As filed with the Securities and Exchange Commission on November 26, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4226
04-3107342
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number) (I.R.S. Employer Identification No.)
</TABLE>
745 ATLANTIC AVENUE, BOSTON, MA 02111
(617) 357-4455
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
C. RICHARD REESE
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
IRON MOUNTAIN INCORPORATED
745 Atlantic Avenue
Boston, MA 02111
(617) 357-4455
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
WILLIAM J. CURRY
SULLIVAN & WORCESTER LLP
One Post Office Square
Boston, MA 02109
(617) 338-2800
---------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the transactions described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Title of Each Class Maximum Proposed Proposed
of Securities Amount to be Offering Maximum Aggregate Amount of
to be Registered Registered Price Per Share Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, Par Value $4,964.51(2)(3)
$.01 per share (1) (1) $16,384,185(2) ($354.23 paid herewith)
===========================================================================================================
</TABLE>
(1) The Securities to be offered hereby will be offered on the basis of a
maximum aggregate offering price. Accordingly, pursuant to Rule 457(o),
the number of shares offered and, as a consequence, the maximum offering
price per share are omitted from this table.
<PAGE>
(2) The total fee has been calculated in accordance with Rule 457(f)(2)
promulgated under the Securities Act of 1933, as amended. Arcus Group,
Inc. ("AGI") will be merging with and into the Registrant immediately
following an internal reorganization of AGI whereby United Acquisition
Company ("UAC") and Arcus Technology Services, Inc. ("ATSI"), each a
subsidiary of AGI, will separately merge with and into AGI in exchange for
shares of AGI Common Stock and AGI Preferred Stock. Because there is no
market for either the AGI Common Stock or the AGI Preferred Stock,
pursuant to Rule 457(f), the proposed maximum aggregate value of the
transaction equals the difference between (a) $51,326,185 (the sum of
$15,764,226 (the book value of AGI's Common Stock as of September 30,
1997), $27,089,471 (the value of UAC's Preferred Stock as of September 30,
1997) and $8,472,488 (the value of AGI's minority interest in
subsidiaries, which subsidiaries will be merged with and into AGI
immediately prior to the merger of AGI with and into Iron Mountain as of
September 30, 1997)) and (b) $34,942,000 (the amount of cash estimated to
be paid by the Registrant in the transaction, based on certain assumptions
more fully described in the accompanying Joint Proxy Statement and
Prospectus). The total fee paid is calculated on the basis on such
proposed maximum aggregate value.
(3) A registration fee of $4,610.28 has already been paid to the Commission on
October 31, 1997 with the filing of the Registrant's confidential
preliminary proxy materials. Accordingly, an additional $354.23 is being
paid herewith.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant will
file a further amendment which specifically states that the Registration
Statement will thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
will become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
<PAGE>
IRON MOUNTAIN INCORPORATED
December 3, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Iron Mountain Stockholders Meeting") of Iron Mountain Incorporated ("Iron
Mountain") to be held on Monday, January 5, 1998 at 10:00 a.m., local time, at
the offices of Sullivan & Worcester LLP located at One Post Office Square,
Boston, Massachusetts.
At the Iron Mountain Stockholders Meeting, stockholders will be asked to
approve and adopt an Agreement and Plan of Merger, dated as of September 26,
1997, as amended as of November 25, 1997 (the "Merger Agreement"), providing
for the merger (the "Merger") of Arcus Group, Inc. ("AGI") with and into Iron
Mountain. At the effective time of the Merger (the "Effective Time"), all
outstanding shares of AGI Common Stock, par value $.0001 per share ("AGI Common
Stock"), and AGI Preferred Stock, par value $.0001 per share ("AGI Preferred
Stock"), will be converted into the right to receive cash and shares of Iron
Mountain Common Stock, par value $.01 per share ("Iron Mountain Common Stock").
Immediately prior to the Merger, United Acquisition Company ("UAC") and Arcus
Technology Services, Inc. ("ATSI"), each of which is a subsidiary of AGI, will
merge with and into AGI in two separate mergers as part of a reorganization of
such entities, and the stockholders of ATSI and UAC will become stockholders of
AGI. In addition, Iron Mountain stockholders will also be asked to approve
amendments to Iron Mountain's Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of Iron Mountain Common Stock from
20,000,000 to 100,000,000 and to increase the number of authorized shares of
Preferred Stock, par value $.01 per share, from 2,000,000 to 10,000,000 (the
"Charter Amendments").
In the Merger, Iron Mountain will issue to AGI stockholders (including
ATSI stockholders and UAC stockholders who become AGI stockholders as a result
of such reorganizations) shares of Iron Mountain Common Stock and cash. As a
result of the Merger, holders of options to acquire shares of AGI Common Stock
will receive, subject to Iron Mountain's election to require the exercise of
certain such options (the "Option Exercise"), options to acquire Iron Mountain
Common Stock. The amount of cash and stock to be paid by Iron Mountain to AGI
stockholders will be based upon a number of factors, including the net
indebtedness of AGI as of the Effective Time. In addition, the number of shares
of Iron Mountain Common Stock to be issued in the Merger will be based upon the
average closing price per share of Iron Mountain Common Stock for the period of
20 trading days ending three trading days prior to (and not including) the
closing date of the Merger; provided, however, that if the average closing
price per share for such period is less than $29.00 or greater than $36.00, the
determination price shall be $29.00 or $36.00, as the case may be. The
determination price calculated using the above-described formula for the
20-trading day period ending on November 20, 1997 was $36.00 (the actual
average closing price per share for such period was $37.82).
Based on a number of assumptions which are described in the accompanying
Joint Proxy Statement and Prospectus and defined as the "Baseline Assumptions,"
the aggregate amount of net debt to be assumed as a result of the Merger by
Iron Mountain would be $33.6 million, the aggregate value of shares issued in
the Merger would be $49.8 million (representing approximately 1.4 million
shares of Iron Mountain Common Stock or 9.4% of the outstanding Iron Mountain
Common Stock (after giving effect to the Merger)), and the aggregate amount of
cash paid in the Merger and to holders of warrants to acquire shares of UAC
common stock (the "Warrantholders") would be $64.2 million. In addition, Iron
Mountain will exchange options to acquire AGI Common Stock for options to
acquire shares of Iron Mountain Common Stock with an aggregate value of
approximately $12.4 million (assuming Iron Mountain does not require the Option
Exercise prior to the Closing Date). Stockholders should be aware, however,
that the elements of the Baseline Assumptions may change prior to the Closing
Date. In the event of any such change, the mix of the consideration (debt
assumed, the issuance of Iron Mountain Common Stock, the amount of cash paid to
AGI stockholders and the issuance of options to acquire Iron Mountain Common
Stock to AGI optionholders) could also change.
In order to indemnify Iron Mountain for certain claims under the Merger
Agreement, cash in the aggregate amount of $8.0 million will be withheld
ratably from the cash Merger consideration and the cash amounts payable to
Warrantholders pursuant to certain Warrant Purchase Agreements and held in
escrow for a period of 18 months, with a portion thereof to be released after
nine months.
The Merger is subject to, among other things, the approvals of certain
third parties, and will not be consummated until those approvals have been
obtained. As a result, it is expected that the Merger will be completed during
January 1998.
<PAGE>
The Iron Mountain Board of Directors has carefully considered the terms of
the proposed Merger Agreement and the Charter Amendments and believes that the
Merger and related transactions and the Charter Amendments are in the best
interests of and fair to Iron Mountain and its stockholders. The Board has
unanimously approved the Merger Agreement and the related transactions and the
Charter Amendments and recommends that Iron Mountain stockholders vote FOR
these proposals.
The accompanying Proxy Statement sets forth the respective voting rights
of holders of shares of Iron Mountain Common Stock with respect to these
matters. We hope you will be able to attend the Iron Mountain Stockholders
Meeting. However, even if you anticipate attending in person, we urge you to
complete, sign, date and return the enclosed proxy card promptly to ensure that
your shares will be represented at the Iron Mountain Stockholders Meeting. If
you do attend, you will, of course, be entitled to vote in person.
Thank you, and we look forward to seeing you at the meeting.
Sincerely,
C. Richard Reese
Chairman of the Board and
Chief Executive Officer
2
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
To Be Held On January 5, 1998
TO THE STOCKHOLDERS OF IRON MOUNTAIN INCORPORATED:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Iron
Mountain Stockholders Meeting") of Iron Mountain Incorporated ("Iron Mountain")
will be held on Monday, January 5, 1998 at 10:00 a.m., local time, at the
offices of Sullivan & Worcester LLP located at One Post Office Square, Boston,
Massachusetts 02109, for the purpose of considering and voting upon the
following proposals:
(1) A proposal to approve and adopt an Agreement and Plan of Merger,
dated as of September 26, 1997, as amended as of November 25, 1997 (the
"Merger Agreement"), among Iron Mountain, Arcus Group, Inc., a Delaware
corporation ("AGI"), United Acquisition Company, a Nevada corporation, and
Arcus Technology Services, Inc., a Delaware corporation, pursuant to which
AGI will be merged with and into Iron Mountain, with Iron Mountain
continuing as the surviving corporation (the "Merger");
(2) A proposal to approve an amendment to Iron Mountain's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Iron Mountain Common Stock, par value $.01 per share, from
20,000,000 to 100,000,000;
(3) A proposal to approve an amendment to Iron Mountain's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Preferred Stock, par value $.01 per share, from 2,000,000 to
10,000,000 (together with the proposal in item 2 above, the "Charter
Amendments"); and
(4) Such other business as may properly come before the Iron Mountain
Stockholders Meeting or any adjournments or postponements thereof.
The Iron Mountain Board of Directors has fixed the close of business on
November 28, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the Iron Mountain Stockholders Meeting and
any adjournments or postponements thereof. Only stockholders of record at the
close of business on such date are entitled to notice of and to vote at the
Iron Mountain Stockholders Meeting. A list of Iron Mountain stockholders
entitled to vote at the Iron Mountain Stockholders Meeting or any adjournments
or postponements thereof will be available for examination for any purpose
germane to the Iron Mountain Stockholders Meeting, during ordinary business
hours, at the principal executive offices of Iron Mountain located at 745
Atlantic Avenue, Boston, Massachusetts 02111, for 10 days prior to the Iron
Mountain Stockholders Meeting.
Shares of Common Stock, par value $.01 per share, are the only securities
of Iron Mountain whose holders are entitled to vote upon the Merger Agreement,
the Charter Amendments and any other proposals to be presented at the Iron
Mountain Stockholders Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he, she or it now plans to attend the Iron Mountain
Stockholders Meeting, is requested to sign, date and return the enclosed proxy
card without delay in the enclosed postage-paid return envelope. You may revoke
your proxy at any time prior to its exercise. Any stockholder present at the
Iron Mountain Stockholders Meeting or at any adjournments or postponements
thereof may revoke his or her proxy and vote personally on each matter brought
before the Iron Mountain Stockholders Meeting.
By Order of the Board of Directors,
Jas. Murray Howe, Secretary
December 3, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT AND THE CHARTER AMENDMENTS.
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
ARCUS GROUP, INC.
UNITED ACQUISITION COMPANY
ARCUS TECHNOLOGY SERVICES, INC.
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
To Be Held On January 5, 1998
TO THE STOCKHOLDERS OF ARCUS GROUP, INC.,
THE STOCKHOLDERS OF UNITED ACQUISITION COMPANY AND
THE STOCKHOLDERS OF ARCUS TECHNOLOGY SERVICES, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("AGI
Stockholders Meeting") of Arcus Group, Inc. ("AGI"), a Special Meeting of
Stockholders ("UAC Stockholders Meeting") of United Acquisition Company
("UAC"), and a Special Meeting of Stockholders ("ATSI Stockholders Meeting") of
Arcus Technology Services, Inc. ("ATSI") (collectively, "Arcus Stockholders
Meetings"), will be simultaneously held on Monday, January 5, 1998 at 10:00
a.m., local time, at the offices of Sullivan & Worcester LLP located at One
Post Office Square, Boston, Massachusetts 02109.
Stockholders entitled to vote at the Arcus Stockholders Meetings will be
asked (i) to approve a series of transactions described in the accompanying
Joint Proxy Statement and Prospectus (the "Proxy Statement") involving
generally reorganizations of UAC, ATSI and AGI (collectively, "the Arcus
Parties") in which UAC and ATSI will each be merged with and into AGI with AGI
continuing as the surviving corporation, and (ii) (in the case of AGI
stockholders) to approve and adopt an Agreement and Plan of Merger by and among
Iron Mountain Incorporated and the Arcus Parties, dated as of September 26,
1997, as amended as of November 25, 1997 (the "Merger Agreement"), pursuant to
which, after giving effect to the mergers of UAC and ATSI with and into AGI and
the other Arcus Proposals described below, AGI will merge with and into Iron
Mountain, with Iron Mountain continuing as the surviving corporation (the
"Merger"). As a result of the Merger, security holders of the Arcus Parties
(who do not dissent) will receive cash and shares of Iron Mountain Common
Stock, in amounts that will be based on the values of their relative holdings
of an Arcus Party as of the effective time of such transactions, as described
further below and in the accompanying Proxy Statement. The reorganizations and
such other matters are conditioned upon a contemporaneous closing of the
Merger, and the Merger is conditioned upon the consummation of the Arcus
Proposals immediately prior thereto. Accordingly, none of such transactions
will be consummated unless all such transactions are consummated.
Purposes of the UAC Stockholders Meeting
Holders of UAC Common Stock and holders of UAC Series A Preferred Stock
will be asked at the UAC Stockholders Meeting to consider and vote upon the
following proposals (items (1) through (7) below, collectively, the "UAC
Proposals"):
(1) to approve and adopt an Agreement and Plan of Merger between UAC and
AGI (the "UAC Reorganization Agreement") pursuant to which UAC will merge with
and into AGI, with AGI continuing as the surviving corporation (the "UAC
Reorganization");
(2) to amend the Articles of Incorporation of UAC (the "UAC Articles") to
eliminate the prohibition in Article VI, Section 2(b) of the UAC Articles on
paying dividends to holders of any class of stock other than UAC Series A
Preferred Stock, until all dividends payable on UAC Series A Preferred Stock
have been paid, with respect to the Merger, the UAC Reorganization, the UAC
Warrant Repurchases (defined below) and the other transactions contemplated by
the Merger Agreement (collectively, the "Transactions");
(3) to amend the UAC Articles to eliminate the requirement that upon any
involuntary or voluntary liquidation of UAC, including a merger which does not
result in all persons who hold UAC Common Stock prior to the merger holding a
majority of the voting shares of the surviving corporation after such merger,
holders of UAC Series A Preferred Stock shall receive the liquidation
preference of their shares before any amount shall be paid to holders
<PAGE>
of any other class of shares and that distributions payable in property other
than cash be valued at their fair market value, with respect to the
Transactions;
(4) to amend the UAC Articles to eliminate the requirement that UAC obtain
the approval of holders of at least 66-2/3% of UAC Series A Preferred Stock
before (a) UAC or any of its subsidiaries, including ATSI, may merge with any
other corporation, subject to certain exceptions, or (b) any amendments to the
UAC Articles may be made which would adversely affect certain rights,
preferences, or privileges of, or limitations provided for the benefit of,
holders of UAC Series A Preferred Stock in the UAC Articles, with respect to
the Transactions;
(5) to amend the UAC Articles to eliminate the prohibition against UAC, by
amendment of the UAC Articles or through any reorganization, merger or other
specified actions, avoiding or seeking to avoid the observance or performance
of any of the terms of UAC Series A Preferred Stock set forth therein, with
respect to the Transactions;
(6) to amend the UAC Articles to eliminate the prohibition against UAC
entering into any merger in which the surviving company does not agree to be
bound by the terms of UAC Series A Preferred Stock, with respect to the
Transactions;
(7) to amend the UAC Articles to reduce the stated liquidation preference
of the UAC Series A Preferred Stock to take account of that portion of the
expenses associated with the Transactions to be borne by the holders of the UAC
Series A Preferred Stock (the "Liquidation Preference Amendment") (the items
referred to in paragraphs (2) through (7) are collectively referred to as the
"UAC Charter Amendments"); and
(8) such other business as may properly come before the UAC Stockholders
Meeting or any adjournments or postponements thereof.
In addition, holders of UAC Series A Preferred Stock will be asked at the
UAC Stockholders Meeting to consider and vote upon (i) a proposal to approve
and adopt a series of agreements and transactions (collectively, the "UAC
Warrant Repurchases") between UAC and certain holders of warrants to purchase
UAC Common Stock ("Warrants;" holders of Warrants are referred to as
"Warrantholders") whereby UAC will repurchase certain of such Warrants in
exchange for 158,729 shares of convertible Series C Preferred Stock in
Connected Corp., a Delaware corporation, currently held by UAC (the "Connected
Stock") and (ii) a proposal to approve and adopt the ATSI Reorganization
Agreement, defined below.
Each of the UAC Proposals will be voted upon by the holders of UAC Common
Stock and holders of UAC Series A Preferred Stock voting as separate classes,
and the UAC Warrant Repurchases and ATSI Reorganization Agreement will be voted
on by holders of UAC Series A Preferred Stock voting as a single class. The UAC
Proposals must be approved and adopted by holders of a majority of the
outstanding shares of UAC Common Stock and holders of 66-2/3% of the outstanding
shares of UAC Series A Preferred Stock. The UAC Warrant Repurchases and the
ATSI Reorganization Agreement must be approved and adopted by holders of 66-2/3%
of the outstanding shares of UAC Series A Preferred Stock. The failure to adopt
any proposal put before the Arcus Stockholders will result in abandonment by
UAC of all UAC Proposals, the Merger and the other Transactions.
Purposes of the ATSI Stockholders Meeting
Holders of ATSI Common Stock will be asked at the ATSI Stockholders
Meeting to consider and vote upon (i) a proposal (the "ATSI Proposal") to
approve and adopt an Agreement and Plan of Merger between ATSI and AGI (the
"ATSI Reorganization Agreement"), pursuant to which, after giving effect to the
UAC Reorganization, and the UAC Warrant Repurchases, ATSI will merge with and
into AGI, with AGI continuing as the surviving corporation (the "ATSI
Reorganization") and (ii) such other business as may properly come before the
ATSI Stockholders Meeting or any adjournments or postponements thereof. The UAC
Reorganization Agreement and the ATSI Reorganization Agreement are hereinafter
referred to as the "Reorganization Agreements," and the ATSI Reorganization and
UAC Reorganization are hereinafter referred to as the "Reorganizations." The
ATSI Proposal must be approved and adopted by holders of a majority of the
outstanding shares of ATSI Common Stock. The failure to adopt any proposal put
before Arcus Stockholders will result in abandonment by ATSI of the ATSI
Proposal, the Merger and the other Transactions.
2
<PAGE>
Purposes of AGI Stockholders Meeting
Holders of AGI Common Stock will be asked at the AGI Stockholders Meeting
to consider and vote upon the following proposals (items (1) through (6) below,
collectively, the "AGI Proposals" and, collectively with the UAC Proposals, the
UAC Warrant Repurchases and the ATSI Proposal, the "Arcus Proposals"):
(1) to amend the Restated Certificate of Incorporation of AGI (the "AGI
Certificate") to create a class of preferred stock, par value $.0001 per share,
of AGI (the "AGI Preferred Stock") into which, pursuant to the UAC
Reorganization, UAC Series A Preferred Stock will be converted on a
share-for-share basis, with the same rights, preferences and privileges as UAC
Series A Preferred Stock will hold under the UAC Articles after giving effect
to the UAC Charter Amendments;
(2) to amend the AGI Certificate to increase the number of authorized
shares of AGI Common Stock from 11,661,290 to 100,000,000;
(3) to amend the AGI Certificate to exempt the Transactions from the
limitations on transfer set forth in Article 11 of the AGI Certificate for
transfers of shares of AGI Common Stock or AGI Preferred Stock (the items
referred to in paragraphs (1) through (3) are collectively referred to as the
"AGI Charter Amendments");
(4) to approve and adopt the UAC Reorganization Agreement;
(5) to approve and adopt the ATSI Reorganization Agreement;
(6) to approve and adopt the Merger Agreement; and
(7) such other business as may properly come before the AGI Stockholders
Meeting or any adjournments or postponements thereof.
Each of the AGI Proposals will be voted upon separately by the holders of
AGI Common Stock. The AGI Proposals (including the Merger Agreement) must be
approved and adopted by holders of a majority of the outstanding shares of AGI
Common Stock. The failure to adopt any proposal put before Arcus Stockholders
will result in the abandonment by AGI of all AGI Proposals, including the
Merger and the other Transactions.
Record Date; General
The close of business on November 20, 1997 will be the record date for
determining stockholders entitled to notice of, and to vote at, the Arcus
Stockholders Meetings (the "Arcus Record Date").
Neither stockholders of UAC nor stockholders of ATSI will be asked to
approve the Merger Agreement or the Merger, because such stockholders will not
be stockholders of record of AGI on the Arcus Record Date. Therefore,
stockholders of UAC or ATSI who oppose the Merger Agreement or the Merger
should vote against the UAC Proposals or the ATSI Proposal, as applicable.
Failure of any of the Arcus Proposals to be approved by the stockholders of the
Arcus Parties will result in the abandonment of all of the Arcus Proposals and
the entire Merger transaction.
Dissenter's and Appraisal Rights
HOLDERS OF UAC COMMON STOCK AND UAC SERIES A PREFERRED STOCK ARE OR MAY BE
ENTITLED TO DISSENTER'S RIGHTS IN CONNECTION WITH THE UAC REORGANIZATION AND
UAC REORGANIZATION AGREEMENT UNDER SECTIONS 92A.300 TO 92A.500, INCLUSIVE, OF
THE NEVADA REVISED STATUTES (THE "NRS"). COPIES OF THOSE SECTIONS OF THE NRS ARE
ATTACHED AS ANNEX X TO THE ACCOMPANYING PROXY STATEMENT. Provided that they hold
UAC Common Stock or UAC Series A Preferred Stock as of the Arcus Record Date,
UAC stockholders will have the right to dissent from the UAC Reorganization and,
if the UAC Reorganization is consummated, obtain payment of the fair value of
their shares in lieu of receiving shares of AGI Common Stock or AGI Preferred
Stock, as the case may be, pursuant to the UAC Reorganization. A UAC
stockholder will forfeit his or her right to dissent from the UAC
Reorganization unless he or she (i) delivers to UAC, before the vote is taken
on the UAC Reorganization, written notice of his or her intent to demand
payment for his or her shares if the UAC Reorganization is consummated and (ii)
does not vote shares in favor of the UAC Reorganization. If the UAC
Reorganization is approved by the UAC stockholders and then consummated, a UAC
stockholder who has effectively asserted dissenter's rights will nonetheless
forfeit his or her right to obtain payment of the fair value of his or her
shares unless he or she (i) makes a timely demand for payment, on a form to be
supplied by UAC, (ii) certifies on such form whether he or she acquired
beneficial ownership of his or her shares before
3
<PAGE>
the date designated by UAC as the first announcement to the news media or to
the stockholders of the terms of the UAC Reorganization, and (iii) deposits his
or her share certificates, if any, in accordance with instructions to be
supplied by UAC. The rights of UAC stockholders to dissent from the UAC
Reorganization and, if the UAC Reorganization is consummated, obtain payment of
the fair value of their shares are governed by Sections 92A.300 to 92A.500,
inclusive, of the NRS, which are described in the Proxy Statement under
"Rights of Dissenting Stockholders--UAC Stockholders," and copies of which are
attached as Annex X to the accompanying Proxy Statement.
Holders of ATSI Common Stock have the right to dissent from the ATSI
Reorganization and, if the ATSI Reorganization is consummated, have the fair
value of their shares paid to them in cash in lieu of receiving shares of AGI
Common Stock pursuant to the ATSI Reorganization by delivering to ATSI a
written demand for payment or appraisal before the taking of a vote on the ATSI
Reorganization and by following the other procedures set forth in Section 262
of the Delaware General Corporation Law ("DGCL") and described in the Proxy
Statement under "Rights of Dissenting Stockholders--ATSI Stockholders." Holders
of AGI Common Stock have the right to dissent from either of the
Reorganizations or the Merger and, if the Reorganizations and the Merger are
consummated, have the fair value of their shares paid to them in cash in lieu
of continuing to hold their shares (in the case of the Reorganizations) or
receiving the Merger consideration (in the case of the Merger) by delivering to
AGI a written demand for payment or appraisal before the taking of a vote on
the Reorganizations and the Merger and by following the other procedures set
forth in Section 262 of the DGCL and described in the Proxy Statement under
"Rights of Dissenting Stockholders--AGI Stockholders." A copy of Section 262 of
the DGCL is attached as Annex X to the accompanying Proxy Statement.
Because stockholders of UAC and ATSI will not be stockholders of record of
AGI on the Arcus Record Date, such stockholders will not have the right to
assert dissenter's rights or appraisal rights with respect to the Merger
Agreement or the Merger.
Summary of UAC Reorganization Agreement
In the UAC Reorganization, as more specifically described in the
accompanying Proxy Statement, the Chief Executive Officer of UAC will determine
the total common equity value of UAC as of the Closing Date, before giving
effect to the Iron Mountain Warrant Purchase (defined below), the UAC Warrant
Repurchases and the Reorganizations (the "Determination Time"), based on the
total consideration to be paid by Iron Mountain in the Merger and the
capitalization of ATSI and UAC at the Determination Time as more fully described
in the accompanying Proxy Statement. The "UAC Equity Value Per Share" will then
be determined by dividing the total common equity value, as so determined, by
the sum of (i) the total number of shares of UAC Common Stock outstanding at the
Determination Time, plus (ii) the number of shares of UAC Common Stock which, at
the Determination Time, may be issued pursuant to options (whether or not
immediately exercisable) and purchased pursuant to Warrants (whether or not
immediately exercisable). On the closing date of the Merger, AGI will determine
the total common equity value of AGI at the Determination Time based on the
total consideration to be paid by Iron Mountain in the Merger and the
capitalization of ATSI, UAC and AGI at the Determination Time as more fully
described in the accompanying Proxy Statement. The "AGI Equity Value Per Share"
will then be determined by dividing the total common equity value of AGI, as so
determined, by the total number of shares of AGI issued and outstanding at the
Determination Time. Assuming a UAC Equity Value Per Share of $33.70 (calculated
as of September 30, 1997, based in part on a number of assumptions which are
described in the accompanying Proxy Statement and defined as the "Baseline
Assumptions") and an AGI Equity Value Per Share of $2.73 (calculated as of
September 30, 1997, based in part on the Baseline Assumptions) at the
Determination Time and based on the number of shares of AGI Common Stock and UAC
Common Stock (including options and Warrants to acquire shares of UAC Common
Stock) issued and outstanding on November 20, 1997, as a result of the UAC
Reorganization, each share of UAC Common Stock would be automatically converted
into approximately 12.337 shares of AGI Common Stock with a value of
approximately $2.73 per share (calculated as of September 30, 1997, based in
part on the Baseline Assumptions). In addition, each outstanding Warrant and
outstanding option to purchase or otherwise acquire shares of UAC Common Stock
would be converted into a warrant or option, as the case may be, to purchase or
otherwise acquire shares of AGI Common Stock at an exercise price and in an
amount affording the holder equivalent value for the Warrant or option security
being converted. In the UAC Reorganization, each share of UAC Series A Preferred
Stock will be automatically converted into a share of AGI Preferred Stock, on a
share-for-share basis, with the same rights, preferences and privileges
applicable to UAC Series A Preferred Stock, after giving effect to the UAC
Charter Amendments and AGI Charter Amendments as more specifically described in
the accompanying Proxy Statement.
4
<PAGE>
Summary of ATSI Reorganization Agreement
In the ATSI Reorganization, as more specifically described in the
accompanying Proxy Statement, ATSI will determine the total common equity value
of ATSI as of the Determination Time based on the total consideration to be paid
by Iron Mountain in the Merger and the capitalization of ATSI at the
Determination Time. The "ATSI Equity Value Per Share" will then be determined by
dividing the total common equity value, as so determined, by the sum of (i) the
total number of shares of ATSI Common Stock outstanding at the Determination
Time, plus (ii) the number of shares of ATSI Common Stock which, at the
Determination Time, may be issued pursuant to options (whether or not vested or
immediately exercisable) and purchased pursuant to ATSI warrants (whether or not
immediately exercisable). Assuming an ATSI Equity Value Per Share of $31.74
(calculated as of September 30, 1997, based in part on the Baseline Assumptions)
and an AGI Equity Value Per Share at the Determination Time of $2.73 (calculated
as of September 30, 1997, based in part on the Baseline Assumptions) and based
on the number of shares of AGI Common Stock and ATSI Common Stock (including
options and warrants to acquire shares of ATSI Common Stock) issued and
outstanding on November 20, 1997, as a result of the ATSI Reorganization, each
share of ATSI Common Stock would be automatically converted into 11.619 shares
of AGI Common Stock with a value of approximately $2.73 per share (calculated as
of September 30, 1997, based in part on the Baseline Assumptions). In addition,
each outstanding warrant or option to purchase or otherwise acquire shares of
ATSI Common Stock would be converted into a warrant or option, as the case may
be, to purchase or otherwise acquire shares of AGI Common Stock at an exercise
price and in an amount affording the holder equivalent value for the warrant or
option security being exchanged.
Summary of Merger Agreement
In the Merger, as more specifically described in the accompanying Proxy
Statement, Iron Mountain will issue to AGI stockholders (including UAC
stockholders and ATSI stockholders who become AGI stockholders upon
consummation of the Reorganizations) shares of Iron Mountain Common Stock and
cash. Holders of options to acquire shares of AGI Common Stock will receive,
subject to Iron Mountain's election to require the exercise of certain such
options, as a result of the Merger, options to acquire Iron Mountain Common
Stock. Based on the Baseline Assumptions, including a Determination Price (as
defined in the accompanying Proxy Statement) of $36.00 (the ceiling in the
range of Determination Prices of between the floor price of $29.00 and the
ceiling price of $36.00), the aggregate value of shares issued in the Merger
would be $49.8 million, representing approximately 1.4 million shares of Iron
Mountain Common Stock, and the aggregate amount of cash paid in the Merger
would be $34.9 million. Based on the assumption that the number of shares of
AGI Common Stock outstanding equals 21.2 million and the number of shares of
AGI Preferred Stock outstanding equals 27,623 (the number estimated to be
outstanding (after giving effect to the payment of payment-in-kind dividends
from November 20, 1997 through December 31, 1997) on December 31, 1997) (in
each case giving effect to the Arcus Proposals, other than the Merger, as if
they had been consummated on November 20, 1997 and based on the number of
shares of AGI Common Stock, UAC Common Stock, UAC Series A Preferred Stock and
ATSI Common Stock and options and warrants to acquire shares of UAC Common
Stock and ATSI Common Stock outstanding on November 20, 1997), each holder of
AGI Common Stock would be entitled to receive approximately 0.0319 shares of
Iron Mountain Common Stock with a value of approximately $1.15 and
approximately $1.58 in cash per share of AGI Common Stock, and each holder of
AGI Preferred Stock would be entitled to receive approximately 25.8 shares of
Iron Mountain Common Stock with a value of approximately $927.27 per share of
AGI Preferred Stock and approximately $48.80 in cash per share of AGI Preferred
Stock.
In order to protect the tax-free nature of the Merger, all of the shares
of Iron Mountain Common Stock received by each AGI stockholder may not be
transferred, with limited exceptions described in the accompanying Proxy
Statement, by such stockholder until the earlier of the first anniversary of
the Effective Time and the date on which a transfer may be effected in a manner
that Iron Mountain reasonably determines does not adversely effect the tax-free
nature of the Merger. In order to implement such restriction, each stockholder
will receive a stock certificate representing shares of Iron Mountain Common
Stock bearing a legend indicating that the shares represented by such
certificates are subject to these transfer restrictions and may not be
transferred by such stockholder for a period of one year following the
Effective Time.
In order to indemnify Iron Mountain for certain claims under the Merger
Agreement, cash in the aggregate amount of $8.0 million will be withheld
ratably from the cash Merger consideration payable to holders of AGI Common
Stock and Warrantholders pursuant to the Warrant Purchase Agreements and held
in escrow for a period of 18 months, with a portion thereof to be released
after nine months.
5
<PAGE>
The UAC Reorganization, the ATSI Reorganization and the Merger are subject
to, among other things, the approvals of certain third parties, and will not be
consummated until those approvals have been obtained. As a result, it is
expected that the UAC Reorganization, the ATSI Reorganization and the Merger
will be completed during January 1998.
The UAC Board of Directors has carefully considered and unanimously
approved the UAC Reorganization Agreement, the UAC Reorganization, the UAC
Charter Amendments, the UAC Warrant Repurchases, the ATSI Reorganization
Agreement, the Merger Agreement and the Merger, believes that the UAC
Reorganization Agreement, the UAC Reorganization, the UAC Charter Amendments,
the UAC Warrant Repurchases, the ATSI Reorganization Agreement, the Merger
Agreement and the Merger are in the best interests of UAC and its stockholders
and unanimously recommends that UAC's stockholders vote FOR the approval and
adoption of the UAC Proposals and that holders of UAC Series A Preferred Stock
also vote FOR the UAC Warrant Repurchases and ATSI Reorganization Agreement.
The ATSI Board of Directors has carefully considered and has unanimously
approved the ATSI Reorganization Agreement, the ATSI Reorganization, the Merger
Agreement and the Merger, believes that the ATSI Reorganization Agreement, the
ATSI Reorganization, the Merger Agreement and the Merger are in the best
interests of ATSI and its stockholders and unanimously recommends that ATSI's
stockholders vote FOR the approval and adoption of the ATSI Proposal.
The AGI Board of Directors has carefully considered and unanimously
approved the Reorganization Agreements, the Reorganizations, the AGI Charter
Amendments, the Merger Agreement and the Merger, believes that the
Reorganization Agreements, the Reorganizations, the AGI Charter Amendments, the
Merger Agreement and the Merger are in the best interests of AGI and its
stockholders and unanimously recommends that AGI's stockholders vote FOR the
approval and adoption of the AGI Proposals.
The accompanying Proxy Statement sets forth the respective voting rights
of holders of shares of UAC stock, holders of shares of ATSI stock and holders
of shares of AGI stock with respect to the foregoing matters. We hope you will
be able to attend the Arcus Stockholders Meetings. However, even if you
anticipate attending in person, we urge you to complete, sign, date and return
the enclosed proxy card promptly to ensure that your shares will be represented
at the appropriate Arcus Stockholders Meeting. You may revoke your proxy at any
time prior to its exercise by following the procedures set forth in the
accompanying Proxy Statement. Any stockholder present at the Arcus Stockholders
Meetings or any adjournments or postponements thereof may revoke his or her
proxy and vote personally on each matter brought before such meetings.
Thank you, and we look forward to seeing you at the meeting.
Dated December 3, 1997
By Order of the Boards of Directors of
Arcus Group, Inc.,
United Acquisition Company and
Arcus Technology Services, Inc.
Richard S. Meller, Secretary,
Arcus Group, Inc. and United
Acquisition Company
Julien H. Meyer III, Secretary,
Arcus Technology Services, Inc.
6
<PAGE>
THE BOARD OF DIRECTORS OF UAC RECOMMENDS THAT ALL UAC STOCKHOLDERS VOTE FOR
EACH OF THE UAC PROPOSALS, AND THAT HOLDERS OF UAC SERIES A PREFERRED STOCK
ALSO VOTE FOR THE UAC WARRANT REPURCHASES AND THE ATSI REORGANIZATION
AGREEMENT.
THE BOARD OF DIRECTORS OF ATSI RECOMMENDS THAT ALL ATSI STOCKHOLDERS VOTE FOR
THE ATSI PROPOSAL.
THE BOARD OF DIRECTORS OF AGI RECOMMENDS THAT ALL AGI STOCKHOLDERS VOTE FOR
EACH OF THE AGI PROPOSALS.
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED PREPAID ENVELOPE.
7
<PAGE>
[Red Herring]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[/Red Herring]
SUBJECT TO COMPLETION -- DATED NOVEMBER 26, 1997
ARCUS GROUP, INC.
UNITED ACQUISITION COMPANY
ARCUS TECHNOLOGY SERVICES, INC.
IRON MOUNTAIN INCORPORATED
PROXY STATEMENT
For Special Meetings of Stockholders
to Be Held January 5, 1998
----------
IRON MOUNTAIN INCORPORATED PROSPECTUS
----------
This Joint Proxy Statement and Prospectus (this "Proxy Statement") is
being furnished to (i) the stockholders of Arcus Group, Inc., a Delaware
corporation ("AGI"), in connection with the solicitation of proxies by the
Board of Directors of AGI (the "AGI Board") from holders of outstanding shares
of Common Stock, par value $.0001 per share (the "AGI Common Stock"), of AGI
for use at the Special Meeting of Stockholders of AGI to be held at 10:00 a.m.,
local time, on January 5, 1998, and at any adjournment or postponement thereof
(the "AGI Stockholders Meeting"), (ii) the stockholders of United Acquisition
Company, a Nevada corporation ("UAC"), in connection with the solicitation of
proxies by the Board of Directors of UAC (the "UAC Board") from holders of
outstanding shares of Common Stock, par value $.01 per share (the "UAC Common
Stock"), and Series A Preferred Stock, par value $.01 per share ("UAC Preferred
Stock"), of UAC for use at the Special Meeting of Stockholders of UAC to be
held at 10:00 a.m., local time, on January 5, 1998, and at any adjournment or
postponement thereof (the "UAC Stockholders Meeting"), (iii) the stockholders
of Arcus Technology Services, Inc., a Delaware corporation ("ATSI" and,
together with AGI and UAC, the "Arcus Parties," each an "Arcus Party," and
together with their respective subsidiaries, the "Arcus Entities," and each an
"Arcus Entity"), in connection with the solicitation of proxies by the Board of
Directors of ATSI (the "ATSI Board," and together with the AGI Board and the
UAC Board, the "Arcus Boards") from holders of outstanding shares of Common
Stock, par value $.01 per share (the "ATSI Common Stock"), of ATSI for use at
the Special Meeting of Stockholders of ATSI to be held at 10:00 a.m., local
time, on January 5, 1998, and at any adjournment or postponement thereof (the
"ATSI Stockholders Meeting," and collectively with the AGI Stockholders Meeting
and the UAC Stockholders Meeting, the "Arcus Stockholders Meetings"), and (iv)
the stockholders of Iron Mountain Incorporated, a Delaware corporation ("Iron
Mountain," which term includes its consolidated subsidiaries unless the context
indicates otherwise), in connection with the solicitation of proxies by the
Board of Directors of Iron Mountain (the "Iron Mountain Board") from holders of
outstanding shares of Common Stock, par value $.01 per share (the "Iron
Mountain Common Stock"), of Iron Mountain for use at the Special Meeting of
Stockholders of Iron Mountain to be held at 10:00 a.m., local time, on January
5, 1998, and at any adjournment or postponement thereof (the "Iron Mountain
Stockholders Meeting"). This Proxy Statement and the accompanying form of proxy
are first being mailed to stockholders of the Arcus Parties and Iron Mountain
on or about December 3, 1997. Capitalized terms used herein are generally
defined in only one place in this Proxy Statement. For an index indicating the
pages on which such terms are defined, see "Definition Cross Reference Sheet"
beginning on page xii.
See "Risk Factors" beginning on page 29 for information that should be
considered by stockholders of AGI, UAC and ATSI in evaluating an investment in
Iron Mountain Common Stock.
----------
November 26, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
<PAGE>
Stockholders entitled to vote at the Arcus Stockholders Meetings will be
asked (i) to approve a series of transactions described in this Proxy Statement
involving generally reorganizations of the Arcus Parties in which UAC and ATSI
will each be merged with and into AGI, and (ii) (in the case of AGI) to approve
and adopt an Agreement and Plan of Merger by and among Iron Mountain and the
Arcus Parties, dated as of September 26, 1997, as amended as of November 25,
1997 (the "Merger Agreement"), pursuant to which, after giving effect to such
reorganizations and the other transactions contemplated by the Merger
Agreement, AGI will merge with and into Iron Mountain, with Iron Mountain
continuing as the surviving corporation (the "Merger"). Iron Mountain
stockholders will be asked to approve and adopt the Merger Agreement and
certain amendments to Iron Mountain's Amended and Restated Certificate of
Incorporation. In order to effect such reorganizations, the Merger and related
transactions, the stockholders of the Arcus Parties will be asked to approve
several matters (more fully described below) necessary under applicable law and
the Arcus Parties' governing documents. As a result of the Merger, security
holders of the Arcus Parties (who do not dissent) will receive cash and shares
of Iron Mountain Common Stock, in amounts that will be based on the values of
their relative holdings of an Arcus Party as of the effective time of such
transactions. The reorganizations and such other matters are conditioned upon a
contemporaneous closing of the Merger, and the Merger is conditioned upon the
reorganizations closing immediately prior thereto. Accordingly, none of such
transactions will be consummated unless all such transactions are consummated.
This prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from Iron Mountain Incorporated, 745 Atlantic Avenue, Boston,
Massachusetts, 02111, Attention: John F. Kenny, Jr., Executive Vice President
and Chief Financial Officer (telephone: 617-357-4455). In order to ensure
timely delivery of the documents, any request should be made by December 22,
1997.
Holders of UAC Common Stock and holders of UAC Preferred Stock will be
asked at the UAC Stockholders Meeting to consider and vote upon the following
proposals (items (1) through (7) below, collectively, the "UAC Proposals"):
(1) to approve and adopt an Agreement and Plan of Merger between UAC and
AGI (the "UAC Reorganization Agreement"), a form of which is attached as
Schedule A to the Merger Agreement which is attached as Annex I to this Proxy
Statement, pursuant to which UAC will merge with and into AGI, with AGI
continuing as the surviving corporation (the "UAC Reorganization");
(2) to amend the Articles of Incorporation of UAC (the "UAC Articles") to
eliminate the prohibition in Article VI, Section 2(b) of the UAC Articles on
paying dividends to holders of any class of stock other than UAC Preferred
Stock, until all dividends payable on UAC Preferred Stock have been paid, with
respect to the Merger, the UAC Reorganization, the UAC Warrant Repurchases and
the other transactions contemplated by the Merger Agreement (collectively, the
"Transactions");
(3) to amend the UAC Articles to eliminate the requirement that upon any
involuntary or voluntary liquidation of UAC, including a merger which does not
result in all persons who hold UAC Common Stock prior to the merger holding a
majority of the voting shares of the surviving corporation after such merger,
holders of UAC Preferred Stock shall receive the liquidation preference of
their shares before any amount shall be paid to holders of any other class of
shares and that distributions payable in property other than cash be valued at
their fair market value, with respect to the Transactions;
(4) to amend the UAC Articles to eliminate the requirement that UAC obtain
the approval of holders of at least 66-2/3% of UAC Preferred Stock before (a)
UAC or any of its subsidiaries, including ATSI, may merge with any other
corporation, subject to certain exceptions, or (b) any amendments to the UAC
Articles may be made which would adversely affect certain rights, preferences,
or privileges of, or limitations provided for the benefit of, holders of UAC
Preferred Stock in the UAC Articles, with respect to the Transactions;
(5) to amend the UAC Articles to eliminate the prohibition against UAC, by
amendment of the UAC Articles or through any reorganization, merger or other
specified actions, avoiding or seeking to avoid the observance or performance
of any of the terms of UAC Preferred Stock set forth therein, with respect to
the Transactions;
(6) to amend the UAC Articles to eliminate the prohibition against UAC
entering into any merger in which the surviving company does not agree to be
bound by the terms of UAC Preferred Stock, with respect to the Transactions;
and
(7) to amend the UAC Articles to reduce the stated liquidation preference
of the UAC Preferred Stock to take account of that portion of the expenses
associated with the Transactions to be borne by the holders of the UAC
ii
<PAGE>
Preferred Stock (the "Liquidation Preference Amendment") (the items referred to
in paragraphs (2) through (7) are collectively referred to as the "UAC Charter
Amendments").
In addition, holders of UAC Preferred Stock will be asked at the UAC
Stockholders Meeting to consider and vote upon (i) a proposal to approve and
adopt a series of agreements and transactions (collectively, the "UAC Warrant
Repurchases") between UAC and certain holders of warrants to purchase UAC
Common Stock ("Warrants;" holders of Warrants are referred to as
"Warrantholders") whereby UAC will repurchase certain of such Warrants in
exchange for 158,729 shares of convertible Series C Preferred Stock in
Connected Corp., a Delaware corporation ("Connected Corp."), currently held by
UAC (the "Connected Stock") and (ii) the ATSI Reorganization Agreement.
Each of the UAC Proposals will be voted upon separately by the holders of
UAC Common Stock and UAC Preferred Stock voting as separate classes; however,
failure to adopt any proposal will result in abandonment by UAC of all other
UAC Proposals and the UAC Warrant Repurchases. The UAC Proposals must be
approved and adopted by holders of a majority of the outstanding shares of UAC
Common Stock and holders of 66-2/3% of the outstanding shares of UAC Preferred
Stock. The UAC Warrant Repurchases and ATSI Reorganization Agreement must be
approved and adopted by holders of 66-2/3% of the outstanding shares of UAC
Preferred Stock.
The UAC Board has unanimously approved the UAC Reorganization Agreement,
the UAC Reorganization, the UAC Charter Amendments, the UAC Warrant
Repurchases, the ATSI Reorganization Agreement, the Merger Agreement and the
Merger, believes that the UAC Reorganization Agreement, the UAC Reorganization,
the UAC Charter Amendments, the UAC Warrant Repurchases, the ATSI
Reorganization Agreement, the Merger Agreement and the Merger are in the best
interests of UAC and its stockholders and unanimously recommends that UAC's
stockholders vote FOR the approval and adoption of the UAC Proposals and that
holders of UAC Preferred Stock also vote FOR the UAC Warrant Repurchases and
ATSI Reorganization Agreement.
Holders of ATSI Common Stock will be asked at the ATSI Stockholders
Meeting to consider and vote upon a proposal (the "ATSI Proposal") to approve
and adopt an Agreement and Plan of Merger between ATSI and AGI (the "ATSI
Reorganization Agreement"), a form of which is attached as Schedule B to the
Merger Agreement which is attached as Annex I to this Proxy Statement, pursuant
to which, after giving effect to the UAC Reorganization and the UAC Warrant
Repurchases, ATSI will merge with and into AGI, with AGI continuing as the
surviving corporation (the "ATSI Reorganization"). The UAC Reorganization
Agreement and the ATSI Reorganization Agreement are hereinafter referred to as
the "Reorganization Agreements," and the UAC Reorganization and ATSI
Reorganization are hereinafter referred to as the "Reorganizations." The ATSI
Proposal must be approved and adopted by holders of a majority of the
outstanding shares of ATSI Common Stock.
The ATSI Board has unanimously approved the ATSI Reorganization Agreement,
the ATSI Reorganization, the Merger Agreement and the Merger, believes that the
ATSI Reorganization Agreement, the ATSI Reorganization, the Merger Agreement
and the Merger are in the best interests of ATSI and its stockholders and
unanimously recommends that ATSI's stockholders vote FOR the approval and
adoption of the ATSI Proposal.
Holders of AGI Common Stock will be asked at the AGI Stockholders Meeting
to consider and vote upon the following proposals (collectively, the "AGI
Proposals" and, together with the UAC Proposals, the UAC Warrant Repurchases
and the ATSI Proposal, the "Arcus Proposals"):
(1) to amend the Restated Certificate of Incorporation of AGI (the "AGI
Certificate") to create a class of preferred stock, par value $.0001 per share,
of AGI (the "AGI Preferred Stock") into which, pursuant to the UAC
Reorganization, UAC Preferred Stock will be converted on a share-for-share
basis, with the same rights, preferences and privileges as UAC Preferred Stock
will hold under the UAC Articles after giving effect to the UAC Charter
Amendments;
(2) to amend the AGI Certificate to increase the number of authorized
shares of AGI Common Stock from 11,661,290 to 100,000,000;
(3) to amend the AGI Certificate to exempt the Transactions from the
limitations on transfer set forth in Article 11 of the AGI Certificate for
transfers of shares of AGI Common Stock or AGI Preferred Stock (the items
referred to in paragraphs (1) through (3) are collectively referred to as the
"AGI Charter Amendments");
(4) to approve and adopt the UAC Reorganization Agreement;
(5) to approve and adopt the ATSI Reorganization Agreement; and
iii
<PAGE>
(6) to approve and adopt the Merger Agreement.
Each of the AGI Proposals will be voted upon separately by the holders of
AGI Common Stock; however, failure to adopt any proposal will result in the
abandonment by AGI of all other Arcus Proposals and the Merger. The AGI
Proposals (including the Merger Agreement) must be approved and adopted by
holders of a majority of the outstanding shares of AGI Common Stock.
The AGI Board has unanimously approved the Reorganization Agreements, the
Reorganizations, the AGI Charter Amendments, the Merger Agreement and the
Merger, believes that the Reorganization Agreements, the Reorganizations, the
AGI Charter Amendments, the Merger Agreement and the Merger are in the best
interests of AGI and its stockholders and unanimously recommends that AGI's
stockholders vote FOR the approval and adoption of the AGI Proposals.
Neither stockholders of UAC nor ATSI will be asked to approve the Merger
Agreement or the Merger, because such stockholders will not be stockholders of
record of AGI on the record date for determining AGI stockholders entitled to
vote on the Merger Agreement and the Merger at the AGI Stockholders Meeting.
Therefore, stockholders of UAC or ATSI who oppose the Merger Agreement or the
Merger should vote against the UAC Proposals or the ATSI Proposal, as
applicable. Failure of any of the Arcus Proposals to be approved by the
stockholders of the Arcus Parties will result in the abandonment of the
Reorganizations, the Merger, the UAC Charter Amendments and the AGI Charter
Amendments.
Iron Mountain stockholders will be asked at the Iron Mountain Stockholders
Meeting to consider and vote upon a proposal to approve and adopt the Merger
Agreement. The Merger Agreement must be approved and adopted by holders of a
majority of the outstanding shares of Iron Mountain Common Stock. In addition,
Iron Mountain stockholders will be asked at the Iron Mountain Stockholders
Meeting to consider and vote upon amendments to the Iron Mountain Restated
Certificate to increase the number of authorized shares of Iron Mountain Common
Stock from 20,000,000 to 100,000,000 and to increase the number of authorized
shares of Iron Mountain Preferred Stock, par value $.01 per share (the "Iron
Mountain Preferred Stock"), from 2,000,000 to 10,000,000 (the "Iron Mountain
Charter Amendments"). Each Iron Mountain Charter Amendment must be approved and
adopted by holders of 66-2/3% of the outstanding shares of Iron Mountain Common
Stock. The additional shares of Iron Mountain Common Stock and Iron Mountain
Preferred Stock are not necessary to consummate the Merger. Accordingly,
approval of the Iron Mountain Charter Amendments is not a condition to the
Merger.
The Iron Mountain Board has unanimously approved the Merger Agreement and
the Iron Mountain Charter Amendments, believes that the approval and adoption
of the Merger Agreement and the Iron Mountain Charter Amendments is in the best
interest of Iron Mountain and its stockholders and unanimously recommends that
Iron Mountain's stockholders vote FOR the approval and adoption of the Merger
Agreement and the Iron Mountain Charter Amendments.
On the closing date of the Merger (the "Closing Date"), UAC will determine
the total common equity value of UAC as of the Closing Date, before giving
effect to the Iron Mountain Warrant Purchase, the UAC Warrant Repurchases and
the Reorganizations (the "Determination Time"), based on the Total Consideration
to be paid by Iron Mountain in the Merger and the capitalization of ATSI and UAC
at the Determination Time as more fully described under "The Reorganizations and
the Other Arcus Proposals--The UAC Reorganization." The UAC Equity Value Per
Share will then be determined by dividing the total common equity value, as so
determined, by the sum of (i) the total number of shares of UAC Common Stock
outstanding at the Determination Time, plus (ii) the number of shares of UAC
Common Stock which, at the Determination Time, may be issued pursuant to options
(whether or not immediately exercisable) and purchased pursuant to Warrants
(whether or not immediately exercisable). On the Closing Date, AGI will
determine the total common equity value of AGI at the Determination Time based
on the Total Consideration to be paid by Iron Mountain in the Merger and the
capitalization of AGI, ATSI and UAC at the Determination Time as more fully
described under "The Reorganizations and the Other Arcus Proposals--The UAC
Reorganization." The AGI Equity Value Per Share will then be determined by
dividing the total common equity value of AGI by the total number of shares of
AGI Common Stock issued and outstanding at the Determination Time. Assuming a
UAC Equity Value Per Share of $33.70 (calculated as of September 30, 1997, based
in part on the Baseline Assumptions), and an AGI Equity Value Per Share of $2.73
(calculated as of September 30, 1997, based in part on the Baseline Assumptions)
and based on the number of shares of AGI Common Stock and UAC Common Stock and
options and Warrants to acquire shares of UAC Common Stock issued and
outstanding on November 20, 1997, as a result of the UAC Reorganization, each
share of UAC Common Stock would be automatically
iv
<PAGE>
converted into approximately 12.337 shares of AGI Common Stock with a value of
approximately $2.73 per share. In addition, each outstanding Warrant (including
those purchased by Iron Mountain pursuant to the Iron Mountain Warrant
Purchase) and outstanding option to purchase or otherwise acquire shares of UAC
Common Stock would be converted into a warrant or option, as the case may be,
to purchase or otherwise acquire shares of AGI Common Stock at an exercise
price and in an amount affording the holder equivalent value for the Warrant or
option security being converted. See "The Reorganizations and the Other Arcus
Proposals--The UAC Reorganization--Treatment of UAC Options and Warrants in the
UAC Reorganization."
On the Closing Date, ATSI will determine the total common equity value of
ATSI as of the Determination Time based on the Total Consideration to be paid by
Iron Mountain in the Merger and the capitalization of ATSI at the Determination
Time as more fully described under "The Reorganizations and Other Arcus
Proposals--The ATSI Reorganization." The ATSI Equity Value Per Share will then
be determined by dividing the total common equity value by the sum of (i) the
total number of shares of ATSI Common Stock outstanding at the Determination
Time, plus (ii) the number of shares of ATSI Common Stock which, at the
Determination Time, may be issued pursuant to options (whether or not vested or
immediately exercisable) and purchased pursuant to ATSI warrants (whether or not
immediately exercisable). Assuming an ATSI Equity Value Per Share of $31.74
(calculated as of September 30, 1997, based in part on the Baseline Assumptions)
and an AGI Equity Value Per Share of $2.73 (calculated as of September 30, 1997,
based in part on the Baseline Assumptions) and based on the number of shares of
AGI Common Stock and ATSI Common Stock and options and warrants to acquire
shares of ATSI Common Stock issued and outstanding on November 20, 1997, as a
result of the ATSI Reorganization, each share of ATSI Common Stock would be
automatically converted into 11.619 shares of AGI Common Stock with a value of
approximately $2.73 per share. In addition, each outstanding warrant or option
to purchase or otherwise acquire shares of ATSI Common Stock would be converted
into a warrant or option, as the case may be, to purchase or otherwise acquire
shares of AGI Common Stock at an exercise price and in an amount affording the
holder equivalent value for the warrant or option security being converted. See
"The Reorganizations and the Other Arcus Proposals--The ATSI
Reorganization--Treatment of ATSI Options and Warrants in the ATSI
Reorganization."
This Proxy Statement also constitutes a Prospectus of Iron Mountain with
respect to the shares of Iron Mountain Common Stock that will be issued to
holders of AGI Common Stock and AGI Preferred Stock at the effective time of the
Merger (the "Effective Time"). In the Merger, Iron Mountain will issue to AGI
stockholders (which stockholders will include holders of AGI Common Stock, UAC
Common Stock, UAC Preferred Stock and ATSI Common Stock immediately prior to the
Reorganizations) shares of Iron Mountain Common Stock and cash. As a result of
the Merger, holders of warrants (other than Iron Mountain, whose warrants will
be cancelled) or options to acquire shares of AGI Common Stock will receive,
subject to Iron Mountain's election to require the exercise of certain such
options to acquire shares of AGI Common Stock and the anticipated exercise of
the ATSI Warrant, warrants or options to acquire Iron Mountain Common Stock.
Assuming (i) Net Indebtedness of $33.6 million (the actual Net Indebtedness of
the Arcus Entities as of September 30, 1997, as adjusted for the payment of the
estimated transaction fees described below) and no adjustment resulting from a
Net Working Capital Deficit, each as described in the accompanying Proxy
Statement, (ii) a Determination Price of $36.00 (the ceiling in the range of
Determination Prices between the floor price of $29.00 and the ceiling price of
$36.00), (iii) the market price of Iron Mountain Common Stock at the Effective
Time is equal to the Determination Price, (iv) a liquidation preference for the
UAC Preferred Stock (which will be converted into AGI Preferred Stock) of $27.0
million (the Arcus Parties' estimate of the liquidation preference as of
December 31, 1997, after giving effect to the Liquidation Preference Amendment),
(v) Iron Mountain does not require the Option Exercise, (vi) the restrictions on
transfer of shares of Iron Mountain Common Stock which are described in the
Proxy Statement have no impact on the value of such shares (Iron Mountain is in
the process of obtaining an appraisal of the impact of such restrictions on such
shares), (vii) all outstanding Warrants are purchased pursuant to the Warrant
Purchase Agreements or repurchased pursuant to the UAC Warrant Repurchases, and
the Damson Distribution is consummated, (viii) no further adjustments relating
to the Threshold Percentage, and (ix) all funds deposited related to
indemnification of Iron Mountain pursuant to the Escrow Agreement, the Merger
Agreement and the Warrant Purchase Agreements are eventually remitted to former
holders of AGI Common Stock and former Warrantholders who were party to a
Warrant Purchase Agreement (the foregoing assumptions being sometimes
collectively referred to as the "Baseline Assumptions"), the aggregate value of
shares issued in the Merger would be $49.8 million, representing approximately
1.4 million shares of Iron Mountain Common Stock, and the aggregate amount of
cash paid in the Merger would be $34.9 million. The Baseline Assumptions include
an increase in Net Indebtedness as a result of the payment at or prior to the
Closing of the estimated expenses of the Transactions (such amount being equal
to approximately $3.1 million), but does not include $750,000 to be withheld
from the aggregate cash Merger consideration payable to holders of AGI Common
Stock and the aggregate Warrant Purchase Price and deposited into a fund
to cover certain potential expenses. See "The Merger Agreement--Expense Fund."
Based on the Baseline Assumptions and on the shares of AGI Common Stock
outstanding on November 20, 1997 and on the shares of AGI Preferred Stock
estimated to be outstanding (after giving effect to the
v
<PAGE>
payment of payment-in-kind dividends from November 20, 1997 through December
31, 1997) on December 31, 1997 (in all cases giving effect to the
Reorganizations, the Iron Mountain Warrant Purchase and the UAC Warrant
Repurchases as if they had occurred on November 20, 1997), each holder of AGI
Common Stock would be entitled to receive approximately 0.0319 shares of Iron
Mountain Common Stock with a value of approximately $1.15 and approximately
$1.58 in cash per share of AGI Common Stock, and each holder of AGI Preferred
Stock would be entitled to receive approximately 25.8 shares of Iron Mountain
Common Stock with a value of approximately $927.27 and approximately $48.80 in
cash per share of AGI Preferred Stock. The "Determination Price" will be equal
to the average closing price per share of Iron Mountain Common Stock for the
period of 20 trading days ending three trading days prior to (and not
including) the Closing Date; provided, however, that if the average closing
price per share for such period is less than $29.00, the Determination Price
shall be $29.00 and if the average closing price per share for such period is
greater than $36.00, the Determination Price shall be $36.00. The Determination
Price calculated using the above-described formula for the 20 trading day
period ending on November 20, 1997 was $36.00 (the actual average closing price
per share for such period was $37.82). See "The Merger Agreement--Conversion of
AGI Stock."
On November 20, 1997, the closing sales price of the Iron Mountain Common
Stock, as reported on the Nasdaq National Market, was $38.25. Using this amount
as the value of the Iron Mountain Common Stock (rather than $36.00), each
holder of AGI Common Stock and each holder of AGI Preferred Stock (giving
effect to the Reorganizations and UAC Warrant Repurchases as if they had
occurred) would be entitled to receive on a per share basis Iron Mountain
Common Stock having a value of approximately $1.22 and $985, respectively.
However, the Determination Price and the closing sales price of Iron Mountain
Common Stock may increase or decrease between November 20, 1997 and the Closing
Date and the foregoing calculation does not give effect to any impact of the
restrictions on transfer of the Iron Mountain Common Stock to be issued in the
Merger.
In connection with the Merger, and pursuant to the Warrant Purchase
Agreements (each individually, a "Warrant Purchase Agreement," and
collectively, the "Warrant Purchase Agreements") dated as of September 26,
1997, as amended as of November 25, 1997, and a certain subsequent date on or
prior to the Closing Date, by and among Iron Mountain, UAC and certain
Warrantholders ("Selling Warrantholders"), Iron Mountain will purchase the
Warrants held by such Warrantholders, subject to certain indemnification,
expense, adjustment, and holdback provisions described in this Proxy Statement,
in exchange for the aggregate Warrant Purchase Price.
Each Arcus Party has agreed, and by approving the applicable
Reorganization Agreement and, in the case of AGI, the Merger Agreement, each
Arcus Party's stockholders will agree, that cash in the aggregate amount of
$8.0 million multiplied by a fraction, the numerator of which is the value
(calculated based on the Determination Price) of the aggregate Merger
consideration each holder of AGI Common Stock will receive ("Exchange Common
Consideration") and the denominator of which is the Total Primary Equity Base,
will be withheld from the cash Merger consideration payable to holders of AGI
Common Stock (other than holders of Dissenting Shares), and each Selling
Warrantholder has agreed, or by executing a Warrant Purchase Agreement will
agree, that cash in the aggregate amount of $8.0 million multiplied by a
fraction, the numerator of which shall equal the sum of (i) the aggregate
Warrant Purchase Price and (ii) the value (calculated based on the
Determination Price) of the aggregate Merger consideration each holder of AGI
Preferred Stock will receive (the "Exchange Preferred Consideration") and the
denominator of which shall equal the Total Primary Equity Base (such product
being referred to as the "Warrant Escrow Indemnity Contribution") will be
withheld from the aggregate Warrant Purchase Price payable to each such
Warrantholder and, subject to the limitation described below, held in escrow to
indemnify Iron Mountain and hold Iron Mountain harmless from and against all
Merger Agreement Claims (such total being referred to as the "Escrow Indemnity
Funds"). As a result of such formulas, each stockholder of an Arcus Party and
Warrantholder described above will contribute to the Escrow Indemnity Funds in
an amount proportionate to the value (based, in the case of equity
consideration, on the Determination Price) of the consideration he, she or it
receives in the Merger and pursuant to the Warrant Purchase Agreements as a
holder of AGI Common Stock, UAC Common Stock, UAC Preferred Stock, ATSI Common
Stock, Warrants and the ATSI Warrant. Clarke H. Bailey, or his designee, who
will act as representative (the "Stockholder Representative") for the former
holders of Eligible Warrants and the former holders of AGI Common Stock
(including holders of UAC Common Stock or ATSI Common Stock who become holders
of AGI Common Stock as a result of the Reorganizations) under an agreement (the
"Escrow Agreement"), to be entered into among Iron Mountain, AGI, the
Stockholder Representative and The Bank of New York, as escrow agent (the
"Escrow Agent"), will deliver notice to each former Warrantholder who executed
a Warrant Purchase Agreement and each former holder of AGI Common Stock
promptly after each time, if any, that Iron Mountain receives a payment from
the escrow. In the event that there are no Unresolved Claims on the nine month
anniversary of the Closing Date, an aggregate of $3.0 million less all amounts,
if any, previously paid to Iron Mountain
vi
<PAGE>
from the Escrow Indemnity Funds will be distributed to the Stockholder
Representative for the benefit of former holders of AGI Common Stock and former
holders of Eligible Warrants. In the event one or more Unresolved Claims exist
on such date, cash in an amount equal to $5.0 million plus the aggregate amount
of such Unresolved Claims and related fees, expenses and other costs will be
retained, and the balance, if any, of the cash held in escrow will be
distributed to the Stockholder Representative for the benefit of the former
holders of AGI Common Stock and former holders of Eligible Warrants. The escrow
will expire 18 months after the Closing Date (unless at such time there are any
Unresolved Claims). Promptly after such time, the Escrow Agent under the Escrow
Agreement will remit to the Stockholder Representative, for the benefit of the
persons entitled thereto in accordance with their proportionate interests, the
Escrow Indemnity Funds less all portions paid to Iron Mountain and less any
amounts which are the subject of Unresolved Claims. See "Ancillary
Agreements--Escrow Agreement."
Additional cash in the amount of $750,000 will be withheld from the
aggregate cash Merger consideration payable to former holders of AGI Common
Stock and Selling Warrantholders and deposited with a bank or other financial
institution (the "Expense Fund") to have funds available to pay certain
expenses incurred by the Arcus Parties and the Stockholder Representative in
connection with the Transactions which have not been paid at or prior to
closing, including the payment of any expense contemplated by the Escrow
Agreement. In addition, cash in an amount not to exceed $300,000 based upon the
Net Working Capital Surplus, if any, may be withheld and deposited into escrow
in order to have funds available in the event of differences in certain
indebtedness calculations relating to the Arcus Parties. See "Ancillary
Agreements--Escrow Agreement."
Pursuant to the terms of a certain Stockholders' Agreement, dated as of
September 26, 1997 (the "Stockholders' Agreement"), by and among Iron Mountain
and the Arcus Parties, GKH Investments, L.P., GKH Partners, L.P., in its own
capacity and in its capacity as nominee of GKH Private Limited, Hudson River
Capital L.L.C. and Clarke H. Bailey (the "Arcus Principal Stockholders"), the
Arcus Principal Stockholders have agreed to vote their shares of stock of the
Arcus Parties in favor of the Arcus Proposals, including the Merger. As the
Arcus Principal Stockholders control directly or indirectly approximately 72%,
99%, 96% and 81% of the voting power of the AGI Common Stock, the UAC Common
Stock, the UAC Preferred Stock and the ATSI Common Stock outstanding,
respectively, stockholder approval of the Arcus Proposals, including the Merger
Agreement and the Merger, is assured.
In the event the shares of Iron Mountain Common Stock and options to
purchase shares of Iron Mountain Common Stock to be issued in the Merger would
exceed 20% of the outstanding Iron Mountain Common Stock, the Merger Agreement
would also have to be approved and adopted, pursuant to the DGCL, by holders of
a majority of the outstanding shares of Iron Mountain Common Stock. As the
Merger Agreement may, under certain circumstances, require Iron Mountain to
issue shares in excess of such threshold, Iron Mountain is seeking the approval
of the Merger Agreement by its stockholders. Pursuant to the terms of a certain
Acquiror Voting Agreement, dated as of September 26, 1997 (the "Iron Mountain
Voting Agreement"), by and among Iron Mountain, the Arcus Parties and C.
Richard Reese, Schooner Capital Corporation ("Schooner"), Vincent J. Ryan and
B. Thomas Golisano (the "Iron Mountain Principal Stockholders"), the Iron
Mountain Principal Stockholders have agreed to vote their shares of Iron
Mountain Common Stock, representing approximately 36.0% of the Iron Mountain
Common Stock outstanding, in favor of the Merger.
In order to protect the tax-free nature of the Merger, all of the shares
of Iron Mountain Common Stock received in the Merger (other than those received
in exchange for AGI Common Stock received in connection with the Option
Exercise), may not be transferred until the earlier of the first anniversary of
the Effective Time and the date on which a transfer may be effected in a manner
that Iron Mountain reasonably determines does not adversely affect the tax-free
nature of the Merger (the "Transfer Restriction Period"). In order to implement
such restriction, each stock certificate representing shares of Iron Mountain
Common Stock issued in the Merger and subject to such restrictions will bear a
legend indicating that the shares represented by such certificate are subject
to these transfer restrictions. Iron Mountain is in the process of obtaining
appraisals of the Iron Mountain Common Stock received in the Merger to
determine how such restrictions impact the fair value of such shares. See "The
Merger Agreement--Conversion of AGI Stock--Restrictions on Transfer of Iron
Mountain Common Stock."
The amount of the Iron Mountain Common Stock (expressed in dollar terms)
as a percentage of the aggregate Merger consideration, the aggregate Warrant
Purchase Price, the Connected Stock and the Damson Interest to be received by
holders of UAC Common Stock, UAC Preferred Stock and Warrants as a result of
the Reorganizations and the Merger will be up to 2.8 percentage points higher
than the amount of the Iron Mountain Common Stock (expressed in dollar terms)
as a percentage of the aggregate Merger consideration to be received by holders
of AGI Common Stock or ATSI Common Stock as a result of the Reorganizations and
the Merger (assuming the Baseline
vii
<PAGE>
Assumptions). Any such difference is attributable to transaction structuring
requirements arising as a result of the Reorganizations and the desire to
protect the tax-free nature of the transactions.
Holders of UAC Common Stock and UAC Preferred Stock have the right to
dissent from the UAC Reorganization and, if the UAC Reorganization is
consummated, have the fair value of their shares paid to them in cash in lieu
of receiving shares of AGI Common Stock pursuant to the UAC Reorganization by
delivering to UAC a written notice of their intention to demand payment for
their shares if the UAC Reorganization is consummated, before the taking of a
vote on the UAC Reorganization and thereafter delivering a written demand for
payment no later than 30 days after the delivery by AGI to such shareholders of
a dissenters notice, and by following the other procedures described under
"Rights of Dissenting Stockholders--UAC Stockholders." A vote against the UAC
Reorganization, abstention or other failure to vote by a UAC stockholder will
not be treated as a notice by such stockholder of his intention to demand
payment or a demand for payment. A separate, written notice of intention to
demand payment and demand for payment are required. Holders of ATSI Common
Stock have the right to dissent from the ATSI Reorganization and, if the ATSI
Reorganization is consummated, have the fair value of their shares paid to them
in cash in lieu of receiving shares of AGI Common Stock pursuant to the ATSI
Reorganization by delivering to ATSI a written demand for payment or appraisal
before the taking of a vote on the ATSI Reorganization and by following the
other procedures described under "Rights of Dissenting Stockholders--ATSI
Stockholders." Holders of AGI Common Stock have the right to dissent from
either of the Reorganizations or the Merger and, if the Reorganizations and the
Merger are consummated, have the fair value of their shares paid to them in
cash in lieu of continuing to hold their shares (in the case of the
Reorganizations) or receiving the Merger consideration (in the case of the
Merger) by delivering to AGI a written demand for payment or appraisal before
the taking of a vote on the Reorganizations and the Merger and by following the
other procedures described under "Rights of Dissenting Stockholders--AGI
Stockholders." Because stockholders of UAC and ATSI will not be stockholders of
record of AGI on the record date for determining AGI stockholders entitled to
vote at the AGI Stockholders Meeting, such stockholders will not have the right
to dissent from the Merger. Therefore, such stockholders who would want to
dissent from the Merger if they had the right to do so should dissent from the
UAC Reorganization or ATSI Reorganization, as applicable, by following the
procedures described under "Rights of Dissenting Stockholders--UAC
Stockholders" or "--ATSI Stockholders," as applicable. The exercise of
appraisal rights by certain holders will have no effect on the number of shares
of AGI into which a share of UAC or ATSI will be converted pursuant to the
Reorganizations or the per share Merger consideration to be received by other
holders of stock of the Arcus Parties. Any shares of stock of the Arcus Parties
held by holders exercising such rights are referred to herein as "Dissenting
Shares."
No person is authorized in connection with the offering and solicitation
made hereby to give any information or to make any representation not contained
in this Proxy Statement, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement does not constitute an offer to sell, or a solicitation of an offer
to purchase, the securities offered by this Proxy Statement, or the
solicitation of a proxy, in any jurisdiction or from any person to whom it is
unlawful to make such offer or solicitation.
The information set forth herein concerning Iron Mountain has been
furnished by Iron Mountain. The information set forth herein concerning AGI,
UAC and ATSI has been furnished by AGI, UAC and ATSI, respectively. The pro
forma information contained herein relating to Iron Mountain has been prepared
by Iron Mountain and includes historical financial information regarding the
Arcus Entities that was furnished to Iron Mountain by the Arcus Entities. Iron
Mountain does not have independent knowledge of the matters set forth herein
concerning the Arcus Entities. The Arcus Entities do not have independent
knowledge of the matters set forth herein concerning Iron Mountain.
Certain statements contained herein, such as those regarding the goals,
beliefs, plans or current expectations of Iron Mountain, the Arcus Entities and
their respective managements and other statements contained in this Proxy
Statement or incorporated herein by reference regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
rules promulgated pursuant to the Securities Act). Because such forward-looking
statements include risks and uncertainties, actual results may differ
materially from those expressed in or implied by such forward-looking
statements. Iron Mountain undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
viii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
AVAILABLE INFORMATION ............................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....................................... 1
SUMMARY .............................................................................. 2
The Companies ..................................................................... 2
The Arcus Stockholders Meetings ................................................... 3
The Iron Mountain Stockholders Meeting ............................................. 3
The Reorganizations and the Other Arcus Proposals ................................. 4
The Merger ........................................................................ 9
The Iron Mountain Charter Amendments ............................................. 15
Iron Mountain Warrant Purchase ................................................... 15
Restrictions on Transfer of Iron Mountain Common Stock ........................... 15
Indemnification .................................................................. 16
Certain Federal Income Tax Consequences .......................................... 17
Accounting Treatment ............................................................... 18
Securities Ownership of Management; Stockholders' Agreements ..................... 18
Recommendation of the Arcus Boards ................................................ 18
Opinion of Financial Advisor to AGI ................................................ 19
Recommendation of the Iron Mountain Board of Directors ........................... 19
Opinion of Financial Advisor to Iron Mountain .................................... 19
Conditions to the Merger ......................................................... 20
Stock Exchange Listing ............................................................ 20
Termination and Certain Fees ...................................................... 20
Corporate Governance ............................................................... 20
Interests of Certain Persons ...................................................... 20
Rights of Dissenting Stockholders ................................................ 21
Comparative Per Share Market Price Information .................................... 22
Iron Mountain Summary Historical and Pro Forma Information ........................ 23
Arcus Parties' Summary Financial Information ....................................... 25
Comparative Per Share Data ......................................................... 28
RISK FACTORS ........................................................................ 29
Risk Factors Related to the Iron Mountain Common Stock ........................... 29
Risk Factors Related to the Arcus Proposals, Including the Merger .................. 32
THE STOCKHOLDERS MEETINGS ............................................................ 34
Record Date; Quorum; Required Votes ................................................ 34
Solicitation and Voting of Proxies ................................................ 35
Ownership of Arcus Parties' Securities ............................................. 37
BACKGROUND OF THE MERGER AND THE OTHER ARCUS PROPOSALS .............................. 43
General Background of the Merger and the Other Arcus Proposals ..................... 43
Recommendation of the Arcus Boards; the Arcus Parties' Reasons for the Merger ...... 44
Opinion of Financial Advisor to AGI ................................................ 46
Recommendation of the Iron Mountain Board; Iron Mountain's Reasons for the Merger 50
Opinion of Financial Advisor to Iron Mountain .................................... 51
THE REORGANIZATIONS AND THE OTHER ARCUS PROPOSALS .................................... 55
The Arcus Parties' Existing Structure ............................................. 55
Iron Mountain Warrant Purchase ................................................... 55
UAC Warrant Repurchases ............................................................ 56
The UAC Charter Amendments ......................................................... 56
The AGI Charter Amendments ......................................................... 57
</TABLE>
ix
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
The UAC Reorganization ............................................................... 57
The ATSI Reorganization ............................................................ 60
THE MERGER AGREEMENT .................................................................. 63
The Merger ........................................................................... 63
Conversion of AGI Stock ............................................................ 63
Treatment of Options and Warrants in the Merger .................................... 68
Indemnification ..................................................................... 68
Expense Fund ........................................................................ 70
Restrictions on Transfer under the Federal Securities Laws ........................... 70
Exchange Procedures .................................................................. 70
Representations and Warranties ...................................................... 72
Certain Covenants .................................................................. 72
Conditions to the Merger ............................................................ 75
Termination ........................................................................ 76
Fees and Expenses .................................................................. 77
Amendment; Waiver .................................................................. 78
Corporate Governance ............................................................... 78
ANCILLARY AGREEMENTS .................................................................. 80
Stockholders' Agreement ............................................................ 80
Iron Mountain Voting Agreement ...................................................... 81
Escrow Agreement ..................................................................... 81
Warrant Purchase Agreement ......................................................... 83
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ............................................. 84
General .............................................................................. 84
The Reorganizations .................................................................. 84
The Merger ........................................................................... 85
THE IRON MOUNTAIN CHARTER AMENDMENTS ................................................... 87
Proposed Amendments .................................................................. 87
Reasons for the Iron Mountain Charter Amendments .................................... 87
Certain Effects of the Iron Mountain Charter Amendments .............................. 88
Required Vote ........................................................................ 88
Proposals of Iron Mountain Stockholders ............................................. 88
PRINCIPAL STOCKHOLDERS OF IRON MOUNTAIN ................................................ 90
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION ................................. 92
MARKET PRICES AND DIVIDEND DATA ......................................................... 106
DESCRIPTION OF IRON MOUNTAIN CAPITAL STOCK ............................................. 107
DESCRIPTION OF THE ARCUS ENTITIES ...................................................... 111
History and Overview ............................................................... 111
Customers ........................................................................... 111
Services ........................................................................... 112
Employees ........................................................................... 114
Competition ........................................................................ 114
Properties ........................................................................... 115
Insurance ........................................................................... 116
Environmental Matters ............................................................... 116
Certain Transactions ............................................................... 117
Legal Proceedings .................................................................. 117
Arcus Parties' Selected Financial and Operating Information ........................ 118
Management's Discussion and Analysis of Financial Condition and Results of Operations 121
</TABLE>
x
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF IRON MOUNTAIN
AND THE ARCUS PARTIES ............................................................ 129
Charter Amendments ............................................................... 129
By-Law Amendments ............................................................... 130
Voting Rights .................................................................. 130
Conversion Rights ............................................................... 130
Preemptive and Anti-Dilution Rights ............................................. 130
Special Meetings ............................................................... 131
Corporate Action Without a Meeting ............................................. 131
Dividends ........................................................................ 132
Liquidation ..................................................................... 133
Provisions Relating to Directors ................................................ 133
Stockholder Nominations to Elect Directors ....................................... 134
Removal ........................................................................ 134
Non-Voting Observers at Board Meetings .......................................... 135
RIGHTS OF DISSENTING STOCKHOLDERS ................................................... 136
LEGAL MATTERS ..................................................................... 143
EXPERTS ........................................................................... 143
INDEX TO FINANCIAL STATEMENTS ...................................................... F-1
ANNEXES:
Annex I -- Agreement and Plan of Merger, as amended
Annex II -- UAC Charter Amendments
Annex III -- AGI Charter Amendments
Annex IV -- Article XIII of Iron Mountain By-Laws
Annex V -- Stockholders' Agreement
Annex VI -- Iron Mountain Voting Agreement
Annex VII -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
Annex VIII -- Opinion of Bear, Stearns & Co. Inc.
