabilities” means total liabilities of Valenta and any trusts for his benefit, determined in accordance with GAAP, on a basis consistent with the latest financial statements of Valenta and the Kaiser Trust delivered to affiliates of the Bison/GE Partnership, provided that in no event shall the liabilities of any irrevocable life insurance trusts be included in the calculation of Total Liabilities.
“Valenta Parties” means Valenta, his immediate family members, and any trusts held for their respective benefit over which Valenta exercises discretion or control.
ARTICLE 6
GUARANTY
The Kaiser Trust hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of the Obligations. This guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations or any instrument or agreement evidencing any Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Obligations which might otherwise constitute a defense to the obligations of the Kaiser Trust under this guaranty, and the Kaiser Trust hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing. This Guaranty shall terminate following payment in full of all Obligations and the Covenant Period has terminated.
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ARTICLE 7
SECURITY AGREEMENT
For valuable consideration, each of Valenta and the Kaiser Trust hereby assign and pledge to the Bison/GE Partnership and the Management Shareholders, and grant to the Bison/GE Partnership and the Management Shareholders a security interest in, all presently existing and hereafter acquired Collateral (other than the minority interest in MSGWC Holdings Corp, a Delaware Corporation, for which Valenta and the Kaiser Trust will use reasonable commercial efforts to obtain the consent of such entity to grant a security interest in shares of such entity), as security for the timely payment and performance in full of all of the Obligations. This Agreement is a continuing and irrevocable agreement and all the rights, powers, privileges and remedies hereunder shall apply to any and all Obligations, including those arising under successive transactions which shall either continue the Obligations, increase or decrease them, or from time to time create new Obligations after all or any prior Obligations have been satisfied, and notwithstanding the bankruptcy of Valenta, the Kaiser Trust or any other Person or any other event or proceeding affecting any Person. The provisions of this Article 7 shall terminate upon payment in full of all Obligations and the Covenant Period has terminated.
ARTICLE 8
FURTHER ASSURANCES
Following a Security Triggering Event, at any time and from time to time at the request of the Bison/GE Partnershipand/or the Management Vendors, each of Valenta and the Kaiser Trust shall execute and deliver to the Bison/GE Partnership and the Management Shareholders all such security agreements, mortgages, deeds of trust and other collateral documents, financing statements and other instruments and documents in form and substance satisfactory to the Bison/GE Partnership and the Management Shareholders as shall be necessary or desirable to create and perfect, when filedand/or recorded, a security interest in any of the Collateral in order to secure the obligations of Valenta or the Kaiser Trust under this Agreement. At any time and from time to time following a Security Trigger Event, the Bison/GE Partnershipand/or the Management Shareholders shall be entitled to fileand/or record any or all such security agreements, mortgages, deeds of trust and other collateral documents, financing statements, instruments and documents held by them, and any or all such further financing statements, documents and instruments, and to take all such other actions, as the Bison/GE Partnershipand/or the Management Shareholders may deem appropriate to perfect and to maintain perfected the security interests granted to the Bison/GE Partnership and the Management Shareholders in connection with this Agreement. With respect to the Collateral consisting of certificated securities, instruments, documents, certificates of title or the like, as to which the Bison/GE Partnership’s and the Management Shareholders’ security interest need be perfected by, or the priority thereof need be assured by, possession of such Collateral, Valenta and the Kaiser Trust will upon demand of the Bison/GE Partnershipand/or the Management Vendors deliver possession of same in pledge to the Bison/GE Partnership or the Management Shareholders, as the case may be. With respect to any Collateral consisting of securities, instruments, partnership or joint venture interests or the like, Valenta and the Kaiser Trust hereby consent and agree that the issuers of, or obligors on, any such Collateral, or any registrar or transfer agent or trustee for any such Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of the Bison/GE Partnershipand/or the Management Shareholders to effect any transfer or exercise any right hereunder or with respect to any such Collateral, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Valenta, the Kaiser Trust, or any other Person to such issuers or such obligors or to any such registrar or transfer agent or trustee. Following a Security Triggering Event, at any time and from time to time at the request of the Bison/GE Partnershipand/or the Management Shareholders, Valenta shall utilize his best efforts to grant the Bison/GE Partnership and the Management Shareholders a security interest in any entity over which Valenta exercises influence or control and assets held by such entities in accordance with this Article 9 as if the assets of such trust were Collateral.
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ARTICLE 9
NEGATIVE COVENANTS
From the date hereof until all amounts due and owing to the Bison/GE Partnership, the Management Shareholders and their respective transferees and assigns (if any) have been paid in full hereunder (including all Obligations due to them (the“Covenant Period”)), Valenta and the Kaiser Trust shall not (and Valenta shall cause the Valenta Parties not to):
9.1 Debt. Create, incur, guarantee or suffer to exist any Debt, except:
(a) the Obligations;
(b) Debt incurred by the Kaiser Trust that does not exceed in the aggregate 10% of the total assets of the Kaiser Trust at any time; and
(c) other Debt that when aggregated with Debt permitted in clause (b) above does not exceed US$10,000,000 in the aggregate at any time.
9.2 Liens. Create or suffer to exist any lien upon any of its property, except the following:
(a) Liens in favor of the Bison/GE Partnership and the Management Shareholders as provided herein; and
(b) Liens securing the Debt permitted in Section 9.1 above.
9.3 Disposition of Assets. Make any Asset Disposition, except to extent such Asset Dispositions consist of the disposition of readily marketable securities and the net proceeds of such Asset Disposition are reinvested in other readily marketable securities in the ordinary course of business, and except for any other Asset Disposition with non-Affiliates in the ordinary course to the extent the proceeds thereof are in the form of cash or readily marketable securities and retained by Valenta.
9.4 Key Man Insurance. From and after April 30, 2007, fail to maintain in full force and effect one or more “key man” life insurance policies in the aggregate amount of at least US$15,000,000 beginning as of the First Completion Date and continuing at all timeswithout any further action on the life of Valenta until Valenta consummates the Exchange or the Buyout as provided herein, naming the Bison/GE Partnership and the Management Shareholders as the insured beneficiaries, each such policy to be issued by a carrier rated “A−” or better by A.M. Best Co., or if Valentaand/or Valenta Sub cannot maintain or obtain such insurance, post substitute collateral that is acceptable to the Bison/GE Partnership and the Management Shareholders in their sole discretion.
9.5 Liquidity. Fail to maintain Liquidity equal to or greater than US$10,000,000.
9.6 Total Net Worth. Fail to maintain a Total Net Worth equal to or greater than US$65,000,000.
9.7 Other Trusts. Permit any distribution of assets from any other trust over which Valenta exercises discretion or control.
ARTICLE 10
FINANCIAL AND OTHER INFORMATION
During the Covenant Period, Valenta and the Kaiser Trust shall keep adequate records and books of account with respect to its business activities, in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to the Bison/GE Partnership and the Management Shareholders:
10.1 as soon as available, and in any event within 90 days after the end of each fiscal year, balance sheets as of the end of such fiscal year and the related statements of income and cash flow for such month and for the portion of the fiscal year then elapsed, on a consolidated and consolidating basis for Valenta and the Kaiser Trust and such financial statements shall be prepared, in each case, consistent with the financial statements previously delivered to affiliates of the Bison/GE Partnership, and certified (without qualification as to scope, “going concern” or similar items) by a firm of independent certified public accountants of recognized standing selected by Valenta and acceptable to the Bison/GE Partnership and which certification
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shall (a) expressly state that such certification may be relied upon by the Bison/GE Partnership and (b) shall state that Valenta and the Kaiser Trust are in compliance with the financial covenants set forth herein;
10.2 as soon as available, and in any event within 30 days after the end of each calendar quarter, or more frequently if requested by the Bison/GE Partnership or the Management Shareholders while a Event of Default exists, a compliance certificate executed by Valenta certifying compliance with covenants set forth in Article 9 as provided in the form of compliance certificate attached hereto as Exhibit B.
10.3 immediately upon knowledge of any such circumstance, notice of (a) the threat or commencement of any proceeding or investigation, (b) the existence of any Event of Default, and (c) any judgments in an amount exceeding US$1,000,000 individually, or US$3,000,000, in the aggregate.
ARTICLE 11
EVENTS OF DEFAULT
The occurrence of any of the following events (collectively, “Events of Default”) shall constitute an Event of Default under this Agreement:
11.1 Valenta or the Kaiser Trust shall default in the due performance or observance of any covenant or condition of agreements or other documents delivered in connection with the transactions contemplated hereunder, including without limitation the covenants, agreements and delivery requirements contained in Articles 8 and 9;
11.2 Any guaranty or subordination agreement required hereunder shall be breached or become ineffective, or any guarantor or subordinating creditor shall die or disavow or attempt to revoke or terminate such guaranty or subordination agreement;
11.3 A final judgment against Valenta or the Kaiser Trust is entered for the payment of money in excess of US$1,000,000, individually, or US$3,000,000, in the aggregate (not covered by insurance or for which an insurer has reserved its rights) and, absent procurement of a stay of execution, such judgment remains unsatisfied for thirty (30) calendar days after the date of entry of judgment, or in any event later than five (5) days prior to the date of any proposed sale thereunder; or any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of Valenta or the Kaiser Trust and is not released, vacated or fully bonded within sixty (60) calendar days after its issue or levy;
11.4 Valenta or the Kaiser Trust institutes or consents to the institution of any proceeding under a Debtor Relief Law relating to it or to all or any material part of its property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its property is instituted without the consent of that Person and continues undismissed or unstayed for thirty (30) calendar days.
ARTICLE 12
GENERAL PROVISIONS
12.1 Limited Representations and Warranties of the Bison/GE Partnership and the Management Shareholders. The Bison/GE Partnership and the Management Shareholders shall not make and shall in no way be obligated or deemed to make any representations or warranties to Valenta or any of his affiliates or subsidiaries other than the Bison/GE Representations and Warranties and Management Shareholder Representations and Warranties, as applicable. Valenta hereby acknowledges and agrees that he and the Valenta Sub are Acquiring its interest in Royal Wolf as provided in this Agreement on an “as is, where is” basis.
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12.2 Indemnification and Release by Valenta.
(a) Valenta shall, and after the Exchange Closing or the Buyout Closing, as applicable, Valenta shall cause Valenta Sub, Royal Wolf and each subsidiary or affiliate of any of them (collectively “the Group”) to, jointly and severally, pay, indemnify, defend, and hold the Bison/GE Partnership and each of its officers, directors, partners, trustees, members, advisors (including, without limitation, attorneys, accountants and financial advisors), employees, agents,attorneys-in-fact and controlling Persons (each, an“Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, diminution in value (with respect to (iv) below), losses, damages, including, but not limited to, punitive, exemplary, consequential or indirect damages and liabilities of any kind, and all reasonable attorneys’ fees and disbursements and other costs and expenses actually incurred in connection therewith, or for recovery under directors’ and officers’ liability insurance policies maintained by any member of the Group (as and when they are incurred and irrespective of whether suit is brought) whether or not brought by a third party (collectively“Claims”), at any time asserted against, imposed upon, or incurred by any of them (i) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of the Share Sale Deed or this Agreement or the transactions contemplated herebyand/or thereby, including, without limitation, any failure to obtain consent or approval to consummate the transactions contemplated by the Share Sale Deed, breach of any representation, warranty, covenant or agreement made by GFN or GFC in the Share Sale Deed or breach of any representation, warranty, covenant or agreement made by Valentaand/or the Kaiser Trust in this Agreement, (ii) with respect to the acquisition of Royal Wolf shares, (iii) with respect to any investigation, litigation, or proceeding related to this Agreement or the Share Sale Deed, or the use of the proceeds provided hereunder or under the Share Sale Deed (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto including, but not limited to, in connection with the enforcement of the indemnification obligations set forth herein or in the Share Sale Deed, and (iv) if the Shares are not acquired by Valenta Sub as required pursuant to this Agreement, the diminution in value of the Group (all the foregoing, collectively, the“Indemnified Liabilities”). The foregoing to the contrary notwithstanding, neither Valenta, Valenta Sub or any other member of the Group shall have any obligation to any Indemnified Person under this Section 12.2 with respect to any Indemnified Liability: (a) arising or resulting from the Bison/GE Partnership’s breach of any of its representations, warranties, covenants and agreements under the Share Sale Deed (but not with respect to any covenant or agreement of the Bison/GE Partnership in the Share Sale Deed that is assumed by GFC as of the Second Completion and for which the Bison/GE Partnership was not in default as of the date of the assumption) or this Agreement or any other agreement, or (b) that a court of appropriate jurisdiction in a final and non-appealable determination determines to have resulted from the willful misconduct or fraud of such Indemnified Person (such determination being hereinafter referred to as a“Final Willful Misconduct Determination”). This Section 12.2 shall survive the termination of the Share Sale Deed and this Agreement.
(b) each member of the Group shall, jointly and severally, pay, indemnify, defend, and hold the Management Shareholders and each of their officers, directors, partners, trustees, members, advisors (including, without limitation, attorneys, accountants and financial advisors), employees, agents,attorneys-in-fact and controlling Persons (each, a“Shareholder Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all Claims at any time asserted against, imposed upon, or incurred by any of them (i) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement or the transactions contemplated hereby, including, without limitation, any breach of any representation, warranty, covenant or agreement made by Valentaand/or the Kaiser Trust in this Agreement, and (ii) with respect to any investigation, litigation, or proceeding related to this Agreement, or the use of the proceeds provided hereunder (irrespective of whether any Shareholder Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto including, but not limited to, in connection with the enforcement of the indemnification obligations set forth herein (all the foregoing, collectively, the“Shareholder Indemnified Liabilities”). The foregoing to the contrary notwithstanding, neither Valenta, Valenta Sub or any other member of the Group shall have any obligation to any Shareholder Indemnified Person under this Section 12.2 with respect to any Shareholder Indemnified Liability that a court of appropriate jurisdiction in a Final Willful Misconduct Determination. This Section 12.2 shall survive the termination of this Agreement.
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(c) THE INDEMNIFICATION PROVISIONS IN THIS SECTION 12.2 SHALL BE ENFORCEABLE REGARDLESS OF WHETHER THE LIABILITY IS BASED UPON PAST, PRESENT OR FUTURE ACTS, CLAIMS OR LAWS (INCLUDING ANY PAST, PRESENT OR FUTURE BULK SALES LAW, ENVIRONMENTAL LAW, FRAUDULENT TRANSFER ACT, OCCUPATIONAL SAFETY AND HEALTH LAW OR PRODUCTS LIABILITY, SECURITIES OR OTHER LAW) AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE PERSON SEEKING INDEMNIFICATION.
12.3 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California, without regard to its conflict of law or choice of law principles.
12.4 Specific Performance. The Bison/GE Partnership and the Management Shareholders acknowledge and agree that Valenta and Valenta Sub, and Valenta and Valenta Sub acknowledge and agree that the Bison/GE Partnership and the Management Shareholders, would be damaged irreparably if any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached. Accordingly, each of Valenta, Valenta Sub, the Management Shareholders and the Bison/GE Partnership agree that each of Valenta, Valenta Sub, the Management Shareholders and the Bison/GE Partnership will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the provisions of this Agreement and its terms and provisions in any action brought in any court having jurisdiction over the parties, subject to Sections 12.3 and 12.5 herein, in addition to any other remedy to which they may be entitled at law or in equity.
12.5 Jurisdiction/Venue. Each of Valenta, Valenta Sub, the Management Shareholders and the Bison/GE Partnership hereby irrevocably and unconditionally:
(a) Submits for itself and its property in any legal action or proceeding relating to this Agreement or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of California located in the City of Los Angeles, the courts of the United States of America for the Southern District of California, and appellate courts from any thereof;
(b) Consents that any such action or proceeding may be in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; and
(c) Agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Valenta, Valenta Sub, the Management Shareholders or the Bison/GE Partnership, as applicable, at its address of which each shall have been notified in writing.
12.6 Notices. All notices, demands and other communications which a party may desire, or may be required, to give to another shall be in writing, shall be delivered Personally against receipt, or sent by recognized overnight courier service, or mailed by registered or certified mail, return receipt requested, postage prepaid, or sent by telecopy, and shall be addressed to the party to be notified as follows:
If to the Management Shareholders to:
Peter McCann
Royal Wolf Trading Australia Pty Limited
Suite 202, Level 2,22-28 Edgeworth David Avenue
Hornsby NSW 2077 Australia
Facsimile: 61 2 9482 3477
If to Valenta or the Kaiser Trust to:
Ron Valenta
5200 Jessen Drive
LaCanada, CA 91011
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If to the Bison/GE Partnership to:
Douglas B. Trussler
Bison Capital Asset Management, LLC
10877 Wilshire Boulevard, Suite 1520
Los Angeles, CA 90024
Facsimile:(310) 260-6576
Any such notice, demand, or communication shall be deemed given when received if Personally delivered or sent by overnight courier, or when deposited in the United States mails, postage prepaid, if sent by registered or certified mail, or when answerback received, if sent by telecopier. The address for a party may be changed by notice given in accordance with this subsection.
12.7 Headings. Section headings used in this Agreement have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Agreement.
12.8 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
12.9 Waivers; Amendments. No failure on the part of any party hereto to exercise, no delay in exercising and no course of dealing with respect to, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.
12.10 Entire Agreement; Modifications. This Agreement contains all of the terms and conditions agreed upon by the parties relating to its subject matter and supersedes all prior and contemporaneous agreements, negotiations, correspondence, understandings and communications of the parties, whether oral or written, respecting that subject matter. No modification, rescission, waiver, release, or amendment of any provision of this Agreement shall be made, except by a written agreement signed by all of the parties hereto.