Annex IX -- Form of Escrow Agreement
Annex X -- Sections 92A.300 through 92A.500 of the Nevada General Corporation Law;
Section 262 of the Delaware General Corporation Law
Annex XI -- Form of Proxy of the Arcus Parties
Annex XII -- Form of Proxy of Iron Mountain
</TABLE>
xi
<PAGE>
DEFINITION CROSS REFERENCE SHEET
Set forth below is a list of certain defined terms used in this Proxy
Statement and the page on which each such term is defined:
<TABLE>
<CAPTION>
Defined Term Page
- --------------------------------------------- ---------
<S> <C>
ACMs ....................................... 32
Acquisition Facility ..................... 123
ADS ....................................... 38
AGI ....................................... i
AGI Board ................................. i
AGI By-Laws .............................. 129
AGI Certificate ........................... iii
AGI Charter Amendments ..................... iii
AGI Common Stock ........................... i
AGI Equityholders ........................ 19
AGI Equity Value Per Share ............... 5
AGI Initial Indebtedness Calculation ...... 13
AGI Preferred Stock ........................ iii
AGI Proposals .............................. iii
AGI Stock Certificates ..................... 70
AGI Stockholders Meeting .................. i
AI ....................................... 27
Arcus Boards .............................. i
Arcus Entities ........................... i
Arcus Parties .............................. i
Arcus Principal Stockholders ............... vii
Arcus Proposals ........................... iii
Arcus Record Date ........................ 3
Arcus Stockholders Meetings ............... i
Articles of Merger ........................ 58
ASR ....................................... 40
ATIS ....................................... 111
ATSI ....................................... i
ATSI Board ................................. i
ATSI By-Laws .............................. 129
ATSI Certificate ........................... 129
ATSI Common Conversion Number ............ 6
ATSI Common Stock ........................ i
ATSI Comparable Companies .................. 47
ATSI Comparable Companies EBITDA
Multiples .............................. 47
ATSI Effective Time ........................ 4
ATSI Equity Value Per Share ............... 6
ATSI LTM EBITDA ........................... 47
ATSI 1997 EBITDA ........................... 47
ATSI Offer LTM EBITDA Multiples ............ 47
ATSI Offer 1997 EBITDA Multiples ......... 47
ATSI Option Conversion Number ............ 8
ATSI Option Conversion Price ............... 8
ATSI Optionees ........................... 55
ATSI Plan Options ........................ 8
Defined Term Page
- --------------------------------------------- ---------
<S> <C>
ATSI Primary Comparable Transactions ...... 47
ATSI Primary Comparable Transactions
EBITDA Multiple ........................ 47
ATSI Pro Forma LTM EBITDA .................. 47
ATSI Pro Forma 1997 EBITDA ............... 47
ATSI Proposal .............................. iii
ATSI Reorganization ........................ iii
ATSI Reorganization Agreement ............ iii
ATSI Stockholders Meeting .................. i
ATSI Stock Option Plan ..................... 8
ATSI Warrant .............................. 55
ATSI Warrant Conversion Number ............ 8
ATSI Warrant Conversion Price ............ 8
Baseline Assumptions ..................... v
Bear Stearns .............................. 19
Bear Stearns Opinion ..................... 19
Billable Employees ........................ 114
Certificate of Merger ..................... 9
Change of Control ........................ 31
Closing Date .............................. iv
Code ....................................... 17
Combined Escrow Holdback Amount ............ 83
Commission ................................. 1
Common Cash Amount ........................ 9
Common Cash Conversion Number ............ 9
Common Equity Value ........................ 9
Common Stock Amount ........................ 9
Common Stock Conversion Number ............ 9
Comparable Companies ..................... 52
Connected Corp. ........................... iii
Connected Stock ........................... iii
Credit Agreement ........................... 29
Credit Agreement Amendment ............... 29
Damson .................................... 2
Damson Distribution ........................ 4
Damson Interest ........................... 2
Damson Value .............................. 4
DCF ....................................... 48
Delaware Court ........................... 136
Designated Exercise Date .................. 14
Determination Price ........................ vi
Determination Time ........................ iv
DGCL ....................................... 21
Dissenting Shares ........................ viii
DLJ ....................................... 19
DLJ Opinion .............................. 19
</TABLE>
xii
<PAGE>
<TABLE>
<CAPTION>
Page
---------
<S> <C>
EBITDA ....................................... 2
Effective Time ................................. v
Eligible Warrants .............................. 15
Environmental Laws ........................... 32
Escrow Agent ................................. vi
Escrow Agreement .............................. vi
Escrow Holdback Amount ........................ 82
Escrow Indemnity Funds ........................ vi
Escrow Indemnity Period ........................ 82
Exchange Act ................................. 1
Exchange Agent ................................. 70
Exchange Common Consideration .................. vi
Exchange Merger Consideration .................. 71
Exchange Option .............................. 14
Exchange Preferred Consideration ............... vi
Excluded Acquisitions .......................... 92
Exhibit Opinions .............................. 85
Expense Fund ................................. vii
Expenses ....................................... 78
Facility ....................................... 123
Final Net Indebtedness ........................ 13
Fully Diluted Common Equity Value ............ 10
Fully Diluted Common Shares .................. 10
Fully Diluted Preferred Shares ............... 10
HIMSCORP ....................................... 29
HSR Act ....................................... 43
Hudson ....................................... 38
Initial Distribution Date ..................... 17
Initial Public Offering ........................ 92
Iron Mountain ................................. i
Iron Mountain Board ........................... i
Iron Mountain By-Laws ........................ 15
Iron Mountain Charter Amendments ............... iv
Iron Mountain Common Stock ..................... i
Iron Mountain Comparable Companies ............ 48
Iron Mountain Comparable Multiples ............ 48
Iron Mountain Preferred Stock .................. iv
Iron Mountain Principal Stockholders ......... vii
Iron Mountain Pro Forma Enterprise Value ...... 48
Iron Mountain Pro Forma LTM EBITDA ............ 48
Iron Mountain Pro Forma LTM Revenue ............ 48
Iron Mountain Record Date ..................... 3
Iron Mountain Restated Certificate ............ 31
Iron Mountain Stockholders Meeting ............ i
Iron Mountain Transactions ..................... 92
Iron Mountain Voting Agreement ............... vii
Iron Mountain Warrant Purchase ............... 15
IT ............................................. 2
LIBOR .......................................... 127
Liquidation Preference Amendment ............... iii
Defined Term Page
- ------------------------------------------------- ---------
<S> <C>
LTM .......................................... 47
Merger ....................................... ii
Merger Agreement .............................. ii
Merger Agreement Claims ........................ 16
Minimum Exercise Number ........................ 14
Net Indebtedness .............................. 10
Net Working Capital ........................... 11
Net Working Capital Deficit .................. 11
Net Working Capital Surplus .................. 17
1996 Notes .................................... 31
1997 EBITDA .................................... 47
1997 Notes .................................... 30
Nonvoting Common Stock ........................ 106
Note Indentures .............................. 31
Notice of Intent .............................. 138
NRS .......................................... 21
Offer Enterprise Value ........................ 47
Option Exercise .............................. 14
Other Transaction .............................. 73
Pierce Leahy Corp. Comparable Multiples ...... 48
PIK Shares .................................... 132
Precedent Transactions ........................ 53
Preferred Cash Amount ........................ 11
Preferred Cash Conversion Number ............... 9
Preferred Equity Value ........................ 11
Preferred Stock Amount ........................ 11
Preferred Stock Conversion Number ............ 9
Proxy Statement .............................. i
Recent Acquisitions ........................... 2
Registration Statement ........................ 1
Remaining Warrants ........................... 56
Remaining Warrant Shares ..................... 56
Reorganization Agreements ..................... iii
Reorganizations .............................. iii
Revolver ....................................... 123
Safesite ....................................... 47
Schooner ....................................... vii
Section 92A.380 .............................. 22
Section 262 .................................... 21
Securities Act ................................. 1
Selling Warrantholders ........................ vi
Service ....................................... 33
Share Price .................................... 14
Stockholder Representative ..................... vi
Stockholders' Agreement ........................ vii
Surviving Corporation ........................ 9
Tax Opinions ................................. 85
Term A Loan .................................... 123
Term B Loan .................................... 123
Termination .................................... 13
</TABLE>
xiii
<PAGE>
<TABLE>
<CAPTION>
Defined Term Page
- ---------------------------------------------- ---------
<S> <C>
Termination Date ........................... 77
Threshold Percentage ........................ 14
Total ATSI Equity Value ..................... 6
Total Consideration ........................ 11
Total Equity Consideration .................. 11
Total Primary Equity Base .................. 16
Total Tax Consideration ..................... 14
Total UAC Equity Value ..................... 5
Transactions .............................. ii
Transfer .................................... 67
Transfer Restriction Period ............... vii
UAC ....................................... i
UAC Acquisition ........................... 111
UAC Articles .............................. ii
UAC Board ................................. i
UAC By-Laws ................................. 129
UAC Charter Amendments ..................... iii
UAC Common Conversion Number ............... 5
UAC Common Stock ........................... i
UAC Effective Time ........................ 4
UAC Equity Value Per Share .................. 5
UAC Option Conversion Number ............... 8
Defined Term Page
- ---------------------------------------------- ---------
<S> <C>
UAC Option Conversion Price ............... 8
UAC Plan Options ........................... 8
UAC Preferred Equity Value .................. 6
UAC Preferred Stock ........................ i
UAC Proposals .............................. ii
UAC Reorganization ........................ ii
UAC Reorganization Agreement ............... ii
UAC Stockholders Meeting .................. i
UAC Stock Option Plan ..................... 8
UAC Warrant Conversion Number ............... 8
UAC Warrant Conversion Price ............... 8
UAC Warrant Repurchases ..................... iii
Unresolved Claim ........................... 16
USTs ....................................... 32
Warrant Escrow Holdback Amount ............ 82
Warrant Escrow Indemnity Contribution ...... vi
Warrantholders .............................. iii
Warrant Purchase Agreement .................. vi
Warrant Purchase Price ..................... 13
Warrants .................................... iii
Warrant Transmittal Letter .................. 71
ZDC ....................................... 40
</TABLE>
xiv
<PAGE>
AVAILABLE INFORMATION
Iron Mountain is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements, and other information concerning Iron Mountain can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. The Commission maintains a
site on the Internet's World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including Iron
Mountain on and after August 14, 1996. In addition, reports, proxy statements
and other information concerning Iron Mountain may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
Iron Mountain has filed with the Commission a registration statement on
Form S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the shares of Iron Mountain Common Stock issuable
in connection with the Merger. This Proxy Statement, which also constitutes the
Prospectus of Iron Mountain filed as part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information, reference is
hereby made to the Registration Statement, which is available for inspection
and copying as set forth above. Statements contained in this Proxy Statement as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete (though to the extent of the provisions referred
to herein, such statements are complete in all material respects), and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Iron Mountain with the
Commission (File No. 0-27584), are incorporated herein by reference: (i) Annual
Report on Form 10-K for the year ended December 31, 1996; (ii) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997; (iii) Current Reports on Form 8-K dated June 25, 1997 (as
amended on Form 8-K/A on August 26, 1997), October 1, 1997, October 16, 1997
(as amended on Form 8-K/A on November 10, 1997), October 30, 1997 and November
25, 1997; and (iv) Form 8-A Registration Statement dated January 18, 1996. In
addition, the financial information contained in Iron Mountain's Registration
Statement on Form S-4 (File No. 333-24635), filed with the Commission on April
4, 1997, as amended on May 7, 1997 and May 13, 1997, as made effective by the
Commission on May 14, 1997, is incorporated herein by reference. All documents
filed by Iron Mountain pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Proxy Statement and prior to the
date of the Arcus Stockholders Meetings and the Iron Mountain Stockholders
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement and to be a part hereof from the date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein (or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
Iron Mountain will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, upon written or oral request of such person,
by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any or all of the documents that are
incorporated by reference herein, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Iron Mountain Incorporated, 745 Atlantic Avenue,
Boston, Massachusetts 02111, Attention: John F. Kenny, Jr., Executive Vice
President and Chief Financial Officer. In order to ensure timely delivery of
such documents, any request should be made before December 22, 1997.
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information set forth elsewhere in
this Proxy Statement and its Annexes, all of which should be reviewed
carefully.
The Companies
Iron Mountain. Iron Mountain is America's largest records management
company, as measured by its revenues. Iron Mountain is a national, full-service
provider of records management and related services, enabling customers to
outsource records management functions. Iron Mountain has a diversified
customer base, which includes more than half of the Fortune 500 and numerous
commercial, legal, banking, healthcare, accounting, insurance, entertainment
and government organizations. Iron Mountain provides storage for all major
media, including paper (the dominant form of records storage), computer disks
and tapes, microfilm and microfiche, master audio and video tapes, film and
optical disks, X-rays and blueprints. Iron Mountain's principal services
provided to its storage customers include courier pick-up and delivery, filing,
retrieval and destruction of records, database management, customized reporting
and disaster recovery support. Iron Mountain also sells storage materials and
provides consulting, facilities management and other outsourcing services. As
of November 20, 1997, giving effect to the Merger, Iron Mountain managed over
50,000 customer accounts and operated 220 records management facilities in 52
markets. For the nine months ended September 30, 1997, giving pro forma effect
to Iron Mountain's acquisitions since January 1, 1996 ("Recent Acquisitions")
and to the Merger, Iron Mountain had revenues of $265.3 million and earnings
before interest, taxes, depreciation, amortization and extraordinary items
("EBITDA") of $65.4 million, after adjustments for certain anticipated cost
reductions from the integration of Iron Mountain's Recent Acquisitions and the
Merger.
The principal executive offices of Iron Mountain are located at 745
Atlantic Avenue, Boston, Massachusetts 02111. Its telephone number is (617)
357-4455.
The Arcus Entities. ATSI, together with its direct and indirect
subsidiaries (which, for purposes of the description of the business of ATSI,
shall be included in the defined term "ATSI") is, in management's belief, the
leading national provider of secure off-site computer data protection services
(the management of electronic records) and is a growing provider of information
technology ("IT") staffing services. ATSI has a diversified customer base,
including financial and educational institutions, law firms, accounting firms,
service organizations, retail businesses, manufacturing companies, governmental
entities and other organizations. ATSI has provided storage and rotation of
duplicate or back-up computer data for more than 25 years and has performed
over 100 disaster recoveries and 8,000 disaster recovery tests through a
network of 31 data protection facilities located throughout the United States
and one facility located in the United Kingdom. ATSI serves approximately 6,500
data protection accounts. In addition to regular storage and rotation of a
customer's data, in the event of a disaster, ATSI transports the duplicate data
to an alternative data processing location, often referred to as a "hot site."
Additionally, ATSI performs tape library relocation for its customers, provides
automated computer data backup and retrieval using telephone lines and the
Internet, sells data products to its customers and performs other services.
ATSI also provides temporary and permanent personnel for the computer
operations and technical development needs of its customers. Currently,
approximately 250 IT staffing customers are being served from 13 different
offices nationally. ATSI had revenue and EBITDA of $69.0 million and $11.0
million, respectively, for the nine months ended September 30, 1997 and, giving
pro forma effect to ATSI's 1997 acquisition, $74.6 million and $11.4 million,
respectively.
Currently, 81.3% of the outstanding ATSI Common Stock (without giving
effect to the ATSI Warrant and options to acquire shares of ATSI Common Stock)
is owned by UAC, which is a holding company with no activities other than the
ownership of (i) ATSI Common Stock, (ii) approximately $7.3 million in cash as
of September 30, 1997 and (iii) the Connected Stock; and 80% of the outstanding
UAC Common Stock (without giving effect to the Warrants and options to acquire
shares of UAC Common Stock) is owned by AGI, which is a holding company with no
activities other than the ownership of (i) UAC Common Stock, (ii) approximately
$4.0 million in cash as of September 30, 1997 and (iii) a 57% limited
partnership interest (the "Damson Interest") in Damson East Texas Partners,
L.P. ("Damson").
2
<PAGE>
Each of the Arcus Parties' principal office is located at 667 Madison
Avenue, 25th Floor, New York, New York 10021-8029, and the telephone number is
(212) 935-5678.
The Arcus Stockholders Meetings
Each of the Arcus Stockholders Meetings will be held at the offices of
Sullivan & Worcester LLP located at One Post Office Square, Boston,
Massachusetts 02109 on January 5, 1998, beginning at 10:00 a.m. local time.
The purpose of the UAC Stockholders Meeting is for holders of UAC Common
Stock and holders of UAC Preferred Stock to consider and vote upon the UAC
Proposals and, in the case of the UAC Preferred Stock, the UAC Warrant
Repurchases and the ATSI Reorganization Agreement. The purpose of the ATSI
Stockholders Meeting is for holders of ATSI Common Stock to consider and vote
upon the ATSI Proposal. The purpose of the AGI Stockholders Meeting is for
holders of AGI Common Stock to consider and vote upon the AGI Proposals. The
Arcus Parties do not expect their principal accountants for the present year
and the most recently completed fiscal year to be present at the Arcus
Stockholders Meetings and, therefore, they will not have the opportunity to
make a statement.
The close of business on November 20, 1997 will be the record date for the
determination of stockholders entitled to notice of, and to vote at, the UAC
Stockholders Meeting, the ATSI Stockholders Meeting and the AGI Stockholders
Meeting (the "Arcus Record Date"). Accordingly, each holder of record of UAC
Common Stock, UAC Preferred Stock, ATSI Common Stock or AGI Common Stock at the
close of business on the Arcus Record Date is entitled to one vote for each
share then held on each matter submitted to a vote of such stockholders. At the
Arcus Record Date, there were 1,000,001 shares of UAC Common Stock outstanding,
27,396 shares of UAC Preferred Stock outstanding, 3,325,229 shares of ATSI
Common Stock outstanding, and 11,426,525 shares of AGI Common Stock
outstanding. The presence in person or by proxy of a majority of the shares
entitled to vote as of the Arcus Record Date at each Arcus Stockholders Meeting
is required to constitute a quorum for the transaction of business at each such
meeting.
The UAC Proposals must be approved and adopted by holders of a majority of
the outstanding shares of UAC Common Stock and holders of 66-2/3% of the
outstanding shares of UAC Preferred Stock voting as separate classes. In
addition, the UAC Warrant Repurchases and the ATSI Reorganization Agreement
must be approved and adopted by holders of 66-2/3% of the outstanding shares of
UAC Preferred Stock. The ATSI Proposal must be approved and adopted by holders
of a majority of the outstanding shares of ATSI Common Stock. The AGI Proposals
must be approved and adopted by holders of a majority of the outstanding shares
of AGI Common Stock. Neither stockholders of UAC nor ATSI will be asked to
approve the Merger Agreement or the Merger, because such stockholders will not
be stockholders of record of AGI on the Arcus Record Date. Therefore,
stockholders of UAC or ATSI who oppose the Merger Agreement or the Merger
should vote against the UAC Proposals or ATSI Proposal, as applicable.
Pursuant to the terms of the Stockholders' Agreement, the Arcus Principal
Stockholders have agreed to vote their shares of stock of the Arcus Parties in
favor of the Arcus Proposals, including the Merger. As the Arcus Principal
Stockholders possess, directly or indirectly, approximately 72%, 99%, 96% and
81% of the voting power of the AGI Common Stock, the UAC Common Stock, the UAC
Preferred Stock and the ATSI Common Stock outstanding, respectively,
stockholder approval of the Arcus Proposals, including the Merger, is assured.
The Iron Mountain Stockholders Meeting
The Iron Mountain Stockholders Meeting will be held at the offices of
Sullivan & Worcester LLP located at One Post Office Square, Boston,
Massachusetts 02109 on January 5, 1998, beginning at 10:00 a.m. local time.
The purpose of the Iron Mountain Stockholders Meeting is to consider and vote
upon the Merger Agreement and the Iron Mountain Charter Amendments.
The record date for the Iron Mountain Stockholders Meeting is November 28,
1997 (the "Iron Mountain Record Date"). Accordingly, holders of record of Iron
Mountain Common Stock as of the Iron Mountain Record Date will be entitled to
notice of, and to vote at, the Iron Mountain Stockholders Meeting. The presence
in person or by proxy of a majority of shares entitled to vote as of the Iron
Mountain Record Date is required to constitute a quorum for the transaction of
business at the Iron Mountain Stockholders Meeting. The Merger Agreement must
be approved and adopted by holders of a majority of the outstanding shares of
Iron Mountain Common Stock entitled to vote at the Iron Mountain Stockholders
Meeting and each Iron Mountain Charter Amendment must be approved and adopted
by holders
3
<PAGE>
of 66-2/3% of the outstanding shares of Iron Mountain Common Stock. The
additional shares of Iron Mountain Common Stock and Iron Mountain Preferred
Stock to be authorized pursuant to the Iron Mountain Charter Amendments are not
necessary to consummate the Merger. Accordingly, approval of the Iron Mountain
Charter Amendments is not a condition to the Merger. Pursuant to the terms of
the Iron Mountain Voting Agreement, the Iron Mountain Principal Stockholders
have agreed to vote their shares of Iron Mountain Common Stock, representing
approximately 36.0% of the Iron Mountain Common Stock outstanding, in favor of
the Merger. See "Ancillary Agreements--Iron Mountain Voting Agreement." Iron
Mountain does not expect their principal accountants for the present year and
the most recently completed fiscal year to be present at the Iron Mountain
Stockholders Meeting and, therefore, they will not have the opportunity to make
a statement.
The Reorganizations and the Other Arcus Proposals
General. Subject to the approval of the Arcus Proposals and of the Merger
Agreement by Iron Mountain's stockholders and to the terms and conditions of
the Merger Agreement, the Reorganization Agreements and related ancillary
documents, the following actions will take place immediately prior to the
Effective Time. The Reorganizations and the transactions contemplated thereby
(including, without limitation, the Iron Mountain Warrant Purchase, the UAC
Warrant Repurchases, the UAC Charter Amendments and the AGI Charter Amendments)
are conditioned upon a contemporaneous closing of the Merger, and the Merger is
conditioned on the Reorganizations and such other transactions being
consummated immediately prior to the Effective Time. Accordingly, none of the
Reorganizations, the transactions contemplated thereby or the Merger will be
consummated unless all such transactions are consummated.
As the first element of the transactions contemplated by the
Reorganizations, Iron Mountain will consummate the Iron Mountain Warrant
Purchase. See "The Reorganizations and Other Arcus Proposals--Iron Mountain
Warrant Purchase." Following the Iron Mountain Warrant Purchase (and after the
UAC Charter Amendments), UAC will consummate the UAC Warrant Repurchases.
UAC and AGI will effectuate the UAC Charter Amendments and AGI Charter
Amendments, respectively, in order to facilitate the Reorganizations and the
Merger. Pursuant to the UAC Reorganization Agreement, UAC will be merged with
and into AGI, with AGI continuing as the surviving corporation. As result of
the UAC Reorganization, the separate corporate existence of UAC will cease.
Subject to the terms and conditions of the Merger Agreement and the UAC
Reorganization Agreement, the closing of the transactions contemplated thereby
will take place as promptly as practicable (and in any event within five days)
after the date on which the last of the conditions set forth in the Merger
Agreement is fulfilled or waived, other than conditions requiring deliveries at
the closing, unless another date is agreed to by Iron Mountain and AGI. The UAC
Reorganization will become effective on the date and at the time when the UAC
Reorganization Agreement is made effective in accordance with applicable law
(the "UAC Effective Time").
Immediately after giving effect to the UAC Proposals (including the UAC
Reorganization) and the UAC Warrant Repurchases, ATSI will be merged with and
into AGI, with AGI continuing as the surviving corporation. As a result of the
ATSI Reorganization, the separate corporate existence of ATSI will cease.
Subject to the terms and conditions of the Merger Agreement and the ATSI
Reorganization Agreement, the closing of the transactions contemplated thereby
will take place immediately following the UAC Effective Time. The ATSI
Reorganization will become effective on the date and at the time when the ATSI
Reorganization Agreement is made effective in accordance with applicable law
(the "ATSI Effective Time").
Finally, after giving effect to the UAC Proposals and ATSI Proposal
(including the Reorganizations), AGI will distribute the Damson Interest (the
"Damson Distribution"), valued by AGI at its fair value (the "Damson Value"),
to the holders of AGI Preferred Stock on a pro rata basis, subject to certain
consents under the Damson partnership agreement. As a result of the Damson
Distribution, the aggregate liquidation preference of the AGI Preferred Stock
will be reduced by an amount equal to the Damson Value. In lieu of effecting
the Damson Distribution, AGI may sell the Damson Interest to a third party
prior to the Effective Time, in which case the consideration paid to AGI will
be applied in the Reorganizations, as described under "The Reorganizations and
the Other Arcus Proposals," or may contribute the Damson Interest to a trust or
other special purpose entity for the benefit of the holders of AGI Common Stock
(prior to giving effect to the Reorganizations), to be held pending disposition
of such Damson Interest.
Conversion of UAC Stock. Upon consummation of the UAC Reorganization,
after giving effect to the UAC Warrant Repurchases, (i) each share of AGI
Common Stock issued and outstanding immediately prior to the UAC
4
<PAGE>
Effective Time (other than Dissenting Shares) shall continue to remain
outstanding, (ii) each share of UAC Preferred Stock issued and outstanding
immediately prior to the UAC Effective Time (other than Dissenting Shares) will
be converted automatically into one share of AGI Preferred Stock with the same
rights, preferences and privileges as applicable to UAC Preferred Stock after
giving effect to the UAC Charter Amendments and the AGI Charter Amendments and
(iii) each share of UAC Common Stock issued and outstanding immediately prior
to the UAC Effective Time (other than shares owned of record by AGI, which
shall be canceled, and other than Dissenting Shares) will be converted
automatically into the UAC Common Conversion Number of shares of AGI Common
Stock in accordance with the following conversion formula:
<TABLE>
<S> <C>
"UAC Common Conversion Number" equals: UAC Equity Value Per Share
----------------------------------------
AGI Equity Value Per Share
Related Definitions:
"Determination Time" equals: the time on the Closing Date immediately prior to the Iron
Mountain Warrant Purchase, the UAC Warrant
Repurchases and the Reorganizations
"Total UAC Equity Value" equals: the total common equity value of UAC at the Determination
Time as determined in good faith by UAC based on (i) the
Total ATSI Equity Value, (ii) the number of fully diluted
shares of ATSI Common Stock outstanding as of the
Determination Time (assuming the exercise of all warrants
and options to acquire shares of ATSI Common Stock) and
the number of such shares held by UAC, (iii) cash and cash
equivalents held by UAC (assuming the deemed exercise of
all outstanding Warrants and options to acquire shares of
UAC Common Stock), (iv) the value of the Connected Stock
as of the Determination Time, and (v) the UAC Preferred
Equity Value as of the Determination Time (but after giving
effect to the Liquidation Preference Amendment)
"UAC Equity Value Per Share" equals: the quotient obtained by dividing (a) the Total UAC Equity
Value by (b) the sum of (i) the total number of shares of UAC
Common Stock issued and outstanding at the Determination
Time, plus (ii) the total number of shares of UAC Common
Stock which, at the Determination Time, may be issued
pursuant to options to purchase or otherwise acquire shares
of UAC Common Stock, whether or not such options are
immediately exercisable, plus (iii) the total number of shares
of UAC Common Stock which, at the Determination Time,
may be issued pursuant to the Warrants, whether or not the
Warrants are immediately exercisable
"AGI Equity Value Per Share" equals: the quotient obtained by dividing (a) the total common equity
value of AGI at the Determination Time as determined in
good faith by AGI based on (i) the Total UAC Equity Value,
(ii) the number of fully diluted shares of UAC Common
Stock as of the Determination Time (assuming the exercise
of the Warrants and outstanding options to acquire shares of
UAC Common Stock) and the number of such shares held
by AGI, (iii) the cash and cash equivalents of AGI and (iv)
the Damson Value as of the Determination Time by (b) the
total number of shares of AGI Common Stock issued and
outstanding as of the Determination Time
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
"UAC Preferred Equity Value" equals: the aggregate liquidation preference, as of any time of
determination, of the UAC Preferred Stock, calculated in
accordance with the UAC Articles
</TABLE>
The following table gives examples calculating the number of shares of AGI
Common Stock that would be received by holders of shares of UAC Common Stock,
at different, hypothetical values for the UAC Equity Value Per Share and the
AGI Equity Value Per Share assuming items (i) and (iv) of the Baseline
Assumptions and that the number of shares of UAC Common Stock equals 1,000,001,
the number of shares of UAC Preferred Stock, giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997,
equals 27,623, the number of shares of AGI Common Stock equals 11,426,525, and
the number of shares of ATSI Common Stock equals 3,325,229 (in each case, the
outstanding shares as of November 20, 1997, before giving effect to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases and the UAC
Reorganization).
<TABLE>
<CAPTION>
UAC Common
Assumed Conversion Number
Number of Shares (shares of AGI Common
of UAC Common Stock Assumed Assumed Stock to which
held by a hypothetical UAC Equity AGI Equity hypothetical stockholder
stockholder Value Per Share Value Per Share would be entitled)
- ------------------------ ----------------- ----------------- -------------------------
<S> <C> <C> <C>
81 $32.02 $2.61 993.72
10,000 $32.02 $2.61 122,681.99
800,000 $32.02 $2.61 9,814,559.38
81 $33.70 $2.73 1,000.00
10,000 $33.70 $2.73 123,443.22
800,000 $33.70 $2.73 9,875,457.87
81 $35.39 $2.85 1,005.82
10,000 $35.39 $2.85 124,175.44
800,000 $35.39 $2.85 9,934,035.09
</TABLE>
Conversion of ATSI Common Stock. Upon consummation of the ATSI
Reorganization, each share of AGI Common Stock and AGI Preferred Stock issued
and outstanding immediately prior to the ATSI Effective Time (other than, as to
AGI Common Stock outstanding prior to the UAC Effective Time, Dissenting
Shares) shall continue to remain outstanding, and each share of ATSI Common
Stock issued and outstanding immediately prior to the ATSI Effective Time
(other than shares owned of record by AGI (as successor by merger to UAC),
which shall be canceled, and other than Dissenting Shares) will be converted
automatically into the ATSI Common Conversion Number of shares of AGI Common
Stock in accordance with the following conversion formula:
<TABLE>
<S> <C>
"ATSI Common Conversion Number" equals: ATSI Equity Value Per Share
----------------------------------------
AGI Equity Value Per Share
Related Definitions:
"Determination Time" equals: the time on the Closing Date immediately prior to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases
and the Reorganizations
"Total ATSI Equity Value" equals: the total common equity value of ATSI at the Determination
Time as determined in good faith by ATSI based on the (i)
Total Consideration to be paid by Iron Mountain in the
Merger, and (ii) the Net Indebtedness as of the Determination
Time (excluding cash and cash equivalents held by AGI and
UAC, but assuming the deemed exercise of all outstanding
warrants and options to acquire shares of ATSI Common
Stock) as of the Determination Time
"ATSI Equity Value Per Share" equals: the quotient obtained by dividing (a) the Total ATSI Equity
Value by (b) the sum of (i) the total number of shares of ATSI
Common Stock issued and outstanding at the Determination
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Time, plus (ii) the total number of shares of ATSI Common
Stock which, as of the Determination Time, may be issued
pursuant to options to purchase or otherwise acquire shares
of ATSI Common Stock, whether or not such options are
vested or immediately exercisable, plus (iii) the total
number of shares of ATSI Common Stock which, as of the
Determination Time, may be issued pursuant to warrants to
purchase or otherwise acquire shares of ATSI Common
Stock, whether or not such warrants are immediately
exercisable
"AGI Equity Value Per Share" equals: the quotient obtained by dividing (a) the total common equity
value of AGI at the Determination Time as determined in good
faith by AGI based on (i) the Total UAC Equity Value, (ii) the
number of fully diluted shares of UAC Common Stock as of
the Determination Time (assuming the exercise of the
Warrants and outstanding options to acquire shares of UAC
Common Stock) and the number of such shares held by AGI,
(iii) the cash and cash equivalents of AGI and (iv) the Damson
Value as of the Determination Time by (b) the total number
of shares of AGI Common Stock issued and outstanding as of
the Determination Time
</TABLE>
The following table gives examples calculating the number of shares of AGI
Common Stock that would be received by holders of shares of ATSI Common Stock,
at different, hypothetical values for the ATSI Equity Value Per Share and the
AGI Equity Value Per Share assuming items (i) and (iv) of the Baseline
Assumptions and that the number of shares of UAC Common Stock equals 1,000,001,
the number of shares of UAC Preferred Stock, giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997,
equals 27,623, the number of shares of ATSI Common Stock equals 3,325,229 and
the number of shares of AGI Common Stock equals 11,426,525 (in each case, the
outstanding shares as of November 20, 1997 before giving effect to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases and the UAC
Reorganization).
<TABLE>
<CAPTION>
ATSI Common
Assumed Conversion Number
Number of Shares (shares of AGI Common
of ATSI Common Stock Assumed Assumed Stock to which
held by a hypothetical ATSI Equity AGI Equity hypothetical stockholder
stockholder Value Per Share Value Per Share would be entitled)
- ------------------------ ----------------- ----------------- -------------------------
<S> <C> <C> <C>
86 $30.15 $2.62 989.66
80,000 $30.15 $2.62 920,610.69
2,000,000 $30.15 $2.62 23,015,267.18
86 $31.74 $2.73 1,000.00
80,000 $31.74 $2.73 930,109.89
2,000,000 $31.74 $2.73 23,252,747.26
86 $33.33 $2.84 1,009.29
80,000 $33.33 $2.84 938,873.24
2,000,000 $33.33 $2.84 23,471,830.98
</TABLE>
Delivery of Certificates; Letter of Transmittal. Detailed instructions
with regard to the surrender of stock certificates, together with a letter of
transmittal, will be forwarded to stockholders of the Arcus Parties by the
Exchange Agent promptly following the Effective Date. Stockholders should not
submit their certificates to Iron Mountain, the Arcus Parties or the Exchange
Agent until they have received such materials. STOCKHOLDERS SHOULD NOT SEND ANY
SHARE CERTIFICATES AT THIS TIME.
7
<PAGE>
Treatment of Options and Warrants in the Reorganizations. Each option
security to acquire shares of UAC Common Stock granted under the UAC 1995 Stock
Option Plan (the "UAC Stock Option Plan") that is outstanding at the UAC
Effective Time ("UAC Plan Options") will automatically be converted into an
option to purchase the UAC Option Conversion Number of shares of AGI Common
Stock at the UAC Option Conversion Price and otherwise on the same terms and
conditions as set forth in the UAC Stock Option Plan (as the same may be
amended in accordance with the request of Iron Mountain, as more fully set
forth below under "The Merger Agreement--Treatment of Options and Warrants").
At the UAC Effective Time, AGI will assume all obligations of UAC under the UAC
Stock Option Plan with respect to the UAC Plan Options or portions thereof
granted pursuant to the UAC Stock Option Plan. The "UAC Option Conversion
Number" equals (a) the UAC Equity Value Per Share multiplied by the total
number of shares for which the option in question may be exercised at the UAC
Effective Time (whether or not such option is immediately exercisable) divided
by (b) the AGI Equity Value Per Share. The "UAC Option Conversion Price" equals
(i) the per share price for which the option in question may be exercised at
the UAC Effective Time (whether or not such option is immediately exercisable)
multiplied by the AGI Equity Value Per Share divided by (ii) the UAC Equity
Value Per Share.
Each option security to acquire shares of ATSI Common Stock granted under
the UAC Holdings Corporation (now known as ATSI) 1995 Stock Option Plan (the
"ATSI Stock Option Plan") that is outstanding at the ATSI Effective Time ("ATSI
Plan Options") will automatically be converted into an option to purchase the
ATSI Option Conversion Number of shares of AGI Common Stock at the ATSI Option
Conversion Price and otherwise on the same terms and conditions as set forth in
the ATSI Stock Option Plan (as the same may be amended in accordance with the
request of Iron Mountain, as more fully set forth below under "The Merger
Agreement--Treatment of Options and Warrants"). At the ATSI Effective Time, AGI
will assume all obligations of ATSI under the ATSI Stock Option Plan with
respect to ATSI Plan Options or portions thereof granted pursuant to the ATSI
Stock Option Plan. The "ATSI Option Conversion Number" equals (a) the ATSI
Equity Value Per Share multiplied by the total number of shares for which the
option in question may be exercised at the ATSI Effective Time (whether or not
such option is vested and whether or not such option is immediately
exercisable) divided by (b) the AGI Equity Value Per Share. The "ATSI Option
Conversion Price" equals (i) the per share price for which the option in
question may be exercised as of the ATSI Effective Time (whether or not such
option is vested and whether or not such option is immediately exercisable)
multiplied by the AGI Equity Value Per Share divided by (ii) the ATSI Equity
Value Per Share.
Each Warrant to purchase shares of UAC Common Stock that is outstanding at
the UAC Effective Time shall be converted into and become a warrant to purchase
the UAC Warrant Conversion Number of shares of AGI Common Stock at the UAC
Warrant Conversion Price and otherwise upon the same terms and subject to the
same conditions as set forth in the agreement pursuant to which the Warrant in
question was issued. At the UAC Effective Time, AGI will assume all obligations
of UAC under the agreements pursuant to which any outstanding Warrants were
issued. The "UAC Warrant Conversion Number" equals (a) the UAC Equity Value Per
Share multiplied by the total number of shares for which the Warrant in
question may be exercised (whether or not such Warrant is immediately
exercisable) divided by (b) the AGI Equity Value Per Share. The "UAC Warrant
Conversion Price" equals the per share price for which the Warrant in question
may be exercised at the UAC Effective Time (whether or not such Warrant is
immediately exercisable) multiplied by the AGI Equity Value Per Share, divided
by the UAC Equity Value Per Share.
Each warrant to purchase shares of ATSI Common Stock that is outstanding
at the ATSI Effective Time shall be converted into and become a warrant to
purchase the ATSI Warrant Conversion Number of shares of AGI Common Stock at
the ATSI Warrant Conversion Price and otherwise upon the same terms and subject
to the same conditions set forth in the agreement pursuant to which the warrant
in question was issued. At the ATSI Effective Time, AGI will assume all
obligations of ATSI under the agreements pursuant to which any outstanding ATSI
warrants were issued. The "ATSI Warrant Conversion Number" equals (a) the ATSI
Equity Value Per Share less the exercise price of such warrant multiplied by
(b) the total number of shares for which the warrant in question may be
exercised (whether or not such warrant is immediately exercisable) divided by
(c) the AGI Equity Value Per Share. The "ATSI Warrant Conversion Price" equals
one hundredth of one cent ($0.0001) per underlying share of AGI Common Stock.
8
<PAGE>
The Merger
General. At the Effective Time, after giving effect to the Reorganizations
and the Damson Distribution, AGI will be merged with and into Iron Mountain,
with Iron Mountain continuing as the surviving corporation (the "Surviving
Corporation"). As a result of the Merger, the separate corporate existence of
AGI will cease. Subject to the terms and conditions of the Merger Agreement,
the closing of the transactions contemplated thereby will take place as
promptly as practicable (and in any event within five days) after the date on
which the last of the conditions set forth in the Merger Agreement is fulfilled
or waived, other than conditions requiring deliveries at the closing, unless
another date is agreed to by Iron Mountain and AGI. The Merger will become
effective at the Effective Time, which will be the time at which a certificate
of merger (the "Certificate of Merger") is filed with the Secretary of State of
the State of Delaware, or such time thereafter as is provided in the
Certificate of Merger, but in no event more than 90 days after the filing of
the Certificate of Merger.
Conversion of AGI Stock. Upon consummation of the Merger, each share of
AGI Common Stock and AGI Preferred Stock issued and outstanding immediately
prior to the Effective Time (including, without limitation, each such share
issued as a result of the Reorganizations) will be converted into the right to
receive, subject to certain indemnification and expense provisions in the
Merger Agreement and other potential adjustments as described below, shares of
Iron Mountain Common Stock and cash in accordance with the following conversion
formulas:
<TABLE>
<S> <C>
Formulas:
Common Stock Amount
"Common Stock Conversion Number" equals: ----------------------------------------
Fully Diluted Common Shares
Preferred Stock Amount
"Preferred Stock Conversion Number" equals: ----------------------------------------
Fully Diluted Preferred Shares
Common Cash Amount
"Common Cash Conversion Number" equals: ----------------------------------------
Fully Diluted Common Shares
Preferred Cash Amount
"Preferred Cash Conversion Number" equals: ----------------------------------------
Fully Diluted Preferred Shares
Related Definitions:
"Common Cash Amount" equals: Fully Diluted Common Equity Value times 58%
"Common Equity Value" equals: Total Equity Consideration minus Preferred Equity Value
Fully Diluted Common Equity Value times 42%
"Common Stock Amount" equals: ----------------------------------------
Determination Price
"Determination Price" equals: the average closing price per share of Iron Mountain Common
Stock for the period of 20 trading days ending on the third
trading day prior to (and not including) the Closing Date;
provided, however, that if the average closing price per share
for such period is less than $29.00, the Determination Price shall
be $29.00, and if the average closing price per share for such
period is greater than $36.00, the Determination Price shall be
$36.00. The Determination Price calculated using the above-
described formula for the 20-trading day period ending on
November 20, 1997 was $36.00 (the actual average closing
price per share for such period was $37.82)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
"Fully Diluted Common Equity Value" equals: the sum of (i) the Common Equity Value, (ii) the aggregate
exercise price of all option securities to acquire shares of AGI
Common Stock (whether vested or unvested) as of the Effective
Time, and (iii) the aggregate exercise price of all warrants which
are outstanding as of the Effective Time
"Fully Diluted Common Shares" equals: the sum of (i) the number of shares of AGI Common Stock
issued and outstanding immediately prior to the Merger after
giving effect to the Arcus Proposals, including the
Reorganizations, (ii) the number of shares of AGI Common
Stock which would have been issued as a result of the
Reorganizations or remained outstanding in respect of any
Dissenting Shares, (iii) the number of shares of AGI
Common Stock which may be issued pursuant to option
securities (whether vested or unvested) outstanding as of the
Effective Time after giving effect to the Reorganizations, and
(iv) the number of shares of AGI Common Stock which may
be issued pursuant to warrants to purchase AGI Common
Stock which are outstanding as of the Effective Time after
giving effect to the Reorganizations
"Fully Diluted Preferred Shares" equals: the sum of (i) the number of shares of AGI Preferred Stock
issued and outstanding immediately prior to the Merger after
giving effect to the Arcus Proposals, including the
Reorganizations and (ii) the number of shares of AGI
Preferred Stock which would have been issued as a result of
the UAC Reorganization in respect of any holder of UAC
Preferred Stock that exercised appraisal rights
"Net Indebtedness" equals: the difference of (A) the sum of (a) any Net Working Capital
Deficit, (b) all obligations, contingent or otherwise, (i) in respect
of borrowed money, notes or similar interests, (ii) under leases
which are capitalized on the consolidated balance sheet of the
Arcus Entities, (iii) in respect of the deferred purchase price of
property (excluding certain amounts payable in connection with
a past acquisition) and (iv) in respect of any deferred
compensation plan or arrangement (other than any 401(k) plan)
and all guarantees, endorsements and other contingent
obligations of the type referred to in this clause (b) of others,
(c) the aggregate full amount of all installment sales amounts,
contingent payments or "earnouts" that an Arcus Entity may be
required to pay under any agreement pursuant to which such
Arcus Entity acquired the outstanding capital stock or assets of
another person (other than certain delineated contingent
payments in connection with certain past acquisitions), and
(d) accrued interest to the date of the Merger in respect of
indebtedness of the Arcus Entities and all fees, expenses and
other amounts (including so-called "breakage" amounts) due in
connection with the prepayment in full of such indebtedness
which will be prepaid at Closing, minus (B) (i) cash and cash
equivalents, (ii) certain amounts owing to the Arcus Entities in
an amount not to exceed $176,000 and (iii) obligations under
performance bonds and reimbursement obligations under
letters of credit
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
"Net Working Capital" equals: the sum of accounts receivable (less allowance for doubtful
accounts), inventory and prepaid expenses and other current
assets (excluding cash, notes receivable and deferred income
taxes) of ATSI, minus the sum of deferred revenue, state
income taxes payable, accounts payable, accrued payroll and
other accrued liabilities (including reserves but excluding
amounts due to parent, deferred compensation and liabilities
related to debt, including, without limitation, accrued
interest) of ATSI; provided, however, that (a) any effect on
Net Working Capital resulting from the exercise of any
option securities between June 30, 1997 and the Effective
Time will be excluded from the calculation thereof and (b)
expenses of the Arcus Parties in respect of the transactions
contemplated by the Reorganization Agreements and the
Merger Agreement will not be included in calculating Net
Working Capital
"Net Working Capital Deficit" equals: the excess, if any, of (x) Net Working Capital as derived from
ATSI's financial statements at June 30, 1997 (which amount
equals $4,986,429), over (y) Net Working Capital
immediately prior to the ATSI Reorganization
"Preferred Cash Amount" equals: Preferred Equity Value times 5%
"Preferred Equity Value" equals: the aggregate liquidation preference of AGI Preferred Stock,
calculated in accordance with the Amended and Restated
Certificate of Incorporation of AGI (including in respect of
shares of UAC Preferred Stock which are Dissenting Shares and after
giving effect to the Liquidation Preference Amendment)
"Preferred Stock Amount" equals: Preferred Equity Value times 95%
----------------------------------------
Determination Price
"Total Consideration" equals: $160 million
"Total Equity Consideration" equals: Total Consideration minus Net Indebtedness
</TABLE>
The following tables give examples calculating the Merger consideration at
the floor and the ceiling of the Determination Price, assuming (i) the Baseline
Assumptions (other than the Determination Price equaling $36.00) and (ii) that
the number of shares of AGI Common Stock outstanding equals 21.2 million and
the number of shares of AGI Preferred Stock outstanding equals 27,623 (the
number estimated to be outstanding (after giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997) on
December 31, 1997) (in each case giving effect to the Arcus Proposals, other
than the Merger, as if they had been consummated on November 20, 1997 and based
on the number of shares of AGI Common Stock, UAC Common Stock, UAC Preferred
Stock and ATSI Common Stock and options and warrants to acquire shares of UAC
Common Stock and ATSI Common Stock outstanding on November 20, 1997). For each
Determination Price listed, the tables illustrate the Common Stock Conversion
Number, the Common Cash Conversion Number, the Preferred Stock Conversion
Number and the Preferred Cash Conversion Number. For purposes of illustration,
if the Net Indebtedness were reduced by $1.0 million, the Common Stock
Conversion Number would be .0398 and .0321 at the Determination Prices of
$29.00 and $36.00, respectively, the Common Cash Conversion Number would be
$1.59 and the Preferred Stock Conversion Number and Preferred Cash Conversion
Number would not change.
11
<PAGE>
AGI Common Stock:
<TABLE>
<CAPTION>
Cash and Shares of Iron
Common Stock Conversion Mountain Common Stock to
Number (shares of Iron be received by Hypothetical
Mountain Common Stock Common Cash Conversion Stockholder owning 1,000
Determination per share of Number (cash per share of shares of
Price AGI Common Stock) AGI Common Stock) AGI Common Stock
- --------------- ------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
$29.00 .0396 $1.58 $1,597.40 cash (including
$17.40 in lieu of a
fractional share)
39 shares
$36.00 .0319 $1.58 $1,612.40 cash (including
$32.40 in lieu of a
fractional share)
31 shares
</TABLE>
AGI Preferred Stock:
<TABLE>
<CAPTION>
Cash and Shares of Iron
Preferred Stock Conversion Mountain Common Stock to
Number (shares of Iron be received by Hypothetical
Mountain Common Stock Preferred Cash Conversion Stockholder owning
Determination per share of AGI Number (cash per share of 1,000 shares of
Price Preferred Stock) AGI Preferred Stock) AGI Preferred Stock
- --------------- ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
$29.00 31.9745 $48.80 $48,814.50 cash (including
$14.50 in lieu of a
fractional share)
31,974 shares
$36.00 25.7572 $48.80 $48,807.20 cash (including
$7.20 in lieu of a
fractional share)
25,757 shares
</TABLE>
Based on the foregoing assumptions and based on the assumption that the
Determination Price is $36.00 and the market value per share of Iron Mountain
Common Stock at the Effective Time is $36.00 (before considering the impact of
the restrictions on transfer of the Iron Mountain Common Stock to be issued in
the Merger), (i) the value of the shares of Iron Mountain Common Stock to be
received by an AGI stockholder, after giving effect to the Reorganizations and
other Arcus Proposals, in respect of each share of AGI Common Stock held by
such stockholder will equal approximately $1.15 and (ii) the value of the
shares of Iron Mountain Common Stock to be received by an AGI stockholder in
respect of each share of AGI Preferred Stock held by such stockholder will
equal approximately $927.27. To the extent the market price at the Effective
Time is greater or less than the Determination Price, then the value of the
shares of Iron Mountain Common Stock to be received by the AGI stockholders
would be greater than or less than $1.15 or $927.27, as the case may be
(without giving effect to the impact of the restrictions on transfer of shares
of Iron Mountain Common Stock to be issued in the Merger). On November 20,
1997, the closing sales price per share of the Iron Mountain Common Stock, as
reported on The Nasdaq National Market System, was $38.25 and the Determination
Price calculated as of such date was $36.00 (the actual average closing price
per share for such period was $37.82). Thus, if the Merger had closed on
November 20, 1997, the value of the shares of Iron Mountain Common Stock
received (without giving effect to the impact of the restrictions on transfer
of shares of Iron Mountain Common Stock to be issued in the Merger) would have
been approximately $1.22 per share of AGI Common Stock and $985 per share of
AGI Preferred Stock. See "Risk Factors--Risk Factors Related to the Arcus
Proposals, Including the Merger." Assuming the Baseline Assumptions, Iron
Mountain will deliver an aggregate of $64.2 million in cash and 1.4 million
shares of Iron Mountain Common Stock in the Merger and the Iron Mountain
Warrant Purchase to holders of AGI Common Stock and AGI Preferred Stock and
Selling Warrantholders (after giving effect to the Arcus Proposals).
12
<PAGE>
Expense Fund. The parties have agreed, and by adopting and approving the
applicable Reorganization Agreement and, in the case of AGI, the Merger
Agreement, the stockholders of the Arcus Parties will agree, and by executing a
Warrant Purchase Agreement, the Selling Warrantholders have agreed or will
agree, that cash in an amount equal to $750,000 will be withheld from the
aggregate cash Merger consideration payable to holders of AGI Common Stock and
the aggregate Warrant Purchase Price and deposited into the Expense Fund in
order for the Stockholder Representative, on behalf of former holders of AGI
Common Stock and former holders of Eligible Warrants, to have funds available
to pay certain expenses (i) incurred by the Arcus Parties in connection with
the Merger Agreement and the transactions contemplated thereby which have not
been paid at or prior to closing and (ii) incurred by the Stockholder
Representative in connection with the Merger Agreement and the Escrow
Agreement. (It is currently expected that approximately $3.1 million,
comprising the balance of the Expenses to be incurred by the Arcus Parties in
connection with the Merger, will be funded through an increase in Net
Indebtedness immediately prior to the Effective Time resulting in a reduction
in Total ATSI Equity Value and, therefore, Total UAC Equity Value and Total AGI
Equity Value. Approximately 21% of such balance will be borne by the holders of
UAC Preferred Stock by way of a reduction in the liquidation preference of such
UAC Preferred Stock in connection with the adoption of the Liquidation
Preference Amendment.) The aggregate amount to be withheld from the cash Merger
consideration payable to former holders of AGI Common Stock will be equal to
$750,000 times a fraction, the numerator of which is the value (calculated
based on the Determination Price) of the Exchange Common Consideration and the
denominator of which is the Total Primary Equity Base. The aggregate amount to
be withheld from the cash purchase price payable to former holders of Eligible
Warrants pursuant to the Warrant Purchase Agreements will be equal to $750,000
times a fraction the numerator of which shall equal the sum of (i) the
aggregate Warrant Purchase Price and (ii) the value (calculated based on the
Determination Price) of the aggregate Exchange Preferred Consideration and the
denominator of which shall equal the Total Primary Equity Base.
Escrow Indemnity Funds and Combined Escrow Holdback Amount. On the Closing
Date, cash in an amount equal to $8.0 million will be withheld from the cash
Merger consideration payable to holders of AGI Common Stock (other than holders
of Dissenting Shares) and the aggregate Warrant Purchase Price payable to
Warrantholders (with respect to Eligible Warrants) and held in escrow to
indemnify Iron Mountain and hold Iron Mountain harmless from and against Merger
Agreement Claims. An amount up to an additional $300,000 may, under certain
circumstances, also be withheld from the cash Merger consideration payable to
holders of AGI Common Stock and the aggregate Warrant Purchase Price payable to
Selling Warrantholders to have funds available in connection with the Merger
Agreement for disbursement to Iron Mountain in the event that the final
calculation of Net Indebtedness as of the Effective Time (the "Final Net
Indebtedness") is greater than AGI's good faith estimate made three days prior
to the Closing Date of Net Indebtedness as of the Effective Time (the "AGI
Initial Indebtedness Calculation"). The "Warrant Purchase Price" equals the
product of (i) the number of shares of UAC Common Stock subject to such Warrant
and (ii) the difference between the UAC Equity Value Per Share and the exercise
price per share of UAC Common Stock applicable to such Warrant. See "The Merger
Agreement--Indemnification."
Potential Additional Consideration. In the event that on or prior to
December 31, 1999, (i) one or more holders of Exchange Options ceases to be
employed by Iron Mountain or any of its subsidiaries (whether by reason of
death, disability, a termination by Iron Mountain or otherwise) (collectively,
a "Termination") and (ii) Iron Mountain has not duly and irrevocably provided,
within sixty days following the date of Termination, for the immediate vesting
of all of such Exchange Options, then prior to March 1, 2000 Iron Mountain will
deliver cash or immediately saleable shares of Iron Mountain Common Stock (or a
combination thereof, at the election of Iron Mountain) to the Stockholder
Representative for the benefit of each former holder of AGI Common Stock (after
giving effect to the Reorganizations), each former holder of a Warrant sold
pursuant to a Warrant Purchase Agreement and each holder of an option security
that received Exchange Options, other than any such holder of an option
security who, following the Effective Time and on or prior to December 31,
1999, was terminated by Iron Mountain and for whom Iron Mountain shall not have
provided, within sixty days following the date of Termination, for the
immediate vesting of all such options. The amounts, if any, to be paid to each
such holder shall be in proportion to the amount of consideration he or she
received at the Effective Time (as specified in Section 2.1(f) of the Merger
Agreement (a copy of which is attached as Annex I to this Proxy Statement)).
Potential Tax Adjustment. If the value of the sum of the aggregate Merger
consideration to be paid in Iron Mountain Common Stock, based on the closing
price of Iron Mountain Common Stock on the Nasdaq National Market
13
<PAGE>
System on the trading day immediately prior to the Closing Date, is less than
47% (the "Threshold Percentage") of the sum of the value of the aggregate
Merger consideration, based on such closing price, and the amount of cash and
the fair market value of assets distributed by the Arcus Entities to holders of
their capital stock on or after August 1, 1997, including the Damson Interest
and the Connected Stock (the "Total Tax Consideration"), then (i) the number of
shares of Iron Mountain Common Stock deliverable to holders of AGI Common Stock
and AGI Preferred Stock at the Effective Time will be increased such that sum
of the value of the aggregate consideration to be paid in Iron Mountain Common
Stock (based on such closing price and after giving effect to the decrease in
the cash consideration contemplated by this paragraph) equals the Threshold
Percentage of the Total Tax Consideration and (ii) the Merger consideration to
be paid in cash will be reduced by an amount equal to the product of (A) the
number of additional shares of Iron Mountain Common Stock and (B) the
Determination Price (calculated without giving effect to the floor price).
Based on the Baseline Assumptions and on the closing price of Iron Mountain
Common Stock as of November 20, 1997 of $38.25, the aggregate Merger
consideration to be paid in Iron Mountain Common Stock would have been
approximately 59.5% of the Total Tax Consideration.
Treatment of Options and Warrants in the Merger. Except as described
below, each option security to acquire shares of AGI Common Stock that is
outstanding at the Effective Time will automatically be converted into an
option (an "Exchange Option") to purchase Iron Mountain Common Stock, which
Exchange Option will (A) have an exercise price per share of Iron Mountain
Common Stock determined by dividing (x) the exercise price per share of the
applicable option security (after giving effect to the Arcus Proposals) by (y)
the quotient of the Share Price divided by the Determination Price, (B) entitle
the holder to purchase that number of shares of Iron Mountain Common Stock as
equals the product of (x) the number of shares subject to such option security
(after giving effect to the Arcus Proposals) and (y) the quotient of the Share
Price divided by the Determination Price and (C) have the same vesting schedule
as is currently included in such option security (except as required pursuant
to the provisions described below and except that there shall be immediate
vesting of any unvested portion thereof upon termination by the Surviving
Corporation or any of its subsidiaries of employment of the holder of such
Exchange Option (other than any termination for "cause" as defined in the
Merger Agreement). In lieu of issuing any option to acquire a fractional share
of Iron Mountain Common Stock, Iron Mountain will convert a holder's right to
receive an Exchange Option into a right to receive an option to acquire the
nearest whole number of shares of Iron Mountain Common Stock. Each option
security comprising a warrant that is outstanding at the Effective Time will
automatically be converted into a warrant to purchase Iron Mountain Common
Stock at a value equivalent to that set forth in such option security based
upon the formula set forth in the first sentence of this paragraph. The "Share
Price" equals the quotient of the Fully Diluted Common Equity Value divided by
the Fully Diluted Common Shares.
The Arcus Parties have agreed to take all action necessary (a) if
requested by Iron Mountain prior to the UAC Effective Time, to require the
exercise on the Designated Exercise Date (or, if a period is provided as the
Designated Exercise Date, then on or prior to the last date of such period), of
the Minimum Exercise Number of option securities comprising non-qualified stock
options of an Arcus Party, including if applicable, by accelerating the vesting
prior to the Effective Time of such option securities that would otherwise not
be vested as of the Effective Time (the "Option Exercise"), (b) if requested by
Iron Mountain prior to the UAC Effective Time, to provide that any such option
security which is not so exercised in connection with the Option Exercise will
terminate and be forfeited as of the close of business on such Designated
Exercise Date, (c) to accelerate, if the Arcus Parties so choose, in their sole
discretion, the vesting of any option security held by an employee whose
employment by an Arcus Party is terminated prior to the Effective Time, (d) to
amend, prior to the Effective Time, the option plans of UAC and ATSI as may be
reasonably requested by Iron Mountain not less than ten days prior to the
Closing Date, and (e) to cooperate with Iron Mountain to amend such plans and
any option security granted thereunder as the parties may reasonably agree so
as to minimize taxes payable in connection therewith. Iron Mountain is required
to reserve for issuance upon the exercise of Exchange Options the shares of
Iron Mountain Common Stock covered thereby, and, as of the Effective Time, will
have filed a registration statement on Form S-8 to register the shares of Iron
Mountain Common Stock subject to Exchange Options. A "Designated Exercise Date"
is the date (or period, as applicable) designated by Iron Mountain for the
exercise of the Minimum Exercise Number of option securities in a written
notice to the Arcus Parties. The "Minimum Exercise Number" equals the aggregate
number of option securities vested as of the Effective Time and option
securities that vest on or before June 30, 1998, or such other number as the
parties will reasonably agree not less than 30 days prior to the Closing Date
and in all events prior to the UAC Effective Time.
14
<PAGE>
The Iron Mountain Charter Amendments
The Iron Mountain Restated Certificate presently authorizes Iron Mountain
to issue 20,000,000 shares of Iron Mountain Common Stock and 2,000,000 shares
of Iron Mountain Preferred Stock. Giving effect to the number of shares of Iron
Mountain Common Stock currently outstanding, reserved for issuance upon the
exercise of options and to be issued in connection with the Merger, only
approximately 3.9 million shares of Iron Mountain Common Stock would remain
available for other corporate purposes. The Iron Mountain Board has unanimously
approved, and unanimously recommends that the stockholders of Iron Mountain
approve, proposals to amend the Iron Mountain Restated Certificate to increase
the number of shares of Iron Mountain Common Stock that Iron Mountain is
authorized to issue from 20,000,000 to 100,000,000 and to increase the number
of shares of Iron Mountain Preferred Stock that Iron Mountain is authorized to
issue from 2,000,000 to 10,000,000.
The purpose of the Iron Mountain Charter Amendments is to provide
sufficient authorized shares of Iron Mountain Common Stock and Iron Mountain
Preferred Stock to give the Iron Mountain Board the flexibility to issue Iron
Mountain Common Stock and Iron Mountain Preferred Stock in the future in
connection with acquisitions and other transactions that management believes
would provide the potential for growth and for other general corporate purposes
(including without limitation, in connection with any stock dividend the Iron
Mountain Board may declare). If additional shares are available, transactions
dependent upon the issuance of additional shares would be less likely to be
impeded or undermined by delays and uncertainties occasioned by the need to
obtain prior stockholder authorization. The ability to issue shares, as deemed
in Iron Mountain's best interests by the Iron Mountain Board, will also permit
Iron Mountain to avoid expenses incurred in holding special stockholders'
meetings in the future.
Iron Mountain Warrant Purchase
On the Closing Date, Iron Mountain will purchase from each Warrantholder
who has executed a Warrant Purchase Agreement each Warrant (other than those
Warrants subject to the UAC Warrant Repurchases) surrendered to the Exchange
Agent in accordance with the terms of the Warrant Purchase Agreements, in
exchange for cash in an amount equal to the Warrant Purchase Price (the "Iron
Mountain Warrant Purchase"), subject to the indemnification, expense and
adjustment provisions described herein. At least five business days prior to
the Closing Date, each Selling Warrantholder will surrender a Warrant or
Warrants to purchase all Warrant shares described on the signature pages of the
relevant Warrant Purchase Agreement or such lesser number of Warrants as such
Warrantholder shall or will hold after taking into account the UAC Warrant
Repurchases (the "Eligible Warrants"), together with an executed Form of
Assignment of Warrant, to the Exchange Agent, and on the Closing Date the
Eligible Warrants will automatically be transferred to Iron Mountain, and each
such Warrantholder will be entitled to receive the Warrant Purchase Price. Each
Warrantholder will, at and after the Closing Date, cease to have any rights
with respect to any Eligible Warrants surrendered and assigned except as
otherwise provided herein or by applicable law. It is anticipated that each
Warrantholder will enter into a Warrant Purchase Agreement with Iron Mountain
to sell his, her or its Warrants as described in this Proxy Statement.
Concurrently with execution of the Merger Agreement, three Arcus Principal
Stockholders beneficially holding in the aggregate approximately 96% of the
outstanding Warrants entered into a Warrant Purchase Agreement. The Arcus
Parties and Iron Mountain have agreed to use their best efforts to facilitate
the execution of a Warrant Purchase Agreement by each other Warrantholder. It
is not a condition to the closing of the Reorganizations or the Merger that
such other Warrantholders execute Warrant Purchase Agreements.
Restrictions on Transfer of Iron Mountain Common Stock
In order to protect the tax-free nature of the Merger, during the Transfer
Restriction Period, all of the shares of Iron Mountain Common Stock received in
the Merger (other than shares received in exchange for AGI Common Stock
received in connection the Option Exercise) will be subject to restrictions on
transfer set forth in the Amended and Restated By-Laws of Iron Mountain (the
"Iron Mountain By-Laws"), which will prohibit transfers, sales, assignments or
other dispositions of such Iron Mountain Common Stock by each such former AGI
stockholder. In order to implement such restriction, each certificate
representing shares of Iron Mountain Common Stock issued in the Merger and
subject to the transfer restrictions will bear a legend indicating that the
shares represented by such certificate are subject to such transfer
restrictions during the Transfer Restriction Period. Iron Mountain is in
15
<PAGE>
the process of obtaining appraisals of the Iron Mountain Common Stock received
in the Merger to determine how such restrictions impact the fair value of such
shares. For a full description of such transfer restrictions, see "The Merger
Agreement--Conversion of AGI Stock--Restrictions on Transfer of Iron Mountain
Common Stock."
Indemnification
Each Arcus Party has agreed, and by approving the applicable
Reorganization and, in the case of AGI, the Merger Agreement, each Arcus
Party's stockholders will agree, that cash in the aggregate amount of $8.0
million multiplied by a fraction, the numerator of which is the value
(calculated based on the Determination Price) of the aggregate Exchange Common
Consideration and the denominator of which is the Total Primary Equity Base
(such amount being equal to approximately $4.1 million in the aggregate and
$0.19 per share of AGI Common Stock, after giving effect to the Arcus
Proposals, other than the Merger, and assuming the Baseline Assumptions) will
be withheld from the cash Merger consideration payable to holders of AGI Common
Stock (other than holders of Dissenting Shares), and each Warrantholder who
holds Eligible Warrants has agreed, or by executing a Warrant Purchase
Agreement, will agree, that cash in the aggregate amount of the Warrant Escrow
Indemnity Contribution will be withheld from the aggregate Warrant Purchase
Price (such amount being equal to approximately $3.9 million, assuming the
Baseline Assumptions), and, subject to the limitation described below, held in
escrow to indemnify Iron Mountain and hold Iron Mountain harmless for a period
of 18 months following the Closing Date (or longer, if Unresolved Claims exist
at the end of such period) from and against all damages, claims, losses,
expenses, costs, obligations and liabilities suffered by Iron Mountain by
reason of any breach of the Arcus Parties' representations and warranties
contained in the Merger Agreement or failure of the Arcus Parties to perform or
fulfill any of their covenants or agreements set forth in the Merger Agreement,
any legal action or other claim by a third party relating to the Arcus Parties
to the extent such action or claim has resulted in a breach of a representation
or warranty by the Arcus Parties, the Final Net Indebtedness exceeding the AGI
Initial Indebtedness Calculation or the expenses of the Arcus Entities
exceeding the amount available therefor in the Expense Fund, or for several
specific items provided for in the schedules to the Merger Agreement (such
damages, claims, losses, expenses, costs, obligations and liabilities being
referred to as the "Merger Agreement Claims"). Iron Mountain may only recover
on a claim to the extent all losses and expenses for all Merger Agreement
Claims exceed, in the aggregate, $200,000. Anyone holding Dissenting Shares
will not contribute to the escrow amount or be subject to the indemnification
obligations. As a result of the Merger Agreement and the Warrant Purchase
Agreements, each stockholder of an Arcus Party and Warrantholder will
contribute to the Escrow Indemnity Funds in an amount proportionate to the
value (based, in the case of equity consideration, on the Determination Price)
of the consideration he, she or it receives in the Merger and pursuant to the
Warrant Purchase Agreements. "Total Primary Equity Base" means the sum of (a)
the value (calculated based on the Determination Price) of the aggregate
Exchange Common Consideration, (b) the aggregate Warrant Purchase Price and (c)
the value (calculated based on the Determination Price) of the aggregate
Exchange Preferred Consideration. An "Unresolved Claim" means any claim or
request made pursuant to the Merger Agreement against the Escrow Indemnity
Funds in accordance with the Merger Agreement, until such time as such claim or
request has been paid in full or otherwise fully settled, compromised or
adjusted by Iron Mountain, the Stockholder Representative and the Escrow Agent
or by a final decision of an arbitrator or arbitration panel appointed pursuant
to the Merger Agreement or a final order of a court of competent jurisdiction.
On the Closing Date, the Escrow Indemnity Funds will be withheld from the
cash portion of the Merger consideration otherwise payable to holders of AGI
Common Stock and from the aggregate Warrant Purchase Price payable to the
Selling Warrantholders and held in escrow pursuant to the terms of the Escrow
Agreement. Each Arcus Party has agreed and the Arcus Parties' stockholders, by
approving the applicable Reorganization Agreement and, in the case of AGI, the
Merger Agreement, will agree, and each Selling Warrantholder has agreed or will
agree by executing a Warrant Purchase Agreement, to appoint Clarke H. Bailey or
such other person or persons to whom Clarke H. Bailey delegates such authority,
as their agent and attorney-in-fact, with full power of substitution, to take
all actions on their behalf in connection with the indemnification provisions
of the Merger Agreement, the Warrant Purchase Agreements and the Escrow
Agreement. As Stockholder Representative, Mr. Bailey and any delegate will have
a fiduciary duty to act in the best interests of the former holders of AGI
Common Stock with respect to the indemnification provisions of the Merger
Agreement and the Escrow Agreement. The Stockholder Representative will deliver
notice to each former holder of AGI Common Stock and each former holder of
Eligible Warrants promptly after each time, if any, that Iron Mountain receives
a payment under the Escrow Agreement.
16
<PAGE>
In the event that there are no Unresolved Claims on the nine month
anniversary of the Closing Date (the "Initial Distribution Date"), an aggregate
of $3.0 million less any amounts previously paid to Iron Mountain from the
Escrow Indemnity Funds, will be distributed to the Stockholder Representative
for the benefit of former holders of AGI Common Stock and former holders of
Eligible Warrants. In the event one or more Unresolved Claims exist on such
date, cash in an amount equal to $5.0 million plus the aggregate amount of such
Unresolved Claims and related fees, expenses and other costs will be retained,
and the balance, if any of the cash held in escrow will be distributed to the
Stockholder Representative for the benefit of the former holders of AGI Common
Stock and the former Warrantholders. The escrow will expire 18 months after the
Closing Date (subject to retention of amounts related to Unresolved Claims as
described below). Promptly after such time, the Escrow Agent under the Escrow
Agreement will remit to the Stockholder Representative for the benefit of the
persons entitled thereto in accordance with their proportionate interests the
Escrow Indemnity Funds less all portions paid to Iron Mountain and less any
amounts which are the subject of Unresolved Claims. To the extent any of the
Escrow Indemnity Funds are available after resolution of all such Unresolved
Claims, such amount will be promptly remitted to the Stockholder Representative
for the benefit of the persons entitled thereto in accordance with their
proportionate interests in the Escrow Indemnity Funds.
The parties have also agreed, and by approving the applicable
Reorganization Agreement and, in the case of AGI, the Merger Agreement, the
stockholders of the Arcus Parties will also agree, and each Selling
Warrantholder has agreed or will agree by executing a Warrant Purchase
Agreement, that if the AGI Initial Indebtedness Calculation reflects a "Net
Working Capital Surplus" (defined as the excess if any, of (x) Net Working
Capital immediately prior to the ATSI Reorganization over (y) Net Working
Capital as derived from ATSI's financial statements at June 30, 1997) of
$300,000 or less, then cash in an aggregate amount up to $300,000 (depending on
the amount of Net Working Capital Surplus, if any) will be withheld from the
aggregate cash Merger consideration and from the aggregate Warrant Purchase
Price and deposited into escrow.
The amount contributed by each Selling Warrantholder described above to
the Escrow Indemnity Funds and the Expense Fund will be based on the value of
consideration received by such Warrantholder in his, her or its capacity as a
holder of Eligible Warrants and a holder of AGI Preferred Stock. Thus, each
stockholder of an Arcus Party (other than a dissenting stockholder) and each
Selling Warrantholder will contribute to the Escrow Indemnity Funds and the
Expense Fund in an amount proportionate to the value (based, in the case of
equity consideration, on the Determination Price) of the consideration he, she
or it receives in the Merger and pursuant to the Warrant Purchase Agreements.
See "Ancillary Agreements--Escrow Agreement" for a description of the
terms and conditions of the Escrow Agreement.
Certain Federal Income Tax Consequences
Each of the ATSI Reorganization and the UAC Reorganization is intended to
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or in part as a liquidation
within the meaning of Sections 332 and 336 of the Code, and each Arcus Party
will receive an opinion of counsel to that effect. Accordingly, the
Reorganizations will not result in the recognition of gain or loss to AGI, UAC
or ATSI, or to any of their stockholders, to the extent AGI stock or options are
received in exchange for stock or options of UAC or ATSI. The tax basis of AGI
Common Stock and AGI Preferred Stock received will be determined by reference to
the tax basis of the UAC Common Stock, UAC Preferred Stock and ATSI Common Stock
surrendered in the Reorganizations, and to the extent the UAC Common Stock, UAC
Preferred Stock and ATSI Common Stock were held as capital assets, the holding
period of the AGI Common Stock and AGI Preferred Stock received will include the
holding period of the stock surrendered. See "Certain Federal Income Tax
Considerations" and "Risk Factors--Risk Factors Related to the Arcus Proposals,
Including the Merger--Tax Risk."
The Merger is intended to qualify as a reorganization within the meaning
of Section 368(a) of the Code. The obligation of each of Iron Mountain and the
Arcus Parties to consummate the Merger is subject to the condition that it
shall have received an opinion of its tax counsel, dated the Closing Date, to
the effect that the Merger will be treated as such a reorganization.
Accordingly, the Merger will not result in the recognition of gain or loss to
Iron Mountain, AGI or the holders of AGI Common Stock or AGI Preferred Stock
except with respect to cash received in the Merger (including in lieu of
fractional shares) or pursuant to the exercise of appraisal rights. The tax
basis of Iron Mountain Common Stock received will be determined by reference to
the tax basis of the AGI
17
<PAGE>
Common Stock and the AGI Preferred Stock surrendered in the Merger, and to the
extent the shares of AGI Common Stock or AGI Preferred Stock were held as
capital assets, the holding period of the Iron Mountain Common Stock received
will include the holding period of the AGI Common Stock and the AGI Preferred
Stock surrendered. See "Certain Federal Income Tax Considerations" and "Risk
Factors--Risk Factors Related to the Arcus Proposals, Including the Merger--Tax
Risk."
Accounting Treatment
The Merger will be accounted for by Iron Mountain under the "purchase"
method of accounting in accordance with generally accepted accounting
principles. Therefore, the aggregate consideration paid by Iron Mountain in
connection with the Merger and certain expenses incurred by Iron Mountain
relating to the transaction will be allocated to AGI's assets and liabilities
based upon their fair values, with any excess being treated as goodwill. The
assets and liabilities and results of operations of AGI will be consolidated
into the assets and liabilities and results of operations of Iron Mountain
subsequent to the Effective Time.
Securities Ownership of Management; Stockholders' Agreements
Arcus Parties. As of November 20, 1997, Directors and executive officers
of AGI, UAC and ATSI and their respective affiliates were the record owners of
8,801,807 shares of the outstanding AGI Common Stock, 991,191 shares of the
outstanding UAC Common Stock, 26,166 shares of the outstanding UAC Preferred
Stock (including accrued but unpaid payment-in-kind dividends through such
date) and 2,966,155 shares of the outstanding ATSI Common Stock, which
constitute in the aggregate approximately 77%, 99%, 96% and 89% of the voting
power of each such class of stockholders, respectively. It is anticipated that
each of such Directors, executive officers and their respective affiliates will
vote their shares in favor of the Arcus Proposals. See "The Stockholders
Meetings--Ownership of Arcus Parties Securities" and "Ancillary
Agreements--Stockholders' Agreement."
Each of the Arcus Principal Stockholders has agreed to vote all of the
shares of the Arcus Parties owned, beneficially or of record, by him or it.
Such Arcus Principal Stockholders control, directly or indirectly, 72%, 99%,
96% and 81% of the outstanding AGI Common Stock, UAC Common Stock, UAC
Preferred Stock and ATSI Common Stock, respectively (and has granted to Iron
Mountain their proxies to vote all such shares), (i) in favor of the adoption
of the Merger Agreement and each of the transactions contemplated thereby and
any action required in furtherance thereof, including, without limitation, each
of the Arcus Proposals, (ii) against any action or agreement that would result
in a breach in any material respect of any covenant, representation or warranty
or any other obligation of the Arcus Parties under the Merger Agreement, and
(iii) against any Other Transaction or any other action or agreement that,
directly or indirectly, is inconsistent with or that would, or is reasonably
likely to, directly or indirectly, impede, interfere with or attempt to
discourage the Merger or any other transaction contemplated by the Merger
Agreement. See "Ancillary Agreements--Stockholders' Agreement."
Iron Mountain. The Directors and executive officers of Iron Mountain are
beneficial owners in the aggregate of approximately 45.0% of the outstanding
shares of Iron Mountain Common Stock. It is anticipated that each of such
Directors, executive officers and their respective affiliates will vote their
shares in favor of the Merger Agreement and the Iron Mountain Charter
Amendments. In connection with the execution of the Merger Agreement, Iron
Mountain, the Arcus Parties and certain stockholders of Iron Mountain entered
into the Iron Mountain Voting Agreement, pursuant to which the Iron Mountain
Principal Stockholders agreed to vote all such shares (equal to approximately
36.0% of the outstanding Iron Mountain Common Stock) in favor of the adoption
of the Merger Agreement. See "Ancillary Agreements--Iron Mountain Voting
Agreement."
Recommendation of the Arcus Boards
The UAC Board has unanimously approved the UAC Reorganization Agreement,
the UAC Reorganization, the UAC Charter Amendments, the UAC Warrant
Repurchases, the ATSI Reorganization Agreement, the Merger Agreement and the
Merger, and believes that the UAC Reorganization Agreement, the UAC
Reorganization, the UAC Charter Amendments, the UAC Warrant Repurchases, the
ATSI Reorganization Agreement, the Merger Agreement and the Merger are in the
best interests of UAC and its stockholders and unanimously recommends that
UAC's stockholders vote FOR the approval and adoption of the UAC Proposals and
that holders of UAC
18
<PAGE>
Preferred Stock also vote FOR the UAC Warrant Repurchases and ATSI
Reorganization Agreement. The ATSI Board has unanimously approved the ATSI
Reorganization Agreement, the ATSI Reorganization, the Merger Agreement and the
Merger, and believes that the ATSI Reorganization Agreement, the ATSI
Reorganization, the Merger Agreement and the Merger are in the best interests
of ATSI and its stockholders and unanimously recommends that ATSI's
stockholders vote FOR the approval and adoption of the ATSI Proposal. The AGI
Board has unanimously approved the Reorganization Agreements, the
Reorganizations, the AGI Charter Amendments, the Merger Agreement and the
Merger, and believes that the Reorganization Agreements, the Reorganizations,
the AGI Charter Amendments, the Merger Agreement and the Merger are in the best
interests of AGI and its stockholders and unanimously recommends that AGI's
stockholders vote FOR the approval and adoption of the AGI Proposals. The
decisions of the Arcus Boards to enter into the Reorganization Agreements and
the Merger Agreement and to recommend that their respective stockholders vote
in favor of their respective Arcus Proposals are based upon their evaluation of
a number of factors, including, among others, the opinion of Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ"), the Arcus Parties' financial advisor
in connection with the Merger, that the aggregate consideration to be paid to
holders of securities of AGI pursuant to the Merger Agreement is fair to such
holders from a financial point of view. See "Background of the Merger and the
Other Arcus Proposals--Recommendation of the Arcus Parties Boards; Arcus
Parties' Reasons for the Merger" and "--Opinion of Financial Advisor to the
Arcus Parties."
Opinion of Financial Advisor to AGI
AGI retained DLJ as its exclusive financial advisor in connection with the
proposed sale of AGI. On September 25, 1997, DLJ delivered a written opinion to
the AGI Board (the "DLJ Opinion"), to the effect that, as of such date and
based upon and subject to the assumptions, limitations and qualifications set
forth in such opinion, the aggregate consideration to be received by the
holders of the AGI Common Stock, the AGI Preferred Stock and options, warrants
or rights to purchase AGI Common Stock (the "AGI Equityholders") pursuant to
the Merger Agreement was fair to such holders from a financial point of view.
A copy of the full text of the DLJ Opinion is attached hereto as Annex
VII. AGI stockholders, UAC stockholders and ATSI stockholders are urged to and
should read the text of the DLJ Opinion in its entirety for assumptions made,
procedures followed and other matters considered by DLJ. The DLJ Opinion
addresses only the fairness of the aggregate consideration to be received by
the AGI Equityholders pursuant to the Merger Agreement from a financial point
of view and does not constitute a recommendation to any Arcus Party stockholder
as to how such stockholder should vote at the Arcus Stockholders Meetings. DLJ
expressed no opinion as to the fairness of the terms of the Reorganizations
from a financial point of view or otherwise to any of the holders of various
securities of UAC or ATSI. The summary of the DLJ Opinion is qualified in its
entirety by reference to the full text of such opinion.
Recommendation of the Iron Mountain Board of Directors
The Iron Mountain Board by unanimous vote has determined that the Merger
Agreement and the Iron Mountain Charter Amendments are in the best interests of
the stockholders of Iron Mountain and recommends that holders of Iron Mountain
Common Stock vote in favor of the Merger and the Iron Mountain Charter
Amendments. The decision of the Iron Mountain Board to enter into the Merger
Agreement and to recommend that its stockholders vote in favor of the Merger is
based upon its evaluation of a number of factors, including, among others, the
opinion of Bear, Stearns & Co. Inc. ("Bear Stearns"), Iron Mountain's
investment banker and financial advisor in connection with the Merger, that the
consideration to be paid in the Merger was fair, from a financial point of
view, to Iron Mountain. See "Background of the Merger and the Other Arcus
Proposals--Recommendation of the Iron Mountain Board; Iron Mountain's Reasons
for the Merger" and "--Opinion of Financial Advisor to Iron Mountain."
Opinion of Financial Advisor to Iron Mountain
On September 26, 1997 Bear Stearns delivered its written opinion to the
Iron Mountain Board (the "Bear Stearns Opinion") to the effect that, as of such
date, the Total Consideration to be paid by Iron Mountain in the Merger was
fair, from a financial point of view, to Iron Mountain.
19
<PAGE>
A copy of the full text of the Bear Stearns Opinion which sets forth the
matters considered and the qualifications, limitations and assumptions
applicable to such opinion, is attached hereto as Annex VIII. Iron Mountain
stockholders are urged to, and should, read the text of the Bear Stearns
Opinion in its entirety. The Bear Stearns Opinion addresses only whether the
Total Consideration to be paid in the Merger is fair, from a financial point of
view, to Iron Mountain and does not constitute a recommendation to the Iron
Mountain Board or any stockholder of Iron Mountain as to whether or not they
should vote to recommend or approve the Merger Agreement. The summary of the
Bear Stearns Opinion is qualified in its entirety by reference to the full text
of such opinion.
Conditions to the Merger
The obligations of Iron Mountain and the Arcus Parties to consummate the
Merger are subject to various conditions, including, among others, the adoption
of the Arcus Proposals, including the Reorganization Agreements, and, in the
case of AGI, the Merger Agreement, the adoption of the Merger Agreement by Iron
Mountain's stockholders (if required under applicable law), the receipt of
certain third party approvals and the receipt of opinions from tax counsel for
Iron Mountain and the Arcus Parties. Any of these conditions may be waived,
subject to applicable law, other than the requisite approvals of the Arcus
Parties' stockholders of the Arcus Proposals and of Iron Mountain's
stockholders of the Merger Agreement. See "The Merger Agreement--Conditions to
the Merger."
Stock Exchange Listing
Application will be made to list the shares of Iron Mountain Common Stock
to be issued in connection with the Merger on the Nasdaq National Market
System. Iron Mountain Common Stock is currently traded on the Nasdaq National
Market under the symbol "IMTN."
Termination and Certain Fees
The Merger Agreement will be subject to termination by the mutual consent
of Iron Mountain and the Arcus Parties. The Merger Agreement will also be
subject to termination by either Iron Mountain or the Arcus Parties under
certain circumstances described herein. If the Merger Agreement is terminated
by Iron Mountain or the Arcus Parties under certain circumstances described
herein, the Arcus Parties or Iron Mountain, as the case may be, will be
obligated to pay to the other an amount equal to $5.0 million (or, in certain
circumstances, $7.0 million). Subject to the terms and conditions of the Merger
Agreement and the rights of Iron Mountain pursuant thereto, each of the
Reorganization Agreements may be terminated and abandoned by the mutual consent
of the parties thereto.
Corporate Governance
Once the Merger is effected, the Directors of Iron Mountain immediately
prior to the Effective Time will be the Directors of the Surviving Corporation,
and the officers of Iron Mountain immediately prior to the Effective Time will
be the officers of the Surviving Corporation. The Directors and executive
officers of Iron Mountain will not change as a result of the Merger, except
that Mr. Bailey will be appointed as a Class C Director of Iron Mountain
following the Effective Time. In addition, certain other information with
respect to the Directors and executive officers of Iron Mountain has changed
since the information that is incorporated herein by reference to Iron
Mountain's Annual Report on Form 10-K for the year ended December 31, 1996. See
"Incorporation of Certain Documents by Reference" and "The Merger
Agreement--Corporate Governance." The Directors and officers of AGI immediately
prior to the UAC Effective Time and ATSI Effective Time will remain the
Directors and officers of AGI thereafter, until the Effective Time.
Interests of Certain Persons
In considering the recommendation of the AGI Board, the UAC Board and the
ATSI Board with respect to the AGI Proposals, UAC Proposals and ATSI Proposal,
stockholders of AGI, UAC and ATSI should be aware that certain members of the
Arcus Parties' management and the Arcus Boards have certain interests in the
Arcus Proposals that may present them with actual or potential conflicts of
interest. On September 25, 1997, the ATSI Board took action under the ATSI
Stock Option Plan to provide that in the event of a change of control of ATSI,
all options, including those owned by such members of the Arcus Parties'
management, under the ATSI Stock Option Plan will continue in full force and
effect. Currently, the options are not exercisable unless UAC owns less than
80% of the voting securities of ATSI or
20
<PAGE>
AGI owns less than 80% of the voting securities of UAC, which events will occur
upon consummation of the Reorganizations prior to the Merger. Consummation of
the Reorganizations and the Merger will result in the continuance of options
under the ATSI Stock Option Plan to purchase (i) 5,000 shares of ATSI Common
Stock held by each of Melvyn N. Klein, Ramon D. Ardizzone, Stanley R. Rawn,
Jr., and John Tedesco (each of whom is a director of ATSI); (ii) 74,800 shares
of ATSI Common Stock held by Thomas H. Seefurth, a director of ATSI; (iii)
37,400 shares of ATSI Common Stock held by Richard A. Drutman, a director and
executive officer of certain of the Arcus Entities; (iv) 17,600 shares of ATSI
Common Stock held by Donald W. Muskopf, an executive officer of ATSI; and (v)
24,000 shares of ATSI Common Stock held by G. Theodore Wolf II, an executive
officer of certain of the Arcus Entities. Assuming a Share Price of $2.73 per
share using the Baseline Assumptions, such options have values of approximately
$119,000, $119,000, $105,000, $105,000, $1.8 million, $890,000, $400,000, and
$505,000, respectively. In addition, in connection with the Merger, options
under the ATSI Stock Option Plan that are not currently exercisable will become
exercisable upon the consummation of the ATSI Reorganization. Pursuant to the
UAC Stock Option Plan, Clarke H. Bailey, a director and an executive officer of
each of the Arcus Parties, holds options to purchase 112,282 shares of UAC
Common Stock, Frank G. Hayes, a director of AGI and an executive officer of the
Arcus Parties, holds options to purchase 54,347 shares of UAC Common Stock and
Julien H. Meyer III, an executive officer of the Arcus Parties, holds options
to purchase 40,761 shares of UAC Common Stock. Currently, all such options are
fully vested but are not exercisable unless AGI owns less than 80% of the
voting securities of UAC. Such options will become exercisable as a result of
the Reorganizations. Assuming a Share Price of $2.73 per share using the
Baseline Assumptions, such options have values of approximately $2.4 million,
$1.2 million and $865,000, respectively. See "The Merger Agreement--Treatment
of Options and Warrants." The stockholders of the Arcus Parties should also be
aware that after giving effect to the Reorganizations, AGI will distribute the
Damson Interest (in the event such Damson Interest is not previously sold to a
third party or contributed to a special purpose entity for the benefit of the
holders of AGI Common Stock (prior to giving effect to the Reorganizations)) to
the holders of AGI Preferred Stock on a pro rata basis, and as a result, the
aggregate liquidation preference of the AGI Preferred Stock will be reduced by
an amount equal to the Damson Value. See "The Reorganizations and the Other
Arcus Proposals." Further, stockholders of the Arcus Parties should be aware
that (i) as the first element of the Reorganizations, Iron Mountain will
purchase for cash from each Selling Warrantholder certain Warrants at a cash
purchase price equal to the spread value of such Warrants based on the UAC
Equity Value Per Share, and (ii) as a subsequent element of the
Reorganizations, UAC will repurchase certain Warrants in exchange for the
Connected Stock at a price equal to the spread value of such Warrants based on
the UAC Equity Value Per Share. See "The Reorganizations and the Other Arcus
Proposals--The Iron Mountain Warrant Purchase" and "--UAC Warrant Repurchases."
Mr. Bailey, a Director of each Arcus Party, a stockholder of AGI and a holder
of options to acquire UAC Common Stock will be appointed a Class C Director of
Iron Mountain following the Closing Date. As a Director of Iron Mountain, Mr.
Bailey will receive Director's compensation and will be eligible to participate
in the Iron Mountain Stock Option Plan. Finally, stockholders of the Arcus
Parties should be aware that Barrie M. Damson, who is a director of each of UAC
and AGI, is also a principal of the General Partner of Damson in which AGI
holds an interest and which will be distributed pursuant to the Damson
Distribution (if the Damson Interest is not previously sold or contributed to a
special purpose entity for the benefit of the holders of AGI Common Stock
(prior to giving effect to the Reorganizations)).
Rights of Dissenting Stockholders
Pursuant to the Delaware General Corporation Law (the "DGCL"), any holder
of AGI Common Stock and any holder of ATSI Common Stock (i) who files a demand
for appraisal in writing prior to the vote taken at the AGI Stockholders
Meeting or ATSI Stockholders Meeting, as applicable, (ii) whose shares are not
voted in favor of either Reorganization or the Merger (in the case of an AGI
stockholder) or in favor of the ATSI Reorganization (in the case of an ATSI
stockholder) and (iii) who follows certain other procedural requirements, if
the Reorganizations and the Merger (in the case of an AGI stockholder) or the
ATSI Reorganization (in the case of an ATSI stockholder) are consummated, shall
be entitled to appraisal rights under Section 262 of the DGCL ("Section 262").
Pursuant to the Nevada Revised Statutes (the "NRS"), any holder of UAC Common
Stock and any holder of UAC Preferred Stock (i) who notifies UAC in writing of
his intention to demand payment for his shares, if the UAC Reorganization is
consummated, which notice must be delivered prior to the vote taken at the UAC
Stockholders Meeting, and thereafter delivers a written demand for payment no
later than 30 days after the delivery by AGI to such shareholder of a
dissenter's notice, (ii) whose shares are not voted in favor of the UAC
21
<PAGE>
Reorganization and (iii) who follows certain other procedural requirements, if
the UAC Reorganization is consummated, shall be entitled to appraisal rights
under Section 92A.380 of the NRS ("Section 92A.380"). See "Rights of Dissenting
Stockholders." Each of a vote against the UAC Reorganization by a UAC
stockholder or an AGI stockholder, a vote against the ATSI Reorganization by an
ATSI stockholder or an AGI stockholder, or a vote against the Merger by an AGI
stockholder, and an abstention or other failure to vote will NOT by treated as
a notice by such stockholder as a demand for appraisal rights or payments nor,
in the case of a UAC stockholder, will it be treated as a notice by such
stockholder of his intention to exercise his appraisal or dissenter's rights or
demand payment. A separate written demand preceded, in the case of a UAC
stockholder, by a written notice of intention to demand payment, is required.
The Arcus Principal Stockholders, pursuant to the Stockholders' Agreement, have
agreed to vote their shares in favor of the Arcus Proposals and to waive their
appraisal rights with respect to their shares of stock of the Arcus Parties.
Neither stockholders of UAC nor ATSI will have any appraisal rights with
respect to the Merger, as they will not be asked to approve the Merger
Agreement or the Merger, because such stockholders will not be stockholders of
record of AGI on the record date for determining AGI stockholders entitled to
vote on the Merger Agreement and Merger.
Comparative Per Share Market Price Information
On September 26, 1997, the trading day prior to the announcement of the
Merger, the closing sales price of the Iron Mountain Common Stock, as reported
on the Nasdaq National Market System, was $35.25. On November 20, 1997, the
closing sales price of the Iron Mountain Common Stock, as reported on the
Nasdaq National Market System, was $38.25. As of November 20, 1997, there were
13,447,176 shares of Iron Mountain Common Stock outstanding held by
approximately 180 holders of record. Iron Mountain believes there are more than
1,750 beneficial owners of Iron Mountain Common Stock. See "Market Prices and
Dividend Data" for information regarding the lack of dividends on the Iron
Mountain Common Stock.
Holders of stock of the Arcus Parties are urged to obtain current market
quotations prior to making any decision with respect to the Reorganizations and
the Merger.
No established public trading market exists for the AGI Common Stock, the
UAC Common Stock, the UAC Preferred Stock or the ATSI Common Stock, and,
accordingly, no price information is available with respect thereto. As of
November 20, 1997, there were 11,426,525 shares of AGI Common Stock outstanding
and 54 holders of record, 1,000,001 shares of UAC Common Stock outstanding and
18 holders of record and 3,325,229 shares of ATSI Common Stock outstanding and
29 holders of record. As of December 31, 1997, there will be 27,623 shares of
UAC Preferred Stock outstanding, after giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997 and,
as of November 20, 1997, there were 17 holders of record. See "Market Prices
and Dividend Data."
22
<PAGE>
Iron Mountain Summary Historical and Pro Forma Information
(In thousands, except per share amounts)
The following summary historical consolidated statements of operations and
balance sheet data of Iron Mountain as of and for each of the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 have been derived from Iron
Mountain's audited consolidated financial statements. The summary historical
consolidated statements of operations and balance sheet data of Iron Mountain
for the nine months ended September 30, 1996 and 1997 have been derived from
Iron Mountain's unaudited condensed consolidated financial statements. Iron
Mountain's unaudited condensed consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that Iron Mountain
considers necessary for a fair presentation of the financial position and the
results of operations for those periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results for the
entire year ending December 31, 1997. The summary historical and pro forma
financial data set forth below should be read in conjunction with "Pro Forma
Condensed Consolidated Financial Information" and the Notes thereto, included
herein, with "Selected Consolidated Financial and Operating Information" and
the Notes thereto, with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with Iron Mountain's Consolidated
Financial Statements and the Notes thereto all of which are incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
-------------------------------------------------------- ------------------------------------
Pro Pro Pro Forma
Historical Forma Historical Forma As Adjusted
---------------------------------------------- --------- ----------------- -------- ----------
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1) 1997(1)(2)
--------- --------- ------- --------- -------- --------- --------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues:
Storage ....................... $44,077 $48,892 $54,098 $ 64,165 $ 85,826 $186,440 $61,419 $ 86,199 $159,775 $159,775
Service and Storage
Material Sales .............. 26,596 32,781 33,520 40,271 52,892 108,503 38,550 57,195 105,560 105,560
-------- -------- ------- -------- -------- -------- ------- -------- -------- --------
Total Revenues .............. 70,673 81,673 87,618 104,436 138,718 294,943 99,969 143,394 265,335 265,335
Operating Expenses:
Cost of Sales (Excluding
Depreciation) .............. 35,169 43,054 45,880 52,277 70,747 142,760 51,091 73,742 134,025 133,150
Selling, General and
Administrative .............. 17,630 19,971 20,853 26,035 34,342 85,212 24,762 35,682 72,391 66,758
Depreciation and
Amortization .............. 5,780 6,789 8,690 12,341 16,936 38,468 11,896 18,495 31,783 31,783
-------- -------- ------- -------- -------- -------- ------- -------- -------- --------
Total Operating
Expenses ................. 58,579 69,814 75,423 90,653 122,025 266,440 87,749 127,919 238,199 231,691
-------- -------- ------- -------- -------- -------- ------- -------- -------- --------
Operating Income ................. 12,094 11,859 12,195 13,783 16,693 28,503 12,220 15,475 27,136 33,644
Interest Expense ................. 8,412 8,203 8,954 11,838 14,901 46,282 9,981 17,631 34,737 34,737
-------- -------- ------- -------- -------- -------- ------- -------- -------- --------
Income (Loss) Before Provision
(Credit) for Income Taxes ..... 3,682 3,656 3,241 1,945 1,792 (17,779) 2,239 (2,156) (7,601) (1,093)
Provision (Credit) for Income
Taxes .......................... 2,095 2,088 1,957 1,697 1,435 (2,727) 1,542 (346) 124 2,016
-------- -------- ------- -------- -------- -------- ------- -------- -------- --------
Income (Loss) Before
Extraordinary Charge ........... 1,587 1,568 1,284 248 357 $(15,052) 697 (1,810) $(7,725) $ (3,109)
======== ======== ========
Extraordinary Charge, Net of
Tax Benefit (3) .............. -- -- -- -- 2,126 -- --
-------- -------- ------- -------- -------- ------ --------
Net Income (Loss) .............. 1,587 1,568 1,284 248 (1,769) 697 (1,810)
Accretion of Redeemable Put
Warrant ....................... 626 940 1,412 2,107 280 280 --
-------- -------- ------- -------- -------- ------ --------
Net Income (Loss) Applicable to
Common Stockholders ........... $ 961 $ 628 $ (128) $ (1,859) $(2,049) $ 417 $ (1,810)
======== ======== ======= ======== ======== ====== ========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
Year Ended December 31, ----------------------------------------
-------------------------------------------------- Pro Pro Pro Forma
Historical Forma Historical Forma As Adjusted
-------------------------------------------------- -------- ----------------- -------- ----------
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1) 1997(1)(2)
------- ------- -------- -------- -------- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Income (Loss) Before
Extraordinary Item per
Common and Common
Equivalent Share ......... $ 0.12 $ 0.08 $ (0.02) $ (0.24) $ 0.01 $ (1.02) $ 0.04 $ (0.17) $ (0.52) $ (0.21)
Net Income (Loss) per Common
and Common Equivalent
Share .................. $ 0.12 $ 0.08 $ (0.02) $ (0.24) $ (0.20) $ (1.02) $ 0.04 $ (0.17) $ (0.52) $ (0.21)
Weighted Average Common and
Common Equivalent Shares
Outstanding ............ 8,052 8,067 7,984 7,784 10,137 14,745 10,101 10,906 14,767 14,767
Other Data:
EBITDA (4) ............... $17,874 $18,648 $20,885 $26,124 $33,629 $66,971 $24,116 $33,970 $58,919 $65,427
EBITDA as a Percentage of
Total Revenues ......... 25.3% 22.8% 23.8% 25.0% 24.2% 22.7% 24.1% 23.7% 22.2% 24.7%
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
1997
-----------------------
As of December 31,
------------------------------------------------------
Pro
1992 1993 1994 1995 1996 Historical Forma(5)
---------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and Cash Equivalents ...... $ 498 $ 591 $ 1,303 $ 1,585 $ 3,453 $ 2,242 $ 2,242
Total Assets .................. 115,429 125,288 136,859 186,881 281,799 451,099 801,468
Total Debt ..................... 73,304 78,460 86,258 121,874 184,733 274,368 494,476
Stockholders' Equity ......... 23,419 24,047 22,869 21,011 52,384 113,945 224,379
</TABLE>
- --------
(footnotes from the preceding page)
(1) Gives effect to the Recent Acquisitions and the Merger as if each had
occurred as of January 1, 1996. Certain transactions have been excluded as
the impact of such transactions is immaterial. See "Pro Forma Condensed
Consolidated Financial Information." Depreciation and amortization are
subject to revision based on appraisal of Iron Mountain Common Stock which
is subject to restrictions on transfer issued and to be issued in
connection with certain Recent Acquisitions and the Merger. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Recent and Pending
Acquisitions" which is incorporated by reference herein. See
"Incorporation of Certain Documents By Reference."
(2) Gives effect to certain identified cost savings that Iron Mountain believes
would have been realized had the Recent Acquisitions and the Merger
occurred and been fully integrated as of January 1, 1996 relating to: (i)
termination of specific employees and related net reductions in
compensation expense; (ii) closure of identified redundant facilities and
related net reductions in occupancy costs; and (iii) the elimination of
related party and management fees in excess of amounts that would have
been incurred by Iron Mountain. Such cost savings are principally
attributable to transactions other than the Merger. See "Pro Forma
Condensed Consolidated Financial Information."
(3) The extraordinary charge for 1996 consists of a prepayment penalty, the
write-off of deferred financing costs, original issue discount and loss on
termination of interest rate protection agreements.
(4) Based on its experience in the records management industry, Iron Mountain
believes that EBITDA is an important tool for measuring the performance of
records management companies (including potential acquisition targets) in
several areas, such as liquidity, operating performance and leverage. In
addition, lenders use EBITDA as a criterion in evaluating records
management companies, and substantially all of Iron Mountain's financing
agreements contain covenants in which EBITDA is used as a measure of
financial performance. However, EBITDA should not be considered an
alternative to operating or net income (as determined in accordance with
GAAP) as an indicator of Iron Mountain's performance or to cash flow from
operations (as determined in accordance with GAAP) as a measure of
liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and
Capital Resources" which are incorporated by reference herein for
discussions of other measures of performance determined in accordance with
GAAP and Iron Mountain's sources and applications of cash flow.
(5) Gives effect to: (i) the acquisitions consummated after September 30, 1997;
(ii) the Merger; and (iii) the 1997 Notes, as if each had occurred as of
September 30, 1997. See "Pro Forma Condensed Consolidated Financial
Information." Total assets and shareholders' equity are subject to
revision based on appraisal of Iron Mountain Common Stock which is subject
to restrictions on transfer issued and to be issued in connection with
certain Recent Acquisitions and the Merger. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Recent and Pending Acquisitions" which is
incorporated by reference herein.
24
<PAGE>
Arcus Parties' Summary Financial Information
AGI
The following summary historical consolidated statements of operations and
balance sheet data of AGI as of and for each of the years ended December 31,
1992, 1993, 1994, 1995 and 1996 have been derived from AGI's audited
consolidated financial statements. The summary historical consolidated
statements of operations and balance sheet data of AGI for the nine months ended
September 30, 1996 and 1997 have been derived from AGI's unaudited condensed
consolidated financial statements. AGI's unaudited condensed consolidated
financial statements include all adjustments, consisting of normal recurring
accruals (other than as disclosed), that AGI considers necessary for a fair
presentation of the financial position and the results of operations for those
periods. Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results for the entire year ending December 31,
1997. The summary historical financial data set forth below should be read in
conjunction with "Description of the Arcus Entities--Arcus Parties' Selected
Financial and Operating Information--AGI", with "--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with AGI's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- ------------ --------- ---------- --------- ------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $ -- $ -- $ -- $16,158 $ 43,671 $31,853 $ 38,174
Other ..................... -- -- -- 4,520 22,310 13,315 30,795
--------- -------- -------- -------- --------- -------- ---------
Total Revenues ......... -- -- -- 20,678 65,981 45,168 68,969
========= ======== ======== ======== ========= ======== =========
Income (Loss) from Continuing
Operations .................. (2,642) (5,720) (231) 491 887 1,200 476
--------- -------- -------- -------- --------- -------- ---------
Net Income (Loss) ............ $(79,696) $ (6,620) $ (231) $ 491 $ 887 $ 1,200 $ 476
========= ======== ======== ======== ========= ======== =========
Earnings (Loss) Per Share ... $ (6.97) $ (0.58) $ (0.02) $ 0.04 $ 0.08 $ 0.11 $ 0.04
Cash Dividends per Share ... $ 9.24 $ 0.57 $ -- $ -- $ -- $ -- $ --
Other Data:
EBITDA ..................... $ (1,396) $ 1,713 $ 7,479 $ 5,951 $ 7,979
December 31,
------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
-------- ------- ------- ------ ------- ----------
Balance Sheet Data:
Total Assets ............... $ 29,052 $ 16,044 $ 38,913 $84,911 $105,463 $105,821
Total Long-Term Debt and
Redeemable Preferred Stock
of Subsidiary ............... $ -- $ -- $ 21,907 $53,386 $ 63,882 $ 65,750
Stockholders' Equity ......... $ 27,900 $ 14,790 $ 14,559 $15,038 $ 15,345 $ 15,764
</TABLE>
25
<PAGE>
UAC
The following summary historical consolidated statements of operations and
balance sheet data of UAC as of and for each of the years ended December 31,
1994, 1995 and 1996 have been derived from UAC's audited consolidated financial
statements. The summary historical consolidated statements of operations and
balance sheet data of UAC for the nine months ended September 30, 1996 and 1997
have been derived from UAC's unaudited condensed consolidated financial
statements. UAC's unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, that UAC considers
necessary for a fair presentation of the financial position and the results of
operations for those periods. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the
entire year ending December 31, 1997. The summary historical financial data set
forth below should be read in conjunction with "Description of the Arcus
Entities--Arcus Parties' Selected Financial and Operating Information--UAC",
with "--Management's Discussion and Analysis of Financial Condition and Results
of Operations" and with UAC's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
---------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ---------- ----------- --------- -----------
(Dollars in Thousands, except per
share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ............... $ -- $16,158 $ 43,671 $31,853 $38,174
Other .............................. -- 4,520 22,310 13,315 30,795
--------- ------- -------- -------- --------
Total Revenues ..................... -- 20,678 65,981 45,168 68,969
--------- ------- -------- -------- --------
Net Income ........................... 361 1,312 1,634 1,562 1,616
--------- ------- -------- -------- --------
Net Income (Loss) Attributed to
Common Stockholders .................. $ (667) $ (443) $ (260) $ 141 $ 83
========= ======= ======== ======== ========
Earnings (Loss) Per Common Share ...... $ (0.67) $ (0.44) $ (0.26) $ 0.14 $ 0.08
Other Data:
EBITDA ................................. $ (391) $ 3,537 $ 9,453 $ 7,519 $ 9,692
December 31,
---------------------------------- September 30,
1994 1995 1996 1997
--------- ------- ------- ----------
Balance Sheet Data:
Total Assets ........................... $ 33,997 $79,469 $100,175 $ 100,985
Total Long-Term Debt .................. $ -- $29,725 $ 38,325 $ 38,661
Stockholders' Equity .................. $ 33,986 $35,284 $ 36,180 $ 37,733
</TABLE>
26
<PAGE>
ATSI
The following summary historical consolidated statements of operations and
balance sheet data of ATSI as of and for each of the years ended December 31,
1992, 1993, 1994, and the seven month period ended July 31, 1995 have been
derived from the audited consolidated financial statements of Arcus, Inc.
("AI"), a wholly owned subsidiary of ATSI, or "predecessor". The following
summary historical consolidated statements of operations and balance sheet data
as of and for the five month period ended December 31, 1995 and the year ended
December 31, 1996 have been derived from ATSI's audited consolidated financial
statements. The summary historical consolidated statement of operations and
balance sheet data of ATSI for the nine months ended September 30, 1996 and
1997 have been derived from ATSI's unaudited condensed consolidated financial
statements. ATSI's unaudited condensed consolidated financial statements
include all adjustments, consisting of normal recurring accruals, that ATSI
considers necessary for a fair presentation of the financial position and the
results of operations for those periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results for the
entire year ending December 31, 1997. The summary historical financial data set
forth below should be read in conjunction with "Description of the Arcus
Entites--Arcus Parties' Selected Financial and Operating Information--ATSI",
with "--Management's Discussion and Analysis of Financial Condition and Results
of Operations" and with ATSI's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Seven Five
Months Months
Year Ended Year Ended Year Ended Ended Ended Year Ended
December 31, December 31, December 31, July 31, December 31, December 31,
1992 1993 1994 1995 1995 1996
(Predecessor) (Predecessor) (Predecessor) (Predecessor) (Successor) (Successor)
------------- --------------- ------------- ------------- ------------ ------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $27,745 $30,999 $34,494 $21,401 $16,158 $43,671
Other ..................... 4,593 5,517 6,339 4,277 4,520 22,310
-------- -------- -------- -------- -------- --------
Total Revenues ............ 32,338 36,516 40,833 25,678 20,678 65,981
-------- -------- -------- -------- -------- --------
Net Income .................. $ 1,304 $ 2,602 $ 3,584 $ 2,554 $ 1,057 $ 2,563
======== ======== ======== ======== ======== ========
Earnings Per Share ............ $ 0.17 $ 0.34 $ 0.46 $ 0.32 $ 0.48 $ 0.99
Other Data:
EBITDA ........................ $ 5,116 $ 6,997 $ 8,770 $ 5,602 $ 4,595 $11,652
<CAPTION>
Nine Months
Ended
September 30,
1996 1997
(Successor)
------------------
<S> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $31,853 $38,174
Other ..................... 13,315 30,795
-------- --------
Total Revenues ............ 45,168 68,969
-------- --------
Net Income .................. $ 2,022 $ 2,184
======== ========
Earnings Per Share ............ $ 0.83 $ 0.66
Other Data:
EBITDA ........................ $ 8,722 $10,964
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets ............... $18,620 $20,073 $23,387 $60,130 $88,458 $92,964
Total Long-Term Debt ...... $ 267 $ 678 $ 551 $29,725 $39,513 $40,161
Stockholders' Equity ...... $10,614 $12,757 $16,367 $18,574 $30,611 $33,963
</TABLE>
27
<PAGE>
Comparative Per Share Data
The following table sets forth (i) historical earnings (loss) and book
value per share for Iron Mountain, (ii) historical earnings (loss) and book
value per share for AGI, UAC and ATSI, (iii) unaudited pro forma combined
(loss) and book value per share for Iron Mountain, and (iv) unaudited pro forma
equivalent combined (loss) and book value per share for AGI, UAC and ATSI. Iron
Mountain has never declared a cash dividend on its capital stock. No dividends
have ever been paid on ATSI Common Stock or UAC Common Stock or have been paid
in the last three years on AGI Common Stock. In 1992 and 1993, AGI paid
dividends in the amounts of $9.24 and $0.57, respectively, per share of AGI
Common Stock. In 1994, UAC paid a dividend with respect to UAC Preferred Stock
of 1,028 shares of UAC Preferred Stock with a value of $1,028,000, and has
accrued, but not yet paid dividends with respect to UAC Preferred Stock having
values of $1,754,240 and $1,894,579 for the years 1995 and 1996, respectively.
The unaudited pro forma combined share data give effect to the Merger and the
Iron Mountain Transactions described in "Pro Forma Condensed Consolidated
Financial Information" included elsewhere in this Proxy Statement. The data set
forth below should be read in conjunction with Iron Mountain's Consolidated
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" incorporated by
reference herein (see "Incorporation of Certain Documents by Reference"), and
with the Arcus Parties' Consolidated Financial Statements and the Notes
thereto, with "Pro Forma Condensed Consolidated Financial Information," and
with "Description of the Arcus Entities--Management's Discussion and Analysis
of Financial Condition and Results of Operations," included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
or as of or as of
September 30, 1997 December 31, 1996
-------------------- ------------------
<S> <C> <C>
Historical:
Iron Mountain
Income (loss) before extraordinary charge per common and
common equivalent share .................................... $ (0.17) $ 0.01
Book value per common and common equivalent share ......... 9.39 5.17
AGI
Earnings per share .......................................... $ 0.04 $ 0.08
Book value per share ....................................... 1.38 1.34
UAC
Earnings (loss) per common and common equivalent share ...... $ 0.08 $ (0.26)
Book value per common share ................................. 10.64 10.62
ATSI
Earnings per share .......................................... $ 0.66 $ 0.99
Book value per share ....................................... 10.21 9.55
Pro forma:
Iron Mountain
Loss before extraordinary charge per common share ............ $ (0.52) $ (1.02)
Book value per common and common equivalent share ............ 15.20 15.73
AGI equivalent pro forma
Loss per share ............................................. $ (0.04) $ (0.08)
Book value per share ....................................... 1.15 1.19
UAC equivalent pro forma
Loss per common share ....................................... $ (0.49) $ (0.95)
Book value per common share ................................. 14.21 14.70
ATSI equivalent pro forma
Loss per share ............................................. $ (0.46) $ (0.90)
Book value per share ....................................... 13.39 13.85
</TABLE>
28
<PAGE>
RISK FACTORS
Risk Factors Related to the Iron Mountain Common Stock
Arcus Party stockholders should carefully consider the following risk
factors, in addition to the other information contained in this Proxy
Statement, in connection with their decisions to approve the Arcus Proposals,
including the Merger Agreement.
Risks Associated with Acquisition Strategy. Iron Mountain has pursued and
intends to continue to pursue acquisitions of records management businesses as a
key component of its growth strategy. Since mid-1994, Iron Mountain has acquired
or agreed to acquire 42 records management businesses for aggregate
consideration of approximately $577 million, including approximately $173
million of Iron Mountain Common Stock and options to purchase Iron Mountain
Common Stock (but not contingent payments of up to $5.9 million based upon the
achievement of certain targets in 1997 and 1998). Certain risks are inherent in
an acquisition strategy, such as increasing leverage and debt service
requirements and combining disparate company cultures and facilities, which
could adversely affect Iron Mountain's operating results. The success of any
completed acquisition (including the Merger) will depend in part on Iron
Mountain's ability to integrate effectively the acquired records management
business into Iron Mountain. The process of integrating such acquired businesses
may involve unforeseen difficulties and may require a disproportionate amount of
management's attention and Iron Mountain's financial and other resources. No
assurance can be given that additional suitable acquisition candidates will be
identified, financed and purchased on acceptable terms, or that recent
acquisitions or future acquisitions (including the Merger), if completed, will
be successful.
In September, 1997 Iron Mountain amended and restated (the "Credit
Agreement Amendment") its bank facility, dated as of September 30, 1996, among
Iron Mountain, the lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent (the "Credit Agreement"). Under the terms of the Credit
Agreement Amendment, acquisitions by Iron Mountain involving: (i) $350 million
in the aggregate or $250 million in cash for the fourth quarter of 1997
(provided that $175 million of such aggregate amount and $125 million of such
cash amount may be carried over to the first quarter of 1998 if the Merger
occurs in such quarter); (ii) in excess of $65 million (other than the Merger
and the acquisition of HIMSCORP, Inc. ("HIMSCORP")) for any one acquisition;
and (iii) $150 million in the aggregate or $100 million in cash for 1998 or any
subsequent year require the approval of lenders holding 51% or more of the
commitments under the Credit Agreement Amendment. No assurance can be given
that the lenders will consent to any acquisitions that Iron Mountain proposes
to make in excess of such limits.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or for a full fiscal
year.
Competition; Alternative Technologies. Iron Mountain has one or more
competitors in all geographic areas where it operates. Iron Mountain believes
that competition for customers is based on price, reputation for reliability,
quality of service and scope and scale of technology, and believes that it
generally competes effectively based on these factors. As a result of this
competition, the records management industry has for the past several years
experienced downward pricing pressures. While Iron Mountain believes that this
pricing climate is stabilizing, there can be no assurance that prices will not
decline further, as competitors seek to gain or preserve market share. Should a
further downward trend in pricing occur or continue for an extended period of
time, it could have a material adverse effect on Iron Mountain's results of
operations. Iron Mountain also competes for acquisition candidates. Some of
Iron Mountain's competitors may possess greater financial and other resources
than Iron Mountain. If any such competitor were to devote additional resources
to the records management business and such acquisition candidates or to focus
its strategy on Iron Mountain's markets, Iron Mountain's results of operations
could be adversely affected. In addition, Iron Mountain faces competition from
the internal document handling capability of its current and potential
customers. There can be no assurance that these organizations will outsource
more of their document management needs or that they will not bring in-house
some or all of the functions they currently outsource.
The substantial majority of Iron Mountain's revenues have been derived
from the storage of paper documents and from related services. Such storage
requires significant physical space. Alternative technologies for generating,
capturing, managing, transmitting and storing information have been developed,
many of which require significantly less space than paper. Such technologies
include computer media, microforms, audio/video tape, film, CD-ROM
29
<PAGE>
and optical disk. None of these technologies has replaced paper as the
principal means for storing information. However, there can be no assurance
that one or more non-paper-based technologies (whether now existing or
developed in the future) may not in the future reduce or supplant the use of
paper as a preferred medium, which could in turn adversely affect Iron
Mountain's business.
Financial Leverage; Debt Service Requirements. Iron Mountain is highly
leveraged due to the substantial indebtedness it has incurred primarily to
finance acquisitions and expand its operations. As of September 30, 1997, after
giving effect to the acquisitions consummated after September 30, 1997, the
Merger and Iron Mountain's offering of $250 million of 8-3/4% Senior
Subordinated Notes due 2009 (the "1997 Notes") and the use of the net proceeds
thereof, Iron Mountain had $494.5 million in total indebtedness and $224.4
million in stockholders' equity. Iron Mountain expects to continue to borrow
under the Credit Agreement and possible future credit arrangements in order to
finance possible future acquisitions and for general corporate purposes.
The ability of Iron Mountain to repay its indebtedness depends upon future
operating performance, which is subject to the success of Iron Mountain's
business strategy, prevailing economic conditions, levels of interest rates and
financial, business and other factors, many of which are beyond Iron Mountain's
control. The debt service obligations of Iron Mountain could have important
consequences, including the following: (i) the ability of Iron Mountain to
obtain additional financing for future working capital needs or for possible
future acquisitions or other purposes may be limited; (ii) a substantial
portion of Iron Mountain's cash flow from operations will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing funds
available for other purposes; (iii) Iron Mountain may be more vulnerable to
adverse economic conditions than some of its competitors and thus may be
limited in its ability to withstand competitive pressures; and (iv) Iron
Mountain may be more highly leveraged than certain of its competitors, which
may place it at a competitive disadvantage.
A substantial portion of Iron Mountain's cash flow from operations is
required for debt service. Management believes that cash flow from operations
in conjunction with borrowings from existing and possible future credit
facilities will be sufficient for the foreseeable future to meet debt service
requirements and to make possible future acquisitions and capital expenditures.
However, there can be no assurance in this regard, and Iron Mountain's leverage
could make it vulnerable to a downturn in the operating performance of its
subsidiaries, a downturn in economic conditions or, because borrowings under
the Credit Agreement bear interest at rates which fluctuate, increases in
interest rates on borrowings under the Credit Agreement. If such cash flow were
not sufficient to meet such debt service requirements or payments of principal,
Iron Mountain could be required to sell additional equity securities, refinance
its obligations or dispose of assets in order to make such scheduled payments.
There can be no assurance that Iron Mountain would be able to effect any of
such transactions or do so on favorable terms.
Casualty. Iron Mountain currently maintains and intends to continue to
maintain, to the extent such insurance is available on commercially reasonable
terms, comprehensive liability, fire, flood and earthquake (where appropriate)
and extended coverage insurance with respect to the properties that it now owns
or leases or that it may in the future own or lease, with customary limits and
deductibles. Certain types of loss, however, may not be fully insurable on a
cost-effective basis, such as losses from earthquakes, or may be altogether
uninsurable, such as losses from riots. In addition, as of September 30, 1997,
28 of Iron Mountain's 156 records management facilities were located in
California and Iron Mountain derived approximately 23% of its revenues for the
nine months ended September 30, 1997 from its operations in California. Giving
effect to the Recent Acquisitions and the Merger, as of September 30, 1997, 44
of Iron Mountain's 217 records management facilities were located in California
and Iron Mountain would have derived approximately 24% of its revenues for the
nine months ended September 30, 1997 on a pro forma basis from these 44
facilities. Iron Mountain has in the past suffered damages and losses from an
earthquake and a riot in California, which damages and losses were
substantially covered by insurance. In March 1997, Iron Mountain experienced
three fires, two of which authorities have determined were caused by arson and
which resulted in significant damage to one of its records management
facilities and the total destruction of another of its records management
facilities, both located in South Brunswick, New Jersey. Iron Mountain has
filed several insurance claims related to the South Brunswick fires, including
a significant claim under its business interruption insurance policy. In the
future, should uninsured losses or damages occur, Iron Mountain could lose both
its investment in and anticipated profits and cash flow from the affected
property and may continue to be obligated on any leasehold obligations,
mortgage indebtedness or other obligations related to such property. As a
result, any such loss could materially adversely affect Iron Mountain.
30
<PAGE>
Recent Losses; EBITDA Objective. Iron Mountain has experienced net losses
applicable to common stockholders of $0.1 million, $1.9 million, $2.0 million
and $1.8 million during 1994, 1995, 1996 and the first nine months of 1997,
respectively. Such net losses are attributable in part to significant charges
associated with Iron Mountain's pursuit of its growth strategy, namely, (i)
depreciation and amortization expenses associated with expansion of Iron
Mountain's storage capacity and (ii) goodwill amortization associated with
acquisitions accounted for under the purchase method. In addition, net income
applicable to common stockholders has been negatively affected by a charge for
accretion of a redeemable put warrant and, in 1996, by an extraordinary charge
related to the early retirement of debt. The put warrant was redeemed in
February 1996, upon completion of Iron Mountain's initial public offering.
Iron Mountain's primary financial objective is to increase its EBITDA,
which is a source of funds to service indebtedness and for investment in
continued internal growth and growth through acquisitions, and not net income
and net income applicable to common stockholders. Iron Mountain has benefited
from growth in EBITDA, which has increased from $17.9 million for 1992 to $33.6
million for 1996 ($34.0 million for the first nine months of 1997, an increase
of 40.9% over the first nine months of 1996), while net losses applicable to
common stockholders have increased over such period. Based on its experience in
the records management industry, Iron Mountain believes that EBITDA is an
important tool for measuring the performance of records management companies
(including potential acquisition targets) in several areas, such as liquidity,
operating performance and leverage. In addition, lenders use EBITDA as a
criterion in evaluating records management companies, and Iron Mountain's
financing agreements contain covenants in which EBITDA is used as a measure of
financial performance. Other measures of Iron Mountain's financial performance,
such as net income and net income applicable to common stockholders, have been
negatively affected by pursuit of Iron Mountain's objective to increase EBITDA
and may be negatively affected in the future. In addition, execution of Iron
Mountain's growth strategy could result in future net losses due to increased
interest expense associated with borrowings under the Credit Agreement and
possible future credit arrangements and increased depreciation and amortization
expenses.
Anti-Takeover Effect of Certain Provisions of Iron Mountain's Certificate
of Incorporation, By-Laws and the Note Indenture. Certain provisions of Iron
Mountain's Amended and Restated Certificate of Incorporation (the "Iron
Mountain Restated Certificate") and the Iron Mountain By-Laws could have the
effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding
capital stock of Iron Mountain and could make it more difficult to consummate
certain types of transactions involving an actual or potential change in
control of Iron Mountain, such as a merger, tender offer or proxy contest. See
"Description of Iron Mountain Capital Stock--DGCL and Certain Provisions of the
Iron Mountain Restated Certificate and Iron Mountain By-Laws." The Iron
Mountain Restated Certificate also provides for three classes of Directors, as
equal in number as possible, to be elected on a staggered basis (one class per
year). As a result of such a provision, it would generally require at least two
elections of the Iron Mountain Board to replace a majority of the members of
the Iron Mountain Board, thereby enabling existing management to exercise
significant control over Iron Mountain's affairs during such period. Pursuant
to the Iron Mountain Restated Certificate, shares of Iron Mountain Preferred
Stock may be issued in the future without further stockholder approval and upon
such terms and conditions, and having such rights, privileges and preferences
(including the right to vote and the right to convert into Iron Mountain Common
Stock), as the Iron Mountain Board may determine. See "Description of Iron
Mountain Capital Stock--Preferred Stock."
Iron Mountain currently has outstanding the 1997 Notes and $165 million in
principal amount of its 10-1/8% Senior Subordinated Notes due 2006 (the "1996
Notes"). Under certain circumstances relating to a change of control of Iron
Mountain (a "Change of Control") as set forth in the Indentures (the "Note
Indentures") relating to the 1996 Notes and the 1997 Notes, Iron Mountain will
be required to make an offer to purchase all of the 1996 Notes and the 1997
Notes then outstanding at a purchase price, in cash, equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. There can be no assurance that Iron Mountain would be able to
obtain such funds through a refinancing of the 1996 Notes and the 1997 Notes to
be purchased or otherwise, or that the purchase would be permitted under the
Credit Agreement. Also, the requirement that Iron Mountain make an offer to
purchase all of the 1996 Notes and the 1997 Notes then outstanding in the event
of a Change of Control may have the effect of deterring a third party from
effecting a transaction that would constitute a Change of Control.
31
<PAGE>
Control by Principal Stockholders. Giving effect to the consummation of
the Merger based on the Baseline Assumptions, the Iron Mountain Principal
Stockholders and Kent P. Dauten, a Director of Iron Mountain, would own
approximately 43.2% of the Iron Mountain Common Stock and voting power. The
voting power held by such stockholders may have the effect of discouraging
certain types of transactions involving an actual or potential change of
control of Iron Mountain, including transactions in which the holders of Iron
Mountain Common Stock might otherwise receive a premium for their shares over
then-current market prices. In addition, as a result of such voting power, such
stockholders will have the ability to significantly affect the election of
Directors of Iron Mountain who, in turn, control the management and affairs of
Iron Mountain.
Environmental Matters. As of September 30, 1997, Iron Mountain owned or
leased approximately 8.9 million square feet of records management facilities.
Under various federal, state and local environmental laws, ordinances and
regulations ("Environmental Laws"), an owner of real estate or a lessee
conducting operations thereon may become liable for the costs of investigation,
removal or remediation of soil and groundwater contaminated by certain
hazardous substances or wastes or petroleum products. Certain such laws impose
cleanup responsibility and liability without regard to whether the owner or
operator of the real estate or operations thereon knew of or was responsible
for the contamination, and whether or not operations at the property have been
discontinued or title to the property has been transferred. In addition, the
presence of such substances, or the failure to properly remediate such
property, may adversely affect the current property owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. The owner or operator of contaminated real estate also may be
subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination.
Certain Environmental Laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("ACMs"). Such laws may impose
liability for release of ACMs and may enable third parties to seek recovery
from owners or operators of real estate for personal injury associated with
exposure to such substances. Certain facilities operated by Iron Mountain
contain or may contain ACMs. In addition, certain of the properties formerly or
currently owned or operated by Iron Mountain were previously used for
industrial or other purposes that involved the use or storage of hazardous
substances or petroleum products or the generation and disposal of hazardous
wastes, and in some instances, included the operation of underground storage
tanks ("USTs"). In connection with its former and current ownership or
operation of certain properties, Iron Mountain may be potentially liable for
environmental costs such as those discussed above. Iron Mountain has from time
to time conducted certain environmental investigations and remedial activities
at certain of its former and current facilities, but an in-depth environmental
review of all properties has not yet been conducted by or on behalf of Iron
Mountain.
Iron Mountain believes it is in substantial compliance with all applicable
material Environmental Laws. Iron Mountain has not received any written notice
from any governmental authority or third party asserting, and is not otherwise
aware of, any material environmental noncompliance, liability or claim relating
to hazardous substances or wastes, petroleum products or material Environmental
Laws applicable to its operations in connection with any of its present or
former properties. However, no assurance can be given that there are, or as a
result of possible future acquisitions there will be, no environmental
conditions for which Iron Mountain might be liable in the future or that future
regulatory action, as well as compliance with future Environmental Laws, will
not require Iron Mountain to incur costs for or at its properties that could
have a material adverse effect on Iron Mountain's financial condition and
results of operations.
No Intention to Pay Dividends. Iron Mountain has never declared or paid
cash dividends on its capital stock. Iron Mountain intends to retain future
earnings for use in its business and does not anticipate declaring or paying
any cash dividends on shares of Iron Mountain Common Stock in the foreseeable
future. In addition, Iron Mountain is currently restricted under the terms of
the Credit Agreement and the Note Indentures from declaring or paying cash
dividends on its Common Stock. See "Market Prices and Dividend Data" and Note 3
of Notes to Iron Mountain's Consolidated Financial Statements which are
included in Iron Mountain's Current Report on Form 8-K (File No. 0-27584),
filed with the Commission on October 30, 1997. See "Incorporation of Certain
Documents by Reference."
Risk Factors Related to the Arcus Proposals, Including the Merger
Value of Merger Consideration. The number of shares of Iron Mountain
Common Stock to be issued in the Merger will be based upon the Determination
Price. If the Determination Price equals the floor price of $29.00 and the
market price of the Iron Mountain Common Stock at the Effective Time is less
than such floor price, then the value of the Merger consideration to be
received by the AGI stockholders could be less than $84.7 million in
32
<PAGE>
the aggregate and approximately $2.73 per share of AGI Common Stock and
approximately $976 per share of AGI Preferred Stock, giving effect to the Arcus
Proposals and based upon the Baseline Assumptions (other than those relating to
the Determination Price). The converse is true if the Determination Price
equals the ceiling price of $36.00 and the market price of the Iron Mountain
Common Stock at the Effective Time is greater than such ceiling price. In such
instance, the Merger consideration to be received by the AGI stockholders would
exceed $84.7 million in the aggregate and approximately $2.73 per share of AGI
Common Stock and $976 per share of AGI Preferred Stock, giving effect to the
Reorganizations and based upon the Baseline Assumptions. On November 20, 1997,
the closing sales price per share of the Iron Mountain Common Stock, as
reported on the Nasdaq National Market, was $38.25 and the Determination Price
calculated as of such date was approximately $36.00 (the actual average closing
price per share for such period was $37.82). Thus, if the Merger had closed on
November 20, 1997, the value of the Merger consideration would have been
approximately $87.8 million in the aggregate and approximately $2.80 per share
of AGI Common Stock and approximately $1,034 per share of AGI Preferred Stock
(before considering any impact of the restrictions on the transfer of Iron
Mountain Common Stock to be issued in the Merger).
Restrictions on Transfer of Iron Mountain Common Stock. In order to
protect the tax-free nature of the Merger, none of the shares of Iron Mountain
Common Stock received by the former stockholders of the Arcus Parties (other
than a person receiving Iron Mountain Common Stock in exchange for AGI Common
Stock received in connection with the Option Exercise) may be transferred by
such stockholders during the Transfer Restriction Period. Iron Mountain is in
the process of obtaining appraisals of the Iron Mountain Common Stock received
in the Merger to determine how such restrictions impact the fair value of such
shares. The value of shares of Iron Mountain Common Stock issued in the Merger
would be adversely affected if the market price following the end of the
Transfer Restriction Period were less than the market price at the Effective
Time. For a full description of the Transfer Restrictions, see "The Merger
Agreement--Conversion of AGI Stock--Restrictions on Transfer of Iron Mountain
Common Stock."
Interests of Certain Persons in the Transactions. In considering the
recommendation of the Arcus Parties' Boards with respect to the Arcus
Proposals, including the Reorganizations and the Merger, stockholders of the
Arcus Parties should be aware that certain members of the Arcus Parties'
management and the Arcus Parties' Boards have certain interests in the Arcus
Proposals, including the Reorganizations and the Merger, that may present them
with actual or potential conflicts of interest. Mr. Bailey, a Director of each
Arcus Party, a stockholder of AGI and a holder of options to acquire shares of
UAC Common Stock, will be appointed a Class C Director of Iron Mountain
following the Closing Date. As a Director of Iron Mountain, Mr. Bailey will
receive Directors' compensation and will be eligible to participate in the Iron
Mountain Stock Option Plan. For a discussion of additional management
interests, see "Summary--Interests of Certain Persons."
Tax Risk. AGI intends that each of the ATSI Reorganization and the UAC
Reorganization will be tax free to AGI, UAC and ATSI, and the stockholders
thereof, except to the extent Iron Mountain elects to require the exercise of
any AGI options, in which case the option holders will recognize income to the
extent of the options' value, and to the extent stockholders receive an
allocated portion of the Damson Interest and/or the Connected Stock. AGI and
Iron Mountain intend that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code. The obligations of each of the
Arcus Parties to effect each of the ATSI Reorganization and the UAC
Reorganization, and of each of Iron Mountain and the Arcus Parties to effect the
Merger are each conditioned upon receipt of an opinion from its counsel, in form
and substance reasonably satisfactory to it, regarding certain tax consequences
of the Merger and (in the case of the Arcus Parties) each of the ATSI
Reorganization and the UAC Reorganization. Such opinions are collectively
substantially to the effect that for federal income tax purposes each of the
ATSI Reorganization and the UAC Reorganization and the Merger constitute
reorganizations within the meaning of Section 368 of the Code (or in the case of
each of the ATSI Reorganization and the UAC Reorganization, in part as
liquidations within the meaning of Sections 332 and 336 of the Code) and that no
gain or loss will be recognized by Iron Mountain or any Arcus Party as a result
of the Merger or each of the ATSI Reorganization and the UAC Reorganization. In
rendering their opinions, counsel will rely upon, and assume, the factual
accuracy of, representations of Iron Mountain, the Arcus Parties, and certain
stockholders of the Arcus Parties. Such opinions are not binding on the Internal
Revenue Service (the "Service") and would not, in any event, prevent the Service
from challenging the tax-free nature of these transactions under the Code.
33
<PAGE>
THE STOCKHOLDERS MEETINGS
At the Arcus Stockholders Meetings or any adjournments or postponements
thereof, holders of shares of AGI Common Stock, UAC Common Stock, UAC Preferred
Stock and ATSI Common Stock will be asked to approve and adopt the AGI
Proposals, the UAC Proposals, the UAC Warrant Repurchases and the ATSI
Proposal, as the case may be. At the Iron Mountain Stockholders Meetings or any
adjournments or postponements thereof, holders of shares of Iron Mountain
Common Stock will be asked to approve and adopt the Merger Agreement and the
Iron Mountain Charter Amendments.
The UAC Board has unanimously approved the UAC Reorganization Agreement,
the UAC Reorganization, the UAC Charter Amendments, the UAC Warrant
Repurchases, the ATSI Reorganization Agreement, the Merger Agreement and the
Merger, believes that the UAC Reorganization Agreement, the UAC Reorganization,
the UAC Charter Amendments, the UAC Warrant Repurchases, the ATSI
Reorganization Agreement, the Merger Agreement and the Merger are in the best
interests of UAC and its stockholders and unanimously recommends that UAC's
stockholders vote FOR the approval and adoption of the UAC Proposals and that
holders of the UAC Preferred Stock also vote FOR the UAC Warrant Repurchases
and ATSI Reorganization Agreement.
The ATSI Board has unanimously approved the ATSI Reorganization Agreement,
the ATSI Reorganization, the Merger Agreement and the Merger, believes that the
ATSI Reorganization Agreement, the ATSI Reorganization, the Merger Agreement
and the Merger are in the best interests of ATSI and its stockholders and
unanimously recommends that ATSI's stockholders vote FOR the approval and
adoption of the ATSI Proposal.
The AGI Board has unanimously approved the Reorganization Agreements, the
Reorganizations, the AGI Charter Amendments, the Merger Agreement and the
Merger, believes that the Reorganization Agreements, the Reorganizations, the
AGI Charter Amendments, the Merger Agreement and the Merger are in the best
interests of AGI and its stockholders and unanimously recommends that AGI's
stockholders vote FOR the approval and adoption of the AGI Proposals.
The Iron Mountain Board has unanimously approved the Merger Agreement and
the Iron Mountain Charter Amendments, believes that approval and adoption of
the Merger Agreement and the Iron Mountain Charter Amendments are in the best
interests of Iron Mountain and its stockholders and unanimously recommends that
Iron Mountain's stockholders vote FOR the approval and adoption of the Merger
Agreement and the Iron Mountain Charter Amendments.
Record Dates; Quorum; Required Votes
Arcus Parties:
The Arcus Record Date is November 20, 1997. Accordingly, each holder of
record of UAC Common Stock, UAC Preferred Stock, ATSI Common Stock or AGI
Common Stock at the close of business on the Arcus Record Date is entitled to
notice of the meeting (or any adjournments or postponements thereof) and, at
the meeting (or any adjournments or postponements thereof) to one vote for each
share then held on each matter submitted to a vote of such stockholder. At the
Arcus Record Date, there were 1,000,001 shares of UAC Common Stock outstanding,
27,396 shares of UAC Preferred Stock outstanding, 3,325,229 shares of ATSI
Common Stock outstanding, and 11,426,525 shares of AGI Common Stock
outstanding. The presence in person or by proxy of (i) a majority of shares of
UAC Common Stock, AGI Common Stock, and ATSI Common Stock and (ii) 66-2/3% of
the UAC Preferred Stock entitled to vote as of the Arcus Record Date is
required to constitute a quorum for the transaction of business at their
respective Arcus Stockholders Meeting.
The UAC Reorganization Agreement, the UAC Reorganization and the UAC
Charter Amendments must be approved and adopted by holders of a majority of the
outstanding shares of UAC Common Stock and holders of 66-2/3% of the outstanding
shares of UAC Preferred Stock with each voting as a separate class. The UAC
Warrant Repurchases and the ATSI Reorganization must be approved and adopted by
holders of 66-2/3% of the outstanding shares of UAC Preferred Stock. The ATSI
Reorganization Agreement and the ATSI Reorganization must be approved and
adopted by holders of a majority of the outstanding shares of ATSI Common
Stock. The Reorganization Agreements, the Reorganizations, the AGI Charter
Amendments, the Merger Agreement and the Merger must be approved and adopted by
holders of a majority of the outstanding shares of AGI Common Stock.
34
<PAGE>
Neither stockholders of UAC nor of ATSI will be asked to approve the Merger
Agreement or the Merger, because such stockholders will not be stockholders of
record of AGI on the Arcus Record Date. Therefore, stockholders of UAC or ATSI
who oppose the Merger Agreement and the Merger should vote against the UAC
Proposals, UAC Warrant Repurchases, ATSI Reorganization Agreement and ATSI
Proposal, as applicable.
Pursuant to the terms of the Stockholders' Agreement, the Arcus Principal
Stockholders have agreed to vote all of the shares of stock of the Arcus
Parties owned, beneficially or of record, by them in favor of the Arcus
Proposals, including the Merger Agreement. As the Arcus Principal Stockholders
control, directly or indirectly, 72%, 99%, 96% and 81% of the voting power of
the AGI Common Stock, UAC Common Stock, the UAC Preferred Stock and the ATSI
Common Stock outstanding, respectively, stockholder approval of the Arcus
Proposals, including the Merger is assured. See "Ancillary
Agreements--Stockholders' Agreement."
Iron Mountain:
The Iron Mountain Record Date for the determination of shares of those
holders of Iron Mountain Common Stock entitled to notice of, and to vote at, the
Iron Mountain Stockholders Meeting is November 28, 1997. Only holders of record
of shares of Iron Mountain Common Stock at the close of business on the Iron
Mountain Record Date will be entitled to notice of, and to vote at, the Iron
Mountain Stockholders Meeting or any adjournments or postponements thereof. As
of the Iron Mountain Record Date, there were outstanding 13,447,176 shares of
Iron Mountain Common Stock held by approximately 220 holders of record. The
holders of Iron Mountain Common Stock are each entitled to one vote per share.
The presence in person or by proxy of a majority of shares entitled to vote as
of the Iron Mountain Record Date is required to constitute a quorum for the
transaction of business at the Iron Mountain Stockholders Meeting. The Merger
Agreement must be approved and adopted by holders of a majority of the
outstanding shares of Iron Mountain Common Stock entitled to vote at the Iron
Mountain Stockholders Meeting. Each Iron Mountain Charter Amendment must be
approved by holders of 66-2/3% of the outstanding shares of Iron Mountain Common
Stock. Abstentions and broker non-votes are considered present for purposes of
determining a quorum and will have the same effect as a vote against the Merger
Agreement and the Iron Mountain Charter Amendments. The additional shares of
Iron Mountain Common Stock and Iron Mountain Preferred Stock to be authorized
pursuant to the Iron Mountain Charter Amendments are not necessary to consummate
the Merger. Accordingly, approval of the Iron Mountain Charter Amendments is not
a condition to the Merger.
Pursuant to the Iron Mountain Voting Agreement, the Iron Mountain
Principal Stockholders (which control 36.0% of the voting power of outstanding
Iron Mountain Common Stock) agreed, among other things, to vote all of the
shares of Iron Mountain Common Stock controlled by them in favor of the
adoption of the Merger Agreement. See "Ancillary Agreements--Iron Mountain
Voting Agreement."
Solicitation and Voting of Proxies
Arcus Parties:
Stockholders of record on the Arcus Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the applicable Arcus
Stockholders Meeting. All shares represented at the Arcus Stockholders Meetings
by properly executed proxies received prior to or at the applicable Arcus
Stockholders Meeting which have not expired or been properly revoked will be
voted at the applicable Arcus Stockholders Meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies of UAC stockholders will be voted FOR the UAC Proposals and, in the
case of UAC Preferred Stock, the UAC Warrant Repurchases and the ATSI
Reorganization Agreement, such proxies of ATSI stockholders will be voted FOR
the ATSI Proposal, and such proxies of AGI stockholders will be voted FOR the
AGI Proposals. None of the Arcus Boards knows of any matters, other than the
Arcus Proposals, that will come before the applicable Arcus Stockholders
Meetings.
If a quorum is not present at the time any of the Arcus Stockholders
Meetings is convened, or if for any other reason AGI, UAC or ATSI believes that
additional time should be allowed for the solicitation of proxies or for the
satisfaction of conditions to the Arcus Proposals, including the
Reorganizations or the Merger or the transactions contemplated thereby, AGI,
UAC or ATSI may adjourn the AGI Stockholders Meeting, the UAC Stockholders
Meeting or the ATSI Stockholders Meeting, respectively, with a vote of the
holders of a majority of the shares of AGI Common Stock, UAC Common Stock or
ATSI Common Stock, respectively, and holders of 66-2/3% of the outstanding
shares of UAC Preferred Stock present at such meeting. If AGI, UAC or ATSI
proposes to adjourn the AGI Stockholders Meeting, the UAC Stockholders Meeting
or the ATSI Stockholders Meeting, as the case may
35
<PAGE>
be, the persons named in the enclosed proxy card will vote only those shares
for which they have authority to vote in favor of the applicable Arcus
Proposals in favor of such adjournment. The persons named in the enclosed proxy
card will not vote any shares which have voted against the applicable Arcus
Proposals in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked in the
following manner by the person giving it at any time before it is voted.
Proxies may be revoked by (i) filing with the Secretary of AGI, UAC or ATSI, at
or before the AGI Stockholders Meeting, the UAC Stockholders Meeting or the
ATSI Stockholders Meeting, as applicable, a written notice of revocation
bearing a date later than the date of the proxy, (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of AGI, UAC or ATSI at or before the AGI Stockholders Meeting, the UAC
Stockholders Meeting or the ATSI Stockholders Meeting, as applicable, or (iii)
attending the AGI Stockholders Meeting, the UAC Stockholders Meeting or the
ATSI Stockholders Meeting, as applicable, and voting in person (although
attendance at the such applicable meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be sent: (i)
by holders of AGI Common Stock to Richard S. Meller, Secretary, Arcus Group,
Inc., Two North LaSalle Street-Suite 2100, Chicago, Illinois 60602; (ii) by
holders of UAC Common Stock or UAC Preferred Stock to Richard S. Meller,
Secretary, United Acquisition Company, Two North LaSalle Street-Suite 2100,
Chicago, Illinois 60602; or (iii) by holders of ATSI Common Stock to Julien H.
Meyer III, Secretary, Arcus Technology Services, Inc., 667 Madison Avenue, 25th
Floor, New York, New York 10021-8029.
Proxies are being solicited from AGI stockholders, UAC stockholders and
ATSI stockholders by and on behalf of the AGI Board, the UAC Board and the ATSI
Board, respectively. All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement will be shared by the Arcus Parties
and Iron Mountain. In addition to solicitation by use of the mails, proxies may
be solicited by Directors, officers and employees of the Arcus Parties in
person or by telephone, telegram or other means of communications. Such
Directors, officers and employees will not be additionally compensated, but may
be reimbursed for out-of-pocket expenses in connection with such solicitation.
Arrangements will be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of AGI Common
Stock, UAC Common Stock, UAC Preferred Stock and ATSI Common Stock held of
record by such persons, and the Arcus Parties may reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
Iron Mountain:
Stockholders of record on the Iron Mountain Record Date are entitled to
cast their votes, in person or by properly executed proxy, at the Iron Mountain
Stockholders Meeting. All shares represented at the Iron Mountain Stockholders
Meetings by properly executed proxies received prior to or at the Iron Mountain
Stockholders Meeting and not properly revoked will be voted at the Iron
Mountain Stockholders Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated, such proxies will be voted FOR
approval of the Merger Agreement and the Iron Mountain Charter Amendments. The
Iron Mountain Board does not know of any matters, other than the Merger
Agreement and the Iron Mountain Charter Amendments, that will come before the
Iron Mountain Stockholders Meeting.
If a quorum is not present at the time the Iron Mountain Stockholders
Meeting is convened, or if for any other reason Iron Mountain believes that
additional time should be allowed for the solicitation of proxies or for the
satisfaction of conditions to the Merger or the transactions contemplated
thereby, Iron Mountain may adjourn the Iron Mountain Stockholders Meeting with
a vote of the holders of a majority of the shares of Iron Mountain Common Stock
present at such meeting. If Iron Mountain proposes to adjourn the Iron Mountain
Stockholders Meeting, the persons named in the enclosed proxy card will vote
only those shares for which they have authority to vote in favor of the Merger
Agreement and the Iron Mountain Charter Amendments in favor of such
adjournment. The persons named in the enclosed proxy card will not vote any
shares which have voted against the Merger Agreement and the Iron Mountain
Charter Amendments in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked in the
following manner by the person giving it at any time before it is voted.
Proxies may be revoked by (i) filing with the Secretary of Iron Mountain, at or
before the Iron Mountain Stockholders Meeting, a written notice of revocation
bearing a date later than the date of the proxy, (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Iron Mountain at or before the Iron Mountain Stockholders Meeting or (iii)
attending the Iron Mountain Stockholders Meeting and voting in person (although
attendance at the such applicable meeting will not in and of itself constitute
revocation of a proxy).
36
<PAGE>
Any written notice revoking a proxy should be sent to Iron Mountain at 745
Atlantic Avenue, Boston, Massachusetts 02111, Attention: Chief Executive
Officer.
Proxies are being solicited by and on behalf of the Iron Mountain Board.
All expenses of this solicitation, including the cost of preparing and mailing
this Proxy Statement will be shared by the Arcus Parties and Iron Mountain. In
addition to solicitation by use of the mails, proxies may be solicited by
Directors, officers and employees of Iron Mountain in person or by telephone,
telegram or other means of communications. Such Directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Arrangements will
be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of Iron Mountain Common Stock held
of record by such persons, and Iron Mountain may reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
Ownership of Arcus Parties' Securities
The following tables provide information as of November 20, 1997, with
respect to the shares of AGI Common Stock, UAC Common Stock, UAC Preferred
Stock and ATSI Common Stock owned by (i) each person known by the Arcus Parties
to own more than 5% of the outstanding AGI Common Stock, UAC Common Stock, UAC
Preferred Stock or ATSI Common Stock, as the case may be, (ii) each Director of
the Arcus Parties, (iii) each executive officer of the Arcus Parties and (iv)
all Directors and executive officers of the Arcus Parties as a group. The
second table assumes that the Reorganizations, the Iron Mountain Warrant
Purchase and UAC Warrant Repurchases have occurred. The number of shares
beneficially owned by each Director or executive officer is determined
according to the rules of the Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and also any
shares which the individual or entity has the right to acquire upon
consummation of the Merger through the exercise of an option, conversion
feature or similar right. The amounts of beneficial ownership of UAC Common
Stock by Directors, executive officers and 5% stockholders of the Arcus Parties
set forth below do not reflect shares of UAC Common Stock held by AGI which may
be deemed to be owned indirectly by such Directors, executive officers and 5%
stockholders by virtue of their relationship to AGI, and the amounts of
beneficial ownership of ATSI Common Stock by Directors, executive officers and
5% stockholders of the Arcus Parties set forth below do not reflect shares of
ATSI Common Stock held by UAC which may be deemed to be owned indirectly by
such Directors, executive officers and 5% stockholders by virtue of their
relationship to UAC and/or AGI.
Prior to the Reorganizations:
<TABLE>
<CAPTION>
Amount of Amount of Amount of Amount of
Beneficial Beneficial Beneficial Beneficial
Ownership of AGI Ownership of UAC Ownership of UAC Ownership of ATSI
Common Stock Common Stock Preferred Stock(1) Common Stock
--------------------- --------------------- ------------------ ------------------
Name(2) Shares % Shares % Shares % Shares %
- ---------------------------------- ------------- ------- ------------- ------- ----------- ----- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers(3):
Ramon D. Ardizzone(4) ......... 0 * 0 * 0 * 5,000(5) *
Clarke H. Bailey(6) ............ 1,637,844(7) 14.3 838,778(8) 47.8 11,403(9) 41.6 0 *
Barrie M. Damson(10) ............ 398,287 3.5 0 * 0 * 0 *
Richard A. Drutman(11) ......... 0 * 0 * 0 * 39,930(12) 1.2
Frank G. Hayes(13) ............ 50,000(14) * 54,347(15) 5.2 0(16) * 0 *
Melvyn N. Klein(17) ............ 6,633,369(18) 58.1 898,615(19) 50.1 14,763(20) 53.9 5,000(21) *
Louis Marx, Jr.(22) ............ 1,419,505(23) 12.4 726,496(24) 44.3 11,403(25) 41.6 0 *
Julien H. Meyer III(26) ......... 50,000(27) * 40,761(28) 3.9 0(29) * 0 *
Donald W. Muskopf Jr.(30) ...... 0 * 0 * 0 * 13,430(31) *
Stanley R. Rawn, Jr.(32) ...... 1,388,490(33) 12.2 726,496(34) 44.3 11,403(35) 41.6 5,000(36) *
Thomas H. Seefurth(37) ......... 0(38) * 0(39) * 0(40) * 83,610(41) 2.5
John Tedesco(42) ............... 0(43) * 0(44) * 0(45) * 115,000(46) 3.4
G. Theodore Wolf II(47) ......... 0 * 0 * 0 * 128,721(48) 3.9
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Amount of Amount of
Beneficial Beneficial Beneficial Beneficial
Ownership of AGI Ownership of UAC Ownership of UAC Ownership of ATSI
Common Stock Common Stock Preferred Stock(1) Common Stock
--------------------- -------------------- ------------------ --------------------
Name(2) Shares % Shares % Shares % Shares %
- ---------------------------------- -------------- ------ ------------- ------ ----------- ------ ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers as a Group ............ 8,801,807(49) 77.0 1,832,501(50) 69.4 26,166(51) 95.5 395,691(52) 11.4
Five Percent Stockholders:
AGI(53) ........................ 0 * 800,000.8 80.0 0 * 0 *
GKH Investments, L.P.(54) ...... 6,391,736(55) 55.9 865,889(56) 49.1 14,223(57) 51.9 0 *
GKH Partners, L.P.(58) ......... 6,633,369(59) 58.1 898,615(60) 50.1 14,763(61) 53.9 0 *
Hudson River Capital
LLC(62) ........................ 1,387,844 12.1 726,496(63) 44.3 11,403 41.6 0 *
UAC(64) ........................ 0 * 0 * 0 * 2,703,284 81.3
</TABLE>
- ------------
* Less than 1%.
(1) Shares owned include "accrued" but undeclared payment-in-kind dividends
from January 1, 1995 through November 20, 1997 on UAC Preferred Stock,
which results in total shares of 27,396.
(2) Except as otherwise indicated, persons named have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(3) Robert J. Wasielewski and Alfred L. Williams, Jr. are Directors of each of
AGI and UAC. Mr. Wasielewski and Mr. Williams do not own any securities of
the Arcus Parties.
(4) Ramon D. Ardizzone is a Director of ATSI. Mr. Ardizzone's address is c/o
Glenayre Electronics, Inc., 5935 Carnegie Boulevard, Charlotte, North
Carolina 28209.
(5) Includes options to purchase 5,000 shares of ATSI Common Stock which will
become exercisable upon consummation of the ATSI Reorganization.
(6) Clarke H. Bailey is the Chairman and Chief Executive Officer of each of
the Arcus Parties. Mr. Bailey's address is c/o United Acquisition Company,
667 Madison Avenue, 25th Floor, New York, New York 10021-8029.
(7) Includes 1,387,844 shares beneficially owned by Hudson River Capital
LLC, a Delaware limited liability company ("Hudson"), of which Mr.
Bailey is Co-Chairman of the Board of Directors and a member. Hudson has
sole voting and investment power with respect to such shares. By virtue of
Mr. Bailey's relationship to Hudson, Mr. Bailey may be deemed to share
voting and investment power over such shares and to be the beneficial
owner of the shares of such stock owned by Hudson. Mr. Bailey disclaims
beneficial ownership of all such shares owned by Hudson. Does not include
50,000 shares directly owned by Mr. Bailey's parents.
(8) Includes options to purchase 112,282 shares of UAC Common Stock that will
become exercisable upon consummation of the UAC Reorganization. The
remaining 85,470 shares and Warrants to purchase 641,026 shares of UAC
Common Stock are beneficially owned by Hudson, of which Mr. Bailey is
Co-Chairman of the Board of Directors and a member. Hudson has sole voting
and investment power with respect to such shares. By virtue of Mr.
Bailey's relationship to Hudson, Mr. Bailey may be deemed to share voting
and investment power over such shares and to be the beneficial owner of
all such shares owned by Hudson. Mr. Bailey disclaims beneficial ownership
of all such shares owned by Hudson.
(9) Consists of shares beneficially owned by Hudson, of which Mr. Bailey is
Co-Chairman of the Board of Directors and a member. Hudson has sole voting
and investment power with respect to such shares. By virtue of Mr.
Bailey's relationship to Hudson, Mr. Bailey may be deemed to be the
beneficial owner of the shares of UAC Preferred Stock owned by Hudson. Mr.
Bailey disclaims beneficial ownership of all such shares owned by Hudson.
(10) Barrie M. Damson is a Director of each of AGI and UAC. Mr. Damson's
address is c/o Damson Natural Resources, Inc., 37 Franklin Street,
Westport, Connecticut 06880.
(11) Richard A. Drutman is the President, Chief Executive Officer and a
Director of Arcus Data Security, Inc. ("ADS") and a Director and an
executive officer of AI. Mr. Drutman's address is c/o Arcus Data Security,
Inc., 7031 Koll Center Parkway, Suite 100, Pleasanton, California 94566.
(12) Includes options to purchase 26,180 shares of ATSI Common Stock that are
now or will become vested by June 30, 1998, and upon consummation of the
ATSI Reorganization, such options will be exercisable when vested.
(13) Frank G. Hayes is a Director of AGI and an executive officer of each of
the Arcus Parties. Mr. Hayes' address is c/o United Acquisition Company,
200 West Madison Street, Suite 3800, Chicago, Illinois 60606-3414.
(14) Does not include 1,387,844 shares beneficially owned by Hudson, of which
Mr. Hayes is a member and in which Mr. Hayes beneficially owns less than
one percent of the voting securities.
(15) Includes options to purchase 54,347 shares of UAC Common Stock that will
become exercisable upon consummation of the UAC Reorganization. Does not
include 85,470 shares and Warrants to puchase 641,026 shares beneficially
owned by Hudson, of which Mr. Hayes is a member and in which Mr. Hayes
beneficially owns less than one percent of the voting securities.
(16) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Hayes is a member and in which Mr. Hayes beneficially owns less than one
percent of the voting securities.
(17) Melvyn N. Klein is a Director of each of the Arcus Parties and the
President and sole stockholder of JAKK Holding Corporation, a general
partner of GKH Partners, L.P. Mr. Klein's address is c/o GKH Partners,
L.P., Mercantile Tower, MT 209, 615 North Upper Broadway, Suite 1940,
Corpus Christi, Texas 78477.
38
<PAGE>
(18) Includes 6,391,736 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 below), GKH Partners,
L.P. may be deemed to share voting and investment power over such
securities and to be the beneficial owner of such shares. Also includes
241,633 shares held by GKH Partners, L.P. with respect to which GKH
Partners, L.P. has sole voting and investment power. By virtue of Mr.
Klein's relationship to GKH Partners, L.P. (see note 17 above), Mr. Klein
may be deemed to share beneficial ownership of the shares of AGI Common
Stock beneficially owned by GKH Partners, L.P. and GKH Investments, L.P.
Mr. Klein disclaims beneficial ownership of all such shares of AGI Common
Stock beneficially owned by GKH Partners, L.P. and GKH Investments, L.P.
(19) Includes 101,867 shares and Warrants to purchase 764,022 shares of UAC
Common Stock held by GKH Investments, L.P. By virtue of its relationship
to GKH Investments, L.P. (see note 58 below), GKH Partners, L.P. may be
deemed to share voting and investment power over such securities and to be
the beneficial owner of such securities. Also includes 3,853 shares and
Warrants to purchase 28,873 shares of UAC Common Stock held by GKH
Partners, L.P. with respect to which GKH Partners, L.P. has sole voting
and investment power. By virtue of Mr. Klein's relationship to GKH
Partners, L.P. (see note 17 above), Mr. Klein may be deemed to share
beneficial ownership of the shares of UAC Common Stock beneficially owned
by GKH Partners, L.P. and GKH Investments, L.P. Mr. Klein disclaims
beneficial ownership of all such shares owned by GKH Partners, L.P. and
GKH Investments, L.P.
(20) Includes 14,223 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 below), GKH Partners
may be deemed to share voting and investment power over such securities
and to be the beneficial owner of such shares. Also includes 540 shares
held by GKH Partners, L.P. with respect to which GKH Partners, L.P. has
sole voting and investment power. By virtue of Mr. Klein's relationship to
GKH Partners, L.P. (see footnote 17 above), Mr. Klein may be deemed to
share beneficial ownership of the shares of UAC Preferred Stock owned by
GKH Partners, L.P. and GKH Investments, L.P. Mr. Klein disclaims
beneficial ownership of all such shares owned by GKH Partners, L.P. and
GKH Investments, L.P.
(21) Includes options to purchase 5,000 shares of ATSI Common Stock that will
become exercisable upon consummation of the ATSI Reorganization.
(22) Louis Marx, Jr. is a Director of each of AGI and UAC and Co-Chairman and a
member of Hudson. Mr. Marx's address is 667 Madison Avenue, 25th Floor,
New York, New York 10021-8029.
(23) Includes 31,661 shares beneficially owned by Brae Group, Inc. of which Mr.
Marx is the controlling stockholder. By virtue of his relationship to Brae
Group, Inc., Mr. Marx may be deemed to share investment and voting power
over such shares and to beneficially own such shares. The remaining shares
are beneficially owned by Hudson, of which Mr. Marx is a Co-Chairman of
the Board of Directors and a member. Hudson has sole voting and investment
power with respect to such shares. By virtue of Mr. Marx's relationship to
Hudson, Mr. Marx may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares of AGI Common
Stock owned by Hudson. Mr. Marx disclaims beneficial ownership of all such
shares owned by Hudson.
(24) Includes 85,470 shares and Warrants to purchase 641,026 shares of UAC
Common Stock which are beneficially owned by Hudson, of which Mr. Marx is
a Co-Chairman of the Board of Directors and a member. Hudson has sole
voting and investment power with respect to these shares. By virtue of Mr.
Marx's relationship to Hudson, Mr. Marx may be deemed to share voting and
investment power over such shares and to be the beneficial owner of such
shares of UAC Common Stock owned by Hudson. Mr. Marx disclaims beneficial
ownership of all such shares owned by Hudson.
(25) Consists of 11,403 shares beneficially owned by Hudson, of which Mr. Marx
is a Co-Chairman of the Board of Directors and a member. Hudson has sole
voting and investment power with respect to such shares. By virtue of Mr.
Marx's relationship to Hudson, Mr. Marx may be deemed to share voting and
investment power over such shares and to be the beneficial owner of such
shares of UAC Preferred Stock owned by Hudson. Mr. Marx disclaims
beneficial ownership of all such shares owned by Hudson.
(26) Julien H. Meyer III is an executive officer of each of the Arcus Parties.
Mr. Meyer's address is c/o United Acquisition Company, 667 Madison Avenue,
25th Floor, New York, New York 10021-8029.
(27) Does not include 1,387,844 shares beneficially owned by Hudson, of which
Mr. Meyer is a member and in which Mr. Meyer beneficially owns less than
one percent of the voting securities.
(28) Includes options to purchase 40,761 shares of UAC Common Stock that will
become exercisable upon consummation of the UAC Reorganization. Does not
include 85,470 shares and Warrants to purchase 641,026 shares beneficially
owned by Hudson, of which Mr. Meyer is a member and in which Mr. Meyer
beneficially owns less than one percent of the voting securities.
(29) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Meyer is a member and in which Mr. Meyer beneficially owns less than one
percent of the voting securities.
(30) Donald W. Muskopf, Jr. is an executive officer of ATSI. Mr. Muskopf's
address is c/o Arcus, Inc., 222 West Las Colinas Boulevard, Suite #850,
Irving, Texas 75039-5421.
(31) Includes options to purchase 9,680 shares of ATSI Common Stock that are or
will become vested by June 30, 1998 and upon consummation of the ATSI
Reorganization, such options will be exercisable when vested.
(32) Stanley R. Rawn, Jr. is a Director of ATSI and a Director and member of
Hudson. Mr. Rawn's address is 667 Madison Avenue, 25th Floor, New York,
New York 10021-8029.
(33) Includes 1,387,844 shares beneficially owned by Hudson, of which Mr. Rawn
is a Director and a member. Hudson has sole voting and investment power
with respect to these shares. By virtue of Mr. Rawn's relationship to
Hudson, Mr. Rawn may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares of AGI Common
Stock owned by Hudson. Mr. Rawn disclaims beneficial ownership of all such
shares owned by Hudson.
(34) Includes 85,470 shares and Warrants to purchase 641,026 shares of UAC
Common Stock which are beneficially owned by Hudson, of which Mr. Rawn is
a Director and a member. Hudson has sole voting and investment power with
respect to such shares. By virtue of Mr. Rawn's relationship to Hudson,
Mr. Rawn may be deemed to share voting and investment power over such
shares and to be the beneficial owner of the shares of UAC Common Stock
owned by Hudson. Mr. Rawn disclaims beneficial ownership of all shares
owned by Hudson.
(35) Includes 11,403 shares beneficially owned by Hudson, of which Mr. Rawn is
a Director and a member. Hudson has sole voting and investment power over
such shares. By virtue of Mr. Rawn's relationship to Hudson, Mr. Rawn may
be deemed to share voting and investment power over such shares and to be
the beneficial owner of such shares of UAC Preferred Stock owned by
Hudson. Mr. Rawn disclaims beneficial ownership of all such shares owned
by Hudson.
39
<PAGE>
(36) Includes options to purchase 5,000 shares of ATSI Common Stock that will
become exercisable upon consummation of the ATSI Reorganization.
(37) Thomas H. Seefurth is a Director of ATSI. Mr. Seefurth's address is c/o
Arcus, Inc., 7031 Koll Center Parkway, Suite 100, Pleasanton, California
94566.
(38) Does not include 1,387,844 shares beneficially owned by Hudson, of which
Mr. Seefurth is a member and in which Mr. Seefurth beneficially owns less
than one percent of the voting securities.
(39) Does not include 85,470 shares and Warrants to purchase 641,026 shares
beneficially owned by Hudson, of which Mr. Seefurth is a member and in
which Mr. Seefurth beneficially owns less than one percent of the voting
securities.
(40) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Seefurth is a member and in which Mr. Seefurth beneficially owns less than
one percent of the voting securities.
(41) Includes options to purchase 52,360 shares of ATSI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the ATSI
Reorganization, any such options will be exercisable when vested.
(42) John Tedesco is a Director of ATSI. Mr. Tedesco's address is c/o CGI Group
Organization, Inc., Colts Towne Plaza, 41 Highway 34 South, Colts Neck,
New Jersey 07722.
(43) Does not include 1,387,844 shares beneficially owned by Hudson, of which
Brookings Group, LLC is a member and the owner of less than one percent of
the voting securities. Marjorie Tedesco, Mr. Tedesco's wife, and Sandra
Greenberg are the members of Brookings Group, LLC.
(44) Does not include 85,470 shares and Warrants to purchase 641,026 shares
beneficially owned by Hudson, of which Brookings Group, LLC is a member
and the owner of less than one percent of the voting securities. Marjorie
Tedesco, Mr. Tedesco's wife, and Sandra Greenberg are the members of
Brookings Group, LLC.
(45) Does not include 11,403 shares beneficially owned by Hudson, of which
Brookings Group, LLC is a member and the owner of less than one percent of
the voting securities. Marjorie Tedesco, Mr. Tedesco's wife, and Sandra
Greenberg are the members of Brookings Group, LLC.
(46) Includes options to purchase 5,000 shares of ATSI Common Stock that will
become exercisable upon consummation of the ATSI Reorganization. Also
includes the ATSI Warrant to purchase 10,000 shares of ATSI Common Stock
previously owned by Zurich Depository Corporation ("ZDC") (of which Mr.
Tedesco is a shareholder) and 100,000 shares of ATSI Common Stock
previously owned by ZDC which were recently transferred to Brookings
Group, LLC, the members of which are Marjorie Tedesco, Mr. Tedesco's wife,
and Sandra Greenberg.
(47) G. Theodore Wolf II is the President and Chief Executive Officer of Arcus
Staffing Resources, Inc. ("ASR"). Mr. Wolf's address is Arcus Staffing
Resources, Inc., 14 South Duke Street, Lancaster, PA 17602.
(48) Includes options to purchase 14,600 shares of ATSI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the ATSI
Reorganization, such options will be exercisable when vested.
(49) Includes 8,052,874 shares held by (i) Hudson (1,387,844 shares) of which
Mr. Bailey, Mr. Rawn and Mr. Marx disclaim beneficial ownership, (ii) Brae
Group, Inc. (31,661 shares) of which Mr. Marx disclaims beneficial
ownership, (iii) GKH Investments L.P. (6,391,736 shares) of which Mr.
Klein disclaims beneficial ownership and (iv) GKH Partners L.P. (241,633
shares) of which Mr. Klein disclaims beneficial ownership. (50) Includes
shares held by (i) Hudson (726,496 shares including Warrants to purchase
641,026 shares of UAC Common Stock) as to which Mr. Bailey, Mr. Rawn and
Mr. Marx disclaim beneficial ownership, (ii) GKH Investments L.P. (865,889
shares including Warrants to purchase 764,022 shares of UAC Common Stock)
as to which Mr. Klein disclaims beneficial ownership and (iii) GKH
Partners, L.P. (32,726 shares including warrants to purchase 28,873 shares
of UAC Common Stock) as to which Mr. Klein disclaims beneficial ownership.
Also includes certain options to purchase 207,390 shares of UAC Common
Stock described herein.
(51) Includes 26,166 shares held by (i) Hudson (11,403 shares) as to which Mr.
Bailey, Mr. Rawn and Mr. Marx disclaim beneficial ownership, (ii) GKH
Investments L.P. (14,223 shares) as to which Mr. Klein disclaims
beneficial ownership, and (iii) GKH Partners, L.P. (540 shares) of which
Mr. Klein disclaims beneficial ownership.
(52) Includes (i) options to purchase 122,820 shares of ATSI Common Stock that
are or will become vested by June 30, 1998, and upon consummation of the
ATSI Reorganization, such options will be exercisable when vested and (ii)
the ATSI Warrant to purchase 10,000 shares of ATSI Common Stock.
(53) The address of AGI is 667 Madison Avenue, 25th Floor, New York, New York
10021-8029.
(54) The address of GKH Investments, L.P. is 200 West Madison Street, Suite
3800, Chicago, Illinois 60606-3414.
(55) Includes 6,391,736 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 below), GKH Partners,
L.P. may be deemed to share voting and investment power over such shares
and to be the beneficial owner of such shares. (56) Includes 101,867
shares and Warrants to purchase 764,022 shares of UAC Common Stock held by
GKH Investments, L.P. By virtue of its relationship to GKH Investments,
L.P.(see note 58 below), GKH Partners, L.P. may be deemed to share voting
and investment power over such shares and to be the beneficial owner of
such shares.
(57) Includes 14,223 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 below), GKH Partners,
L.P. may be deemed to share voting and investment power over such shares
and to be the beneficial owner of such shares.
(58) The address of GKH Partners, L.P. is 200 West Madison Street, Suite 3800,
Chicago, Illinois 60606-3414. GKH Partners, L.P. is a general partner of
GKH Investments, L.P., and all of the securities of the Arcus Parties
owned directly by GKH Partners, L.P. are held by GKH Partners, L.P. in its
capacity as nominee for GKH Private, Ltd., a Singapore corporation, which
has no voting or investment power over such securities. (59) Includes
6,391,736 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 above), GKH Partners
may be deemed to share voting and investment power over such securities
and to be the beneficial owner of such shares. Also includes 241,633
shares held by GKH Partners, L.P. with respect to which GKH Partners, L.P.
has sole voting and investment power. (60) Includes 101,867 shares and
Warrants to purchase 764,022 shares of UAC Common Stock held by GKH
Investments, L.P. By virtue of its relationship to GKH Investments, L.P.
(see note 58 above), GKH Partners, L.P. may be deemed to share voting and
investment power over such securities and to be the beneficial owner of
such securities. Also includes 3,853 shares and Warrants to purchase
28,873 shares of UAC Common Stock held by GKH Partners, L.P. with respect
to which GKH Partners, L.P. has sole voting and investment power.
40
<PAGE>
(61) Includes 14,223 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 above), GKH Partners,
L.P. may be deemed to share voting and investment power over such
securities and to be the beneficial owner of such shares. Also includes
540 shares held by GKH Partners, L.P. with respect to which GKH Partners,
L.P. has sole voting and investment power. (62) The address of Hudson is
667 Madison Avenue, 25th Floor, New York, New York 10021-8029.
(63) Includes Warrants to purchase 641,026 shares of UAC Common Stock.
(64) The address of UAC is 667 Madison Avenue, 25th Floor, New York, New York
10021-8029.
After the Reorganizations and Before the Merger:
The amount of beneficial ownership of AGI Common Stock and AGI Preferred
Stock after the Reorganizations is based on the Baseline Assumptions and
assumes (i) 2.5 million shares of AGI Common Stock will be issued in the UAC
Reorganization based on a UAC Equity Value Per Share of $33.70 and an AGI
Equity Value Per Share of $2.73, (ii) 27,623 shares of AGI Preferred Stock will
be issued in the UAC Reorganization, and (iii) 7.3 million shares of AGI Common
Stock will be issued in the ATSI Reorganization based on an ATSI Equity Value
Per Share of $31.74 and an AGI Equity Value Per Share of $2.73.
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
AGI Common Stock AGI Preferred Stock
----------------------- ---------------------
Name Shares % Shares %
- ------------------------------------------- -------------- ----- ------------ -----
<S> <C> <C> <C> <C>
Directors and Executive Officers:
Ramon D. Ardizzone ..................... 58,132(1) * 0 *
Clarke H. Bailey ........................ 4,078,958(2) 18.1 11,403(3) 41.6
Barrie M. Damson ........................ 398,287 1.9 0 *
Richard A. Drutman ..................... 464,241(4) 2.2 0 *
Frank G. Hayes ........................... 720,877(5) 3.3 0(6) *
Melvyn N. Klein ........................ 7,996,543(7) 37.6 14,763(8) 53.9
Louis Marx, Jr. ........................ 2,474,574(9) 11.7 11,403(10) 41.6
Julien H. Meyer III ..................... 553,167(11) 2.5 0(12) *
Donald W. Muskopf, Jr. .................. 156,142(13) * 0 *
Stanley R. Rawn, Jr. ..................... 2,501,691(14) 11.8 11,403(15) 41.6
Thomas H. Seefurth ..................... 972,081(16) 4.5 0(17) *
John Tedesco ........................... 1,307,729(18) 6.1 0(19) *
G. Theodore Wolf II ..................... 1,496,558(20) 7.0 0 *
Directors and Executive Officers as a Group 18,293,154(21) 72.6 26,166(22) 95.5
Five Percent Stockholders:
GKH Investments, L.P. .................. 7,649,215(23) 36.1 14,223(24) 51.9
GKH Partners, L.P. ..................... 7,938,411(25) 37.4 14,763(26) 53.9
Hudson River Capital LLC ............... 2,442,913 11.5 11,403 41.6
</TABLE>
- ------------
(1) Includes options to purchase 58,132 shares of AGI Common Stock that will
be exercisable following the Reorganizations.