12.113. References. All references in the Original Agreement to “Agreement,” “herein,” “hereof,” or terms of like import referring to the Original Agreement or any portion thereof are hereby amended to refer to the Original Agreement as amended by this Amendment.
4. No Implied Amendments. Except as expressly provided herein, the Original Agreement is not being amended, supplemented, or otherwise modified, and the Original Agreement shall continue in force and effect in accordance with its terms.
5. Counterparts. This AgreementAmendment may be signedexecuted in any number ofone or more counterparts, each of which will constituteshall be deemed an original, andbut all of which, takensuch counterparts together shall constitute but one and the same agreement with the same effect as if the signatures thereon were upon the same instrument.agreement.
12.126. Liquidated DamagesSuccessors and Assigns. In the event a Security Triggering Event occurs, and Valenta and the Kaiser Trust have not either (a) complied with the provisions of Article 8 to the satisfaction of the Bison/GE Partnershipand/or the Management Shareholders or (b) cured the Event of Default giving rise to such Security Triggering Event within ten (10) calendar days thereafter to the satisfaction of the Bison/GE Partnershipand/or the Management Shareholders, as Liquidated Damages, the Buyout AmountThis Amendment shall be increased by the lower of 20% or the highest legally permissible rate of interest on the Buyout Amount per annum beginning as of the date of such Security Triggering Event until such event has been curedbinding upon and inure to the satisfaction of the Bison/GE Partnership and the Management Shareholders, provided that no such Liquidated Damages shall accrue prior to October 31, 2007.
12.13 Consents and Waivers.
(a) Rights of the Bison/GE Partnership. Each of Valenta and the Kaiser Trust consents and agrees that the Bison/GE Partnership or the Management Shareholders may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (i) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of the guaranties under this Agreement and the other documents executed in connection herewith or any Guarantied Obligations from and after an Event of Default; (ii) apply such security and direct the order or manner of sale thereof as the Bison/GE Partnership and the Management Shareholders, subject to Section 3.7, in their sole discretion may determine from and after an Event of Default; and (iii) release or substitute one or more of any endorsers or other guarantors of any of the Guarantied Obligations. Without limiting the generality of the foregoing, each of Valenta and the Kaiser Trust consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of
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Valenta or the Kaiser Trust, as applicable, under the guaranties under this Agreement and the other documents executed in connection herewith or which, but for this provision, might operate as a discharge of Valenta or the Kaiser Trust, as applicable.
(b) Certain Waivers. The Kaiser Trust waives (a) any defense arising by reason of any disability or other defense of Valenta or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Bison/GE Partnership or any Management Shareholder) of the liability of Valenta; (b) any defense based on any claim that Valenta’s or the Kaiser Trust’s obligations exceed or are more burdensome than those of Valenta or the Kaiser Trust, as applicable; (c) the benefit of any statute of limitations affecting Valenta’s or the Kaiser Trust’s liability hereunder; (d) any right to require the Bison/GE Partnership or any Management Shareholder to proceed against Valenta or the Kaiser Trust, proceed against or exhaust any security for the Indebtedness, or pursue any other remedy in the Bison/GE Partnership’s or any Management Shareholder’s power whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Bison/GE Partnership or the Management Shareholders; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties.
Each of Valenta and the Kaiser Trust expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Guarantied Obligations, and all notices of acceptance of the guaranties under this Agreement and the other documents executed in connection herewith or of the existence, creation or incurrence of new or additional Guarantied Obligations.
(c) Obligations Independent. The obligations of Valenta and the Kaiser Trust hereunder are those of primary obligor, and not merely as surety, and are independent of the Guarantied Obligations and the obligations of any other guarantor, and a separate action may be brought against Valenta or the Kaiser Trust to enforce the guaranties under this Agreement and the other documents executed in connection herewith whether or not Valenta or the Kaiser Trust, as applicable, or any other Person or entity is joined as a party.
(d) Subrogation. Valenta and the Kaiser Trust shall not exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under the guaranties under this Agreement and the other documents executed in connection herewith until all of the Guarantied Obligations and any amounts payable under the guaranties under this Agreement and the other documents executed in connection herewith have been indefeasibly paid and performed in full and any commitments of the Bison/GE Partnership or any Management Shareholder or facilities provided by the Bison/GE Partnership or any Management Shareholder with respect to the Guarantied Obligations are terminated. If any amounts are paid to Valenta or the Kaiser Trust in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Bison/GE Partnershipparties hereto and their respective successors and assigns.
7. Governing Law. This Amendment shall be governed by and construed in accordance with the Management Shareholders and shall forthwith be paid tointernal laws (and not the Bison/GE Partnership and the Management Shareholder, subject to Section 3.7, to reduce the amountlaw of conflicts) of the Guarantied Obligations, whether matured or unmatured.
(e) Termination; Reinstatement. The guaranties under this Agreement and the other documents executed in connection herewith are continuing and irrevocable guarantiesState of all Guarantied Obligations and now or hereafter existing and shall remain in full force and effect until all Guarantied Obligations and any other amounts payable under the guaranties under this Agreement and the other documents executed in connection herewith are indefeasibly paid in full in cash and any commitments of the Bison/GE Partnership or any Management Shareholder or facilities provided by the Bison/GE Partnership or any Management Shareholder with respect to the Guarantied Obligations are terminated. Notwithstanding the foregoing, the guaranties under this Agreement and the other documents executed in connection herewith shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of Valenta or the Kaiser Trust is made, or the Bison/GE Partnership or any Management Shareholder exercises its right of setoff in respect of the Guarantied Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Bison/GE Partnership or any Management Shareholder in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Bison/GE Partnership or such Management Shareholder is in possession ofIndiana.
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or has released the guaranties under this Agreement and the other documents executed in connection herewith and regardless of any prior revocation, rescission, termination or reduction. The obligations of Valenta and the Kaiser Trust under this paragraph shall survive termination of the guaranties under this Agreement and the other documents executed in connection herewith.
(f) Subordination. Each of Valenta and the Kaiser Trust hereby subordinates the payment of all obligations and indebtedness of Valenta owing to the Kaiser Trust and of the Kaiser Trust owing to Valenta, as applicable, whether now existing or hereafter arising, including but not limited to any obligation of Valenta to the Kaiser Trust as subrogee of the Bison/GE Partnership and the Management Shareholders or the Kaiser Trust to Valenta as subrogee of the Bison/GE Partnership and the Management Shareholders or resulting from Valenta’s or the Kaiser Trust’s performance under the guaranties under this Agreement and the other documents executed in connection herewith to the indefeasible payment in full in cash of all Guarantied Obligations. If the Bison/GE Partnership so requests, any such obligation or indebtedness of Valenta to the Kaiser Trust or of the Kaiser Trust to Valenta shall be enforced and performance received by the Kaiser Trust or Valenta, as applicable, as trustee for the Bison/GE Partnership and the Management Shareholders and the proceeds thereof shall be paid over to the Bison/GE Partnership and the Management Shareholders, subject to Section 3.7, on account of the Guarantied Obligations, but without reducing or affecting in any manner the liability of Valenta or the Kaiser Trust under the guaranties under this Agreement and the other documents executed in connection herewith.
(g) Liens on Real Property. In the event that all or any part of the Guarantied Obligations at any time are secured by any one or more deeds of trust or mortgages or other instruments creating or granting liens on any interests in real property, each of Valenta and the Kaiser Trust authorizes the Bison/GE Partnership and the Management Shareholders, subject to Section 3.7, upon the occurrence of and during the continuance of any Event of Default, at its sole option, without notice or demand and without affecting any Guarantied Obligations of Valenta or the Kaiser Trust, the enforceability of the guaranties under this Agreement and the other documents executed in connection herewith or the validity or enforceability of any liens of the Bison/GE Partnership or the Management Shareholders on any collateral, to foreclose on any or all of such deeds of trust or mortgages or other instruments by judicial or nonjudicial sale. The Kaiser Trust expressly waives any right to receive notice of any judicial or nonjudicial foreclosure or sale of any real property or interest therein subject to any such deeds of trust or mortgages or other instruments and Valenta’s, the Kaiser Trust’s or any other Person’s failure to receive any such notice shall not impair or affect Valenta’s or the Kaiser Trust’s Guarantied Obligations or the enforceability of the guaranties under this Agreement and the other documents executed in connection herewith or any rights of the Bison/GE Partnership or the Management Shareholders created or granted hereby. The Kaiser Trust expressly waives any and all suretyship defenses or benefits they might or would have under any applicable law. Without limiting the foregoing, each of Valenta and the Kaiser Trust waives all rights and defenses that they may have because any of the Guarantied Obligations of any Person are secured by real property. This means, among other things: (1) the Bison/GE Partnership and the Management Shareholders, subject to 3.7, may collect from any guarantor without first foreclosing on any real or Personal property collateral pledged by any other Person; and (2) if the Bison/GE Partnership or any Management Shareholder, subject to 3.7, forecloses on any real property collateral pledged by any other Person: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (B) the Bison/GE Partnership and the Management Shareholders, subject to 3.7, may collect from Valenta or the Kaiser Trust even if the Bison/GE Partnership or such Management Shareholder, by foreclosing on the real property collateral, has destroyed any right Valenta or the Kaiser Trust may have to collect from such other Person. This is an unconditional and irrevocable waiver of any rights and defenses Valenta and the Kaiser Trust may have because any such other Person’s debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure or similar laws in other states.
(h) Understandings With Respect to Waivers and Consents. Each of Valenta and the Kaiser Trust warrants and agrees that each of the waivers and consents set forth herein are made with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which the Kaiser Trust otherwise may have against Valenta or others, or against any collateral, or which Valenta otherwise may have against the Kaiser Trust or others, or against any collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary
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to public policy or law. Each of Valenta and the Kaiser Trust. Each of Valenta and the Kaiser Trust acknowledges that it has either consulted with legal counsel regarding the effect of the guaranties under this Agreement and the other documents executed in connection herewith and the waivers and consents set forth herein, or has made an informed decision not to do so. If the guaranties under this Agreement and the other documents executed in connection herewith or any of the waivers or consents herein are determined to be unenforceable under or in violation of applicable law, the guaranties under this Agreement and the other documents executed in connection herewith and such waivers and consents shall be effective to the maximum extent permitted by law.
(i) General Waiver. Each of Valenta and the Kaiser Trust hereby waives any and all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to such Company whether at law or in equity, including those that may be available by reason of California Civil Code Sections 2787 to 2855, inclusive.
12.14. Voluntary Negotiation. The parties to this Agreement hereby acknowledge that they have voluntarily negotiated the terms of this Agreement, including, without limitation, this Section 12.14, have consulted with counsel concerning such terms (or in the case of Valenta, have voluntarily and knowingly waived consultation with counsel despite the Bison/GE Partnership’s advice to Valenta that Valenta should consult counsel), and voluntarily agree to them.
12.14. Valenta Sub Obligations. Valenta shall cause Valenta Sub to comply with all provisions of this Agreement applicable to Valenta Sub, and Valenta shall be liable for any breach by Valenta Sub of any terms of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK -
SIGNATURE PAGES TO FOLLOW]
C-23A-72
IN WITNESS WHEREOF, each of the parties hereto havehas executed this Amendment, or caused this AgreementAmendment to be executed on its behalf by a representative duly executedauthorized, as of the date first set forth above.above written.
“Bison/GE Partnership”
Bison Capital Australia, L.P.
Its General PartnerPAC-VAN, INC.
| | |
| | By: | /s/ Douglas B. Trussler
|
Name: Douglas B. Trussler
Title: Manager
Theodore M. Mourouzis
A-73
Exhibit F
GENERAL RELEASE
THIS GENERAL RELEASE (this“Release”) dated as of , 2008 (the“Effective Date”) is entered into among Mobile Office Acquisition Corp., a Delaware corporation(“MOAC”), Pac-Van, Inc., an Indiana corporation(“Pac-Van” and collectively with MOAC, the“Pac-Van Companies”), and the stockholder or optionholder of MOAC identified on the signature hereto (the“MOAC Party”).
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the“Merger Agreement”) dated July 22, 2008 by and among General Finance Corporation, a Delaware corporation(“Parent”), GFN North America Corp., a Delaware corporation (“Surviving Corporation”) and the other parties named therein, the MOAC party is required to execute this Release in consideration;
WHEREAS, it is a condition to the consummation of the transactions contemplated by the Merger Agreement that all of the MOAC Parties execute and deliver to Parent this Release; and
WHEREAS, the MOAC, Pac-Van and the MOAC Parties desire that each MOAC Party accept the sums payable to such MOAC Party pursuant to the Merger Agreement (the“Merger Consideration”) as full and final satisfaction of all claims against the Pac-Van Companies pursuant to the terms set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Releases by the Parties. Upon the receipt of that portion of the Merger Consideration payable to such MOAC Party on the Effective Date pursuant to the Merger Agreement and the execution and delivery of this Release by such MOAC Party, the releases of such MOAC Party set forth herein shall become effective.
(a) Release and Discharge by MOAC Parties. As a material inducement to enter into this Release, each of the MOAC Parties (on behalf of itself and its successors, assigns, agents, directors, officers, employees, representatives, advisors and affiliates), hereby releases and forever discharges each of the Pac-Van Companies (and the successors, assigns, agents, directors, officers, employees, representatives, advisors and affiliates of each of the Pac-Van Companies) from any and all claims, demands, actions, causes of action, charges, complaints, liabilities, obligations, promises, agreements, damages, suits, costs, losses, debts and expenses (including, without limitation, attorneys’ fees and costs) of any nature or kind, known or unknown or suspected or unsuspected, including all claims as a stockholder of MOAC, (collectively, “Claims”) arising on or prior to the Effective Date. Notwithstanding the foregoing, nothing contained herein shall be deemed a release of any claim for a breach of the Merger Agreement by Parent or Surviving Corporation or any claim for indemnity from the Pac-Van Companies or Surviving Corporation to which the MOAC Party (or its representative) is entitled as an officer or director of either of the Pac-Van Companies.
(b) Claims. It is the intention of each of the parties to this Release (on behalf of such party and such party’s respective beneficiaries, successors, assigns, agents, directors, officers, employees, representatives, advisors and affiliates (and the agents, directors, officers, employees, representatives, advisors and affiliates of such parties), that this Release shall be effective as a full and final release of all Claims released pursuant to this Section 1. Each party hereto hereby acknowledges that it has read and is familiar with California Civil Code Section 1542 which states as follows:
“Valenta”A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”
A-74
The MOAC Party (on behalf of the MOAC Party and its respective beneficiaries, successors, assigns, agents, directors, officers, employees, representatives, advisors and affiliates (and the agents, directors, officers, employees, representatives, advisors and affiliates of such parties) does hereby expressly waive and relinquish all rights and benefits which it has or may have under California Civil Code Section 1542(OR ANY SIMILAR LAW OF ANY OTHER COUNTRY, STATE, TERRITORY OR JURISDICTION)to the fullest extent that it may lawfully waive such rights and benefits. In connection with the waiver and relinquishment set forth in this Section 1, the MOAC Party acknowledges that it is aware that it may hereafter discover facts in addition toand/or different from those now known or believed to be true, but that notwithstanding that fact, it is the MOAC Party’s intention hereby to fully, finally, and forever release all of the Claims released herein, known or unknown, suspected or unsuspected, which now exist, may in the future exist or heretofore have existed between the MOAC Party, on the one hand, and those parties, persons and entities granted releases by it, on the other hand, and that in furtherance of such intention, the releases given herein shall be and remain in effect as full and complete releases, notwithstanding the discovery or existence of any such additional or different facts.
2. No Filings; Non-Cooperation. Each of the MOAC Parties hereto agrees and represents that it has not filed any Claims against any person such party has released herein with any local, state or federal agency, court or other government entity, and that such party will not do so at any time, based on any act, omission or other thing arising or accruing on or prior to the Effective Date.
3. Representations and Warranties; Indemnification. Each of the parties hereto represents, warrants and agrees that this Release has been duly authorized, executed and delivered by such party and constitutes a legal, valid and binding agreement of such party enforceable against it in accordance with its terms. Each party hereto represents, warrants and agrees that such party has full right, power, authority and capacity to execute, deliver and perform this Release. Each of the parties hereto, jointly and severally, shall indemnify, defend, save and hold harmless the other parties hereto and the parties released hereunder, from and against any and all Claims by any party or government entity arising out of, resulting from or incident to any breach or inaccuracy of any representation, warranty, agreement or covenant set forth in this Release.
4. Non-Admission. The parties to this Release in no way acknowledge any fault or liability to any other party hereto or any other person or entity and this Release shall not in any way be construed as an admission by any party or any other person or entity of any fault or liability to any other party hereto or any other person or entity.
5. Consultation with Counsel; Full and Independent Knowledge and Understanding. The MOAC Party acknowledges that it has had the opportunity to consult with qualified legal counsel of its choice to the full extent desired before signing this Release, and that it has carefully read and fully understands all of the provisions of this Release; and that such party is voluntarily entering into the same.
6. Venue; Expense Recovery. Each party to this Release irrevocably submits to the jurisdiction of the courts of the State of Indiana and the United States District Court for the district in which Indianapolis, Indiana is located for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Release and the transactions contemplated hereby and to the laying of venue in any such court. Each party hereto irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Should any party hereto ever institute any legal action or administrative proceeding with respect to any Claim released by this Release or otherwise in violation of a representation made by such claimant in this Release, the responding party shall be entitled to recover from the other party or parties, as applicable, all damages, costs, expenses and attorneys’ fees incurred as a result of such action.
7. Successors. This Release shall be binding upon the parties hereto and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of the parties hereto and to their respective heirs, administrators, representatives, executors, successors and assigns.
8. Governing Law. This Release shall in all respects be interpreted, enforced and governed under the internal laws (without regard to choice of law principles) of the State of Indiana.
A-75
9. Counterparts. This Release may be executed in two or more counterparts and by different parties in separate counterparts (including by facsimile). All of such counterparts shall constitute one and the same agreement.
10. Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile or sent by certified, registered or express air mail, postage prepaid, and shall be deemed given when so delivered personally or by facsimile, or if mailed, three (3) business days after the date of mailing, to the addresses set forth below the signature of such party hereto or to such other address as any party hereto shall notify the other parties hereto (as provided above) from time to time.
11. Terms. As used in this Release, the term “or” shall be deemed to include the term “and/or” and the singular or plural number shall be deemed to include the other whenever the context so indicates or requires.
12. Headings and Recitals. The section headings and recitals used in this Release are intended solely for convenience of reference and shall not in any manner amplify, limit, modify or otherwise be used in the interpretation of any of the provisions hereof.
13. Further Assurances. Each party hereto agrees to execute and deliver to any other party hereto such additional agreements, instruments and writings as any of them may reasonably request in order to effect transactions contemplated by, and the intent and purposes of, this Release.
14. Severability. In the event that any one or more of the provisions contained in this Release or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Release or any other such instrument.
15. Entire Agreement. This Release sets forth the entire agreement among the parties hereto, and fully supersedes any and all prior agreements or understandings among the parties hereto, pertaining to the subject matter hereof.
A-76
PLEASE READ CAREFULLY. THIS GENERAL RELEASE INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, each of the parties hereto has executed this Release, or has caused this Release to be executed on its behalf, as of the date first above written.
MOBILE OFFICE ACQUISITION CORP.
Name: Ronald ValentaTheodore M. Mourouzis
Title: Authorized Representative
Address for Notices:
2995 South Harding Street
Indianapolis, IN 46225
Attention: Theodore Mourouzis
Telephone: (317) 489-4778
Facsimile:(317) 791-2029
“Management Shareholders”
Equity Partners Two Pty Limited (as trustee of
Equity Partners 2 Trust)
By: /s/ Richard Peter Gregson
Name: Richard Peter Gregson
Title: Director
C-24
FOMM Pty Limited (as trustee of the FOMM Trust)
Name: Michael Baxter
Title: Sole Director and Sole Company Secretary
FOMJ Pty Limited (as trustee of the FOMJ Trust)
PAC-VAN, INC.
Name: James H. Warren
Title: Sole Director and Sole Company Secretary
Theodore M. Mourouzis
President
CetroAddress for Notices:
2995 South Harding Street
Indianapolis, IN 46225
Attention: Theodore Mourouzis
Telephone:(317) 489-4778
Facsimile:(317) 791-2029
A-77
PLEASE READ CAREFULLY. THIS GENERAL RELEASE INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS.
MOAC PARTY
Address for Notices:
Facsimile:
Address for Notices:
Facsimile:
A-78
[LETTERHEAD OF RBC CAPITAL MARKETS CORPORATION]
Annex B
Opinion of RBC Capital Markets
July 24, 2008
The Special Committee of the Board of Directors
General Finance Corporation
260 South Los Robles, Suite 217
Pasadena, California 91101
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of view, to General Finance Corporation, a Delaware corporation (“General Finance”), of the Aggregate Consideration (as defined below) provided for under the terms of the proposed Agreement and Plan of Merger (the “Agreement”) to be entered into among General Finance, GFN North America Corp., a Delaware corporation and wholly owned subsidiary of General Finance (“Merger Sub”), Mobile Office Acquisition Corp., a Delaware corporation (“MOAC”), Pac-Van, Inc., an Indiana Corporation and sole operating subsidiary of MOAC (“Pac-Van” and, together with MOAC, “MOAC/Pac-Van”), and the stockholders of MOAC named therein.
The Agreement provides, among other things, that MOAC will merge with and into Merger Sub (the “Merger”) and all outstanding shares (other than shares held by holders who exercise dissenter’s rights in connection with the Merger) of Class A Common Stock, par value $0.001 per share, of MOAC and Class B Common Stock, par value $0.001 per share, of MOAC (collectively, “MOAC Common Stock”) and vested or exercisable options to purchase MOAC Common Stock will be converted into the right to receive aggregate consideration of $158.8 million, subject to certain adjustments for, among other things, the purchase price and other costs of acquisitions, if any, completed by Pac-Van while the Merger is pending (such acquisitions, if any, “Interim Acquisitions”) and certain outstanding indebtedness of Pac-Van, which adjustments representatives of General Finance have advised us to assume will reduce such aggregate consideration to approximately $52.6 million (the “Aggregate Consideration”). The Agreement further provides that the Aggregate Consideration will be paid as follows: (i) $21.1 million in cash, (ii) 4,000,000 restricted shares of the common stock, par value $0.0001 per share, of General Finance (“General Finance Common Stock”) with a stated value of $7.50 per share and (iii) $1.5 million in the form of a subordinated, unsecured promissory note of Merger Sub due 20 months following the closing date of the Merger bearing interest at a rate of 8% per annum (the “Holdback Note”). The terms and conditions of the Merger are more fully set forth in the Agreement.
RBC Capital Markets Corporation (“RBC”), as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes.
We are acting as a financial advisor to the Special Committee of the Board of Directors of General Finance (the “Special Committee”) in connection with the Merger and will receive a fee for our services which is not contingent upon the successful completion of the Merger, portions of which were payable upon our engagement and will be payable upon delivery of this opinion. In addition, for our services as financial advisor to the Special Committee in connection with the Merger, if the Merger is successfully completed we will receive an additional larger fee, against which the fees payable upon our engagement and delivery of this opinion will be credited. General Finance also will reimburse us for our reasonable expenses and indemnify us for certain liabilities that may arise out of our engagement.
B-1
The Special Committee of the Board of Directors
Page 2
July 24, 2008
In the ordinary course of business, RBC may act as a market maker and broker in the publicly traded securities of General Finance and receive customary compensation, and may also actively trade securities of General Finance for our own account and the accounts of our customers, and, accordingly, RBC and its affiliates, may hold a long or short position in such securities.
For the purposes of rendering our opinion, we have undertaken such review and inquiries as we deemed necessary or appropriate under the circumstances, including the following: (i) we reviewed financial terms of a draft dated July 24, 2008 of the Agreement (the “Latest Draft Agreement”); (ii) we reviewed and analyzed certain publicly available financial and other data with respect to General Finance and certain other relevant historical operating data relating to General Finance and MOAC/Pac-Van made available to us from published sources in the case of General Finance or from internal records of General Finance and MOAC/Pac-Van, respectively; (iii) we reviewed financial projections and forecasts of General Finance prepared by General Finance’s management and financial projections and forecasts of MOAC/Pac-Van prepared by MOAC/Pac-Van’s management (the “Forecasts”); (iv) we conducted discussions with members of the senior managements of General Finance and MOAC/Pac-Van with respect to the business prospects and financial outlook of General Finance and MOAC/Pac-Van as standalone entities as well as the strategic rationale and potential benefits of the Merger; (v) we reviewed the reported prices and trading activity for General Finance Common Stock; and (vi) we performed other studies and analyses as we deemed appropriate.
In arriving at our opinion, we performed the following analyses in addition to the review, inquiries and analyses referred to in the preceding paragraph: (i) we performed a financial analysis of each of General Finance and MOAC/Pac-Van as a standalone entity using selected companies analyses and, in the case of MOAC/Pac-Van, a selected precedent transactions analysis; and (ii) we performed a pro forma combination analysis, determining the potential financial impact of the Merger on the projected 2009 earnings per share, as well as other selected historical and projected metrics, of General Finance. We have been advised that financial projections and forecasts relating to General Finance and MOAC/Pac-Van for periods beyond June 30, 2009 have not been prepared by the managements of General Finance and MOAC/Pac-Van and, accordingly, we have not undertaken an analysis of the future financial performance of General Finance and MOAC/Pac-Van for periods beyond June 30, 2009. With respect to the Holdback Note to be issued in the Merger, we have assumed that the value of such Holdback Note will be equal to the face value thereof. Several analytical methodologies have been employed and no one method of analysis should be regarded as critical to the overall conclusion we have reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions we have reached are based on all the analysis and factors presented, taken as a whole, and also on application of our own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. We therefore give no opinion as to the value or merit standing alone of any one or more parts of the analyses.
B-2
The Special Committee of the Board of Directors
Page 3
July 24, 2008
In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all the information that was publicly available to us and all of the financial, legal, tax, operating and other information provided to or discussed with us by General Finance or MOAC/Pac-Van (including, without limitation, the financial statements and related notes thereto of each of General Finance and MOAC/Pac-Van, respectively), and have not assumed responsibility for independently verifying and have not independently verified such information. We have assumed that the Forecasts provided to us by General Finance or MOAC/Pac-Van, as the case may be, were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the future financial performance of General Finance or MOAC/Pac-Van (as the case may be), respectively, and also have assumed that the Forecasts will be realized in the amounts and at the times projected. We express no opinion as to such Forecasts or the assumptions upon which they were based.
In rendering our opinion, we have not assumed any responsibility to perform, and have not performed, an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of General Finance or MOAC/Pac-Van, and except for a third party appraisal of certain assets of Pac-Van, we have not been furnished with any such valuations or appraisals. We have not assumed any obligation to conduct, and have not conducted, any physical inspection of the property or facilities of General Finance or MOAC/Pac-Van. We have not investigated, and make no assumption regarding, any litigation or other claims affecting General Finance or MOAC/Pac-Van.
We have assumed, in all respects material to our opinion, that all conditions to the consummation of the Merger will be satisfied, and all terms of the Agreement will be complied with, without waiver or modification thereof and that all governmental, third party or other consents and approvals necessary for the consummation of the Merger will be obtained without adverse effect on General Finance, MOAC/Pac-Van or the contemplated benefits of the Merger. We also have assumed that the executed version of the Agreement will not differ, in any respect material to our opinion, from the Latest Draft Agreement. We further have assumed that the Merger will qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. In addition, we have assumed that the actual aggregate consideration payable by General Finance in the Merger will not differ from the Aggregate Consideration in any respect material to our opinion.
Our opinion speaks only as of the date hereof, is based on the conditions as they exist and information which we have been supplied or have reviewed as of the date hereof, and is without regard to any market, economic, financial, legal, or other circumstances or event of any kind or nature which may exist or occur after such date. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon events occurring after the date hereof and do not have an obligation to update, revise or reaffirm this opinion. We are not expressing any opinion herein as to the actual value of General Finance Common Stock or the Holdback Note to be issued in the Merger or prices at which General Finance Common Stock will trade following the announcement of the Merger or at which General Finance Common Stock or the Holdback Note may otherwise be transferable at any time.
The opinion expressed herein and any other advice and opinions (written and oral) rendered by RBC are provided for the information and assistance of the Special Committee in connection with the Merger. We express no opinion and make no recommendation to any stockholder as to how such stockholder should vote or act with respect to the Merger or any other matter in connection with the Merger.
Our opinion does not address the merits of the underlying decision by General Finance to engage in the Merger or the relative merits of the Merger compared to any alternative business strategy or transaction in which General Finance might engage.
B-3
The Special Committee of the Board of Directors
Page 4
July 24, 2008
Our opinion addresses solely the fairness of the Aggregate Consideration, from a financial point of view, to General Finance. Our opinion does not in any way address other terms of, or arrangements contemplated by, the Merger or the Agreement, including, without limitation, the form or structure of the Merger or the Aggregate Consideration (or adjustments thereto), the financial or other terms of the Holdback Note or any other agreement contemplated by, or to be entered into in connection with, the Agreement, nor does our opinion address, and we express no opinion or view with respect to, the solvency of General Finance or MOAC/Pac-Van. Further, in rendering our opinion we express no opinion about the fairness of the amount or nature of the compensation (if any) to any of General Finance’s officers, directors or employees, or class of such persons, relative to the Aggregate Consideration. Our opinion has been approved by RBC’s Fairness Opinion Committee.
Based on our experience as investment bankers and subject to the foregoing, including the various assumptions and limitations set forth herein, it is our opinion that, as of the date hereof, the Aggregate Consideration is fair, from a financial point of view, to General Finance.
Very truly yours,
/s/ RBC Capital Markets Corporation RBC CAPITAL MARKETS CORPORATION
B-4
Annex C
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C-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | |
þ | | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| | |
| | For the quarterly period ended March 31, 2008 |
| | |
OR |
| | |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| | |
| | For the transition period from to . |
Commission file number001-32845
GENERAL FINANCE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| | |
Delaware | | 32-0163571 |
(State or Other Jurisdiction of
Incorporation or Organization) | | (I.R.S. Employer
Identification No.) |
39 East Union Street
Pasadena, CA 91103
(Address of Principal Executive Offices)
(626) 584-9722
(Registrant’s telephone number, including area code)
Indicate by check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act): Yes o No þ
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,690,099 shares issued and outstanding as of April 30, 2008.