(2) Includes options to purchase 1,386,045 shares of AGI Common Stock that
will be exercisable following the Reorganizations. Includes 2,442,913
shares beneficially owned by Hudson, of which Mr. Bailey is Co-Chairman of
the Board of Directors and a member. Hudson has sole voting and investment
power with respect to such shares. By virtue of Mr. Bailey's relationship
to Hudson, Mr. Bailey may be deemed to share voting and investment power
over such shares and to be the beneficial owner of the shares of AGI
Common Stock owned by Hudson. Mr. Bailey disclaims beneficial ownership of
all such shares owned by Hudson. Does not include 50,000 shares held by
Mr. Bailey's parents.
(3) Includes 11,403 shares beneficially owned by Hudson, of which Mr. Bailey
is Co-Chairman of the Board of Directors and a member. Hudson has sole
voting and investment power with respect to these shares. By virtue of Mr.
Bailey's relationship to Hudson, Mr. Bailey may be deemed to share voting
and investment power over such shares and to be the beneficial owner of
such shares owned by Hudson. Mr. Bailey disclaims beneficial ownership of
all such shares owned by Hudson.
(4) Includes options to purchase 304,378 shares of AGI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the
Reorganizations, any such option will be exercisable when vested.
(5) Includes options to purchase 670,877 shares of AGI Common Stock that will
be exercisable following the Reorganizations. Does not include 2,442,913
shares beneficially owned by Hudson, of which Mr. Hayes is a member and in
which Mr. Hayes beneficially owns less than one percent of the voting
securities.
(6) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Hayes is a member and in which Mr. Hayes beneficially owns less than one
percent of the voting securities.
(7) Includes 7,649,215 shares held by GKH Investments, L.P. By virtue of its
relationship to GKH Investments, L.P. (see note 58 to the "Ownership of
Arcus Parties' Securities--Prior to the Reorganizations"), GKH Partners,
L.P. may be deemed to share voting and investment power over such shares
and to be the beneficial owner of such shares. Also includes 289,196
shares beneficially owned by GKH Partners, L.P. with respect to which GKH
Partners has sole voting and investment power. By virtue of Mr. Klein's
relationship to GKH Partners, L.P. (see note 17 to "Ownership of Arcus
Parties' Securities--Prior to the Reorganizations"), Mr. Klein may be
deemed to share voting and investment power over such shares and to share
beneficial ownership of such shares owned by GKH Partners, L.P. and GKH
Investments, L.P. Also includes options to purchase 58,132 shares of AGI
Common Stock that will be exercisable following the Reorganizations.
41
<PAGE>
(8) Includes 14,223 shares beneficially owned by GKH Investments, L.P. By
virtue of its relationship to GKH Investments, L.P. (see note 58 to the
"Ownership of Arcus Parties' Securities--Prior to the Reorganizations"),
GKH Partners, L.P. may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares. Also includes
540 shares held by GKH Partners, L.P. with respect to which GKH Partners
has sole voting and investment power. By virtue of Mr. Klein's
relationship to GKH Partners, L.P. (see note 17 to "Ownership of Arcus
Parties' Securities--Prior to the Reorganizations"), Mr. Klein may be
deemed to share voting and investment power over such shares and to share
beneficial ownership of the shares of such stock owned by GKH Partners,
L.P. and GKH Investments, L.P.
(9) Includes 31,661 shares beneficially owned by Brae Group, Inc., of which
Mr. Marx is the controlling stockholder. The remaining shares are
beneficially owned by Hudson, of which Mr. Marx is a Co-Chairman of the
Board of Directors and a member. Hudson has sole voting and investment
power with respect to such shares. By virtue of Mr. Marx's relationship to
Hudson, Mr. Marx may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares owned by Hudson.
Mr. Marx disclaims beneficial ownership of all such shares owned by
Hudson.
(10) Includes 11,403 shares beneficially owned by Hudson, of which Mr. Marx is
a Co-Chairman of the Board of Directors and a member. Hudson has sole
voting and investment power over such shares. By virtue of Mr. Marx's
relationship to Hudson, Mr. Marx may be deemed to share voting and
investment power over such shares and to be the beneficial owner of such
shares owned by Hudson. Mr. Marx disclaims beneficial ownership of all
such shares owned by Hudson.
(11) Includes options to purchase 503,167 shares of AGI Common Stock that will
be exercisable following the Reorganizations. Does not include 2,442,913
shares beneficially owned by Hudson, of which Mr. Meyer is a member and in
which Mr. Meyer beneficially owns less than one percent of the voting
securities.
(12) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Meyer is a member and in which Mr. Meyer beneficially owns less than one
percent of the voting securities.
(13) Includes options to purchase 112,543 shares of AGI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the
Reorganizations, any such options will be exercisable when vested.
(14) Includes options to purchase 58,132 shares of AGI Common Stock that will
be exercisable following the Reorganizations. Includes 2,442,913 shares
beneficially owned by Hudson of which Mr. Rawn is a Director and a member.
Hudson has sole voting and investment power with respect to these shares.
By virtue of Mr. Rawn's relationship to Hudson, Mr. Rawn may be deemed to
share voting and investment power over such shares and to be the
beneficial owner of such shares owned by Hudson. Mr. Rawn disclaims
beneficial ownership of all such shares owned by Hudson.
(15) Includes 11,403 shares beneficially owned by Hudson, of which Mr. Rawn is
a Director and a member. Hudson has sole voting and investment power with
respect to these shares. By virtue of Mr. Rawn's relationship to Hudson,
Mr. Rawn may be deemed to share voting and investment power over such
shares and to the beneficial owner of such shares owned by Hudson. Mr.
Rawn disclaims beneficial ownership of all such shares owned by Hudson.
(16) Includes options to purchase 608,757 shares of AGI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the
Reorganizations, any such options will be exercisable when vested. Does
not include 2,442,913 shares beneficially owned by Hudson, of which Mr.
Seefurth is a member and in which Mr. Seefurth beneficially owns less than
one percent of the voting securities.
(17) Does not include 11,403 shares beneficially owned by Hudson, of which Mr.
Seefurth is a member and in which Mr. Seefurth beneficially owns less than
one percent of the voting securities.
(18) Includes options to purchase 58,132 shares of AGI Common Stock that will
be exercisable following the Reorganizations and a warrant to purchase
86,960 shares of AGI Common Stock. Does not include 2,442,913 shares
beneficially owned by Hudson, of which Brookings Group, LLC is a member
and the owner of less than one percent of the voting securities. Marjorie
Tedesco, Mr. Tedesco's wife, and Sandra Greenberg are the members of
Brookings Group, LLC.
(19) Does not include 11,403 shares beneficially owned by Hudson, of which
Brookings Group, LLC is a member and the owner of less than one percent of
the voting securities. Marjorie Tedesco, Mr. Tedesco's wife, and Sandra
Greenberg are the members of Brookings Group, LLC.
(20) Includes options to purchase 169,745 shares of AGI Common Stock that are
or will become vested by June 30, 1998, and upon consummation of the
Reorganizations, such options will be exercisable when vested.
(21) Includes (i) options to purchase 3,988,040 shares of AGI Common Stock that
are or will be vested by June 30, 1998, and upon consummation of the
Reorganizations, any such options will be exercisable when vested and (ii)
warrants to purchase 86,960 shares of AGI Common Stock which will become
exercisable upon consummation of the Reorganizations.
(22) Includes 26,166 shares beneficially owned by (i) Hudson (11,403 shares) of
which Mr. Bailey, Mr. Rawn and Mr. Marx disclaim beneficial ownership,
(ii) GKH Investments L.P. (14,223 shares) of which Mr. Klein disclaims
beneficial ownership, and (iii) GKH Partners, L.P. (540 shares) as to
which Mr. Klein disclaims beneficial ownership.
(23) Includes 7,649,215 shares beneficially owned by GKH Investments, L.P. By
virtue of its relationship to GKH Investments, L.P. (see note 58 to the
"Ownership of Arcus Parties' Securities--Prior to the Reorganization"),
GKH Partners, L.P. may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares.
(24) Includes 14,223 shares beneficially owned by GKH Investments, L.P. By
virtue of its relationship to GKH Investments, L.P. (see note 58 to the
"Ownership of Arcus Parties' Securities--Prior to the Reorganizations"),
GKH Partners, L.P. may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares.
(25) Includes 7,649,215 shares beneficially owned by GKH Investments, L.P. By
virtue of its relationship to GKH Investments, L.P. (see note 58 to the
"Ownership of Arcus Parties' Securities--Prior to the Reorganizations"),
GKH Partners, L.P. may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares. Also includes
289,196 shares held by GKH Partners, L.P. with respect to which GKH
Partners, L.P. has sole voting and investment power.
(26) Includes 14,223 shares beneficially owned by GKH Investments, L.P. By
virtue of its relationship to GKH Investments, L.P. (see note 58 to the
"Ownership of Arcus Parties' Securities--Prior to the Reorganizations"),
GKH Partners, L.P. may be deemed to share voting and investment power over
such shares and to be the beneficial owner of such shares. Also includes
540 shares held by GKH Partners, L.P. with respect to which GKH Partners,
L.P. has sole voting and investment power.
42
<PAGE>
BACKGROUND OF THE MERGER AND THE OTHER ARCUS PROPOSALS
General Background of the Merger and the Other Arcus Proposals
On April 9, 1997 Clarke H. Bailey, Louis Marx, Jr. and C. Richard Reese
engaged in preliminary discussions regarding an acquisition of ATSI by Iron
Mountain. Following such preliminary discussions, on April 17, 1997, Mr. Bailey
notified the ATSI Board of plans to solicit offers for the sale of ATSI and to
retain DLJ as financial advisor to assist in the negotiations with Iron
Mountain or other potential acquirors. While the ATSI Board did not conclude at
such time that it would approve a merger with Iron Mountain or any other
acquiror, it authorized Mr. Bailey to retain DLJ and to negotiate the terms of
a potential acquisition by Iron Mountain or other potential acquirors.
Following the April 17, 1997 ATSI Board meeting, Mr. Bailey communicated
to Mr. Reese and, directly and through DLJ, to other potentially interested
parties the ATSI Board's intention to solicit offers for the acquisition of
ATSI. Preliminary discussions took place among several of such parties,
including Iron Mountain, and on April 25, 1997, ATSI and Iron Mountain entered
into a confidentiality agreement with respect to any merger negotiations, and
related due diligence, between the two companies. Mr. Bailey had several
conversations with Mr. Reese and certain other potentially interested parties
during the next several weeks concerning a possible transaction.
In May 1997, ATSI provided Iron Mountain with a written presentation,
setting forth (i) a description of the data protection and IT staffing services
offered by ATSI to its customers and (ii) certain financial and operating
information, and on May 30, 1997, ATSI management made an oral presentation to
the management of Iron Mountain, discussing the same topics and certain other
ancillary issues. In addition, at a May 29, 1997 meeting of the Iron Mountain
Board, Mr. Reese apprised the Iron Mountain Board of the existence and status
of the ongoing discussions with ATSI. The Iron Mountain Board authorized Mr.
Reese to continue negotiations with ATSI.
In June 1997, the parties commenced due diligence investigations of each
other and continued to discuss the terms of a tax-free merger of the Arcus
Parties with and into Iron Mountain for a combination of cash and Iron Mountain
Common Stock, and on June 2, 1997, ATSI sent to Iron Mountain a letter setting
forth instructions for making a formal bid for the acquisition of the Arcus
Parties.
On June 10, 1997 Iron Mountain management made a single presentation to
certain Directors and certain management personnel of the Arcus Parties, which
described certain financial and operating data with regard to Iron Mountain. By
letter dated June 13, 1997, Iron Mountain made a formal offer to acquire the
Arcus Parties.
A special meeting of the ATSI Board was convened on June 16, 1997 to
consider the Iron Mountain proposal. After considerable deliberation regarding
Iron Mountain's offer, the ATSI Board determined to proceed with negotiations
and authorized Mr. Bailey to act on ATSI's behalf.
On July 15, 1997, the Arcus Parties and Iron Mountain entered into a
non-binding letter pursuant to which the parties agreed to continue
negotiations toward a possible business combination, and on July 16, 1997, the
parties made the requisite filings in accordance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and the rules and regulations thereunder
(the "HSR Act"). By the end of July, the parties determined that discussions
relating to the proposed business combination had advanced to a point that
called for the parties to negotiate definitive documentation.
On July 28, 1997, at a meeting of the Iron Mountain Board, Mr. Reese
provided an extensive update of the status of negotiations with the Arcus
Parties, which included the business and operations of the Arcus Entities, the
proposed terms and the mix of cash and shares of Iron Mountain Common Stock.
The Iron Mountain Board determined to continue to proceed with the negotiations
and authorized Mr. Reese to continue to act on Iron Mountain's behalf.
Negotiation of the material terms of a possible business combination
continued into September 1997, and on September 17, 1997, at the request of Mr.
Reese, Messrs. Reese and Bailey met to attempt to finalize such terms. During
the September 17 meeting, Mr. Reese discussed with Mr. Bailey the terms for the
acquisition of the Arcus Parties for $160 million (including the assumption of
funded indebtedness, which was $44.5 million as of July 31, 1997) payable in
cash and Iron Mountain Common Stock in a tax-free transaction. In addition, the
parties agreed that the amount of stock to be issued by Iron Mountain would not
be fixed but would be based on a market price
43
<PAGE>
calculation, with a "collar" with a mid-point of $32.50, a floor of $29.00 and
a ceiling of $36.00. The Iron Mountain offer was contingent on completion of
due diligence and certain other conditions.
On September 25, 1997, at a joint special meeting of the Arcus Boards,
members of the Arcus Parties' managements and their legal and financial
advisors reviewed the proposed terms and conditions of the Merger and the
related transactions and DLJ issued its fairness opinion with respect to the
Merger. Following an extensive discussion of such terms and conditions, each of
the Arcus Boards unanimously affirmed its determination that the terms of the
Arcus Proposals are fair to, and in the best interests of, the Arcus Parties to
which they relate and their respective stockholders, approved the Arcus
Proposals, and resolved to recommend that their respective stockholders vote
for approval and adoption of the applicable Arcus Proposals.
The Iron Mountain Board held a meeting on September 4, 1997, at which the
Iron Mountain Board (i) received a presentation by members of Iron Mountain's
management, its legal advisors and Bear Stearns and (ii) reviewed the terms of
the Merger Agreement, and the transactions contemplated thereby. At this
meeting, the Iron Mountain Board authorized Mr. Reese to negotiate the final
terms of the Merger Agreement. On September 26, 1997, at a special meeting of
the Iron Mountain Board, Mr. Reese presented to the Iron Mountain Board the
terms which he and Mr. Bailey had agreed upon, and Bear Stearns delivered the
Bear Stearns Opinion to the effect that, as of September 26, 1997, the Total
Consideration to be paid by Iron Mountain in the Merger was fair, from a
financial point of view, to Iron Mountain. The Iron Mountain Board, by
unanimous vote, determined that the Merger was fair to, and in the best
interests of, Iron Mountain and its stockholders, approved the Merger and
resolved to recommend that the stockholders of Iron Mountain vote for approval
and adoption of the Merger Agreement.
Accordingly, on September 26, 1997 officers of each of the Arcus Parties
and Iron Mountain executed the Merger Agreement.
On November 25, 1997, Iron Mountain and each of the Arcus Parties executed
an amendment to the Merger Agreement to clarify certain previously agreed upon
technical matters. Each of the Arcus Boards and the Iron Mountain Board
approved such amendment by unanimous written consents.
Recommendation of the Arcus Boards; the Arcus Parties' Reasons for the Merger
The Arcus Boards believe that the Merger Agreement, the other Arcus
Proposals and the transactions contemplated thereby (including, without
limitation, the Merger and the Reorganizations) are fair to, and in the best
interests of, their respective stockholders. The Arcus Boards recommend that
their respective stockholders vote FOR the approval of the applicable Arcus
Proposals, including the Reorganization Agreements and the Merger Agreement.
The Arcus Boards, in reaching their respective determinations, considered the
following factors, which represent all material factors considered and all of
which were considered as a whole and not separately.
o Total Consideration. An integral part of the determination by the
Arcus Boards that the Reorganizations, the Merger and the other Arcus
Proposals are in the best interests of, and fair to, the stockholders
of the Arcus Parties was a determination that the total consideration
that Iron Mountain was willing to pay was fair. The Arcus Parties'
managements had observed the consolidation occurring in the records
management and IT staffing industries and believed that the aggregate
purchase price of $160 million offered by Iron Mountain compared
favorably to (i) the sale prices of other companies in the records
management industry and (ii) the valuation methodologies and valuation
estimates presented to the Arcus Boards by DLJ's representatives, as
further discussed below. The Arcus Boards concluded that it was
unlikely that another buyer would offer stockholders of the Arcus
Parties a more favorable combination of price, certainty of closing,
liquidity, tax deferral, and long-term investment prospects than what
Iron Mountain had offered. Based on the foregoing and on the DLJ
Opinion, as further discussed below, the Arcus Boards concluded that
the Merger was fair, from a financial point of view, to the
stockholders of their respective Arcus Parties, after giving effect to
the other Arcus Proposals.
o Choice of liquidity or continued investment for stockholders of the
Arcus Parties. The Arcus Boards viewed as favorable the structure of
the proposed Merger that afforded stockholders of the Arcus Parties
immediate liquidity in the form of cash as to a portion of their
holdings and a choice of either (i) seeking increased liquidity after
the Merger through a sale, after the Transfer Restriction Period,
where applicable, of their Iron Mountain Common Stock on the open
market or (ii) continuing their investment in the Arcus
44
<PAGE>
Parties through Iron Mountain, a larger and better-capitalized
company. In evaluating the Merger, the Arcus Boards considered the
limited trading market for the Iron Mountain Common Stock and the
fluctuations in price that could result from this trading market.
While the Arcus Boards considered this factor to be negative, in light
of the favorable aspects of the transaction and their belief that a
more active market in the Iron Mountain Common Stock would develop,
this factor was not of material concern to the Arcus Boards.
o The strategic aspects of the Merger. By receiving Iron Mountain Common
Stock, the stockholders of the Arcus Parties will have an investment
in a larger company, which the Arcus Boards believe offers greater
financial resources and flexibility, competitive strength and business
opportunities than would be possible for the Arcus Parties alone. The
Arcus Boards thus concluded that the Merger provides stockholders of
the Arcus Parties with better long-term prospects and liquidity than
if they continued to hold their shares of the Arcus Parties.
o The Arcus Boards' review of the business, operations, financial
condition, earnings and prospects of Iron Mountain. In choosing Iron
Mountain as its merger partner, the Arcus Boards considered and
reviewed the leadership that Iron Mountain has achieved in the highly
fragmented records management industry, its commitment to and evidence
of sustained and accelerated growth, both through acquisitions and
internally, and its plans for financing such growth.
o Opinion of Financial Advisor. The Arcus Boards also took into
consideration the analysis and opinion of DLJ that the aggregate
consideration to be received by the holders of securities of the Arcus
Parties pursuant to the Merger Agreement was fair to such holders from
a financial point of view. See "--Opinion of Financial Advisor to the
Arcus Parties."
The Arcus Boards concluded that the Iron Mountain proposal offered the
best combination of price, relative certainty of closing and long-term
prospects of any other alternative. The Arcus Boards reviewed with their
counsel and with management the provisions of the Merger Agreement and
determined that its terms permitted the Arcus Parties to achieve a tax-free
disposition for marketable securities (subject to restrictions on trading in
order to preserve the tax-free nature of the Merger), a factor the Arcus Boards
felt would be important to most of their stockholders. The Arcus Boards had
also considered periodically an initial public offering of equity securities of
AGI or ATSI. However, the Arcus Boards concluded, even after considering the
fact that in order to protect the tax-free nature of the Merger, none of the
shares of Iron Mountain Common Stock received by the former stockholders of the
Arcus Parties (other than shares of Iron Mountain Common Stock received in
exchange for AGI Common Stock received in connection with the Option Exercise)
may be transferred by such stockholders during the Transfer Restriction Period,
that an initial public offering could have offered less liquidity to such
stockholders than the Merger. Furthermore, there could be no assurances that
the market would be amenable to a public offering by any of the Arcus Parties
at any particular time or that a more favorable price could be achieved in an
initial public offering than that which could be achieved through the Merger.
In reaching its conclusions, the Arcus Boards recognized that the amount of the
Iron Mountain Common Stock (expressed in dollar terms) as a percentage of the
aggregate Merger consideration, the aggregate Warrant Purchase Price, the
Connected Stock and the Damson Interest to be received by holders of UAC
Preferred Stock, UAC Common Stock and Warrants as a result of the
Reorganizations and the Merger will be up to 2.8 percentage points higher than
the amount of the Iron Mountain Common Stock (expressed in dollar terms) as a
percentage of the aggregate Merger consideration to be received by holders of
AGI Common Stock or ATSI Common Stock (assuming the Baseline Assumptions). The
Arcus Boards concluded that any such difference was attributable to transaction
structuring requirements arising as a result of the Reorganizations and the
desire to protect the tax-free nature of the transactions.
Based upon the foregoing, each of the Arcus Boards concluded at the
September 25, 1997 meeting that the Merger represents the best strategic
alternative currently available to maximize the return to the stockholders of
the Arcus Parties. In view of the wide variety of factors considered in
connection with the evaluation of the Merger, none of the Arcus Boards found it
practicable to, nor did they attempt to, quantify or otherwise assign relative
weights to the specific factors they considered in reaching their
determinations.
Presently, the ATSI Common Stock is owned primarily by UAC and the UAC
Common Stock is in turn owned primarily by AGI. To effectuate a tax-free plan
of reorganization, the Arcus Boards concluded that it was necessary to collapse
the Arcus Parties into a single holding company, AGI, so that at the Effective
Time, all of the current stockholders of AGI, UAC and ATSI who do not dissent
from the Reorganizations will be stockholders of AGI.
45
<PAGE>
Each of the UAC Board and AGI Board further determined that it is
desirable and in the best interests their respective corporations and
stockholders for such Arcus Parties to distribute their non-core assets, namely
the Connected Stock and Damson Interest, so that at the Effective Time the only
assets contained within AGI will be those assets that directly relate to the
businesses of AGI, UAC, ATSI and their operating subsidiaries. To effectuate
the distribution of such non-core assets, the UAC Board and the AGI Board
considered various alternatives in structuring the Reorganizations. See "The
Reorganizations and Other Arcus Proposals."
THE AGI BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AGI COMMON STOCK VOTE
FOR THE AGI PROPOSALS. THE UAC BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF UAC
COMMON STOCK AND HOLDERS OF UAC PREFERRED STOCK VOTE FOR THE UAC PROPOSALS AND
THAT HOLDERS OF UAC PREFERRED STOCK ALSO VOTE FOR THE UAC WARRANT REPURCHASES
AND ATSI REORGANIZATION AGREEMENT. THE ATSI BOARD UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF ATSI COMMON STOCK VOTE FOR THE ATSI PROPOSAL.
Opinion of Financial Advisor to AGI
AGI retained DLJ as its exclusive financial advisor in connection with the
proposed sale of AGI. In this capacity, on September 25, 1997, DLJ delivered
the DLJ Opinion, to the effect that, as of such date and based upon and subject
to the assumptions, limitations and qualifications set forth in such opinion,
the aggregate consideration to be received by the AGI Equityholders was fair to
such holders from a financial point of view.
The full text of the DLJ Opinion is attached as Annex VII to this Proxy
Statement. Arcus Parties stockholders are urged to, and should, read the DLJ
Opinion in its entirety for assumptions made, procedures followed and other
matters considered by DLJ.
The DLJ Opinion was prepared for the AGI Board and is directed only to the
fairness of the aggregate consideration to be received by the AGI Equityholders
pursuant to the Merger Agreement from a financial point of view. The DLJ
Opinion does not constitute a recommendation to any Arcus Party stockholder on
how such stockholder should vote at the Arcus Stockholders Meetings. DLJ
expressed no opinion as to the fairness of the terms of the Reorganizations
from a financial point of view or otherwise to any of the holders of various
securities of UAC or ATSI.
The DLJ Opinion does not constitute an opinion as to the price at which
Iron Mountain Common Stock will actually trade at any time. The type and amount
of consideration was determined in arms-length negotiations between the Arcus
Parties and Iron Mountain, in which negotiations the Arcus Parties were advised
by DLJ. No restrictions or limitations were imposed upon DLJ with respect to
the investigations made or the procedures followed by DLJ in rendering its
opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement and the
Exhibits thereto, as well as certain financial and other information that was
publicly available or furnished to DLJ by the Arcus Parties and Iron Mountain,
including information furnished to DLJ during discussions with their respective
managements. Included in the information provided to DLJ were (i) certain
financial estimates through 1997, (ii) certain other long-term assumptions and
guidelines for the period beginning January 1, 1998 and ending December 31,
2006, provided by the management of ATSI and the Arcus Parties, respectively,
and (iii) certain projections of Iron Mountain for the period beginning January
1, 1997 and ending December 31, 1998 and certain other financial information
prepared by the management of Iron Mountain. In addition, DLJ compared certain
financial and securities data of ATSI and Iron Mountain with various other
companies whose securities are traded in public markets, reviewed comparable
transactions and business combinations and performed such other financial
studies, analyses and investigations as DLJ deemed appropriate for purposes of
rendering the DLJ Opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to it from public sources, that was provided to it by the Arcus Parties or Iron
Mountain or their respective representatives, or that was otherwise reviewed by
it. With respect to the financial projections developed from the financial
information and guidelines supplied to DLJ, DLJ assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgments of the managements of the Arcus Parties and Iron Mountain as to the
future operating and financial performance of ATSI and Iron Mountain,
respectively. DLJ did not assume any responsibility for making an independent
evaluation of any assets or liabilities
46
<PAGE>
of the Arcus Parties or Iron Mountain or for making any independent
verification of any of the information reviewed by it. In rendering its
opinion, DLJ did not take into account AGI's net operating loss carryforwards
and assumed the Reorganizations were effected prior to the Effective Time. In
rendering its opinion, DLJ assumed the distribution of the Arcus Parties'
non-core assets (i.e., the Connected Stock and the Damson Interest), and
therefore its opinion was based solely on an analysis of ATSI and its operating
subsidiaries. The DLJ Opinion is necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to it as of, the date of the opinion.
The following is a summary of certain financial analyses performed by DLJ
and presented to the AGI Board at the September 25, 1997 joint meeting of the
Arcus Boards. All analyses discussed below, unless otherwise indicated, assume
that the aggregate value of the Total Consideration is $160 million.
ATSI Valuation Analysis:
Summary of Valuation Multiples. For reference purposes, DLJ analyzed the
aggregate consideration of $160 million ("Offer Enterprise Value") relative to
ATSI EBITDA for the last twelve months ("LTM") ended in July 1997 ("ATSI LTM
EBITDA"), ATSI Pro Forma EBITDA for the last twelve months ended in July 1997
("ATSI Pro Forma LTM EBITDA"), ATSI estimated 1997 EBITDA ("ATSI 1997 EBITDA"),
and ATSI estimated Pro Forma 1997 EBITDA ("ATSI Pro Forma 1997 EBITDA"), where
"pro forma" is defined as the operating results of ATSI including the effect of
acquisitions for the full period indicated. The Offer Enterprise Value yielded
multiples of ATSI LTM EBITDA and ATSI Pro Forma LTM EBITDA of 11.6x and 10.5x,
respectively (collectively, the "ATSI Offer LTM EBITDA Multiples") and
multiples of ATSI 1997 EBITDA and ATSI Pro Forma 1997 EBITDA of 9.9x and 9.5x,
respectively (collectively, the "ATSI Offer 1997 EBITDA Multiples").
Comparable Company Analysis. To provide contextual data and comparative
market information, DLJ analyzed the operating performance of ATSI and the
Offer Enterprise Value relative to the operating performance and market trading
statistics of five publicly traded companies: Iron Mountain, Pierce Leahy
Corp., F.Y.I. Incorporated, Brambles Industries Limited and Anacomp, Inc. (the
"ATSI Comparable Companies"). Historical financial information used in
connection with DLJ's analysis is as of the most recent publicly available
financial statements for each company prior to September 25, 1997.
DLJ examined certain publicly available financial data of the ATSI
Comparable Companies, including (i) enterprise value as a multiple of LTM
EBITDA for such ATSI Comparable Companies and (ii) enterprise value as a
multiple of 1997 projected EBITDA ("1997 EBITDA") for such ATSI Comparable
Companies. Projected EBITDA for the comparable companies was based on available
research reports, except for Iron Mountain which was based on projections
received from Iron Mountain management.
DLJ's analysis of the ATSI Comparable Companies as a whole indicated that
enterprise values as a multiple of LTM EBITDA averaged 10.3x and that
enterprise values as a multiple of 1997 EBITDA averaged 9.7x (collectively, the
"ATSI Comparable Companies EBITDA Multiples"). DLJ compared the ATSI Comparable
Companies EBITDA Multiples to the ATSI Offer LTM EBITDA Multiples and the ATSI
Offer 1997 EBITDA Multiples. Using the ATSI Comparable Companies EBITDA
Multiples, DLJ calculated an implied enterprise value for ATSI and compared
this against the Offer Enterprise Value. Using the average multiple of LTM
EBITDA and applying this to ATSI LTM EBITDA and ATSI Pro Forma LTM EBITDA
rendered implied enterprise values for ATSI of $141.5 million and $156.6
million, respectively, which represent discounts to the Offer Enterprise Value
of 11.6% and 2.1%, respectively. Using the average multiple of 1997 EBITDA and
applying this to ATSI 1997 EBITDA and ATSI Pro Forma 1997 EBITDA rendered
implied enterprise values for ATSI of $157.0 million and $163.9 million,
respectively, which represent a 1.9% discount and a 2.4% premium to the Offer
Enterprise Value, respectively.
Comparable Transactions Analysis. DLJ reviewed publicly available
information for completed domestic merger and acquisition transactions of
comparable document data storage providers which were announced since 1995.
Within this group DLJ focused on three transactions: Iron Mountain's
acquisition of Safesite Records Management Corporation ("Safesite"), Iron
Mountain's acquisition of Records Retention/Filesafe, L.P. and Iron Mountain's
acquisition of HIMSCORP (collectively, the "ATSI Primary Comparable
Transactions"). For each of the ATSI Primary Comparable Transactions, DLJ
calculated for each acquired company its transaction value as a multiple of LTM
EBITDA adjusted for cost savings. DLJ's analysis of the ATSI Primary Comparable
Transactions indicated that transaction values as a multiple of EBITDA averaged
10.1x (the "ATSI Primary Comparable Transactions EBITDA Multiple").
47
<PAGE>
DLJ compared the ATSI Primary Comparable Transactions EBITDA Multiple to
the ATSI Offer LTM EBITDA Multiples. Using the ATSI Primary Comparable
Transactions EBITDA Multiple, DLJ calculated implied enterprise values for ATSI
and compared these to the Offer Enterprise Value. Using the ATSI Primary
Comparable Transactions EBITDA Multiple and applying this to ATSI LTM EBITDA
and ATSI LTM Pro Forma EBITDA rendered implied enterprise values for ATSI of
$138.8 million and $153.5 million, respectively which represent discounts of
13.3% and 4.1% to the Offer Enterprise Value, respectively.
Discounted Cash Flow Analysis. DLJ performed a discounted cash flow
("DCF") analysis of ATSI for the period beginning January 1, 1998 and ending
December 31, 2006 on the stand-alone unlevered free cash flows of ATSI based
upon the projections provided by ATSI's management through 1997 and certain
other long-term assumptions and guidelines provided by management of the Arcus
Parties. Unlevered free cash flows were calculated as EBITDA less (i) projected
capital expenditures, (ii) projected changes in net working capital and (iii)
projected cash taxes. Terminal values were calculated using growth rates of
free cash flow ranging from 4% to 8%. The unlevered free cash flows and
terminal value were then discounted to a present value using a range of
discount rates from 13.0% to 14.5%, representing an estimated range of the
weighted average cost of capital of ATSI. Based on this analysis, DLJ
calculated a range of implied enterprise values for AGI of $124.1 million to
$219.5 million, with an average of $159.8 million.
The DCF analysis was included because it is a widely used methodology to
estimate value; however, this methodology necessarily relies upon numerous
assumptions, including revenue growth rates, gross profit, EBITDA and operating
profit margins, terminal values and discount rates, among others. Changes in
any one of the assumptions could have a significant effect on the results of
the analysis; therefore, its usefulness in analyzing the transaction is
limited.
Iron Mountain Valuation Analysis:
At the request of AGI, DLJ performed a valuation analysis of Iron Mountain
Common Stock.
Summary of Valuation Multiples. DLJ calculated Iron Mountain's enterprise
value based on the $34.00 closing price of Iron Mountain Common Stock on
September 16, 1997. Based upon information provided to DLJ by Iron Mountain,
DLJ estimated the current enterprise value of Iron Mountain, pro forma to
include all of its recently announced acquisitions (except the Merger)
including Records Retention/Filesafe, L.P., Data Securities International, Inc.
and HIMSCORP (the "Iron Mountain Pro Forma Enterprise Value").
The Iron Mountain Pro Forma Enterprise Value represented multiples of
estimated Iron Mountain pro forma revenue and EBITDA for the last twelve months
ending September 30, 1997 ("Iron Mountain Pro Forma LTM Revenue" and "Iron
Mountain Pro Forma LTM EBITDA") of 3.3x and 11.9x, respectively.
Comparable Company Analysis. To provide contextual and comparative market
information, DLJ analyzed the operating performance and public market valuation
of Iron Mountain relative to eight publicly traded companies with similar
business operations or economic models including: Pierce Leahy Corp., F.Y.I.
Incorporated, Service Corporation International, The Loewen Group, Inc., Public
Storage, Inc., Central Parking Corporation, Cintas Corporation and G&K
Services, Inc. (the "Iron Mountain Comparable Companies"). In performing its
analysis, DLJ (i) examined the Iron Mountain Comparable Companies overall and
(ii) focused on the company, Pierce Leahy Corp., which DLJ believed to be the
most comparable to Iron Mountain given Iron Mountain's line of business, size
and market position. Historical financial information used in connection with
DLJ's analysis is as of the most recent publicly available financial statements
for each company prior to September 25, 1997.
DLJ analyzed Iron Mountain's public valuation by comparing certain
operating data and market trading statistics of Iron Mountain with those of
Pierce Leahy Corp. and the other Iron Mountain Comparable Companies. DLJ's
analysis of the Iron Mountain Comparable Companies as a whole indicated that
enterprise values as a multiple of (i) LTM revenues ranged from 1.8x to 9.9x,
with an average of 3.6x, (ii) LTM EBITDA ranged from 11.0x to 22.7x with an
average of 14.1x, (iii) 1997 projected revenues ranged from 1.7x to 8.8x with
an average of 3.4x and (iv) 1997 EBITDA ranged from 9.4x to 22.6x with an
average of 12.8x (collectively, the "Iron Mountain Comparable Multiples"). In
the case of the Iron Mountain Comparable Companies as a whole, the average
multiples exclude the high and low values.
DLJ's analysis of Pierce Leahy Corp. indicated that enterprise value as a
multiple of (i) LTM revenue equaled 3.6x, (ii) LTM EBITDA equaled 14.0x, (iii)
1997 projected revenues equaled 3.8x and (iv) 1997 EBITDA equaled 12.6x
(collectively, the "Pierce Leahy Corp. Comparable Multiples").
48
<PAGE>
Based on the Iron Mountain Comparable Multiples and the Pierce Leahy Corp.
Comparable Multiples, Iron Mountain Common Stock trades in line with both the
Iron Mountain Comparable Companies and with Pierce Leahy Corp.
Discounted Cash Flow Analysis. DLJ performed a DCF analysis of Iron
Mountain for the period beginning January 1, 1998 and ending December 31, 2006
on the stand-alone unlevered free cash flows of Iron Mountain based upon
projections provided by Iron Mountain management through 1998 and certain other
long-term assumptions based upon discussions with Iron Mountain. Unlevered free
cash flows were calculated as EBITDA less (i) projected capital expenditures,
(ii) projected cash outflows related to future Iron Mountain acquisitions,
(iii) projected changes in working capital and (iv) projected cash taxes. The
unlevered free cash flows and terminal value were then discounted to a present
value using a range of discount rates from 13.0% to 14.5%, representing an
estimated range of the weighted average cost of capital of Iron Mountain.
Terminal values were calculated using growth rates of free cash flow in
perpetuity ranging from 8.0% to 9.5%. Based on this analysis, DLJ calculated a
range of implied prices per share of Iron Mountain Common Stock of $20.64 to
$70.38, with an average of $40.09, which renders values in line with current
trading values.
The DCF analysis was included because it is a widely used methodology to
estimate value; however, this methodology necessarily relies upon numerous
assumptions, including revenue growth rates, gross profit, EBITDA and operating
profit margins, terminal values and discount rates, among others. Changes in
any one of the assumptions could have a significant effect on the results of
the analysis; therefore, its usefulness in analyzing a business's value is
limited.
Combined Company Valuation Analysis:
Discounted Cash Flow Analysis. As part of its analysis, DLJ performed a
valuation analysis of the combined company based on the pro forma results of
the combined company excluding any synergies which may arise as part of the
Merger, where "pro forma" is defined as the operating results of the combined
company including the effect of acquisitions for the full period indicated.
Unlevered free cash flows were calculated as EBITDA less (i) projected capital
expenditures, (ii) projected cash outflows related to future Iron Mountain
acquisitions, (iii) projected changes in working capital and (iv) projected
cash taxes. The unlevered free cash flows and terminal value were then
discounted to a present value using a range of discount rates from 13.0% to
14.5%, representing an estimated range of the weighted average cost of capital
of the combined company. Terminal values were calculated using growth rates of
free cash flow in perpetuity ranging from 8.0% to 10.0%. Based on this
analysis, DLJ calculated a range of implied prices per share for Iron Mountain
Common Stock post-acquisition of $22.47 to $90.97 with an average of $47.31.
DLJ noted that, based on a DCF of the combined company, the Merger should be
accretive to the price per share of Iron Mountain Common Stock in effect prior
to September 16, 1997.
The DCF analysis was included because it is a widely used methodology to
estimate value; however, this methodology necessarily relies upon numerous
assumptions, including revenue growth rates, gross profit, EBITDA and operating
profit margins, terminal values and discount rates, among others. Changes in
any one of the assumptions could have a significant effect on the results of
the analysis; therefore, its usefulness in analyzing a business's value is
limited.
Implied Valuation of Combined Company. As part of its analysis, DLJ sought
to estimate possible trading values of the combined company. DLJ calculated the
estimated pro forma EBITDA of the combined company, where "pro forma" is
defined as the operating results of the combined company including the effect
of acquisitions for the full period indicated, for five, twelve-month or LTM
periods. For each of these periods, DLJ calculated the implied price per share
of Iron Mountain Common Stock post-acquisition based upon EBITDA multiples
ranging from 10.0x to 13.0x. For the LTM period ending December 31, 1997, the
implied price per share of Iron Mountain Common Stock ranged from $27.56 to
$45.55, with an average of $36.55. For the LTM period ending March 31, 1998,
the implied per share price of Iron Mountain Common Stock ranged from $29.50 to
$48.47, with an average of $38.99. For the LTM period ending June 30, 1998 the
implied price per share of Iron Mountain Common Stock ranged from $31.49 to
$51.45, with an average of $41.47. For the LTM period ending September 30,
1998, the implied price per share of Iron Mountain Common Stock ranged from
$33.80 to $54.85, with an average of $44.33. For the LTM period ending December
31, 1998, the implied price per share of Iron Mountain Common Stock ranged from
$35.59 to $57.57, with an average of $46.58. This analysis indicates that the
Merger should be accretive to Iron Mountain Common Stock's price per share in
effect prior to September 16, 1997. The results of these analyses of the
possible future trading values of the common stock of the
49
<PAGE>
combined company is not necessarily indicative of the actual trading value of
the common stock of the combined company in the future.
No company or transaction used in the analyses described above is directly
comparable to ATSI, Iron Mountain, the combined company or the Merger and
related transactions. Accordingly, an analysis of the results of the foregoing
involves complex considerations and judgments concerning differences in
financial and operating characteristics of companies and other factors that
could affect public trading or acquisition values.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ, but describes in summary form the principal
elements of the analyses contained in the materials presented by DLJ to the AGI
Board at the joint meeting of the Arcus Boards on September 25, 1997. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an
opinion is not readily summarized. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the proposed
transaction and add to the total mix of information available. DLJ did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, DLJ considered the results of each
analysis in light of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying
its opinion. In performing its analyses, DLJ made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by DLJ are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses.
The AGI Board selected DLJ to render a fairness opinion because of DLJ's
expertise, reputation and familiarity with the records storage industry and
because its investment banking professionals have substantial experience in
transactions similar to the Merger. DLJ has not performed any investment
banking services for AGI, UAC or ATSI prior to its engagement in connection
with this transaction. DLJ was sole manager of Iron Mountain's $165 million
offering of the 1996 Notes that was consummated in September 1996, for which it
received a fee of approximately $2.5 million. In addition, DLJ participated as
a co-manager with respect to the 1997 Notes.
Pursuant to the terms of an engagement letter dated as of September 24,
1997, AGI agreed to pay DLJ (i) a fee of $200,000 at the time DLJ notified the
AGI Board that it was prepared to deliver its fairness opinion with respect to
the Merger and (ii) a transaction fee to be paid upon consummation of the
Merger equal to 0.875% of the aggregate value of (x) all cash and non-cash
consideration received by the AGI Equityholders (treating any shares issuable
upon exercise of options, warrants or other rights of conversion as
outstanding) plus (y) the amount of any funded debt assumed, acquired,
remaining outstanding, retired or defeased by Iron Mountain (net of any cash
paid or notes due the Arcus Parties from a third party paid to Iron Mountain)
in connection with the Merger, less the fees associated with (i) above. AGI has
agreed to reimburse DLJ for all out-of-pocket expenses up to $25,000 (including
the reasonable fees and expenses of its counsel) and for any out-of-pocket
expenses incurred by DLJ in excess of such amount for which DLJ has obtained
the prior written consent of AGI. AGI has agreed to indemnify DLJ and certain
related persons for certain potential liabilities and expenses relating to its
services provided to AGI, including liabilities under the federal securities
laws.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In the ordinary course of its business, DLJ may trade in the securities of Iron
Mountain for its own account or for the account of its customers and,
accordingly, may at any time hold long or short positions in such securities.
Recommendation of the Iron Mountain Board; Iron Mountain's Reasons for the
Merger
At meetings of the Iron Mountain Board held on September 4, 1997 and
September 26, 1997, the Iron Mountain Board (i) received a presentation by
members of Iron Mountain management, its legal advisors and Bear Stearns and
(ii) reviewed the terms of the Merger Agreement and the transactions
contemplated thereby. By unanimous
50
<PAGE>
vote, the Iron Mountain Board determined that the Merger is fair to, and in the
best interests of, Iron Mountain and its stockholders, approved the Merger and
resolved to recommend that stockholders of Iron Mountain vote FOR approval and
adoption of the Merger Agreement.
The Iron Mountain Board believes that the consummation of the Merger will
constitute an important step in the implementation of Iron Mountain's strategy
of enhancing its leadership position in the records management industry. Iron
Mountain has established a leadership position in the data protection services
markets in certain cities in the United States and has increased its presence
in this market by acquiring 11 records management companies that focused on the
data protection services market. AGI is an attractive merger partner to Iron
Mountain for a number of reasons. In the belief of Iron Mountain's management,
the Arcus Entities are the leading provider of data protection services in the
United States with 31 storage facilities located throughout the United States.
In addition, they have one facility in the United Kingdom. In total, the Arcus
Entities serve approximately 6,500 data protection accounts. Given the size of
the Arcus Entities, consummation of the Merger enables Iron Mountain to move
forward with its strategy of building a national platform for Iron Mountain's
delivery of data protection services. In addition, the Merger will
significantly enhance Iron Mountain's competitive position in the highly
fragmented records management industry through one transaction, rather than
through a series of smaller transactions. As a result of the Merger, Iron
Mountain will benefit from the Arcus Entities' strong management group, staff
and customer base. In addition to its core data protection services, the Arcus
Entities provide temporary and permanent personnel for the computer operations
and technical development needs of its customers. Accordingly, consummation of
the Merger will enable Iron Mountain to expand its existing line of
complementary services to include IT staffing services.
In reaching its determination, the members of the Iron Mountain Board
considered the following factors: (i) Iron Mountain's business, operations,
financial condition, earnings and prospects; (ii) the business, operations,
financial condition and earnings and prospects of the Arcus Entities; (iii) the
terms and provisions of the Merger Agreement and the related ancillary
documents (including, without limitation, the Warrant Purchase Agreements); and
(iv) the analysis and opinion of Bear Stearns that the Total Consideration to
be paid in the Merger was fair, from a financial point of view, to Iron
Mountain. See "--Opinion of Financial Advisor to Iron Mountain." In view of the
number of factors considered in connection with the evaluation of the Merger,
the Iron Mountain Board did not find it practicable to, nor did it attempt to,
quantify or otherwise assign relative weights to the specific factors it
considered in reaching its determinations.
THE IRON MOUNTAIN BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF IRON
MOUNTAIN COMMON STOCK VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
Opinion of Financial Advisor to Iron Mountain
On September 26, 1997 Bear Stearns delivered its written opinion to the
Iron Mountain Board that, based upon and subject to the considerations and
limitations contained in the opinion, as of such date, the Total Consideration
to be paid in the Merger was fair, from a financial point of view, to Iron
Mountain. The Iron Mountain Board selected Bear Stearns to act as its financial
advisor based on Bear Stearns' qualifications, expertise and reputation in
providing advice to companies as well as its prior investment banking
relationship and familiarity with Iron Mountain.
The full text of the Bear Stearns Opinion, dated September 26, 1997, is
attached as Annex VIII to this Proxy Statement and sets forth the matters
considered and the qualifications, limitations and assumptions applicable to
such opinion. Iron Mountain stockholders are urged to, and should, read such
opinion carefully in its entirety in conjunction with this Proxy Statement. The
Bear Stearns Opinion addresses only whether the Total Consideration to be paid
in the Merger is fair, from a financial point of view, to Iron Mountain and
does not constitute a recommendation to the Iron Mountain Board or to any
stockholder of Iron Mountain as to whether or not they should vote to recommend
or approve the Merger Agreement. In addition, the Bear Stearns Opinion does not
express any opinion as to the price range at which Iron Mountain Common Stock
may trade prior to or subsequent to the consummation of the Merger, nor does it
address Iron Mountain's underlying decision to effect the Merger. The type and
amount of consideration to be paid in the Merger was determined in arms-length
negotiations between Iron Mountain and the Arcus Parties. Bear Stearns advised
Iron Mountain in such negotiations. No limitations were imposed by the Iron
Mountain Board upon Bear Stearns with respect to the investigations made or
procedures followed by it in rendering its opinion. The following summary of
the Bear Stearns Opinion is
51
<PAGE>
qualified in its entirety by reference to the full text of such opinion
attached as Annex VIII to this Proxy Statement.
In the course of performing its reviews and analyses for rendering the
Bear Stearns Opinion, Bear Stearns, among other things: (i) reviewed the Merger
Agreement; (ii) reviewed Iron Mountain's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the years ended December 31, 1995 and 1996, and
its Quarterly Report on Form 10-Q for the quarter ended June 30, 1997; (iii)
reviewed ATSI's audited financial statements dated December 31, 1995 and 1996
and ATSI's interim unaudited financial statements dated June 30, 1997; (iv)
reviewed certain operating and financial information, including projections,
provided to Bear Stearns by the managements of Iron Mountain and ATSI relating
to their respective businesses and prospects; (v) met with certain members of
ATSI's and Iron Mountain's senior management to discuss their respective
operations, historical financial statements and future prospects; (vi) reviewed
the historical prices and trading volumes of Iron Mountain Common Stock; (vii)
reviewed publicly available financial data and stock market performance data of
companies which Bear Stearns deemed generally comparable to ATSI; (viii)
reviewed the terms of recent acquisitions of companies which Bear Stearns
deemed generally comparable to ATSI; (ix) performed DCF analyses and pro forma
contribution analyses utilizing forecasts of future operating performance of
ATSI and Iron Mountain as provided by Iron Mountain management; and (x)
conducted such other studies, analyses, inquiries and investigations as Bear
Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information provided to it by Iron Mountain and ATSI. With respect to
Iron Mountain's and ATSI's projected financial results that could be achieved
upon consummation of the Merger, Bear Stearns assumed that they had been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of Iron Mountain and of ATSI as to
the expected future performance of Iron Mountain and ATSI, respectively. Bear
Stearns has not assumed any responsibility for the information or projections
provided to it and has relied upon the assurances of the management of Iron
Mountain and ATSI that they are unaware of any facts that would make the Bear
Stearns Opinion incomplete or misleading. In arriving at its opinion, Bear
Stearns did not perform or obtain any independent appraisals of the assets or
liabilities of ATSI. The Bear Stearns Opinion is necessarily based upon the
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of its opinion.
The following is a summary of the material analyses presented by Bear
Stearns to the Iron Mountain Board on September 26, 1997. The summary of such
analyses, as set forth below, does not purport to be a complete description of
the analyses underlying the Bear Stearns Opinion. Based on these financial
analyses and the other factors discussed herein, and the foregoing
qualifications, limitations and assumptions, Bear Stearns determined that, as
of the date of its opinion, the Total Consideration to be paid in the Merger
was fair, from a financial point of view, to Iron Mountain.
Comparable Company Analysis. Bear Stearns compared certain financial
information of ATSI to certain public market valuation data for companies which
are engaged in similar business activities to ATSI and which, in Bear Stearns'
judgment, were comparable to ATSI for purposes of its analysis. Such analysis
was divided between ATSI's two business units: (i) data protection and (ii) IT
staffing services. The companies used in the data protection analysis were
F.Y.I. Incorporated, Iron Mountain and Pierce Leahy Corp. and in the IT
staffing analysis were Alternative Resources Corp., COREStaff, Inc., Data
Processing Resources Corp. and Accustaff, Inc. (collectively, the "Comparable
Companies"). Bear Stearns' analysis of the Comparable Companies (including pro
forma adjusted results for certain completed and pending acquisitions) included
reviewing their "enterprise values" (defined as equity value plus total debt
plus preferred stock, if any, minus cash) as a multiple of their respective LTM
EBITDA and estimated calendar year 1997 and 1998 EBITDA. Bear Stearns' analysis
of the data protection Comparable Companies indicated that the mean of their
enterprise value to EBITDA multiple was: (i) for the LTM period, 13.8x; (ii)
for estimated calendar year 1997, 13.2x; and (iii) for estimated calendar year
1998, 9.3x. The mean of the enterprise value to EBITDA multiple for the IT
staffing Comparable Companies was: (i) for the LTM period, 24.5x; (ii) for
estimated calendar year 1997, 16.7x; and (iii) for estimated calendar year
1998, 12.4x. The foregoing analysis was compared to the enterprise value to
EBITDA multiple for the Merger, which was: (i) pro forma for 1996, 11.4x; (ii)
for estimated calendar year 1997, 9.1x; and (iii) for estimated calendar year
1998, 7.8x.
Comparable Transactions Analysis. Bear Stearns analyzed 13 publicly
announced acquisition/disposition transactions in the records management
industry, the following six of which were selected as being the most relevant
(listed by acquiror/target): (i) Iron Mountain/National Business Archives,
Inc.; (ii) Iron Mountain/Data Management
52
<PAGE>
Business Records Storage, Inc.; (iii) Iron Mountain/Mohawk Business Record
Storage, Inc.; (iv) Pierce Leahy Corp./InTrust, Inc.; (v) Pierce Leahy
Corp./Records Management Services, Inc. and (vi) Iron Mountain/Safesite
(collectively the "Precedent Transactions"). Bear Stearns believed that none of
the 13 analyzed transactions were directly comparable to the Merger, and that
although the Precedent Transactions represented the best comparisons available,
the comparability of the Precedent Transactions to the Merger may be limited
for a number of reasons, including: (i) the small transaction size of the
Precedent Transactions, all but two of which involved purchase prices of $20
million or less; (ii) the lack of an auction process and relative
sophistication of the sellers (many of the Precedent Transactions involved
privately held family run businesses); and (iii) the inability to assess
synergy considerations, which could have a significant impact on the effective
valuation multiples of such transactions. The analysis of the Precedent
Transactions indicated that their mean enterprise value to revenue multiple was
2.9x. The multiples for Precedent Transactions were compared to equivalent
multiples for the Merger. The enterprise value to revenue multiple for the
Merger was: (i) pro forma for 1996, 2.0x; (ii) for estimated calendar year
1997, 1.6x; and (iii) for estimated calendar year 1998, 1.4x.
Discounted Cash Flow Analysis. Bear Stearns performed two separate DCF
analyses of ATSI based on fiscal 1998 through fiscal 2002 projections provided
by Iron Mountain's management. The first DCF analysis of ATSI utilized ranges
of discount rates and terminal value EBITDA multiples which included the
corresponding rates and multiples published by two research analysts (including
one employed by Bear Stearns) that cover Iron Mountain. Such analysis was
performed by applying a range of terminal value EBITDA multiples from 8.0x to
10.0x to the EBITDA of ATSI during the final year of the five-year projection
period. The cash flows and terminal values were then discounted to present
values using a range of discount rates from 13% to 15%. This produced an
enterprise value for ATSI ranging from $198.5 million to $249.0 million. Bear
Stearns also performed a second DCF analysis of ATSI using a capital asset
pricing model framework. Such analysis utilized discount rates ranging from 9%
to 11%, which reflect the implied cost of capital under the capital asset
pricing model. In addition, terminal values for the final year of the five-year
projection period were derived using a range of implied perpetual growth rates
of free cash flow (defined as EBITDA minus capital expenditures) of 1.5% to
3.5%. Utilizing such discount rates and implied perpetual growth rates, this
analysis resulted in an enterprise value range of ATSI from $192.9 million to
$250.2 million.
Incremental Discounted Cash Flow Analysis. Bear Stearns calculated a range
of implied incremental equity values to Iron Mountain attributable to the
Merger based upon an incremental discounted cash flow analysis. A stand-alone
discounted enterprise value of Iron Mountain was derived based on the
discounted present value of Iron Mountain's unleveraged free cash flow from
1998 through 2002, as projected by Iron Mountain's management, and its fiscal
year 2002 terminal values which in turn were based on a range of multiples of
Iron Mountain's projected EBITDA in fiscal year 2002. Net debt was then
subtracted from the discounted enterprise value to derive a range of
stand-alone Iron Mountain equity values. Bear Stearns then calculated a pro
forma equity value to give effect to the combination of ATSI and Iron Mountain,
and the cash and stock consideration paid in the Merger (based on a
Determination Price of $32.50). Bear Stearns calculated implied incremental
equity values attributable to the Merger as the difference between the implied
equity value of Iron Mountain with ATSI and the implied equity value of Iron
Mountain without ATSI. In conducting this analysis, Bear Stearns applied
discount rates ranging from 13% to 15% and multiples of terminal EBITDA ranging
from 8.0x to 10.0x. Based on this analysis, Bear Stearns derived ranges of
incremental equity values to Iron Mountain with respect to shares outstanding
prior to the Merger from $34.3 million to $47.6 million.
Relative Contribution Analysis. Bear Stearns analyzed the relative revenue
contribution and EBITDA contribution by each of ATSI and Iron Mountain to Iron
Mountain post-Merger compared to their relative equity ownership and enterprise
values. The results of this analysis indicated that post-Merger, the former AGI
stockholders would own 12% of the outstanding Iron Mountain Common Stock based
on a Determination Price of $32.50 per share. This analysis also indicated that
the Total Consideration to be paid in the Merger would constitute 16% of Iron
Mountain's enterprise value. In addition, this analysis showed that ATSI would
contribute 30% of Iron Mountain's pro forma 1996 revenues and 26% of its
projected revenues for each of 1997 and 1998. The analysis also indicated that
ATSI would contribute 23% of Iron Mountain's pro forma EBITDA in 1996 and 19%
of its projected EBITDA for each of 1997 and 1998.
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary for the purposes of its opinion, including a review of selected
investment research reports on, and earnings and long-term growth estimates
for, Iron Mountain as well as other records management and staffing companies,
and incremental trading multiple analyses.
53
<PAGE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Bear Stearns Opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness to Iron Mountain of
the Total Consideration to be paid in the Merger and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results,
including DCF analyses, are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. As described above, the Bear Stearns Opinion and presentation to
the Iron Mountain Board was one of many factors taken into consideration by the
Iron Mountain Board in making its determination to approve the Merger Agreement
and to recommend that its stockholders vote to approve the Merger Agreement.
The foregoing summary does not purport to be a complete description of the
analyses performed by Bear Stearns.
Bear Stearns is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and other purposes.
In the ordinary course of its business, Bear Stearns may actively trade
the debt and equity securities of Iron Mountain for its own account and for the
accounts of customers and, accordingly, may at any time, hold a long or short
position in such securities. Bear Stearns has in the past provided investment
banking services to Iron Mountain for which it has received customary
compensation.
Pursuant to a letter agreement dated as of April 30, 1997, Iron Mountain
has agreed to pay Bear Stearns a total fee of $1.5 million in connection with
the Merger including retainer, fairness opinion and transaction fees, the
substantial majority of which is contingent upon the closing of the Merger.
Iron Mountain has also agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel, and to indemnify Bear Stearns and certain related persons against
certain liabilities in connection with the engagement of Bear Stearns,
including certain liabilities under the federal securities laws.
54
<PAGE>
THE REORGANIZATIONS AND THE OTHER ARCUS PROPOSALS
The Arcus Boards determined that in order to eliminate a duplicative
holding company structure, it was necessary to consummate the Reorganizations.
The Arcus Boards further determined that it is desirable and in the best
interests of their respective corporations and stockholders, and the Merger
Agreement requires, that the Arcus Parties dispose of their non-core assets so
that at the Effective Time of the Merger, AGI is comprised only of assets which
are directly related to the businesses of the Arcus Entities. To effectuate the
distribution of such non-core assets, the AGI Board and UAC Board considered
various alternatives, and found the Damson Distribution (or a sale of the Damson
Interest to a third party or a contribution to a special purpose entity for the
benefit of the holders of AGI Common Stock (prior to giving effect to the
Reorganizations)) and the UAC Warrant Repurchases to be the best alternatives.
The Arcus Parties' Existing Structure
AGI. AGI, a Delaware corporation, is authorized to issue 11,661,290 shares
of AGI Common Stock and, as of November 20, 1997, 11,426,525 shares of AGI
Common Stock were issued and outstanding. AGI has no other assets other than
its ownership interest in UAC, the Damson Interest and cash on hand of $4.0
million as of September 30, 1997.
UAC. UAC, a Nevada corporation, has two classes of stock authorized, UAC
Common Stock and preferred stock, of which there is one undesignated series and
one series designated as the UAC Preferred Stock. UAC is authorized to issue
3,000,000 shares of UAC Common Stock and, as of November 20, 1997, had
1,000,001 shares of UAC Common Stock issued and outstanding. AGI owns 800,001
shares of UAC Common Stock. UAC is authorized to issue 200,000 shares of
undesignated preferred shares but no such shares have been issued. UAC is
authorized to issue 50,000 shares of UAC Preferred Stock. As of December 31,
1997, after giving effect to the payment of payment-in-kind dividends from
November 20, 1997 through December 31, 1997, 27,623 shares of UAC Preferred
Stock will be issued and outstanding.
Pursuant to the UAC Stock Option Plan and corresponding award agreements,
three officers and one employee of UAC hold options to purchase 217,390 shares
of UAC Common Stock at an exercise price of $12.50 per share. 135,390 of such
option shares are pursuant to non-qualified option grants, and the balance are
pursuant to incentive stock option grants. Pursuant to warrant agreements by
and between UAC and each of Hudson, GKH Investments, L.P. and GKH Partners,
L.P. and other Warrantholders, there are outstanding Warrants to purchase 1.5
million shares of UAC Common Stock, all with an exercise price of $13.75 per
share. All holders of UAC Warrants also hold shares of UAC Preferred Stock, in
approximately the same relative percentages as their ownership of Warrants.
Along with its ownership interest in ATSI, discussed below, UAC owns the
Connected Stock (which represents 11% of the outstanding Series C Preferred
Stock of Connected Corp.) and cash of $7.3 million as of September 30, 1997.
The Connected Stock was purchased by UAC under the terms of the Connected
Series C Stock Purchase Agreement, dated as of May 28, 1997, between Connected
Corp. and certain purchasers. The Connected Stock is restricted stock, valued
by UAC at its purchase price of approximately $667,000.
ATSI. ATSI, a Delaware corporation, is authorized to issue 5,000,000
shares of ATSI Common Stock and, as of November 20, 1997, had 3,325,229 shares
of Common Stock issued and outstanding. UAC owns 2,703,284 shares of ATSI
Common Stock.
Pursuant to the ATSI Stock Option Plan and corresponding award agreements,
approximately 110 individuals ("ATSI Optionees") hold options to purchase an
aggregate of 420,180 shares of ATSI Common Stock at exercise prices ranging
from $8.00 to $16.41 per share. Brookings Group, LLC holds a warrant to
purchase 10,000 shares of Common Stock at $8.00 per share (the "ATSI Warrant").
Iron Mountain Warrant Purchase
On the Closing Date, Iron Mountain will purchase from each Warrantholder
who has executed a Warrant Purchase Agreement each Eligible Warrant held by
such Warrantholder in exchange for, subject to the indemnification, expense,
adjustment and holdback provisions described in this Proxy Statement, cash in
an amount equal to the Warrant Purchase Price. Each of the Arcus Principal
Stockholders who collectively hold approximately 96% of the outstanding
Warrants have already signed a Warrant Purchase Agreement. All Warrantholders
are also currently holders of UAC Preferred Stock.
55
<PAGE>
The Arcus Parties and Iron Mountain have agreed to use their best efforts
to facilitate the execution of a Warrant Purchase Agreement by each other
Warrantholder. It is not a condition to the closing of the Reorganizations or
the Merger, however, that such Warrantholders execute Warrant Purchase
Agreements. At least five business days prior to the Closing Date, each Selling
Warrantholder will surrender his, her or its Eligible Warrants, together with
an executed Form of Assignment of Warrant, to the Exchange Agent, and on the
Closing Date, the Eligible Warrants will automatically be transferred to Iron
Mountain, and each such Warrantholder will be entitled to receive the Warrant
Purchase Price, subject to the indemnification, expense, adjustment and
holdback provisions described in this Proxy Statement. Each Warrantholder will,
at and after the Closing Date, cease to have any rights with respect to any
Eligible Warrants surrendered and assigned except as otherwise provided in a
Warrant Purchase Agreement or by applicable law.
UAC Warrant Repurchases
Before giving effect to any of the other Arcus Proposals, UAC will
repurchase Warrants to purchase shares of UAC Common Stock not sold to and
purchased by Iron Mountain as part of the Iron Mountain Warrant Purchase
("Remaining Warrants") in exchange for the Connected Stock and related rights
under the Connected Rights Agreement, to the extent available. UAC anticipates
that, after giving effect to the Iron Mountain Warrant Purchase and based on
the Baseline Assumptions, the total number of shares of UAC Common Stock
subject to purchase under the Remaining Warrants ("Remaining Warrant Shares")
will be 33,434 and that each Selling Warrantholder will receive 4.75 shares of
Connected Stock for each Remaining Warrant Share.
The UAC Articles presently prohibit UAC from making any distribution or
paying any dividend on UAC stock other than UAC Preferred Stock until all
accrued and unpaid dividends on UAC Preferred Stock have been fully paid and
all dividend shares delivered to holders of UAC Preferred Stock have been
redeemed by UAC in accordance with the UAC Articles. The UAC Warrant
Repurchases and attendant distribution of Connected Stock to persons who are
also UAC stockholders could be viewed as in contravention to such restrictions.
Therefore, the UAC Board has proposed that the UAC Articles be amended to
exempt the Merger and all related transactions, including the UAC Warrant
Repurchases, from these restrictions. See "--The UAC Charter Amendments."
The UAC Charter Amendments
The following is a brief summary of the material provisions of the
proposed UAC Charter Amendments, the full text of which is attached as Annex II
to this Proxy Statement and is incorporated by reference herein. This summary
is qualified in its entirety by reference to the full and complete text of the
UAC Charter Amendments.
Article VI, Section 3(a) of the UAC Articles presently provides, inter
alia, that upon any voluntary or involuntary liquidation, dissolution or winding
up of UAC (which the Reorganizations and the Merger would constitute), the
holders of UAC Preferred Stock shall receive $1,000.00 per share, plus all
accrued but unpaid dividends thereon (whether or not such dividends have been
declared) to the date fixed for payment of such distributive amount (the
"Liquidation Preference"), before any amount shall be paid to the holders of any
other class of UAC's stock. In order to provide that the holders of UAC
Preferred Stock share in the Expenses associated with the Transactions, The UAC
Board proposes that the UAC Articles be amended to decrease such liquidation
preference amount in connection with the Transactions by an amount equal to the
quotient of (i) the product of (A) the Liquidation Preference calculated as of
the Closing Date and (B) the Expenses to be paid at or prior to the Closing by
the Arcus Parties (such amount is anticipated to be approximately $3.1 million)
divided by (ii) the Total Equity Consideration (before giving effect to the
Expenses discussed in clause (i)(B) above).
Article VI, Section 3(b) of the UAC Articles presently provides, inter
alia, that any merger of UAC shall be regarded as a liquidation, dissolution,
and winding up (thereby triggering the liquidation preference rights applicable
to shares of UAC Preferred Stock) unless, as a result of the merger, "those
persons who hold all of the voting shares of [UAC] immediately prior to [the
merger] hold a majority of the voting shares of and a majority of the
beneficial interest in the resulting or surviving corporation..." The proposed
UAC Charter Amendments would exempt the Transactions, including the UAC
Reorganization, from the foregoing provision of the UAC Articles.
Article VI, Section 6(a)(iv) of the UAC Articles presently provides, inter
alia, that neither UAC nor any subsidiary of UAC, namely ATSI, without the
approval by holders of at least 66-2/3% of the then outstanding shares of UAC
Preferred Stock voting as a separate class, may merge with any other
corporation unless as a consequence of the merger, those persons who hold all
of the voting shares of UAC immediately prior to the merger hold a majority of
the voting shares of and a majority of the beneficial interest in the surviving
corporation. As a result of the UAC Reorganization, the shares of UAC Common
Stock that AGI held will be canceled, and AGI will cease
56
<PAGE>
to be a shareholder of UAC. Consequently, all of the persons who hold voting
shares of UAC immediately prior to the UAC Reorganization will not hold a
majority of the voting shares of AGI after the UAC Reorganization. As a result
of the ATSI Reorganization, the shares of ATSI Common Stock that AGI will hold
(as successor by merger to UAC) will be canceled, and AGI will cease to be a
shareholder of ATSI. Consequently, all of the persons who hold voting shares of
ATSI immediately prior to the ATSI Reorganization will not hold a majority of
the voting shares of AGI after the ATSI Reorganization. Approval of the holders
of UAC Preferred Stock might therefore be required for the ATSI Reorganization.
The UAC Board proposes that the UAC Articles be amended to exempt the
Transactions, including the Reorganizations, from this provision.
Article VI, Section 7 of the UAC Articles presently requires, inter alia,
that "to protect the holders of [UAC Preferred Stock] against dilution or other
impairment," UAC will not, by amending the UAC Articles or through any other
reorganization, merger or any other voluntary action, avoid or seek to avoid the
terms of the UAC Preferred Stock set forth in the UAC Articles, but will, at all
times, in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate, and that the
surviving entity to a consolidation or merger with UAC shall expressly assume in
writing and agree to be bound by the terms of the UAC Preferred Stock. The UAC
Reorganization, the UAC Warrant Repurchases and the UAC Charter Amendments
might, if viewed outside the context of the entire Transactions be portrayed as
in contravention of the foregoing provisions of the UAC Articles. The UAC Board
therefore proposes to amend the UAC Articles specifically to exempt the
Transactions, including the UAC Reorganization and UAC Charter Amendments from
the foregoing provisions of the UAC Articles.
The AGI Charter Amendments
The following is a brief summary of the material provisions of the
proposed AGI Charter Amendments, the full text of which is attached as Annex
III to this Proxy Statement and is incorporated herein by reference. This
summary is qualified in its entirety by reference to the full and complete text
of the AGI Charter Amendments.
Under the AGI Certificate, AGI is not presently authorized to issue any
capital stock, other than 11,661,290 shares of AGI Common Stock. Under the UAC
Reorganization holders of shares of UAC Preferred Stock will receive, on a
share-for-share basis, shares of AGI Preferred Stock with the same rights,
preferences and privileges as shares of UAC Preferred Stock (after giving effect
to the foregoing proposed UAC Charter Amendments), upon the consummation of the
UAC Reorganization. Therefore, it is necessary to amend the AGI Certificate to
provide for an additional class of stock, the AGI Preferred Stock. The
Reorganization Agreements provide that holders of shares of UAC Common Stock and
ATSI Common Stock and warrants and options to acquire UAC Common Stock and ATSI
Common Stock will receive shares of AGI Common Stock and warrants and options to
acquire shares of AGI Common Stock. This will result in the need for AGI to
issue or reserve in excess of 34,000,000 shares of AGI Common Stock immediately
prior to the Effective Time. The proposed AGI Charter Amendments would increase
the number of authorized shares of AGI Common Stock to 100,000,000 and authorize
50,000 shares of AGI Preferred Stock which will have the rights, preferences and
privileges of shares of UAC Preferred Stock (after giving effect to the UAC
Charter Amendments).
Article XI, Section 11.01 of the AGI Certificate presently prohibits,
inter alia, the transfer of any shares of stock of AGI to any person to the
extent that such transfer, if effective, would cause or result in an ownership
increase above 4.5%. The AGI Certificate defines "transfer" to include any
means of conveying legal or beneficial ownership of shares of stock of AGI,
whether direct or indirect, voluntary or involuntary. The proposed Merger could
be viewed to contravene this provision of the AGI Certificate since it would
increase Iron Mountain's ownership interest in AGI by more than 4.5%, through
the Merger. The proposed AGI Charter Amendments would exempt the Transactions
from the foregoing transfer restrictions.
The UAC Reorganization
The following is a brief summary of the material provisions of the UAC
Reorganization Agreement, a copy of which is attached as Schedule A to Annex I
to this Proxy Statement and is incorporated by reference herein. This summary
is qualified in its entirety by reference to the full and complete text of the
UAC Reorganization Agreement.
General. In general, at the UAC Effective Time, UAC will be merged with
and into AGI, with AGI continuing as the surviving corporation. As a result of
the UAC Reorganization, the separate corporate existence of UAC will cease.
Subject to the terms and conditions of the UAC Reorganization Agreement and the
Merger Agreement, the closing of the transactions contemplated thereby will
take place as promptly practicable (and in any event, within five business
days) after the date on which the last of the conditions set forth in the
Merger Agreement is fulfilled
57
<PAGE>
or waived, other than conditions requiring deliveries at the closing, unless
another day is agreed upon by Iron Mountain and AGI. The UAC Reorganization
will become effective at the UAC Effective Time, which will be the time at
which a certificate of merger is filed with the Secretary of State of the State
of Delaware and articles of merger are filed with the Secretary of State of the
State of Nevada (the "Articles of Merger") or such time thereafter as is
provided in such certificate of merger and the Articles of Merger, but in no
event more than 90 days after the filing of such certificate of merger or the
Articles of Merger.
Conversion of UAC Stock. Upon consummation of the UAC Reorganization,
after giving effect to the UAC Warrant Repurchases, (i) each share of AGI
Common Stock issued and outstanding immediately prior to the UAC Effective Time
(other than Dissenting Shares) shall continue to remain outstanding, (ii) each
share of UAC Preferred Stock issued and outstanding immediately prior to the
UAC Effective Time (other than Dissenting Shares) will be converted
automatically into one share of AGI Preferred Stock with the same rights,
preferences and privileges as applicable to UAC Preferred Stock after giving
effect to the UAC Charter Amendments and (iii) each share of UAC Common Stock
issued and outstanding immediately prior to the UAC Effective Time (other than
shares owned of record by AGI, which shall be canceled, and other than
Dissenting Shares) will be converted automatically into the UAC Common
Conversion Number of shares of AGI Common Stock in accordance with the
following conversion formula:
<TABLE>
<S> <C>
UAC Equity Value Per Share
"UAC Common Conversion Number" equals: ---------------------------------------------
AGI Equity Value Per Share
Related Definitions:
"Determination Time" equals: the time on the Closing Date immediately prior to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases and
the Reorganizations
"Total UAC Equity Value" equals: the total common equity value of UAC at the Determination Time
as determined in good faith by UAC based on (i) the Total ATSI
Equity Value, (ii) the number of fully diluted shares of ATSI
Common Stock outstanding as of the Determination Time
(assuming the exercise of all warrants and options to acquire
shares of ATSI Common Stock) and the number of such shares
held by UAC, (iii) cash and cash equivalents held by UAC
(assuming the deemed exercise of all outstanding Warrants and
options to acquire shares of UAC Common Stock), (iv) the value
of the Connected Stock as of the Determination Time, and (v) the
UAC Preferred Equity Value as of the Determination Time (but
after giving effect to the Liquidation Preference Amendment)
"UAC Equity Value Per Share" equals: the quotient obtained by dividing (a) the Total UAC Equity Value
by (b) the sum of (i) the total number of shares of UAC Common
Stock issued and outstanding at the Determination Time, plus (ii)
the total number of shares of UAC Common Stock which, at the
Determination Time, may be issued pursuant to options to
purchase or otherwise acquire shares of UAC Common Stock,
whether or not such options are immediately exercisable, plus (iii)
the total number of shares of UAC Common Stock which, at the
Determination Time, may be issued pursuant to the Warrants,
whether or not the Warrants are immediately exercisable
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
"AGI Equity Value Per Share" equals: the quotient obtained by dividing (a) the total common equity
value of AGI at the Determination Time as determined in good
faith by AGI based on (i) the Total UAC Equity Value, (ii) the
number of fully diluted shares of UAC Common Stock as of the
Determination Time (assuming the exercise of the Warrants and
outstanding options to acquire shares of UAC Common Stock)
and the number of such shares held by AGI, (iii) the cash and cash
equivalents of AGI and (iv) the Damson Value as of the
Determination Time by (b) the total number of shares of AGI
Common Stock issued and outstanding as of the Determination
Time
"UAC Preferred Equity Value" equals: the aggregate liquidation preference, as of any time of
determination, of the UAC Preferred Stock, calculated in
accordance with the UAC Articles
</TABLE>
The following table gives examples calculating the number of shares of AGI
Common Stock that would be received by holders of shares of UAC Common Stock,
at different, hypothetical values for the UAC Equity Value Per Share and the
AGI Equity Value Per Share assuming items (i) and (iv) of the Baseline
Assumptions and that the number of shares of UAC Common Stock equals 1,000,001,
the number of shares of UAC Preferred Stock, giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997,
equals 27,623, the number of shares of AGI Common Stock equals 11,426,525, and
the number of shares of ATSI Common Stock equals 3,325,229 (in each case, the
outstanding shares as of November 20, 1997, before giving effect to the Iron
Mountain Warrant Purchase and UAC Warrant Repurchases and the UAC
Reorganization).
<TABLE>
<CAPTION>
UAC Common
Assumed Conversion Number
Number of Shares (shares of AGI Common
of UAC Common Stock Assumed Assumed Stock to which
held by hypothetical UAC Equity AGI Equity hypothetical stockholder
stockholder Value Per Share Value Per Share would be entitled)
- ---------------------- ----------------- ----------------- -------------------------
<S> <C> <C> <C>
81 $32.02 $2.61 993.72
10,000 $32.02 $2.61 122,681.99
800,000 $32.02 $2.61 9,814,559.38
81 $33.70 $2.73 1,000.00
10,000 $33.70 $2.73 123,443.22
800,000 $33.70 $2.73 9,875,457.87
81 $35.39 $2.85 1,005.82
10,000 $35.39 $2.85 124,175.44
800,000 $35.39 $2.85 9,934,035.09
</TABLE>
Treatment of UAC Options and Warrants in the UAC Reorganization. Each of
the UAC Plan Options will automatically be converted into an option to purchase
the UAC Option Conversion Number of shares of AGI Common Stock at the UAC
Option Conversion Price and otherwise on the same terms and conditions as set
forth in the UAC Stock Option Plan (as the same may be amended in accordance
with the request of Iron Mountain, as more fully set forth below under "The
Merger Agreement--Treatment of Options and Warrants"). At the UAC Effective
Time, AGI will assume all obligations of UAC under the UAC Stock Option Plan
with respect to the UAC Plan Options or portions thereof granted pursuant to
the UAC Stock Option Plan. Each Warrant to purchase shares of UAC Common Stock
that is outstanding at the UAC Effective Time will be converted into and become
a warrant to purchase the UAC Warrant Conversion Number of shares of AGI Common
Stock at the UAC Warrant Conversion Price and otherwise upon the same terms and
subject to the same conditions as set forth in the agreement pursuant to which
the Warrant in question was issued. At the UAC Effective Time, AGI will assume
all obligations of UAC under the agreements pursuant to which any outstanding
Warrants were issued.
59
<PAGE>
Exchange Procedures. At the UAC Effective Time, all of the outstanding
certificates, which prior to that time represented shares of UAC Common Stock
or shares of UAC Preferred Stock, shall, for all purposes, evidence ownership
of and represent the shares of AGI Common Stock or shares of AGI Preferred
Stock, as applicable, into which the shares of UAC Common Stock or UAC
Preferred Stock represented by those certificates have been converted.
HOLDERS OF UAC COMMON STOCK AND UAC PREFERRED STOCK SHOULD NOT SEND UAC
STOCK CERTIFICATES (OR CERTIFICATES REPRESENTING THE STOCK OF ANY OTHER ARCUS
PARTY) WITH THE ENCLOSED PROXY CARD. UAC STOCKHOLDERS SHOULD SEND UAC STOCK
CERTIFICATES TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE
WITH, THE INSTRUCTIONS ACCOMPANYING, THE LETTER OF TRANSMITTAL DISCUSSED BELOW.
Termination. Subject to the terms and conditions of the Merger Agreement,
the UAC Reorganization Agreement may be terminated and abandoned whether before
or after approval of the UAC Reorganization Agreement by the stockholders of
UAC or AGI or both, by mutual consent of the UAC Board and AGI Board at any
time prior to the UAC Effective Time.
Amendment. Subject to the terms and conditions of the Merger Agreement,
the UAC Reorganization Agreement may be amended by the UAC Board and the AGI
Board at any time prior to the UAC Effective Time; provided, however, after
approval of the UAC Reorganization Agreement by the stockholders of UAC and
AGI, no amendment which, under the NRS or the DGCL, would have required
approval of the UAC Stockholders or AGI Stockholders, respectively, if made
before approval, may be made after approval without the approval of the UAC
stockholders or AGI stockholders, respectively, as applicable. The UAC
Reorganization Agreement may not be amended except by an instrument in writing
signed by the parties thereto.
Corporate Governance. Upon consummation of the UAC Reorganization, the
directors of AGI immediately prior to the UAC Effective Time will continue to
be the directors of AGI (until the Effective Time) and the officers of AGI
immediately prior to the UAC Effective Time will continue to be the officers of
AGI (until the Effective Time).
The ATSI Reorganization
The following is a brief summary of the material provisions of the ATSI
Reorganization Agreement, a copy of which is attached as Schedule B to Annex I
to this Proxy Statement. This summary is qualified in its entirety by reference
to the full and complete text of the ATSI Reorganization Agreement.
General. At the ATSI Effective Time, ATSI will be merged with and into
AGI, with AGI continuing as the surviving corporation. As a result of the ATSI
Reorganization, the separate corporate existence of ATSI will cease. Subject to
the terms and conditions of the ATSI Reorganization Agreement and the Merger
Agreement, the closing of the transactions contemplated thereby will take place
immediately following the UAC Effective Time. The ATSI Reorganization will
become effective at the ATSI Effective Time, which will be the time at which a
certificate of merger is filed with the Secretary of State of the State of
Delaware or such time thereafter as is provided in such certificate of merger,
but in no event more than 90 days after the filing of such certificate of
merger.
Conversion of ATSI Common Stock. Upon consummation of the ATSI
Reorganization, each share of AGI Common Stock and AGI Preferred Stock issued
and outstanding immediately prior to the ATSI Effective Time (other than, as to
AGI Common Stock outstanding prior to the UAC Effective Time, Dissenting
Shares) shall continue to remain outstanding, and each share of ATSI Common
Stock issued and outstanding immediately prior to the ATSI Effective Time
(other than shares owned of record by AGI (as successor by merger to UAC),
which shall be canceled, and other than Dissenting Shares) will be converted
automatically into the ATSI Common Conversion Number of shares of AGI Common
Stock in accordance with the following conversion formula:
60
<PAGE>
<TABLE>
<S> <C>
ATSI Equity Value Per Share
"ATSI Common Conversion Number" equals: ---------------------------------------------
AGI Equity Value Per Share
Related Definitions:
"Determination Time" equals: the time on the Closing Date immediately prior to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases and
the Reorganizations
"Total ATSI Equity Value" equals: the total common equity value of ATSI at the Determination Time
as determined in good faith by ATSI based on (i) the Total
Consideration to be paid by Iron Mountain in the Merger, and (ii)
the Net Indebtedness as of the Determination Time (excluding cash
and cash equivalents held by AGI and UAC, but assuming the
deemed exercise of all outstanding warrants and options to acquire
shares of ATSI Common Stock) as of the Determination Time
"ATSI Equity Value Per Share" equals: the quotient obtained by dividing (a) the Total ATSI Equity Value by
(b) the sum of (i) the total number of shares of ATSI Common Stock
issued and outstanding at the Determination Time, plus (ii) the total
number of shares of ATSI Common Stock which, as of the
Determination Time, may be issued pursuant to options to purchase
or otherwise acquire shares of ATSI Common Stock, whether or not
such options are vested or immediately exercisable, plus (iii) the total
number of shares of ATSI Common Stock which, as of the
Determination Time, may be issued pursuant to warrants to purchase
or otherwise acquire shares of ATSI Common Stock, whether or not
such warrants are immediately exercisable
"AGI Equity Value Per Share" equals: the quotient obtained by dividing (a) the total common equity
value of AGI at the Determination Time as determined in good
faith by AGI based on (i) the Total UAC Equity Value, (ii) the
number of fully diluted shares of UAC Common Stock as of the
Determination Time (assuming the exercise of the Warrants and
outstanding options to acquire shares of UAC Common Stock)
and the number of such shares held by AGI, (iii) the cash and cash
equivalents of AGI and (iv) the Damson Value as of the
Determination Time by (b) the total number of shares of AGI
Common Stock issued and outstanding as of the Determination
Time
</TABLE>
The following table gives examples calculating the number of shares of AGI
Common Stock that would be received by holders of shares of ATSI Common Stock,
at different, hypothetical values for the ATSI Equity Value Per Share and the
AGI Equity Value Per Share assuming items (i) and (iv) of the Baseline
Assumptions and that the number of shares of UAC Common Stock equals 1,000,001,
the number of shares of UAC Preferred Stock, giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997,
equals 27,623, the number of shares of ATSI Common Stock equals 3,325,229 and
the number of shares of AGI Common Stock equals 11,426,525 (in each case, the
outstanding shares as of November 20, 1997 before giving effect to the Iron
Mountain Warrant Purchase, the UAC Warrant Repurchases and the UAC
Reorganization).
61
<PAGE>
<TABLE>
<CAPTION>
ATSI Common
Assumed Conversion Number
Number of Shares (shares of AGI Common
of ATSI Common Stock Assumed Assumed Stock to which
held by a hypothetical ATSI Equity AGI Equity hypothetical stockholder
stockholder Value Per Share Value Per Share would be entitled)
- ------------------------ ----------------- ----------------- -------------------------
<S> <C> <C> <C>
86 $30.15 $2.62 989.66
80,000 $30.15 $2.62 920,610.69
2,000,000 $30.15 $2.62 23,015,267.18
86 $31.74 $2.73 1,000.00
80,000 $31.74 $2.73 930,109.89
2,000,000 $31.74 $2.73 23,252,747.26
86 $33.33 $2.84 1,009.29
80,000 $33.33 $2.84 938,873.24
2,000,000 $33.33 $2.84 23,471,830.98
</TABLE>
Treatment of ATSI Options and ATSI Warrants in the ATSI Reorganization.
Each of the ATSI Plan Options will automatically be converted into an option to
purchase the ATSI Option Conversion Number of shares of AGI Common Stock at the
ATSI Option Conversion Price and otherwise on the same terms and conditions as
set forth in the ATSI Stock Option Plan (as the same may be amended in
accordance with the request of Iron Mountain, as more fully set forth below
under "The Merger Agreement--Treatment of Options and Warrants"). At the ATSI
Effective Time, AGI will assume all obligations of ATSI under the ATSI Stock
Option Plan with respect to the ATSI Plan Options or portions thereof granted
pursuant to the ATSI Stock Option Plan. Each warrant to purchase shares of ATSI
Common Stock that is outstanding at the ATSI Effective Time will be converted
into and become a warrant to purchase the ATSI Warrant Conversion Number of
shares of AGI Common Stock at the ATSI Warrant Conversion Price and otherwise
upon the same terms and subject to the same conditions set forth in the
agreement pursuant to which the warrant in question was issued. At the ATSI
Effective Time, AGI will assume all obligations of ATSI under the agreements
pursuant to which any outstanding ATSI warrants were issued.
Exchange Procedures. At the ATSI Effective Time, all of the outstanding
certificates, which prior to that time represented shares of ATSI Common Stock,
shall, for all purposes, evidence ownership of and represent the shares of AGI
Common Stock into which the shares of ATSI Common Stock represented by those
certificates have been converted.
HOLDERS OF ATSI COMMON STOCK SHOULD NOT SEND ATSI STOCK CERTIFICATES (OR
CERTIFICATES REPRESENTING THE STOCK OF ANY OTHER ARCUS PARTY) WITH THE ENCLOSED
PROXY CARD. ATSI STOCKHOLDERS SHOULD SEND ATSI STOCK CERTIFICATES TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE
INSTRUCTIONS ACCOMPANYING, THE LETTER OF TRANSMITTAL DISCUSSED BELOW.
Termination. Subject to the terms and conditions of the Merger Agreement,
the ATSI Reorganization Agreement may be terminated and abandoned whether
before or after approval of the ATSI Merger Agreement by the stockholders of
ATSI or AGI or both, by mutual consent of the ATSI Board and AGI Board at any
time prior to the ATSI Effective Time.
Amendment. Subject to the terms and conditions of the Merger Agreement,
the ATSI Reorganization Agreement may be amended by the ATSI Board and the AGI
Board at any time prior to the ATSI Effective Time; provided, however, after
approval of the ATSI Reorganization Agreement by the stockholders of ATSI and
AGI, no amendment which, under the DGCL, would have required approval of the
ATSI stockholders or AGI stockholders, respectively, if made before approval,
may be made after approval without the approval of the ATSI stockholders or AGI
stockholders, respectively, as applicable. The ATSI Reorganization Agreement
may not be amended except by an instrument in writing signed by the parties
thereto.
Corporate Governance. Once the ATSI Reorganization is effected, the
directors of AGI immediately prior to the ATSI Effective Time will continue to
be the directors of AGI (until the Effective Time) and the officers of AGI
immediately prior to the ATSI Effective Time will continue to be the officers
of AGI (until the Effective Time). The Directors and executive officers will
not change as a result of the ATSI Reorganization itself.
62
<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy Statement and
is incorporated by reference herein. This summary is qualified in its entirety
by reference to the full and complete text of the Merger Agreement.
The Merger
At the Effective Time, AGI will be merged with and into Iron Mountain,
with Iron Mountain continuing as the Surviving Corporation. As a result of the
Merger, the separate corporate existence of AGI will cease. Subject to the
terms and conditions of the Merger Agreement, the closing of the transactions
contemplated thereby will take place as promptly as practicable (and in any
event within five business days) after the date on which the last of the
conditions set forth in the Merger Agreement is fulfilled or waived, other than
conditions requiring deliveries at the closing, unless another date is agreed
to by Iron Mountain and AGI. The Merger will become effective at the Effective
Time, which will be the time at which the Certificate of Merger is filed with
the Secretary of State of the State of Delaware or such time thereafter as is
provided in the Certificate of Merger, but in no event more than 90 days after
the filing of the Certificate of Merger.
Conversion of AGI Stock.
Form and Value of Consideration to be Received in the Merger. The
aggregate consideration to be issued by Iron Mountain in the Merger and to be
paid to the Selling Warrantholders under the Warrant Purchase Agreements will
be equal to the excess of $160 million over Net Indebtedness as of the
Effective Time of the Arcus Entities. This consideration will consist of cash
and shares of Iron Mountain Common Stock and options to acquire shares of Iron
Mountain Common Stock. On the Closing Date, cash in the aggregate amount of the
Escrow Indemnity Funds and the Combined Escrow Holdback Amount will be withheld
from the cash consideration payable to former holders of AGI Common Stock and
former holders of Eligible Warrants and held in escrow. In addition, cash in
the amount of $750,000 will be withheld from the aggregate cash Merger
consideration payable to former holders of AGI Common Stock and Selling
Warrantholders and deposited into the Expense Fund to have funds available to
pay certain expenses (i) incurred by the Arcus Parties in connection with the
Merger Agreement and the transactions contemplated thereby which have not been
paid at or prior to closing and (ii) incurred by the Stockholder Representative
in connection with the Merger Agreement and the Escrow Agreement. Anyone
holding Dissenting Shares will not contribute to the escrow amounts or be
subject to the indemnification obligations. See "--Indemnification."
Conversion of AGI Stock. Upon consummation of the Merger, each share of
AGI Common Stock and AGI Preferred Stock issued and outstanding immediately
prior to the Effective Time (including, without limitation, each such share
issued as a result of the Reorganizations) will be converted into the right to
receive, subject to certain indemnification and expense provisions in the
Merger Agreement and other potential adjustments as described below, shares of
Iron Mountain Common Stock and cash in accordance with the following conversion
formulas:
<TABLE>
<CAPTION>
Formulas:
<S> <C>
"Common Stock Conversion Number" equals: Common Stock Amount
---------------------------------------------
Fully Diluted Common Shares
"Preferred Stock Conversion Number" equals: Preferred Stock Amount
---------------------------------------------
Fully Diluted Preferred Shares
"Common Cash Conversion Number" equals: Common Cash Amount
---------------------------------------------
Fully Diluted Common Shares
"Preferred Cash Conversion Number" equals: Preferred Cash Amount
---------------------------------------------
Fully Diluted Preferred Shares
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Related Definitions:
<S> <C>
"Common Cash Amount" equals: Fully Diluted Common Equity Value times 58%
"Common Equity Value" equals: Total Equity Consideration minus Preferred Equity Value
"Common Stock Amount" equals: Fully Diluted Common Equity Value times 42%
---------------------------------------------
Determination Price
"Determination Price" equals: the average closing price per share of Iron Mountain Common Stock
for the period of 20 trading days ending on the third trading day prior
to (and not including) the Closing Date; provided, however, that if
the average closing price per share for such period is less than
$29.00, the Determination Price shall be $29.00, and if the average
closing price per share for such period is greater than $36.00, the
Determination Price shall be $36.00. The Determination Price
calculated using the above-described formula for the 20-trading day
period ending on November 20, 1997 was $36.00 (the actual average
closing price per share for such period was $37.82)
"Fully Diluted Common Equity Value" equals: the sum of (i) the Common Equity Value, (ii) the aggregate
exercise price of all option securities to acquire shares of AGI
Common Stock (whether vested or unvested) as of the Effective
Time, and (iii) the aggregate exercise price of all warrants which
are outstanding as of the Effective Time
"Fully Diluted Common Shares" equals: the sum of (i) the number of shares of AGI Common Stock issued
and outstanding immediately prior to the Merger after giving
effect to the Arcus Proposals, including the Reorganizations, (ii)
the number of shares of AGI Common Stock which would have
been issued as a result of the Reorganizations or remained
outstanding in respect of any Dissenting Shares, (iii) the number
of shares of AGI Common Stock which may be issued pursuant
to option securities (whether vested or unvested) outstanding as
of the Effective Time after giving effect to the Reorganizations,
and (iv) the number of shares of AGI Common Stock which may
be issued pursuant to warrants to purchase AGI Common Stock
which are outstanding as of the Effective Time after giving effect
to the Reorganizations
"Fully Diluted Preferred Shares" equals: the sum of (i) the number of shares of AGI Preferred Stock issued
and outstanding immediately prior to the Merger after giving effect
to the Arcus Proposals, including the Reorganizations and (ii) the
number of shares of AGI Preferred Stock which would have been
issued as a result of the UAC Reorganization in respect of any holder
of UAC Preferred Stock that exercised appraisal rights
"Net Indebtedness" equals: the difference of (A) the sum of (a) any Net Working Capital
Deficit, (b) all obligations, contingent or otherwise, (i) in respect
of borrowed money, notes or similar interests, (ii) under leases
which are capitalized on the consolidated balance sheet of the
Arcus Entities, (iii) in respect of the deferred purchase price of
property (excluding certain amounts payable in connection with
a past acquisition) and (iv) in respect of any deferred
compensation plan or arrangement (other than any 401(k) plan)
and all guarantees, endorsements and other contingent obligations
of the type referred to in this clause (b) of others, (c) the aggregate
full amount of all installment sales amounts, contingent payments
or "earnouts" that an Arcus Entity may be required to pay under
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
any agreement pursuant to which such Arcus Entity acquired the
outstanding capital stock or assets of another person (other than
certain delineated contingent payments in connection with certain
past acquisitions), and (d) accrued interest to the date of the Merger
in respect of indebtedness of the Arcus Entities and all fees, expenses
and other amounts (including so-called "breakage" amounts) due in
connection with the prepayment in full of such indebtedness which
will be prepaid at Closing, minus (B) (i) cash and cash equivalents,
(ii) certain amounts owing to the Arcus Entities in an amount not to
exceed $176,000 and (iii) obligations under performance bonds and
reimbursement obligations under letters of credit
"Net Working Capital" equals: the sum of accounts receivable (less allowance for doubtful
accounts), inventory and prepaid expenses and other current assets
(excluding cash, notes receivable and deferred income taxes) of
ATSI, minus the sum of deferred revenue, state income taxes
payable, accounts payable, accrued payroll and other accrued
liabilities (including reserves but excluding amounts due to parent,
deferred compensation and liabilities related to debt, including,
without limitation, accrued interest) of ATSI; provided, however,
that (a) any effect on Net Working Capital resulting from the exercise
of any option securities between June 30, 1997 and the Effective
Time will be excluded from the calculation thereof and (b) expenses
of the Arcus Parties in respect of the transactions contemplated by
the Reorganization Agreements and the Merger Agreement will not
be included in calculating Net Working Capital
"Net Working Capital Deficit" equals: the excess if any, of (x) Net Working Capital as derived from
ATSI's financial statements at June 30, 1997 (which amount
equals $4,986,429), over (y) Net Working Capital immediately
prior to the ATSI Reorganization
"Preferred Cash Amount" equals: Preferred Equity Value times 5%
"Preferred Equity Value" equals: the aggregate liquidation preference of AGI Preferred Stock,
calculated in accordance with the Amended and Restated
Certificate of Incorporation of AGI (including in respect of shares
of UAC Preferred Stock which are Dissenting Shares and after giving
effect to the Liquidation Preference Amendment)
"Preferred Stock Amount" equals: Preferred Equity Value times 95%
---------------------------------------------
Determination Price
"Total Consideration" equals: $160 million
"Total Equity Consideration" equals: Total Consideration minus Net Indebtedness
</TABLE>
The following tables give examples calculating the Merger consideration at
the floor and the ceiling of the Determination Price, assuming (i) the Baseline
Assumptions (other than the Determination Price equaling $36.00) and (ii) that
the number of shares of AGI Common Stock outstanding equals 21.2 million and
the number of shares of AGI Preferred Stock outstanding equals 27,623 (the
number estimated to be outstanding (after giving effect to the payment of
payment-in-kind dividends from November 20, 1997 through December 31, 1997) on
December 31, 1997) (in each case giving effect to the Arcus Proposals, other
than the Merger, as if they had been consummated on November 20, 1997 and based
on the number of shares of AGI Common Stock, UAC Common Stock, UAC Preferred
Stock and ATSI Common Stock and options and warrants to acquire UAC Common
Stock and ATSI Common Stock outstanding on November 20, 1997). For each
Determination Price listed, the tables illustrate the Common Stock Conversion
Number, the Common Cash Conversion Number, the Preferred Stock Conversion
Number and the Preferred Cash Conversion Number. For purposes of illustration,
if the Net Indebtedness were reduced by $1 million, the Common Stock Conversion
Number would be .0398 and .0321 at the Determination
65
<PAGE>
Prices of $29.00 and $36.00, respectively, the Common Cash Conversion Number
would be $1.59 and the Preferred Stock Conversion Number and the Preferred Cash
Conversion Number would not change.
AGI Common Stock:
<TABLE>
<CAPTION>
Cash and Shares of Iron
Common Stock Conversion Mountain Common Stock to
Number (shares of Iron be received by Hypothetical
Mountain Common Stock Common Cash Conversion Stockholder owning 1,000
Determination per share of Number (cash per share of shares of
Price AGI Common Stock) AGI Common Stock) AGI Common Stock
- --------------- ------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
$29.00 .0396 $1.58 $1,597.40 cash (including
$17.40 in lieu of a
fractional share)
39 shares
$36.00 .0319 $1.58 $1,612.40 cash (including
$32.40 in lieu of a
fractional share)
31 shares
</TABLE>
AGI Preferred Stock:
<TABLE>
<CAPTION>
Cash and Shares of Iron
Preferred Stock Conversion Mountain Common Stock to
Number (shares of Iron be received by Hypothetical
Mountain Common Stock Preferred Cash Conversion Stockholder owning
Determination per share of AGI Number (cash per share of 1,000 shares of
Price Preferred Stock) AGI Preferred Stock) AGI Preferred Stock
- --------------- ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
$29.00 31.9745 $48.80 $48,814.50 cash (including
$14.50 in lieu of a
fractional share)
31,974 shares
$36.00 25.7572 $48.80 $48,807.20 cash (including
$7.20 in lieu of a
fractional share)
25,757 shares
</TABLE>
Based on the foregoing assumptions and based on the assumption that the
Determination Price is $36.00 and the market value per share of Iron Mountain
Common Stock at the Effective Time is $36.00 (before considering the impact of
the restrictions on transfer of the Iron Mountain Common Stock to be issued in
the Merger), (i) the value of the shares of Iron Mountain Common Stock to be
received by an AGI stockholder, after giving effect to the Reorganizations and
other Arcus Proposals, in respect of each share of AGI Common Stock held by
such stockholder will equal approximately $1.15 and (ii) the value of the
shares of Iron Mountain Common Stock to be received by an AGI stockholder in
respect of each share of AGI Preferred Stock held by such stockholder will
equal approximately $927.27. To the extent the market price at the Effective
Time is greater or less than the Determination Price, then the value of the
shares of Iron Mountain Common Stock to be received by the AGI stockholders
would be greater than or less than $1.15 or $927.27, as the case may be
(without giving effect to the impact of the restrictions on transfer of shares
of Iron Mountain Common Stock to be issued in the Merger). On November 20,
1997, the closing sales price per share of the Iron Mountain Common Stock, as
reported on the Nasdaq National Market, was $38.25 and the Determination Price
calculated as of such date was $36.00 (the actual average closing price per
share for such period was $37.82). Thus, if the Merger had closed on November
20, 1997, the value of the shares of Iron Mountain Common Stock received
(without giving effect to the impact of the restrictions on transfer of shares
of Iron Mountain Common Stock to be issued in the Merger) would have been
approximately $1.22 per share of AGI Common Stock and $985 per share of AGI
Preferred Stock. See "Risk Factors--Risk Factors Related to the Arcus
Proposals, Including the Merger." Assuming the Baseline Assumptions, Iron
Mountain will deliver an aggregate of $64.2 million in cash and 1.4 million
shares of Iron Mountain Common Stock in the Merger
66
<PAGE>
and the Iron Mountain Warrant Purchase to holders of AGI Common Stock and AGI
Preferred Stock and Selling Warrantholders (after giving effect to the Arcus
Proposals).
Potential Additional Consideration. In the event that on or prior to
December 31, 1999, (i) one or more holders of Exchange Options ceases to be
employed by Iron Mountain or any of its subsidiaries by reason of a Termination
and (ii) Iron Mountain has not duly and irrevocably provided, within sixty days
following the date of Termination, for the immediate vesting of all of such
Exchange Options, then prior to March 1, 2000 Iron Mountain will deliver cash
or immediately saleable shares of Iron Mountain Common Stock (or a combination
thereof, at the election of Iron Mountain) to the Stockholder Representative
for the benefit of each former holder of AGI Common Stock (after giving effect
to the Reorganizations), each former holder of a Warrant sold pursuant to a
Warrant Purchase Agreement and each holder of an option security that received
Exchange Options, other than any such holder of an option security who,
following the Effective Time and on or prior to December 31, 1999, was
terminated by Iron Mountain and for whom Iron Mountain shall not have provided,
within sixty days following the date of Termination, for the immediate vesting
of all such options. The amounts, if any, to be paid to each such holder shall
be in proportion to the amount of consideration he or she received at the
Effective Time (as specified in Section 2.1(f) of the Merger Agreement (a copy
of which is attached as Annex I to this Proxy Statement)).
Potential Tax Adjustment. If the value of the sum of the aggregate Merger
consideration to be paid in Iron Mountain Common Stock, based on the closing
price of Iron Mountain Common Stock on the Nasdaq National Market System on the
trading day immediately prior to the Closing Date, is less than the Threshold
Percentage of the Total Tax Consideration, then (i) the number of shares of
Iron Mountain Common Stock deliverable to holders of AGI Common Stock and AGI
Preferred Stock at the Effective Time will be increased such that the sum of
the value of the aggregate Merger consideration to be paid in Iron Mountain
Common Stock (based on such closing price and after giving effect to the
decrease in the cash consideration contemplated by this paragraph) equals the
Threshold Percentage of the Total Tax Consideration and (ii) the Merger
consideration to be paid in cash will be reduced by an amount equal to the
product of (A) the number of additional shares of Iron Mountain Common Stock
and (B) the Determination Price (calculated without giving effect to the floor
price). Based on the Baseline Assumptions and on the closing price of Iron
Mountain Common Stock as of November 20, 1997 of $38.25, the aggregate Merger
consideration to be paid in Iron Mountain Common Stock would have been
approximately 59.5% of the Total Tax Consideration.
Restrictions on Transfer of Iron Mountain Common Stock. As more fully
described below, in order to protect the tax-free nature of the Merger, all of
the shares of the Iron Mountain Common Stock received by each AGI stockholder
in the Merger (other than shares received in exchange for AGI Common Stock
received in connection with the Option Exercise) will be subject to certain
transfer restrictions during the Transfer Restriction Period, except as
described below. Such transfer restrictions will prohibit all "Transfers" of
such Iron Mountain Common Stock by former AGI stockholders. Any purported
transfer of the economic, record or beneficial ownership of the such shares not
permitted by the Iron Mountain By-Laws will be void and have no legal effect.
The description herein of the transfer restrictions is qualified in its
entirety by reference to the complete text of Article XIII of the Iron Mountain
By-Laws (in which the such restrictions are set forth), a copy of which is
attached hereto as Annex IV and incorporated herein by reference.
A "Transfer" means any indirect or direct transfer, offer to sell, sale,
assignment, grant of an option to acquire, pledge, or other disposition;
provided, however that a Transfer by a partnership or a limited liability
company to its partners or members, which Transfer is to all partners or
members in proportion to their interests in such partnership or limited
liability company, will be permissible except that the shares of Iron Mountain
Common Stock so transferred will continue to be subject to the restrictions
described herein. In addition, such transfer restrictions will not apply to
shares of Iron Mountain Common Stock to the extent such shares are issued in
exchange for shares of AGI Common Stock of any person who received such shares
pursuant to a required exercise of an option as a result of Iron Mountain's
election described below under the second paragraph of "--Treatment of Options
and Warrants." Such transfer restrictions, by their own terms, automatically
expire on the earlier of (i) the first anniversary of the Effective Time or
(ii) the date on which a Transfer may be effected in a manner that Iron
Mountain reasonably determines does not adversely affect the tax-free nature of
the Merger under Section 368(a) of the Code. In order to implement such
restriction, each certificate representing shares of Iron Mountain Common Stock
to be received in the Merger and subject to such restrictions will bear a
legend indicating that the shares represented by such certificate are subject
to such transfer restrictions.
67
<PAGE>
Treatment of Options and Warrants in the Merger
Except as described below, each option security to acquire shares of AGI
Common Stock that is outstanding at the Effective Time (after giving effect to
the Arcus Proposals, including the Reorganizations, but not the Merger) will
automatically be converted into an Exchange Option to purchase Iron Mountain
Common Stock, which Exchange Option will (A) have an exercise price per share
of Iron Mountain Common Stock determined by dividing (x) the exercise price per
share of the applicable option security (after giving effect to the applicable
Reorganization) by (y) the quotient of the Share Price divided by the
Determination Price, (B) entitle the holder to purchase that number of shares
of Iron Mountain Common Stock as equals the product of (x) the number of shares
subject to such option security (after giving effect to the applicable
Reorganization) and (y) the quotient of the Share Price divided by the
Determination Price and (C) have the same vesting schedule as is currently
included in such option security (except as required pursuant to the provisions
described below and except that there shall be immediate vesting of any
unvested portion thereof upon termination by the Surviving Corporation or any
of its subsidiaries of the employment of the holder of such Exchange Option
(other than any termination for "cause" as defined in the Merger Agreement)).
In lieu of issuing any option to acquire a fractional share of Iron Mountain
Common Stock, Iron Mountain will convert a holder's right to receive an
Exchange Option into a right to receive an option to acquire the nearest whole
number of shares of Iron Mountain Common Stock. Each option security comprising
a warrant that is outstanding at the Effective Time will automatically be
converted into a warrant to purchase Iron Mountain Common Stock at a value
equivalent to that set forth in such option security based upon the formula set
forth in the first sentence of this paragraph.
The Arcus Parties have agreed to take all action necessary (a) if
requested by Iron Mountain prior to the UAC Effective Time, to require the
exercise on the Designated Exercise Date (or, if a period is provided as the
Designated Exercise Date, then on or prior to the last date of such period), of
the Minimum Exercise Number of option securities comprising non-qualified stock
options of AGI, after giving effect to all of the Arcus Proposals other than
the Merger, including if applicable, by accelerating the vesting prior to the
Effective Time of such option securities that would otherwise not be vested as
of the Effective Time, (b) if requested by Iron Mountain prior to the UAC
Effective Time, to provide that any such option security which is not so
exercised on (or prior to, as applicable) a Designated Exercise Date will
terminate and be forfeited as of the close of business on such Designated
Exercise Date, (c) to accelerate, if the Arcus Parties so choose, in their sole
discretion, the vesting of any option security held by an employee whose
employment by an Arcus Party is terminated prior to the Effective Time, (d) to
amend, prior to the Effective Time, the option plans of UAC and ATSI as may be
reasonably requested by Iron Mountain not less than ten days prior to the
Closing Date and in all events prior to the UAC Effective Date, and to
cooperate with Iron Mountain to amend such plans and any option security
granted thereunder as the parties may reasonably agree so as to minimize taxes
payable in connection therewith, (e) to provide timely written notice to all
holders of option securities to the effect that all option securities
outstanding as of the Effective Time (after giving effect to the Arcus
Proposals other than the Merger and the required exercise described in clause
(a)) will be assumed by Iron Mountain and thereafter will represent options (or
warrants as applicable) to acquire Iron Mountain Common Stock, and (f) to
obtain any consent or waiver from the holder of an option security which may be
necessary to give effect to the actions contemplated by this paragraph and the
preceding paragraph. Iron Mountain is required to reserve for issuance upon the
exercise of option securities the shares of Iron Mountain Common Stock covered
thereby, and, as of the Effective Time, will have filed a registration
statement on Form S-8 to register the shares of Iron Mountain Common Stock
subject to such Exchange Options.
Indemnification
Each Arcus Party has agreed, and by approving the applicable
Reorganization Agreement and, in the case of AGI, the Merger Agreement, each
Arcus Party's stockholders will agree, that cash in the aggregate amount of
$8.0 million multiplied by a fraction, the numerator of which is the value
(calculated based on the Determination Price) of the aggregate Exchange Common
Consideration and the denominator of which is the Total Primary Equity Base
(such amount being equal to approximately $4.1 million in the aggregate and
$0.19 per share of AGI Common Stock, after giving effect to the Arcus Proposals
other than the Merger and assuming the Baseline Assumptions) will be withheld
from the cash Merger consideration payable to holders of AGI Common Stock
(other than holders of Dissenting Shares), and each Selling Warrantholder has
agreed, or by executing a Warrant Purchase Agreement, will agree, that cash in
the aggregate amount of the Warrant Escrow Indemnity Contribution will be
withheld from the aggregate Warrant Purchase Price (such amount being equal to
approximately $3.9 million, assuming the
68
<PAGE>
Baseline Assumptions) and, subject to the limitation described below, held in
escrow to indemnify Iron Mountain and hold Iron Mountain harmless for a period
of 18 months following the Closing Date from and against all Merger Agreement
Claims. Iron Mountain may only recover on a claim if all losses and expenses
for all Merger Agreement Claims exceeds, in the aggregate, $200,000.
Accordingly, on the Closing Date, the Escrow Indemnity Funds will be
withheld from the cash portion of the Merger consideration otherwise payable to
holders of AGI Common Stock and from the purchase price payable to Selling
Warrantholders pursuant to the Warrant Purchase Agreements and held in escrow
pursuant to the terms of the Escrow Agreement. Each Arcus Party has agreed and
the Arcus Parties' stockholders, by approving the applicable Reorganization
Agreement and, in the case of AGI, the Merger Agreement, will agree, and each
Selling Warrantholder has agreed or will agree by executing a Warrant Purchase
Agreement, to appoint Clarke H. Bailey or such other person or persons to whom
Clarke H. Bailey delegates such authority, as their agent and attorney-in-fact,
with full power of substitution, to take all actions on their behalf in
connection with the indemnification provisions of the Merger Agreement, the
Warrant Purchase Agreements and the Escrow Agreement. As Stockholder
Representative, Mr. Bailey and any delegate will have a fiduciary duty to act
in the best interests of the former holders of AGI Common Stock and the former
holders of Eligible Warrants with respect to the indemnification provisions of
the Merger Agreement and the Escrow Agreement. The Stockholder Representative
will deliver notice to each former holder of AGI Common Stock and each Selling
Warrantholder promptly after each time, if any, that Iron Mountain receives a
payment under the Escrow Agreement.
In the event that there are no Unresolved Claims on the nine month
anniversary of the Closing Date, an aggregate of $3.0 million, less any amounts
previously paid to Iron Mountain from the Escrow Indemnity Funds, will be
distributed to the Stockholder Representative for the benefit of former holders
of AGI Common Stock and former holders of Eligible Warrants. In the event one
or more Unresolved Claims exist on such date, cash in an amount equal to $5.0
million plus the aggregate amount of such Unresolved Claims and related fees,
expenses and other costs will be retained, and the balance, if any of the cash
held in escrow will be distributed to the Stockholder Representative for the
benefit of the former holders of AGI Common Stock and the former holders of
Eligible Warrants.
The escrow will expire 18 months after the Closing Date (subject to
retention of amounts related to Unresolved Claims). Promptly after such time,
the Escrow Agent under the Escrow Agreement will remit to the Stockholder
Representative for the benefit of the persons entitled thereto in accordance
with their proportionate interests the Escrow Indemnity Funds less all portions
paid to Iron Mountain and less any amounts which are the subject of Unresolved
Claims. To the extent any of the Escrow Indemnity Funds are available after
resolution of all such Unresolved Claims, such amount will be promptly remitted
to the Stockholder Representative for the benefit of the persons entitled
thereto in accordance with their proportionate interests in the Escrow
Indemnity Funds.
The parties have also agreed, and by adopting and approving the applicable
Reorganization Agreement and, in the case of AGI, the Merger Agreement, the
stockholders of the Arcus Parties will agree that, and by executing a Warrant
Purchase Agreement, each Selling Warrantholder has or will agree that if the
AGI Initial Indebtedness Calculation reflects a Net Working Capital Surplus of
$300,000 or less, then cash in an aggregate amount up to $300,000 (depending on
the amount of Net Working Capital Surplus, if any) will be withheld from the
aggregate cash Merger consideration and the aggregate Warrant Purchase Price
and deposited into escrow. The purpose of the Combined Escrow Holdback Amount
is to have funds available in connection with the Merger Agreement, for
disbursement to Iron Mountain, in the event that the Final Net Indebtedness is
greater than the AGI Initial Indebtedness Calculation. In the event that the
Final Net Indebtedness is greater than the AGI Initial Indebtedness
Calculation, then on the second business day after the determination of Final
Net Indebtedness, cash in an amount equal to the difference between the Final
Net Indebtedness and the AGI Initial Indebtedness Calculation will be
distributed to Iron Mountain.
The amount contributed by each Warrantholder described above to the Escrow
Indemnity Funds and the Expense Fund (described below) will be based on the
value of consideration received by such Warrantholder in his, her or its
capacity both as a holder of Eligible Warrants and a holder of AGI Preferred
Stock. Thus, each stockholder of an Arcus Party (other than a dissenting
stockholder) and each Selling Warrantholder will contribute to the Escrow
Indemnity Funds, the Combined Escrow Holdback Amount and the Expense Fund in an
amount proportionate to the value (based, in the case of equity consideration,
on the Determination Price) of the consideration he, she or it receives in the
Merger and pursuant to the Warrant Purchase Agreements.
69
<PAGE>
See "Ancillary Agreements--Escrow Agreement" for a description of the
terms and conditions of the Escrow Agreement.
Expense Fund
Cash in an amount equal to $750,000 will be withheld from the aggregate
cash Merger consideration to be paid to the former holders of AGI Common Stock
and from the aggregate Warrant Purchase Price and deposited into the Expense
Fund in order for the Stockholder Representative, on behalf of former holders
of AGI Common Stock and Selling Warrantholders, to have funds available to pay
certain expenses (i) incurred by the Arcus Parties in connection with the
Merger Agreement and the transactions contemplated thereby which have not been
paid at or prior to the Effective Time and (ii) incurred by the Stockholder
Representative in connection with the Merger Agreement and the Escrow
Agreement. (It is currently expected that approximately $3.1 million,
comprising the balance of the Expenses to be incurred by the Arcus Parties in
connection with the Merger, will be funded through an increase in Net
Indebtedness immediately prior to the Effective Time, resulting in a reduction
in Total ATSI Equity Value and, therefore, Total UAC Equity Value and Total AGI
Equity Value. Approximately 21% of such balance will be borne by the holders of
UAC Preferred Stock by way of a reduction in the liquidation preference of such
UAC Preferred Stock in connection with the adoption of the Liquidation
Preference Amendment.) The aggregate amount to be withheld from the cash Merger
consideration payable to former holders of AGI Common Stock will be equal to
$750,000 times a fraction, the numerator of which is the value (calculated
based on the Determination Price) of the Exchange Common Consideration and the
denominator of which is the Total Primary Equity Base. The remaining portion of
the $750,000 will be withheld from the cash consideration payable to the
Selling Warrantholders pursuant to the Warrant Purchase Agreements in the
proportionate amount described in the second to last paragraph of
"--Indemnification." The Stockholder Representative will pay (i) on the date
that is 180 days following the Closing Date, the balance if any, of any funds
on deposit in the Expense Fund in excess of $500,000 and (ii) on the last date
on which the balance of the Escrow Indemnity Funds may be distributed to the
Stockholder Representative pursuant to the Merger Agreement (or on such earlier
date as the Stockholder Representative, in its sole discretion, may choose but
in no event earlier than the nine month anniversary of the Closing Date (the
"Initial Distribution Date")), the balance, if any, of any funds on deposit in
the Expense Fund.
Restrictions on Transfer under the Federal Securities Laws
All shares of Iron Mountain Common Stock received by AGI stockholders in
the Merger will be freely transferable (other than as described under "The
Merger Agreement--Conversion of AGI Stock--Restrictions on Transfer of Iron
Mountain Common Stock"), except that shares of Iron Mountain Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of the Arcus Parties prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of Iron Mountain) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of the Arcus
Parties are generally defined as individuals or entities that control, are
controlled by, or are under common control with, the Arcus Parties and include
certain executive officers and Directors, as well as principal stockholders, of
the Arcus Parties. Rule 145 currently provides, among other things, that a
person subject to it cannot sell in any rolling three-month period more than
the greater of the average weekly trading volume of Iron Mountain Common Stock
over a four week period or 1% of the outstanding Iron Mountain Common Stock for
a period of one year following the Merger. Giving effect to the Arcus
Proposals, including the Merger and assuming the Baseline Assumptions, there
will be outstanding approximately 14.8 million shares of Iron Mountain Common
Stock following the Effective Time.
Exchange Procedures
As soon as reasonably practicable after the Effective Time, Boston
Equiserve Limited Partnership, in its capacity as Exchange Agent (the "Exchange
Agent"), will mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time, but after giving effect to the
Arcus Proposals other than the Merger, evidenced outstanding shares of AGI
Common Stock and AGI Preferred Stock, which certificates will include UAC and
ATSI stock certificates that formerly evidenced UAC and ATSI stock, other than
Dissenting Shares and other than shares owned by AGI as treasury stock and
shares owned by Iron Mountain ("AGI Stock Certificates") (i) a letter of
transmittal and (ii) instructions to effect the surrender of the AGI Stock
Certificates in exchange for the
70
<PAGE>
total consideration to be received by such holder as a result of multiplying,
in the case of the AGI Common Stock (x) each of the Common Stock Conversion
Number and the Common Cash Conversion Number by (y) the number of shares
represented by such holder's AGI Stock Certificates representing AGI Common
Stock after giving effect to the other Arcus Proposals, and, in the case of the
AGI Preferred Stock (x) each of the Preferred Stock Conversion Number and the
Preferred Cash Conversion Number by (y) the number of shares represented by
such holder's AGI Stock Certificates representing AGI Preferred Stock (after
giving effect to the other Arcus Proposals, in either case, such total on per
share basis, the "Exchange Merger Consideration").
Upon surrender of an AGI Stock Certificate for cancellation to the
Exchange Agent, together with the letter of transmittal, duly executed, and
such other documents as Iron Mountain or the Exchange Agent reasonably
requests, the holder of such AGI Stock Certificate will be entitled to receive
promptly in exchange therefor the Exchange Merger Consideration, subject to the
amounts to be placed in escrow pursuant to the indemnification provisions of
the Merger Agreement (see "--Indemnification") or to cover expenses of the
Arcus Parties as described under "--Expense Fund," and the AGI Stock
Certificate so surrendered shall forthwith be canceled. Until surrendered, each
AGI Stock Certificate will, at any time after the Effective Time, represent
only the right to receive, upon such surrender, the Exchange Merger
Consideration with respect to the shares of AGI Common Stock or AGI Preferred
Stock formerly represented thereby (after giving effect to the Arcus Proposals
other than the Merger), without interest. Each AGI stockholder (other than
stockholders receiving shares in exchange for AGI Common Stock received in
connection with the Option Exercise) will receive stock certificates
representing Iron Mountain Common Stock with a legend relating to the tax
transfer restrictions described above.
HOLDERS OF AGI COMMON STOCK, UAC COMMON STOCK, UAC PREFERRED STOCK AND
ATSI COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD. SUCH STOCKHOLDERS SHOULD SEND THEIR STOCK CERTIFICATES TO THE EXCHANGE
AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE INSTRUCTIONS
ACCOMPANYING, THE LETTER OF TRANSMITTAL.
No fractional shares of Iron Mountain Common Stock will be issued upon the
surrender for exchange of AGI Stock Certificates, and such fractional shares
will not entitle the owner thereof to vote or to any rights of a stockholder of
Iron Mountain. In lieu of issuing fractional shares, the surrendering
stockholder shall receive the highest whole number of shares or Iron Mountain
Common Stock constituting the stock portion of the Exchange Merger
Consideration plus cash equal to the fraction of a share of Iron Mountain
Common Stock to which the holder would otherwise be entitled multiplied by the
Determination Price.
No dividends or other distributions declared after the Effective Time on
Iron Mountain Common Stock will be paid with respect to any shares of Iron
Mountain Common Stock represented by an AGI Stock Certificate until such AGI
Stock Certificate is surrendered for exchange in accordance with the procedures
described above.
On the Closing Date, Iron Mountain will deposit or cause to be deposited
with the Exchange Agent, for exchange through the Exchange Agent, for the
benefit of the holders of Eligible Warrants, cash in an amount equal to the
aggregate Warrant Purchase Price required to be paid pursuant to the Warrant
Purchase Agreements in respect of the Eligible Warrants less (i) the Warrant
Escrow Indemnity Contribution, (ii) the amount to be contributed to the Expense
Fund by holders of Eligible Warrants and (iii) the Warrant Escrow Holdback
Amount. On a date at least 15 business days prior to the Closing Date, Iron
Mountain will instruct the Exchange Agent to issue (pursuant to instructions
from each Selling Warrantholder reasonably satisfactory to Iron Mountain and
the Exchange Agent, and otherwise by mail to the most recent address of such
Selling Warrantholder as shown on UAC's books and records) to each Selling
Warrantholder, a letter of transmittal which shall specify instructions to
effect (i) delivery (including specifying that risk of loss and title to the
Warrant shall pass only upon proper delivery of the Warrant certificate or
Warrant certificates to the Exchange Agent), (ii) the surrender and assignment
of the Warrant certificates, and (iii) the receipt by each Selling
Warrantholder of the Warrant Purchase Price (a "Warrant Transmittal Letter"),
subject to the indemnification, expense and adjustment provisions described
herein.
On the Closing Date, (i) in consideration of each Selling Warrantholder's
prior delivery of a duly executed Form of Assignment of Warrant, the Warrant
certificates, the Warrant Transmittal Letter and any other required transmittal
documents to the Exchange Agent, each Selling Warrantholder shall be entitled
to receive the Warrant Purchase Price which such holder has the right to
receive, subject to the indemnification, expense and adjustment provisions
described herein, and (ii) the Eligible Warrants will be automatically
transferred and assigned to Iron
71
<PAGE>
Mountain. As soon as reasonably practicable, following the Closing Date, but in
any event, on a date which is no more than five business days following such
date, the Exchange Agent shall deliver (A) such form of assignment and any such
Warrant certificates to Iron Mountain and (B) the appropriate consideration to
such Warrantholders.
Representations and Warranties
The Merger Agreement contains certain customary representations and
warranties relating to, among other things: (a) each of Iron Mountain's and the
Arcus Parties' organization and similar corporate matters; (b) each of Iron
Mountain's and the Arcus Entities' capital structure; (c) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement
with respect to Iron Mountain and each of the Arcus Parties; (d) documents
filed by Iron Mountain with the Commission and the accuracy of the information
contained therein; (e) certain financial matters with respect to the Arcus
Parties; (f) the Arcus Entities' leases and title to real property; (g) the use
and ownership of intangible assets by the Arcus Entities; (h) the liabilities
of the Arcus Entities and Iron Mountain; (i) governmental and private
authorizations of the Arcus Entities; (j) the absence of undisclosed material
litigation and other undisclosed liabilities relating to the Arcus Entities;
(k) the employment arrangements and material contracts of the Arcus Entities;
(l) the absence of material changes with respect to the business of the Arcus
Entities; (m) certain insurance, tax and employee benefit matters with respect
to the Arcus Entities; (n) certain environmental matters with respect to the
Arcus Entities; (o) the Reorganizations; and (p) the receipt of the DLJ Opinion
by the Arcus Parties and the Bear Stearns Opinion by Iron Mountain. The Arcus
Parties' representations and warranties survive the Closing for a period of 18
months.
Certain Covenants
The Merger Agreement contains certain customary covenants and agreements,
including, without limitation, the following:
Conduct of Business. Each of the Arcus Parties has agreed that, during the
period from July 31, 1997 until the Closing Date, except as permitted by the
Merger Agreement or as otherwise consented to in writing by Iron Mountain, the
Arcus Parties have operated and will operate their respective businesses in the
ordinary course of business, consistent with prior practice. In addition,
without limiting the generality of the foregoing, the Arcus Parties have agreed
that they will not, among other things, subject to certain exceptions: (a) sell
or otherwise dispose of or contract to sell or otherwise dispose of, any of
their properties or assets, other than in the ordinary course of business; (b)
incur any obligations or liabilities; (c) enter into any commitments; (d)
cancel any debts or claims; (e) make or commit to make any additions to their
property or any purchases of machinery or equipment, except in the ordinary
course of business, consistent with past practice; (f) discharge or satisfy any
lien or pay any obligation or liability other than current liabilities or
obligations under contracts then existing or thereafter entered into in the
ordinary course of business, consistent with prior practice, and commitments
under leases or repay or prepay long-term indebtedness or the current portion
thereof except in the ordinary course of business, consistent with past
practice; (g) create or permit to be created any lien on any of their tangible
property or intangible assets; (h) except in the ordinary course of business,
consistent with prior practice, increase the compensation payable or to become
payable to any of their Directors, officers, employees, advisers, consultants,
salesmen or agents or otherwise alter, modify or change the terms of their
employment or engagement; (i) suffer any material damage, destruction or loss
or any acquisition or taking of property by any governmental authority; (j)
waive any rights of material value without fair and adequate consideration; (k)
enter into, amend or terminate any lease, private authorization, governmental
authorization, material agreement or employment arrangement or any contractual
obligation or transaction with any affiliate, except for terminations in the
ordinary course of business, consistent with prior practice, in accordance with
the terms thereof; (l) amend or terminate (other than to increase coverage) any
insurance policies and coverage; (m) amend any provision of their certificates
of incorporation, articles of incorporation, by-laws or other agreements
applicable to any of their capital stock; (n) issue any additional shares of
capital stock (other than the issuance of shares in accordance with the terms
of option securities outstanding on the date of the Merger Agreement) or any
option securities or convertible securities or enter into any agreement to do
the same; and (o) enter into any other transaction or series of related
transactions which individually or in the aggregate is material to the Arcus
Entities, except in the ordinary course of business.
Iron Mountain has agreed that, during the period from the date of the most
recent balance sheet forming part of Iron Mountain's consolidated financial
statements until the Closing Date, except as permitted by the Merger
72
<PAGE>
Agreement, or as otherwise consented to by the Arcus Parties, it will continue
to operate its business in the line of business described in its Commission
reports, will not declare or pay, directly or indirectly, any dividend or
distribution, in cash or otherwise, to any holder of its capital stock, will
not repurchase, redeem or otherwise acquire, directly or indirectly, any of its
capital stock, and will not sell, transfer or otherwise dispose of, directly or
indirectly, in one or more transaction or series of transaction assets or
properties having an aggregate fair market value in excess of $5.0 million.
Agreement to Cooperate. Each of the parties has agreed to use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable law to
consummate the Merger and make effective the transactions contemplated thereby,
including using its best efforts (i) to prepare and file with the applicable
authorities as promptly as practicable after the execution of the Merger
Agreement all requisite applications and amendments thereto, together with
related information, data and exhibits, necessary to request issuance of orders
approving the Merger and the transactions contemplated thereby by all such
applicable authorities, each of which must be obtained or become final in order
to satisfy the closing conditions set forth in the Merger Agreement, (ii) to
obtain all necessary or appropriate waivers, consents and approvals, and to
reasonably agree on and implement a procedure for obtaining the foregoing,
(iii) to effect all necessary registrations, filings and submissions (including
without limitation filings under federal or state securities laws or the HSR
Act and any other submissions requested by the Commission, the Federal Trade
Commission or the Department of Justice) and (iv) to lift any injunction or
other legal bar to the Merger and the transactions contemplated thereby (and,
in such case, to proceed with the Merger and the transactions contemplated
thereby as expeditiously as possible), subject, however, to the requisite vote
of the Arcus Parties' stockholders and Iron Mountain's stockholders. The
waiting period under the HSR Act has terminated. The parties have agreed that
Iron Mountain will not be required to divest, abandon, license or take similar
action with respect to any assets (tangible or intangible) of it or any of its
subsidiaries which, in the aggregate, have a fair market value in excess of
$2.0 million.
The Arcus Parties have agreed to supply consolidated financial statements
for the Arcus Entities for inclusion in the Registration Statement of which
this Proxy Statement forms a part and other registration statements, public
filings and offering circulars of Iron Mountain and to cause their independent
accountants to cooperate with Iron Mountain in connection with the foregoing.
The Arcus Parties have also agreed that they will (i) consent to the use of
such audited financial statements in any such registration statement, document
or circular, and (ii) execute and deliver, and cause their officers to execute
and deliver, such "representation" letters as are customarily delivered in
connection with audits and as Iron Mountain's independent accountants may
reasonably request under the circumstances.
No Solicitation. The Arcus Parties have agreed that they will not, nor
will it permit any of their representatives (including, without limitation, any
investment banker, attorney or accountant retained by it) to initiate, solicit
or facilitate, directly or indirectly, any inquiries or the making of any
proposal with respect to a transaction or series of related transactions, other
than the Merger and the Reorganizations, resulting in (a) any change in control
of any Arcus Entity, (b) any merger or consolidation of the Arcus Entities,
regardless of whether any Arcus Entity is the surviving entity, (c) any tender
offer or exchange offer for, or any acquisition of, any securities of the Arcus
Entities, (d) any sale or other disposition of assets of any Arcus Entity not
otherwise permitted under the Merger Agreement, or (e) so long as the Merger
Agreement remains in effect, any issuance or sale, or any agreement to issue or
sell any capital stock, convertible securities or option securities of any
Arcus Entity (other than the issuance of shares in accordance with the terms of
outstanding option securities) (each, an "Other Transaction"). Prior to
approval of the Reorganization Agreements and the Merger Agreement at the Arcus
Stockholders Meetings, the Arcus Entities may engage in discussions or
negotiations with, and may furnish information concerning the Arcus Entities
and their business properties and assets to, a third party who, without any
solicitation, initiation, encouragement, discussion or negotiation, directly or
indirectly, by or with the Arcus Parties or any representatives of the Arcus
Parties, or in furtherance thereof, makes a written, bona fide proposal
regarding an Other Transaction that is not subject to any material
contingencies relating to financing and that is reasonably capable of being
financed and is financially superior to the consideration to be received by the
Arcus Parties' stockholders pursuant to the Merger (as determined in good faith
by each Arcus Board after consultation with the Arcus Parties' financial
advisors) if (1) the Boards of Directors of the Arcus Parties determine in
their good faith, after receipt of written advice of the Arcus Parties' outside
legal counsel, that such action is required for the Boards of Directors of the
Arcus Parties to act in a manner consistent with their fiduciary duties under
applicable law and (2) prior to furnishing information with respect to the
Arcus Entities to such third party, the Arcus Parties shall have received from
such
73
<PAGE>
third party an executed confidentiality agreement in reasonably customary form
on terms not more favorable to such person or entity than the terms contained
in the confidentiality agreement with Iron Mountain. Each Arcus Party has
agreed to promptly advise Iron Mountain of, and communicate the material terms
of, any proposal it may receive, or any inquiries it receives which may
reasonably be expected to lead to such a proposal relating to an Other
Transaction, and the identity of the person making it. Each Arcus Party will
further advise Iron Mountain of the status and changes in the material terms of
any such proposal or inquiry (or any amendment to any of them). During the term
of the Merger Agreement, each Arcus Party has agreed not to enter into any
agreement oral or written, and whether or not legally binding, with any person
that provides for, or in any way facilitates, an Other Transaction, or affects
any other obligation of the Arcus Parties under the Merger Agreement.
Directors' and Officers' Indemnification and Insurance. The parties have
agreed that the Surviving Corporation will indemnify, defend and hold harmless
the present and former officers and Directors of any of the Arcus Entities
against all claims or amounts that, with the approval of the Surviving
Corporation as to settlements only, are paid in settlement of or otherwise in
connection with any claim based in whole or in part on the fact that such
person is or was a Director or officer of any of the Arcus Entities and arising
out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the Merger and the transactions contemplated
thereby), in each case to the fullest extent currently provided under any of
the Arcus Entities' articles of incorporation or certificate of incorporation
and by-laws (but only to the extent permitted under applicable law), and will
pay any expenses in advance of the final disposition of any such action or
proceeding to each such person to the fullest extent permitted under applicable
law, upon receipt from the person to whom expenses are advanced of an
undertaking to repay such advances to the extent required under applicable law.
For a period of six years after the Effective Time, Iron Mountain will cause
the individuals currently covered by directors' and officers' liability
insurance maintained by the Arcus Entities to be covered by the directors' and
officers' liability insurance maintained by Iron Mountain, with coverage
substantially similar to the coverage provided to Iron Mountain's directors and
officers, with respect to claims arising from facts or events which occurred at
or prior to the Effective Time; provided, that the Iron Mountain will not be
obligated to maintain such liability insurance in the event that the Board of
Directors of Iron Mountain elects to discontinue maintaining liability
insurance for all of its officers and directors.
Employee Benefits; Severance Policy. The parties have agreed that the
Surviving Corporation may, in its sole discretion, substitute employee
compensation, benefit and severance programs for those of the Arcus Entities
and their ERISA affiliates that are comparable to the programs provided from
time to time to Iron Mountain's employees and the employees of Iron Mountain's
subsidiaries.
Tax Treatment. Each of the parties has agreed to use its reasonable best
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368(a) of the Code and to obtain opinions of counsel as to such
qualification. Iron Mountain has also agreed that it will not dispose of the
historic assets and/or the historic business of AGI, UAC or ATSI, except as
otherwise provided in the Merger Agreement, AGI for a period of one year after
the Closing Date, except as permitted under Section 368(a)(2)(C) of the Code and
the administrative authorities under Section 368 of the Code, or unless it first
has received an opinion of counsel, addressed to Iron Mountain and the Arcus
Parties' stockholders, that the proposed disposition will not affect the
tax-free nature of the Merger. Shares of Iron Mountain Common Stock received in
connection with the Merger (other than those received in exchange for AGI Common
Stock received in connection with the Option Exercise) also may not be
transferred for a period of one year after the Effective Time unless Iron
Mountain reasonably determines that such transfer will not adversely affect the
tax-free nature of the Merger.
Amendment. In the event Dissenting Shares exist, and any party reasonably
determines that the existence of Dissenting Shares adversely affects the
tax-free nature of the Merger, the parties will promptly negotiate in good
faith to amend, supplement or otherwise modify the Merger Agreement and any
applicable ancillary documents to preserve the tax-free nature of the
transactions contemplated thereby.
Warrant Purchase Agreements and Non-Competition Agreements. The parties
have agreed to use their best efforts to facilitate the execution of a Warrant
Purchase Agreement by those Warrantholders that did not execute a Warrant
Purchase Agreement on the date the Merger Agreement was executed and to use
their best efforts to facilitate the execution of certain non-competition
agreements and to obtain certain resignations of certain Arcus Entity
employees.
74
<PAGE>
Certain Other Covenants. The Arcus Parties and Iron Mountain have also
agreed, among other things: (i) that each Arcus Party will use its best efforts
to cause to be delivered to Iron Mountain, prior to the Closing Date, a letter
from each "affiliate" of each Arcus Party; (ii) to consult with each other
prior to issuing any press release or public statement with respect to the
Merger Agreement, the Merger or any transaction contemplated thereby; (iii)
that each Arcus Party will not elect to apply, and will not take any action
resulting in the application of the provisions of applicable state takeover
laws, if any, with respect to or as a result of the Merger or the transactions
contemplated thereby; (iv) that Iron Mountain will notify the Arcus Parties if
it enters into a letter of intent or a definitive agreement in respect of
certain potential acquisitions and (v) that each will use its reasonable best
efforts to have the Registration Statement, of which this Proxy Statement is a
part, declared effective under the Securities Act as promptly as practicable
after such filing, and that each will use its reasonable best efforts to cause
this Proxy Statement to be mailed to its stockholders as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act.
Conditions to the Merger
Conditions to Obligations of All Parties. The obligations of Iron Mountain
and the Arcus Parties to consummate the Reorganizations and the Merger are
subject to the satisfaction of the following conditions: (a) to the extent
required by the DGCL, the Merger Agreement and the Merger shall have been
approved and adopted in accordance with the DGCL by the required affirmative
vote of the stockholders of Iron Mountain; (b) the Reorganization Agreements,
the Reorganizations, the UAC Charter Amendments, the AGI Charter Amendments,
the Merger Agreement, the Merger and the transactions contemplated thereby for
which approval is required (including each element of the Arcus Proposals)
shall have been approved and adopted in accordance with the DGCL and the NRS,
as applicable, or as otherwise set forth in the Merger Agreement by the
required affirmative vote or consent of the stockholders of each of the Arcus
Parties; (c) no legal action or other claim (excluding dissenter's rights)
shall be pending before or threatened in writing by any authority or any other
person seeking to restrain, prohibit, make illegal or delay materially, or
seeking material damages or other relief in connection with, the execution and
delivery of the Merger Agreement or the consummation of the Merger and the
transactions contemplated thereby, or which might, in the reasonable business
judgment of Iron Mountain or the Arcus Parties, have an adverse effect on the
Arcus Entities or on Iron Mountain and its subsidiaries taken as a whole
assuming consummation of the Merger; (d) other than the filing of the
Certificate of Merger and AGI Charter Amendments in accordance with the DGCL
and, as to the UAC Reorganization, the Articles of Merger and UAC Charter
Amendments in accordance with the NRS, and certain other delineated related
filings and actions, all authorizations, consents, waivers, orders or approvals
required to be obtained, and all filings, submissions, registrations, notices
or declarations required to be made, by Iron Mountain and the Arcus Parties
prior to the consummation of the Merger and the transactions contemplated
thereby shall have been obtained from, and made with, all required authorities,
except for such authorizations, consents, waivers, orders, approvals, filings,
registrations, notices or declarations which the failure to obtain or make
would not, in the reasonable judgment of Iron Mountain, assuming consummation
of the Merger, have a material adverse effect on the Arcus Entities; (e) the
filing and waiting period requirements under the HSR Act relating to the
consummation of the Merger shall have been complied with; (f) the Registration
Statement, of which this Proxy Statement is a part, shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect; and (g) the Warrantholders that have executed a
Warrant Purchase Agreement shall have sold, and Iron Mountain shall have
purchased, all such Warrants for a cash purchase price equal to the Warrant
Purchase Price.
Conditions to Obligations of Iron Mountain. The obligations of Iron
Mountain to effect the Merger are also subject to the satisfaction at or prior
to the Effective Time of the following additional conditions: (a) all
agreements, certificates, opinions and other documents shall be reasonably
satisfactory in form, scope and substance to Iron Mountain and its counsel; (b)
the representations, warranties, covenants and agreements of the Arcus Parties
contained in the Merger Agreement or otherwise made in writing by them or on
their behalf pursuant thereto shall be true and correct in all material
respects, each and all of the agreements and conditions to be performed or
satisfied by the Arcus Parties or any of their stockholders under the Merger
Agreement or under the Stockholders' Agreement at or prior to the Closing Date
shall have been duly performed or satisfied in all material respects, and the
Arcus Parties shall have furnished Iron Mountain with such certificates and
other documents evidencing the truth of such representations, warranties,
covenants and agreements and the performance of such agreements or conditions
as Iron Mountain shall have reasonably requested; (c) the Arcus Parties shall
have furnished Iron Mountain and, at
75
<PAGE>
Iron Mountain's request, any bank or other financial institution providing
credit to Iron Mountain, with favorable opinions dated the Closing Date of
Paul, Hastings, Janofsky & Walker LLP, counsel for the Arcus Parties, as to
certain corporate matters, of Neal, Gerber & Eisenberg, special tax counsel for
the Arcus Parties, and of Bible, Hoy & Trachok, special Nevada counsel for the
Arcus Parties; (d) each affiliate of the Arcus Parties shall have executed and
delivered an affiliate agreement in an agreed upon form; (e) the Arcus Parties
shall have obtained consents to the assignment and continuation of certain
material agreements, and the Arcus Parties shall have obtained satisfaction and
discharge of certain liens; (f) all stockholders agreements of the Arcus
Entities shall have been terminated or otherwise be of no further force or
effect with no liability to any Arcus Entity; (g) each trustee under the
benefit plans of the Arcus Entities and such officers and Directors of the
Arcus Entities identified by Iron Mountain to AGI, shall have submitted his or
her unqualified written resignation, dated as of the Closing Date, from all
such positions; (h) certain contractual obligations of the Arcus Parties shall
have been satisfied and discharged; (i) Iron Mountain shall have received a
favorable opinion, dated the Closing Date, of Sullivan & Worcester LLP, its
special tax counsel, to the effect that the Merger Agreement constitutes a
tax-free plan of reorganization in accordance with the provisions of Section
368(a) of the Code and as to the consequences thereof to Iron Mountain; (j)
AGI, the Stockholder Representative and the Escrow Agent shall have executed
and delivered the Escrow Agreement; and (k) the Arcus Parties shall have
furnished Iron Mountain with such certificates at or prior to the Closing Date,
evidencing the payment by the Arcus Parties of substantially all Expenses
incurred by each of the Arcus Parties in connection with or related to the
Merger Agreement and the Transactions.
Conditions to Obligations of the Arcus Parties. The obligations of the
Arcus Parties to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following additional conditions: (a) Iron
Mountain shall have furnished the Arcus Parties with the favorable opinion,
dated the Closing Date, of Sullivan & Worcester LLP, counsel to Iron Mountain,
as to certain corporate matters; (b) all agreements, certificates, opinions and
other documents shall be reasonably satisfactory in form, scope and substance
to the Arcus Parties and their counsel; (c) the representations, warranties,
covenants and agreements of Iron Mountain contained in the Merger Agreement or
otherwise made in writing by it or on its behalf pursuant thereto shall be true
and correct in all material respects, each and all of the agreements and
conditions to be performed or satisfied by Iron Mountain thereunder at or prior
to the Closing Date shall have been duly performed or satisfied in all material
respects, and Iron Mountain shall have furnished the Arcus Parties with such
certificates and other documents evidencing the truth of such representations,
warranties, covenants and agreements and the performance of such agreements or
conditions as the Arcus Parties shall have requested; (d) the Arcus Parties
shall have received a favorable federal income tax opinion, dated the Closing
Date, of Neal, Gerber & Eisenberg, their special tax counsel, to the effect
that each of the Reorganization Agreements constitutes a tax-free plan of
reorganization or liquidation and that the Merger Agreement constitutes a
tax-free plan of reorganization in accordance with the provisions of Section
368(a) of the Code and as to the consequences thereof to the Arcus Parties'
stockholders; and (e) the Escrow Agreement shall have been executed and
delivered by Iron Mountain and the Escrow Agent.
Termination
Termination Events. The Merger Agreement may be terminated at any time
prior to the Effective Time: (a) by mutual consent of Iron Mountain and the
Arcus Parties; (b) by either the Arcus Parties or Iron Mountain if any
permanent injunction, decree or judgment by any authority preventing the
consummation of the Merger shall have become final and nonappealable; (c) by
the Arcus Parties in the event (i) the parties (other than Iron Mountain) to
the Merger Agreement, the Stockholders' Agreement or a Warrant Purchase
Agreement with an Arcus Principal Stockholder are not in breach of such
agreements and none of their representations and warranties shall have become
and continue to be untrue in any material respect, unless such breach or
untruth is capable of being cured by and will not prevent or delay consummation
of the Merger beyond the Termination Date and (ii) either (A) Iron Mountain is
in breach of the Merger Agreement or any of its representations or warranties
shall have become and continue to be untrue in any material respect, unless, in
either case such breach or untruth is capable of being cured by and will not
prevent or delay consummation of the Merger by or beyond the Termination Date,
or (B) the Merger and the transactions contemplated thereby have not been
consummated by the Termination Date; (d) by the Arcus Parties or Iron Mountain
if the Merger or the transactions contemplated thereby fail to receive the
approval, if any, required by applicable law or Nasdaq rules, by vote of the
Iron Mountain stockholders (unless, in the case of a termination by Iron
Mountain, such failure resulted from the breach by any Iron Mountain Principal
Stockholder who is a party
76
<PAGE>
to the Iron Mountain Voting Agreement of the terms of such agreement); (e) by
any party if a tax adjustment to the Merger consideration is required (as
described under "--Conversion of AGI Stock--Potential Tax Adjustment") and the
Determination Price, calculated without giving effect to the floor price, is
$20.00 or less; (f) by Iron Mountain if the independent accountants of the
Arcus Entities fail to deliver a comfort letter in accordance with the terms of
the Merger Agreement, provided, however, that any such failure shall not
constitute a breach by any Arcus Party of the Merger Agreement if the Arcus
Parties have complied with their obligations relating to comfort letters; or
(g) by the Arcus Parties upon certain Changes of Control of Iron Mountain. The
"Termination Date" shall mean March 31, 1998 or such other date as Iron
Mountain and the Arcus Parties agree.
The Merger Agreement may also be terminated by Iron Mountain: (a) in the
event (i) Iron Mountain is not in breach of the Merger Agreement, the
Stockholders' Agreement or one or more Warrant Purchase Agreements, none of its
stockholders is in breach of the Iron Mountain Voting Agreement and none of its
representations or warranties shall have become and continue to be untrue in
any material respect (but, as to the Iron Mountain Voting Agreement, only if
the approval of the Merger and the transactions contemplated thereby, or the
taking of other action specified in the Iron Mountain Voting Agreement, by Iron
Mountain's stockholders is required), unless such breach or untruth is capable
of being cured by and will not prevent or delay consummation of the Merger by
or beyond the Termination Date, and (ii) either (A) the Arcus Parties are in
breach of the Merger Agreement or any of their representations or warranties
shall have become and continue to be untrue in any material respect, unless, in
either case, such breach or untruth is capable of being cured by and will not
prevent or delay consummation of the Merger by or beyond the Termination Date,
(B) the Merger and the transactions contemplated thereby have not been
consummated prior to the Termination Date or (C) any of the parties (other than
Iron Mountain) to the Stockholders' Agreement or a Warrant Purchase Agreement
with an Arcus Principal Stockholder is in breach of their representations and
warranties or any of their representations or warranties shall have become and
continue to be untrue in any material respect, unless, in either case, such
breach or untruth is capable of being cured by and will not prevent or delay
consummation of the Merger by or beyond the Termination Date; or (b) if any
Arcus Board shall (i) withdraw, modify or change its recommendation so that it
is not in favor of the Merger Agreement, the Merger or the transactions
contemplated thereby (including, without limitation, the Reorganizations and
the other elements of the Arcus Proposals), or shall have resolved to do any of
the foregoing, (ii) have recommended or resolved to recommend to any Arcus
Party's stockholders any Other Transaction; or (iii) if any Arcus Party shall
have entered into or agreed to enter into any Other Transaction.
Any Arcus Party may terminate the Merger Agreement prior to its approval
and adoption by the stockholders of such Arcus Party if the Board of Directors
of such Arcus Party shall withdraw its recommendation of the Merger Agreement,
the Merger and the transactions contemplated thereby (including, without
limitation, the Reorganizations and the other Arcus Proposals) and recommend
any Other Transaction to its stockholders; provided, however, that (i) the
Arcus Parties are not then in breach of the covenant as to no solicitation,
(ii) prior to such termination, the Arcus Parties have negotiated with Iron
Mountain in good faith to make such adjustments in the terms and conditions of
the Merger Agreement as would enable the Arcus Parties to proceed with the
transactions contemplated thereby, (iii) the Board of Directors of such Arcus
Party has determined in good faith (on the basis of the terms of such Other
Transaction and the terms of the Merger Agreement, after giving effect to any
adjustments offered by Iron Mountain pursuant to clause (ii) above), after
receipt of written advice from AGI's outside legal counsel, that such
termination is required for the Board of Directors to act in a manner
consistent with its fiduciary duties to stockholders under applicable law and
(iv) the Arcus Parties shall provide to Iron Mountain prior written notice of
such termination.
Effect of Termination. With certain exceptions, in the event of the
termination of the Merger Agreement, the Merger Agreement will become void,
there will be no liability on the part of any party thereto, or any of their
respective officers or Directors, to any other party and all rights and
obligations of any party thereto will cease; provided, however, that such
termination will not prejudice the ability of a party to seek damages from any
other party for any breach of the Merger Agreement, including, without
limitation, attorneys' fees and the right to pursue any remedy of law or in
equity.
Fees and Expenses
All costs and expenses incurred in connection with the Merger Agreement,
the Merger and the transactions contemplated thereby, and compliance with
applicable law and contractual obligations as a consequence thereof, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by
77
<PAGE>
the parties thereto will be borne solely and entirely by the party which has
incurred such costs and expenses (with respect to such party, its "Expenses").
In order to provide a fund to pay certain such Expenses of the Arcus Parties
which have not been paid at or prior to the Effective Time, $750,000 will be
held in escrow from the amounts otherwise payable in the Merger to the holders
of AGI Common Stock and payable to Selling Warrantholders. See "--Expense
Fund."
The Arcus Parties have agreed that if the Merger Agreement is terminated
by Iron Mountain under the circumstances described in the second paragraph
under "--Termination--Termination Events" (other than a termination by Iron
Mountain pursuant to the circumstances described in clause (a)(ii)(B) of the
second paragraph under "--Termination--Termination Events," unless the reason
for the failure to consummate the Merger and the transactions contemplated
thereby prior to the Termination Date is due to any breach by any party (other
than Iron Mountain) to the Merger Agreement, the Stockholders' Agreement or a
Warrant Purchase Agreement with an Arcus Principal Stockholder of its covenants
therein or the failure of the representations and warranties of such person to
be true and correct in all material respects, in each case, which breach or
failure has not been cured), or by an Arcus Party pursuant to the third
paragraph under "--Termination--Termination Events," then the Arcus Parties
will pay to Iron Mountain an amount equal to $5.0 million, which amount is in
recognition of, among other things, the out-of-pocket Expenses of Iron Mountain
related to the Merger Agreement, the reliance of Iron Mountain on the Arcus
Parties' fulfillment of their obligations thereunder, the costs in delayed
opportunity to Iron Mountain, and the benefit to the Arcus Parties, which had
been a private closely-held business, in establishing a market price for it,
but which amount will not be considered to constitute liquidated damages;
provided, however, that the amount of such fee shall be $7.0 million in the
event of a termination of the Merger Agreement by Iron Mountain pursuant to
clause (b) of the second paragraph under "--Termination--Termination Events,"
or by an Arcus Party pursuant to the third paragraph under
"--Termination--Termination Events."
Iron Mountain has agreed that if the Merger Agreement is terminated by the
Arcus Parties under the circumstances described in clause (c) of the first
paragraph under "--Termination--Termination Events" (other than a termination
by the Arcus Parties pursuant to clause (c)(ii)(B) of the first paragraph under
"--Termination--Termination Events" unless the reason for the failure to
consummate the Merger prior to the Termination Date is due to any breach by
Iron Mountain of any of its covenants in the Merger Agreement or in the
Stockholders' Agreement or the Warrant Purchase Agreements, any breach by an
Iron Mountain stockholder of the Iron Mountain Voting Agreement or the failure
of the representations and warranties of Iron Mountain to be true and correct
in all material respects, in each case, which breach or failure has not been
cured), then Iron Mountain will pay to the Arcus Parties an amount equal to
$5.0 million, which amount is in recognition of, among other things, the out-
of-pocket Expenses of the Arcus Parties related to the Merger Agreement, the
reliance of the Arcus Parties on Iron Mountain's fulfillment of its obligations
thereunder, and the costs in delayed opportunity to the Arcus Parties, but
which amount will not be considered to constitute liquidated damages.
Amendment; Waiver
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of the respective Boards of Directors thereof at any time prior
to the Effective Time. After approval of the Merger Agreement and the Merger by
the stockholders of AGI or the stockholders of Iron Mountain, no amendment,
which under applicable law may not be made without the approval of such
stockholders, may be made without such approval. The Merger Agreement may not
be amended except by an instrument in writing signed by the parties thereto.
At any time prior to the Effective Time, except to the extent applicable
law does not permit, either Iron Mountain or the Arcus Parties may extend the
time for the performance of any of the obligations or other acts of the other,
subject, however, to completion by the Termination Date, waive any inaccuracies
in the representations and warranties of the other contained in the Merger
Agreement or in any document delivered pursuant thereto and waive compliance by
the other with any of the agreements, covenants or conditions contained
therein. Any such extension or waiver will be valid only if set forth in an
agreement in writing signed by the party or parties to be bound thereby.
Corporate Governance
Once the Merger is effected, the Directors of Iron Mountain immediately
prior to the Effective Time will be the Directors of the Surviving Corporation,
and the officers of Iron Mountain immediately prior to the Effective Time will
be the officers of the Surviving Corporation. The Directors and executive
officers of Iron Mountain will
78
<PAGE>
not change as a result of the Merger, except that Mr. Bailey will be appointed
as a Class C Director of Iron Mountain following the Effective Time.
Mr. Bailey is Co-Chairman and Director of Hudson, a private investment
company. Mr. Bailey is also currently the Chairman and Chief Executive Officer
of each Arcus Party, positions which he has held since 1995, and is a Director
of Connectivity Technologies Inc. and Swiss Army Brands, Inc. Mr. Bailey also
serves as Director of Glenayre Technologies, Inc., a manufacturing company in
the telecommunications industry, and serves as the Chairman of its Executive
Committee. Prior to joining Glenayre in 1990, Mr. Bailey was a Managing
Director at Oppenheimer & Co., Inc. where he served in a variety of capacities,
most recently as head of the Principal Investments Department. He holds a
Master of Business Administration degree from The Wharton School, University of
Pennsylvania.
In addition, in November 1997, in connection with the acquisition by Iron
Mountain of HIMSCORP, Kent P. Dauten was appointed to serve as a Class B
Director of Iron Mountain. Mr. Dauten has served as President of Keystone
Capital, Inc., a venture capital firm, since March 1994 and as President of
HIMSCORP since February 1995. From January 1993 to March 1994, he was Senior
Vice President of Madison Dearborn Partners, Inc. and from September 1979 to
December 1992, he was Senior Vice President of First Chicago Venture Capital.
Mr. Dauten currently also serves as a director of Health Management Associates,
Inc. of Naples, Florida, a NYSE-listed hospital management firm and is a
Trustee Nominee for Elder Trust of Kennett Square, Pennsylvania, a newly formed
health care real estate investment trust. Mr. Dauten holds a Master of Business
Administration from the Harvard Business School and a Bachelor of Arts in
Economics from Dartmouth College.
Information with respect to the directors and executive officers of Iron
Mountain is incorporated herein by reference to Iron Mountain's Annual Report
on Form 10-K for the year ended December 31, 1996 (see "Incorporation of
Certain Documents by Reference"); provided, however, that Eugene B. Doggett has
retired as Chief Financial Officer of Iron Mountain, though he remains an
Executive Vice President and a Director of Iron Mountain, and John F. Kenny,
Jr. has become the Chief Financial Officer and an Executive Vice President of
Iron Mountain, effective as of May 29, 1997. In addition, B. Thomas Golisano
was appointed as a Class A Director upon the consummation of Iron Mountain's
acquisition of Safesite on June 12, 1997. Mr. Golisano founded Paychex, Inc., a
publicly held, national payroll service company, in 1971 and has served for
more than five years as its Chairman, President and Chief Executive Officer.
Mr. Golisano serves on the Board of Trustees of Rochester Institute of
Technology and on the boards of several privately held companies. He has also
served on the boards of numerous non-profit organizations and is founder of the
B. Thomas Golisano Foundation.
79
<PAGE>
ANCILLARY AGREEMENTS
The following is a discussion of the material terms and provisions of
certain ancillary agreements related to the Merger Agreement.
Stockholders' Agreement
Concurrently with the execution and delivery of the Merger Agreement, Iron
Mountain and the Arcus Principal Stockholders entered into the Stockholders'
Agreement. Set forth below is a summary of certain provisions of the
Stockholders' Agreement, a copy of which is attached hereto as Annex V. This
summary is qualified in its entirety by reference to the full and complete text
of the Stockholders' Agreement.
Each of the Arcus Principal Stockholders has agreed not to sell, transfer,
pledge, hypothecate, encumber or otherwise dispose of, or enter into any
contract, option or arrangement or understanding with respect to the sale,
transfer, pledge, hypothecation, encumbrance or other disposition of any of the
shares of AGI Common Stock, UAC Common Stock, UAC Preferred Stock and ATSI
Common Stock owned by him or it prior to the Closing Date. In addition, each of
the Arcus Principal Stockholders has agreed that he or it will not, and will
not permit any of his or its representatives, to initiate, solicit or
facilitate, directly or indirectly, any inquiries or the making of any proposal
with respect to an Other Transaction, engage in any discussions or negotiations
concerning, or provide to any other person any information or data relating to,
any Arcus Entity for the purposes of, or otherwise cooperate in any way with or
assist or participate in, or facilitate any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a
proposal to seek or effect an Other Transaction, unless required to do so by
applicable law in his or her role as a member of an Arcus Board.
Each of the Arcus Principal Stockholders has agreed to vote all of the
shares of the Arcus Parties owned by him or it or which he or it has the right
to vote, equal to approximately, 72%, 99%, 86% and 81% of the outstanding AGI
Common Stock, UAC Common Stock, UAC Preferred Stock and ATSI Common Stock,
respectively (and has granted to Iron Mountain their proxies to vote all such
shares), (i) in favor of the adoption of the Merger Agreement and each of the
transactions contemplated thereby and any action required in furtherance
thereof, including, without limitation, each of the Arcus Proposals, (ii)
against any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation of
the Arcus Parties under the Merger Agreement, and (iii) against any Other
Transaction or any other action or agreement that, directly or indirectly, is
inconsistent with or that would, or is reasonably likely to, directly or
indirectly, impede, interfere with or attempt to discourage the Merger or any
other transaction contemplated by the Merger Agreement, unless required to do
so by applicable law in his or her role as a member of an Arcus Board.
Each of Arcus Principal Stockholders has also agreed, among other things,
that he or it will not grant any proxies, deposit any shares of AGI Common
Stock, UAC Common Stock, UAC Preferred Stock and ATSI Common Stock into a
voting trust or enter into any voting agreement with respect to his or its
shares of such stock, other than in accordance with the provisions of the
Stockholders' Agreement. Each of the Arcus Principal Stockholders has agreed
that each will assist and cooperate with the parties to the Merger Agreement in
doing all things necessary, proper or advisable to consummate the Merger and
the transactions contemplated thereby, including, without limitation, any
element of the Reorganizations which requires the vote or approval of such
Arcus Principal Stockholder, and that each will waive his or its rights to
appraisal under the DGCL and NRS and will not influence other Arcus Parties
stockholders to exercise their appraisal rights. Certain of the Arcus Principal
Stockholders have also agreed to certain "standstill" and transfer restrictions
with respect to Iron Mountain's equity securities.
Each of the Arcus Principal Stockholders has agreed that he or it will
not, for a period of three years from the Closing Date, disclose confidential
information related to the Arcus Entities or Iron Mountain and its
subsidiaries, and will not, for a period of three years from the Closing Date,
engage in the records management, records storage, electronic records
management, information technology personnel staffing businesses or industries
anywhere in the United States (including jurisdictions where Iron Mountain and
some of the Arcus Entities now operate). In addition each of the Arcus
Principal Stockholders has agreed that he or it will not on his or its own
behalf, or on behalf of any other person under his or its control, or on behalf
of others, for a period of three years from the Closing Date, directly or
indirectly, solicit for employment, or endeavor to entice away, any of the
officers, employees or independent contractors of Iron Mountain, the Arcus
Parties or their subsidiaries.
80
<PAGE>
The Stockholders' Agreement will terminate upon the earliest to occur of
(i) the mutual consent of Iron Mountain and the Arcus Parties Principal
Stockholders, (ii) the termination of the Merger Agreement prior to the
consummation of the Merger or (iii) the fifth anniversary of the Closing Date.
Iron Mountain Voting Agreement
Concurrently with the execution and delivery of the Merger Agreement, Iron
Mountain, the Arcus Parties and the Iron Mountain Principal Stockholders
entered into the Iron Mountain Voting Agreement. Set forth below is a summary
of certain provisions of the Iron Mountain Voting Agreement, a form of which is
attached hereto as Annex VI. This summary is qualified in its entirety by
reference to the full and complete text of the Iron Mountain Voting Agreement.
Each of the Iron Mountain Principal Stockholders has agreed to vote all of
the shares of Iron Mountain owned by him or which he has the right to vote,
equal to approximately, 36.0% of the outstanding Iron Mountain Common Stock, in
favor of the adoption of the Merger Agreement and each of the transactions
contemplated thereby and any action required in furtherance thereof, unless to
do so would require such Iron Mountain Principal Stockholder to act in his
capacity as a director of Iron Mountain in any manner inconsistent with his
duties as a director of Iron Mountain.
Each Iron Mountain Principal Stockholder has also agreed, among other
things, that he or it will not grant any proxies, deposit any shares of Iron
Mountain Common Stock into a voting trust or enter into any voting agreement
with respect to his shares of such stock, now or hereafter owned, beneficially
or of record, by him. Each Iron Mountain Principal Stockholder has agreed that
each will assist and cooperate with the parties to the Merger Agreement in
doing all things necessary, proper or advisable to consummate the Merger and
the transactions contemplated thereby and each of them shall not take any
action that would or is reasonably likely to result in any of his
representations and warranties set forth in the Iron Mountain Voting Agreement
being untrue or in any of the closing conditions set forth in the Merger
Agreement not being satisfied.
The Iron Mountain Voting Agreement will terminate upon the earliest to
occur of (i) the mutual consent of the Arcus Parties, Iron Mountain and all of
the Iron Mountain Principal Stockholders, or (ii) the termination of the Merger
Agreement prior to the consummation of the Merger.
Escrow Agreement
Escrow Indemnity Funds. Upon consummation of the Merger, Iron Mountain,
AGI, Mr. Bailey, as stockholder representative for the former holders of AGI
Common Stock and the former holders of Eligible Warrants, and the Escrow Agent,
will enter into the Escrow Agreement. Set forth below is a summary of certain
provisions of the Escrow Agreement, the form of which is attached hereto as
Annex IX. This summary is qualified in its entirety by reference to the full
and complete text of the Escrow Agreement.
Pursuant to the terms of the Escrow Agreement, upon consummation of the
Merger, Iron Mountain will deliver to the Escrow Agent cash in the aggregate
amount of the Escrow Indemnity Funds. The portion of the Escrow Indemnity Funds
to be contributed by the former holders of AGI Common Stock will equal the
product of the Escrow Indemnity Funds and a fraction, the numerator of which is
the Exchange Common Consideration and the denominator of which is the Total
Primary Equity Base. This amount will be withheld from the cash merger
consideration payable to the former holders of AGI Common Stock. The remainder
of the Escrow Indemnity Funds will be withheld ratably from the amounts payable
to the Warrantholders pursuant to the terms of the Warrant Purchase Agreements.
The amount contributed by each Selling Warrantholder described above will be
based on the value of consideration received by such Warrantholder in his, her
or its capacity as a holder of Eligible Warrants and a holder of AGI Preferred
Stock. Thus, each stockholder of an Arcus Party and each Selling Warrantholder
will contribute to the Escrow Indemnity Funds in an amount proportionate to the
value (based, in the case of equity consideration, on the Determination Price)
of the consideration he, she or it receives in the Merger and pursuant to the
Warrant Purchase Agreements. The Escrow Agent will invest the Escrow Indemnity
Funds in a manner so as to maximize the security and liquidity of the Escrow
Indemnity Funds. The purpose of the Escrow Indemnity Funds is to indemnify Iron
Mountain under the Merger Agreement. The Escrow Indemnity Funds shall be
disbursed to Iron Mountain from time to time or to former holders of AGI Common
Stock (including those individuals and entities who become AGI stockholders
pursuant to the conversion of shares of UAC Common Stock and ATSI
81
<PAGE>
Common Stock into shares of AGI Common Stock pursuant to the Reorganizations)
and former holders of Eligible Warrants after a period of eighteen months
following the Closing Date, only in accordance with the terms of the Escrow
Agreement.
Upon written instructions to the Escrow Agent and notice to the
Stockholder Representative from Iron Mountain, the Escrow Agent will make
payments out of the Escrow Indemnity Funds to Iron Mountain, in accordance with
such instructions, unless, within fifteen days of the Stockholder
Representative's receipt of the indemnity notice of request, the Escrow Agent
receives a notice from the Stockholder Representative that a dispute exists
relating to Iron Mountain's right to that portion of the Escrow Indemnity
Funds. If at any time when Iron Mountain gives instructions to the Escrow Agent
and notice to the Stockholder Representative of a claim, the Escrow Agent
receives a notice from the Stockholder Representative that a dispute exists
relating to Iron Mountain's right to that portion of the Escrow Indemnity Funds
claimed in Iron Mountain's instructions and notice, the Escrow Agent will
retain custody of that portion of the Escrow Indemnity Funds which relates to
the Unresolved Claim until the first to occur of the following events: (i)
receipt by the Escrow Agent of a notice signed by Iron Mountain and the
Stockholder Representative that the dispute has been resolved; or (ii) receipt
by the Escrow Agent of a final decision of an arbitrator or arbitration panel
appointed pursuant to the Merger Agreement or a final order of a court of
competent jurisdiction resolving the dispute and directing the disposition of
that portion of the Escrow Indemnity Funds, after which the Escrow Agent shall,
within two business days, pay that portion of the Escrow Indemnity Funds which
relates to such Unresolved Claim in accordance with such notice or order.
In the event that there are no Unresolved Claims on the Initial
Distribution Date, an aggregate of $3.0 million, less any amounts previously
paid to Iron Mountain from the Escrow Indemnity Funds, will be distributed to
the Stockholder Representative for the benefit of former holders of AGI Common
Stock and former holders of Eligible Warrants. If any Unresolved Claims with
respect to the Escrow Indemnity Funds exist on the Initial Distribution Date,
cash in the amount equal to the sum of (i) $5.0 million, (ii) the aggregate
amount of such Unresolved Claims and (iii) the amount reasonably estimated by
Iron Mountain to cover the fees, expenses and other costs to resolve such
Unresolved Claims will be retained as part of the Escrow Indemnity Funds, and
the balance thereof, if any, shall be distributed to the Stockholder
Representative for ratable distribution to the former holders of AGI Common
Stock and former holders of Eligible Warrants.
On the date which is one day after the expiration of eighteen months from
the date of the closing of the Merger Agreement (the "Escrow Indemnity
Period"), the Escrow Agent will distribute to the Stockholder Representative
for the benefit of the former holders of AGI Common Stock and former holders of
Eligible Warrants the Escrow Indemnity Funds less all portions paid to Iron
Mountain during the Escrow Indemnity Period or to be paid to Iron Mountain to
cover certain reimbursements to Iron Mountain and less any amounts which are
the subject of Unresolved Claims. Upon the resolution of all such Unresolved
Claims and the payment of all such fees, expenses and costs out of the Escrow
Indemnity Funds, the balance of the Escrow Indemnity Funds, if any, will be
distributed to the Stockholder Representative for the benefit of the former
holders of AGI Common Stock and former holders of Eligible Warrants.