GENERAL FINANCE CORPORATION
INDEX TOFORM 10-Q
2
Part I. FINANCIAL INFORMATION
| |
| Item 1. | Financial Statements |
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
| | | | | | | | | | | | | |
| | | Predecessor | | | Successor (Note 1) | |
| | | June 30,
| | | June 30,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | |
| | | | | | | | | (Unaudited) | |
| |
Assets | | | | | | | | | | | | |
| Cash and cash equivalents, including $68,218 held in trust account at June 30, 2007 (successor) | | $ | 886 | | | $ | 68,277 | | | $ | 1,169 | |
| Trade and other receivables, net of allowance for doubtful accounts of $237 and $452 at June 30, 2007 and March 31, 2008, respectively | | | 13,322 | | | | — | | | | 20,088 | |
| Inventories | | | 5,472 | | | | — | | | | 20,660 | |
| Prepaid expenses | | | — | | | | 111 | | | | — | |
| | | | | | | | | | | | | |
Total current assets | | | 19,680 | | | | 68,388 | | | | 41,917 | |
| | | | | | | | | | | | | |
| Lease receivables | | | 1,364 | | | | — | | | | 1,619 | |
| Property, plant and equipment, net | | | 2,737 | | | | 2 | | | | 4,616 | |
| Container for lease fleet, net | | | 40,928 | | | | — | | | | 71,986 | |
| Intangible assets, net | | | 4,079 | | | | — | | | | 59,821 | |
| Deferred tax assets | | | — | | | | 132 | | | | — | |
| Other assets (including $1,548 of deferred acquisition costs at June 30, 2007) | | | — | | | | 2,556 | | | | 23 | |
| | | | | | | | | | | | | |
Total non-current assets | | | 49,108 | | | | 2,690 | | | | 138,065 | |
| | | | | | | | | | | | | |
Total assets | | $ | 68,788 | | | $ | 71,078 | | | $ | 179,982 | |
| | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
| Trade payables and accrued liabilities | | $ | 8,641 | | | $ | 893 | | | $ | 19,845 | |
| Current portion of long-term debt and obligations, including borrowings from related party of $2,350 at June 30, 2007 (successor) | | | 10,359 | | | | 2,350 | | | | 9,079 | |
| Income tax payable | | | 245 | | | | 177 | | | | 140 | |
| Employee benefits | | | 1,614 | | | | 12 | | | | 1,095 | |
| Deferred underwriting fees | | | — | | | | 1,380 | | | | — | |
| | | | | | | | | | | | | |
Total current liabilities | | | 20,859 | | | | 4,812 | | | | 30,159 | |
| | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | |
| Long-term debt and obligations, net of current portion | | | 33,811 | | | | — | | | | 70,968 | |
| Deferred tax liabilities | | | 881 | | | | — | | | | 1,032 | |
| Employee benefits and other non-current liabilities | | | 197 | | | | — | | | | 206 | |
| Common stock, subject to possible conversion | | | — | | | | 13,339 | | | | — | |
| | | | | | | | | | | | | |
Total non-current liabilities | | | 34,889 | | | | 13,339 | | | | 72,206 | |
| | | | | | | | | | | | | |
Commitments and contingencies | | | — | | | | — | | | | — | |
Minority Interest | | | — | | | | — | | | | 8,762 | |
Stockholders’ equity | | | | | | | | | | | | |
| Preferred stock, $.0001 par value: 1,000,000 shares authorized; no shares outstanding (successor) | | | — | | | | — | | | | — | |
| Common stock, $.0001 par value: 100,000,000 shares authorized; 10,500,000 shares and 9,690,099 shares outstanding at June 30, 2007 and March 31, 2008, | | | | | | | | | | | | |
| respectively (successor) | | | — | | | | 1 | | | | 1 | |
| Class D and common stock (predecessor) | | | 12,187 | | | | — | | | | — | |
| Additional paid-in capital | | | — | | | | 51,777 | | | | 60,344 | |
| Accumulated other comprehensive income | | | 862 | | | | — | | | | 3,808 | |
| Retained earnings (accumulated deficit) | | | (9 | ) | | | 1,149 | | | | 4,702 | |
| | | | | | | | | | | | | |
Total stockholders’ equity | | | 13,040 | | | | 52,927 | | | | 68,855 | |
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Total liabilities and stockholders’ equity | | $ | 68,788 | | | $ | 71,078 | | | $ | 179,982 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | |
| | | Predecessor | | | Successor (Note 1) | |
| | | Quarter Ended
| | | Quarter Ended
| |
| | | March 31,
| | | March 31,
| |
| | | 2007 | | | 2008 | |
| |
Revenues | | | | | | | | |
| Sales of containers | | $ | 14,133 | | | $ | 19,801 | |
| Leasing of containers | | | 5,761 | | | | 8,849 | |
| | | | | | | | | |
| | | | 19,894 | | | | 28,650 | |
| | | | | | | | | |
| | | | | | | | | |
Costs and expenses | | | | | | | | |
| Cost of sales | | | 12,713 | | | | 16,356 | |
| Leasing, selling and general expenses | | | 4,626 | | | | 6,473 | |
| Depreciation and amortization | | | 1,058 | | | | 2,251 | |
| | | | | | | | | |
| | | | | | | | | |
Operating income | | | 1,497 | | | | 3,570 | |
| | | | | | | | | |
| Interest income | | | 44 | | | | 91 | |
| Interest expense | | | (1,254 | ) | | | (2,426 | ) |
| Foreign currency exchange gain and other | | | 183 | | | | 115 | |
| | | | | | | | | |
| | | | (1,027 | ) | | | (2,220 | ) |
| | | | | | | | | |
| | | | | | | | | |
Income before provision for income taxes and minority interest | | | 470 | | | | 1,350 | |
| | | | | | | | | |
| Provision for income taxes | | | 244 | | | | 376 | |
| Minority interest | | | — | | | | 140 | |
| | | | | | | | | |
Net income | | $ | 226 | | | $ | 834 | |
| | | | | | | | | |
| | | | | | | | | |
| Net income per share: | | | | | | | | |
| Basic | | | | | | $ | 0.09 | |
| Diluted | | | | | | | 0.08 | |
| | | | | | | | | |
| | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic | | | | | | | 9,690,099 | |
| Diluted | | | | | | | 11,083,722 | |
| | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | |
| | | | | | Successor
| |
| | | Predecessor | | | (Note 1) | |
| | | Nine Months
| | | Period from
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | |
| |
Revenues | | | | | | | | | | | | |
| Sales of containers | | $ | 37,441 | | | $ | 10,944 | | | $ | 45,277 | |
| Leasing of containers | | | 15,995 | | | | 4,915 | | | | 17,624 | |
| | | | | | | | | | | | | |
| | | | 53,436 | | | | 15,859 | | | | 62,901 | |
| | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
| Cost of sales | | | 33,094 | | | | 9,466 | | | | 37,757 | |
| Leasing, selling and general expenses | | | 16,066 | | | | 4,210 | | | | 13,595 | |
| Depreciation and amortization | | | 2,582 | | | | 653 | | | | 4,834 | |
| | | | | | | | | | | | | |
Operating income | | | 1,694 | | | | 1,530 | | | | 6,715 | |
| Interest income | | | 83 | | | | 14 | | | | 1,194 | |
| Interest expense | | | (3,069 | ) | | | (947 | ) | | | (4,385 | ) |
| Foreign currency exchange gain (loss) and other | | | 230 | | | | (129 | ) | | | 2,220 | |
| | | | | | | | | | | | | |
| | | | (2,756 | ) | | | (1,062 | ) | | | (971 | ) |
| | | | | | | | | | | | | |
Income (loss) before provision for income taxes and minority interest | | | (1,062 | ) | | | 468 | | | | 5,744 | |
| Provision for income taxes | | | 861 | | | | 180 | | | | 1,837 | |
| Minority interest | | | — | | | | — | | | | 354 | |
| | | | | | | | | | | | | |
Net income (loss) | | $ | (1,923 | ) | | $ | 288 | | | $ | 3,553 | |
| | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | |
| Basic | | | | | | | | | | $ | 0.36 | |
| Diluted | | | | | | | | | | | 0.31 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | | | |
| Basic | | | | | | | | | | | 9,910,981 | |
| Diluted | | | | | | | | | | | 11,304,604 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | |
| | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | | | | Additional
| | | Other
| | | | | | | |
| | | Common Stock | | | Paid-In
| | | Comprehensive
| | | Retained
| | | Total Stockholders’
| |
| | | Shares | | | Amount | | | Capital | | | Income | | | Earnings | | | Equity | |
| |
| Balance at June 30, 2007 | | | 10,500,000 | | | $ | 1 | | | $ | 51,777 | | | $ | — | | | $ | 1,149 | | | $ | 52,927 | |
| Reversal of common stock subject to possible conversion | | | — | | | | — | | | | 12,858 | | | | — | | | | — | | | | 12,858 | |
| Conversion of common stock into cash | | | (809,901 | ) | | | — | | | | (6,042 | ) | | | — | | | | — | | | | (6,042 | ) |
| Issuance of warrants | | | — | | | | — | | | | 1,309 | | | | — | | | | — | | | | 1,309 | |
| Share-based compensation | | | — | | | | — | | | | 282 | | | | — | | | | — | | | | 282 | |
| Contributed services | | | — | | | | — | | | | 160 | | | | — | | | | — | | | | 160 | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | 3,553 | | | | 3,553 | |
| Cumulative translation adjustment | | | — | | | | — | | | | — | | | | 3,808 | | | | — | | | | 3,808 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at March 31, 2008 | | | 9,690,099 | | | $ | 1 | | | $ | 60,344 | | | $ | 3,808 | | | $ | 4,702 | | | $ | 68,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
| | | | | | | | | | | | | |
| | | | | | Successor
| |
| | | Predecessor | | | (Note 1) | |
| | | Nine Months
| | | Period from
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | |
| | | (In thousands) | |
| | | (Unaudited) | |
| |
| Net cash provided (used) by operating activities | | $ | 3,476 | | | $ | 4,294 | | | $ | (6,889 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Proceeds from sale of property, plant and equipment | | | 75 | | | | 28 | | | | 16 | |
| Acquisitions (including deferred financing costs ), net of cash acquired | | | — | | | | — | | | | (90,954 | ) |
| Purchases of property, plant and equipment | | | (653 | ) | | | — | | | | (310 | ) |
| Purchases of container lease fleet | | | (15,198 | ) | | | (3,106 | ) | | | (5,764 | ) |
| Purchases of intangible assets | | | (508 | ) | | | — | | | | (285 | ) |
| Payment of deferred purchase consideration | | | (151 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net cash used by investing activities | | | (16,435 | ) | | | (3,078 | ) | | | (97,297 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Leasing activities | | | (216 | ) | | | (7,921 | ) | | | (282 | ) |
| Proceeds from long-term borrowings | | | 5,207 | | | | 1,124 | | | | 36,601 | |
| Proceeds from issuances of capital | | | 8,923 | | | | 4,990 | | | | — | |
| Payments to converting stockholders, net | | | — | | | | — | | | | (6,426 | ) |
| Minority interest capital contributions | | | — | | | | — | | | | 8,278 | |
| Repayment of borrowings from related party | | | — | | | | — | | | | (2,350 | ) |
| | | | | | | | | | | | | |
| Net cash provided (used) by financing activities | | | 13,914 | | | | (1,807 | ) | | | 35,821 | |
| | | | | | | | | | | | | |
| Net decrease in cash | | | 955 | | | | (591 | ) | | | (68,365 | ) |
| Cash at beginning of period | | | 567 | | | | 886 | | | | 68,277 | |
| Translation adjustment | | | (983 | ) | | | (5 | ) | | | 1,257 | |
| | | | | | | | | | | | | |
| Cash at end of period | | $ | 539 | | | $ | 290 | | | $ | 1,169 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Business Operations
Organization
General Finance Corporation (“GFN”) was incorporated in Delaware in 2005 to effect a business combination with one or more operating businesses. From inception through September 13, 2007, GFN had no business or operations. References to the Company in these Notes are to GFN and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN Australasia Holdings Pty Ltd., an Australian corporation (“GFN Holdings”); GFN Australasia Finance Pty Ltd, an Australian corporation (“GFN Finance”); and, as of September 13, 2007, RWA Holdings Pty Limited (as trustee(“RWA”), an Australian corporation, and its subsidiaries (collectively, “Royal Wolf”). In September 2007, the Company changed its fiscal year to June 30 from December 31.
Acquisition of Royal Wolf
On September 13, 2007 (September 14 in Australia), the Company completed the acquisition of Royal Wolf through the acquisition of all of the FOMP Trust)outstanding shares of RWA. Based upon the actual exchange rate of one Australian dollar to $0.8407 U.S. dollar realized in connection with payments made upon completion of the acquisition, the purchase price paid to the sellers for the RWA shares was $64.3 million, including deposits of $1,005,000 previously paid by us in connection with the acquisition. The Company paid the purchase price, less the deposits, by a combination of cash in the amount of $44.7 million plus the issuance to Bison Capital Australia, L.P., (“Bison Capital”), one of the sellers, of shares of common stock of GFN U.S., constituting 13.8% of the outstanding capital stock of GFN U.S. following the issuance; and the issuance of a note to Bison Capital. As a result of this structure, the Company owns 86.2% of the outstanding capital stock of GFN U.S. and Bison Capital owns 13.8% of the outstanding capital stock on GFN U.S. GFN U.S. through its indirect subsidiary GFN Finance owns all of the outstanding capital stock of Royal Wolf.
The Company now leases and sells portable storage containers, portable container buildings and freight containers in Australia. All references to events or activities (other than equity-related) which occurred prior to the completion of the acquisition on September 13, 2007 (September 14 in Australia) relate to Royal Wolf, as the predecessor company (the “Predecessor”). All references to events or activities (other than equity-related) which occurred after the completion of the acquisition on September 13, 2007 (September 14 in Australia) relate to the Company, as the successor company (the “Successor”).
8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The total purchase consideration, including the Company’s transaction costs of approximately $1.7 million, deferred financing costs of $1.2 million and net long-term debt refinancing of $4.9 million, has been allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values as of September 13, 2007, as follows (in thousands):
| | | | | | | | | |
| | | September 13, 2007 | |
| |
| Fair value of the net tangible assets acquired and liabilities assumed: | | | | | | | | |
| Cash and cash equivalents | | $ | 290 | | | | | |
| Trade and other receivables | | | 11,203 | | | | | |
| Inventories (primarily containers) | | | 9,224 | | | | | |
| Lease receivables | | | 2,008 | | | | | |
| Property, plant and equipment | | | 4,346 | | | | | |
| Container for lease fleet | | | 51,362 | | | | | |
| Trade and other payables | | | (15,082 | ) | | | | |
| Income tax payable | | | (85 | ) | | | | |
| Other current liabilities | | | (3,712 | ) | | | | |
| Long-term debt and obligations | | | (37,029 | ) | | | | |
| | | | | | | | | |
| Total net tangible assets acquired and liabilities assumed | | | | | | $ | 22,525 | |
| Fair value of intangible assets acquired: | | | | | | | | |
| Customer lists | | | 21,722 | | | | | |
| Non-compete agreement | | | 3,139 | | | | | |
| Software and other (including deferred financing costs of $1,187) | | | 1,521 | | | | | |
| Goodwill | | | 23,241 | | | | | |
| | | | | | | | | |
| Total intangible assets acquired | | | | | | | 49,623 | |
| | | | | | | | | |
| Total purchase consideration | | | | | | $ | 72,148 | |
| | | | | | | | | |
The accompanying unaudited condensed consolidated statements of operations of “Successor” only reflect the operating results of the Company following the date of acquisition of Royal Wolf and do not reflect the operating results of Royal Wolf prior to the acquisition. The following pro forma unaudited information for the three and nine months ended March 31, 2007 and for the nine months ended March 31, 2008 assumes the acquisition of Royal Wolf occurred on January 1, 2007, July 1, 2006 and July 1, 2007, respectively (in thousands):
| | | | | | | | | | | | | |
| | | Three Months Ended
| | | Nine Months Ended
| |
| | | March 31, | | | March 31, | |
| | | 2007 | | | 2007 | | | 2008 | |
| |
| Revenues | | $ | 19,894 | | | $ | 53,436 | | | $ | 78,760 | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (349 | ) | | $ | (1,979 | ) | | $ | 2,900 | |
| | | | | | | | | | | | | |
| Pro forma net income (loss) per share — | | | | | | | | | | | | |
| Basic | | $ | (0.04 | ) | | $ | (0.20 | ) | | $ | 0.29 | |
| Diluted | | | (0.04 | ) | | | (0.20 | ) | | | 0.26 | |
| | | | | | | | | | | | | |
The pro forma results are not necessarily indicative of the results that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of the Company or Royal Wolf. The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The pro forma adjustments include adjustments for reduced interest income and increased
9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
interest expense, as well as increased depreciation and amortization expense as a result of the application of the purchase method of accounting based on the fair values set forth above.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles applicable to interim financial information and the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire year ending June 30, 2008. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company and Royal Wolf, which are included in the Company’s Transition Report onForm 10-K for the six months ended June 30, 2007 filed with the Securities and Exchange Commission (SEC).
Certain reclassifications have been made to conform to the current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Foreign Currency Translation
The Company’s functional currency for its operations in Australia is the Australian (“AUS”) dollar. All adjustments resulting from the translation of the accompanying consolidated financial statements from the functional currency into the United States (“U.S.”) dollar reporting currency are recorded as a component of stockholders’ equity in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52,Foreign Currency Translation. All assets and liabilities are translated at the rates in effect at the balance sheet dates; and revenues, expenses, gains and losses are translated using the average exchange rates during the periods. Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognized in the statement of operations. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates prevailing at the dates the fair value was determined.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents.
Derivative Financial Instruments
Derivative financial instruments consist of warrants issued as part of the Initial Public Offering (“IPO”), a purchase option that was sold to the representative of the underwriters (Note 3) and warrants issued in connection with a senior subordinated promissory note with Bison Capital (Note 5). Based on Emerging Issues Task Force IssueNo. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the issuance of the warrants and the sale of the purchase option were reported in stockholders’ equity and, accordingly, there is no impact on the Company’s financial position or results of operations; except for the $100 in proceeds from the sale of the purchase option and the discounting of the senior subordinated promissory note for the fair market value of the warrants issued to Bison Capital. Subsequent changes in the fair value will not be recognized as long as the warrants and purchase option continue to be classified as equity instruments. At the date of issuance, the Company determined the purchase option and the warrants issued to Bison Capital had a fair market value of approximately $641,000 and $1,309,000, respectively, using the Black-Scholes pricing model.
The Company may use derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognized immediately in the statement of operations.
Accounting for Stock Options
For the issuances of stock options, the Company follows the fair value provisions of SFAS No. 123R,Share-Based Payment(“No. 123R”). SFAS No. 123R requires recognition of employee share-based compensation expense in the statements of income over the vesting period based on the fair value of the stock option at the grant date.
Property, Plant and Equipment
Owned assets
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses (see below). The cost of self-constructed assets includes the cost of materials, direct labor, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate allocation of production overhead, where applicable.
Capital leases
Leases under which the substantially all the risks and benefits incidental to ownership of the leased item are assumed by the Company are classified as capital leases. Other leases are classified as operating leases. A lease asset and a lease liability equal to the present value of the minimum lease payments, or the fair value of the leased item, whichever is the lower, are capitalized and recorded at the inception of the lease. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of operations. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Operating leases
Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. Where leases have fixed rate increases, these increases are accrued and amortized over the entire lease period, yielding a constant periodic expense for the entire term of the lease.
Depreciation
Depreciation is charged to the statement of operations on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
Container for Lease Fleet
The Company has a lease fleet of storage containers that it leases to customers under operating lease agreements with varying terms. Depreciation is provided using the straight-line method over the respective unit’s estimated useful life, after the date the unit is put in service, and are depreciated down to their estimated residual values. In the opinion of management, estimated residual values do not cause carrying values to exceed net realizable value. The Company continues to evaluate these depreciation policies as more information becomes available from other comparable sources and its own historical experience.
Costs incurred on lease fleet containers subsequent to initial acquisition are capitalized when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the Company in future years; otherwise, they are expensed as incurred.
Containers in the lease fleet are available for sale, and are transferred to inventory prior to sale. Cost of sales of a container in the lease fleet is recognized at the carrying amount at the date of disposal.
Intangible Assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses.
Other intangible assets
Other intangible assets that are acquired by the Company (primarily customer lists, which are amortized over 6 to 10 years) are stated at cost less accumulated amortization and impairment losses.
Subsequent expenditures
Subsequent expenditures on capitalized intangible assets are capitalized only when it increases the future economic benefits of the specific asset to which it relates. All other expenditures are expensed as incurred.
Amortization and impairment
Amortization is charged to the statement of operations on the straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment annually at each balance sheet date. Impairment losses, if incurred, are recognized in the statement of operations.
12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Inventories
Inventories are stated at the lower of cost or market (net realizable value). Net realizable value is the estimated selling price in the ordinary course of business. Expenses of marketing, selling and distribution to customers, as well as costs of completion are estimated and are deducted from the estimated selling price to establish net realizable value. Costs are assigned to individual items of stock on the basis of specific identification and include expenditures incurred in acquiring the inventories and bringing them to their existing condition and location. Inventories consist of primarily containers held for sale or lease and are comprised of the following (in thousands):
| | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | June 30,
| | | March 31,
| |
| | | 2007 | | | 2008 | |
| |
| Finished goods | | $ | 4,113 | | | $ | 18,371 | |
| Work in progress | | | 1,359 | | | | 2,289 | |
| | | | | | | | | |
| | | $ | 5,472 | | | $ | 20,660 | |
| | | | | | | | | |
Employee benefits
Defined contribution benefit plan
Obligations for contributions to a defined contribution benefit plan for Royal Wolf are recognized as an expense in the statement of operations as incurred.