Escrow for Potential Working Capital Adjustment. Pursuant to the terms of
the Escrow Agreement, upon consummation of the Merger, cash in an amount equal
to the Combined Escrow Holdback Amount may be withheld form the cash Merger
consideration payable to former holders of AGI Common Stock and from the cash
consideration to be paid to Selling Warrantholders pursuant to the Warrant
Purchase Agreements. The stockholders of the Arcus Parties by approving the
applicable Reorganization Agreement and, in the case of AGI, the Merger
Agreement will agree that if the AGI Initial Indebtedness Calculation reflects
a Net Working Capital Surplus of $300,000 or less, then cash in an aggregate
amount equal to the Escrow Holdback Amount will be withheld from the aggregate
cash Merger consideration and, together with the Warrant Escrow Holdback Amount
to be withheld pursuant to the Warrant Purchase Agreements from the aggregate
Warrant Purchase Price, will be deposited into escrow. The purpose of the
Combined Escrow Holdback Amount, which amount, not to exceed $300,000, is
determined in accordance with a schedule contained in the Merger Agreement
based upon the Net Working Capital Surplus, is to have funds available in
connection with the Merger Agreement in the event that the Final Net
Indebtedness is greater than the AGI Initial Indebtedness Calculation. The
"Escrow Holdback Amount" means an amount equal to the Combined Escrow Holdback
Amount times a fraction, the numerator of which equals the aggregate Exchange
Common Consideration and the denominator of which shall equal the Total Primary
Equity Base. The "Warrant Escrow Holdback Amount" means an amount equal to the
Combined Escrow Holdback Amount
82
<PAGE>
times a fraction, the numerator of which equals the sum of (i) the aggregate
Warrant Purchase Price and (ii) the value (calculated based on the
Determination Price) of the aggregate Exchange Preferred Consideration, and the
denominator of which equals the Total Primary Equity Base (the Warrant Escrow
Holdback Amount, together with the Escrow Holdback Amount, are referred to as
the "Combined Escrow Holdback Amount"). The Escrow Agent will invest the
Combined Escrow Holdback Amount in a manner so as to maximize the security and
liquidity of the Combined Escrow Holdback Amount.
In the event that the Final Net Indebtedness is greater than the AGI
Initial Indebtedness Calculation, then on the second day after the Final Net
Indebtedness is determined, (i) cash in an amount equal to the difference
between the Final Net Indebtedness and the AGI Initial Indebtedness Calculation
shall be distributed to Iron Mountain out of the Combined Escrow Holdback
Amount and, if the Combined Escrow Holdback Amount is not sufficient to provide
for such payment, out of the Escrow Indemnity Funds and (ii) the balance, if
any, of the Combined Escrow Holdback Amount will be remitted to the Stockholder
Representative for the benefit of the former holders of AGI Common Stock and
the Selling Warrantholders ratably in proportion to the amounts contributed by
such holders. In the event that the Final Net Indebtedness amount is equal to
or less than the AGI Initial Indebtedness Calculation, then on the second day
after the final determination date the balance of the Combined Escrow Holdback
Amount will be remitted ratably to the former holders of AGI Common Stock and
the former holders of Eligible Warrants.
General. The Escrow Agent will receive a fee for its services and will be
held harmless and be indemnified in connection with any and all third party
claims, losses, judgments or costs, regardless of their nature, arising out of
or because of the Escrow Agreement, except such as may arise because of the
Escrow Agent's negligence or willful misconduct or breach of the Escrow
Agreement.
The Escrow Agreement will terminate upon the earliest to occur of (a)
disbursement or release of the Escrow Indemnity Funds and all of the Combined
Escrow Holdback Amount by the Escrow Agent as provided in the Escrow Agreement,
or (b) the written mutual consent signed by each of the parties thereto.
Warrant Purchase Agreement
Concurrently with the execution and delivery of the Merger Agreement, Iron
Mountain, UAC and certain Selling Warrantholders entered into a Warrant
Purchase Agreement. Set forth below is a summary of certain provisions of such
Warrant Purchase Agreement. The Arcus Parties and Iron Mountain have agreed to
use their best efforts to facilitate the execution of a Warrant Purchase
Agreement by each other Warrantholder. Each such Warrant Purchase Agreement
will contain substantially the same terms as the Warrant Purchase Agreement
summarized below.
Each Selling Warrantholder has agreed to sell to Iron Mountain its
Warrants in exchange for, subject to the indemnification and adjustment
provisions of the Warrant Purchase Agreement, cash in an amount equal to the
Warrant Purchase Price. The Warrant Purchase Agreements contain representations
and warranties relating to, among other things: title to the Warrants and the
authorization, execution, delivery, performance and enforceability of the
Warrant Purchase Agreement with respect to Iron Mountain and the Warrantholder.
The obligations of Iron Mountain and the Selling Warrantholders to purchase and
sell the Warrants are subject to the satisfaction at or prior to the Closing
of, among other things, the satisfaction of each and every condition contained
in the Merger Agreement to the obligations of Iron Mountain and the Arcus
Parties to consummate the Merger. The closings under the Warrant Purchase
Agreements will occur contemporaneously with the closing under the Merger
Agreement.
An aggregate amount equal to the Warrant Escrow Indemnity Contribution and
the Warrant Escrow Holdback Amount will be withheld from the aggregate Warrant
Purchase Price and deposited with the Escrow Agent as part of the Escrow
Indemnity Funds and the Combined Escrow Holdback Amounts, respectively. In
addition, an amount proportionate to the value of the consideration received by
each Selling Warrantholder in his, her or its capacity as a Warrantholder and a
holder of AGI Preferred Stock, will be withheld from the aggregate Warrant
Purchase Price and deposited into the Expense Fund. See "The Merger
Agreement--Indemnification," and "--Expense Fund" and "Ancillary
Agreements--Escrow Agreement" for information relating to the disbursement of
the Escrow Indemnity Funds, the Combined Escrow Holdback Amount and the Expense
Fund.
Pursuant to the terms of the Warrant Purchase Agreement, upon consummation
of the Merger, Iron Mountain will also deliver, if required, to the Escrow
Agent cash in an amount equal to the Warrant Escrow Holdback Amount in
accordance with terms summarized above under "--Escrow Agreement."
83
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes certain federal income tax
consequences of the Reorganizations and the Merger, including certain
consequences to the stockholders of the Arcus Parties who are citizens or
residents of the United States and who hold their shares as capital assets. It
does not discuss all aspects of federal income taxation that may be relevant to
a particular stockholder of an Arcus Party in light of the holder's personal
circumstances or special federal income tax treatment (such as foreign persons,
insurance companies, regulated investment companies, dealers in securities,
certain retirement plans, financial institutions, tax exempt organizations,
persons subject to the alternative minimum tax, persons that have a functional
currency other than the U.S. dollar, or persons who hold AGI Common Stock, UAC
Common Stock, UAC Preferred Stock or ATSI Common Stock as part of a straddle,
hedging transaction or conversion transaction). In addition, this summary does
not address any aspects of state, local, foreign or other tax laws that may be
relevant to the stockholders of the Arcus Parties.
It is the policy of the Service not to rule directly on the tax status of
transactions such as the Reorganizations and the Merger, and no such ruling
will be sought. The obligations of Iron Mountain and the Arcus Parties to
effect the Reorganizations and the Merger are each conditioned upon receipt by
each from its counsel of an opinion dated as of the Effective Time, in form and
substance reasonably satisfactory to it, regarding certain tax consequences of
the Merger and (in the case of the Arcus Parties) each of the UAC
Reorganization and the ATSI Reorganization. Such opinions are collectively
substantially to the effect that for federal income tax purposes each of the
UAC Reorganization and the ATSI Reorganization and the Merger constitute
reorganizations within the meaning of Section 368 of the Code (except to the
extent that the Reorganizations are to be treated as liquidations under
Sections 332 and 336 of the Code) and that no gain or loss will be recognized
by Iron Mountain or any Arcus Party as a result of the Merger. In rendering
their opinions, counsel will rely upon, and assume the factual accuracy of,
representations of Iron Mountain, the Arcus Parties, and certain stockholders
of the Arcus Parties. Such opinions are not binding on the Service and would
not, in any event, prevent the Service from challenging the tax-free nature of
the Merger, the UAC Reorganization or the ATSI Reorganization under the Code.
STOCKHOLDERS OF THE ARCUS PARTIES SHOULD CONSULT THEIR TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE REORGANIZATIONS AND THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
The Reorganizations
A holder of a Warrant who either sells the Warrant to Iron Mountain for
cash as part of the Iron Mountain Warrant Purchase or sells the Warrant to UAC
for Connected Stock as part of the UAC Warrant Repurchases will recognize gain
or loss equal to the difference between the amount of cash or the fair market
value of the Connected Stock and such holder's tax basis in the Warrant. Such
gain or loss should be capital gain or loss to the extent the Warrant is a
capital asset, and will be long term if the Warrant was held for more than 18
months, or mid-term if the Warrant was held for more than 12 months but not
more than 18 months, at the time of the sale. In addition, UAC may recognize
gain in connection with the distribution of the Connected Stock.
The UAC Reorganization and the ATSI Reorganization each will constitute a
reorganization within the meaning of Section 368(a) of the Code (except to the
extent they are treated as liquidations under Sections 332 and 336 of the
Code), and each of UAC, ATSI and AGI will receive an opinion of counsel to this
effect. Accordingly, none of the Arcus Parties will recognize gain or loss as a
result of the Reorganizations. In addition, the shareholders of the Arcus
Parties also should not recognize gain or loss in connection with the
Reorganizations. The tax basis of a shareholder of UAC or ATSI in the AGI
Common Stock or AGI Preferred Stock received in the Reorganizations should
equal the tax basis in the UAC Common Stock, ATSI Common Stock or UAC Preferred
Stock surrendered therefor. The holding period of the AGI Common Stock or AGI
Preferred Stock will include the holding period of the UAC Common Stock, UAC
Preferred Stock or ATSI Common Stock surrendered therefor, if the UAC Common
Stock, UAC Preferred Stock or ATSI Common Stock was held as a capital asset.
AGI also will distribute to holders of AGI Preferred Stock the Damson
Interest, unless such Damson Interest is disposed of prior to the Effective
Time in a sale to a third party. AGI will treat such distribution as a dividend
84
<PAGE>
in partial satisfaction of the AGI Preferred Stock's accrued and unpaid
dividend. Accordingly, a holder of the AGI Preferred Stock must include such
amount in income as ordinary income. AGI may recognize gain in connection with
the distribution of the Damson Interest.
The Merger
Tax opinions of Sullivan & Worcester LLP and Neal, Gerber & Eisenberg have
been filed as, respectively, Exhibits 8.1 and 8.2 (the "Exhibit Opinions") to
the Registration Statement of which this Proxy Statement is a part. However, it
is a condition of the respective obligations of Iron Mountain and the Arcus
Parties to consummate the Merger that the Arcus Parties receive a confirming
tax opinion from their counsel to the effect that for federal income tax
purposes, the Reorganizations will each constitute a tax-free reorganization or
liquidation and that Iron Mountain and the Arcus Parties receive confirming tax
opinions from their respective counsel to the effect that for federal income
tax purposes, the Merger will constitute a tax-free reorganization within the
meaning of Section 368 of the Code. The Exhibit Opinions are not intended to
satisfy this closing condition. These closing opinions, which are collectively
referred to herein as the "Tax Opinions," neither bind the Service nor preclude
the Service from adopting a contrary position. As with the Exhibit Opinions,
the Tax Opinions will be subject to certain assumptions, exceptions and
qualifications, and will be based on the truth and accuracy of certain
representations of Iron Mountain, the Arcus Parties, and certain holders of AGI
Common Stock and AGI Preferred Stock.
The following discussion is a general summary of the material United
States federal income tax consequences of the Merger and assumes that the
Merger will qualify as a tax-free reorganization within the meaning of Section
368 of the Code. This discussion is based upon the Code, regulations proposed
or promulgated thereunder, judicial precedent relating thereto, and current
rulings and administrative practice of the Service, in each case as in effect
as of the date hereof, all of which are subject to change at any time, possibly
with retroactive effect.
No gain or loss will be recognized for federal income tax purposes by Iron
Mountain or AGI as a consequence of the Merger. As a result of the
Reorganizations and the Merger and the transactions contemplated thereby, the
utilization of certain net operating loss carryforwards of AGI will be limited
in any given year. See Note 9 to the Consolidated Financial Statements of AGI
appearing elsewhere in this Proxy Statement for further information with
respect to such net operating loss carryforwards.
A holder of AGI Common Stock or AGI Preferred Stock who receives a
combination of Iron Mountain Common Stock and cash in exchange for AGI Common
Stock or AGI Preferred Stock pursuant to the Merger will realize economic gain
or loss equal to the difference between (i) the sum of the cash and the fair
market value of the Iron Mountain Common Stock received and (ii) the aggregate
tax basis in AGI Common Stock or AGI Preferred Stock surrendered therefor.
However, any such gain will only be recognized to the extent of the cash
received. Such recognized gain will generally be treated as capital gain if (i)
the AGI Common Stock or AGI Preferred Stock surrendered in the Merger is held
as a capital asset at the Effective Time and (ii) the cash received does not
have the effect of a distribution of a dividend (which is taxable as ordinary
income). Such capital gain will be long-term capital gain if the AGI Common
Stock or AGI Preferred Stock has been held for more than 18 months at the
Effective Time of the Merger, or mid-term capital gain if such stock was held
for more than 12 months but not more than 18 months at that time. Any such loss
will not be recognized (except to the extent of cash received in lieu of
fractional shares).
The tax basis of the Iron Mountain Common Stock received by a holder of
AGI Common Stock or AGI Preferred Stock will be the same as the aggregate tax
basis of the AGI Common Stock or AGI Preferred Stock surrendered therefor,
decreased by the cash received (including cash received in lieu of a fractional
share) and increased by any gain recognized (whether capital gain or dividend
income). The holding period of the Iron Mountain Common Stock will include the
holding period of the AGI Common Stock or AGI Preferred Stock surrendered
therefor, if the AGI Common Stock or AGI Preferred Stock was held as a capital
asset.
For purposes of determining whether the cash received has the effect of a
distribution of a dividend, a holder of AGI Common Stock or AGI Preferred Stock
should be treated as if he first exchanged all of his AGI Common Stock or AGI
Preferred Stock solely for Iron Mountain Common Stock, and then Iron Mountain
immediately redeemed a portion of the Iron Mountain Common Stock in exchange
for the cash the holder actually received. Under this analysis, in general, if
the receipt of cash in this deemed redemption results in a "substantially
disproportionate" reduction in the holder's voting stock interest in Iron
Mountain or is "not essentially equivalent to a dividend," the receipt of the
cash will not have the effect of the distribution of a dividend. For purposes
of this determination, the holder's deemed voting
85
<PAGE>
interest in Iron Mountain before the hypothetical redemption is compared to the
holder's interest after the redemption, taking into account in each case any
Iron Mountain Common Stock constructively owned by the holder under the
applicable attribution rules of the Code. Generally, if the holder's share of
the voting power of Iron Mountain has declined, as a result of the deemed
redemption, by more than 20%, then the receipt of cash will not be taxed as a
dividend. If such interest in the voting power of Iron Mountain has declined by
20% or less, then generally, in the case of a minority shareholder who is not
an officer or Director of Iron Mountain and who exercises no control over Iron
Mountain's corporate affairs, the receipt of cash likely would not be taxed as
a dividend. Each holder of AGI Common Stock or AGI Preferred Stock should
consult with his own tax advisors as to whether the receipt of cash has the
effect of a distribution of a dividend, and if so, the consequences thereof.
Cash received by a holder of AGI Common Stock or AGI Preferred Stock in
lieu of a fractional share interest in Iron Mountain Common Stock will be
treated as received in exchange for such fractional share interest, and gain or
loss will be recognized for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the basis of
the AGI Common Stock or AGI Preferred Stock allocable to such fractional share
interest. Such gain or loss would be capital gain or loss and will be long-term
if such share of AGI Common Stock or AGI Preferred Stock had been held for more
than 18 months, and mid-term if held for more than one year and not more than
18 months, at the Effective Time.
Under the Code, a holder of AGI Common Stock or AGI Preferred Stock may be
subject, under certain circumstances, to back-up withholding at a 31% rate with
respect to the amount of cash received pursuant to the Merger unless such
holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the back-up withholding rules. Amounts withheld under the back-up withholding
rules are not an additional tax and may be refunded or credited against the
holder's federal income tax liability, provided that the required information
is furnished to the Service.
86
<PAGE>
THE IRON MOUNTAIN CHARTER AMENDMENTS
Proposed Amendments
The DGCL provides that the total number of shares of each class of stock
that a corporation is authorized to issue shall be set forth in its Certificate
of Incorporation. The Iron Mountain Restated Certificate presently authorizes
Iron Mountain to issue 20,000,000 shares of Iron Mountain Common Stock and
2,000,000 shares of Iron Mountain Preferred Stock.
As of November 20, 1997, 13,447,176 of the authorized shares were issued
and outstanding. If the Merger is consummated, Iron Mountain would issue
approximately 1.9 million shares, including options to acquire such shares, of
Iron Mountain Common Stock to holders of AGI Common Stock, AGI Preferred Stock
and holders of options to acquire shares of AGI Common Stock (after giving
effect to the Reorganizations). In addition, options to acquire approximately
1.1 million shares of Iron Mountain Common Stock have been granted and are
outstanding under the Iron Mountain 1995 Stock Incentive Plan and an additional
approximately 0.2 million shares are reserved for issuance thereunder. Taking
into account the foregoing uses, and assuming the issuance of the maximum
number of shares under the Merger Agreement and the grant of additional options
in connection therewith, only approximately 3,352,824 shares of Iron Mountain
Common Stock would remain available for other corporate purposes.
As of November 20, 1997, there were no shares of Iron Mountain Preferred
Stock issued. The 2,000,000 shares of authorized and unissued Iron Mountain
Preferred Stock, which number is proposed to be increased to 10,000,000 shares,
may be issued with such designations, voting powers, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon as the Iron Mountain Board may authorize
without further action by Iron Mountain's stockholders, including but not
limited to: (i) the designation of each series and the number of shares that
will constitute such series; (ii) the dividend rate on the shares of such
series; restrictions, limitations or conditions upon the payment of such
dividends; and whether divisions shall be cumulative and the dates on which
dividends are payable; (iii) the prices at which, and other terms and conditions
on which, the shares of such series may be redeemed, if such shares are
redeemable; (iv) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series; (v) the prices or rates of
conversion at which, and the terms and conditions on which, the shares of such
series may be converted into other securities, if such shares are convertible;
(vi) the voting rights, if any, of shares of such series; and (vii) the
liquidation preference, if any, of shares of such series.
The Iron Mountain Board has unanimously approved, and unanimously
recommends that the stockholders of Iron Mountain approve, proposals to amend
the first sentence of Article FOURTH of the Iron Mountain Restated Certificate
to increase the number of authorized shares of Iron Mountain Common Stock from
20,000,000 to 100,000,000 shares and to increase the number of authorized
shares of Iron Mountain Preferred Stock from 2,000,000 to 10,000,000. The full
text of the first sentence of Article FOURTH of the Certificate of
Incorporation as proposed to be amended by this proposal is as follows:
"FOURTH: The total number shares of all classes of capital stock that
Corporation shall have authority to issue is One Hundred Eleven Million
(111,000,000) shares, of which:
"(i) One Hundred Million (100,000,000) shall be Common Stock, par value
$.01 per share (the 'Common Stock'),
"(ii) One Million (1,000,000) shall be Nonvoting Common Stock, par
value $.01 per share (the 'Nonvoting Common Stock' and together
with the Common Stock, the 'Common Shares'), and
"(iii) Ten Million (10,000,000) shall be Preferred Stock, par value
$.01 per share (the 'Preferred Stock')."
Reasons for the Iron Mountain Charter Amendments
The Iron Mountain Board believes that the current levels of authorized
shares of Iron Mountain Common Stock and Iron Mountain Preferred Stock may
restrict Iron Mountain's ability to issue shares of such stock or reserve shares
for issuance for general corporate purposes. With the number of shares currently
available for issuance, it may be impractical for Iron Mountain to evaluate or
seek to consummate certain business acquisitions or other
87
<PAGE>
transactions that, if they could be accomplished, might enhance stockholder
value. Additional authorized shares could also be used to raise cash through
sales of Iron Mountain Common Stock and Iron Mountain Preferred Stock to public
and private investors. In addition, additional authorized shares of Iron
Mountain Common Stock could be used in the event the Iron Mountain Board
were to declare a stock dividend in respect of the Iron Mountain Common Stock.
The purpose of the Iron Mountain Charter Amendments is to provide
sufficient authorized shares of Iron Mountain Common Stock and Iron Mountain
Preferred Stock to give the Iron Mountain Board the flexibility to issue shares
of such stock in the future in connection with acquisitions and other
transactions that management believes would provide the potential for growth
and for other general corporate purposes. If the Iron Mountain Charter
Amendments are adopted, there will be approximately 83,352,824 shares of Iron
Mountain Common Stock and 10,000,000 shares of Iron Mountain Preferred Stock
authorized, unissued and unreserved, based on the number of shares outstanding
as of November 20, 1997. No further action or authorization by Iron Mountain's
stockholders would be necessary prior to the issuance of additional shares of
such stock, except as may be required for a particular transaction by
applicable law or regulatory agencies or by the rules of the Nasdaq National
Market or any stock exchange on which Iron Mountain's securities may then be
listed. If additional shares are available, transactions dependent upon the
issuance of additional shares would be less likely to be impeded or undermined
by delays and uncertainties occasioned by the need to obtain prior stockholder
authorization. The ability to issue shares, as deemed in Iron Mountain's best
interests by the Iron Mountain Board, will also permit Iron Mountain to avoid
expenses incurred in holding special stockholders' meetings in the future.
At the present time, the Iron Mountain Board has made no decision to issue
additional shares of Iron Mountain Preferred Stock or Iron Mountain Common Stock
other than pursuant to the Merger Agreement and in connection with routine
grants under the Iron Mountain 1995 Stock Incentive Plan, the option plans Iron
Mountain will assume as a result of the Merger or any similar replacement plans.
Stockholders of Iron Mountain have no preemptive rights with respect to any
shares of Iron Mountain Common Stock.
Certain Effects of the Iron Mountain Charter Amendments
The issuance of additional shares of Iron Mountain Common Stock and Iron
Mountain Preferred Stock by Iron Mountain could have an antitakeover effect by
making it more difficult to obtain stockholder approval of various actions,
such as a merger or removal of management. The Iron Mountain Charter
Amendments, if approved, could strengthen the position of management and might
make the removal of management more difficult, even if removal would be
generally beneficial to Iron Mountain's stockholders. The authorization to
issue the additional shares of Iron Mountain Common Stock and Iron Mountain
Preferred Stock would provide management with a capacity to counter the efforts
of unfriendly tender offerors by issuing securities to others who are friendly
or desirable to management. However, the submission of the Iron Mountain
Charter Amendments is not a part of any present plan by Iron Mountain's
management to adopt any amendments to the Iron Mountain Restated Certificate or
the Iron Mountain By-Laws that would render the takeover of Iron Mountain more
difficult.
The Iron Mountain Charter Amendments are not the result of management's
knowledge of any specific effort to accumulate Iron Mountain's securities or to
obtain control of Iron Mountain by means of a merger, tender offer, proxy
solicitation in opposition to management or otherwise.
Required Vote
The affirmative vote of the holders of not less than sixty-six and
two-thirds per cent (66-2/3%) of the outstanding shares of Iron Mountain Common
Stock is required to approve the increases in each of the Iron Mountain Common
Stock and the Iron Mountain Preferred Stock that comprise the Iron Mountain
Charter Amendments. The Merger is not conditioned upon approval of the Iron
Mountain Amendments. In addition, approval of each Iron Mountain Charter
Amendment is not conditioned upon consummation of the Merger or on the approval
of the other Iron Mountain Charter Amendments.
The Iron Mountain Board recommends that the Iron Mountain stockholders vote
FOR each Iron Mountain Charter Amendment.
Proposals of Iron Mountain Stockholders
Iron Mountain expects to hold its 1998 Annual Meeting on May 29, 1998. A
stockholder who intends to present a proposal at the 1998 Annual Meeting of
Stockholders for inclusion in Iron Mountain's 1998 proxy statement and
88
<PAGE>
proxy card relating to that meeting must submit the proposal by January 29,
1998. In order for the proposal to be included in the proxy statement, the
stockholder submitting the proposal must meet certain eligibility standards and
comply with certain procedures established by the Commission, and the proposal
must comply with the requirements as to form and substance established by
applicable laws and regulations. The proposal must be mailed to Iron Mountain's
principal executive office, at the address stated herein, and should be
directed to the attention of the Chief Financial Officer.
89
<PAGE>
PRINCIPAL STOCKHOLDERS OF IRON MOUNTAIN
The following table sets forth certain information known to Iron Mountain
with respect to the beneficial ownership of Iron Mountain Common Stock by (i)
each stockholder known by Iron Mountain to be the beneficial owner of more than
five percent of the Iron Mountain Common Stock, (ii) each Director, including
each nominee for director, (iii) the Chief Executive Officer and the four
highest paid executive officers serving in such capacity at December 31, 1996
who received compensation in excess of $100,000 and (iv) all executive officers
and Directors of Iron Mountain as a group. Amount of beneficial ownership after
the Merger assumes that 1.4 million shares of Iron Mountain Common Stock are to
be issued in the Merger, based on the Baseline Assumptions. The beneficial
ownership information is otherwise presented as of November 20, 1997.
<TABLE>
<CAPTION>
Amount of Amount of
Beneficial Ownership Beneficial Ownership
Before the Merger After the Merger
------------------------ -------------------------
Name(1) Shares Percent Owned Shares Percent Owned
- --------------------------------------------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Directors and Executive Officers:
C. Richard Reese(2) ........................ 1,127,503 8.4% 1,127,503 7.6%
David S. Wendell(3) ........................ 107,822 * 107,822 *
Eugene B. Doggett(4) ..................... 129,550 * 129,550 *
Kenneth F. Radtke, Jr.(5) .................. 5,976 * 5,976 *
Robert P. Swift(6) ........................ 23,895 * 23,895 *
Constantin R. Boden(7) ..................... 20,880 * 20,880 *
Arthur D. Little(8) ........................ 26,265 * 26,265 *
Vincent J. Ryan(9) ........................ 3,445,750 25.6% 3,445,750 23.2%
B. Thomas Golisano(10) ..................... 931,704 6.9% 931,704 6.3%
Kent P. Dauten(11) ........................ 964,084 7.2% 964,534 6.5%
All Directors and executive officers as a
group (16 persons)(12) .................. 6,138,510 45.0% 6,617,098 43.7%
Director Nominee:
Clarke H. Bailey(13) ..................... 0 * 478,138 3.2%
Five Percent Stockholders:
Schooner Capital Corporation(14) ......... 1,909,384 14.2% 1,909,384 12.9%
William Blair & Company, L.L.C.(15) ...... 1,215,678 9.0% 1,215,678 8.2%
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all shares of Iron
Mountain Common Stock shown as beneficially owned by them.
(2) Mr. Reese is a Director and Chairman of the Board and Chief Executive
Officer of Iron Mountain. Includes 13,450 shares of Iron Mountain Common
Stock held by trusts for the benefit of Mr. Reese's children, as to which
Mr. Reese disclaims beneficial ownership. Also includes 668,166 shares of
Iron Mountain Common Stock as to which Mr. Reese shares beneficial
ownership with Schooner as a result of a 1988 deferred compensation
arrangement, as amended, between Schooner and Mr. Reese relating to Mr.
Reese's former services as President of Schooner. Pursuant to such
arrangement, upon the earlier to occur of (i) Schooner's sale or exchange
of substantially all of the shares of Iron Mountain Common Stock held by
Schooner or (ii) the cessation of Mr. Reese's employment with Iron
Mountain, Schooner is required to transfer such shares of Iron Mountain
Common Stock to Mr. Reese or remit to Mr. Reese cash in an amount equal to
the then current fair market value of such shares of Iron Mountain Common
Stock. Schooner has agreed to vote the shares of Iron Mountain Common
Stock subject to such arrangement at the direction of Mr. Reese. Mr.
Reese's address is c/o Iron Mountain Incorporated, 745 Atlantic Avenue,
Boston, Massachusetts 02111.
(3) Mr. Wendell is a Director and President and Chief Operating Officer of
Iron Mountain. Includes 103,967 shares that Mr. Wendell has the right to
acquire pursuant to currently exercisable options. Mr. Wendell's address
is c/o Iron Mountain Incorporated, 745 Atlantic Avenue, Boston,
Massachusetts 02111.
(4) Mr. Doggett is a Director and Executive Vice President of Iron Mountain.
Includes 29,550 shares of Iron Mountain Common Stock as to which Mr.
Doggett shares beneficial ownership with Schooner as a result of a 1988
deferred compensation arrangement, as amended, between Schooner and Mr.
Doggett relating to Mr. Doggett's former services as Chief Financial
Officer of Schooner. Pursuant to such arrangement, upon the earlier to
occur of (i) Schooner's sale or exchange of substantially all of the
shares of Iron Mountain Common Stock held by Schooner or (ii) the
cessation of Mr. Doggett's employment with Iron Mountain, Schooner is
required to transfer such shares of Iron Mountain Common Stock to Mr.
Doggett or remit to Mr. Doggett cash in an amount equal to the then
current fair market value of such shares of Iron Mountain Common Stock.
Schooner has agreed to vote the shares of Iron Mountain Common Stock
subject
90
<PAGE>
to such arrangement at the direction of Mr. Doggett. Mr. Doggett's address
is c/o Iron Mountain Incorporated, 745 Atlantic Avenue, Boston,
Massachusetts 02111.
(5) Mr. Radtke is an Executive Vice President of Iron Mountain. Consists of
shares that Mr. Radtke has the right to acquire pursuant to currently
exercisable options. Mr. Radtke's address is c/o Iron Mountain
Incorporated, 745 Atlantic Avenue, Boston, Massachusetts 02111.
(6) Mr. Swift is an Executive Vice President of Iron Mountain. Consists of
shares that Mr. Swift has the right to acquire pursuant to currently
exercisable options. Mr. Swift's address is c/o Iron Mountain
Incorporated, 1340 East 6th Street, Los Angeles, California 90021.
(7) Mr. Boden is a Director of Iron Mountain. Mr. Boden's address is c/o
Boston Capital Ventures, 45 School Street, Boston, Massachusetts 02110.
(8) Mr. Little is a Director of Iron Mountain. Includes 25,000 shares held by
The Little Family Trust, as to which Mr. Little disclaims beneficial
ownership. Mr. Little's address is c/o The Little Investment Company, 33
Broad Street, Boston, Massachusetts 02109.
(9) Mr. Ryan is a Director of Iron Mountain. Mr. Ryan holds 1,536,366 shares
of Iron Mountain Common Stock. The remaining shares of Iron Mountain
Common Stock listed as being beneficially owned by Mr. Ryan are held by
Schooner, as to which Mr. Ryan has sole voting power and investment power
as the Chairman of the Board and principal stockholder of Schooner. Mr.
Ryan's address is c/o Schooner Capital Corporation, 745 Atlantic Avenue,
Boston, Massachusetts 02111. See footnote (14) regarding shares held by
Schooner.
(10) Mr. Golisano is a Director of Iron Mountain. Includes 3,618 shares that
Mr. Golisano has the right to acquire pursuant to currently exercisable
options. Mr. Golisano's address is c/o Paychex, Inc., 911 Panorama Trail
South, Rochester, New York 14625.
(11) Mr. Dauten is a Director of Iron Mountain. Includes 112,504 shares of
Iron Mountain Common Stock held in escrow pursuant to the terms of the
acquisition of HIMSCORP by Iron Mountain. Also includes 24,958.89 shares
of Iron Mountain Common Stock held in escrow by Mr. Dauten as agent for
the other former HIMSCORP stockholders. In addition, upon the consummation
of the Merger, Mr. Dauten would beneficially own approximately 450 shares
of Iron Mountain Common Stock, as to which Mr. Dauten would have shared
voting power and investment power as a partner of Madison Dearborn
Partners IV, which has a limited partnership interest in GKH Investments,
L.P. which is a stockholder of UAC and AGI. Mr. Dauten's address is c/o
Keystone Capital, Inc., 520 Lake Cook Road, Suite #450, Deerfield,
Illinois 60015.
(12) Includes 182,543 shares that directors and executive officers have the
right to acquire pursuant to currently exercisable options. The final two
columns include 478,138 shares (including options to acquire 113,248
shares) to be beneficially owned by Mr. Bailey following the consummation
of the Merger, and the appointment of Mr. Bailey as a Director of Iron
Mountain.
(13) Iron Mountain has been advised that Mr. Bailey would own or have the right
to acquire pursuant to currently exercisable options approximately 113,248
shares of Iron Mountain Common Stock upon consummation of the Merger,
assuming the Baseline Assumptions. In addition, Mr. Bailey would
indirectly beneficially own approximately 364,890 shares of Iron Mountain
Common Stock, which would be beneficially owned by Hudson, of which Mr.
Bailey is Co-Chairman of the Board of Directors and a member. Hudson has
sole voting and investment power with respect to such shares. By virtue of
Mr. Bailey's relationship to Hudson, Mr. Bailey may be deemed to share
voting and investment power over such shares and to be the beneficial
owner of such shares held by Hudson. Mr. Bailey disclaims beneficial
ownership of all such shares held by Hudson. Mr. Bailey will not be the
beneficial owner of 1,595 shares which will be owned by his parents. Mr.
Bailey's address is c/o United Acquisition Company, 667 Madison Avenue,
25th Floor, New York, New York 10021-8029.
(14) Mr. Ryan is the Chairman of the Board and the principal stockholder of
Schooner and, accordingly has sole voting and investment power with
respect to the shares of Iron Mountain Common Stock held by Schooner.
Includes 668,166 shares of Iron Mountain Common Stock as to which Schooner
shares beneficial ownership with Mr. Reese as described in footnote (2).
Also includes 29,550 shares of Iron Mountain Common Stock as to which
Schooner shares beneficial ownership with Mr. Doggett as described in
footnote (4). Schooner has agreed to vote the shares of Iron Mountain
Common Stock subject to such arrangements at the direction of Mr. Reese or
Mr. Doggett, as the case may be. The address of Schooner Capital
Corporation is 745 Atlantic Avenue, Boston, Massachusetts 02111.
(15) Includes 443,875 shares of Iron Mountain Common Stock over which William
Blair & Company, L.L.C. has sole investment power, but over which
customers of William Blair & Company, L.L.C. have sole voting power. The
address of William Blair & Co., L.L.C. is 222 West Adams Street, Chicago,
Illinois 60606.
91
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Balance Sheet has
been prepared based upon the unaudited historical condensed consolidated
balance sheet of Iron Mountain as of September 30, 1997 and the balance sheets
as of September 30, 1997 of the acquisitions consummated after September 30,
1997 and AGI, and gives effect to: (i) the acquisitions consummated after
September 30, 1997; (ii) the Merger; and (iii) the 1997 Notes, as if each had
occurred as of September 30, 1997. The following unaudited Pro Forma Condensed
Consolidated Statements of Operations for the nine months ended September 30,
1997 and for the year ended December 31, 1996 give effect to each of the above
transactions and to: (iv) the Credit Agreement Amendment; (v) the Recent
Acquisitions consummated prior to September 30, 1997; (vi) Iron Mountain's
initial public offering of Common Stock, which closed on February 6, 1996 (the
"Initial Public Offering"), and the application of the net proceeds therefrom;
(vii) the Credit Agreement; and (viii) the 1996 Notes, as if each had occurred
as of January 1, 1996. The transactions described in clauses (i) through (viii)
above are collectively referred to herein as the "Iron Mountain Transactions."
Pro forma adjustments are described in the accompanying notes.
The Pro Forma As Adjusted results of operations for the nine months ended
September 30, 1997 give effect to the Iron Mountain Transactions and to
integration adjustments related to certain identified cost savings that
management believes would have been realized had the acquisitions completed in
1997 and the Merger been fully integrated as of January 1, 1996.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations do
not include results of operations prior to the date of acquisition, or pro
forma adjustments, for seven of Iron Mountain's acquisitions (the "Excluded
Acquisitions") because the impact of the Excluded Acquisitions is, in the
aggregate, immaterial to such statements. The Unaudited Pro Forma Condensed
Consolidated Statements of Operations also do not include results of operations
prior to the date of acquisition, or pro forma adjustments, for acquisitions
completed by HIMSCORP or ATSI in 1996 and 1997, which represented aggregate
revenues of $31.4 million for the year ended December 31, 1996 and $6.6 million
for the nine months ended September 30, 1997. In addition, the Unaudited Pro
Forma Condensed Consolidated Statements of Operations do not reflect one
disposition by ATSI in June 1997, which is immaterial to such statements. See
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements--
Overview.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of the actual results of operations
that would have been reported if the events described above had occurred as of
January 1, 1996, nor do they purport to indicate the results of Iron Mountain's
future operations. Furthermore, the pro forma results do not give effect to all
cost savings or incremental costs that may occur as a result of the integration
and consolidation of the Recent Acquisitions and the Merger. In the opinion of
management, all adjustments necessary to present fairly such pro forma
financial statements have been made.
The pro forma condensed consolidated financial information should be read
in conjunction with Iron Mountain's Management's Discussion and Analysis of
Financial Condition and Results of Operations and with the Financial Statements
and the Notes thereto, all of which are incorporated by reference herein (see
"Incorporation of Certain Documents By Reference"), and with the Consolidated
Financial Statements of the Arcus Parties and the Notes thereto, included
elsewhere in this Proxy Statement.
92
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Iron Historical Merger for the
Mountain(1) AGI Adjustments Merger
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Assets
Current Assets ................................. $ 89,939(2) $ 31,369 $(42,840)(A) $ 78,468
Property, Plant and Equipment, net ............ 172,290 15,752 1,079 (A) 189,121
Goodwill, net ................................. 357,343 57,320 83,631 (A) 498,294
Investments .................................... -- 867 (867)(A) --
Other Long-term Assets ........................ 34,659 513 413 (A) 35,585
--------- --------- -------- ---------
Total Assets ................................. $654,231 $105,821 $ 41,416 $801,468
========= ========= ======== =========
Liabilities and Stockholders' Equity
Current Liabilities ........................... $ 49,600 $ 15,523 $ (2,943)(B) $ 62,180
Long-term Debt, net of Current Portion ......... 424,930 38,661 30,482 (B) 494,073
Deferred Rent ................................. 8,209 -- -- 8,209
Deferred Income Taxes ........................... 4,763 -- -- 4,763
Other Long-term Liabilities ..................... 6,568 296 1,000 (B) 7,864
Minority Interest in Subsidiaries ............... -- 8,473 (8,473)(B) --
Preferred Stock of Subsidiary, Redeemable ...... -- 27,089 (27,089)(B) --
Warrants Outstanding to Purchase Common
Stock of Subsidiary ........................... -- 15 (15)(B) --
Stockholders' Equity ........................... 160,161 15,764 48,454 (B) 224,379
--------- --------- -------- ---------
Total Liabilities and Stockholders'
Equity .................................... $654,231 $105,821 $ 41,416 $801,468
========= ========= ======== =========
</TABLE>
- ------------
(1) See Schedule A for detail of the pro forma effect of the Iron Mountain
Transactions, excluding the Merger.
(2) Includes $31,153 of excess proceeds from the 1997 Notes assumed to be used
to fund a portion of the Merger.
The accompanying Notes are an integral part of
these pro forma financial statements.
93
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
As Adjusted
Pro Forma Pro Forma Pro Forma
Iron Historical Merger for the Integration Iron
Mountain(1) AGI(2) Adjustments Merger(3) Adjustments(4) Mountain(3)(4)
------------- ------------ ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Storage ........................ $121,601 $38,174 $ -- $159,775 $ -- $159,775
Service and Storage
Material Sales ............... 74,765 30,795 -- 105,560 -- 105,560
-------- -------- ------- -------- ------- --------
Total Revenues ............ 196,366 68,969 -- 265,335 -- 265,335
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ............... 96,299 37,726 -- 134,025 (875)(I) 133,150
Selling, General and
Administrative ............... 52,712 20,279 (600)(D) 72,391 (5,633)(J) 66,758
Holding Company Expenses ...... -- 1,024 (1,024)(D) -- -- --
Depreciation and Amortization 25,255 4,550 1,978 (E) 31,783 -- 31,783
-------- -------- ------- -------- ------- --------
Total Operating Expenses ... 174,266 63,579 354 238,199 (6,508) 231,691
-------- -------- ------- -------- ------- --------
Operating Income ............... 22,100 5,390 (354) 27,136 6,508 33,644
Interest Expense, net ......... 30,962 1,954 1,821 (F) 34,737 -- 34,737
Equity in Income of/Writedown
of Investment in Limited
Partnership .................. -- 572 (572) -- -- --
Minority Interest ............... -- 428 (428)(D) -- -- --
Preferred Stock Dividends of
Subsidiary .................. -- 1,533 (1,533)(D) -- -- --
-------- -------- ------- -------- ------- --------
Income (Loss) Before Provision
(Credit) for Income Taxes ... (8,862) 903 358 (7,601) 6,508 (1,093)
Provision (Credit) for Income
Taxes ........................ (1,335) 427 1,032 (G) 124 1,892 (K) 2,016
-------- -------- ------- -------- ------- --------
Net Income (Loss) ............ $ (7,527) $ 476 $ (674) $ (7,725) $ 4,616 $ (3,109)
======== ======== ======= ======== ======= ========
Net Loss per Common and
Common Equivalent Share ...... $ (0.56) $ (0.52) $ (0.21)
======== ======== ========
Weighted Average Common
and Common Equivalent
Shares Outstanding ............ 13,385 1,382 (H) 14,767 14,767
======== ======= ======== ========
EBITDA ........................ $ 47,355 $ 7,979 $ 3,585 $ 58,919 $ 6,508 $ 65,427
</TABLE>
- ------------
(1) See Schedule B for detail of the pro forma effect of the Iron Mountain
Transactions, excluding the Merger.
(2) Storage revenues are comprised of storage and transport revenues which
include monthly billings to customers for basic data security services.
Service and Storage Material Sales include specialized data security
services, data product sales and staffing services revenues. Does not
include results of operations prior to the date of acquisition, or pro
forma adjustments, for the acquisition completed by ATSI during 1997.
Giving effect to such acquisition, revenues would have increased $5.6
million to $74.6 million. See "Overview--The Merger" in Notes to Unaudited
Condensed Consolidated Pro Forma Financial Statements.
(3) Does not include results of operations prior to the date of acquisition, or
pro forma adjustments, for acquisitions completed by HIMSCORP and ATSI
during 1997. Giving effect to such acquisitions, revenues would have
increased $6.6 million to $271.9 million.
(4) Gives effect to certain identified cost savings that Iron Mountain believes
would have been realized had the Recent Acquisitions and the Merger
occurred and been fully integrated as of January 1, 1996 relating
primarily to: (i) termination of specific employees and related net
reductions in compensation expense; (ii) closure of identified redundant
facilities and net reductions in occupancy costs; and (iii) the
elimination of related party and management fees in excess of amounts that
would have been incurred by Iron Mountain. Such cost savings are
principally attributable to transactions other than the Merger.
The accompanying Notes are an integral part of these pro forma financial
statements.
94
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Iron Historical Merger for the
Mountain(1) AGI(2) Adjustments Merger(3)
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues:
Storage .................................... $ 142,769 $43,671 $ -- $ 186,440
Service and Storage Material Sales ......... 86,193 22,310 -- 108,503
--------- ------- ------- ---------
Total Revenues .............................. 228,962 65,981 -- 294,943
Operating Expenses:
Cost of Sales (Excluding Depreciation) ...... 110,022 32,738 -- 142,760
Selling, General and Administrative ......... 64,120 21,592 (500)(D) 85,212
Holding Company Expenses ..................... -- 1,990 (1,990)(D) --
Depreciation and Amortization ............... 30,966 4,449 3,053 (E) 38,468
--------- ------- ------- ---------
Total Operating Expenses ..................... 205,108 60,769 563 266,440
--------- ------- ------- ---------
Operating Income .............................. 23,854 5,212 (563) 28,503
Interest Expense, net ........................ 41,248 1,668 3,366 (F) 46,282
Equity in Income of Limited Partnership ...... -- (34) 34 (D) --
Minority Interest ........................... -- 321 (321)(D) --
Preferred Stock Dividends of Subsidiary ...... -- 1,895 (1,895)(D) --
--------- ------- ------- ---------
Income (Loss) Before Provision (Credit)
for Income Taxes ........................... (17,394) 1,362 (1,747) (17,779)
Provision (Credit) for Income Taxes ......... (3,847) 475 645 (G) (2,727)
--------- ------- ------- ---------
Income (Loss) Before Extraordinary
Charge ....................................... $ (13,547) $ 887 $(2,392) $ (15,052)
========= ======= ======= =========
Loss Before Extraordinary Charge per
Common and Common Equivalent Share $ (1.01) $ (1.02)
========= =========
Weighted Average Common and Common
Equivalent Shares Outstanding ............... 13,363 1,382 (H) 14,745
========= ======= =========
EBITDA ....................................... $ 54,820 $ 7,479 $ 4,672 $ 66,971
</TABLE>
- ------------
(1) See Schedule C for detail of the pro forma effect of the Iron Mountain
Transactions, excluding the Merger.
(2) Storage revenues are comprised of storage and transport revenues which
include monthly billings to customers for basic data security services.
Service and Storage Material Sales include specialized data security
services, data product sales and staffing services revenues. Does not
include results of operations prior to the date of acquisition, or pro
forma adjustments, for acquisitions completed by ATSI in 1996 and 1997.
Giving effect to such acquisitions, revenues would have increased $23.2
million to $89.2 million. See "Overview--The Merger" in Notes to Unaudited
Condensed Consolidated Pro Forma Financial Statements.
(3) Does not include results of operations prior to the date of acquisition, or
pro forma adjustments, for acquisitions completed by HIMSCORP and ATSI in
1996 and 1997. Giving effect to such acquisitions, revenues would have
increased $31.4 million to $326.3 million.
The accompanying Notes are an integral part of these pro forma financial
statements.
95
<PAGE>
Schedule A
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Recent Acquisitions
Historical ------------------------------------------ Pro Forma
Iron Pro Forma Iron
Mountain FileSafe Allegiance HIMSCORP Other Adjustments Mountain
------------ ---------- ------------ ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets ........................... $ 50,836 $2,939 $1,621 $ 5,267 $290 $ 28,986(A) $ 89,939
Property, Plant and Equipment, net ......... 150,621 5,434 425 3,977 300 11,533 (A) 172,290
Goodwill, net .............................. 226,779 -- -- 27,352 -- 103,212 (A) 357,343
Investments .............................. -- -- -- -- -- -- --
Other Long-term Assets ..................... 22,863 75 60 4,463 -- 7,198 (A) 34,659
--------- ------- ------- -------- ----- -------- ---------
Total Assets ........................... $451,099 $8,448 $2,106 $41,059 $590 $150,929 $654,231
========= ======= ======= ======== ===== ======== =========
Liabilities and Stockholders' Equity
Current Liabilities ........................ $ 44,175 $1,504 $ 399 $ 5,812 $ 46 $ (2,336)(B) $ 49,600
Long-term Debt, net of Current Portion ... 273,965 3,100 -- 27,410 -- 120,455 (B) 424,930
Deferred Rent .............................. 8,209 -- 107 -- -- (107)(B) 8,209
Deferred Income Taxes ..................... 4,237 -- 3 523 -- -- 4,763
Other Long-term Liabilities ............... 6,568 -- -- -- -- -- 6,568
Minority Interest in Subsidiaries ......... -- -- -- -- -- -- --
Preferred Stock of Subsidiary, Redeemable -- -- -- -- -- -- --
Warrants Outstanding to Purchase Common
Stock of Subsidiary ..................... -- -- -- -- -- -- --
Stockholders' Equity ..................... 113,945 3,844 1,597 7,314 544 32,917 (B) 160,161
--------- ------- ------- -------- ----- -------- ---------
Total Liabilities and Stockholders'
Equity ................................. $451,099 $8,448 $2,106 $41,059 $590 $150,929 $654,231
========= ======= ======= ======== ===== ======== =========
</TABLE>
The accompanying Notes are an integral part of these pro forma financial
statements.
96
<PAGE>
Schedule B
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Recent Acquisitions(1)
Historical ---------------------------------------------------------- Pro Forma
Iron Pro Forma Iron
Mountain Safesite DSI FileSafe Allegiance HIMSCORP(2) Other Adjustments Mountain
---------- --------- ------ --------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage ...................... $ 86,199 $ 4,198 $2,862 $5,254 $1,625 $16,913 $4,550 $ -- $121,601
Service and Storage Material
Sales ...................... 57,195 6,034 595 3,419 1,132 3,559 2,831 -- 74,765
-------- -------- ------ ------ ------ -------- ------- -------- --------
Total Revenues ............. 143,394 10,232 3,457 8,673 2,757 20,472 7,381 -- 196,366
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ............. 73,742 5,111 -- 3,019 1,378 10,424 3,124 (499)(C) 96,299
Selling, General and
Administrative ............. 35,682 4,460 2,840 1,497 580 5,074 2,579 -- 52,712
Holding Company Expenses . -- -- -- -- -- -- -- -- --
Depreciation and
Amortization ................ 18,495 397 368 289 149 1,798 454 3,305 (E) 25,255
-------- -------- ------ ------ ------ -------- ------- -------- --------
Total Operating Expenses . 127,919 9,968 3,208 4,805 2,107 17,296 6,157 2,806 174,266
-------- -------- ------ ------ ------ -------- ------- -------- --------
Operating Income ............. 15,475 264 249 3,868 650 3,176 1,224 (2,806) 22,100
Interest (Income) Expense .... 17,631 26 327 142 (31) 1,791 281 10,795 (F) 30,962
Equity in Income of/Writedown
of Investment in Limited
Partnership ................... -- -- -- -- -- -- -- -- --
Minority Interest ............. -- -- -- -- -- -- -- -- --
Preferred Stock Dividends of
Subsidiary ................... -- -- -- -- -- -- -- -- --
-------- -------- ------ ------ ------ -------- ------- -------- --------
Income (Loss) Before Provision
(Credit) for Income Taxes .... (2,156) 238 (78) 3,726 681 1,385 943 (13,601) (8,862)
Provision (Credit) for Income
Taxes ......................... (346) 77 -- -- 28 989 6 (2,089) (G) (1,335)
-------- -------- ------ ------ ------ -------- ------- -------- --------
Net Income (Loss) ............. $ (1,810) $ 161 $ (78) $3,726 $ 653 $ 396 $ 937 $(11,512) $(7,527)
======== ======== ====== ====== ====== ======== ======= ======== ========
Net Loss per Common and
Common Equivalent Share ....... $ (0.17) $ (0.56)
======== ========
Weighted Average Common and
Common Equivalent Shares
Outstanding ................... 10,906 2,479 (H) 13,385
======== ======== ========
EBITDA ......................... $ 33,970 $ 661 $ 617 $4,157 $ 799 $ 4,974 $1,678 $ 499 $47,355
</TABLE>
- ------------
(1) Represents historical results of operations for each Recent
Acquisition for the period in 1997 prior to acquisition by Iron
Mountain. See "Overview--Recent Acquisitions" in Notes to Unaudited
Condensed Consolidated Pro Forma Financial Statements.
(2) Does not include results of operations prior to the date of
acquisition, or pro forma adjustments, for acquisitions completed by
HIMSCORP during 1997. Giving effect to such acquisitions, revenues
would have increased $0.9 million to $21.4 million.
The accompanying Notes are an integral part of these pro forma financial
statements.
97
<PAGE>
Schedule C
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Recent Acquisitions(1)
Historical ------------------------------------------------------------------- Pro Forma
Iron Pro Forma Iron
Mountain Mohawk Safesite DSI FileSafe Allegiance HIMSCORP(2) Other Adjustments Mountain
----------- ------ -------- ------ -------- ---------- ---------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage ....................$ 85,826 $4,429 $ 8,300 $3,367 $ 6,662 $2,008 $14,067 $18,110 $ -- $142,769
Service and Storage Material
Sales .................... 52,892 3,436 10,709 851 4,147 1,395 1,585 11,178 -- 86,193
--------- ------- --------- ------ -------- ------- -------- -------- -------- --------
Total Revenues ........ 138,718 7,865 19,009 4,218 10,809 3,403 15,652 29,288 -- 228,962
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ........... 70,747 3,945 9,464 -- 4,207 1,610 7,860 13,148 (959)(C) 110,022
Selling, General and
Administrative ........... 34,342 2,647 7,587 2,997 2,269 749 3,207 10,322 -- 64,120
Holding Company Expenses -- -- -- -- -- -- -- -- -- --
Depreciation and
Amortization .............. 16,936 608 799 608 565 202 1,475 2,205 7,568 (E) 30,966
--------- ------- --------- ------ -------- ------- -------- -------- -------- --------
Total Operating
Expenses .............. 122,025 7,200 17,850 3,605 7,041 2,561 12,542 25,675 6,609 205,108
--------- ------- --------- ------ -------- ------- -------- -------- -------- --------
Operating Income ........... 16,693 665 1,159 613 3,768 842 3,110 3,613 (6,609) 23,854
Interest (Income) Expense .. 14,901 201 34 548 249 (6) 1,278 1,065 22,978 (F) 41,248
Equity in Income of Limited
Partnership ................. -- -- -- -- -- -- -- -- -- --
Minority Interest ........... -- -- -- -- -- -- -- -- -- --
Preferred Stock Dividends of
Subsidiary ................. -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------ -------- ------- -------- -------- -------- --------
Income (Loss) Before Provision
(Credit) for Income Taxes .. 1,792 464 1,125 65 3,519 848 1,832 2,548 (29,587) (17,394)
Provision (Credit) for Income
Taxes ....................... 1,435 -- 125 460 -- 6 866 211 (6,950)(G) (3,847)
--------- ------- --------- ------ -------- ------- -------- -------- -------- --------
Income (Loss) Before
Extraordinary Charge ........$ 357 $ 464 $ 1,000 $ (395) $ 3,519 $ 842 $ 966 $ 2,337 $(22,637) $(13,547)
========= ======= ========= ====== ======== ======= ======== ======== ======== ========
Income (Loss) Before
Extraordinary Charge per
Common and Common
Equivalent Share ...........$ 0.01(3) $ (1.01)
========= ========
Weighted Average Common and
Common Equivalent Shares
Outstanding ................. 10,137 3,226(H) 13,363
======== ======== ========
EBITDA .......................$ 33,629 $1,273 $ 1,958 $1,221 $ 4,333 $1,044 $ 4,585 $ 5,818 $ 959 $ 54,820
</TABLE>
- ------------
(1) Represents historical results of operations for each Recent Acquisition for
the period in 1996 prior to acquisition by Iron Mountain. See "Overview" in
the Notes to Unaudited Condensed Consolidated Pro Forma Financial
Statements.
(2) Does not include results of operations prior to the date of acquisition, or
pro forma adjustments, for acquisitions completed by HIMSCORP in 1996 and
1997. Giving effect to such acquisitions, revenues would have increased
$8.1 million to $23.8 million.
(3) After accretion of $0.03 per Common and Common Equivalent Share related to
a warrant. See Iron Mountain's Management's Discussion and Analysis of
Financial Condition and Results of Operations, which is incorporated by
reference herein. See "Incorporation of Certain Documents By Reference."
The accompanying Notes are an integral part of these pro forma financial
statements.
98
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
Overview
Recent Acquisitions
In January 1996, Iron Mountain acquired Nashville Vault Company, Ltd. and
Florida Data Bank, Inc. ("FDB"). In February 1996, Iron Mountain acquired
DataVault Corporation. In March 1996, Iron Mountain acquired Data Storage
Systems, Inc. In April 1996, Iron Mountain acquired Brambles CRC, Inc. ("CRC").
In May 1996, Iron Mountain acquired the records management business of Output
Technologies Central Region, Inc. In July 1996, Iron Mountain acquired the
records management business of The Fortress Corporation. In August 1996, Iron
Mountain acquired Data Archive Services, Inc. and Data Archive Services of
Miami, Inc. (collectively, "DAS") and DKA Industries, Inc. (d/b/a Systems
Record Storage). In September 1996, Iron Mountain acquired International Record
Storage and Retrieval Service, Inc. and Security Archives Corporation. In
October 1996, Iron Mountain acquired Data Storage Company, Inc. and Dial-A-File
Storage, Inc. In November 1996, Iron Mountain acquired Mohawk Business Record
Storage, Inc. ("Mohawk"), Magnetic Archives, Inc. and Deliverex of Broward. The
aggregate purchase price of the acquisitions completed in 1996 was $68.6
million (not including contingent payments of up to $4.8 million based upon the
achievement of certain targets during 1997 and 1998).
In January 1997, Iron Mountain acquired Security Archives II, Inc. and
Security Archives of MSP, Inc. In February 1997, Iron Mountain acquired the
records management business of Wellington Financial Services, Inc. (d/b/a
Michigan Data Storage) and Data Recovery Services, Inc. In March 1997, Iron
Mountain acquired CBD Security Archives, Inc. ("CBD"). In April 1997, Iron
Mountain acquired Chicago Data Destruction Corporation ("CDDC") and Critical
Files Security, Inc. In May 1997, Iron Mountain acquired Business Records
Center, Inc. and Willamette Archives, Inc. In June 1997, Iron Mountain acquired
Safesite and certain related real estate for $70.9 million, including $53.6
million in value of Iron Mountain Common Stock and options to purchase Iron
Mountain Common Stock and the balance in cash. In July 1997, Iron Mountain
acquired Data Archives, Ltd ("DAL"), Archives Express, Inc. ("AEI") and File
Pro L.C. In August, 1997, Iron Mountain acquired Concorde Group, Inc. In
September 1997, Iron Mountain acquired Data Securities International, Inc.
("DSI"). In October 1997, Iron Mountain acquired Records Retention/FileSafe,
L.P. ("FileSafe") for $45.1 million in cash and assumed debt, Allegiance
Business Archives, Ltd. ("Allegiance") for $8.7 million in cash, and Records
Management Services, Inc. In November 1997, Iron Mountain acquired HIMSCORP for
$98.8 million, including $46.2 million in value of Iron Mountain Common Stock
and the balance in cash and assumed indebtedness. The aggregate purchase price
of the businesses and certain related real estate acquired in 1997, excluding
Safesite, FileSafe, Allegiance and HIMSCORP was $83.6 million including shares
of Iron Mountain Common Stock and options to purchase Iron Mountain Common
Stock valued at approximately $8.9 million.
The pro forma statements of operations do not include results of
operations prior to the date of acquisition, or pro forma adjustments for,
acquisitions of Data Storage Company, Inc., Dial-A-File Storage, Inc., Magnetic
Archives, Inc., Deliverex of Broward, Data Recovery Services Inc., Critical
Files Security, Inc. and Willamette Archives, Inc. (the "Excluded
Acquisitions") as the impact of such acquisitions is immaterial to the
accompanying pro forma financial statements. The Excluded Acquisitions, in the
aggregate, represent less than 2% of pro forma revenues. The pro forma
statements of operations also do not include results of operations prior to the
date of acquisition, or pro forma adjustments, for acquisitions completed by
HIMSCORP or ATSI in 1996 and 1997, which represented aggregate revenues of
$31.4 million for the year ended December 31, 1996 and $6.6 million for the
nine months ended September 30, 1997. In addition, the pro forma statements of
operations do not reflect one disposition by ATSI in June 1997, which is
immaterial to such statements.
The Merger
Subject to the terms of the Merger Agreement, Iron Mountain will acquire
all of the outstanding capital stock of AGI and its subsidiaries for
approximately $160 million. The principal operating subsidiary of AGI is ATSI.
Based on the Baseline Assumptions, the purchase price consists of Iron Mountain
Common Stock and options to acquire Iron Mountain Common Stock valued at
approximately $62 million, the assumption of net indebtedness of
99
<PAGE>
approximately $34 million and approximately $64 million in cash. The number of
shares of Iron Mountain Common Stock and options will be based on the
Determination Price, calculated as the average market price for the 20 trading
days ending three trading days before the closing, subject to a floor of $29.00
and a ceiling of $36.00. If such average price is less than $29.00 or greater
than $36.00, as the case may be, the number of shares of Iron Mountain Common
Stock issued as a result of this transaction would be based on $29.00 or
$36.00, respectively (or, based on the Baseline Assumptions, approximately 1.7
million or 1.4 million shares, respectively). A $0.25 change, above or below
the collar, would result in a $0.3 million increase and a $0.4 million
decrease, respectively, in the purchase price. In addition to the stated
purchase price of $160 million, Iron Mountain will record approximately $3
million in capitalized transaction costs and approximately $2 million in
additional equity resulting from a higher financial valuation of the options to
acquire shares of Iron Mountain Common Stock for accounting purposes. The
amortization of approximately $96 million of the approximately $141 million of
goodwill associated with AGI will be nondeductible for income tax purposes.
The AGI financial statements include certain assets, liabilities and
holding company expenses for activities unrelated to the business or operations
of ATSI, which will not be purchased or assumed by Iron Mountain. Iron Mountain
is evaluating its ability to utilize AGI's net operating loss carryforwards
("NOL") for federal income tax purposes. Accordingly, for pro forma purposes,
Iron Mountain has provided a full valuation allowance for the deferred tax
asset generated by such NOL. See Note 9 of Notes to AGI's Consolidated
Financial Statements.
In August 1997, ATSI completed the acquisition of an IT staffing business.
The results of operations for such IT staffing business are not reflected in
the pro forma statements of operations. For the year ended December 31, 1996
and the period from January 1, 1997 to August 20, 1997 (the date of
acquisition), such IT staffing business had unaudited revenues of $8.4 million
and $5.6 million, respectively.
The consummation of the Merger is subject to customary conditions, and no
assurance can be given that it will be completed. All of the Recent
Acquisitions have been, and the Merger, if consummated, will be, accounted for
as purchases.
Iron Mountain has issued shares of Iron Mountain Common Stock in
connection with certain of the Recent Acquisitions and will record such shares
for financial reporting purposes at fair value. Because under the terms of the
relevant acquisition agreements a portion of such shares are subject to resale
restrictions, Iron Mountain is in the process of obtaining appraisals to
determine the fair value of such shares. Pending the appraisals, Iron Mountain
initially recorded the value of such shares based upon their market price at
the time of the applicable closing. Iron Mountain anticipates that the
appraised value of the restricted shares will be less than the initially
recorded value for accounting purposes and expects to record corresponding
decreases in equity, goodwill and goodwill amortization. Iron Mountain intends
to follow the same process with respect to those shares of Iron Mountain Common
Stock to be issued in the Merger.
Balance Sheet
The aggregate consideration paid or to be paid for the Recent Acquisitions
and the Merger is approximately $540 million including approximately $173
million in Iron Mountain Common Stock and options to purchase Iron Mountain
Common Stock and approximately $367 million in cash and assumed debt (not
including up to $5.9 million of contingent payments based upon the achievement
of certain targets during 1997 and 1998). The excess of the purchase price over
the book value of the net assets acquired for each of the acquisitions has been
allocated to tangible and intangible assets, based on Iron Mountain's estimate
of the fair value of the net assets acquired and the Iron Mountain Common Stock
issued. The allocations of the purchase price as illustrated below may change
upon final appraisal of the fair value of the net assets acquired and the Iron
Mountain Common Stock issued (in millions):
100
<PAGE>
<TABLE>
<CAPTION>
Recent Acquisitions Completed Prior to September 30, 1997:
<S> <C> <C>
Allocation of Purchase Price:
Current Assets ...................................................... $ 10.4
Property, Plant and Equipment ....................................... 42.1
Other Long-term Assets ............................................. 7.0
Current Liabilities ................................................ (16.4)
Deferred Income Taxes ................................................ ( 1.4)
Other Long-term Liabilities .......................................... ( 0.8)
Goodwill ............................................................ 172.4
Purchase Price of Excluded Acquisitions .............................. 4.6
-------
Purchase Price of Recent Acquisitions Completed Prior to
September 30, 1997 ................................................ $ 217.9
Recent Acquisitions Completed After September 30, 1997 and the Merger:
Allocation of Purchase Price:
Current Assets ...................................................... $ 27.6
Property, Plant and Equipment ....................................... 38.5
Other Long-term Assets ............................................. 4.6
Current Liabilities ................................................ (18.0)
Deferred Income Taxes ................................................ ( 0.5)
Other Long-term Liabilities and Deferred Rent ........................ ( 1.3)
Goodwill ............................................................ 271.5
-------
Purchase Price of Recent Acquisitions Completed After September
30, 1997 and the Merger .......................................... 322.4
--------
Total Purchase Price of the Recent Acquisitions and the Merger ... $ 540.3
========
</TABLE>
The Recent Acquisitions completed prior to September 30, 1997 were
financed with Iron Mountain Common Stock and options to purchase Iron Mountain
Common Stock, the Credit Agreement, the Initial Public Offering and the 1996
Notes. The Recent Acquisitions and the Merger are assumed to be financed as
follows (in millions):
<TABLE>
<CAPTION>
Recent Acquisitions Completed Prior to September 30, 1997:
<S> <C> <C>
Value of Common Stock Issued ....................................... $59.4
Value of Options Granted ............................................. 3.1
Cash Consideration ................................................... 155.4
------
Purchase Price of Recent Acquisitions Completed Prior to
September 30, 1997 ................................................ $ 217.9
Recent Acquisitions Completed After September 30, 1997 and the Merger:
Value of Common Stock Issued ....................................... $96.0
Value of Options Granted ............................................. 14.5
Proceeds from the 1997 Notes ....................................... 211.9
------
Purchase Price of Recent Acquisitions Completed After
September 30, 1997 and the Merger ................................. 322.4
--------
Total Purchase Price of the Recent Acquisitions and the Merger ... $ 540.3
========
</TABLE>
The accompanying pro forma balance sheet as of September 30, 1997 has been
prepared as if the Iron Mountain Transactions had been completed as of
September 30, 1997 and reflects the following pro forma adjustments:
(A) Pro forma and Merger adjustments to Assets consist of the following
(in millions):
101
<PAGE>
<TABLE>
<CAPTION>
Property Other
Current Plant and Long-term
Assets Equipment Goodwill Investments Assets
---------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Acquisition Adjustments:
Reverse assets of acquired companies not
purchased .......................................... $ (2.4) $ -- $ -- $ -- $ (0.9)
Record estimated fair value of assets of acquired
companies .......................................... 0.2 11.5 -- -- --
Record increase in goodwill equal to the excess
of purchase price over fair value of net assets
acquired .......................................... -- -- 103.2 -- --
---- ------ -------- ------ -------
Total Acquisition Adjustments ..................... ( 2.2) 11.5 103.2 -- ( 0.9)
---- ------ -------- ------ -------
Use of Proceeds Adjustments:
Record excess cash proceeds from the 1997
Notes ............................................. 31.2 -- -- -- --
Record deferred financing fees associated with
the 1997 Notes and the Credit Agreement
Amendment .......................................... -- -- -- -- 8.1
---- ------ -------- ------ -------
Total Use of Proceeds Adjustments ............... 31.2 -- -- -- 8.1
---- ------ -------- ------ -------
Total Pro Forma Adjustments ..................... $ 29.0 $11.5 $ 103.2 $ -- $ 7.2
==== ====== ======== ====== =======
Merger Adjustments:
Reverse assets not acquired ........................ $(12.1) $ -- $ -- $ (0.9) $ --
Record estimated fair value of assets acquired ...... 0.5 1.1 0.1 -- 0.4
Record increase in goodwill equal to the excess
of purchase price over fair value of net assets
acquired .......................................... -- -- 83.5 -- --
Use of excess proceeds to fund a portion of the
Merger ............................................. ( 31.2) -- -- -- --
---- ------ -------- ------ -------
Total Merger Adjustments ........................ $(42.8) $ 1.1 $ 83.6 $ (0.9) $ 0.4
==== ====== ======== ====== =======
</TABLE>
(B) Pro Forma and Merger adjustments to Liabilities and Stockholders'
Equity consist of the following (in millions):
<TABLE>
<CAPTION>
Other Preferred Stock-
Current Long-term Long-term Minority Stock of holders'
Liabilities Debt Liabilities Interest Subsidiary Equity
------------- ----------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Acquisition Adjustments:
Reverse liabilities and equity not assumed
in connection with acquisitions
consummated after September 30, 1997 . $ (3.1) $ (30.5) $ (0.1) $ -- $ -- $(13.3)
Record purchase reserves and estimated
fair value of liabilities of acquired
companies .............................. 0.8 -- -- -- -- --
Record additional debt to finance
acquisitions consummated after
September 30, 1997 ..................... -- 111.7 -- -- -- --
Record equity used to finance acquisitions
consummated after September 30, 1997 . -- -- -- -- -- 46.2
------- ------- ------- ----- ----- -------
Total Acquisition Adjustments ...... ( 2.3) 81.2 ( 0.1) -- -- 32.9
------- ------- ------- ----- ----- -------
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Other Preferred Stock-
Current Long-term Long-term Minority Stock of holders'
Liabilities Debt Liabilities Interest Subsidiary Equity
------------- ----------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Use of Proceeds Adjustments:
Proceeds from the 1997 Notes .................. -- 249.5 -- -- -- --
Repayment of the Credit Agreement ............ -- ( 98.5) -- -- -- --
Use of proceeds to repay debt used to
finance acquisitions consummated after
September 30, 1997 ........................... -- (111.7) -- -- -- --
------ -------- ------ ------ ------- -------
Total Use of Proceeds Adjustments ......... -- 39.3 -- -- -- --
------ -------- ------ ------ ------- -------
Total Pro Forma Adjustments ............... $ (2.3) $ 120.5 $ (0.1) $ -- $ -- $ 32.9
====== ======== ====== ====== ======= =======
Merger Adjustments:
Reverse liabilities and equity not assumed
in connection with the Merger ............... $ (6.3) $ (38.6) $ -- $ (8.5) $ (27.1) $(15.8)
Record purchase reserves and estimated
fair value of liabilities assumed in
connection with the Merger .................. 3.4 -- 1.0 -- -- --
Record additional debt to finance the
Merger ....................................... -- 69.1 -- -- -- --
Record equity used to finance the Merger ...... -- -- -- -- -- 64.2
------ -------- ------ ------ ------- -------
Total Merger Adjustments .................. $ (2.9) $ 30.5 $ 1.0 $ (8.5) $ (27.1) $ 48.4
====== ======== ====== ====== ======= =======
</TABLE>
Statements of Operations
Storage revenues consist of periodic charges related to the storage of
materials. Service and storage material sales revenues consist of charges for
related service activities and the sale of storage materials. In certain
circumstances, based upon customer requirements, storage revenues include
periodic charges associated with normal, recurring service activities.
All of the Recent Acquisitions and the Merger, except FDB, CRC, DAS, CBD,
DAL, AEI and Allegiance have a December 31 fiscal year end. DAL's fiscal year
end is February 28, CRC's and CBD's fiscal year end is June 30, DAS's fiscal
year end is May 31, FDB's fiscal year end is August 31 and AEI's fiscal year
end is September 30. During 1996, Allegiance changed its fiscal year end from
March 31 to December 31. Accordingly, CRC's, DAS's, FDB's and CBD's results of
operations were calendarized to the twelve months ended December 31, 1996.
Pro Forma and Merger Adjustments
The accompanying pro forma statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997, have been
prepared as if the Iron Mountain Transactions had occurred on January 1, 1996
and reflect the following pro forma and Merger adjustments:
(C) To reduce cost of sales to eliminate rent expense for facilities
purchased by Iron Mountain as part of certain acquisitions that would not have
been incurred had such acquisitions occurred as of January 1, 1996. All such
facilities had been previously owned by affiliates of the acquired companies.
(D) To reduce selling, general and administrative expenses to eliminate
holding company expenses as a result of the Merger and to conform the
accounting policies of certain acquired companies to those of Iron Mountain
with respect to the capitalization of costs for software developed for internal
use.
(E) To reflect additional depreciation expense based on the fair value of
the assets acquired and the remaining useful lives and the amortization of
goodwill. Property and equipment are depreciated over three to 50 years,
goodwill is amortized over 25 to 30 years and covenants not-to-compete are
amortized over two to five years on a straight-line basis. Such depreciation
and amortization may change upon final appraisal of the fair value of the net
assets acquired and Iron Mountain Common Stock issued.
103
<PAGE>
(F) Pro forma and Merger adjustments to Interest Expense consist of the
following (in millions):
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
September 30, December 31,
1997 1996
--------------- -------------
<S> <C> <C>
Acquisition Adjustments:
Reverse interest expense on debt retired or not assumed ..................... $ (2.6) $ (3.4)
Use of Proceeds Adjustments:
Reverse interest expense on debt of Iron Mountain retired with proceeds of the
Initial Public Offering, the 1996 Notes, the Credit Agreement and the 1997
Notes ..................................................................... (16.8) (13.8)
Record interest expense relating to the 1996 Notes including amortization of
deferred financing costs ................................................... 13.0 17.3
Record interest expense relating to the 1997 Notes including amortization of
deferred financing costs ................................................... 16.9 22.5
Record amortization of deferred financing costs related to the Credit Agreement
and the Credit Agreement Amendment .......................................... 0.3 0.4
------- -------
Total Acquisition and Use of Proceeds Adjustments ........................ $ 10.8 $ 23.0
======= =======
Merger Adjustments
Reverse interest income on cash equivalents not acquired ..................... $ 0.5 $ 1.0
Reverse interest expense on debt retired or not assumed ..................... (2.5) (2.7)
Record interest expense on additional debt incurred to finance the Merger under
the Credit Agreement at an assumed rate of 7.28% ........................... 3.8 5.1
------- -------
Total Merger Adjustments ................................................ $ 1.8 $ 3.4
======= =======
</TABLE>
The impact of a one-quarter of one percentage point change in the interest
rate on pro forma borrowings under the Credit Agreement for the year ended
December 31, 1996 and the nine months ended September 30, 1997 is $0.2 million
and $0.1 million, respectively.
(G) To adjust the provision for income taxes to a 40% rate on pro forma
income before nondeductible goodwill amortization and other nondeductible
expenses.
(H) To adjust the pro forma weighted average common and common equivalent
shares outstanding as if the Iron Mountain Transactions had occurred on January
1, 1996. The number of shares of Iron Mountain Common Stock issued, or assumed
to be issued, and the adjustment for each period presented is as follows (in
thousands):
<TABLE>
<CAPTION>
Adjustments to
Weighted Average Shares
------------------------------------
Total Nine Months Year Ended
Number Ended December 31,
Transactions of Shares September 30, 1997 1996
- ------------------------------------------------------------- ----------- -------------------- -------------
<S> <C> <C> <C>
Initial Public Offering .................................... 2,350 -- 200
Safesite ................................................... 1,770 1,050 1,770
DSI ......................................................... 227 204 227
HIMSCORP ................................................... 1,202 1,202 1,202
Other ...................................................... 35 23 35
Reversal of Common Equivalent Shares Due to
Pro Forma Loss .......................................... -- -- (208)
------ ------ -----
Total Shares Issued or Assumed to be Issued for the
Iron Mountain Transactions, excluding the Merger ...... 5,584 2,479 3,226
====== ====== =====
Shares Issued in Connection with the Merger ............... 1,382 1,382 1,382
====== ====== =====
</TABLE>
104
<PAGE>
Integration Adjustments
The integration adjustments relate to certain cost savings that management
believes would have been realized had the Recent Acquisitions consummated in
1997 and the Merger been fully integrated on January 1, 1996. The accompanying
pro forma as adjusted statement of operations for the nine months ended
September 30, 1997 has been prepared as if the Iron Mountain Transactions had
occurred as of January 1, 1996 and reflect the following adjustments:
(I) To reduce cost of sales to eliminate specific expenses that would not
have been incurred had such acquisitions occurred as of January 1, 1996. Such
cost savings relate to: (i) the termination of certain employees due to the
integration and consolidation of certain acquisitions; (ii) a reduction in
certain occupancy costs for facilities Iron Mountain will vacate upon
completion of certain acquisitions; and (iii) a reduction in rent expense to
reflect new or amended leases for certain facilities of acquisitions.
Additional cost savings that Iron Mountain expects to realize through
integration of the Recent Acquisitions and the Merger into Iron Mountain's
operations have not been reflected herein.
(J) To adjust specific selling, general and administrative expenses had
such acquisitions occurred as of January 1, 1996. Such adjustments relate to:
(i) cost savings from the termination of certain employees due to the
integration and consolidation of certain acquisitions; (ii) cost savings from
the elimination of related party expenses, management fees and compensation
expenses in excess of amounts that would have been incurred by Iron Mountain;
and (iii) additional compensation and benefit expenses that would have been
incurred by Iron Mountain.
(K) To adjust the provision for income taxes to a 40% rate on pro forma
income before nondeductible goodwill amortization and other nondeductible
expenses.
105
<PAGE>
MARKET PRICES AND DIVIDEND DATA
Iron Mountain first issued the Iron Mountain Common Stock to the public in
February 1996. The following table sets forth the high and low sales prices on
the Nasdaq National Market System.
<TABLE>
<CAPTION>
High Low
-------- --------
Sale Prices
-------------------
<S> <C> <C>
1996
First Quarter (from February 1, 1996) ............ $16.25 $ 13.75
Second Quarter ................................. 21.00 14.50
Third Quarter .................................... 30.50 20.50
Fourth Quarter ................................. 32.00 28.50
1997
First Quarter .................................... $31.00 $ 21.50
Second Quarter ................................. 30.00 23.25
Third Quarter .................................... 36.25 29.25
Fourth Quarter (through November 20, 1997) ...... 39.75 34.50
</TABLE>
On September 26, 1997, the trading day prior to the announcement of the
Merger, the closing sales price of the Iron Mountain Common Stock, as reported
on the Nasdaq National Market System, was $35.25. On November 20, 1997, the
closing sales price of the Iron Mountain Common Stock, as reported on the
Nasdaq National Market System, was $38.25. As of November 20, 1997, there were
13,447,176 shares of Iron Mountain Common Stock outstanding held by
approximately 220 holders of record and no shares of Nonvoting Common Stock,
par value $.01 per share ("Nonvoting Common Stock"), outstanding. Iron Mountain
believes there are more than 1,750 beneficial owners of Iron Mountain Common
Stock.
Iron Mountain does not currently pay dividends on the Iron Mountain Common
Stock. The Iron Mountain Board currently intends to retain future earnings, if
any, for the development of Iron Mountain's businesses and does not anticipate
paying cash dividends on the Iron Mountain Common Stock in the foreseeable
future. Future determinations by the Iron Mountain Board to pay dividends on
the Iron Mountain Common Stock would be based primarily upon the financial
condition, results of operations and business requirements of Iron Mountain.
Dividends, if any, would be payable in the sole discretion of the Iron Mountain
Board out of the funds legally available therefor. In addition, Iron Mountain
is currently restricted under the terms of the Credit Agreement and the Note
Indentures from declaring or paying cash dividends on the Iron Mountain Common
Stock. See "Description of Iron Mountain Capital Stock."
No established public trading market exists for the AGI Common Stock, UAC
Common Stock, UAC Preferred Stock or ATSI Common Stock and, accordingly, no
market price information is available with respect thereto. No dividends have
ever been paid on ATSI Common Stock or UAC Common Stock or have been paid in
the last three years on AGI Common Stock. In 1992 and 1993, AGI paid dividends
in the amounts of $9.24 and $0.57, respectively, per share of AGI Common Stock.
In 1994, UAC paid a dividend with respect to UAC Preferred Stock of 1,028
shares of UAC Preferred Stock with a value of $1,028,000, and has accrued, but
not yet paid, dividends with respect to UAC Preferred Stock having values of
$1,754,240 and $1,894,579 for the years 1995 and 1996, respectively. As of
November 20, 1997, there were 11,426,525 shares of AGI Common Stock outstanding
and 54 holders of record, 1,000,001 shares of UAC Common Stock outstanding and
18 holders of record, 27,396 shares of UAC Preferred Stock outstanding (which
number includes accrued but unpaid payment-in-kind dividends through such date)
and 17 holders of record and 3,325,229 shares of ATSI Common Stock outstanding
and 29 holders of record.
106
<PAGE>
DESCRIPTION OF IRON MOUNTAIN CAPITAL STOCK
The following description of the capital stock of Iron Mountain and
certain provisions of the Iron Mountain Restated Certificate and Iron Mountain
By-Laws is a summary and is qualified in its entirety by reference to the Iron
Mountain Restated Certificate and the Iron Mountain By-Laws.
Iron Mountain's authorized capital stock consists of 20,000,000 shares of
Iron Mountain Common Stock, 1,000,000 shares of Nonvoting Common Stock, and
2,000,000 shares of Iron Mountain Preferred Stock. No shares of Preferred Stock
have been issued. There were 13,447,176 shares of Iron Mountain Common Stock
held by approximately 220 holders of record and no shares of Nonvoting Common
Stock issued and outstanding, as of November 20, 1997. See "The Iron Mountain
Charter Amendments" for a description of proposed amendments to the Iron
Mountain Restated Certificate which, if approved, would increase the number of
shares of authorized Iron Mountain Common Stock and Iron Mountain Preferred
Stock to 100,000,000 and 10,000,000, respectively.
Common Stock
The rights of holders of the Iron Mountain Common Stock and the Nonvoting
Common Stock are identical in all respects except voting and convertibility.
Dividends. Holders of record of shares of Iron Mountain Common Stock and
Nonvoting Common Stock on the record date fixed by the Iron Mountain Board are
entitled to receive such dividends as may be declared by the Iron Mountain
Board out of funds legally available for such purpose. No dividends may be
declared or paid in cash or property on any share of either class, however,
unless simultaneously the same dividend is declared or paid on each share of
the other class. In the case of any stock dividend, holders of each class are
entitled to receive the same percentage dividend (payable in shares of that
class) as the holders of the other class.
Iron Mountain is currently restricted under the terms of the Credit
Agreement and the Note Indentures from paying cash dividends on the Iron
Mountain Common and Nonvoting Common Stock. Even if funds were to be available,
Iron Mountain does not intend to pay dividends in the foreseeable future.
Voting Rights. Except as otherwise required by law, on each matter
submitted for a vote of stockholders, holders of shares of Iron Mountain Common
Stock are entitled to one vote per share and holders of Nonvoting Common Stock
are not entitled to vote.
Under the Iron Mountain Restated Certificate, the vote of holders of at
least 80% of the voting power of all outstanding shares of capital stock
entitled to vote generally in the election of Directors, voting together as a
single class, is required for the amendment or repeal of, or the adoption of any
provision inconsistent with, provisions of the Iron Mountain Restated
Certificate establishing a classified Board of Directors. The vote of holders of
at least 66-2/3% of such voting power is required for the amendment or repeal
of, or the adoption of any provision inconsistent with, provisions of the Iron
Mountain Restated Certificate authorizing the Iron Mountain Preferred Stock,
Iron Mountain Common Stock and Nonvoting Common Stock or specifying the terms of
the Iron Mountain Common Stock and the Nonvoting Common Stock (including any
amendment to increase any shares of authorized capital stock). Certain other
provisions also require such a 66-2/3% vote. See "--DGCL and Certain Provisions
of the Iron Mountain Restated Certificate and the Iron Mountain By-Laws." There
are no cumulative voting rights in the election of the Iron Mountain Board.
Conversion Provisions. Shares of Nonvoting Common Stock are convertible,
at any time at the option of the holder, on a share-for-share basis into shares
of Iron Mountain Common Stock without the payment of any additional
consideration; provided that the conversion of any shares of Nonvoting Common
Stock by a "bank holding company" under the Bank Holding Company Act of 1956,
as amended, or an affiliate thereof is prohibited if the conversion of the
total number of shares of Nonvoting Common Stock held by such holder would
cause it to be in violation of such Act.