Long-term service benefits
The Company’s net obligation in respect of long-term service benefits for Royal Wolf is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth of Australia Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Company’s obligations.
Income Taxes
The Company accounts for income taxes under SFAS No. 109,Accounting for Income Taxes. Accordingly, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and income tax basis of assets and liabilities at the balance sheet date multiplied by the applicable tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. (“FIN”) 48,Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second
13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
The Company files U.S. Federal tax returns, California franchise tax returns and Australian tax returns. The Company has identified its U.S. Federal tax return as its “major” tax jurisdiction. For the U.S. Federal return, all periods are subject to tax examination by the U.S. Internal Revenue Service (“IRS”). The Company does not currently have any ongoing tax examinations with the IRS. The Company believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48 and does not anticipate that the total amount of unrecognized tax benefit related to any particular tax position will change significantly within the next 12 months.
The Company’s policy for recording interest and penalties, if any, associated with audits will be to record such items as a component of income before taxes.
Net Income per Common Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the periods. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential dilutive securities the Company has outstanding are warrants and stock options (see Notes 3 and 9). The following is a reconciliation of weighted average shares outstanding used in calculating net income per share:
| | | | | | | | | |
| | | Quarter Ended | | | Nine Months Ended | |
| | | March 31, 2008 | |
| |
| Basic | | | 9,690,099 | | | | 9,910,981 | |
| Assumed exercise of warrants | | | 1,393,623 | | | | 1,393,623 | |
| Assumed exercise of stock options | | | — | | | | — | |
| | | | | | | | | |
| Diluted | | | 11,083,722 | | | | 11,304,604 | |
| | | | | | | | | |
Interest
Interest expense consists of interest payable on borrowings (including capital lease obligations) calculated using the effective interest method, the amortization of deferred financing costs and gains and losses on hedging instruments that are recognized in the statement of operations.
Interest income is recognized in the statement of operations as it accrues and dividend income is recognized in the statement of operations on the date the Company’s right to receive payments is established.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective in fiscal years beginning after November 15, 2007. Management is currently evaluating the impact that the adoption of this statement may have on the Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS 158 addresses the recognition of over-funded or under-funded status of a defined
14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
benefit plan as an asset or liability on an entity’s balance sheet. This requirement is effective for fiscal years beginning after December 15, 2006. The statement also requires the funded status of a plan be measured as of the employer’s fiscal year-end balance sheet. The requirement is effective as of the beginning of a fiscal year beginning after December 15, 2008. Management does not believe that the adoption of SFAS No. 158 will have a material effect on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities,applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157,Fair Value Measurements . Management does not believe that the adoption of SFAS No. 159 will have a material effect on the Company’s consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations, and SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141R improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAF No. 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way — as equity in the consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. The two statements are effective for fiscal years beginning after December 15, 2008 and management is currently evaluating the impact that the adoption of these statements may have on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows and (d) encourages, but does not require, comparative disclosures for earlier periods at initial adoption. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management is currently evaluating the impact that the adoption of this statement may have on the Company’s consolidated financial statements.
| |
| Note 3. | Initial Public Offering (“IPO”) |
On April 10, 2006, the Company issued and sold 7,500,000 units (“Units”) in its IPO, and on April 13, 2006, the Company issued and sold an additional 1,125,000 Units that were subject to the underwriters’ over-allotment option. Each Unit consists of one share of common stock and one warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00 commencing at the later of the
15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
completion of a business combination with a target business or one year from the effective date of the IPO (April 5, 2007) and expiring April 5, 2010 (“Warrants”), assuming there is an effective registration statement. The Warrants will be redeemable at a price of $.01 per Warrant upon 30 days’ notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given.
The IPO price of each Unit was $8.00, and the gross proceeds of the IPO were $69,000,000 (including proceeds from the exercise of the over-allotment option). Of the gross proceeds: (i) $65,000,000 was deposited into a trust account (the “Trust Account”), which amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) the Company retained $550,000 for offering expenses. In addition, the Company deposited into the Trust Account the $700,000 that it received from a private placement of 583,333 warrants to two executive officers (one of whom is also a director) for $1.20 per warrant immediately prior to the closing of the IPO. These warrants are identical to the Warrants issued in the IPO.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal Wolf. We received approximately $60.8 million, of which we used $44.7 million to pay the purchase price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in the Trust Account was paid to Public Stockholders holding 809,901 shares that voted against the acquisition and, in accordance with our certificate of incorporation, elected to receive cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid to our IPO underwriters as deferred underwriting fees.
In connection with the IPO, the Company sold to the representative of the underwriters for $100 an option to purchase 750,000 units for $10.00 per Unit. These units are identical to the Units issued in the IPO except that the warrants included in the units have an exercise price of $7.20. This option may be exercised on a cashless basis. This option expires April 5, 2011.
On November 14, 2007, the Company, through GFN Finance and Royal Wolf, entered into a Business Sale Agreement dated November 14, 2007 (the “Business Sale Agreement”) with GE SeaCo Australia Pty Ltd. and GE SeaCo SRL. GE SeaCo Australia Pty Ltd. is owned by GE SeaCo SRL, which is a joint venture between Genstar Container Corporation (a subsidiary of General Electric) and Sea Containers Ltd. Sea Containers Ltd. is in bankruptcy reorganization (collectively “GE SeaCo”). Pursuant to the Business Sale Agreement, on November 15, 2007, the Company purchased the assets of GE SeaCo used in its dry and refrigerated container business in Australia and Papua New Guinea for $17,850,000, after adjustments. The Business Sale Agreement contains a three-year non-competition agreement from GE SeaCo and certain affiliates covering Australia and Papua New Guinea. The purchase price was paid at the closing, less a holdback of approximately $900,000 deposited into an escrow account for one year to provide for damages from breach of representations and warranties by GE SeaCo and any post-closing purchase price adjustments.
The total purchase price, including the Company’s transaction costs of approximately $37,000, a non-compete agreement of $2.0 million (prior to tax benefit) and deferred financing costs of $84,000 has been allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values as of November 14, 2007.
On February 29, 2008, the Company, through Royal Wolf, entered into an asset purchase agreement to acquire the dry and refrigerated container assets of Container Hire and Sales (“CHS”), located south of Perth, Australia for $3.8 million. The total purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values as of February 29, 2008.
16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The allocation for these acquisitions to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values were as follows (in thousands):
| | | | | | | | | |
| | | GE SeaCo
| | | CHS
| |
| | | November 14, 2007 | | | February 29, 2008 | |
| |
| Fair value of the net tangible assets acquired and liabilities assumed: | | | | | | | | |
| Inventories (primarily containers) | | $ | 1,746 | | | $ | — | |
| Property, plant and equipment | | | 28 | | | | 108 | |
| Container for lease fleet | | | 9,952 | | | | 1,435 | |
| Trade and other payables | | | (229 | ) | | | 4 | |
| | | | | | | | | |
| Total net tangible assets acquired and liabilities assumed | | | 11,497 | | | | 1,547 | |
| Fair value of intangible assets acquired: | | | | | | | | |
| Non-compete agreement | | | 1,999 | | | | — | |
| Deferred financing costs | | | 84 | | | | 472 | |
| Goodwill | | | 4,270 | | | | 1,753 | |
| | | | | | | | | |
| Total intangible assets acquired | | | 6,353 | | | | 2,225 | |
| | | | | | | | | |
| Total purchase consideration | | $ | 17,850 | | | $ | 3,772 | |
| | | | | | | | | |
| |
| Note 5. | Long-term Debt and Obligations |
ANZ Senior Credit Facility
The Company has a credit facility with Australia and New Zealand Banking Group Limited (“ANZ”). The facility is subject to annual reviews by ANZ and is guaranteed and secured by the Company’s Australian subsidiaries. At the closing of the acquisition of the assets from CHS (see Note 4), this facility was amended to increase the total facility limit to $91.6 million (AUS$99.8 million) at March 31, 2008.
The aggregate ANZ facility comprises ten different sub-facilities. The largest of these sub-facilities are a receivables financing facility of up to $9.2 million (AUS$10.0 million), four interchangeable loan facilities under which the Company may borrow up to the lesser of $56.3 million (AUS$61.3 million) or 85% of the orderly liquidation value, as defined, of its container fleet, a special finance line for acquisitions of $19.3 million (AUS$21.0 million) and two multi option facilities for primarily yard construction of $2.8 million (AUS$3.0 million). The receivables financing facility bears interest at a variable rate equal to the bank bill swap reference rate plus 1.65% per annum and may not be terminated except on default prior to ANZ’s next review date of the facility. The secured loan facilities mature in five years following the initial drawdown on the facility, or September 2012, but there is currently a $138,000 (AUS$150,000) amortization per quarter under one of the interchangeable loan sub-facilities, which limit is $4.6 million (AUS$5.0 million). These loans bear interest at ANZ’s prime rate plus between 1.40% and 2.50% per annum, with interest payable quarterly.
The ANZ credit facility is subject to certain covenants, including compliance with specified consolidated interest cover and senior and total debt ratios, as defined, for each financial quarter on ayear-to-date or trailing-twelve-month basis, and restrictions on the payment of dividends, loans and payments to affiliates, granting of new security interests on the assets of any of the secured entities. A change of control in any of GFN Holdings or its direct and indirect subsidiaries without the prior written consent of ANZ constitutes an event of default under the facility.
17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Bison Note
On September 13, 2007, in conjunction with the closing of the acquisition of Royal Wolf, the Company entered into a securities purchase agreement with Bison Capital, pursuant to which the Company issued and sold to Bison Capital, at par, a secured senior subordinated promissory note in the principal amount of $16,816,000 (the “Bison Note”). Pursuant to the securities purchase agreement, the Company paid Bison Capital a closing fee of $336,000 and issued to Bison Capital warrants to purchase 500,000 shares of common stock of GFN.
The Bison Note bears interest at the annual rate of 13.5%, payable quarterly in arrears, commencing October 1, 2007, and matures on March 13, 2013. The Company may extend the maturity date by one year, provided that it is not then in default. The Company may not prepay the Bison Note prior to September 13, 2008, but may thereafter prepay the Bison Note at a declining price of 102% of par prior to September 13, 2009, 101% of par prior to September 13, 2010 and 100% of par thereafter. The maturity of the Bison Note may be accelerated upon an event of default or upon a change of control of GFN Finance or any of its subsidiaries. Payment under the Bison Note is secured by a lien on all or substantially all of the assets of GFN Finance and its subsidiaries, subordinated and subject to the inter-creditor agreement with ANZ. If, during the66-month period ending on the scheduled maturity date, GFN’s common stock has not traded above $10 per share for any 20 consecutive trading days on which the average daily trading volume was at least 30,000 shares (ignoring any daily trading volume above 100,000 shares), upon demand by Bison Capital the Company will pay Bison Capital on the scheduled maturity date a premium of $1.1 million in cash, less any gains realized by Bison Capital from any prior sale of the warrants and warrant shares. This premium is also payable upon any acceleration of the Bison Note due to an event of default or change of control of GFN Finance or any of its subsidiaries. As a condition to receiving this premium, Bison Capital must surrender to us for cancellation any remaining warrants and warrants shares. The premium will be payable by us on the scheduled maturity date, whether or not the note has been paid by us on or before (or after) that date.
The Bison Note requires the maintenance of certain financial ratios based on earnings before income taxes, depreciation and amortization (EBITDA) and Royal Wolf’s debt levels (leverage), as well as restrictions on capital expenditures.
The warrants issued to Bison Capital represent the right to purchase 500,000 shares of GFN’s common stock at an initial exercise price of $8.00 per share, subject to adjustment for stock splits and stock dividends. The warrants will expire September 13, 2014 to the extent not previously exercised.
The Company was in compliance with all financial covenants pertaining to the ANZ credit facility and Bison Note as of March 31, 2008.
UBOC Credit Facility
On March 28, 2008, the Company entered into credit agreement with Union Bank of California, N.A. (“UBOC”) for a $1.0 million credit facility. Borrowings or advances under the facility will bear interest at UBOC’s “Reference Rate” (which approximates the prime rate) and are due and payable within 60 days. The facility is guaranteed by GFN U.S., requires (among other quarterly and yearend financial reporting covenants) that there is at least one dollar of combined net income for GFN and GFN U.S. for the year ended June 30, 2008 and expires on March 31, 2009. There were no outstanding borrowings under the UBOC credit facility at March 31, 2008.
18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Capital Leases
Capital lease liabilities of the Company are payable as follows as of March 31, 2008 (in thousands):
| | | | | | | | | | | | | |
| | | Minimum
| | | | | | | |
| | | lease payments | | | Interest | | | Principal | |
| |
| Less than one year | | $ | 381 | | | $ | 27 | | | $ | 354 | |
| Between one and five years | | | 141 | | | | 17 | | | | 124 | |
| More than five years | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | $ | 522 | | | $ | 44 | | | $ | 478 | |
| | | | | | | | | | | | | |
The Company has finance leases and lease purchase contracts for various motor vehicles, and other assets. These leases have no terms of renewal or purchase options or escalation clauses.
| |
| Note 6. | Financial Instruments |
The carrying value of the Company’s financial instruments, which include cash and cash equivalents, receivables, trade and other payables, borrowings under the ANZ credit facility, the Bison Note, interest rate swaps, forward exchange contracts and commercial bills; approximate fair value due to current market conditions, maturity dates and other factors.
Exposure to credit, interest rate and currency risks arises in the normal course of the Company’s business. The Company may use derivative financial instruments to hedge exposure to fluctuations in foreign exchange rates and interest rates.
Credit Risk
It is the Company’s policy that all customers who wish to purchase or lease containers on credit terms are subject to credit verification procedures and the Company will agree to terms with customers believed to be creditworthy. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant. With respect to credit risk arising from the other significant financial assets of the Company, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, the Company’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. As the counter party for derivative instruments is nearly always a bank, the Company has assessed this as a low risk.
There are no significant concentrations of credit risk within the Company.
Interest Rate Risk
The Company’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations. The Company’s policy is to manage its interest cost using a mix of fixed and variable rate debt.
To manage this mix in a cost-efficient manner, the Company enters into interest rate swaps, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to anagreed-upon notional principal amount. These swaps are designated to hedge changes in the interest rate of its commercial bill liability. The secured ANZ loan and interest rate swap have the same critical terms, including expiration dates. The Company believes that financial instruments designated as interest rate hedges are highly effective. However, documentation of such as required by SFAS No. 133,Accounting for Derivative Instruments and Hedging Activitiesdoes not exist. Therefore, all movements in the fair values of these hedges are taken directly to the statement of operations.
19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Foreign Currency Risk
The Company has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the functional currency. The currency giving rise to this risk is primarily U.S. dollars. The Company has a bank account denominated in U.S. dollars into which a small number of customers pay their debts. This is a natural hedge against fluctuations in the exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian dollars.
The Company uses forward currency contracts and options to eliminate the currency exposures on the majority of its transactions denominated in foreign currencies, either by transaction if the amount is significant, or on a general cash flow hedge basis. The forward currency contracts and options are always in the same currency as the hedged item. The Company believes that financial instruments designated as foreign currency hedges are highly effective. However documentation of such as required by SFAS No. 133 does not exist. Therefore, all movements in the fair values of these hedges are taken directly to statement of operations. The Company also has certain U.S. dollar-denominated debt at Royal Wolf, including long-term intercompany borrowings, which are remeasured at each financial reporting date with the impact of the remeasurement being recorded in our consolidated statements of operations.
| |
| Note 7. | Limited Recourse Revolving Line of Credit |
The Company had an unsecured limited recourse revolving line of credit from Ronald F. Valenta, a director and the chief executive officer of the Company, pursuant to which the Company could borrow up to $3,000,000 outstanding at one time. The line of credit terminated upon the completion of the acquisition of Royal Wolf and the outstanding principal and interest totaling $2,586,848 was repaid on September 14, 2007.
| |
| Note 8. | Related Party Transactions |
The Company utilizes certain accounting, administrative and secretarial services from affiliates of officers; as well as certain limited office space provided by an affiliate of Mr. Valenta. Until the consummation of a business combination by the Company, the affiliates had agreed to make such services available to the Company free of charge, as may be required by the Company from time to time; with the exception of the reimbursement of certain out-of-pocket costs incurred on behalf of the Company. Effective September 14, 2007, the Company entered into a month-to-month arrangement that lasted until January 31, 2008 with an affiliate of Mr. Valenta for the rental of the office space at $1,148 per month. In addition, effective September 14, 2007, the Company commenced recording a charge to operating results (with an offsetting contribution to additional paid-in capital) for the estimated cost of contributed services rendered to the Company at no compensation by non-employee officers and administrative personnel of affiliates.
Effective January 31, 2008, the Company entered into a lease with an affiliate of Mr. Valenta for its new corporate headquarters in Pasadena, California. The rent is $7,779 per month, plus allocated charges for common area maintenance, real property taxes and insurance, for approximately 3,000 square feet of office space. The term of the lease is five years, with two five-year options, and the rent is adjusted yearly based on the consumer price index.
| |
| Note 9. | Stock Option Plans |
On August 29, 2006, the Board of Directors of the Company adopted the General Finance Corporation 2006 Stock Option Plan (“2006 Plan”), which was approved by stockholders on June 14, 2007. Under the 2006 Plan, the Company may issue to directors, employees, consultants and advisers up to 1,500,000 shares of its common stock pursuant to options to be granted under the 2006 Plan. The options may be incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, or so-called non-qualified options that are not intended to meet
20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
incentive stock option requirements. The options may not have a term in excess of ten years, and the exercise price of any option may not be less than the fair market value of the Company’s common stock on the date of grant of the option. Unless terminated earlier, the 2006 Plan will automatically terminate June 30, 2016.