Liquidation Rights. Upon liquidation, dissolution or winding-up of Iron
Mountain, the holders of Iron Mountain Common Stock and Nonvoting Common Stock
are entitled to share ratably (based on the number of shares held) in all assets
available for distribution after payment in full of creditors and payment in
full to any holders of Iron Mountain Preferred Stock then outstanding of any
amount required to be paid under the terms of such Iron Mountain Preferred
Stock.
107
<PAGE>
Other Provisions. The outstanding shares of Iron Mountain Common Stock and
Nonvoting Common Stock are, and the shares of Iron Mountain Common Stock to be
issued in connection with the Merger will be, upon issuance, validly issued,
fully paid and nonassessable. In any merger, consolidation or business
combination, holders of each class will receive identical consideration, except
that in any such transaction in which shares of stock are distributed, such
shares may differ as to voting rights to the extent that voting rights now
differ between the two classes. Neither class may be subdivided, consolidated,
reclassified or otherwise changed unless, concurrently, the other class is
subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner.
The Iron Mountain Board has the power to issue shares of authorized but
unissued Iron Mountain Common Stock, Nonvoting Common Stock and Iron Mountain
Preferred Stock without further stockholder action. The holders of Iron Mountain
Common Stock and Nonvoting Common Stock are not entitled to preemptive or
subscription rights.
Preferred Stock
The 2,000,000 authorized and unissued shares of Iron Mountain Preferred
Stock (10,000,000 if the Iron Mountain Charter Amendment relating to the Iron
Mountain Preferred Stock is approved) may be issued with such designations,
preferences, limitations and relative rights as the Iron Mountain Board may
authorize including, but not limited to: (i) the distinctive designation of
each series and the number of shares that will constitute such series; (ii) the
voting rights, if any, of shares of such series; (iii) the dividend rate on the
shares of such series, any restriction, limitation or condition upon the
payment of such dividends, whether dividends shall be cumulative, and the dates
on which dividends are payable; (iv) the prices at which, and the terms and
conditions on which, the shares of such series may be redeemed, if such shares
are redeemable; (v) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series; (vi) any preferential amount
payable upon shares of such series in the event of the liquidation, dissolution
or winding-up of Iron Mountain or the distribution of its assets; and (vii) the
price or rates of conversion at which, and the terms and conditions on which
the shares of such series may be converted into other securities, if such
shares are convertible. Although Iron Mountain has no present intention to
issue shares of Iron Mountain Preferred Stock, the issuance of Iron Mountain
Preferred Stock, or the issuance of rights to purchase such shares, could
discourage an unsolicited acquisition proposal and the rights of holders of
Iron Mountain Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any Iron Mountain Preferred Stock that may be
issued in the future.
DGCL and Certain Provisions of the Iron Mountain Restated Certificate and the
Iron Mountain By-Laws
The Iron Mountain Restated Certificate and the Iron Mountain By-Laws
contain certain provisions that could delay or make more difficult the
acquisition of Iron Mountain by means of a tender offer, a proxy contest or
otherwise. These provisions, as described below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of Iron Mountain first to
negotiate with Iron Mountain. Iron Mountain believes that the benefits of
increased protection of its ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure Iron Mountain
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiations with respect to such proposals could result in an
improvement of their terms.
Classified Board of Directors. The Iron Mountain Restated Certificate and
the Iron Mountain By-Laws provide for a Board of Directors that is divided into
three classes of Directors, as nearly equal in number as possible, with the
term of each class expiring in a different year. The Iron Mountain By-Laws
provide that the number of Directors will be fixed from time to time
exclusively by the Iron Mountain Board, but shall consist of not more than 15
nor less than three Directors. The classified Iron Mountain Board is intended
to promote continuity and stability of Iron Mountain's management and policies
since a majority of the Directors at any given time will have prior experience
as Directors of Iron Mountain. Such continuity and stability facilitates
long-range planning of Iron Mountain's business and ensures the quality of its
business operations. The classification of Directors has the effect of making
it more difficult to change the composition of the Iron Mountain Board. At
least two annual stockholder meetings, instead of one, would be required to
effect a change in the majority control of the Iron Mountain Board, except in
the event of vacancies resulting from removal (in which case the remaining
Directors will fill the vacancies so created). See "--Removal of Directors;
Filling Vacancies on the Iron Mountain Board."
Removal of Directors; Filling Vacancies on the Iron Mountain Board. The
Iron Mountain Restated Certificate and Iron Mountain By-Laws provide that an
Iron Mountain Director may be removed by the stockholders
108
<PAGE>
only for cause at any time during such Director's term of office by affirmative
vote of the holders of at least 80% of the Voting Power.
The Iron Mountain By-Laws and the Iron Mountain Restated Certificate both
provide that a vacancy on the Iron Mountain Board, including a vacancy created
by an increase in the size of the Iron Mountain Board by the Directors, may be
filled by a majority of the remaining Directors or by a sole remaining
Director, or if no Directors remain, then by the stockholders. The Iron
Mountain Restated Certificate also provides that any Director elected by the
Iron Mountain Board to replace another Director of a given class of Directors
will hold office until the next election of such class of Directors. These
provisions are to ensure that a third party would be precluded from removing
incumbent Directors and simultaneously gaining control of the Iron Mountain
Board by filling the vacancies created by such removal with its own nominees.
Moreover, even if the holders of the outstanding Iron Mountain Common Stock
were to vote to remove Directors for cause, only the remaining Directors would
have the power to fill the vacancies created by such removal, unless such vote
provided for the removal of the entire Iron Mountain Board for cause.
Amendment of Certain Provisions of the Iron Mountain Restated Certificate
and the Iron Mountain By-Laws. The Iron Mountain Restated Certificate and the
Iron Mountain By-Laws contain provisions requiring the affirmative vote of the
holders of at least 66-2/3% of the Voting Power to amend certain provisions of
the Iron Mountain Restated Certificate and the Iron Mountain By-Laws. This
supermajority voting provision also applies to (i) the provisions of the Iron
Mountain Restated Certificate authorizing Iron Mountain to release its
Directors from any liability for monetary damages as a result of any breach of
their fiduciary duties, with certain exceptions mandated by the DGCL, and (ii)
the provisions allowing for the indemnification of officers and Directors of
Iron Mountain. The Iron Mountain Restated Certificate provides that the Iron
Mountain By-Laws may be amended only by a majority of the full Iron Mountain
Board or by the stockholders holding at least 66-2/3% of the Voting Power. The
DGCL provides that by-laws may not be amended by a corporation's Board of
Directors unless the corporation's certificate of incorporation expressly
authorizes such amendments by the Board of Directors; the Iron Mountain
Restated Certificate includes such a provision. Under the Iron Mountain
Restated Certificate, at least 80% of the Voting Power is required to approve
amendments to those provisions of the Iron Mountain Restated Certificate or
Iron Mountain By-Laws establishing a classified Board, specifying notice
requirements for stockholder nominations of Directors or business to be brought
by a stockholder before an annual meeting and limiting the rights of
stockholders to remove Directors or fill vacancies on the Iron Mountain Board,
to call special meetings or to effect actions by written consent.
Stockholder Actions and Meetings. Iron Mountain's Restated Certificate
provides that stockholder action may be taken only at an annual or special
meeting of stockholders and prohibits stockholders action by written consent in
lieu of a meeting. The Iron Mountain Restated Certificate and Iron Mountain
By-Laws provide that special meetings of stockholders can be called by the
Chairman of the Board of Directors, if any, or the Iron Mountain Board pursuant
to a resolution approved by a majority of the members of the Iron Mountain
Board. The business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by the Iron
Mountain Board. The Iron Mountain By-Laws set forth an advance notice procedure
with regard to the nomination, other than by or at the direction of the Iron
Mountain Board, of candidates for election as directors and with regard to
business brought before an annual meeting of stockholders of Iron Mountain.
Delaware Anti-Takeover Statute. Subject to certain exceptions set forth
therein, Section 203 of the DGCL provides that a corporation shall not engage
in any business combination with any "interested stockholder" for a three-year
period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66-2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified therein, an interested stockholder is defined to mean any person that
(a) is the owner of 15% or more of the outstanding voting stock of the
corporation or (b) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date, or any
affiliate or associate of such person referred
109
<PAGE>
to in (a) or (b) of this sentence. Under certain circumstances, Section 203 of
the DGCL makes it more difficult for an interested stockholder to effect
various business combinations with a corporation for a three-year period,
although the stockholders may, by adopting an amendment to the corporation's
certificate of incorporation or by-laws, elect not to be governed by this
section, effective twelve months after adoption. The Iron Mountain Restated
Certificate and the Iron Mountain By-Laws do not exclude Iron Mountain from the
restrictions imposed under Section 203 of the DGCL. It is anticipated that the
provisions of Section 203 of the DGCL may encourage companies interested in
acquiring Iron Mountain to negotiate in advance with the Iron Mountain Board.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Iron Mountain Common Stock is
Boston Equiserve Limited Partnership, 150 Royall Street, Canton, Massachusetts
02021 (telephone number (617) 575-2000).
110
<PAGE>
DESCRIPTION OF THE ARCUS ENTITIES
History and Overview
ATSI is the leading national provider of secure off-site data protection
services (the management of electronic records) through ADS, an indirect wholly
owned subsidiary, and a growing provider of IT staffing services through ASR,
another indirect wholly owned subsidiary. (Unless otherwise specified,
references to ADS and ASR shall be deemed to include their respective
consolidated subsidiaries.)
AI, a wholly owned subsidiary of ATSI, was founded by AI's current Chief
Executive Officer, Thomas Seefurth, in 1971. From 1972 until July 1995, AI was
owned by ATI Systems International, Inc. ("ATIS"), a provider of specialty
transportation services. In July 1995, AI was acquired by UAC through a newly
created subsidiary, ATSI (the "UAC Acquisition"). At the time of the UAC
Acquisition, AI had 24 data protection facilities. Since the UAC Acquisition,
ATSI has added eight new data protection facilities through acquisitions and
internal expansion.
In 1995, at the request of certain customers who could not completely
support their own staffing needs, ATSI incorporated ASR and began providing IT
staffing services. ASR has 13 locations, five of which were opened internally
and eight of which were acquired through acquisitions.
In management's belief, ATSI currently is the leading national provider of
secure off-site computer data storage, rotation and related disaster recovery
services. ATSI's United States facilities contain approximately 464,000 square
feet of space and its London facility has approximately 6,000 square feet of
space. In addition to regular storage and rotation of a customer's data, in the
event of a disaster, ATSI transports the duplicate data to an alternative data
processing location, often referred to as a "hot site." These processing
locations are generally fully equipped data processing centers ready for
immediate use by a customer and operated by a third party. ATSI participates in
its customers' testing of disaster recovery plans and has located its storage
facilities near most of the major hot sites in the United States. In the last
25 years, ATSI has performed over 100 disaster recoveries and 8,000 disaster
recovery tests. Additionally, ATSI performs tape library relocation for its
customers, sells data products to its customers and performs other services.
Through ASR, ATSI currently provides a broad range of IT staffing services
to businesses, professional and service organizations, manufacturers, and
government agencies in the 11 markets represented by its 13 offices. The
Phoenix, Dallas, Oklahoma City, Denver and Los Angeles branch offices of ASR
focus on providing temporary and permanent "technical support" personnel to
ATSI's clients, including filling positions in tape and computer operations,
help desk support and LAN/WAN support. The remaining ASR branch offices
principally provide higher level "technical development" staffing of
programmers and analysts responsible for systems application development and
maintenance across all platforms (i.e. mainframe, PC/Client-Server and
mid-range), both on a temporary contract basis and in permanent positions.
Currently, 81.3% of the outstanding ATSI Common Stock is owned by UAC,
which is a holding company with no activities other than the ownership of (i)
ATSI Common Stock, (ii) approximately $7.3 million in cash as of September 30,
1997 and (iii) the Connected Stock; and 80% of the outstanding UAC Common Stock
is owned by AGI, which is a holding company with no activities other than the
ownership of (i) UAC Common Stock, (ii) approximately $4.0 million in cash as
of September 30, 1997 and (iii) the Damson Interest.
Customers
ATSI's customer base is diversified in terms of revenue and industry
concentration. Representative customers of ATSI include financial and
educational institutions, law firms, accounting firms, service organizations,
retail businesses, manufacturing companies, governmental entities and other
organizations that require security for their computer data. ATSI provides
products and services to approximately 6,750 customer accounts and no single
customer represents more than 5% of ATSI's revenues. ATSI tracks customer
accounts based on invoices. Accordingly, one organization may represent
multiple customer accounts.
Data Protection. As of September 30, 1997, ATSI had approximately 6,500
data protection customer accounts, and, in management's belief, ATSI is the
only nationwide provider of off-site data protection that provides data
protection services exclusively. In certain branches one or a few customers may
account for all or a substantial
111
<PAGE>
portion of the revenues of that branch. As of December 31, 1996, in the
aggregate, no single customer accounted for more than 5% of ATSI's data
protection revenues.
IT Staffing. As of September 30, 1997, ATSI had approximately 250 IT
staffing customers. In certain branches, a single or relatively small number of
customers may account for all or a substantial portion of the revenues of that
branch. As of December 31, 1996, in the aggregate, no single customer accounted
for more than 10% of ATSI's IT staffing revenues.
Services
For the nine months ended September 30, 1997 and for the year ended
December 31, 1996, ATSI had revenues of $69.0 million and $66.0 million,
respectively. Data protection services and IT staffing services generated
approximately 80% and 20%, respectively, of revenues in 1996, and approximately
65% and 35%, respectively, in the nine months ended September 30, 1997.
Data Protection. ATSI approaches the market for data protection by
offering a full range of data protection and data security services. ATSI's
objectives are to continue to build its leading national position as a data
storage provider dedicated to providing a comprehensive range of media data
protection and recovery services, and to exploit the significant growth
opportunities that exist by opening or acquiring operations in markets in which
it does not currently operate.
ATSI provides secure storage and rotation of duplicate or back-up computer
data. Recognizing that customers' data centers are vulnerable to natural
disasters such as fire, storms and earthquakes as well as man-made disasters,
including terrorism, employee sabotage and error, ATSI provides services
designed to enable businesses to recover successfully from such disasters
quickly and limit losses attributable to a data disaster. In order to minimize
disruptions of operations that may be caused by disasters, ATSI believes a
business must have (i) a recovery plan, (ii) access to a hot site and (iii)
duplicate computer data which is readily deliverable to the hot site. ATSI
fulfills this last requirement by both storing the duplicate data and rotating
it between its storage facilities and the customers' regular storage locations
on a periodic (daily, weekly or monthly) basis or delivering it to hot sites as
needed.
ATSI provides the following data and records storage and security
services:
"Data Storage and Rotation" is the storage of duplicate or backup copies
of customers' data in 31 concrete, steel-reinforced facilities in the United
States and in one such facility in the United Kingdom. Generally, the
facilities are protected 24 hours a day by intrusion alarms, on-line card key
systems and automated fire suppression systems. The data protection facilities
typically utilize closed-circuit television, humidity controls, clean air
filtration systems and, in some cases, backup power supply systems.
Additionally, each facility offers special storage containers that lock and
keep the customers' records secure within the facility itself. Security is a
deliberately planned and continuing part of ATSI's operations. In addition to
24-hour fire and electronic security monitoring systems, ATSI's security
program includes training each employee in ATSI's security procedures as well
as using both unmarked vehicles for transportation of data and unmarked storage
facilities. ATSI derives a substantial portion of its revenues from fixed
periodic (usually monthly) fees charged to customers for storage and rotation
of back-up or duplicate computer data. Storage and rotation revenues have
represented between 80% and 85% of ATSI's total data protection revenues in
each of the last three years.
ATSI believes the growth of its storage and rotation revenues is the
result of a number of factors, including: (i) the trend toward increased
records retention; (ii) the increasing amount of computer data being generated;
and (iii) customer satisfaction with ATSI's services.
ATSI transports the customers' records in specially built, unmarked
vehicles typically equipped with temperature controls, intrusion alarms,
portable fire extinguishers and mobile communication equipment. The computer
data itself is generally transported in specially designed containers made of
durable steel and placed on compartmentalized interior shelving within the
truck to minimize the risk of damage during transport. For continuous security,
loading and unloading generally takes place inside ATSI's storage facility. In
one of its markets, ATSI subcontracts with a third party delivery firm to pick
up and deliver the computer media of its customers.
Customers are able to retrieve their electronic records 24 hours a day,
365 days a year. This allows companies to minimize "down-time" that is often
associated with a disaster. In addition, customers are able to store
infrequently
112
<PAGE>
used data and archival data and retrieve it as required for needs such as
audits or special internal management processing.
"Disaster Recovery" is the delivery of the duplicate data quickly to a
specified location in the event of a disaster. ATSI participates in its
customers' testing of their disaster recovery plans and has located its data
protection facilities near most of the major hot sites. Hot sites are operated
as back-up data centers, and ATSI cooperates with the leading hot site
operators to ensure that customers' disaster recovery plans are complete.
ATSI offers door-to-door, air and ground transportation of a customer's
stored media and personnel during a disaster, day or night, 365 days per year.
ATSI has participated in over 8,000 disaster recovery tests. ATSI also has
substantial experience in actual emergencies, as it has responded to over 100
disasters. For example, during the 1989 San Francisco earthquake, ATSI handled
more than 35 deliveries of stored data to hot sites and other locations in
Chicago, Atlanta, New York, Philadelphia and other cities around the country.
ATSI provided similar disaster recovery service during the 1987 and 1994 Los
Angeles earthquakes, the 1988 First Interstate Bank building fire (a high rise
office building located in downtown Los Angeles), the 1990 New York City
blackout, the 1993 World Trade Center bombing and the 1995 Oklahoma City
bombing (the latter by a company that has since been acquired by ADS). ATSI
believes its experience during crisis situations is a marketing advantage it
enjoys over its competitors. To facilitate its preparedness, ATSI maintains
priority access to a fleet of 220 chartered aircraft.
"Tape Library Relocation" is the relocation of media libraries where, on a
test or permanent basis, a customer's entire media library is moved by secure,
specially equipped vehicles to a new site. ATSI also has priority access to
aircraft for the relocation of media libraries.
"Data Products Resale" is the resale by ATSI of a comprehensive line of
media, including computer media, and storage products.
IT Staffing. ATSI's objective is to be a national provider of IT staffing
services to a diverse, national client base. ATSI's growth strategy focuses on
both internal growth and strategic acquisitions. In pursuit of this objective,
ATSI seeks to (i) open new offices complementary to its current geographic
market coverage and established infrastructure, (ii) cross-sell its IT staffing
service capabilities through the customer relationships of ADS and, upon the
closing of the Merger, Iron Mountain, and (iii) continue to acquire regional IT
staffing platform companies that have their own established management
infrastructure and other operating characteristics necessary to expand ATSI's
presence into new markets. Since its formation, ATSI has acquired three such IT
staffing companies. ATSI also seeks to make fold-in acquisitions in established
markets where such an acquisition may be integrated into existing operations,
thereby increasing its market share.
ATSI generates revenues from temporary contract staffing of personnel and
successful permanent placement of full-time positions, which comprised
approximately 90% and 10% of total IT staffing revenues, respectively, for the
nine months ended September 30, 1997. During the first three quarters of 1997,
contract staffing and permanent placement represented approximately 86% and
14%, respectively, of revenues generated from technical development staffing
and represented approximately 95% and 5%, respectively, of revenues generated
from technical support staffing. Contract staffing is billed out on a
time-and-materials basis for each hour worked, while permanent placements are
billed as a percentage of the placed employee's first year salary. No fixed fee
work is performed.
Technical development staffing positions include programmers, systems
analysts, project managers and other technical positions and, on average, last
six to nine months. Technical support staffing positions include computer and
tape operators, production support managers, database administrators, LAN/WAN
administrators and network engineers and, on average, last three months to one
year.
ATSI has developed a sales and marketing strategy which focuses
principally on penetrating local accounts at the branch level. In addition,
with its expanding geographical base, ATSI is beginning to cultivate national
account relationships. Local accounts are targeted by account managers at each
branch, capitalizing on local expertise and direct customer relationships
established with hiring managers. Such accounts are solicited through direct
sales presentations, telemarketing, referrals and local advertising. Job fairs
are also sponsored to increase overall market awareness of ATSI.
Upon obtaining a customer job order, whether contract staffing or
permanent placement, ATSI immediately prioritizes such order and seeks to
identify and evaluate multiple potential candidates who may fit such
requirements.
113
<PAGE>
Customers review resumes submitted by ATSI, interview those candidates they
identify as potential fits, present and negotiate an offer with ATSI (if a
candidate is acceptable) and generally enter into a service contract which may
range anywhere from several months to two or more years.
ATSI recruits potential job candidates principally through its database,
employee referrals, internet postings, newspaper advertisements and job fairs.
Candidates are evaluated as to skill level, experience and organizational fit,
among other criteria, prior to submission for an interview. ATSI negotiates the
pay rate and any other benefits directly with candidates if an offer is
forthcoming from its client.
Employees
As of September 30, 1997, other than employees engaged in data protection
and IT staffing services, the ATSI corporate headquarters and other corporate
locations had a total of 29 employees, all of whom were full-time.
ATSI has never had a work stoppage and none of its employees is currently
represented by a labor organization. ATSI believes its relationships with its
employees are good.
Data Protection. As of September 30, 1997, ATSI had a total of 590 data
protection employees, 544 full-time and 46 part-time. ATSI's data protection
management structure is decentralized and relies on local management operating
in local business environments. ATSI's data protection operations are divided
into three regions each managed by a regional vice president, who reports to
the president of ADS, and each region is further divided into two or three
areas, each managed by a general manager. General managers oversee branch
managers who are responsible for the operations of one or more facilities.
Thirty salespersons, who are assigned to branches and particular
geographic territories, maintain existing accounts and pursue potential
accounts under the supervision of a branch manager or general manager. The
sales force is supported by 13 sales support individuals, who primarily focus
on telemarketing to existing accounts, and ATSI's corporate marketing group,
which provides marketing communications and organizes trade show appearances.
IT Staffing. As of September 30, 1997, ATSI had approximately 100 IT
staffing employees working in regional and branch management, sales, recruiting
and administrative functions (excluded from such number are individuals who are
placed with ATSI's IT staffing customers; such individuals are hereinafter
referred to as "Billable Employees"). ATSI generally offers Billable Employees
full-time employee status with an annual salary regardless of assignment or
hourly worker status during the duration of the assignment. As of September 30,
1997, ATSI had 564 Billable Employees, of which 187 were in technical
development and 377 were in technical support. Of these 564 Billable Employees,
479 were W-2 employees (principally hourly based) and 85 were independent
contractors.
ATSI is responsible for and pays the employer's share of FICA, federal and
state unemployment taxes, workers' compensation insurance, and other costs
relating to all full-time and temporary employees. ATSI does not, in general,
provide health insurance, vacation, sick leave and other related benefits to
its hourly temporary employees or its independent contractors.
Competition
Data Protection. ATSI operates in a highly competitive industry, and its
strategy is to focus on the breadth and quality of its services, its reputation
for reliability and its prices. ATSI generally competes with local companies in
each of the metropolitan areas that it serves. The number of local competitors
in these markets typically ranges from one to five depending on the market.
ATSI also competes with other national companies, one of which is Iron
Mountain, but none of which focuses exclusively on data security. Certain local
competitors of ATSI specialize in data protection, while others offer data
protection in addition to other records management services. In addition, ATSI
faces competition from the internal capabilities of its current and potential
customers. There can be no assurance that in the future that these
organizations will outsource more of their data protection needs or that they
will not bring in-house some or all of the functions currently outsourced.
Although the management of ATSI believes its storage services are
currently cost effective to its customers, secure, high speed computer data
transmission and storage technology may reduce the need for physical
transportation of data. ATSI has investigated the possible use of this
technology for its business in the past and continues to explore such
technology on an ongoing basis. While current use of this technology has been
limited
114
<PAGE>
because of its relatively high cost, certain industries serviced by ATSI,
primarily the financial services industry, are using such technology because of
the high risk associated with delayed processing and lost information. While
management believes that such technology represents an opportunity for ATSI,
there can be no assurance that the storage services currently provided by ATSI
will continue to be cost effective to its customers or that ATSI will be able
to supply such electronic transmission technology on a cost effective basis in
the future. ATSI recently entered into a marketing venture with Connected
Corp., through which ATSI markets to its customers automated computer data
back-up and retrieval over telephone lines and the internet.
IT Staffing. The IT staffing services industry is fragmented and highly
competitive. ATSI competes with many larger full-service and specialized
competitors, some of which have significantly greater marketing, financial and
other resources than ATSI. No single company is believed to have a dominant
share of the market. ATSI believes the primary factors in obtaining and
retaining clients are the ability to understand client requirements, the
ability to provide quality IT staffing personnel in a timely manner, and the
pricing of its services. The primary competitive factors in obtaining qualified
candidates for IT staffing assignments are quality work assignments, wages and
timely responsiveness in the overall recruiting process. Management believes
ATSI is competitive in each of these areas.
ATSI also faces competition for acquisition candidates in both its data
protection and IT staffing businesses.
Properties
Data Protection. As of September 30, 1997, ATSI occupied 32 facilities
comprising in total approximately 470,000 square feet. Of this amount,
approximately 464,000 square feet are located in the United States and
approximately 6,000 square feet are located in the United Kingdom. All of
ATSI's facilities are equipped to provide safe storage of magnetic media.
Specific characteristics of its media facilities are discussed under
"--Services." ATSI leases all but three of its storage facilities, under month
to month leases or leases that will expire at various times through 2012.
Twelve storage facilities are leased from its former parent company, ATIS. See
Note 9 of the notes to ATSI Consolidated Financial Statements included
elsewhere in this Proxy Statement.
As of September 30, 1997, ATSI operated the following data protection
facilities in the geographic locations indicated below:
<TABLE>
<CAPTION>
Data Protection IT Staffing
Location Facilities Facilities
- -------------------------- ----------------- ------------
<S> <C> <C>
Arizona ............ 2 1
California ......... 9 3
Colorado ............ 2 1
Connecticut ......... 1 --
Florida ............ 3 2
Georgia ............ 1 --
Illinois ............ 1 --
Nevada ............... 1 --
New Jersey ......... 1 --
New York ............ 2 --
North Carolina ...... 1 --
Ohio ............... 1 --
Oklahoma ............ 1 1
Pennsylvania ......... 1 3
Texas ............... 2 1
Washington ......... 2 1
United Kingdom ...... 1 --
Total ............ 32 13
</TABLE>
115
<PAGE>
In general, ATSI has adequate capacity in its data protection facilities
for future growth in its present markets. Certain facilities, however, may
approach capacity within the near future. Expansion of capacity in one or more
of these markets may be necessary during 1997 or 1998 to allow for
uninterrupted growth in these markets.
IT Staffing. ATSI leases office space for each of the 13 branch offices in
which it does business, with an average space requirement of approximately
3,000 square feet. Located in multi-tenant commercial office buildings,
staffing offices have primary lease terms ranging from one to five years,
generally with no renewal option. In general, ATSI believes it has adequate
space to meet its current needs.
Insurance
Subject to sublimits, certain exclusions, policy terms and conditions and
certain deductibles, ATSI carries comprehensive property insurance with
insurance providers that it believes to be reputable and in amounts that it
believes to be appropriate, covering the replacement cost of real and personal
property, including improvements and betterments. The policies also cover
extraordinary expenses associated with business interruption, subject to
certain deductibles. In addition to various other insurance policies, ATSI also
maintains general liability insurance and umbrella excess liability insurance
covering bodily injury, property damage and personal injury.
ATSI's standard form of data protection contract sets forth a limitation
on liability for loss, destruction or damage for each storage unit held by
ATSI. In contracts containing such limits, liability is limited to the
replacement value of the tangible storage unit lost, destroyed or damaged, and
ATSI believes that in typical circumstances this liability would be so limited
in the event of loss, destruction or damage relating to the value of
information stored on media held by ATSI. However, certain contracts ATSI has
entered into or assumed as a result of acquisitions contain no such limitation
or entirely different liability provisions.
Environmental Matters
Under various environmental laws, an owner of real estate or a lessee
conducting operations thereon may become liable for the costs of investigation,
removal or remediation of soil and groundwater contaminated by certain
hazardous substances or wastes or petroleum products. Certain such laws impose
cleanup responsibility and liability without regard to whether the owner or
operator of the real estate or operations thereon knew of or was responsible
for the contamination, and whether or not operations at the property have been
discontinued or title to the property has been transferred. In addition, the
presence of such substances, or the failure to properly remediate such
property, may adversely affect the current property owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. The owner or operator of contaminated real estate also may be
subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination.
Certain environmental laws govern the removal, encapsulation or
disturbance of ACMs. Such laws may impose liability for the release of ACMs and
may enable third parties to seek recovery from owners or operators of real
estate for personal injury associated with exposure to such substances. ATSI is
aware of the presence of ACMs at certain of ATSI's facilities, but ATSI
believes that future costs related to any remediation of ACMs at such
facilities will not be material, either on an annual basis or in the aggregate,
although there can be no assurance with respect thereto.
In addition, certain of the properties formerly or currently owned or
operated by ATSI were previously used for industrial or other purposes that
involved the use or storage of hazardous substances or petroleum products or
the generation and disposal of hazardous wastes and, in some instances,
included the operation of USTs, and ATSI's current use of certain properties
also involves the use and storage of petroleum products. In addition, certain
of such properties are adjacent to or near Superfund sites or other
contaminated properties. In connection with its former and current ownership or
operation of certain properties, ATSI may be potentially liable for
environmental costs such as those discussed above.
ATSI has from time to time conducted certain environmental investigations
at certain of its former and current facilities, but an in-depth environmental
review of all its properties has not been conducted by or on behalf of ATSI.
ATSI believes that it is in substantial compliance with all applicable material
environmental laws. ATSI has not received any written notice from any
governmental authority or third party asserting, and is not otherwise aware of,
any material noncompliance, liability or claim relating to hazardous substances
or wastes, petroleum products or material environmental laws applicable to its
operations in connection with any of its present or former properties.
116
<PAGE>
However, no assurance can be given that there are no environmental conditions
for which ATSI might be liable in the future or that future regulatory action,
as well as compliance with future environmental laws, will not require ATSI to
incur costs for or at its properties that could have a material adverse effect
on ATSI's financial condition and results of operations.
Certain Transactions
Clarke H. Bailey will be appointed a Class C Director of Iron Mountain
following the Closing Date. Mr. Bailey is a director and an executive officer
of each of the Arcus Parties. Mr. Bailey has received no compensation for
services rendered to any of the Arcus Parties other than UAC. On July 31, 1995,
he received (i) nonqualified options to purchase 88,282 shares of UAC Common
Stock at an exercise price of $12.50 per share and (ii) incentive options to
purchase 24,000 shares of UAC Common Stock at an exercise price of $12.50 per
share.
UAC paid GKH Partners, L.P., a stockholder of each of UAC and AGI,
investment advisory and other fees of $178,000 in 1996 and $125,000 in each of
1995 and 1994. Similar fees are being charged in 1997 ($10,416 monthly advisory
fee and $4,375 monthly charge for office space and administrative support for
Mr. Frank G. Hayes, a director and officer of AGI). In 1994, UAC paid AGI, a
stockholder of UAC, a management fee of $141,000 to cover payroll and office
expenses.
Legal Proceedings
On June 5, 1997, AGI filed a complaint for refund of federal taxes paid
for the year 1995 in the amount of $828,128 against the United States in the
Court of Federal Claims (case number 97-402). This claim is based on the
utilization of AGI's net operating loss carryforwards for the tax year ended
December 31, 1995. On September 3, 1997, the United States filed its answer in
that case, denying AGI's use of its net operating losses. This lawsuit is still
pending.
The Arcus Entities are involved in other legal proceedings from time to
time in the ordinary course of business. In the opinion of management, other
than as disclosed herein, no material legal proceedings are pending to which
the Arcus Entities or any of their properties are subject.
117
<PAGE>
Arcus Parties' Selected Financial and Operating Information
AGI
The following selected consolidated statements of operations and balance
sheet data of AGI as of and for each of the years ended December 31, 1992, 1993,
1994, 1995 and 1996 have been derived from AGI's audited consolidated financial
statements. The selected consolidated statements of operations and balance sheet
data of AGI for the nine months ended September 30, 1996 and 1997 have been
derived from AGI's unaudited condensed consolidated financial statements. AGI's
unaudited condensed consolidated financial statements include all adjustments,
consisting of normal recurring accruals (other than as disclosed), that AGI
considers necessary for a fair presentation of the financial position and the
results of operations for those periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results for the
entire year ending December 31, 1997. The selected consolidated financial and
operating information set forth below should be read in conjunction with "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with AGI's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- ------------ --------- ---------- --------- ----------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $ -- $ -- $ -- $16,158 $ 43,671 $31,853 $ 38,174
Other ..................... -- -- -- 4,520 22,310 13,315 30,795
--------- -------- -------- -------- --------- -------- ---------
Total Revenues ......... -- -- -- 20,678 65,981 45,168 68,969
========= ======== ======== ======== ========= ======== =========
Income (Loss) from Continuing
Operations .................. (2,642) (5,720) (231) 491 887 1,200 476
--------- -------- -------- -------- --------- -------- ---------
Net Income (Loss) ............ $(79,696) $ (6,620) $ (231) $ 491 $ 887 $ 1,200 $ 476
========= ======== ======== ======== ========= ======== =========
Earnings (Loss) Per Share ... $ (6.97) $ (0.58) $ (0.02) $ 0.04 $ 0.08 $ 0.11 $ 0.04
Cash Dividends per Share ... $ 9.24 $ 0.57 $ -- $ -- $ -- $ -- $ --
Other Data:
EBITDA ..................... $ (1,396) $ 1,713 $ 7,479 $ 5,941 $ 7,979
December 31,
------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
-------- ------- ------- ------ ------- --------
Balance Sheet Data:
Total Assets ............... $ 29,052 $ 16,044 $ 38,913 $84,911 $105,463 $105,821
Total Long-Term Debt and
Redeemable Preferred Stock of
Subsidiary .................. $ -- $ -- $ 21,907 $53,386 $ 63,882 $ 65,750
Stockholders' Equity ......... $ 27,900 $ 14,790 $ 14,559 $15,038 $ 15,345 $ 15,764
</TABLE>
118
<PAGE>
UAC
The following selected consolidated statements of operations and balance
sheet data of UAC as of and for each of the years ended December 31, 1994, 1995
and 1996 have been derived from UAC's audited consolidated financial
statements. The selected consolidated statements of operations and balance
sheet data of UAC for the nine months ended September 30, 1996 and 1997 have
been derived from UAC's unaudited condensed consolidated financial statements.
UAC's unaudited condensed consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that UAC considers
necessary for a fair presentation of the financial position and the results of
operations for those periods. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the entire
year ending December 31, 1997. The selected consolidated financial and
operating information set forth below should be read in conjunction with
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with UAC's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- --------- -----------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ............... $ -- $16,158 $ 43,671 $31,853 $ 38,174
Other .............................. -- 4,520 22,310 13,315 30,795
------- ------- -------- -------- ---------
Total Revenues ..................... -- 20,678 65,981 45,168 68,969
------- ------- -------- -------- ---------
Net Income ........................... 361 1,312 1,634 1,562 1,616
------- ------- -------- -------- ---------
Net Income (Loss) Attributed to
Common Stockholders .................. $ (667) $ (443) $ (260) $ 141 $ 83
======= ======= ======== ======== =========
Earnings (Loss) Per Common Share ...... $ (0.67) $ (0.44) $ (0.26) $ 0.14 $ 0.08
Other Data:
EBITDA ................................. $ (391) $ 3,537 $ 9,453 $ 7,519 $ 9,692
December 31,
----------------------------------- September 30,
1994 1995 1996 1997
------- ------- ------- ----------
Balance Sheet Data:
Total Assets ........................... $33,997 $79,469 $100,175 $100,985
Total Long-Term Debt .................. $ -- $29,725 $ 38,325 $ 38,661
Stockholders' Equity .................. $33,986 $35,284 $ 36,180 $ 37,733
</TABLE>
119
<PAGE>
ATSI
The following selected consolidated statements of operations and balance
sheet data of ATSI as of and for each of the years ended December 31, 1992,
1993, 1994, and the seven month period ended July 31, 1995 have been derived
from the audited consolidated financial statements of AI or predecessor. The
following selected consolidated statements of operations and balance sheet data
as of and for the five month period ended December 31, 1995 and the year ended
December 31, 1996 have been derived from ATSI's audited consolidated financial
statements. The selected consolidated statement of operations and balance sheet
data of ATSI for the nine months ended September 30, 1996 and 1997 have been
derived from ATSI's unaudited condensed consolidated financial statements.
ATSI's unaudited condensed consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that ATSI considers
necessary for a fair presentation of the financial position and the results of
operations for those periods. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the entire
year ending December 31, 1997. The selected consolidated financial and
operating information set forth below should be read in conjunction with
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with ATSI's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Seven Five
Months Months
Year Ended Year Ended Year Ended Ended Ended Year Ended
December 31, December 31, December 31, July 31, December 31, December 31,
1992 1993 1994 1995 1995 1996
(Predecessor) (Predecessor) (Predecessor) (Predecessor) (Successor) (Successor)
--------------- --------------- --------------- --------------- -------------- --------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $27,745 $30,999 $34,494 $21,401 $16,158 $43,671
Other ..................... 4,593 5,517 6,339 4,277 4,520 22,310
-------- -------- -------- -------- -------- --------
Total Revenues ............ 32,338 36,516 40,833 25,678 20,678 65,981
-------- -------- -------- -------- -------- --------
Net Income .................. $ 1,304 $ 2,602 $ 3,584 $ 2,554 $ 1,057 $ 2,563
======== ======== ======== ======== ======== ========
Earnings Per Share ............ $ 0.17 $ 0.34 $ 0.46 $ 0.32 $ 0.48 $ 0.99
Other Data:
EBITDA ........................ $ 5,116 $ 6,997 $ 8,770 $ 5,602 $ 4,595 $11,652
<CAPTION>
Nine Months
Ended
September 30,
1996 1997
(Successor)
------------------
<S> <C> <C>
Statements of Operations Data:
Revenues:
Storage and Transport ...... $31,853 $38,174
Other ..................... 13,315 30,795
-------- --------
Total Revenues ............ 45,168 68,969
-------- --------
Net Income .................. $ 2,022 $ 2,184
======== ========
Earnings Per Share ............ $ 0.83 $ 0.66
Other Data:
EBITDA ........................ $ 8,722 $10,964
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
September 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets ............... $18,620 $20,073 $23,387 $60,130 $88,458 $92,964
Total Long-Term Debt ...... $ 267 $ 678 $ 551 $29,725 $39,513 $40,161
Stockholders' Equity ...... $10,614 $12,757 $16,367 $18,574 $30,611 $33,963
</TABLE>
120
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Arcus
Parties' Selected Financial and Operating Information and the Arcus Parties'
Consolidated Financial Statements and the Notes thereto and the other financial
and operating information included elsewhere in this Proxy Statement.
Overview
On July 31, 1995, AI was acquired by UAC (see Note 1 of the Notes to
Consolidated Financial Statements of ATSI included elsewhere in this Proxy
Statement). Consolidated income statements for the year 1995 are represented by
a seven month predecessor period ended July 31, 1995 and a five month successor
period ended December 31, 1995 (the "stub periods") in the Consolidated
Financial Statements of ATSI included elsewhere in this Proxy Statement. While
the change in ownership altered AI's capital structure, it did not affect the
consolidated operations of AI. For this reason, management believes it is more
meaningful to compare 1995 results of operations on a combined full year basis
rather than in the context of two separate stub periods for that year, and the
results of operations are presented on such basis. Also, for the same reason,
EBITDA for the various periods is discussed in addition to operating income,
since this earnings measure is independent of any change in capital structure.
For ease of understanding, selected information for the stub periods has been
combined in the table below, and any discussion of the year 1995 means the
combined stub periods as shown in this table or described elsewhere in this
Proxy Statement, including the Consolidated Financial Statements of ATSI and
related Notes.
<TABLE>
<CAPTION>
Arcus Technology Services, Inc.
(Dollars in Thousands)
-----------------------------------------------------------------
Nine months ended
Year Ended December 31, September 30,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Data security revenue ............... $ 40,833 $ 44,832 $ 53,145 $ 38,553 $ 44,574
IT staffing revenue ............... -- 1,524 12,836 6,615 24,395
---------- ---------- ---------- ---------- ----------
Total revenue ..................... 40,833 46,356 65,981 45,168 68,969
Cost of services rendered ......... 18,035 20,796 32,737 21,804 37,726
Selling, general and administrative 14,028 15,363 21,592 14,643 20,279
---------- ---------- ---------- ---------- ----------
EBITDA ........................... 8,770 10,197 11,652 8,722 10,964
Depreciation and amortization ...... 2,850 3,134 4,437 3,205 4,538
---------- ---------- ---------- ---------- ----------
Operating income .................. 5,920 7,063 7,215 5,517 6,425
Interest expense (income), net ...... (265) 792 2,668 1,932 2,454
---------- ---------- ---------- ---------- ----------
Income before income taxes . $ 6,185 $ 6,271 $ 4,547 $ 3,585 $ 3,971
========== ========== ========== ========== ==========
EBITDA by Business Segment:
Data security EBITDA ............... $ 12,015 $ 13,508 $ 16,057 $ 11,922 $ 13,199
IT staffing EBITDA .................. -- 359 663 337 1,187
Corporate EBITDA .................. (3,245) (3,670) (5,068) (3,537) (3,422)
---------- ---------- ---------- ---------- ----------
Consolidated ..................... $ 8,770 $ 10,197 $ 11,652 $ 8,722 $ 10,964
========== ========== ========== ========== ==========
EBITDA as a Percentage of
Revenue:
Data security (1) .................. 29.4% 30.1% 30.2% 30.9% 29.6%
IT staffing (1) ..................... -- 23.6% 5.2% 5.1% 4.9%
Corporate (2) ..................... (7.9)% (7.9)% (7.7)% (7.8)% (5.0)%
Consolidated (2) .................. 21.5% 22.0% 17.7% 19.3% 15.9%
</TABLE>
- --------
(1) As a percentage of respective revenue.
(2) As a percentage of consolidated revenue.
Data security revenues are attributable to services related to storage and
rotation of duplicate and back-up copies of computer data, tape library
relocations and disaster recovery testing. Data product sales are another
component of data security revenue. The terms "data security" and "data
protection" have the same meaning in
121
<PAGE>
the context of this Proxy Statement. IT staffing revenues are derived from the
placement of IT professionals on a contract, temporary or permanent basis. Cost
of services rendered includes salaries, wages and related benefits, vehicle and
equipment costs, direct costs of performing tape library relocations and
disaster recovery tests, subcontractor expense and operating supplies. Selling,
general and administrative expenses are comprised mainly of management and
administrative salaries, wages and benefits, sales promotion and marketing,
travel and entertainment, communications, rent, office equipment and supplies
and professional fees.
Management made a strategic decision to enter the IT staffing business in
1995. During that year, ATSI began to open IT staffing offices and to create an
infrastructure to support its IT staffing operations. Prior to that time, data
security services constituted substantially all of the operations of ATSI. As
such, a separate discussion of segment information is not included for 1995
compared to 1994. In addition, during 1996 ATSI began to actively seek
acquisitions in the IT staffing industry and, for the first time since 1991, in
the data security industry (see Note 3 of the Notes to Consolidated Financial
Statements of ATSI included elsewhere in this Proxy Statement).
UAC
AGI owns 80% of the outstanding UAC Common Stock, and UAC owns 81% of the
outstanding ATSI Common Stock. All of the operating activities of UAC are
conducted by ATSI and its subsidiaries. UAC was formed in January 1994 for the
purpose of acquiring businesses. Until the acquisition of AI as of July 31,
1995, UAC made no acquisitions and earned no revenues other than interest
income (see Note 1 of the Notes to Consolidated Financial Statements of UAC
included elsewhere in this Proxy Statement). Interest income, holding company
expense (consisting of salaries and other administrative expenses incurred by
UAC which are unrelated to the ongoing operations of ATSI and its
subsidiaries), minority interest expense and preferred stock dividends are the
only significant differences between the income statements of UAC and ATSI.
Cash and cash equivalents, investment in Connected Corp., minority interest and
preferred stock are the only significant balance sheet differences between UAC
and ATSI. As such, the consolidated operations of UAC are included within
Management's Discussion and Analysis of Financial Condition and Results of
Operations of ATSI.
AGI
All of the operating activities of AGI are conducted by ATSI and its
subsidiaries. Since November 10, 1992, when its previous operating subsidiaries
were sold, until the acquisition of AI as of July 31, 1995, AGI made no
acquisitions and earned no revenues other than interest income and equity in
the Damson Interest (see Notes 1 and 4 of the Notes to Consolidated Financial
Statements of AGI included elsewhere in this Proxy Statement). Interest income,
equity income, holding company expense (consisting of salaries and other
administrative expenses incurred by AGI which are unrelated to the ongoing
operations of ATSI and its subsidiaries), minority interest expense and
preferred stock dividends are the only significant differences between the
income statements of AGI and ATSI. Cash and cash equivalents, investment in
Damson and Connected Corp., minority interest and preferred stock are the only
significant balance sheet differences between AGI and ATSI. As such, the
operations of AGI are included within Management's Discussion and Analysis of
Financial Condition and Results of Operations of ATSI.
Based upon an offer received to purchase the Damson Interest, AGI wrote
down its investment in Damson by $0.6 million as of September 30, 1997.
For a discussion of AGI's net operating loss carryforwards and any future
utilization thereof, see Notes 9 and 15 to AGI's Consolidated Financial
Statements included elsewhere in this Proxy Statement.
Results of Operations
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
Consolidated revenue increased from $45.2 million for the first nine
months of 1996 to $69.0 million for the same period in 1997, an increase of
$23.8 million or 52.7%. ATSI completed eight acquisitions in the data security
and IT staffing industries during 1996 and one acquisition in the IT staffing
industry during the third quarter of 1997 (see Notes 3 and 12 of the Notes to
Consolidated Financial Statements of ATSI included elsewhere in this Proxy
Statement). These acquisitions accounted for approximately $15.6 million of the
increase in 1997 revenue. Internal expansion was responsible for another $2.5
million of the increase in revenue during 1997.
122
<PAGE>
Exclusive of acquisitions and internal expansion, consolidated revenues
grew from $40.9 million for the first nine months of 1996 to $46.6 million for
the same period in 1997, an increase of $5.7 million or 14.0%, principally as a
result of increased service volume. Greater demand for media storage and
rotation services (consolidated revenues from which increased by $3.2 million)
and IT staffing services (consolidated revenues from which increased by $3.0
million), partially offset by lower demand for tape library relocations and
disaster recovery testing (consolidated revenues from which decreased by a
combined $0.8 million), accounted for the great majority of the increase.
Consolidated cost of services rendered rose from $21.8 million for the
first nine months of 1996 to $37.7 million for the same period in 1997, an
increase of $15.9 million or 73.0%. Internal expansion in the IT staffing and
data security businesses, along with IT staffing and data security
acquisitions, accounted for $12.6 million of the increase. Cost of services
rendered as a percentage of consolidated revenue was 48.3% for the first nine
months of 1996 compared to 54.7% for the same period in 1997. IT staffing
revenue, which generally carries significantly lower gross margins than does
data security revenue, continued to grow as a proportion of consolidated
revenue during the first nine months of 1997. Such revenue grew from 14.6% of
consolidated revenue in 1996 to 35.4% in 1997, resulting in a shift in revenue
mix toward the lower margin IT staffing business in 1997. This was the primary
reason for higher consolidated cost of services as a percentage of revenue.
Consolidated selling, general and administrative expense increased from
$14.6 million for the first nine months of 1996 to $20.3 million for the same
period in 1997, an increase of $5.6 million or 38.5%. The opening of new IT
staffing offices in the second half of 1996 and internal expansion in the data
security business, along with IT staffing and data security acquisitions,
accounted for $4.2 million of the increase. As a percentage of revenue,
selling, general and administrative expense decreased from 32.4% for the first
nine months of 1996 to 29.4% for the same period in 1997.
As a result of the foregoing factors, EBITDA grew from $8.7 million for
the first nine months of 1996 to $11.0 million for the same period in 1997, an
increase of $2.2 million or 25.7%. EBITDA as a percentage of consolidated
revenue declined from 19.3% in 1996 to 15.9% in 1997. Initial operating losses
on IT staffing offices opened in late 1996 and the higher proportion of lower
margin IT staffing services relative to data security services were the primary
reasons for the decrease.
Depreciation and amortization expense increased from $3.2 million for the
first nine months of 1996 to $4.5 million for the same period in 1997, an
increase of $1.3 million or 41.6%. Higher amortization of goodwill related to
acquisitions made during 1996 and other acquisition-related charges during
1997, along with greater depreciation expense in 1997, were the causes of the
increase.
As a result of the factors discussed above, operating income increased
from $5.5 million for the first nine months of 1996 to $6.4 million for the
same period in 1997, an increase of $0.9 million or 16.5%.
On July 31, 1995 ATSI entered into a long-term $52.0 million credit
facility (the "Facility"), which was subsequently amended to increase the
Facility to $72.0 million (see Notes 4 and 12 of the Notes to Consolidated
Financial Statements of ATSI included elsewhere in this Proxy Statement). Under
the Facility, ATSI received $18.0 million under a five-year term loan agreement
("Term A Loan") and $12.0 million under a seven-year term loan agreement ("Term
B Loan"). Also, included in the Facility is a five-year $11.0 million revolving
line of credit (the "Revolver"), an eight-year $29.0 million acquisition loan
facility (the "Acquisition Facility") and a $2.0 million swingline facility.
Net interest expense increased from $1.9 million for the first nine months of
1996 to $2.5 million for the same period in 1997, an increase of $0.5 million
or 27.0%. A higher average outstanding balance on the Acquisition Facility and
additional acquisition-related obligations incurred in the last seven months of
1996 were the primary causes of the increase. This was partially offset by
lower interest expense on the Term A Loan and Term B Loan, as well as the
Revolver, due mainly to smaller debt balances as a result of scheduled
principal repayments and a lower average Revolver balance, respectively.
Data Security
Data security revenue for the first nine months of 1996 increased from
$38.6 million to $44.6 million for the same period of 1997, an increase of $6.0
million or 15.6%. Acquisitions made in 1996 accounted for approximately $2.5
million of the increase. The opening of a data protection facility in a new
market during the fourth quarter of 1996 accounted for another $0.8 million of
the increase.
123
<PAGE>
Exclusive of acquisitions and internal expansion, data security revenue
grew from $38.3 million in 1996 to $41.0 million in 1997, an increase of $2.7
million or 7.1%, principally as a result of increased service volume. Greater
demand for storage and rotation services, revenues from which increased 10.1%
compared to 1996, and increased demand for data products, net sales for which
increased by 28.3%, were the primary reasons for the increase of $2.7 million.
Offsetting these higher revenues was lower demand for tape library relocations
and disaster recovery testing which caused revenues from these services to
decline 27.7% and 1.7%, respectively, compared to 1996.
Data security EBITDA increased from $11.9 million for the first nine
months in 1996 to $13.2 million for the same period in 1997, an increase of
$1.3 million or 10.7%. Acquisitions made during 1996 accounted for
approximately $1.0 million of the increase. Data security EBITDA as a
percentage of data security revenue fell from 30.9% for the first nine months
in 1996 to 29.6% for the same period in 1997. The largest contributor to the
lower data security EBITDA margin was greater salaries, wages and related
benefits for storage and rotation operations and the sales function in relation
to revenue.
IT Staffing
IT staffing revenue grew from $6.7 million in the first nine months of
1996 to $24.7 million for the same period in 1997, an increase of $18.0
million, of which approximately $13.3 million came from acquisitions made
during the last seven months of 1996 and the third quarter of 1997. Internal
expansion, the result of opening IT staffing offices in new markets during
1996, contributed $1.7 million of the increase. No new IT staffing offices were
opened through internal expansion during the first nine months of 1997.
IT staffing EBITDA increased from $0.3 million in 1996 to $1.2 million in
1997, an increase of $0.9 million. IT staffing EBITDA contributions from
acquisitions made during the last seven months of 1996 and the third quarter of
1997 and increased IT staffing EBITDA from IT staffing offices opened in 1995
and early 1996, offset partially by initial losses from more recently opened IT
staffing offices, were the major causes of the increase.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Consolidated revenue rose from $46.4 million in 1995 to $66.0 million in
1996, an increase of $19.6 million or 42.3%. Acquisitions made during 1996
accounted for approximately $11.2 million of the increase in 1996 revenues.
Internal expansion was responsible for another $2.7 million of the increase in
revenues in 1996.
During 1996, ATSI completed eight acquisitions in the data security and IT
staffing industries (see Note 3 of the Notes to Consolidated Financial
Statements of ATSI included elsewhere in this Proxy Statement). Prior to
contributions from acquisitions, ATSI experienced increased revenues and EBITDA
compared to 1995. In total, 17 data protection facilities and IT staffing
offices were opened or acquired during the year, bringing the total number of
such facilities and offices to 44 at December 31, 1996.
Exclusive of acquisitions and internal expansion, consolidated revenue
grew from $44.8 million in 1995 to $50.7 million in 1996, an increase of $5.9
million or 13.1%, principally as a result of increased service volume, as
measured by the number of customers served and the amount of services provided
to individual customers. Services related to media storage and rotation
represented 64.4% of the $5.9 million increase and demand for tape library
relocations was another major contributor, accounting for 23.5% of the
increase.
Consolidated cost of services rendered increased from $20.8 million in
1995 to $32.7 million in 1996, an increase of $11.9 million or 57.4%. Expansion
of the new IT staffing business and internal expansion in the data security
business, along with IT staffing and data security acquisitions, accounted for
$9.4 million of the increase. Cost of services rendered as a percentage of
consolidated revenue was 44.9% in 1995 compared to 49.6% in 1996. IT staffing
revenue as a proportion of consolidated revenue grew from 3.3% of revenue in
1995 to 19.5% of revenue in 1996 resulting in a shift in revenue mix toward the
lower margin IT staffing business in 1996 and, therefore, higher consolidated
cost of services as a percentage of revenue.
Consolidated selling, general and administrative expense increased from
$15.4 million for 1995 to $21.6 million for 1996, an increase of $6.2 million
or 40.5%. The opening of new IT staffing offices and the creation of an
infrastructure to support the IT staffing business, internal expansion in the
data security business, and selling, general and administrative expenses
attributable to IT staffing and data security acquisitions accounted for $3.7
million of the increase. Corporate selling, general and administrative expense
grew by $1.4 million as the result
124
<PAGE>
of increasing internal software development and marketing expenses and
supporting the growth of the business. As a percentage of consolidated revenue,
corporate selling, general and administrative expense decreased from 7.9% in
1995 to 7.7% in 1996.
As a result of the foregoing factors, EBITDA grew from $10.2 million to
$11.7 million from 1995 to 1996, an increase of $1.5 million or 14.3%. EBITDA
as a percentage of consolidated revenue declined from 22.0% in 1995 to 17.7% in
1996. Initial operating losses and other expenses associated with entry into
the IT staffing business and the increasing proportion of lower margin IT
staffing services relative to data security services were the primary reasons
for the decrease in EBITDA margin.
Depreciation and amortization expense increased from $3.1 million in 1995
to $4.4 million in 1996, an increase of $1.3 million or 41.6%. The increase was
mainly attributable to amortization of goodwill related to the UAC Acquisition
on July 31, 1995 and acquisitions made by ATSI during 1996.
As a result of the factors discussed above, operating income increased
from $7.1 million in 1995 to $7.2 million in 1996, an increase of $0.1 million
or 2.1%.
Net interest expense increased from $0.8 million in 1995 to $2.7 million
in 1996, an increase of $1.9 million. As part of the financing related to the
UAC Acquisition, ATSI on July 31, 1995 borrowed $32.2 million under the
Facility (see Notes 1 and 4 of the Notes to Consolidated Financial Statements
of ATSI included elsewhere in this Proxy Statement). The full year effect in
1996 of interest expense on the outstanding balance of this indebtedness and
interest expense associated with the debt financing of acquisitions accounted
for $1.7 million or 88.4% of the increase. Prior to the UAC Acquisition, AI did
not have significant long-term debt and had earned interest income on invested
cash balances during the seven month period ended July 31, 1995, the loss of
which accounted for the remainder of the increase.
Data Security
Data security revenue rose from $44.8 million in 1995 to $53.1 million in
1996, an $8.3 million or 18.5% increase, with growth in all service lines. Six
data security acquisitions made during 1996 accounted for approximately $2.3
million of the increase. The opening of a data protection facility in a new
market during the fourth quarter of 1996 accounted for another $0.2 million of
the increase.
Exclusive of acquisitions and internal expansion, data security revenue
grew from $44.8 million in 1995 to $50.7 million in 1996, an increase of $5.9
million or 13.1%, principally as a result of increased service volumes.
Services related to storage and rotation were the predominant factors in the
increase and were responsible for approximately $3.8 million of the growth in
data security revenue in 1996. Demand for tape library relocations, which
increased by 54.4% over 1995, was another major contributor to the increase.
Included in this growth was a single tape library relocation in the amount of
$0.8 million performed for a new customer, the largest such move in ATSI's
history.
Data security EBITDA increased from $13.5 million in 1995 to $16.1 million
in 1996, an increase of $2.6 million or 18.9%. Cost of services rendered and
selling, general and administrative expense grew consistently with business
growth and as a result, data security EBITDA as a percentage of data security
revenue remained essentially unchanged at 30.2% in 1996 compared to 30.1% in
1995.
IT Staffing
As discussed above, ATSI entered the IT staffing business in 1995, and
began to open separate IT staffing offices and to create an administrative
structure to support its IT staffing operations. Prior to the fourth quarter of
that year such services were provided by ADS branches in two local markets. Two
offices were opened in 1995 and four more offices were opened in new markets
during 1996. Acquisitions made in the last seven months of 1996 brought ATSI
six additional offices, bringing the total number of IT staffing offices to 12
at December 31, 1996.
IT staffing revenue grew from $1.5 million in 1995 to $13.0 million in
1996, an increase of $11.5 million, of which approximately $9.0 million was
attributable to acquisitions made during the last seven months of 1996. The
balance of 1996 revenues was attributable to internal expansion, the result of
opening new IT staffing offices during 1995 and 1996.
125
<PAGE>
IT staffing EBITDA increased from $0.4 million in 1995 to $0.7 million in
1996. Initial operating losses on new IT staffing offices and expenses
associated with the creation of an IT staffing administrative structure offset
a large portion of the IT staffing EBITDA contribution attributable to
acquisitions made during 1996 and comprised the primary reasons for the modest
increase in IT staffing EBITDA. The startup nature of IT staffing operations in
1995 and 1996 make it difficult to compare 1996 operating results to 1995 and a
relatively high IT staffing EBITDA margin of 23.6% in 1995 is generally not
representative of a mature IT staffing operation. IT staffing EBITDA for
acquired businesses was 11.8% of related revenues in 1996, which management
believes compares favorably to other companies in the IT staffing industry.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Consolidated revenue grew from $40.8 million in 1994 to $46.4 million in
1995, an increase of $5.5 million or 13.5%, principally as a result of
increased service volume. Storage and rotation services (which increased by
$3.1 million) and IT staffing services were the largest contributors to the
increase. IT staffing services, a new business line in 1995 that was
principally marketed in the Phoenix and Denver/Colorado Springs areas,
generated $1.5 million of revenues in 1995. Also, demand for tape library
relocations resulted in a 32.6% or $0.6 million increase in this revenue
component in 1995 compared to 1994.
Consolidated cost of services rendered increased from $18.0 million in
1994 to $20.8 million in 1995, an increase of $2.8 million or 15.3%. Costs of
providing data security services accounted for $1.8 million of the increase, as
payroll and related benefits and other operating expenses generally rose
consistently with related revenue growth. Costs of providing services in the
new IT staffing business, consisting mainly of salaries and related benefits,
accounted for the remaining $1.0 million of the increase. These IT staffing
costs were the principal reason consolidated cost of services rendered
increased as a percentage of revenue from 44.2% in 1994 to 44.9% in 1995.
Consolidated selling, general and administrative expense increased from
$14.0 million in 1994 to $15.4 million in 1995, an increase of $1.4 million or
9.5%. The increase consisted primarily of higher expenses for payroll and
related benefits, travel and entertainment, professional services and rents. A
decrease in payroll and related benefits, office expense and rents as they
relate to revenue were the primary reasons that selling, general and
administrative expense decreased as a percentage of revenue from 34.4% in 1994
to 33.1% in 1995.
As a result of the foregoing factors, consolidated EBITDA grew from $8.8
million in 1994 to $10.2 million in 1995, an increase of $1.4 million or 16.3%.
EBITDA as a percentage of revenue increased from 21.5% in 1994 to 22.0% in
1995.
Depreciation and amortization expense rose from $2.9 million in 1994 to
$3.1 million in 1995, an increase of $0.3 million or 9.9%. Amortization of
costs in excess of net assets acquired related to the UAC Acquisition was the
principal cause of the increase.
As a result of the factors discussed above, operating income increased
from $5.9 million in 1994 to $7.1 million in 1995, an increase of $1.2 million
or 19.3%.
ATSI earned net interest income of $0.3 million in 1994 compared to
incurring net interest expense of $0.8 million in 1995. The change in interest
of $1.1 million was caused by reasons similar to those discussed under "--Year
Ended December 31, 1996 Compared to the Year Ended December 31, 1995."
Inflation
While ATSI has not normally experienced serious effects from cost
inflation, ATSI has experienced cost increases and, because of stable or
declining prices for storage and rotation services, generally has not passed
these cost increases on to customers during the last three years.
Liquidity and Capital Resources
This discussion on liquidity and capital resources should be read in
conjunction with ATSI's Consolidated Statements of Cash Flow included elsewhere
in this Proxy Statement. In general, ATSI believes it has adequate liquidity to
meet its short-term and long-term financing needs.
126
<PAGE>
Under the Facility, ATSI, at its option and subject to certain
restrictions, may designate certain borrowings as either "Base Rate" or
"Eurodollar" borrowings. This designation determines the interest rates which
ATSI pays under the Facility. The Base Rate is defined as the higher of the
bank's prime rate (8.25% at December 31, 1996) or 1/2% over the US Federal
Funds Rate (5% at December 31, 1996) plus an applicable margin interest rate.
The Eurodollar rate is defined as the London Interbank Offering Rate ("LIBOR")
(5.7% at December 31, 1996) plus an applicable margin spread. Base Rate
borrowings bear interest at the Base Rate plus 1% to 1.5% and Eurodollar
borrowings bear interest at LIBOR plus 2.5% to 3%. The Facility subjects ATSI
to financial covenants including restrictions on mergers and acquisitions of
businesses; limitations on lease and rental expenses incurred, intercompany
indebtedness, loans to employees, and capital expenditures; and maintenance of
specified levels of profitability and cash flows, both in absolute terms and in
relation to interest and other fixed charges. ATSI was in compliance with all
financial covenants at September 30, 1997. The Facility is collateralized by
substantially all of the assets of ATSI and its subsidiaries. Payments on
long-term debt for 1995, 1996 and the first nine months of 1997 were $1.7
million, $3.5 million and $2.3 million, respectively, and at September 30,
1997, the outstanding balances of the Term A Loan and Term B Loan, the
Acquisition Facility and the Revolver were $23.0 million, $16.1 million and
zero, respectively.
ATSI relies on the Revolver to meet working capital and other short term
financing needs. Cash consideration paid for acquisitions is generally financed
by a combination of borrowing on the Acquisition Facility and cash provided by
UAC in exchange for ATSI Common Stock. During 1994, 1995 and 1996 and the first
nine months of 1997, operating cash flows were more than sufficient to meet
ATSI's capital investment needs and debt commitments. ATSI made $0.8 million of
voluntary prepayments of principal on long-term debt in 1996, which the
Facility allows.
Most of ATSI's data security revenue is billed one month in advance. This
enhances liquidity because such billings are collected concurrently with the
payment of many expenses that are incurred in providing monthly data security
services.
Net cash provided by operating activities was $6.2 million, $7.1 million
and $5.9 million, for the years 1994, 1995 and 1996, respectively. The decrease
from 1995 to 1996 was caused mainly by an increase in working capital,
partially offset by an increase in operating cash flows (net cash provided by
operating activities excluding working capital changes). The working capital
change from 1995 to 1996 resulted mainly from higher accounts receivable
(mainly due to increased sales), partially offset by higher accounts payable.
The higher accounts payable was mainly due to obligations incurred in late 1996
related to acquisitions, capital expenditures and data products sales. From
1994 to 1995 net cash provided by operating activities increased mainly as a
result of greater operating cash flows and lower working capital requirements.
For the first nine months of 1997, ATSI generated approximately $6.8 million of
operating cash flow. An increase in working capital consumed approximately $3.4
million of the cash flow, leaving $3.4 million of net cash from operating
activities for the period. The increased working capital was due mainly to
higher accounts receivable and a reduction in accounts payable. The increase in
accounts receivable was primarily the result of increased sales. Accounts
payable fell mainly due to the payment of obligations incurred in late 1996
related to acquisitions, capital expenditures and data products sales mentioned
above.
Capital expenditures were $1.8 million, $4.1 million and $5.3 million for
years 1994, 1995 and 1996, respectively. The majority of ATSI's capital
investments over these three years were made to support business growth and to
accommodate geographic expansion. Capital expenditures consisted primarily of
new data protection facilities, data protection equipment for media storage,
improvements to owned and leased data protection facilities, as well as
computer and related equipment purchased as part of a multi-year data
protection facility automation program begun in 1996. In 1996, approximately
$2.6 million of expenditures were made for initial investments in a newly
leased facility, expansions of two existing facilities, data protection
facility automation and to upgrade the operations of facilities acquired in
acquisitions. In addition, during 1996 approximately $0.3 million of
expenditures were made with respect to newly opened or acquired IT staffing
offices, consisting mainly of office furniture and equipment, as well as
computer equipment. In 1995, two build-to-suit data protection facilities were
constructed at a cost of $1.8 million and this accounted for most of the
increase in capital expenditures compared to 1994. These facilities were
financed by sale/ leaseback transactions in 1996. Both properties were sold at
construction cost. No data protection facilities were constructed during 1996
or 1994, although a building already on the market, suited for media storage,
was leased during 1996 having a ten year primary term with no renewal option
and no provision for escalation of rents. Included in 1994 expenditures were
$0.3 million to replace certain assets that were damaged beyond repair as a
result of the January 1994 Northridge, California earthquake. The earthquake
affected one of ATSI's data protection facilities in metropolitan Los Angeles
and the damaged assets were used in the operations and administration of that
facility. For the first nine months
127
<PAGE>
of 1997, capital expenditures were $2.8 million. Capital expenditures in 1997
consisted primarily of data protection facility equipment used for media
storage, improvements to newly leased data protection facilities, as well as
computer software and hardware and related equipment, the majority of which was
purchased to support IT staffing operations. In December 1996, the Facility was
amended. Under terms of the amended Facility, ATSI is permitted to use the
Acquisition Facility to finance certain capital investments related to newly
leased or acquired data protection facilities and during the first nine months
of 1997, ATSI borrowed on the Acquisition Facility to fund approximately $1.1
million of such expenditures.
ATSI has leased two data protection facilities since December 31, 1996.
One of the new data protection facilities became operational in July 1997 and
is located in Hartford, Connecticut, a new market. The other facility opened in
June 1997 and will provide capacity for continued growth in ATSI's southern
California market. Commitments exist to lease three additional data protection
facilities in 1997, presently under construction. When all are complete, the
five facilities will total approximately 59,000 square feet in size. All of the
leases have fifteen-year terms, with two five-year renewal options, providing
for periodic escalation of rents. For four of the facilities, rent escalations
are based on 80% of the change in the Consumer Price Index.
ATSI paid $15.1 million, net of cash acquired, to make acquisitions during
1996 (see Note 3 of the Notes to Consolidated Financial Statements of ATSI
included elsewhere in this Proxy Statement). In connection with these
acquisitions, ATSI borrowed $9.9 million on the Acquisition Facility. In
addition, ATSI issued notes payable and incurred other long-term obligations
(including contingent purchase price obligations) of which approximately $5.5
million and $2.0 million remained outstanding at December 31, 1996 and
September 30, 1997, respectively. Of these amounts, $4.4 million and $1.1
million were due to individuals who were shareholders, employees, or
consultants of ATSI at December 31, 1996 and September 30, 1997, respectively.
These obligations bear interest annually at rates ranging from 5% to 9%. A
contingent purchase price obligation of $3.2 million outstanding at December
31, 1996 was paid during 1997. The payment was financed, in part, by cash in
the amount of $1.2 million provided by UAC in exchange for ATSI Common Stock,
with the balance financed by borrowing on the Acquisition Facility. An
obligation for $0.9 million at September 30, 1997 is a demand obligation,
guaranteed by a bank letter of credit, which ATSI plans to refinance, if
required, using the Revolver. On August 20, 1997, ATSI acquired a company
operating in the IT staffing industry for approximately $4.9 million, net of
cash acquired (see Note 12 of the Notes to Consolidated Financial Statements of
ATSI included elsewhere in this Proxy Statement). The transaction was financed
by a note payable to the seller of $1.0 million, cash received in exchange for
a $1.5 million subordinated convertible note payable to UAC and borrowing on
the Acquisition Facility.
ATSI generally uses lease financing to acquire its route vehicles and
leases all but three of its data protection facilities, consisting of buildings
that have been built to ATSI specifications and other buildings that are suited
for media storage (see Note 9 of the Notes to Consolidated Financial Statements
of ATSI included elsewhere in this Proxy Statement).
UAC
UAC had cash balances of $19.3 million, $11.7 million and $7.3 million as
of December 31, 1995, 1996 and September 30, 1997 respectively, exclusive of
cash balances of ATSI. To finance, in part, certain acquisitions made by ATSI
in 1996 and the first nine months of 1997, UAC invested cash in the amount of
$7.1 million and $2.7 million, respectively, in ATSI during the year ended
December 31, 1996 and the nine month period ended September 30, 1997. All but
$1.5 million of the investments were made in exchange for ATSI Common Stock and
a $1.5 million investment was made in exchange for a note receivable from ATSI.
In June 1997, UAC purchased the Connected Stock for $0.7 million (see Note
5 of the Notes to Consolidated Financial Statements of UAC included elsewhere
in the Proxy Statement).
UAC had 27,109 shares of UAC Preferred Stock issued and outstanding at
September 30, 1997 (see Note 6 of the Notes to Consolidated Financial
Statements of UAC included elsewhere in this Proxy Statement). Holders of UAC
Preferred Stock are entitled to receive cumulative dividends at the rate of 8%
per year on a liquidation value of $1,000 per share (prior to adoption of the
Liquidation Preference Amendment). Accrued UAC Preferred Stock dividend
payments increased from $1.4 million for the first nine months of 1996 to $1.5
million for the same period of 1997, a $0.1 million or 7.9% increase. Such
dividends are payable in additional shares of UAC Preferred Stock.
128
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF IRON MOUNTAIN AND THE ARCUS PARTIES
At the UAC Effective Time, stockholders of UAC, a Nevada corporation, will
become stockholders of AGI, a Delaware corporation. At the ATSI Effective Time,
stockholders of ATSI, a Delaware corporation, will become stockholders of AGI.
At the Effective Time, stockholders of AGI (which will include stockholders of
UAC and ATSI that became stockholders of AGI as a result of the
Reorganizations) will become stockholders of Iron Mountain, also a Delaware
corporation. Set forth below is a comparison of the terms of the AGI Common
Stock, the UAC Common Stock, the UAC Preferred Stock and the ATSI Common Stock
and the terms of the Iron Mountain Common Stock, as well as a summary of other
material differences between the rights of holders of AGI Common Stock, UAC
Common Stock, UAC Preferred Stock and ATSI Common Stock and the rights of
holders of Iron Mountain Common Stock. Holders of AGI Preferred Stock, after
giving effect to the UAC Reorganization and UAC Charter Amendments, will have
identical rights as the current holders of UAC Preferred Stock under the UAC
Articles (after giving effect to the UAC Charter Amendments) subject to
differences between the rights of shareholders and other matters under Delaware
and Nevada law. This summary does not purport to be complete and is qualified
in its entirety by reference to the AGI Certificate, AGI's By-Laws (the "AGI
By-Laws"), the UAC Articles, UAC's By-Laws (the "UAC By-Laws"), the ATSI
Certificate of Incorporation ("ATSI Certificate"), ATSI's By-Laws (the "ATSI
By-Laws"), the Iron Mountain Restated Certificate, the Iron Mountain By-Laws,
the various stockholder agreements among the stockholders of each of AGI, UAC
and ATSI, and the more detailed description of the Iron Mountain Common Stock
and Arcus Parties capital stock contained herein. See "Description of Iron
Mountain Capital Stock."
Charter Amendments
General Law. To authorize an amendment to the corporate charter, the DGCL
generally requires the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon. The DGCL provides for any class or
series of stock to vote as a class for the proposed amendment if the amendment
would increase or decrease the number of authorized shares or change the number
or par value of the aggregate authorized shares of a class or series, unless
the charter provides otherwise. The DGCL also provides for class voting if the
amendment would alter or modify the powers, preferences or special rights of
the shares of such class to affect such class adversely. To authorize an
amendment to the corporate charter, the NRS generally requires the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
thereon. Any amendment which would alter or change any preference or relative
benefit or other right given to any class or series of outstanding shares must
also be approved by the vote of the holders of shares representing a majority
of the voting power of each class or series affected by the amendment
regardless of limitations or restrictions on the voting power thereof.
AGI. The AGI Certificate requires the affirmative vote of holders of a
majority of the stock present or represented at any meeting to amend the AGI
Certificate.
UAC. The UAC Articles require the affirmative vote of holders of a
majority of the stock present or represented at any meeting to amend the UAC
Certificate. The UAC Articles also require the affirmative vote of holders of
not less than 66-2/3% of the then outstanding shares of UAC Preferred Stock,
voting as a single class, to amend the UAC Articles if such amendment would (i)
adversely affect any of the rights, preferences, privileges of, or limitations
provided for in Article VI thereof for the benefit of any shares of UAC
Preferred Stock, (ii) change the relative seniority rights of the holders of
any UAC Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of UAC, (iii) reduce the amount payable to
the holders of UAC Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of UAC, or (iv) change the relative
seniority of the liquidation preferences of the holders of UAC Preferred Stock
to the rights upon liquidation of the holders of any other capital stock of UAC
or change the dividend rights of the holders of UAC Preferred Stock.
ATSI. The ATSI Certificate requires the affirmative vote of holders of a
majority of the stock present or represented at any meeting to amend the ATSI
Certificate.
Iron Mountain. The vote of holders of at least 66-2/3% or 80% of the voting
power of the issued and outstanding Iron Mountain Common Stock is required for
the amendment of certain provisions of the Iron Mountain Restated Certificate.
See "Description of Iron Mountain Capital Stock--Common Stock--Voting Rights"
and "--DGCL and Certain Provisions of the Iron Mountain Restated Certificate
and the Iron Mountain By-Laws--Amendment of Certain Provisions of the Iron
Mountain Restated Certificate and the Iron Mountain By-Laws."
129
<PAGE>
By-Law Amendments
General Law. The DGCL provides that the by-laws of a corporation may be
amended by the vote of a majority of the Board of Directors, if so provided in
the charter. The Board of Directors' authority to adopt, amend or repeal the
by-laws of a corporation does not divest or limit the power of stockholders to
adopt, amend or repeal by-laws. Any amendment by the Board of Directors to the
by-laws may be subsequently changed by the affirmative vote of holders of a
majority of the shares entitled to vote thereon. The NRS does not contain
specific requirements or prohibitions relating to the amendment of a
corporation's by-laws.
AGI. The AGI By-Laws generally provide that a vote of a majority of the
stockholders or members of the AGI Board is required in order to alter, amend,
or repeal the AGI By-Laws, or adopt new by-laws, at any regular meeting of the
stockholders or of the AGI Board or at any special meeting of the stockholders
or of the AGI Board if notice of such alteration, amendment, repeal or adoption
of new by-laws is contained in the notice of such special meeting.
UAC. The UAC Articles require the affirmative vote of holders of not less
than 66-2/3% of the then outstanding shares of UAC Preferred Stock, voting as a
single class, to amend, restate, modify or alter the UAC By-Laws if such
amendment would adversely affect the rights of holders of UAC Preferred Stock.
The UAC By-Laws generally provide that a vote of a majority of the stockholders
or members of the UAC Board is required in order to alter, amend, or repeal the
UAC By-Laws, or adopt new by-laws, at any regular meeting of the stockholders
or of the UAC Board or at any special meeting of the stockholders or of the UAC
Board if notice of such alteration, amendment, repeal or adoption of new
by-laws is contained in the notice of such special meeting.
ATSI. The ATSI By-Laws generally provide that a vote of a majority of the
stockholders or members of the ATSI Board is required in order to alter, amend,
or repeal the ATSI By-Laws, or adopt new by-laws, at any regular meeting of the
stockholders or of the ATSI Board or at any special meeting of the stockholders
or of the ATSI Board if notice of such alteration, amendment, repeal or
adoption of new by-laws is contained in the notice of such special meeting.
Iron Mountain. The requisite vote of Iron Mountain stockholders to amend
the Iron Mountain By-Laws varies depending upon the provision in question. In
addition, the Iron Mountain By-Laws may be amended by a majority of the full
Iron Mountain Board. See "Description of Iron Mountain Capital Stock--DGCL and
Certain Provisions of the Iron Mountain Restated Certificate and the Iron
Mountain By-Laws--Amendment of Certain Provisions of the Iron Mountain Restated
Certificate and the Iron Mountain By-Laws."
Voting Rights
Holders of Iron Mountain Common Stock, AGI Common Stock, UAC Common Stock,
UAC Preferred Stock and ATSI Common Stock are entitled to one vote per share.
Conversion Rights
AGI. Neither the AGI Certificate nor the AGI By-Laws contains a provision
providing conversion rights.
UAC. Neither the UAC Articles nor the UAC By-Laws contains a provision
providing conversion rights.
ATSI. Neither the ATSI Certificate nor the ATSI By-Laws contains a
provision providing conversion rights.
Iron Mountain. The Nonvoting Common Stock is convertible into Iron
Mountain Common Stock. See "Description of Iron Mountain Capital Stock--Common
Stock--Conversion Provisions."
Preemptive and Anti-Dilution Rights
Shareholders of Nevada corporations organized on or after October 1, 1991,
do not have preemptive rights unless the articles of incorporation provide
otherwise. Since UAC was incorporated in Nevada in 1994, the shareholders of
UAC do not have preemptive rights, but do have anti-dilution rights as provided
in the UAC Articles, discussed below. Under the DGCL, stockholders of Delaware
corporations do not have preemptive rights unless the certificate of
incorporation specifically states otherwise.
130
<PAGE>
The UAC Articles provide that so long as shares of UAC Preferred Stock
remain outstanding, UAC may not, and may not permit any subsidiary (e.g., ATSI)
to take any of the following actions without the approval of the holders of at
least 66-2/3% of the then outstanding shares of UAC Preferred Stock, voting as a
single class: (i) issue or obligate itself to authorize or issue additional
shares of UAC Preferred Stock, or (ii) authorize or issue, or obligate itself
to authorize or issue, any other equity security senior to or on a parity with
the UAC Preferred Stock as to liquidation preferences or dividend rights, or
senior to the UAC Preferred Stock as to conversion rights or voting rights. The
UAC Articles further provide that the corporation will take all action required
to protect the rights of the holders of UAC Preferred Stock against dilution or
other impairment.
None of the AGI Certificate, the AGI By-Laws, the ATSI Certificate, the
ATSI By-Laws, the Iron Mountain Restated Certificate or the Iron Mountain
By-Laws contains a provision relating to preemptive rights.
Special Meetings
General Law. Under the DGCL, a special meeting of stockholders may be
called by the Board of Directors or such other persons as are authorized by the
certificate of incorporation or the by-laws. The NRS does not specifically
address who may call special meetings of stockholders.
AGI. The AGI By-Laws provide that special meetings of the stockholders may
be called for any purpose, unless otherwise prohibited by law, by the Chairman,
the President or the Board of Directors.
UAC. The UAC By-Laws provide that special meetings of the stockholders may
be called for any purpose, unless otherwise prohibited by law, by the Chairman,
the President or any two Directors and shall be called by the Secretary at the
request of a holder or holders of 10% or more of the votes entitled to be cast
on any issue proposed to be considered at the special meeting.
ATSI. The ATSI By-Laws provide that special meetings of the stockholders
may be called for any purpose, unless otherwise prohibited by law, by the
Chairman, the President or the Board of Directors and shall be called by the
Chairman, the President or the Secretary at the request of a majority of the
Directors or the holders of a majority of the outstanding shares of ATSI Common
Stock entitled to vote.
Iron Mountain. There are certain restrictions on special meetings of the
Iron Mountain stockholders. See "Description of Iron Mountain Capital
Stock--DGCL and Certain Provisions of the Iron Mountain Restated Certificate
and the Iron Mountain By-Laws--Stockholder Actions and Meetings."
Notices of Meetings. The DGCL provides that for special meetings of
stockholders, the purpose or purposes of the meeting must be stated in the
notice. The NRS requires that the purpose or purposes of the meeting be stated
in the notice for both special and annual meetings.
Proxies. The DGCL provides that no proxy shall be valid after three years
unless the proxy provides for a longer period. The DGCL provides that a duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally. The NRS provides that no
proxy shall be valid after the expiration of six months unless it is coupled
with an interest, or unless the stockholder specifies in it the length of time
for which it is to continue in force, which may not exceed seven years from the
date of its creation. The NRS does not explicitly state that proxies can be
made irrevocable.
Court-ordered Meetings. The DGCL provides that the Court of Chancery may
require the holding of an annual meeting of the stockholders if no such meeting
has been held within 30 days following the date designated therefor or, if no
date has been designated, if no such meeting has been held within 13 months
after the last annual meeting.
Corporate Action Without a Meeting
General Law. The DGCL permits corporate action without a stockholders'
meeting, without prior notice and without a vote of stockholders upon receipt
of the written consent of that number of shares that would be necessary to
authorize the proposed corporate action at a meeting at which all shares
entitled to vote thereon were present and voting, unless the charter expressly
provides otherwise. Prompt notice of the taking of action without a meeting by
less than a unanimous written consent must be given to all stockholders who
have not consented in writing.
131
<PAGE>
Generally, under the DGCL, any action required to be taken at an annual or
special meeting of the shareholders may be taken by written consents of the
shareholders, if such consents set forth the action to be taken and are signed
by the holders of the outstanding stock having not less than the minimum number
of votes necessary to authorize or take such action at a meeting. Under the
NRS, any action by a majority (or such greater portion as may be required by
the articles of incorporation or by-laws) of the voting power of the
corporation is sufficient to take such action without a meeting. Under the NRS,
notice of the taking of action which creates dissenter's rights by written
consent in lieu of a stockholders' meeting must be given to all stockholders
entitled to assert dissenter's rights, and such notice must include the notice
to dissenting stockholders required by the NRS and described elsewhere in this
Proxy Statement.
AGI. Corporate action may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
UAC. Corporate action may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
ATSI. Corporate action may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Iron Mountain. The Iron Mountain Restated Certificate prohibits
stockholder action by written consent. See "Description of Iron Mountain
Capital Stock--DGCL and Certain Provisions of the Iron Mountain Restated
Certificate and the Iron Mountain By-Laws--Stockholder Actions and Meetings."