On each of September 11, 2006 (“2006 Grant”) and December 14, 2007 (“2007 Grant”), the Company granted options to purchase 225,000 shares at an exercise price equal to the closing market price of the Company’s common stock as of that date, or $7.30 and $9.05, respectively, with a vesting period of five years. Stock-based compensation expense of $263,950 related to these options has been recognized in the statements of operations through March 31, 2008, with a corresponding benefit to additional paid-in capital. As of March 31, 2008, there remains $1,267,250 of unrecognized compensation expense that will be recorded in the statement of operations on a straight-line basis over the remaining vesting period. Also, as of March 31, 2008, 45,000 of the 2006 Grant options are exercisable and no options of the 2007 Grant are exercisable.
On January 22, 2008 (“2008 Grant”), the Company granted options to certain key employees of Royal Wolf to purchase 489,000 shares at an exercise price equal to the closing market price of the Company’s common stock as of that date, or $8.80. The 2008 Grant consists of 243,000 options with a vesting period of five years and 246,000 options that vest subject to a performance condition based on Royal Wolf achieving a certain EBITDA (earnings before interest, income taxes, depreciation and amortization) target for the year ending June 30, 2008. The Company has assessed that it is probable that this EBITDA target will be achieved and has commenced recognizing compensation expense over the anticipated vesting period of 20 months. Total stock-based compensation expense of $129,900 related to the 2008 Grant has been recognized in the statement of operations through March 31, 2008, with a corresponding benefit to additional paid-in capital. As of March 31, 2008, there remains $1,247,800 of unrecognized compensation expense that will be recorded in the statement of operations on a straight-line basis over the remaining weighted-average vesting period of 3.3 years. There were no options exercisable under the 2008 Grant as of March 31, 2008.
A deduction is not allowed for U.S. income tax purposes with respect to non-qualified options granted in the United States until the stock options are exercised or, with respect to incentive stock options issued in the United States, unless the optionee makes a disqualifying disposition of the underlying shares. The amount of any deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. Accordingly, there is a deferred tax asset recorded for the U.S. tax effect of the financial statement expense recorded related to stock option grants in the United States. The tax effect of the U.S. income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital.
The weighted-average fair value of the stock options granted was $3.06, $3.75 and $3.94 per option for the 2006 Grant, 2007 Grant and 2008 Grant, respectively, determined by using the Black-Scholes option-pricing model using the following assumptions: A risk-free interest rate of 4.8%, 3.27% and 3.01% (corresponding treasury bill rates) for the 2006 Grant, 2007 Grant and 2008 Grant, respectively; an expected life of 7.5 years; an expected volatility of 26.5%, 31.1% and 35.83% for the 2006 Grant, 2007 Grant and 2008 Grant, respectively; and no expected dividend.
Royal Wolf had an employee share option plan (ESOP) for the granting of non-transferable options to certain key management personnel and senior employees with more than twelve months’ service at the grant date. During the year ended June 30, 2007, $2,930,000 was paid to the employees relating to the ESOP with a remaining $759,000 being paid out and closed in July 2007.
21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
| |
| Note 10. | Commitments and Contingencies |
Operating Leases
The Company leases various office equipment and other facilities under operating leases. The leases have maturities of between one and nine years, some with an option to renew the lease after that period. None of the leases includes contingent rentals. There are no restrictions placed upon the lessee by entering into these leases.
Non-cancellable operating lease rentals at March 31, 2008 are payable as follows (in thousands):
| | | | | |
| Less than one year | | $ | 2,774 | |
| One-two years | | | 1,413 | |
| Two-three years | | | 1,046 | |
| Three-four years | | | 470 | |
| Four-five years | | | 253 | |
| Thereafter | | | 315 | |
| | | | | |
| | | $ | 6,271 | |
| | | | | |
In connection with the asset purchase from GE SeaCo, the Company entered in a preferred supply agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed sell to the Company, and the Company has agreed to purchase, all of GE SeaCo’s containers that GE SeaCo determines to sell, up to a maximum of 5,000 containers each year. The purchase price for the containers will be based on their condition and is specified in the agreement, subject to annual adjustment. In addition, the Company received a right of first refusal to purchase any additional containers that GE SeaCo desires to sell in Australia, New Zealand and Papua New Guinea. Either party may terminate the Agreement upon no less than 90 days’ prior notice at any time after November 15, 2012.
In January 2008, Royal Wolf was notified by a Department of the Australian government of an odor that might be caused by high levels of formaldehyde or volatile organic compounds that exceed national guidelines in some of its containers. Royal Wolf is working in cooperation with the Australian government in investigating the complaint and estimates that remediation to address the levels of formaldehyde and volatile organic compounds may be required for up to 640 units. Management of the Company believes that, based on their investigation to-date, the remediation of this matter would not have a material adverse effect on the consolidated results of operations or financial position of the Company. However, the outcome is not currently determinable and it is possible that the ultimate resolution with the Australian government may be materially adverse to the consolidated results of operations of the Company.
22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
| |
| Note 11. | Cash Flows From Operating Activities |
The following table provides a detail of cash flows from operating activities (in thousands):
| | | | | | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | Nine Months
| | | Period from
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | |
| |
| Cash flows from operating activities | | | | | | | | | | | | |
| Net income (loss) | | $ | (1,923 | ) | | $ | 288 | | | $ | 3,553 | |
| Loss (gain) on sales and disposals of fixed assets | | | (12 | ) | | | 11 | | | | 3 | |
| Unrealized foreign exchange loss (gain) | | | (243 | ) | | | 58 | | | | (376 | ) |
| Unrealized loss (gain) on forward exchange contracts | | | 72 | | | | 72 | | | | 393 | |
| Unrealized loss on interest rate swaps | | | (85 | ) | | | 90 | | | | (13 | ) |
| Depreciation and amortization | | | 2,582 | | | | 653 | | | | 4,834 | |
| Amortization of deferred financing costs | | | — | | | | — | | | | 125 | |
| Accretion of interest on subordinated debt | | | 1,394 | | | | 32 | | | | 129 | |
| Share-based compensation expense | | | — | | | | — | | | | 282 | |
| Contributed services | | | — | | | | — | | | | 160 | |
| Interest deferred for common stock subject to possible conversion, net of income tax effect | | | — | | | | — | | | | (226 | ) |
| Deferred income taxes | | | 860 | | | | 180 | | | | 2,281 | |
| Minority interest | | | — | | | | — | | | | 354 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Trade and other receivables, net | | | (4,706 | ) | | | 1,090 | | | | (7,814 | ) |
| Inventories | | | 1,129 | | | | (3,822 | ) | | | (10,016 | ) |
| Other | | | — | | | | — | | | | (993 | ) |
| Accounts payable and accrued liabilities | | | 4,408 | | | | 5,642 | | | | 827 | |
| Income taxes payable | | | — | | | | — | | | | (392 | ) |
| | | | | | | | | | | | | |
| Net cash provided (used) by operating activities | | $ | 3,476 | | | $ | 4,294 | | | $ | (6,889 | ) |
| | | | | | | | | | | | | |
On April 30, 2008 (May 1, 2008 in New Zealand), the Company, through Royal Wolf, acquired RWNZ Acquisition Co. Limited and its wholly owned subsidiary, Royal Wolf Trading New Zealand (collectively “RWNZ”) for over $18.0 million (using an exchange rate of one New Zealand dollar to $0.7751 U.S. dollar). Among other things, the acquisition agreement contains a three-year non-compete covenant under which the sellers agree not to sell or lease storage containers to retail customers in an area that includes New Zealand. The transaction was primarily financed under the existing ANZ senior credit facility (see Note 5).
On May 1, 2008, the Company issued and sold to Bison Capital a second secured senior subordinated promissory note in the principal amount of $5,500,000 on terms comparable to the original Bison Note (see Note 5), except that the maturity of this second note is June 30, 2010.
23
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
On May 2, 2008, the Company offered the holders of its 8,625,000 outstanding, publicly-traded Warrants and the 583,333 warrants issued to two executive officers (one of whom is also a director) the opportunity to exercise those warrants for a limited time at a reduced exercise price of $5.10 per warrant. The offer commenced on May 2, 2008 and will continue through May 30, 2008, unless extended or withdrawn. Warrants must be tendered prior to the expiration of the offer, and tenders of existing warrants may be withdrawn at anytime on or prior to the expiration of the offer. Withdrawn warrants will be returned to the holder in accordance with the terms of the offer. Upon termination of the offer, the original terms of the warrants will be reinstituted and the warrants will expire on April 5, 2010, unless earlier redeemed according to their original terms (see Note 3).
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| |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the accompanying notes thereto for us and Royal Wolf, which are included in our Transition Report onForm 10-K for the six months ended June 30, 2007 and in our post-effective amendment onForm S-1, both filed with the Securities and Exchange Commission; as well as the condensed consolidated financial statements included in this Quarterly Report onform 10-Q. This Quarterly Report onForm 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings.
References in this Report to “we”, “us”, or the “Company” are to General Finance Corporation (“GFN”) and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN Australasia Holdings Pty Ltd., an Australian corporation (“GFN Holdings”); and GFN Australasia Finance Pty Ltd, an Australian corporation (“GFN Finance”); and, as of September 13, 2007, RWA Holdings Pty Limited (“RWA”), an Australian corporation, and its subsidiaries (collectively, “Royal Wolf”).
Business Overview
We were incorporated in Delaware on October 14, 2005 in order to serve as a vehicle to effect a business combination with one or more operating businesses. From inception through September 13, 2007, we did not have any business or operations and our activities were limited to raising capital in our initial public offering (the “IPO”) in April 2006, identifying an operating business to acquire, and negotiating and entering into an agreement to acquire Royal Wolf.
We issued 8,625,000 units in our IPO. Each unit consists of one share of our common stock and one warrant entitling the holder to purchase one share of our common stock at a price of $6.00. The public offering price of each unit was $8.00, and we generated gross proceeds of $69,000,000 in the IPO. Of the gross proceeds: (i) we deposited $65,000,000 into a trust account (the “Trust Account”), which amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) we retained $550,000 for offering expenses. In addition, we deposited into the Trust Account $700,000 that we received from the issuance and sale of 583,333 warrants to Ronald F. Valenta, a director and our Chief Executive Officer, and John O. Johnson, our Chief Operating Officer, prior to completion of the IPO. Stockholders holding the shares issued in connection with the IPO are referred to as “Public Stockholders.”
On September 13, 2007 (September 14 in Australia), we completed the acquisition of Royal Wolf through the acquisition of all of the outstanding shares of RWA. Based upon the actual exchange rate of one Australian dollar to $0.8407 U.S. dollar realized in connection with payments made upon completion of the acquisition, the purchase price paid to the sellers for the RWA shares was $64.3 million, including deposits of $1,005,000 previously paid by us in connection with the acquisition. We paid the purchase price, less the deposits, by a combination of cash in the amount of $44.7 million plus the issuance to Bison Capital Australia, L.P. (“Bison Capital”), one of the sellers, of shares of common stock of GFN U.S., constituting 13.8% of the outstanding capital stock of GFN U.S. following the issuance; and the issuance of a note to Bison Capital. As a result of this structure, we own 86.2% of the outstanding capital stock of GFN U.S. and Bison Capital owns 13.8% of the outstanding capital stock of GFN U.S, which through its indirect subsidiary GFN Finance owns all of the outstanding capital stock of Royal Wolf.
We accounted for the acquisition of Royal Wolf as a “purchase.” Under the purchase method of accounting, we allocated the total purchase price to the net tangible assets and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of acquisition. The excess of the purchase price over the net fair
25
value of the assets acquired (including specifically identified intangible assets such as customer lists and non-compete covenants) was recorded as goodwill. See Note 1 of Notes to Condensed Consolidated Financial Statements.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal Wolf. We received approximately $60.8 million, of which we used $44.7 million to pay the purchase price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in the Trust Account was paid to Public Stockholders holding 809,901 shares that voted against the acquisition and, in accordance with our certificate of incorporation, elected to receive cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid to our IPO underwriters as deferred underwriting fees.
All references to events or activities (other than equity-related) which occurred prior to the completion of the acquisition on September 13, 2007 (September 14 in Australia) relate to Royal Wolf, as the predecessor company (the “Predecessor”). All references to events or activities (other than equity-related) which occurred after the completion of the acquisition on September 13, 2007 (September 14 in Australia) relate to us, as the successor company (the “Successor”).
We lease and sell storage container products in Australia. We currently have approximately 200 employees and operate 18 customer service centers located in every state in Australia. We are the only portable container lease and sales company represented in all major business centers in Australia and, as such, we are the only storage container products company with a nationally integrated infrastructure and work force. We serve both small to mid-size retail customers and large corporate customers in the following sectors: road and rail; moving and storage; mining and defense; and portable buildings. Historically, our revenue mix has been over 67% sales and under 33% leasing. Generally, we consider sales and leasing in our customer service centers as retail operations.
Our products include the following.
Portable Storage Containers: We lease and sell storage container products foron-site storage by retail outlets and manufacturers, local councils and government departments, farming and agricultural concerns, building and construction companies, clubs and sporting associations, mine operators and individual customers. Our portable storage products include general purpose dry storage containers, refrigerated containers and hazardous goods containers in a range of standard and modified sizes, designs and storage capacities.
Portable Container Buildings: We lease and sell portable container buildings for use as site offices, housing accommodations and for other purposes. We entered the portable building market in August 2005 with 20’ and 40’ portable buildings manufactured from steel container platforms, which we market primarily to mine operators, construction companies and the general public.
Freight Containers: We lease and sell freight containers specifically designed for transport of products by road and rail. Customers include national moving and storage companies, distribution and logistics companies, domestic freight forwarders, transport companies, rail freight operators and the Australian military. Our freight container products include curtain-side, refrigerated and bulk cargo containers, together with a range of standard and industry-specific dry freight containers.
On November 14, 2007, we, through GFN Finance and Royal Wolf, entered into a Business Sale Agreement dated November 14, 2007 (the “Business Sale Agreement”) with GE SeaCo Australia Pty Ltd. and GE SeaCo SRL. GE SeaCo Australia Pty Ltd is owned by GE SeaCo SRL, which is a joint venture between Genstar Container Corporation (a subsidiary of General Electric) and Sea Containers Ltd. Sea Containers Ltd. is in bankruptcy reorganization (collectively “GE SeaCo”). Pursuant to the Business Sale Agreement, on November 15, 2007, we purchased the assets of GE SeaCo used in its dry and refrigerated container business in Australia and Papua New Guinea for $17,850,000. With this purchase, we added 6,300 containers, of which approximately 4,600 units were leased. The Business Sale Agreement contains a three-year non-competition agreement from GE SeaCo and certain affiliates covering Australia and Papua New Guinea.
In connection with the asset purchase from GE SeaCo, we entered in a preferred supply agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed to sell to us, and we have agreed to purchase, all of GE SeaCo’s containers that GE SeaCo determines to sell, up to a maximum of 5,000 containers each year. The
26
purchase price for the containers will be based on their condition and is specified in the agreement, subject to annual adjustment. In addition, we received a right of first refusal to purchase any additional containers that GE SeaCo desires to sell in Australia, New Zealand and Papua New Guinea. Either party may terminate the Agreement upon no less than 90 days’ prior notice at any time after November 15, 2012.
On February 29, 2008, we, through Royal Wolf, entered into an asset purchase agreement to acquire the dry and refrigerated container assets of Container Hire and Sales (“CHS”), located south of Perth, Australia for approximately $3.8 million. With this purchase, we added 630 storage containers, of which approximately 570 units are leased in the mining dominated Western Australia marketplace.
On April 30, 2008 (May 1, 2008 in New Zealand), we, through Royal Wolf, acquired RWNZ Acquisition Co. Limited and its wholly owned subsidiary, Royal Wolf Trading New Zealand (collectively “RWNZ”) for approximately $18.6 million. Through this acquisition, we acquired more than 5,800 storage containers, of which approximately 5,000 storage containers are in the leasing fleet at an approximately 86% utilization rate. Among other things, the acquisition agreement contains a three-year non-compete covenant under which the sellers agree not to sell or lease storage containers to retail customers in an area that includes New Zealand.
Results of Operations
Quarter Ended March 31, 2008 (“QE FY 2008”) Compared to Quarter Ended March 31, 2007 (“QE FY 2007”)
The following discussion compares the QE FY 2007 results of operations of Royal Wolf, as Predecessor, to those of the Company, as Successor, for QE FY 2008.
Revenues. Sales of containers during QE FY 2008 amounted to $19.8 million compared to $14.1 million during QE FY 2007; representing an increase of $5.7 million or 40.4%. This increase was mainly due to growth in revenues from sales of containers in our retail operations of $1.9 million, sales of $1.6 million in our national accounts group or non-retail operations and $2.1 million due to favorable foreign exchange rates. The $1.9 million increase in our retail operations consisted of $0.3 million due to higher unit sales and $1.6 million due to price increases. The $1.6 million increase in our national accounts group operations consisted of $4.4 million due to higher unit sales, offset somewhat by price reductions of $2.8 million.
Leasing of container revenues during QE FY 2008 amounted to $8.8 million compared to $5.8 million during QE FY 2007, representing an increase of $3.0 million, or 51.7%. This was driven by favorable foreign exchange rates of $0.9 million, an increase of $0.2 million in our average total number of units on lease per month in our portable container building business, which increased by 31.6% during QE FY 2008 compared to QE FY 2007; and an increase of $1.9 million in our average total number of units on lease per month in our portable storage container business, primarily as a result of our acquisition of the assets of GE SeaCo in November 2007 and CHS in February 2008. Average utilization in our retail operations was 80.3% during QE FY 2008, as compared to 82.0% during QE FY 2007; and our average utilization in our national accounts group operations was 87.7% during QE FY 2008, as compared to 79.3% during QE FY 2007. Overall our average utilization was 83.3% in QE FY 2008, as compared to 81.0% in QE FY 2007.
The average value of the United States (“U.S.”) dollar against the Australian dollar declined during QE FY 2008 as compared to QE FY 2007. The average currency exchange rate of one Australian dollar during QE FY 2007 was $0.78606 U.S. dollar compared to $0.90493 U.S. dollar during QE FY 2008. This fluctuation in foreign currency exchange rates resulted in an increase to our container sales and leasing revenues of $2.1 million and $0.9 million, respectively, during QE FY 2008 compared to QE FY 2007; representing 34.1% of the increase in total revenues; or 15.1% of total revenues in QE FY 2007.
Sales of containers and leasing of containers represented 69% and 31% and 71% and 29% of total revenues in QE FY 2008 and QE FY 2007, respectively.
Cost of Sales. Cost of sales in our container sales business increased by $3.7 million to $16.4 million during QE FY 2008 compared to $12.7 million during QE FY 2007. The increase was due to foreign exchange translation effect of $1.9 million and cost increases of $1.2 million and $0.6 million in our retail and national operations,
27
respectively. Our gross profit margin from sales revenues improved during QE FY 2008 to 17.4% compared to 10.0% during QE FY 2007 as a result of price increases and favorable product mix.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by $1.9 million during QE FY 2008, or 41.3%, to $6.5 million from $4.6 million during QE FY 2007. This increase includes approximately $0.6 million, or 33.3% of the increase, incurred at GFN. The following table provides more detailed information about the Royal Wolf operating expenses of $5.9 million in QE FY 2008 as compared to $4.6 million in QE FY 2007:
| | | | | | | | | |
| | | Quarter Ended
| |
| | | March 31, | |
| | | 2007 | | | 2008 | |
| | | (In millions) | |
| |
| Salaries, wages and related | | $ | 2.8 | | | $ | 3.3 | |
| Rent | | | 0.1 | | | | 0.1 | |
| Customer service center (“CSC”) operating costs | | | 0.7 | | | | 1.1 | |
| Business promotion | | | 0.2 | | | | 0.2 | |
| Travel and meals | | | 0.1 | | | | 0.2 | |
| IT and telecommunications | | | 0.1 | | | | 0.2 | |
| Professional costs | | | 0.4 | | | | 0.4 | |
| Other | | | 0.2 | | | | 0.4 | |
| | | | | | | | | |
| | | $ | 4.6 | | | $ | 5.9 | |
| | | | | | | | | |
The increase in QE FY 2008 from QE FY 2007 in salaries, wages and related expenses and CSC costs of $0.5 million and $0.4 million, respectively, were due primarily to the increase in number of sales and marketing personnel as we continue to expand our infrastructure for growth. As a percentage of revenues, operating expenses at Royal Wolf decreased to 20.6% in QE FY 2008 from 23.1% in QE FY 2007.
Depreciation and Amortization. Depreciation and amortization expenses increased by $1.2 million to $2.3 million during QE FY 2008 compared to $1.1 million during QE FY 2007. The increase was primarily the result of adjustments to fair values of fixed assets and identifiable intangible assets as a result of acquisitions. The amortization of identifiable intangible assets (customer lists and non-compete agreements) represented approximately $1.0 million of this increase.
Interest Expense. The increase in interest expense of $1.1 million in QE FY 2008 as compared to QE FY 2007was due principally to an increase in total long-term debt, which was $40.7 million at December 31, 2006, $39.8 million at March 31, 2007, $69.2 million at December 31, 2007 and $80.0 million at March 31, 2008. The increase in total debt in QE FY 2008 was due primarily to our acquisition of CHS at principally Royal Wolf’s credit facility with Australian and New Zealand Banking Group Limited (“ANZ”).
Foreign Currency Exchange. As a result of the acquisition of Royal Wolf, we now have certain U.S. dollar-denominated debt at Royal Wolf, including intercompany borrowings, which are remeasured at each financial reporting date with the impact of the remeasurement being recorded in our consolidated statements of income. The foreign exchange effect of the principal balance of the U.S. dollar-denominated intercompany borrowings are now included in accumulated other comprehensive income since we do not expect repayment in the foreseeable future.
Income Taxes. Our effective income tax rate decreased to 27.9% during the QE FY 2008 as a result of certain non-deductible amounts included in the QE FY 2007 for Australian income tax purposes being extinguished and the amortization of goodwill for U.S. income tax reporting purposes being deductible in QE FY 2008.
Net Income. We had net income of $0.8 million during QE FY 2008 compared to net income of $0.2 million during QE FY 2007 primarily as a result of increased revenues from the sales and leasing of containers in QE FY 2008, offset somewhat by additional interest expense.
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Nine Months Ended March 31, 2008 (“YTD FY 2008”) Compared to Nine Months Ended March 31, 2007 (“YTD FY 2007”)
We had no business or operations prior to our acquisition of Royal Wolf on September 13, 2007. Comparisons of our results of operations for YTD FY 2008 with YTD FY 2007 therefore are not particularly meaningful. We believe a more meaningful comparison is the results of operations of Royal Wolf for YTD FY 2007 with the combined results of our operations and Royal Wolf during YTD FY 2008. To assist in this comparison, the following table sets forth condensed statements of operations for the following: (i) Royal Wolf, as Predecessor, for YTD FY 2007 and for the period July 1, 2007 to September 13, 2007; (ii) the Company, as Successor, for YTD FY 2008, which reflects the results of operations of Royal Wolf and its subsidiaries for the period September 14, 2007 through March 31, 2008; and (iii) the combined results of operations of the Predecessor and Successor for YTD FY 2008.
| | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | | | Combined | |
| | | Nine Months
| | | Period from
| | | Nine Months
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | | | 2008 | |
| | | (In thousands) | |
| |
Revenues | | | | | | | | | | | | | | | | |
| Sale of containers | | $ | 37,441 | | | $ | 10,944 | | | $ | 45,277 | | | $ | 56,221 | |
| Leasing of containers | | | 15,995 | | | | 4,915 | | | | 17,624 | | | | 22,539 | |
| | | | | | | | | | | | | | | | | |
| | | | 53,436 | | | | 15,859 | | | | 62,901 | | | | 78,760 | |
| | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | 33,094 | | | | 9,466 | | | | 37,757 | | | | 47,223 | |
| Leasing, selling and general expenses | | | 16,066 | | | | 4,210 | | | | 13,595 | | | | 17,805 | |
| Depreciation and amortization | | | 2,582 | | | | 653 | | | | 4,834 | | | | 5,487 | |
| | | | | | | | | | | | | | | | | |
Operating income | | | 1,694 | | | | 1,530 | | | | 6,715 | | | | 8,245 | |
| Interest income | | | 83 | | | | 14 | | | | 1,194 | | | | 1,208 | |
| Interest expense | | | (3,069 | ) | | | (947 | ) | | | (4,385 | ) | | | (5,332 | ) |
| Foreign currency exchange gain (loss) and other | | | 230 | | | | (129 | ) | | | 2,220 | | | | 2,091 | |
| | | | | | | | | | | | | | | | | |
| | | | (2,756 | ) | | | (1,062 | ) | | | (971 | ) | | | (2,033 | ) |
| | | | | | | | | | | | | | | | | |
Income (loss) before provision for income taxes and minority interest | | | (1,062 | ) | | | 468 | | | | 5,744 | | | | 6,212 | |
| Provision for income taxes | | | 861 | | | | 180 | | | | 1,837 | | | | 2,017 | |
| Minority interest | | | — | | | | — | | | | 354 | | | | 354 | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (1,923 | ) | | $ | 288 | | | $ | 3,553 | | | $ | 3,841 | |
| | | | | | | | | | | | | | | | | |
Revenues. Sales of containers during YTD FY 2008 amounted to $56.2 million compared to $37.4 million during YTD FY 2007; representing an increase of $18.8 million or 50.3% .This increase was mainly due to growth in revenues from sales of containers in our retail operations of $8.0 million, sales of $5.3 million in our national accounts group or non-retail operations and $5.3 million due to favorable foreign exchange rates. The $8.0 million increase in our retail operations consisted of $4.5 million due to higher unit sales and $3.5 million due to price increases. The $5.3 million increase in our national accounts group operations consisted of $6.9 million due to higher unit sales, offset somewhat by price reductions of $1.6 million.
Leasing of container revenues during YTD FY 2008 amounted to $22.5 million compared to $16.0 million during YTD FY 2007, representing an increase of $6.5 million, or 40.6%. This was driven by favorable foreign exchange rates of $2.3 million, an increase of $1.0 million in our average total number of units on lease per month in our portable container building business, which increased by 54.1% during YTD FY 2008 compared to YTD FY 2007; and an increase of $3.2 million in our average total number of units on lease per month in our portable storage container business, primarily as a result of our acquisition of the assets of GE SeaCo in November 2007 and
29
CHS in February 2008. Average utilization in our retail operations was 82.8% during YTD FY 2008, as compared to 83.6% during YTD FY 2007; and our average utilization in our national accounts group operations was 81.4% during YTD FY 2008, as compared to 77.0% during YTD FY 2007. Overall our average utilization was 82.6% in YTD FY 2008, as compared to 81.0% in YTD FY 2007.
The average value of the U.S. dollar against the Australian declined during YTD FY 2008 as compared to YTD FY 2007. The average currency exchange rate of one Australian dollar during YTD FY 2007 was $0.77101 U.S. dollar compared to $0.88084 U.S. dollar during YTD FY 2008. This fluctuation in foreign currency exchange rates resulted in an increase to our container sales and leasing revenues of $5.3 million and $2.3 million, respectively, during YTD FY 2008 compared to YTD FY 2007; representing 30.0% of the increase in total revenues; or 14.2% of total revenues in YTD FY 2007.
Sales of containers and leasing of containers represented 71% and 29% and 70% and 30% of total revenues in YTD FY 2008 and YTD FY 2007, respectively.
Cost of Sales. Cost of sales in our container sales business increased by $14.1 million to $47.2 million during YTD FY 2008 compared to $33.1 million during YTD FY 2007. The increase was due to foreign exchange translation effect of $4.2 million and cost increases of $5.6 million and $4.3 million in our retail and national operations, respectively. Our gross profit margin from sales revenues improved during YTD FY 2008 to 16.0% compared to 11.6% during YTD FY 2007 as a result of price increases and favorable product mix.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by $1.7million, or 10.6%, during YTD FY 2008 to $17.8 million from $16.1 million during YTD FY 2007. This increase includes approximately $1.6 million, or 94.1% of the increase, incurred at GFN. The following table provides more detailed information about the Royal Wolf operating expenses of $16.2 million in YTD FY 2008 as compared to $16.1 million in YTD FY 2007:
| | | | | | | | | |
| | | Nine Months Ended March 31, | |
| | | 2007 | | | 2008 | |
| | | (In millions) | |
| |
| Salaries, wages and related | | $ | 10.6 | | | $ | 9.2 | |
| Rent | | | 0.3 | | | | 0.3 | |
| CSC operating costs | | | 1.9 | | | | 2.8 | |
| Business promotion | | | 0.6 | | | | 0.7 | |
| Travel and meals | | | 0.5 | | | | 0.7 | |
| IT and telecommunications | | | 0.3 | | | | 0.6 | |
| Professional costs | | | 1.1 | | | | 1.2 | |
| Other | | | 0.8 | | | | 0.7 | |
| | | | | | | | | |
| | | $ | 16.1 | | | $ | 16.2 | |
| | | | | | | | | |
YTD FY 2007 salaries, wages and related expenses include a shared-based payment expense of approximately $3.0 million to recognize the full vesting of options as a result of the realization event on the purchase of approximately 80% of RWA by Bison Capital in March 2007. The increase (not including the share-based payment expense) in YTD FY 2008 from YTD FY 2007 in salaries, wages and related expenses and CSC costs of $1.5 million and $0.9 million, respectively, were primarily due to the increase in number of sales and marketing personnel as we continue to expand our infrastructure for growth. As a percentage of revenues, operating expenses at Royal Wolf decreased to 20.6% in YTD FY 2008 from 30.1% (24.3% not including the share-based payment expense) in YTD FY 2007.
Depreciation and Amortization. Depreciation and amortization expenses increased by $2.9 million to $5.5 million during YTD FY 2008 compared to $2.6 million during YTD FY 2007. The increase was primarily the result of adjustments to fair values of fixed assets and identifiable intangible assets as a result of acquisitions. The amortization of identifiable intangible assets (customer lists and non-compete agreements) represented approximately $2.2 million of this increase.
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Interest Income. We had interest income earned on marketable securities held in the Trust Account of $1.0 million in YTD FY 2008.
Interest Expense. The increase in interest expense of $2.2 million in YTD FY 2008 as compared to YTD FY 2007 was due principally to an increase in total long-term debt, which was $33.7 million at June 30, 2006, $39.8 million at March 31, 2007, $44.2 million at June 30, 2007 and $80.0 million at March 31, 2008. The increase in total debt in YTD FY 2008 was due primarily to our acquisitions of Royal Wolf, GE SeaCo and CHS at principally Royal Wolf’s credit facility with ANZ and the secured senior subordinated note in the amount of $16.8 million issued to Bison Capital.
Foreign Currency Exchange. As a result of the acquisition of Royal Wolf, we now have certain U.S. dollar-denominated debt at Royal Wolf, including intercompany borrowings, which are remeasured at each financial reporting date with the impact of the remeasurement being recorded in our consolidated statements of operations. We had foreign currency exchange gains of approximately $2.0 million in YTD FY 2008 because the Australian dollar strengthened against the U.S. dollar during YTD FY 2008 as compared to YTD FY 2007. Effective October 1, 2007, the foreign exchange effect of the principal balance of the U.S. dollar-denominated intercompany borrowings are now included in accumulated other comprehensive income since we do not expect repayment in the foreseeable future.
Income Taxes. Our effective income tax rate decreased to 32.5% during the YTD FY 2008 as a result of certain non-deductible amounts included in the YTD FY 2007 for Australian income tax purposes being extinguished and the amortization of goodwill for U.S. income tax reporting purposes being deductible in YTD FY 2008.
Net Income. We had net income of $3.8 million during YTD FY 2008 compared to a net loss of $1.9 million during YTD FY 2007 primarily as a result of increased revenues from the sales and leasing of containers in QE FY 2008, the fact that QE FY 2007 included share-based expense of $2.9 million and the favorable impact of the foreign currency exchange gain, offset somewhat by increased interest expense.
Measures not in Accordance with Generally Accepted Accounting Principles in the United States (“GAAP”)
Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA are supplemental measures of our performance that are not required by, or presented in accordance with GAAP. These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity.
EBITDA is a non-GAAP measure. We calculate adjusted EBITDA by adjusting EBITDA to eliminate the impact of certain items we do not consider to be indicative of the performance of our ongoing operations. You are encouraged to evaluate each adjustment and whether you consider each to be appropriate. In addition, in evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of EBITDA and adjusted EBITDA. Our presentation of EBITDA and adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We present EBITDA and adjusted EBITDA because we consider them to be important supplemental measures of our performance and because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, many of which present EBITDA and adjusted EBITDA when reporting their results.
EBITDA and adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or to reduce our indebtedness. We compensate for these limitations by relying primarily on our
31
GAAP results and using EBITDA and adjusted EBITDA only supplementally. The following table shows our EBITDA and adjusted EBITDA, and the reconciliation from operating income (loss):
| | | | | | | | | |
| | | Predecessor | | | Successor | |
| | | Quarter Ended
| | | Quarter Ended
| |
| | | March 31,
| | | March 31,
| |
| | | 2007 | | | 2008 | |
| | | (In thousands) | |
| |
| Operating income | | $ | 1,497 | | | $ | 3,570 | |
| Add — depreciation and amortization | | | 1,058 | | | | 2,251 | |
| | | | | | | | | |
EBITDA | | | 2,555 | | | | 5,821 | |
| Add — | | | | | | | | |
| Stock-based compensation | | | — | | | | 206 | |
| Contributed services | | | — | | | | 73 | |
| | | | | | | | | |
Adjusted EBITDA | | $ | 2,555 | | | $ | 6,100 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | | | Combined | |
| | | Nine Months
| | | Period from
| | | Nine Months
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | | | 2008 | |
| | | | | | (In thousands) | | | | |
| |
| Operating income | | $ | 1,694 | | | $ | 1,530 | | | $ | 6,715 | | | $ | 8,245 | |
| Add — depreciation and amortization | | | 2,582 | | | | 653 | | | | 4,834 | | | | 5,487 | |
| | | | | | | | | | | | | | | | | |
EBITDA | | | 4,276 | | | | 2,183 | | | | 11,549 | | | | 13,732 | |
| Add — | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | | — | | | | 282 | | | | 282 | |
| Contributed services | | | — | | | | — | | | | 160 | | | | 160 | |
| | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 4,276 | | | $ | 2,183 | | | $ | 11,991 | | | $ | 14,174 | |
| | | | | | | | | | | | | | | | | |
Liquidity and Financial Condition
Our principal source of capital for operations consists of funds available from the secured credit facility with ANZ. We also finance a smaller portion of capital requirements through finance leases and lease-purchase contracts, have a $1.0 million line of credit with Union Bank of California, N.A and have outstanding senior subordinated notes with Bison Capital. Prior to September 2007, we had an unsecured limited recourse revolving line of credit from Ronald F. Valenta, our Chief Executive Officer. Supplemental information pertaining to our combined sources and uses of cash is presented in the table below.
| | | | | | | | | | | | | | | | | |
| | | Predecessor | | | Successor | | | Combined | |
| | | Nine Months
| | | Period from
| | | Nine Months
| | | Nine Months
| |
| | | Ended
| | | July 1 to
| | | Ended
| | | Ended
| |
| | | March 31,
| | | September 13,
| | | March 31,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2008 | | | 2008 | |
| | | (In thousands) | |
| |
| Net cash provided (used) by operating activities | | $ | 3,476 | | | $ | 4,294 | | | $ | (6,889 | ) | | $ | (2,595 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash used by investing activities | | $ | (16,435 | ) | | $ | (3,078 | ) | | $ | (97,297 | ) | | $ | (100,375 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash provided (used) by financing activities | | $ | 13,914 | | | $ | (1,807 | ) | | $ | 35,821 | | | $ | 34,014 | |
| | | | | | | | | | | | | | | | | |
32
Operating activities. Our operations used net cash flow of $2.6 million during YTD FY 2008, as compared to providing net cash flow of $3.5 million during YTD FY 2007, primarily as a result of the increase in our receivables and inventory levels to meet the anticipated growth in sales of our containers.
Investing Activities. Net cash used by investing activities was $100.4 million for YTD FY 2008, as compared to $16.4 million for YTD FY 2007. The increase in the use of cash was primarily the result of the acquisitions of Royal Wolf, which used $69.3 million, GE SeaCo, which used $17.9 million, and CHS, which used $3.8 million. Net capital expenditures for our lease fleet were $8.9 million in YTD FY 2008 and 15.2 million in YTD FY 2007. Capital expenditures for our lease fleet are primarily due to continued demand for our products, requiring us to purchase and refurbish more containers and portable buildings with the growth of our business. The amount of cash that we use during any period in investing activities is almost entirely within management’s discretion. Other than the preferred supply agreement with GE SeaCo discussed in Note 10 of Notes to Condensed Consolidated Financial Statements, which has favorable pricing but does not have a minimum purchase commitment, we have no long-term contracts or other arrangements pursuant to which we are required to purchase at a predetermined price or a minimum amount of goods or services in connection with any portion of our business.
Financing Activities. Net cash provided by financing activities was $34.0 million during YTD FY 2008, as compared to $13.9 million during YTD FY 2007. On September 14, 2007, we used $2.4 million to fully repay the line of credit with Mr. Valenta. In addition, in September 2007, we paid $6.4 million to stockholders electing to convert their shares of common stock into cash. Net borrowings under the ANZ credit facility, finance leasing activities and the Bison secured senior subordinated note totaled $29.5 million in YD FY 2008, as compared to net borrowings of $5.0 million in YTD FY 2007. These net borrowings were used together with cash flow generated from operations to primarily fund acquisitions and the expansion of our container lease fleet.
Financial Condition
Inventories increased from $5.5 million at June 30, 2007 to $20.7 million at March 31, 2008, primarily to meet the anticipated growth in sales of our containers and from the acquisition of GE SeaCo. In addition, during FY 2008, we commenced recording purchases of containers directly into inventory rather than initially into fixed assets; which increased the inventory balance by approximately $3.0 million at March 31, 2008 from June 30, 2007.
Property, plant and equipment increased from $2.7 million at June 30, 2007 to $4.6 million at March 31, 2008, primarily due to thestep-up to fair value in the basis of the fixed assets as a result of the purchase accounting adjustments in connection with our acquisition of Royal Wolf.
Our total container for lease fleet increased from $40.9 million at June 30, 2007 to $72.0 million at March 31, 2008, primarily due to thestep-up to fair value in the basis of the containers as a result of the purchase accounting adjustments in connection with our acquisition of Royal Wolf, to meet the demand of increased leasing utilization, and as a result of the acquisitions of GE SeaCo and CHS. At March 31, 2008, we had 24,271 units (14,921units in retail operations and 9,350 units in national account group operations) in our container lease fleet, as compared to 15,948 units (11,104 units in retail operations and 4,844 units in national account group operations) at June 30, 2007. At those dates, 19,680 units (11,771 in retail operations and 7,909 in national account group operations) and 13,055 units (9,180 in retail operations and 3,875 in national account group operations) were on lease, respectively.
Intangible assets increased from $4.1 million at June 30, 2007 to $59.8 million at March 31, 2008 as a result of the purchase accounting adjustments in connection with our acquisitions of Royal Wolf, GE SeaCo and CHS.
Long-term debt, including current portion, increased from $44.2 million at June 30, 2007 to $80.0 million at March 31, 2008 primarily due to the acquisitions of Royal Wolf, GE SeaCo and CHS. These acquisitions were funded in large part by borrowings on the Royal Wolf’s credit facility with ANZ and the issuance of the secured senior subordinated note in the amount of $16.8 million to Bison Capital. See Note 5 of Notes to Condensed Consolidated Financial Statements for further discussion of our long-term debt.
We believe that our cash on-hand and cash flow provided by operations will be adequate to cover our working capital and debt service requirements and a certain portion of our planned capital expenditures to the extent such items are known or are reasonably determinable based on current business and market conditions. We expect to finance our capital expenditure requirements primarily under our ANZ credit facility or through capital lease
33
agreements. We continually evaluate potential acquisitions. We expect that any future acquisitions will be funded through cash flow provided by operations, by additional borrowings under our ANZ credit facility and by proceeds received in our offering of a reduced exercise price to our publicly-traded and certain privately-placed warrants for conversion into common stock through May 30, 2008 (see Note 12 of Notes to Condensed Consolidated Financial Statements).
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Seasonality
Although demand from certain specific customer segments can be seasonal, our operations as a whole are not seasonal to any significant extent. We experience a reduction in sales volumes during Australia’s summer holiday break from mid-December to the end of January, followed by February being a short working day month. However, this reduction in sales typically is counterbalanced by the increased lease revenues derived from the relocations industry, which experiences its seasonal peak of personnel relocations during this same summer holiday break.
Impact of Inflation
We believe that inflation has not had a material effect on our business.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods. We believe the following are the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
For the issuances of stock options, we follow the fair value provisions of Statement of Financial Accounting Standards (“SFAS”) SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires recognition of employee share-based compensation expense in the statements of income over the vesting period based on the fair value of the stock option at the grant date. The pricing model we use for determining fair values of the purchase option and the embedded derivative is the Black Scholes Pricing Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates, market prices and volatilities. Selection of these inputs involves management’s judgment and may impact net income. In particular, the Company uses volatility rates based upon a sample of comparable companies in Royal Wolf’s industry and a risk-free interest rate, which is the rate on U.S. Treasury instruments, for a security with a maturity that approximates the estimated remaining expected term of the derivative.
In preparing our condensed consolidated financial statements, we recognize income taxes in each of the jurisdictions in which we operate. For each jurisdiction, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance
34
is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred tax assets, we will increase our valuation allowance with a charge to income tax expense or offset goodwill if the deferred tax asset was acquired in a business combination. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense except if the valuation allowance was created in conjunction with a tax asset in a business combination.
We adopted FASB Interpretation 48 (FIN 48),Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, effective January 1, 2007. For discussion of the impact of adoption of FIN 48, see Note 2 of Notes to the Condensed Consolidated Financial Statements.
There have been no other significant changes in our critical accounting policies, estimates and judgments during the quarter ended March 31, 2008.
Impact of Recently Issued Accounting Pronouncements
Reference is made to Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements that could potentially impact us.
| |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices.
Credit Risk. It is our policy that all customers who wish to purchase or lease containers on credit terms are subject to credit verification procedures and the Company will agree to terms with customers believed to be creditworthy. In addition, receivable balances are monitored on an ongoing basis with the result that our exposure to bad debts is not significant. For transactions that are not denominated in the measurement currency of the relevant operating unit, we do not offer credit terms without the specific approval of the Head of Credit in Australia. With respect to credit risk arising from the other financial assets, which comprise cash and cash equivalents,available-for-sale financial assets and certain derivative instruments, our exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. As the counter party for derivative instruments is nearly always a bank, we have assessed this as a low risk. In our opinion, we have no significant concentrations of credit risk.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to long-term debt obligations. Our policy is to manage interest cost using a mix of fixed and variable rate debt. To manage this mix in a cost-efficient manner, we enter into interest rate swaps, in which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to anagreed-upon notional principal amount. These swaps are designated to hedge changes in the interest rate of our commercial bill liability. The secured loan and interest rate swap have the same critical terms, including expiration dates. We believe that financial instruments designated as interest rate hedges are highly effective. However, documentation of such as required by SFAS No. 133,Accounting for Derivative Instruments and Hedging Activitiesdoes not exist. Therefore, all movements in the fair values of these hedges are taken directly to statement of operations.
Foreign currency risk. We have transactional currency exposure. Such exposure arises from sales or purchases in currencies other than the functional currency. The currency giving rise to this risk is primarily U.S. dollars. We have a bank account at ANZ denominated in U.S. dollars into which a small number of customers pay their debts. This is a natural hedge against fluctuations in the exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian dollars. We use forward currency contracts and options to eliminate the currency exposures on the majority of our transactions denominated in foreign currencies, either by transaction if the amount is significant, or on a general cash flow hedge basis. The forward currency contracts and options are always in the same currency as the hedged item. We believe that financial instruments designated as
35
foreign currency hedges are highly effective. However documentation of such as required by SFAS No. 133 does not exist. Therefore, all movements in the fair values of these hedges are taken directly to statement of operations.
We are exposed to market risks related to foreign currency translation caused by fluctuations in foreign currency exchange rates between the U.S. dollar and the Australian dollar. The assets and liabilities of Royal Wolf are translated from the Australian dollar into the U.S. dollar at the exchange rate in effect at each balance sheet date, while income statement amounts are translated at the average rate of exchange prevailing during the reporting period. A strengthening of the U.S. dollar against the Australian dollar could, therefore, reduce the amount of cash and income we receive and recognize from our Australian operations. We also now have certain U.S. dollar-denominated debt at Royal Wolf, including long-term intercompany borrowings, which are remeasured at each financial reporting date with the impact of the remeasurement being recorded in our consolidated statements of operations. As foreign exchange rates vary, our results of operations and profitability may be harmed. We cannot predict the effects of exchange rate fluctuations on our future operating results because of the potential volatility of currency exchange rates. To the extent we expand our business into other countries; we anticipate that we will face similar market risks related to foreign currency translations caused by exchange rate fluctuations between the U.S. dollar and the currencies of those countries.
Reference is made to Note 6 of Notes to Condensed Consolidated Financial Statements for a further discussion of financial instruments.
| |
| Item 4. | Controls and Procedures |
Ronald F. Valenta (our principal executive officer) and Charles E. Barrantes (our principal financial officer) carried out an evaluation as of March 31, 2008 of the effectiveness of our disclosure controls and procedures, as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, they concluded that, as of March 31, 2008, our disclosure controls and procedures were (1) effective in that they were designed to ensure that material information relating to us is made known to our principal executive and principal financial officers, and (2) effective in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There has not been any change in our internal control over financial reporting in connection with the evaluation required byRule 13a-15(d) under the Exchange Act that occurred during the quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
36
PART II. OTHER INFORMATION
None.
There have been no material changes to the risk factors disclosed in our Transition Report onForm 10-K for the six months ended June 30, 2007 and our post-effective amendment onForm S-1 filed on March 20, 2008.
| |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None that have not been previously reported.
| |
| Item. 3. | Defaults Upon Senior Securities |
Not applicable
| |
| Item 4. | Submission of Matters to a Vote of Security Holders |
None.
None.
See Exhibit Index Attached.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 14, 2008
GENERAL FINANCE CORPORATION
| | |
| | By: | /s/ Peter Henry Jeffrey
Ronald F. Valenta |
Name: Peter Henry Jeffrey
Title: Sole Director and Sole Company SecretaryRonald F. Valenta
“Kaiser Trust”
Kaiser Investments LimitedChief Executive Officer
| | |
| | By: | /s/ Colin James
Charles E. Barrantes |
| | |
| Name: | Colin James |
| Title: | President |
Charles E. Barrantes
Chief Financial Officer
C-2538
EXHIBIT INDEX
| | | | | |
Exhibit
| | |
Number | | Exhibit Description |
| |
| | 10 | .33 | | Variation Letter between Australia and New Zealand Banking Group Limited and Royal Wolf Australia Group (incorporated by reference to Exhibit 10.4 of Registrant’s Post-Effective Amendment No. 1 toForm S-1 filed March 20, 2008). |
| | 31 | .1 | | Certification of Chief Executive Officer Pursuant to SECRule 13a-14(a)/15d-14(a) |
| | 31 | .2 | | Certification of Chief Financial Officer Pursuant to SECRule 13a-14(a)/15d-14(a) |
| | 32 | .1 | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 |
| | 32 | .2 | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350 |
Exhibit 31.1
Certification Pursuant to SECRule 13a-14(a)/15d-14(a)
I, Ronald F. Valenta, certify that:
1. I have reviewed thisForm 10-Q of General Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 14, 2008
Name: Ronald F. Valenta
Title: Chief Executive Officer
Exhibit 31.2
Certification Pursuant to SECRule 13a-14(a)/15d-14(a)
I, Charles E. Barrantes, certify that:
1. I have reviewed thisForm 10-Q of General Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and15d-15(e)) for the registrant and have:
(c) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(d) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(e) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(f) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(g) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 14, 2008
Name: Charles E. Barrantes
Title: Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of General Finance Corp. (the “Company”) onForm 10-Q for the quarter ended June 30, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Ronald F. Valenta, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Chief Executive Officer
May 14, 2008
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of General Finance Corp. (the “Company”) onForm 10-Q for the quarter ended June 30, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Charles E. Barrantes, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Chief Financial Officer
May 14, 2008
PROXY
General Finance Corporation
260 S. Los Robles Avenue, Suite # 217
39 East Union Street
Pasadena, California 9110191103
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF GENERAL FINANCE CORPORATION
The undersigned hereby appoints Ronald F. Valenta andCharles E. Barrantes, John O. Johnson and Christopher A. Wilson, and each of them with full power to act without the other, as proxies of the undersigned, each with the power to appoint a substitute, and to represent the undersigned at the Special Meeting of Stockholders to be held on [•], 2007,2008, and at any postponement or adjournment thereof and to vote thereat, as designated on the reverse side, all shares of common stock of General Finance Corporation that the undersigned, if personally present, would be entitled to vote.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED. BY EXECUTING THIS PROXY CARD, THE UNDERSIGNED AUTHORIZES THE PROXIES TO VOTE IN THEIR DISCRETION TO APPROVE GENERAL FINANCE CORPORATION’S ACQUISITION OF RWA HOLDINGS PTY LIMITEDMOBILE OFFICE ACQUISITION CORP. AND ITS SUBSIDIARY PAC-VAN, INC. AND THE ISSUANCE OF 4,000,000 SHARES OF COMMON STOCK IF THE UNDERSIGNED HAS NOT SPECIFIED HOW HIS, HER OR ITS SHARES SHOULD BE VOTED.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED “FOR” EACH OF THE PROPOSALS SHOWN ON THE REVERSE SIDE. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE PROPOSALS.
(Continued and to be signed on reverse side)
PROXY
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| 1. | | To authorize and approve General Finance Corporation’s acquisition of RWA Holdings Pty Limitedthe Merger Agreement, pursuant to which Mobile Office Acquisition Corp. will merge with and into GFN North America Corp., or GFNA, with GFNA as the surviving corporation, and to approve and adopt the Merger. | | FOR
o | | AGAINST
o | | ABSTAIN
o | | If you vote “AGAINST” Proposal Number 1 and you hold shares of our common stock originally issued in our initial public offering, you may demand that we convert your shares of common stock into a pro rata portion of the funds held in our trust account by marking the “CONVERSION DEMAND” box below. If you demand conversion and otherwise properly exercise your conversion rights, you will only be entitled to receive cash for these shares if the acquisition is completed and you tender your stock certificate to our transfer agent. Failure to (a) vote against the approval of the acquisition, (b) check the following box and submit this proxy and (c) tender your share certificate to our transfer agent as described in the accompanying proxy statement will result in the loss of your conversion rights.
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| | | | | | | | | | | I HEREBY DEMAND CONVERSION OF MY SHARES ELIGIBLE |
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| 2. | | To approve the issuance of 4,000,000 shares of restricted General Finance common stock pursuant to the Merger Agreement. | | FOR CONVERSION
o | | AGAINST
o | | ABSTAIN
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2.3. | | If there are insufficient votes present at the special meeting for approval of the acquisition, to grant our board of directors discretionary authority to postpone or adjourn the special meeting to solicit additional votes for the acquisition.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT | | FOR
o | | AGAINST
o | | ABSTAIN
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PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
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Signature | | MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT | | Signature | | | | Date | | |
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PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
Sign exactly as name appears on this proxy card. If shares are held jointly, each holder should sign. Executors, administrators, trustees, guardians, attorneys and agents should give their full titles. If stockholder is a corporation, sign in full name by an authorized officer.
Proxies must be received prior to the voting at the special meeting. Any proxies or other votes received after this time will not be counted in determining whether the acquisition has been approved. Furthermore, any proxies or other demand received after the voting at the special meeting will not be effective to exercise conversion rights.