Dividends
General Law. Under the DGCL, the Directors of a corporation are generally
permitted to declare and pay dividends out of surplus or out of net profits for
the current and/or preceding fiscal year, provided that such dividends will not
reduce capital below the amount of capital represented by all classes of issued
and outstanding stock having a preference upon the distribution of assets. Also
under the DGCL, a corporation may generally redeem or purchase shares of its
stock if such redemption or purchase will not impair the capital of the
corporation. The NRS prohibits a dividend or other distribution to stockholders
by a Nevada corporation if, after giving effect to the distribution, (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) except as otherwise specified in the articles of
incorporation, the corporation's total assets would be less than the sum of its
total liabilities, if the corporation were dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
AGI. The AGI By-Laws provide that dividends upon the outstanding capital
stock may be declared by the AGI Board at any regular or special meeting,
pursuant to law and may be paid in cash, in property, or in shares of capital
stock.
UAC. The UAC Articles currently provide that the holders of UAC Preferred
Stock shall be entitled to receive from UAC, and UAC shall be obligated to pay
to the holders of the UAC Preferred Stock, cumulative dividends at the rate of
8% per annum on the amount of the liquidation preference of $1,000 per share of
such stock. Any and all dividends payable by UAC pursuant to the preceding
sentence shall be declared quarterly, compounded and paid annually on the last
business day of December through the delivery to the holders of the UAC
Preferred Stock that number of additional shares of UAC Preferred Stock ("PIK
Shares") determined by dividing the amount of the dividend due to each holder
by $1,000. To the extent that such calculation yields fractional interests, UAC
shall pay the amount of such fractional interest in cash.
Subject to the foregoing, dividends accrue from the date of issuance of
the UAC Preferred Stock and are deemed to accrue from day to day whether or not
earned or declared. Further, such dividends shall be payable before any
dividends shall be paid, declared or set apart for any other class of UAC's
stock, and shall be cumulative so
132
<PAGE>
that if for any dividend period such dividends are not paid or declared and set
apart therefor, all accrued and unpaid dividends on the UAC Preferred Stock
shall be paid, in whole or in part (without interest), on the next succeeding
dividend payment date. Until all accrued and unpaid dividends on the UAC
Preferred Stock shall have been fully paid, no distribution, by dividend or
otherwise, shall be paid on, declared or set part for any other class or series
of stock of UAC and no shares of any other class or series of stock of UAC
shall be acquired, directly or indirectly, by redemption or otherwise.
Furthermore, until all of the PIK Shares have been redeemed by UAC pursuant to
the UAC Articles, no distribution, by dividend or otherwise, shall be paid in
cash on any other class or series of stock of UAC.
The UAC Articles and the UAC By-Laws do not contain any other provisions
relating to the declaration of dividends on UAC Common Stock.
ATSI. The ATSI By-Laws provide that dividends upon the outstanding capital
stock may be declared by the UAC Board at any regular or special meeting,
pursuant to law and may be paid in cash, in property, or in shares of capital
stock.
Iron Mountain. For a description of Iron Mountain's dividend policy and
the terms of the Iron Mountain Restated Certificate pertaining to dividends,
see "Market Prices and Dividend Data" and "Description of Iron Mountain Capital
Stock--Common Stock--Dividends."
Liquidation
General Law. Pursuant to both the DGCL and NRS, upon the winding up,
dissolution or liquidation of a corporation, the stockholders of such
corporation are entitled to share in any of the assets distributable to the
holders of the respective corporation's stock upon such liquidation,
dissolution or winding up in accordance with their respective rights and
interests.
AGI. Neither the AGI Certificate nor the AGI By-Laws provide for any
different procedure for distribution of assets upon liquidation.
UAC. The UAC Articles currently provide that holders of UAC Preferred
Stock are entitled to $1,000 per share of UAC Preferred Stock, plus all accrued
but unpaid dividends, upon liquidation.
ATSI. Neither the ATSI Articles of Incorporation nor the ATSI By-Laws
provide for any different procedure for distribution of assets upon
liquidation.
Iron Mountain. The Iron Mountain Common Stock and Nonvoting Common Stock
share ratably upon liquidation. See "Description of Iron Mountain Capital
Stock--Common Stock--Liquidation Rights."
Provisions Relating To Directors
General Law. Under the DGCL and NRS, a corporation must have a Board of
Directors consisting of at least one Director. Under the DGCL, a corporation's
charter may (i) confer upon holders of any class or series of stock the right
to elect one or more Directors to serve for such term and to have such voting
powers as may be specified therein, (ii) permit classification of the Board of
Directors, and (iii) permit cumulative voting for the election of Directors.
Under the DGCL and NRS, election of directors by the stockholders is
substantially similar. Cumulative voting is generally allowed in both states.
Under both the DGCL and NRS, the certificate of incorporation, articles of
incorporation or an amendment thereto may provide for cumulative voting. Also,
a stockholder of a Nevada corporation registered under the Securities Act of
1933, as amended, must give notice to the corporation in advance that the
stockholder wishes to cumulate votes.
AGI. The AGI Certificate and the UAC By-Laws provide that the number of
Directors shall be not less than six nor more than seven. Currently, the AGI
Board consists of seven members. The AGI By-laws provide that vacancies on the
AGI Board, however caused, may be filled solely by a majority vote of the
stockholders in accordance with a certain stockholders agreement dated March
30, 1993. The AGI Certificate does not provide for cumulative voting or class
voting for election of Directors. All executive officers are elected by the AGI
Board and hold office for such term as may be prescribed by the AGI Board. Any
such officer elected or appointed by the AGI Board may be removed with or
without cause at any time by the AGI Board.
133
<PAGE>
UAC. The UAC By-Laws provide that the UAC Board may fix the number of
Directors at not less than one nor more than seven. Currently, the UAC Board
consists of six members. Any vacancies on the UAC Board, however caused, may be
filled solely by a majority vote of the Directors then in office, even if less
than a quorum. The UAC Articles do not provide for cumulative voting or class
voting for election of Directors. All executive officers are chosen by the UAC
Board or chosen in a manner determined by the UAC Board and hold office for
such term as may be prescribed by the UAC Board. Any such officer elected or
appointed by the UAC Board may be removed with or without cause at any time by
the UAC Board.
ATSI. The ATSI By-Laws provide that the ATSI Board may fix the number of
Directors. Currently, the ATSI Board consists of six members. Any vacancies on
the ATSI Board, however caused, may be filled solely by a majority vote of the
Directors then in office, even if less than a quorum. The ATSI Certificate does
not provide for cumulative voting or class voting for election of Directors.
All executive officers are elected by the ATSI Board and hold office for such
term as may be prescribed by the ATSI Board. Any such officer elected or
appointed by the ATSI Board may be removed with or without cause at any time by
the ATSI Board.
Iron Mountain. For a description of Iron Mountain's classified Board of
Directors and provisions regarding vacancies and removal, see "Description of
Iron Mountain Capital Stock--DGCL and Certain Provisions of the Iron Mountain
Restated Certificate and the Iron Mountain By-Laws--Classified Board of
Directors" and "--Removal of Directors; Filling Vacancies on the Iron Mountain
Board."
Stockholder Nominations to Elect Directors
AGI. Neither the AGI Certificate nor the AGI By-Laws contains a provision
relating to stockholder nominations to elect directors.
UAC. Neither the UAC Articles nor the UAC By-Laws contains a provision
relating to stockholder nominations to elect directors.
ATSI. Neither the ATSI Certificate or the ATSI By-Laws contains a
provision relating to stockholder nominations to elect directors.
Iron Mountain. The Iron Mountain By-Laws provide that nominations of
persons for election to the Iron Mountain Board may be made at a meeting of
stockholders, by or at the direction of the Iron Mountain Board or by any
stockholder of the corporation entitled to vote for the election of Directors
at such meeting, provided there is compliance with such notice procedures as
are outlined in the Iron Mountain By-Laws. See "Description of Iron Mountain
Capital Stock--DGCL and Certain Provisions of the Iron Mountain Restated
Certificate and the Iron Mountain By-Laws."
Removal
General Law. Under the DGCL, shareholders may remove one or more directors
by majority vote with or without cause unless the certificate of incorporation
provides that directors may only be removed for cause, or in the case of a
corporation with cumulative voting, if less than all the directors are removed,
no director may be removed without cause if the votes cast against his removal
would be sufficient to elect him. Under the NRS, however, shareholders
representing two-thirds or more of the voting stock are generally required to
remove a director from office.
AGI. Neither the AGI Articles of Incorporation nor the AGI By-Laws
contains any provision setting forth an alternative standard for removal of
Directors.
UAC. The UAC By-Laws provide that Directors may be removed with or without
cause by the holders of two-thirds of the voting power of the issued and
outstanding UAC stock, and that a Director may be removed with cause by the
Board of Directors.
ATSI. Neither the ATSI Certificate nor the ATSI By-Laws contains any
provision setting forth an alternative standard for removal of Directors.
Iron Mountain. Iron Mountain's Directors may be removed by stockholders
only for cause. See "Description of Iron Mountain Capital Stock--DGCL and
Certain Provisions of the Iron Mountain Restated Certificate and the
134
<PAGE>
Iron Mountain By-Laws--Classified Board of Directors" and "--Removal of
Directors; Filling Vacancies on the Iron Mountain Board."
Non-Voting Observers at Board Meetings
AGI. The AGI By-Laws provide that any stockholder of AGI who together with
its affiliates as of May 13, 1991 owned of record and beneficially at least 10%
of the total outstanding shares of AGI entitled to vote, shall (for so long as
such stockholder and its affiliates continue to own or record and beneficially
at least 5% of the total outstanding shares of AGI entitled to vote) be
entitled to receive written notice of all meetings of the Board of Directors
and to have two of its designees (regardless of whether such stockholder or any
of its designees is a member of the Board of Directors) attend such meetings as
a non-voting observer with the right to participate in all discussions of the
Board of Directors and comment upon all actions to be taken by the Board of
Directors at such meetings (except to the extent that the Board of Directors
determines in good faith, based on the opinion of outside counsel to AGI, that
such observer's attendance or participation at a particular meeting or part of
a meeting would be likely to result in AGI's loss of the protection of the
attorney-client privilege with respect to legal matters to be considered by the
Board of Directors, the result of which the Board of Directors reasonably
believes would be likely to be material and adverse to AGI's business,
financial condition or results of operations).
UAC. Neither the UAC Articles nor the UAC By-Laws contains a provision
relating to non-voting observers at Board meetings.
ATSI. Neither the ATSI Certificate or the ATSI By-Laws contains a
provision relating to non-voting observers at Board meetings.
Iron Mountain. Neither the Iron Mountain Restated Certificate nor the Iron
Mountain By-Laws contains a provision relating to non-voting observers at Board
meetings.
135
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
Each holder of record of AGI Common Stock on the Arcus Record Date has the
right to dissent from the UAC Reorganization, the ATSI Reorganization and the
Merger and demand and perfect appraisal rights in accordance with the procedure
established in Section 262 of the DGCL. Each holder of record of UAC Common
Stock and UAC Preferred Stock on the Arcus Record Date has the right to dissent
from the UAC Reorganization and demand the fair value of his, her or its shares
in accordance with the procedure established under Section 92A.380 to 92A.500,
inclusive, of the NRS. Each holder of record of ATSI Common Stock on the Arcus
Record Date has the right to dissent from the ATSI Reorganization in accordance
with the procedure established in Section 262 of the DGCL. Neither stockholders
of UAC nor stockholders of ATSI will have the right to dissent from the Merger
because they will not be stockholders of record of AGI on the Arcus Record
Date. Therefore, stockholders of UAC and stockholders of ATSI who oppose the
Merger (or any of the related transactions) and who would dissent from the
Merger if they had the right to do so, should dissent from the UAC
Reorganization or the ATSI Reorganization, as applicable. The Arcus Principal
Stockholders have agreed to vote their shares of stock of the Arcus Parties in
favor of the Arcus Proposals and to waive their dissenters and appraisal rights
with respect to their shares of stock of the Arcus Parties. Iron Mountain
stockholders do not have the right to dissent from the Merger.
SECTION 262 OF THE DGCL AND SECTIONS 92A.380 TO 92A.500 OF THE NRS (AND
RELATED SECTIONS OF THE NRS) ARE REPRINTED IN THEIR ENTIRETY AS ANNEX X TO THIS
PROXY STATEMENT. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE
LAW RELATING TO DISSENTER'S AND APPRAISAL RIGHTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX X. THIS DISCUSSION AND ANNEX X SHOULD BE
REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY DISSENTER'S
OR APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO
COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS
OF DISSENTER'S OR APPRAISAL RIGHTS.
ATSI Stockholders:
A holder of record of ATSI Common Stock as of the Arcus Record Date who
makes the demand described below with respect to such shares, who continuously
is the record holder of such shares through the ATSI Effective Time, who
otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the ATSI Reorganization Agreement nor consents
thereto in writing may be entitled to an appraisal by the Delaware Court of
Chancery (the "Delaware Court") of the fair value of his or her shares of
stock. All references in this summary of appraisal rights of ATSI stockholders
to a "stockholder" is to the record holder or holders of shares of ATSI Common
Stock on the Arcus Record Date.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the ATSI Stockholders Meeting, not less than 20
days prior to the meeting, each constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Proxy Statement shall constitute such notice to the record
holders of ATSI Common Stock.
Stockholders who desire to exercise their appraisal rights must not vote
in favor of the ATSI Reorganization Agreement and must deliver a separate
written demand for appraisal to ATSI prior to the vote by the stockholders of
ATSI on the ATSI Reorganization Agreement. A stockholder who signs and returns
a proxy without expressly directing by checking the applicable boxes on the
reverse side of the proxy card enclosed herewith that his or her shares of
stock of ATSI be voted against the ATSI Reorganization Agreement, or that an
abstention be registered with respect to his or her shares of stock in
connection with the proposal, will effectively have thereby waived his or her
appraisal rights as to those shares of stock of ATSI because, in the absence of
express contrary instructions, such shares of stock of ATSI will be voted in
favor of the ATSI Reorganization Agreement. See "The Stockholders
Meetings--Solicitation and Voting of Proxies." Accordingly, a stockholder who
desires to pursue his or her dissenter's rights with respect to any of his or
her shares of stock of ATSI must, as one of the procedural steps involved,
either (i) refrain from executing and returning the enclosed proxy card and
from voting in person in favor of such proposal to approve the ATSI
Reorganization Agreement or (ii) check either the "Against" or the "Abstain"
box next to such proposal on such card or affirmatively vote in person against
the proposal or register in person
136
<PAGE>
an abstention with respect thereto. A demand for appraisal must be executed by
or on behalf of the stockholder of record and must reasonably inform ATSI of
the identity of the stockholder of record and that such record stockholder
intends thereby to demand appraisal of the shares of stock of ATSI. A person
having a beneficial interest in shares of stock of ATSI that are held of record
in the name of another person, such as a broker, fiduciary or other nominee,
must act promptly to cause the record holder to follow the steps summarized
herein properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of stock of ATSI are owned of record by a person other
than the beneficial owner, including a broker, fiduciary (such as a trustee,
guardian or custodian) or other nominee, such demand must be executed by or for
the record owner. If the shares of stock of ATSI are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must
be executed by or for all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of stock of ATSI as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of stock of ATSI outstanding in the name of such record owner.
A stockholder who elects to exercise appraisal rights, if available,
should mail or deliver his or her written demand to Julien H. Meyer III,
Secretary, Arcus Technology Services, Inc., 667 Madison Avenue, 25th Floor, New
York, New York 10021-8029.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number and class of shares of stock of ATSI owned, and
that the stockholder is thereby demanding appraisal of his or her shares. A
proxy or vote against the ATSI Reorganization Agreement will not by itself
constitute such a demand. Within ten days after the ATSI Effective Time, the
surviving corporation must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
Within 120 days after the ATSI Effective Time, either the surviving
corporation or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court, with a copy served on
the surviving corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. Accordingly, ATSI stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the ATSI Effective Time, any stockholder who
has theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the surviving corporation a
statement setting forth the aggregate number of shares of each class of stock
of ATSI not voting in favor of the ATSI Reorganization Agreement and with
respect to which demands for appraisal were received by ATSI and the number of
holders of such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by the surviving corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of stock of ATSI owned by such stockholders, determining
the fair value of such shares exclusive of any element of value arising from
the accomplishment or expectation of the ATSI Reorganization, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light
137
<PAGE>
on future prospects of the merged corporation. In Weinberger, the Delaware
Supreme Court stated that "elements of future value, including the nature of
the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." Section 262,
however, provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in
the circumstances. Upon application of a dissenting stockholder of ATSI, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of stock of ATSI who has duly demanded appraisal in
compliance with Section 262 will not, after the ATSI Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the ATSI Effective Time.
If no petition for appraisal is filed with the Delaware Court within 120
days after the ATSI Effective Time, stockholders' rights to appraisal shall
cease. Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the ATSI Reorganization, except that (i)
any such attempt to withdraw made more than 60 days after the ATSI Effective
Time will require written approval of the surviving corporation and (ii) no
appraisal proceeding in the Delaware Court will be dismissed as to any
stockholder without the approval of the Delaware Court, which may be
conditioned upon such terms as the Delaware Court deems just.
UAC Stockholders:
Each stockholder of record of UAC on the Arcus Record Date has the right
to dissent from the UAC Reorganization and obtain the "fair value" of his
shares in accordance with the procedure under Sections 92A.300 to 92A.500 of
the NRS, inclusive (which are summarized below), copies of which sections are
attached to this Proxy Statement as Annex X. All references in this summary of
dissenter's rights of UAC stockholders to a "stockholder" are to the record
holder or holders of shares of UAC Common Stock or UAC Preferred Stock on the
Arcus Record Date.
A stockholder may assert dissenter's rights as to fewer than all of the
shares registered in his name only if the stockholder dissents with respect to
all shares beneficially owned by any one person and notifies UAC in writing of
the name and address of each person on whose behalf the stockholder asserts
dissenter's rights. The rights of a partial dissenter under the NRS are
determined as if the shares as to which such partial dissenter dissents and
such partial dissenter's other shares were registered in the names of different
stockholders. A beneficial stockholder may assert dissenter's rights as to
shares held on behalf of such beneficial stockholder only if (a) such
beneficial stockholder submits to UAC the written consent of the stockholder of
record to the dissent not later than the time the beneficial stockholder
asserts dissenter's rights, and (b) such beneficial stockholder does so with
respect to all shares of which he or she is the beneficial stockholder and over
which such beneficial stockholder has power to direct the vote.
A stockholder who wishes to assert dissenter's rights (a) must deliver to
UAC, before the vote on the UAC Reorganization is taken, written notice of his
or her intent to demand payment ("Notice of Intent") for his or her shares if
the proposed UAC Reorganization is effectuated; and (b) must not vote his or
her shares in favor of the proposed UAC Reorganization. A stockholder who does
not satisfy these requirements is not entitled to payment for his or her shares
under the dissenter's rights provisions of the NRS. A stockholder who signs and
returns a proxy without expressly directing by checking the applicable boxes on
the reverse side of the proxy card enclosed herewith that his or her shares of
stock of UAC be voted against the UAC Reorganization Agreement, or that an
abstention be registered with respect to his or her shares of stock in
connection with the proposal, will effectively have thereby waived his or her
appraisal rights as to those shares of stock of UAC because, in the absence of
express contrary instructions, such shares of stock of UAC will be voted in
favor of the UAC Reorganization Agreement. See "The Stockholders
Meetings--Solicitation and Voting of Proxies." Accordingly, a stockholder who
desires to pursue his or her dissenter's rights with respect to any of his or
her shares of stock of UAC must, as one of the procedural steps involved,
either (i) refrain from executing and returning the enclosed proxy card and
from voting in person in favor of such proposal to approve the UAC
Reorganization Agreement or (ii) check either the "Against" or the
138
<PAGE>
"Abstain" box next to such proposal on such card or affirmatively vote in
person against the proposal or register in person an abstention with respect
thereto.
A stockholder's submission of the enclosed proxy statement, wherein he or
she has checked the "Against" or "Abstain" box next to the proposal to approve
the UAC Reorganization Agreement, will not alone be considered written notice
of the stockholder's intent to demand payment for his or her shares if the
proposed UAC Reorganization is effectuated. A stockholder who elects to assert
dissenter's rights, if available, must submit a Notice of Intent specifying
that such dissenting stockholder intends to demand payment for his or her
shares if the UAC Reorganization is effectuated. The dissenting stockholder's
notice of intent should be mailed or delivered, in advance of the vote on the
UAC Reorganization, to Richard S. Meller, Secretary, United Acquisition
Company, Two North LaSalle Street, Suite 2100, Chicago, Illinois 60602. A
dissenting stockholder who will attend the UAC Stockholders Meeting may deliver
his or her Notice of Intent to Mr. Meller or Mr. Bailey at the time of the
meeting, so long as he or she delivers the Notice of Intent prior to the vote
on the proposal to approve the UAC Reorganization Agreement.
Within 10 days after the UAC Effective Time, AGI (or Iron Mountain as
AGI's successor by merger) must deliver a written dissenter's notice to all
stockholders of UAC who satisfied the requirements to assert dissenter's
rights, and AGI (or Iron Mountain as AGI's successor by Merger) must (a) state
where the dissenting stockholder's demand for payment must be sent and where
and when certificates, if any, for shares must be deposited; (b) inform the
holders of shares not represented by certificates to what extent the transfer
of his or her shares will be restricted after the demand for payment is
received; (c) supply a form for demanding payment that (i) includes the date of
the first announcement to the news media or to the stockholders of the terms of
the proposed UAC Reorganization and (ii) requires that the person asserting
dissenter's rights certify whether or not he or she acquired beneficial
ownership of the shares before that date; (d) set a date by which AGI (or Iron
Mountain as AGI's successor by merger) must receive the demand for payment,
which may not be less than 30 nor more than 60 days after the date the
dissenter's notice is delivered; and (e) be accompanied by a copy of Sections
92A.300 to 92A.500 of the NRS.
To demand payment for the fair value of his or her UAC shares, a
stockholder to whom a dissenter's notice is sent must (a) demand payment; (b)
certify whether he or she acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; (c) deposit his or her UAC share certificates, if any, in
accordance with the terms of the notice. The stockholder who demands payment
and deposits his or her share certificates, if any, retains all other rights of
a stockholder until those rights are canceled or modified by the consummation
of the UAC Reorganization. The stockholder who does not demand payment or
deposit his shares certificates where required, each by the date set forth in
the dissenter's notice is not entitled to payment for his shares under the
dissenter's rights provisions of the NRS.
Shares not represented by a certificate may not be transferred after the
date a demand for their payment is received by UAC (or AGI or Iron Mountain
after the UAC Effective Time). Persons for whom dissenter's rights are asserted
as to shares not represented by a certificate retain all other rights of a
stockholder until those rights are canceled or modified by the consummation of
the UAC Reorganization.
Subject to the following paragraph, within 30 days after receipt of a
demand for payment, AGI or Iron Mountain after the UAC Effective Time shall pay
each dissenting stockholder who complied with the foregoing requirements the
amount that AGI or Iron Mountain after the Effective Time estimates to be the
fair value of his shares, meaning the value of the shares immediately before
the effectuation of the UAC Reorganization, excluding appreciation or
depreciation in anticipation of the UAC Reorganization unless the exclusion
would be "inequitable," plus accrued interest. The payment must be accompanied
by (a) the balance sheet of AGI or Iron Mountain after the Effective Time as of
the end of the fiscal year ending not more than 16 months before the date of
payment, a statement of income for that year, a statement of changes in the
stockholder's equity for that year and the latest available interim financial
statements, if any; (b) a statement of the estimate of the fair value of the
shares by UAC (or AGI or Iron Mountain after the UAC Effective Time); (c) an
explanation of how the interest was calculated; (d) a statement of the
dissenting stockholder's rights to demand payment under Section 92A.480 of the
NRS; and (e) a copy of Sections 92A.300 to 93A.500, inclusive, of the NRS.
AGI or Iron Mountain after the Effective Time may elect to withhold
payment from a dissenting stockholder unless he or she was the beneficial owner
of the shares before the date set forth in UAC's dissenter's notice as the date
of the first announcement to the news media or to the stockholders of the terms
of the proposed action.
139
<PAGE>
To the extent AGI or Iron Mountain after the Effective Time elects to withhold
payment, it shall estimate the fair value of the shares, plus accrued interest,
and shall offer to pay this amount to each dissenting stockholder who agrees to
accept it in full satisfaction of his or her demand.
Within 30 days after AGI or Iron Mountain after the Effective Time made or
offered payment for the shares, the dissenting stockholder may notify AGI or
Iron Mountain after the Effective Time in writing of his or her own estimate of
the fair value of his or her shares and the amount of interest due, and demand
payment thereof, less any payment made; or reject the offer and demand payment
of fair value and interest due, if he or she believes amount offered is less
than fair value of his or her shares or that interest due is incorrectly
calculated. The dissenting stockholder waives his or her right to demand
payment unless he or she notifies AGI or Iron Mountain after the Effective Time
of his or her demand in writing within such 30 days.
If demand for payment thereafter remains unsettled, AGI or Iron Mountain
after the Effective Time shall commence a proceeding within 60 days after
receiving the demand and petition the court to determine the fair value of the
shares and accrued interest. If AGI or Iron Mountain after the Effective Time
does not commence the proceeding within 60 days, then it must pay the
dissenting stockholder the amount he or she demanded. AGI or Iron Mountain
after the Effective Time shall commence the proceeding in the county where the
registered office of UAC was located.
AGI or Iron Mountain after the Effective Time shall make all dissenting
stockholders, whether or not residents of Nevada, whose demands remain
unsettled, parties to the proceeding as in an action against their shares. All
parties must be served with a copy of the petition. Nonresidents may be served
by registered or certified mail or by publication as provided by law.
The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. The court may appoint one or more persons as appraisers
to receive evidence and recommend a decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or any
amendment thereto. The dissenting stockholders are entitled to the same
discovery rights as parties in other civil proceedings.
Each dissenting stockholder who is made a party to the proceeding is
entitled to a judgment: (a) for the amount, if any, by which the court finds
the fair value of his or her shares, plus interest, exceeds the amount paid by
AGI or Iron Mountain after the Effective Time; or (b) for the fair value, plus
accrued interest, of his after-acquired shares for which AGI or Iron Mountain
after the Effective Time elected to withhold payment pursuant to Section
92A.470 of the NRS.
A court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
AGI or Iron Mountain after the Effective Time, except that the court may assess
costs against all or some of the dissenting stockholders, in amounts the court
finds equitable, to the extent the court finds the dissenting stockholders
acted arbitrarily, vexatiously or not in good faith in demanding payment. The
court may also assess the fees and expenses of the counsel and experts for the
respective parties, in amounts the court finds equitable against AGI or Iron
Mountain after the Effective Time and in favor of all dissenting stockholders
if the court finds that the subject corporation did not substantially comply
with the requirements of Sections 92A.300 to 92A.500, inclusive of the NRS; or
against either AGI or Iron Mountain after the Effective Time or a dissenting
stockholder in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by Sections 92A.300 to
92A.500, of the NRS.
If the court finds that the services of counsel for any dissenting
stockholder were of substantial benefit to other dissenting stockholders
similarly situated, and that the fees for those services should not be assessed
against AGI or Iron Mountain after the Effective Time, the court may award to
those counsel reasonable fees to be paid out of the amounts awarded to the
dissenting stockholders who were benefited. In a proceeding commenced pursuant
to Section 92A.460 of the NRS, the court may assess the costs against AGI or
Iron Mountain after the Effective Time, except that the court may assess costs
against all or some of the dissenting stockholders who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
140
<PAGE>
AGI Stockholders:
The AGI Common Stock to be received by holders of ATSI Common Stock and
UAC Common Stock pursuant to each Reorganization will, in each case, exceed 20%
of the aggregate number of shares of each such class of AGI stock outstanding
immediately prior to the Effective Time. Accordingly, each holder of AGI Common
Stock may demand and perfect appraisal rights in connection with each of the
Reorganizations, as well as the Merger, in accordance with the conditions
established by Section 262. A holder of record of AGI Common Stock as of the
Arcus Record Date who makes the demand described below with respect to such
shares, who continuously is the record holder of such shares through the
Effective Time, who otherwise complies with the statutory requirements of
Section 262 and who neither votes in favor of the ATSI Reorganization
Agreement, the UAC Reorganization and/or the Merger Agreement (depending on
with respect to which transactions such stockholder wishes to dissent) nor
consents thereto in writing may be entitled to an appraisal by the Delaware
Court of the fair value of his or her shares of stock. All references in this
summary of appraisal rights to a "stockholder" is to the record holder or
holders of shares of AGI Common Stock.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the AGI Stockholders Meeting, not less than 20
days prior to the meeting, each constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Proxy Statement shall constitute such notice to the record
holders of AGI Common Stock.
Stockholders who desire to exercise their appraisal rights must not vote
in favor of the Reorganization Agreements, the Reorganizations, Merger
Agreement or the Merger (depending on with respect to which transactions such
stockholder wishes to dissent) and must deliver a separate written demand for
appraisal to AGI prior to the vote by the stockholders of AGI on the
Reorganization Agreements, the Reorganizations, the Merger Agreement and the
Merger. A stockholder who signs and returns a proxy without expressly directing
by checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of stock of AGI be voted against the
Reorganization Agreements and the Merger Agreement (depending on with respect
to which transactions such stockholder wishes to dissent), or that an
abstention be registered with respect to his or her shares of stock in
connection with the proposal, will effectively have thereby waived his or her
appraisal rights as to those shares of stock of AGI because, in the absence of
express contrary instructions, such shares of stock of AGI will be voted in
favor of the Reorganization Agreements and the Merger Agreement. See "The
Stockholders Meetings--Solicitation and Voting of Proxies." Accordingly, a
stockholder who desires to perfect appraisal rights with respect to any of his
or her shares of stock of AGI must, as one of the procedural steps involved in
such perfection, either (i) refrain from executing and returning the enclosed
proxy card and from voting in person in favor of such proposal to approve the
Reorganization Agreements and the Merger Agreement (depending on with respect
to which transactions such stockholder wishes to dissent) or (ii) check either
the "Against" or the "Abstain" box next to such proposal on such card or
affirmatively vote in person against the proposal or register in person an
abstention with respect thereto. A demand for appraisal must be executed by or
on behalf of the stockholder of record and must reasonably inform AGI of the
identity of the stockholder of record and that such record stockholder intends
thereby to demand appraisal of the shares of stock of AGI. A person having a
beneficial interest in shares of stock of AGI that are held of record in the
name of another person, such as a broker, fiduciary or other nominee, must act
promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of stock of AGI are owned of record by a person other
than the beneficial owner, including a broker, fiduciary (such as a trustee,
guardian or custodian) or other nominee, such demand must be executed by or for
the record owner. If the shares of stock of AGI are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must
be executed by or for all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of stock of AGI as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of stock of AGI outstanding in the name of such record owner.
A stockholder who elects to exercise appraisal rights, if available,
should mail or deliver his or her written demand to Richard S. Meller,
Secretary, Arcus Group, Inc., Two North La Salle Street, Suite 2100, Chicago,
Illinois 60602.
141
<PAGE>
The written demand for appraisal should specify the stockholder's name and
mailing address, the number and class of shares of stock of AGI owned, and that
the stockholder is thereby demanding appraisal of his or her shares. A proxy or
vote against the Reorganization Agreements and/or the Merger Agreement will not
by itself constitute such a demand. Within ten days after the Effective Time,
the Surviving Corporation must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, AGI stockholders who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Within 120
days after the Effective Time, any stockholder who has theretofore complied
with the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth
the aggregate number of shares of each class of stock of AGI not voting in
favor of each Reorganization Agreement and the Merger Agreement and with
respect to which demands for appraisal were received by AGI and the number of
holders of such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by the Surviving Corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of stock of AGI owned by such stockholders, determining the
fair value of such shares exclusive of any element of value arising from the
accomplishment or expectation of the ATSI Reorganization, the UAC
Reorganization or the Merger, as applicable, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining fair value, the Delaware Court is to take into account all
relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme Court
discussed the factors that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in
the circumstances. Upon application of a dissenting stockholder of AGI, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of stock of AGI who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the
Effective Time.
If no petition for appraisal is filed with the Delaware Court within 120
days after the Effective Time, stockholders' rights to appraisal shall cease.
Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the Surviving Corporation a written withdrawal of his or her
demand for appraisal and acceptance of the ATSI Reorganization, the UAC
Reorganization and/or Merger, as applicable, except that (i) any such attempt
to withdraw made more than 60 days after the Effective Time will require
written approval of the Surviving Corporation and (ii) no appraisal proceeding
in the Delaware Court will be dismissed as to any stockholder without the
approval of the Delaware Court, which may be conditioned upon such terms as the
Delaware Court deems just.
142
<PAGE>
LEGAL MATTERS
The validity of the Iron Mountain Common Stock to be issued in connection
with the Merger and certain other legal matters, including the tax-free nature
of the Merger, relating to the Merger will be passed upon by Sullivan &
Worcester LLP. Jas. Murray Howe, Secretary of Iron Mountain, is of counsel to
Sullivan & Worcester LLP and beneficially owns 3,855 shares of Iron Mountain
Common Stock.
Certain legal matters relating to the Reorganizations and the Merger will
be passed on by Paul, Hastings, Janofsky & Walker LLP. Certain other legal
matters, including the tax-free nature of the Reorganizations and the Merger,
will be passed upon by Neal, Gerber & Eisenberg. Certain matters relating to
Nevada law will be passed on by Bible, Hoy & Trachok.
EXPERTS
The financial statements of Iron Mountain and its subsidiaries for the
three years ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of ATSI (Successor Company) for the
year ended December 31, 1996 and the five months ended December 31, 1995 and the
consolidated financial statements of Arcus, Inc. (Predecessor Company) for the
seven months ended July 31, 1995 and the year ended December 31, 1994, included
in the Joint Proxy Statement of Iron Mountain Incorporated, Arcus Group, Inc.,
United Acquisition Company, and Arcus Technology Services, Inc. which is
referred to and made a part of this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of AGI for the year ended December 31, 1994,
included in this Proxy Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.
The consolidated financial statements of AGI for the two years in the
period ended December 31, 1996, included in the Joint Proxy Statement of Iron
Mountain Incorporated, Arcus Group, Inc., United Acquisition Company, and Arcus
Technology Services, Inc. which is referred to and made a part of this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of UAC for the year ended December 31, 1994,
included in this Proxy Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of UAC for the two years in the
period ended and December 31, 1996, included in the Joint Proxy Statement of
Iron Mountain Incorporated, Arcus Group, Inc., United Acquisition Company, and
Arcus Technology Services, Inc. which is referred to and made a part of this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Nashville Vault Company, Ltd. for the year
ended December 31, 1995, incorporated by reference in this Proxy Statement,
have been audited by Geo. S. Olive & Co. LLC, independent public accountants,
as stated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
The financial statements of International Record Storage and Retrieval
Services, Inc. for the year ended December 31, 1995, incorporated by reference
in this Proxy Statement, have been audited by Rothstein, Kass & Company, P.C.,
independent public accountants, as stated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
143
<PAGE>
The financial statements of Mohawk Business Record Storage, Inc. for the
year ended December 31, 1995, incorporated by reference in this Proxy
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statement of Security Archives of Minnesota for the year
ended December 31, 1996, incorporated by reference in this Proxy Statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
stated in their report with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of Wellington Financial Services, Inc. for the
year ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Allegiance Business Archives, Ltd. for the
year ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Stout, Causey & Horning, P.A., independent
public accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Safesite for the three years ended December 31,
1996, incorporated by reference in this Proxy Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their reports
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Concorde Group, Inc. and Neil Tucker Trust for
the year ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Fisher, Schacht & Oliver LLP, independent public
accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Records Retention/Filesafe, L.P. for the two
years ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Abbott, Stringham & Lynch, independent public
accountants, as stated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of HIMSCORP, Inc. and Subsidiaries
for the two years in the period ended December 31, 1996 appearing in Iron
Mountain Incorporated's Current Report on Form 8-K dated November 25, 1997 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Data Securities International, Inc. for the
year ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
144
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements of the Arcus Parties:
Arcus Group, Inc. ..................... F-2
United Acquisition Company ............ F-22
Arcus Technology Services, Inc. ...... F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Arcus Group, Inc.
We have audited the consolidated balance sheets of Arcus Group, Inc. (the
Company), formerly United Gas Holding Corporation, as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arcus Group, Inc.
at December 31, 1995 and 1996, and the consolidated results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
April 30, 1997, except for
Note 15, as to which the date is
September 26, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Arcus Group, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Arcus Group, Inc. (formerly United Gas
Holding Corporation) (a Delaware corporation) and subsidiaries for the year
ended December 31, 1994. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Arcus Group, Inc. and subsidiaries for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Houston, Texas
April 4, 1995
F-3
<PAGE>
ARCUS GROUP, INC. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------- September 30,
1995 1996 1997
----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C>
ASSETS (Note 5)
Current Assets:
Cash and cash equivalents ........................... $ 24,099,950 $ 17,408,382 $ 12,169,510
Accounts receivable, less allowance for doubtful
accounts of $123,055, $156,227 and $68,000,
respectively ....................................... 8,951,495 14,008,613 17,058,766
Other receivables .................................... 493,500 828,128 828,128
Inventory .......................................... 293,393 371,715 342,230
Prepaid expenses and other current assets ............ 673,558 791,337 969,969
-------------- -------------- --------------
Total Current Assets .............................. 34,511,896 33,408,175 31,368,603
Property and Equipment, at Cost:
Land, buildings, and leasehold improvements ......... 5,395,640 6,266,886 6,756,226
Vault equipment and vehicles ........................ 6,628,169 8,819,780 10,097,416
Furniture and other equipment ........................ 1,288,251 3,994,497 4,808,522
-------------- -------------- --------------
13,312,060 19,081,163 21,662,164
Less accumulated depreciation ........................ 895,589 3,661,338 5,909,813
-------------- -------------- --------------
Property and Equipment, Net ........................ 12,416,471 15,419,825 15,752,351
Cost in Excess of Net Assets Acquired, Net of Accumulated
Amortization of $594,377, $2,310,903 and $4,053,320,
respectively .......................................... 35,093,200 55,235,881 57,320,285
Investments (Note 4) .................................... 821,908 817,629 866,662
Other Assets .......................................... 2,067,351 581,375 513,538
-------------- -------------- --------------
Total Assets ....................................... $ 84,910,826 $ 105,462,885 $ 105,821,439
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,334,939 $ 5,952,043 $ 3,551,279
Accrued payroll .................................... 2,186,478 2,814,509 3,588,027
Accrued liabilities ................................. 804,569 1,344,791 952,227
Deferred revenue .................................... 2,856,621 3,469,265 3,525,806
Current portion of long-term debt .................. 2,272,237 4,406,794 3,905,822
-------------- -------------- --------------
Total Current Liabilities ........................ 11,454,844 17,987,402 15,523,161
Long-Term Debt (Note 5) ................................. 29,724,941 38,325,473 38,660,602
Other Liabilities ....................................... 266,540 226,700 296,491
Commitments and Contingencies (Notes 3 and 11)
Minority Interest in Subsidiaries ..................... 4,750,185 8,007,551 8,472,488
Preferred Stock of Subsidiary, Redeemable (Note 6) ...... 23,661,526 25,556,105 27,089,471
Warrants Outstanding to Purchase Common Stock of
Subsidiary ............................................. 15,000 15,000 15,000
Stockholders' Equity (Notes 7 and 8):
Common stock, $.0001 par value:
Authorized shares--11,661,290
Issued and outstanding shares--11,426,525 ......... 1,143 1,143 1,143
Capital in excess of par value ..................... 203,644,666 203,010,935 202,983,641
Accumulated deficit ................................. (188,595,067) (187,707,881) (187,231,563)
Translation adjustment .............................. (12,952) 40,457 11,005
-------------- -------------- --------------
Total Stockholders' Equity ........................ 15,037,790 15,344,654 15,764,226
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity ......... $ 84,910,826 $ 105,462,885 $ 105,821,439
============== ============== ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
--------------- -------------- -------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Storage and transport ............... $ -- $ 16,158,490 $ 43,671,062 $ 31,853,307 $ 38,173,659
Other .............................. -- 4,519,868 22,310,314 13,315,113 30,795,249
------------ ------------ ------------ ------------ ------------
Total Revenues ..................... -- 20,678,358 65,981,376 45,168,420 68,968,908
Operating Expenses:
Cost of services rendered ............ -- 9,450,781 32,737,753 21,803,502 37,725,824
Selling and administrative
expenses ........................... -- 6,632,234 21,591,852 14,642,683 20,279,524
Holding company expenses ............ 504,291 1,122,653 1,991,115 1,039,067 1,023,538
Depreciation and amortization ...... -- 1,608,479 4,449,025 3,214,479 4,550,373
------------ ------------ ------------ ------------ ------------
Total Operating Expenses ......... 504,291 18,814,147 60,769,745 40,699,731 63,579,259
------------ ------------ ------------ ------------ ------------
Operating Income (Loss) ............... (504,291) 1,864,211 5,211,631 4,468,689 5,389,649
Other Income (Expense):
Interest income (expense), net ...... 1,165,373 612,499 (1,668,324) (1,145,742) (1,954,064)
Equity in income of/writedown
of investment in limited
partnership ........................ 49,042 53,346 34,481 -- (571,262)
Minority interest .................. 87,345 (58,329) (321,023) (310,988) (427,639)
Preferred stock dividends of
subsidiary ........................ (1,028,000) (1,754,240) (1,894,579) (1,420,934) (1,533,366)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Income
Taxes .............................. (230,531) 717,487 1,362,186 1,591,025 903,318
Provision for Income Taxes
(Note 9) ........................... -- 226,000 475,000 391,000 427,000
------------ ------------ ------------ ------------ ------------
Net Income (Loss) ..................... $ (230,531) $ 491,487 $ 887,186 $ 1,200,025 $ 476,318
============ ============ ============ ============ ============
Earnings (Loss) per share ............ $ (.02) $ 0.04 $ 0.08 $ 0.11 $ 0.04
============ ============ ============ ============ ============
Weighted average shares
outstanding ........................... 11,426,525 11,426,525 11,426,525 11,426,525 11,426,525
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
ARCUS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Common Excess of Accumulated Translation
Stock Par Value Deficit Adjustment Total
-------- -------------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ............ $1,143 $203,644,666 $ (188,856,023) $ -- $14,789,786
Net loss .............................. -- -- (230,531) -- (230,531)
------- ------------ -------------- --------- -----------
Balances at December 31, 1994 ............ 1,143 203,644,666 (189,086,554) -- 14,559,255
Currency translation adjustment ...... -- -- -- (12,952) (12,952)
Net income ........................... -- -- 491,487 -- 491,487
------- ------------ -------------- --------- -----------
Balances at December 31, 1995 ............ 1,143 203,644,666 (188,595,067) (12,952) 15,037,790
Subsidiary stock issuances ............ -- (633,731) -- -- (633,731)
Currency translation adjustment ...... -- -- -- 53,409 53,409
Net income ........................... -- -- 887,186 -- 887,186
------- ------------ -------------- --------- -----------
Balances at December 31, 1996 ............ 1,143 203,010,935 (187,707,881) 40,457 15,344,654
Subsidiary stock issuances
(unaudited) ........................... -- (27,294) -- -- (27,294)
Currency translation adjustment
(unaudited) ........................... -- -- -- (29,452) (29,452)
Net income (unaudited) ............... -- -- 476,318 -- 476,318
------- ------------ -------------- --------- -----------
Balances at September 30, 1997
(unaudited) ........................... $1,143 $202,983,641 $ (187,231,563) $ 11,005 $15,764,226
======= ============ ============== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- --------------- ---------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) ............... $ (230,531) $ 491,487 $ 887,186 $ 1,200,025 $ 476,318
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Equity in income of/writedown
of investment in limited
partnership .................. (49,042) (53,346) (34,481) -- 571,262
Minority interest ............... (87,345) 58,329 321,023 310,988 427,639
Preferred stock dividends of
subsidiary ..................... 1,028,000 1,754,240 1,894,579 1,420,934 1,533,366
Depreciation and amortization ... 3,765 1,608,479 4,449,025 3,214,479 4,550,373
Provision for losses on accounts
receivable ..................... -- 15,000 56,000 32,000 (78,314)
(Gain) loss on disposal of assets 5,443 185 (18,110) (13,106) 802
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable ............ -- (1,642,378) (2,911,055) (1,623,541) (1,567,953)
Other receivables ............... (58,070) (719,500) (334,628) (334,628) --
Inventory ........................ -- (18,239) (65,232) 1,160 28,324
Prepaid expenses ............... -- (314,361) (26,017) 187,911 (181,214)
Other assets ..................... (19,825) (7,315) (96,821) 44,554 (19,352)
Accounts payable ............... (29,972) 1,395,537 2,099,867 (863,221) (2,610,994)
Accrued, other liabilities and
deferred revenue ............... (1,205,406) 872,428 419,907 (89,095) 227,319
------------ ------------- ------------- ------------ -------------
Net Cash Provided by
(Used in) Operating
Activities .................. (642,983) 3,440,546 6,641,243 3,488,460 3,357,576
Investing Activities:
Acquisitions, net of cash acquired -- (48,751,173) (15,128,889) (7,646,245) (6,911,046)
Purchases of property and
equipment ..................... -- (2,303,595) (5,303,665) (3,242,460) (2,839,532)
Investment purchases ............ (82,857) -- -- -- (666,662)
Distributions from limited
partnership ..................... 163,127 128,193 38,760 -- --
Sales of properties ............ -- -- 1,808,959 1,808,959 --
Other investing activities ...... 1,000 (8,085) (4,897) 113,493 (52,574)
------------ ------------- ------------- ------------ -------------
Net Cash Provided by
(Used in) Investing
Activities .................. 81,270 (50,934,660) (18,589,732) (8,966,253) (10,469,814)
</TABLE>
See accompanying notes.
F-7
<PAGE>
ARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Financing Activities:
Proceeds from issuance of
subsidiary preferred stock,
net of issuance costs ......... 20,879,286 -- -- -- --
Proceeds from sales of
subsidiary common stock to
minority stockholders ......... 2,500,000 2,279,200 -- -- 10,004
Proceeds from issuance of
subsidiary common stock
warrants ..................... 15,000 -- -- -- --
Proceeds from issuances of
long-term debt ............... -- 30,000,000 9,883,000 5,857,000 6,419,152
Payments on long-term debt ... -- (1,580,544) (3,540,918) (2,075,585) (2,649,021)
Net increase (decrease) in
revolving line of credit ... -- 3,000,000 (1,100,000) (2,100,000) (1,900,000)
------------ ------------- ------------ ------------ ------------
Net Cash Provided by
Financing Activities ...... 23,394,286 33,698,656 5,242,082 1,681,415 1,880,135
Effect of Exchange Rate Changes on
Cash ........................... -- (2,220) 14,839 884 (6,769)
------------ ------------- ------------ ------------ ------------
Net Increase (Decrease) in Cash 22,832,573 (13,797,678) (6,691,568) (3,795,494) (5,238,872)
Cash and Cash Equivalents at
Beginning of Period ............ 15,065,055 37,897,628 24,099,950 24,099,950 17,408,382
------------ ------------- ------------ ------------ ------------
Cash and Cash Equivalents at End
of Period ..................... $37,897,628 $ 24,099,950 $ 17,408,382 $ 20,304,456 $ 12,169,510
============ ============= ============ ============ ============
</TABLE>
See accompanying notes.
F-8
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
1. Organization and Business
Approximately 58% of the common stock of Arcus Group, Inc. (AGI), formerly
United Gas Holding Corporation, is owned by GKH Investments, L.P. and certain
related companies. AGI owns 80% of the outstanding common stock of United
Acquisition Company (UAC), UAC owns 81% of the outstanding common stock of
Arcus Technology Services, Inc. (ATSI) at September 30, 1997 (81% and 87% at
December 31, 1996 and 1995, respectively).
ATSI, formerly Arcus Holdings Corporation, was formed in June 1995 to
acquire all of the outstanding stock of Arcus, Inc. (Arcus), effective after
the close of business on July 31, 1995. The consideration given was cash and
the acquisition was accounted for using the purchase method. From November 1,
1992, when its previous operating subsidiaries were sold, until the acquisition
of Arcus as of July 31, 1995, neither AGI nor UAC made any acquisitions or
earned any revenue other than interest income and the equity in a limited
partnership interest. During 1996, through its wholly-owned subsidiaries Arcus
Data Security, Inc. (ADSI), and Arcus Staffing Resources, Inc. (ASRI), ATSI
made eight acquisitions for a combined purchase price of approximately $23.3
million, net of cash acquired (see Note 3).
These financial statements include the accounts of AGI and its
subsidiaries, UAC, ATSI, Arcus, ADSI, ASRI, TPI Holding Corporation, Wolf
Advisory International, Ltd., Wolf Advisory International, Inc., and Towler
Data Services, Inc. and ADSI's U.K. subsidiary, Arcus Data Security Limited
(ADSL). All intercompany transactions between AGI and its subsidiaries have
been eliminated. The term "Company" includes AGI, UAC, ATSI, Arcus, ADSI, ADSL,
ASRI, TPI Holding Corporation, Wolf Advisory International, Ltd., Wolf Advisory
International, Inc., and Towler Data Services, Inc. taken together, except
where otherwise indicated.
The Company, through ATSI and its subsidiaries, provides data security and
technical staffing services to information technology departments of its
business customers. Data security services involve the secure transport,
handling and storage of duplicate or back-up computer data. Recognizing that
customers' data centers are vulnerable to natural disasters as well as other
types of disasters, including terrorism and employee sabotage, Arcus provides
services that enable businesses to recover successfully from such disasters. To
protect against loss of information in such a disaster, the Company provides
secure off-site storage of duplicate data processing records whereby computer
tapes and cartridges are transported on a regular basis by specially equipped
vehicles and stored in climate controlled, concrete, steel-reinforced vaults.
If a disaster occurs, the Company delivers the duplicate data quickly to a
specified location, often a hot site (an alternate data processing site for use
by businesses when their normal processing center is not available because of a
disaster). The Company's disaster recovery services also include assisting its
customers in the testing of their disaster recovery plans. As part of its data
security services, the Company also performs media library relocations. In
addition, the Company sells a variety of brand name data products to its
customers. Through its staffing services, the Company helps customers meet
their personnel needs by supplying information technology professionals on
either a contract or temporary basis. The Company also recruits information
technology professionals for permanent placement with its customers.
Approximately 96%, 81%, 86% and 65% of the Company's revenue during the years
ended December 31, 1995 and 1996 and the nine month periods ended September 30,
1996 and 1997, respectively, came from data security services. The Company
serves customers from 45 locations in the United States and one location in the
United Kingdom.
The Company provides services, generally on a contract basis, to a
diversified customer base, with no single customer accounting for more than 5%
of revenue. A majority of the Company's data security revenue is billed monthly
in advance and trade accounts receivable are due within 30 days. Accounts
receivable are not collateralized.
F-9
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash represents cash deposits and cash equivalents comprised of high
quality debt instruments with maturities of 60 days or less.
Inventory
Data products inventory purchased for resale are carried at the lower of
cost, which approximates first-in, first-out, or market. However, items are
generally purchased for a specific customer and shipped directly to the
customer by the supplier.
Property and Equipment
Property and equipment consisting primarily of land, buildings, vault
equipment, and leasehold improvements are carried at cost and are depreciated
using the straight-line method over their estimated useful lives: buildings--40
years, vault equipment 4-20 years, vehicles 3-7 years, furniture and other
equipment 3-10 years. Leasehold improvements are amortized over the shorter of
their useful lives or the applicable lease term. The Company expenses repair
and maintenance costs as incurred unless they significantly extend the
remaining life of the asset, in which case they are capitalized. Repair and
maintenance expense for facilities and equipment, including vehicles, was
$495,000, $1,230,000, $859,000 and $971,000 for the years ended December 31,
1995 and 1996 and the nine month periods ended September 30, 1996 and 1997,
respectively.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired arose from ATSI's acquisition of
Arcus in 1995 and ATSI's eight acquisitions in 1996 (see Note 3). These costs
are being amortized over 25 years on a straight-line basis.
Other Assets
Other assets are comprised of long-term deposits, intangible assets,
deferred organization costs and, in 1995, certain property and improvements
being held for sale. Intangible assets, consisting mainly of covenants not-to-
compete, are amortized over three to five years on a straight-line basis.
Deferred organization costs, incurred in conjunction with the formation of UAC,
are being amortized over 5 years. Related amortization expense was $4,000,
$100,000, $216,000, $177,000 and $87,000 for the years ended December 31, 1994,
1995 and 1996 and the nine month periods ended September 30, 1996 and 1997,
respectively.
Foreign Currency Translation
The Company's only international operation is in the United Kingdom. The
functional currency of that operation is the Pound Sterling. The translation of
this currency into U.S. Dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during the period.
Revenues
Storage and transport revenues include monthly billings to customers for
basic data security services. Other revenues include specialized data security
services, data product sales and staffing services revenues. Certain storage
and transport services are billed in advance of the delivery of service. These
billings are accounted for as deferred revenue on the Company's balance sheet
until the service is delivered, at which time the revenue is recognized. See
Note 13 for revenues by business segment.
F-10
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
Included in other revenues are product sales, net of product costs,
totaling $665,000, $1,800,000, $1,226,000, and $1,640,000 for the years ended
December 31, 1995 and 1996 and the nine month periods ended September 30, 1996
and 1997, respectively. Product sales are presented on a net basis since the
Company generally functions as a sales representative of the product
manufacturers and the Company seldom receives or takes title to the products.
Gross product sales were $4,367,000, $10,465,000, $6,811,000 and $9,370,000 for
the years ended December 31, 1995 and 1996 and the nine month periods ended
September 30, 1996 and 1997, respectively.
Holding Company Expenses
Holding company expenses include salaries and other administrative
expenses incurred by AGI and UAC which are unrelated to the ongoing operations
of ATSI and its subsidiaries.
Interest Rate Cap Agreement
The Company entered into an interest rate cap agreement to effectively
limit the interest rate which it pays on a portion of its long-term debt. The
interest rate differential to be received, if any, is accrued as a reduction in
interest expense. The fair value of the cap is not recognized in the financial
statements.
Income Taxes
Deferred income taxes are recorded using the liability method and reflect
the net effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Earnings (Loss) Per Share
Earnings (loss) per common and common equivalent share data is calculated
based on the weighted average common and common equivalent shares outstanding
for the respective period, except for loss periods where the common equivalent
shares are excluded because their effect is antidilutive. Common equivalent
shares assume the exercise of all dilutive stock options using the treasury
stock method. Primary and fully diluted earnings per share are not materially
different in the years presented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The change is expected
to have no effect on earnings per share for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1996 and 1997.
Stock Options
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations in the primary financial statements
and provide the supplementary disclosures required by SFAS No. 123, "Accounting
for Stock-Based Compensation" (see Note 8).
Reclassifications
Certain 1994 and 1995 amounts have been reclassified in order to conform
to the 1996 presentations.
F-11
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Acquisitions
During 1996, the Company completed eight acquisitions in the data security
and information technology staffing industries. Each acquisition was accounted
for using the purchase method. For each acquisition, results of operations and
cash flows of the acquired company are included in the Company's statement of
operations and statement of cash flows for the period from the purchase date
through December 31, 1996. In connection with certain of the acquisitions ATSI
issued shares of its common stock to the sellers as partial consideration and
UAC bought additional ATSI shares to assist in financing the cash portion of
the acquisition. The fair value of ATSI's stock issued to sellers or sold to
UAC in connection with the acquisitions was determined by the ATSI Board of
Directors based on formulas used in similar transactions.
On June 19, 1996, the Company acquired the stock of Wolf Advisory
International, Inc. and Wolf Advisory International, Ltd. and acquired
substantially all of the operating assets and assumed certain liabilities of
Computer Plus Temporaries, Inc. (collectively Wolf), a provider of contract and
temporary information technology staffing services in eastern Pennsylvania and
northern Florida, for approximately $10,931,000, net of cash acquired. At
December 31, 1996, the purchase price was comprised of approximately $6,240,000
of net cash payments, 228,242 shares of ATSI common stock, and a $3,156,000
obligation to the seller. Cash payment of the obligation to the seller was made
in March 1997.
On October 30, 1996, the Company acquired the stock of Trinity Partners,
Inc. (Trinity), a provider of contract information technology staffing services
in northern California, for approximately $2,510,000, net of cash acquired. The
purchase price was comprised of net cash payments of approximately $2,330,000,
a subordinated note payable to the seller for $180,000, and immediately vested
five-year options to purchase 15,000 shares of ATSI's common stock at $16.55
per share (see Note 5). In addition, should Trinity meet certain predefined
profitability targets for the twelve months ended March 31, 1997, the former
owner will be entitled to a contingent amount based upon a multiple of
increased earnings, as defined. The contingent purchase price, if any, will be
paid in a combination of cash (80%), a subordinated note payable (20%), and
immediately vested five-year options to purchase additional shares of the
Company's common stock. The contingent purchase price, if any, will increase
costs in excess of net assets acquired. See Note 15--"Subsequent Events".
On November 5, 1996, the Company acquired substantially all of the
operating assets of the data security business of Zurich Data Corporation, a
two-facility provider of such services in northern New Jersey and the New York
City metropolitan area, for approximately $5,146,000. The purchase price was
comprised of approximately $3,570,000 in cash, 100,000 shares of ATSI's common
stock, a 10-year warrant for the purchase of 10,000 additional shares of ATSI's
common stock at $8.00 per share, and ten annual payments having a net present
value of approximately $859,000.
During 1996, the Company made five additional acquisitions, primarily in
the data security industry, for a combined purchase price of $4,703,000. The
combined purchase price was comprised of cash payments of $2,989,000, notes
payable and other obligations to sellers totaling $1,665,000, 7,896 shares of
ATSI's common stock, and assumption of specific liabilities.
F-12
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
4. Investments
In June 1993, the Company loaned $1 million on behalf of Damson East Texas
Partners, L.P. (DETP) to Texas Trinity River Corp. which is substantially owned
by a stockholder of the Company. In July 1993, DETP repaid $280,000 of the
above loan and the Company converted the remaining balance into a 57% limited
partnership interest in DETP. The general partner is Texas Trinity River Corp.
DETP was formed to purchase and develop oil and gas properties, including
pipelines, transportation and gathering systems and processing facilities.
Profits and losses are generally allocated based upon the ownership percentages
subject to restrictions defined in the partnership agreement. The Company has
an operating capital commitment for an additional $880,000 which could bring
total potential contributions to $1.6 million. As of December 31, 1994, the
Company had contributed approximately $250,000 of the operating capital
commitment. The Company was notified in 1994 by the operator of the properties
that DETP may not require further investment funds as they believe any
additional work can be funded from cash flow. However, the commitment remains
in place. The Company accounts for the partnership investment under the equity
method. See Note 15--"Subsequent Events" regarding the writedown of the
Company's investment in DETP as of September 30, 1997.
In June 1997, UAC purchased 158,729 shares of Convertible, Series C,
Preferred Stock of Connected, Incorporated for $667,000. If these preferred
shares were converted into common stock, UAC would own less than 20% of
Connected, Incorporated. Accordingly, UAC accounts for this investment under
the cost method.
5. Long-Term Debt
In connection with the acquisition of Arcus, ATSI entered into a $52
million credit facility (the Facility). Under the Facility, ATSI received $18
million under a five-year term loan agreement (Term A Loan), $12 million under
a seven year term loan agreement (Term B Loan), a commitment for a five-year
$7.5 million revolving line of credit (the Revolver), a seven-year $12.5
million acquisition loan facility (the Acquisition Facility) and a five-year $2
million additional line of credit (the Swingline Loan). In December 1996, ATSI
amended the Facility. As a result, the total acquisition loan commitment was
increased by $20 million and the maturity date of this commitment was extended
by one year. See Note 15--"Subsequent Events."
Under the Facility, ATSI may, at its option and subject to certain
restrictions, designate certain borrowings as either "Base Rate" or
"Eurodollar" borrowings. This designation determines the interest rates which
ATSI pays under the agreement. The Base Rate is defined as the higher of the
bank's prime rate (8.25% at December 31, 1996) or 1/2% over the U.S. Federal
Funds Rate (5% at December 31, 1996) plus an applicable margin interest rate.
The Eurodollar rate is defined as the London Interbank Offering Rate (LIBOR)
(5.7% at December 31, 1996) plus an applicable margin spread. Base Rate
borrowings bear interest at the Base Rate plus 1% to 1.5% and Eurodollar
borrowings bear interest at LIBOR plus 2.5% to 3%.
The Facility requires mandatory repayments of term borrowings from the
proceeds that result from specified types of transactions. Additionally, excess
cash flow, as defined, is to be applied to reduce borrowings. Voluntary
prepayments of principal are also allowed under the Facility, with $750,000 of
such prepayment made during 1996. Both mandatory and voluntary payments reduce
the outstanding balances and future repayments under the Term A Loan, Term B
Loan and Acquisition Facility on a pro rata basis.
The Facility subjects ATSI to financial covenants including restrictions
on mergers and acquisitions of businesses; limitations on lease and rental
expenses incurred, intercompany indebtedness, loans to employees, and capital
expenditures; and maintenance of specified levels of profitability and cash
flows, both in absolute terms and in relation to interest and other fixed
charges. The Facility is collateralized by substantially all of the assets of
ATSI and its subsidiaries.
In connection with five of the acquisitions completed by ATSI during 1996
(see Note 3), ATSI issued notes payable and incurred other long-term
obligations (including contingent purchase price obligations) of which
approximately $5,485,000 and $1,954,000 remains outstanding at December 31,
1996 and September 30, 1997,
F-13
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
respectively. Of this amount, $4,405,000 and $1,053,000 is due to individuals
who are shareholders, employees, or consultants of the Company at December 31,
1996 and September 30, 1997, respectively. These obligations bear interest
annually at rates ranging from 5% to 9%. An obligation for $1,040,000 and
$900,000 at December 31, 1996 and September 30, 1997, respectively, is a demand
obligation, guaranteed by a bank letter of credit for the same amount expiring
February 3, 1998, which ATSI plans to refinance, if required, using the
Revolver and, therefore, has been classified as a long-term liability. In 1997,
$1,968,000 of acquisition obligations were financed through the Acquisition
Facility.
On August 17, 1995, the Company paid $20,250 to enter into an interest
rate cap agreement with a commercial bank having a notional principal of $15
million. This agreement effectively entitles the Company to receive from the
bank the amount, if any, by which the Company's interest payments on $15
million of its long-term debt exceeds 8.9375% plus the related premium (2.5% to
3.0%). The interest rate cap agreement expired on September 5, 1997.
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------- September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Term A Loan, increasing quarterly principal
payments over a four-year period beginning
March 31, 1996 .................................... $17,082,000 $14,316,000 $12,271,000
Term B Loan, nominal quarterly principal payments
for the five year period beginning September 30,
1995 with balance due in equal quarterly
installments for the following two years ......... 11,364,000 10,839,000 10,805,000
Acquisition Facility, increasing quarterly principal
payments over a four year period starting
September 30, 1999 ................................. -- 9,725,000 16,144,000
Revolver, principal due five years from July 31,
1995, with ATSI having the option to extend for
an additional three years with bank approval ...... 3,000,000 1,900,000 --
Acquisition notes and obligations .................. -- 5,485,000 2,954,000
7% mortgage note payable in quarterly principal and
interest installments, maturing April 2001 ......... 521,000 441,000 376,000
Capital lease obligations ........................... 30,000 26,000 16,000
------------ ------------ ------------
31,997,000 42,732,000 42,566,000
Less current portion ................................. 2,272,000 4,407,000 3,906,000
------------ ------------ ------------
$29,725,000 $38,325,000 $38,660,000
============ ============ ============
</TABLE>
Scheduled payments based on long-term debt outstanding at December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 ............ $ 4,407,000
1998 ............ 4,028,000
1999 ............ 4,499,000
2000 ............ 8,557,000
2001 ............ 8,632,000
Thereafter ...... 12,609,000
------------
$42,732,000
============
</TABLE>
Cash payments for interest during the years ended December 31, 1995 and
1996 and the nine month periods ended September 30, 1996 and 1997 were
$913,000, $3,131,000, $2,284,000 and $2,670,000, respectively. No cash payments
for interest were made in 1994.
F-14
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
At December 31, 1995 and 1996 and September 30, 1997, the fair value of
ATSI's revolving line of credit and long-term debt approximated its carrying
value.
6. Preferred Stock of Subsidiary
UAC has authorized 200,000 shares of undesignated preferred stock with a
par value of $0.01. No shares have been issued.
UAC has also authorized 50,000 shares of Series A preferred stock with a
par value of $0.01 per share and a liquidation value of $1,000 per share.
Holders of Series A preferred stock are entitled to receive cumulative
dividends at the rate of 8% per annum on the amount of the liquidation
preference of $1,000 per share. Dividends are to be declared quarterly,
compounded and paid annually on the last business day of December through
additional shares of Series A preferred stock. At September 30, 1997, UAC had
accrued the payment of a dividend for the years ended December 31, 1994, 1995,
1996 and the nine month period ended September 30, 1997, on its Series A
preferred stock, payable in additional shares of preferred stock.
The Series A preferred stock of UAC is redeemable, in whole, at the option
of UAC at a redemption price of $1,000 per share plus accrued and unpaid
dividends.
7. Warrants to Purchase Common Stock of UAC
UAC has issued 1.5 million warrants to purchase shares of UAC's common
stock. Each warrant entitles the holder to purchase one share of common stock
at the exercise price upon the occurrence of a capital change (as defined in
the warrant agreement) or after January 13, 2005, and on or before January 13,
2010. The exercise price is $13.75 per share, subject to adjustment as provided
in the warrant agreement.
8. Stock Option Plans
On July 31, 1995, UAC's Board of Directors approved the United Acquisition
Company 1995 stock option plan whereby UAC could award options to purchase up
to 260,000 shares of common stock of UAC to its officers and employees. The
options granted to date vest one third at the date of grant with the remainder
vesting in equal amounts on the first and second anniversaries of the date of
grant and expire 10 years from the date of grant with extension possible. The
options contain certain restrictions on exercise as defined in the stock option
plan. No options were granted during 1996. As of December 31, 1996, no shares
had been exercised, 144,926 shares were vested and 42,610 shares were available
for grant.
Vested options only become exercisable if AGI's ownership of UAC falls
below 80%. No options were exercisable at December 31, 1995 or 1996.
The following is a summary of employee stock option transactions under the
UAC 1995 Stock Option Plan:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
----------- -------------
<S> <C> <C>
Granted on July 31, 1995 ........................ 217,390 $12.50
-------
Outstanding at December 31, 1995 and 1996 ...... 217,390 $12.50
=======
</TABLE>
A total of 260,000 shares of UAC common stock were reserved for issuance
under the UAC 1995 stock option plan at December 31, 1996. At December 31,
1996, UAC had 1,000,001 shares of common stock outstanding and the net book
value per share of UAC common stock was $10.62.
The ATSI 1995 Stock Option Plan reserves 340,000 and 455,000 shares at
December 31, 1996 and September 30, 1997, respectively, of authorized but
unissued common stock of ATSI for sale or award to directors,
F-15
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
officers, and key employees as stock options, stock appreciation rights,
restricted stock awards or performance share awards. Both nonqualified and
incentive stock options (ISO's) can be granted and in the case of an ISO, the
purchase price cannot be less than the fair market value at grant date.
Options expire on the date set by the Plan Administration Committee of the
ATSI Board of Directors (the Committee), but in no case later than ten years
from the grant date and, in some cases, no later than five years from the grant
date for ISO's.
During 1995 and 1996, ATSI granted nonqualified stock options to certain
directors and key members of management. In general, the options granted are
20% vested at the grant date with the remaining options becoming exercisable
semi-annually over a four year period. At December 31, 1996, 101,060 shares
were vested.
Vested options only become exercisable if either UAC's ownership of ATSI
or AGI's ownership of UAC falls below 80%. No options were exercisable at
December 31, 1995 or 1996. As of December 31, 1996, no shares had been
exercised or canceled and 53,000 shares remain available for grant.
The following is a summary of employee stock option transactions under
ATSI's 1995 Stock Option Plan:
<TABLE>
<CAPTION>
Weighted
Number Option Price Average Option
of Shares Per Share Price per Share
----------- --------------- ----------------
<S> <C> <C> <C>
Granted after July 31, 1995 ............ 198,100 $8.00 $ 8.00
--------
Outstanding at December 31, 1995 ...... 198,100 $8.00 $ 8.00
Granted in 1996 ........................ 88,900 $10.24-$11.03 $10.71
--------
Outstanding at December 31, 1996 ...... 287,000 $8.00-$11.03 $ 8.84
========
</TABLE>
The weighted average remaining contractual life for ATSI options
outstanding at December 31, 1996 was approximately 9 years.
A total of 365,000 and 465,000 shares of ATSI common stock were reserved
for issuance under ATSI's 1995 Stock Option Plan, the acquisition options (see
Note 3) and the acquisition warrant (see Note 3) at December 31, 1996 and
September 30, 1997, respectively. At December 31, 1996, ATSI had 3,205,263
shares of common stock outstanding and the net book value per share of ATSI
common stock was $9.55.
Pro forma information regarding net income and the net loss attributed to
common stockholders is required by SFAS No. 123, and has been determined as if
the Company had accounted for employee stock options granted by subsidiaries
under the fair value method. The fair value for options granted ($217,000 in
1995 and $0 in 1996) was estimated at the date of grant using a minimum value
option pricing model with the following weighted-average assumptions for 1995
and 1996: risk-free interest rates of 5.6%; no dividends expected to be
declared; volatility factor of zero for the expected price of the Company's
common stock as it is not publicly traded; and a weighted-average expected life
of the options of 2.3 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income for 1995 and 1996, would be $458,000 and $820,000,
respectively.
F-16
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
9. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------- September 30,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses ........................... $ 174,093,000 $ 173,228,000 $ 172,060,000
Tax credits .................................... 3,814,000 3,879,000 3,949,000
Property and equipment ........................ 122,000 -- 4,000
Accrued liabilities ........................... 43,000 166,000 187,000
Other .......................................... 5,000 14,000 8,000
-------------- -------------- --------------
178,077,000 177,287,000 176,208,000
Deferred tax liabilities:
Costs in excess of net assets acquired in stock
purchase transactions and other assets ...... (123,000) (455,000) (676,000)
Property and equipment ........................ -- (46,000) --
-------------- -------------- --------------
(123,000) (501,000) (676,000)
-------------- -------------- --------------
177,954,000 176,786,000 175,532,000
Valuation allowance ........................... (177,954,000) (176,786,000) (175,532,000)
-------------- -------------- --------------
Net deferred tax assets ........................ $ -- $ -- $ --
============== ============== ==============
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal ...... $ -- $ 50,000 $ 65,000 $ 68,000 $ 70,000
State ......... -- 176,000 410,000 323,000 357,000
--------- --------- --------- --------- ---------
-- 226,000 475,000 391,000 427,000
Deferred ...... -- -- -- -- --
--------- --------- --------- --------- ---------
$ -- $226,000 $475,000 $391,000 $427,000
========= ========= ========= ========= =========
</TABLE>
The reasons for the difference between the total tax provision and the
amount computed by applying the statutory federal income tax rate to income
(loss) before income taxes, minority interest, preferred stock dividend of
subsidiary and equity in income of limited partnership are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Federal tax at statutory rate ...... 34.0% 34.0% 34.0% 34.0% 34.0%
State tax provision .................. -- 4.7 7.6 6.4 6.9
Change in deferred tax asset valuation
allowance ........................ (34.0) (32.0) (32.9) (36.0) (36.5)
Other .............................. -- 2.4 4.7 7.4 8.0
------ ------ ------ ------ ------
0.0% 9.1% 13.4% 11.8% 12.4%
====== ====== ====== ====== ======
</TABLE>
At December 31, 1996, the Company had an approximate gross NOL
carryforward position of $494 million for regular federal income tax purposes
and approximately $266 million for federal alternative minimum tax purposes.
Future utilization of NOL carryforwards related to periods prior to October 9,
1990 is generally limited to approximately $13 million per year with any unused
portion within a particular year available for utilization in subsequent years
through December 31, 2005. Accordingly, the appropriate maximum utilization of
pre-October 9, 1990 NOLs is estimated to be $198 million. Post-October 8, 1990
NOLs of approximately $75 million and alternative minimum tax NOLs of
approximately $62 million are currently not subject to an annual limitation.
F-17
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
Accordingly, it is estimated the maximum utilization of regular tax NOL
carryforwards is $273 million (alternative minimum tax NOLs of $260 million)
with an approximate balance of $267 million (alternative minimum tax NOLs of
$254 million) remaining at December 31, 1996. The NOL carryforwards expire
throughout the 2003-2009 time period.
Additionally, the Company has estimated alternative minimum tax credits of
$879,000 with no expiration date. Investment tax credit (ITC) carryforwards of
$3 million are also available until 1998, at which time they begin to expire.
It is unlikely these ITCs will be utilized.
Current tax laws and regulations relating to specified changes in
ownership may further limit the availability of the Company's utilization of
its NOLs and tax credit carryforwards. As of December 31, 1996, the Company was
not aware of any ownership changes which would further limit the utilization of
the NOLs and tax credit carryforwards.
Cash payments for income taxes during the years ended December 31, 1995
and 1996 and the nine month periods ended September 30, 1996 and 1997, were
$720,000, $609,000, $499,000 and $619,000, respectively. No cash payments for
income taxes were made during 1994.
10. Retirement Plans
On August 1, 1995, ATSI adopted the Arcus, Inc. 401(k) Profit Sharing Plan
(the Plan). Employees of ATSI and its subsidiaries who satisfy a six month
service requirement as of open enrollment each January 1st and July 1st
participate in the Plan. Participants in the Plan may contribute from 1% to 15%
of their annual compensation. ATSI matches one half of employee contributions
up to a total of 1.5% of their annual compensation. Company matching expense,
net of forfeitures, was $52,000, $132,000, $115,000 and $145,000 for the years
ended December 31, 1995 and 1996, and the nine month periods ended September
30, 1996 and 1997, respectively. ATSI may also make an annual voluntary
contribution for all eligible employees, whether or not they elect a salary
deferral. ATSI provided for a voluntary contribution in 1995 and 1996, to be
funded in the following year, based upon a percentage of participant
compensation. Voluntary contribution expense, net of forfeitures, for the years
ended December 31, 1995 and 1996 and the nine month periods ended September 30,
1996 and 1997 was $147,000, $430,000, $348,000 and $382,000, respectively.
11. Commitments and Contingencies
As of September 30, 1997, the Company leased 29 vault facilities, 14
staffing offices and certain equipment under noncancelable operating lease
agreements. Twelve of the Company's vault facilities are leased from a single
landlord of which nine have fifteen-year terms beginning January 1, 1995, with
two five-year renewal options, providing for cost of living increases every
three years based upon the Consumer Price Index, with a 3.33% ceiling per year.
The remaining vault facilities are leased under leases which commenced June
1989 or later, and have primary lease terms ranging from four to twenty years,
generally with one or two five-year renewal options. During 1996, the Company
signed leases in regard to two vault facilities that were under construction at
December 31, 1996. These two leases each have fifteen-year terms that will
commence during 1997. With respect to vault facilities, the Company generally
is required to pay property tax, insurance, and facility maintenance expenses.
Staffing offices, located in multi-tenant commercial office buildings, have
primary lease terms ranging from one to five years, generally with no renewal
options. Other operating leases are for equipment and vehicles. Rental expense
under operating leases, including month-to-month rentals, was $1,578,000 and
$4,500,000 for the years ended December 31, 1995 and 1996, respectively.
Included in these amounts are $554,000 and $1,361,000, respectively, of
operating lease expense related to facilities leased from ATSI shareholders.
Future minimum rentals required under operating leases having an initial
or remaining noncancelable lease term in excess of one year as of December 31,
1996 are as follows:
F-18
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
<TABLE>
<S> <C>
1997 .............................. $ 5,153,000
1998 .............................. 4,808,000
1999 .............................. 4,363,000
2000 .............................. 3,871,000
2001 .............................. 3,106,000
Thereafter ........................ 19,441,000
------------
Total minimum lease payments ...... $40,742,000
============
</TABLE>
The Company has a $250,000 standby letter of credit payable to its bank to
secure its operating cash accounts.
12. Related Party Transactions
During the year ended December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997, UAC paid GKH Partners, a stockholder
of AGI and of UAC, investment advisory and other fees of $125,000, $125,000,
$178,000, $118,000 and $148,000 respectively. The investment advisory fee is
included in holding company expenses in the consolidated statements of
operations.
13. Business Segments
The following tables present data relating to the Company's revenues, cost
of services rendered, depreciation, operating income, identifiable assets and
capital expenditures by business segment.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Data Security ........................ $ -- $19,867,759 $ 53,145,334 $ 38,553,505 $ 44,573,634
Technical staffing .................. -- 810,599 12,997,907 6,711,491 24,717,499
Intercompany eliminations ............ -- -- (161,865) (96,576) (322,225)
---------- ------------ ------------ ------------ ------------
Total revenues ..................... $ -- $20,678,358 $ 65,981,376 $ 45,168,420 $ 68,968,908
========== ============ ============ ============ ============
Cost of Services Rendered
Data security ........................ $ -- $ 8,929,784 $ 23,554,642 $ 17,063,800 $ 19,831,627
Technical staffing .................. -- 520,997 9,344,976 4,836,278 18,216,422
Intercompany eliminations ............ -- -- (161,865) (96,576) (322,225)
---------- ------------ ------------ ------------ ------------
Total costs of services rendered ... $ -- $ 9,450,781 $ 32,737,753 $ 21,803,502 $ 37,725,824
========== ============ ============ ============ ============
Depreciation and Amortization
Data security ........................ $ -- $ 1,488,093 $ 3,907,825 $ 2,881,767 $ 3,310,817
Technical staffing .................. -- 1,575 219,586 103,694 929,076
Corporate ........................... -- 118,811 321,614 229,018 310,480
---------- ------------ ------------ ------------ ------------
Total depreciation and amortization $ -- $ 1,608,479 $ 4,449,025 $ 3,214,479 $ 4,550,373
========== =========== ============ ============ ============
Operating Income
Data security ........................ $ -- $ 4,629,540 $ 12,149,565 $ 9,040,836 $ 9,888,168
Technical staffing .................. -- 114,709 442,812 233,283 257,714
Corporate ........................... (504,291) (2,880,038) (7,380,746) (4,805,430) (4,756,233)
---------- ------------ ------------ ------------ ------------
Total operating income ............... $ (504,291) $ 1,864,211 $ 5,211,631 $ 4,468,689 $ 5,389,649
========== ============ ============ ============ ============
</TABLE>
F-19
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and the nine months
ended
September 30, 1997 is unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Capital Expenditures
Data security ............... $ -- $ 2,115,127 $ 4,363,670 $ 2,752,349 $ 2,054,901
Technical staffing ......... -- 43,662 317,302 157,238 634,484
Corporate .................. -- 14,806 622,693 332,873 150,147
---------- ------------ ------------- ------------ -------------
Total capital expenditures ... $ -- $ 2,303,595 $ 5,303,665 $ 3,242,460 $ 2,839,532
=========== ============ ============= ============ =============
Identifiable Assets
Data security ............... $ -- $59,657,300 $ 85,687,540 $ 88,429,038
Technical staffing ......... -- 152,260 2,041,337 3,835,987
Corporate .................. -- 25,101,266 17,734,008 13,556,414
---------- ------------ ------------- -------------
Total identifiable assets ... -- $84,910,826 $105,462,885 $105,821,439
========== ============ ============= =============
</TABLE>
14. Supplemental Pro Forma Acquisition Information (Unaudited)
The following supplemental pro forma information has been presented as if
the acquisition of ATSI described in Note 1 and the acquisitions discussed in
Note 3 occurred on January 1, 1995 and as if the acquisition discussed in Note
15 occurred on January 1, 1996.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
----------------------------- September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Revenues ............... $64,512,369 $89,208,750 $74,630,285
============ ============ ============
Operating income ...... $ 5,297,161 $ 7,521,191 $ 5,883,093
============ ============ ============
Net income ............... $ 1,190,579 $ 1,769,519 $ 740,941
============ ============ ============
Earnings per share ...... $ 0.10 $ 0.15 $ 0.06
============ ============ ============
</TABLE>
15. Subsequent Events
In May 1997, the Company filed a lawsuit against the United States for
refund of excess federal income taxes paid of $828,128 for the tax year ended
December 31, 1995. In September 1997, the United States filed its answer
denying the Company's request for refund with respect to its 1995 federal
income tax return. The Company believes its 1995 federal tax filing positions
have merit and expects to prevail. In the event the Company does not prevail,
its NOL carryforwards will and its 1996 and 1997 tax liability may be adversely
affected.
In June 1997, the Company sold the operating assets of the non-staffing
portion of Trinity's business. The assets were sold to the former owner of
Trinity and other former Trinity employees for a $400,000 five year note,
bearing interest at 12% with all principal due at maturity. In conjunction with
the sale, and in consideration of a cash payment of $250,000 to the former
owner, the former owner and the Company signed a mutual release. Among the
Company's obligations released were any contingent consideration due to the
former owner under the original agreement to acquire Trinity, the $180,000
subordinated note payable to the former owner, certain stock options held by
the former owner and certain other agreements signed with the former owner.
On June 11, 1997, ATSI amended its credit agreement to increase the size
of the Revolving Facility from $7.5 million to $11 million and reduced the size
of the Acquisition Facility by $3.5 million.
F-20
<PAGE>
ARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996 and
the nine months ended September 30, 1997 is unaudited)
On August 20, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of a company operating in the contract
information technology staffing services business in northern California,
Oregon and Washington state for approximately $4,889,000, net of cash acquired.
The purchase price consisted of net cash payments of approximately $3,889,000,
a subordinated note payable to the seller for $1,000,000 and 60,000 options to
purchase the Company's common stock at $16.41 with various vesting dates.
Additionally, if certain profitability targets are met, the Company could be
obligated to make an additional cash payment of up to $750,000. The acquired
company had revenues and operating income for the year ended December 31, 1996
of approximately $8.4 million and $1.2 million, respectively.
Based upon an offer received to purchase AGI's interest in DETP (see Note
4), the Company wrote down its investment in DETP by $571,000 as of September
30, 1997.
On September 26, 1997, Iron Mountain Incorporated signed a definitive
agreement to acquire all of the outstanding stock of the Company with
anticipated closing in the first quarter of 1998.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
United Acquisition Company
We have audited the consolidated balance sheets of United Acquisition Company
(the Company) as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Acquisition Company at December 31, 1995 and 1996, and the consolidated results
of its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
April 11, 1997, except for Note 15,
as to which the date is
September 26, 1997
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
United Acquisition Company:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of United Acquisition Company (a Delaware
corporation) and subsidiaries for the year ended December 31, 1994. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
United Acquisition Company and subsidiaries for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Houston, Texas
April 4, 1995
F-23
<PAGE>
UNITED ACQUISITION COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------- September 30,
1995 1996 1997
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS (Note 4)
Current assets:
Cash and cash equivalents ................................. $20,002,529 $13,408,524 $ 8,146,905
Accounts receivable, less allowance for doubtful accounts
of $123,055, $156,227 and $68,000, respectively ......... 8,874,495 14,008,613 17,058,766
Inventory ................................................ 293,393 371,715 342,230
Prepaid expenses and other current assets .................. 721,558 1,018,307 1,052,861
------------ ------------ ------------
Total current assets .................................... 29,891,975 28,807,159 26,600,762
Property and equipment, at cost:
Land, buildings, and leasehold improvements ............... 5,395,640 6,266,886 6,756,226
Vault equipment and vehicles .............................. 6,628,169 8,819,780 10,097,416
Furniture and other equipment .............................. 1,288,251 3,994,497 4,808,522
------------ ------------ ------------
13,312,060 19,081,163 21,662,164
Less accumulated depreciation .............................. 895,589 3,661,338 5,909,813
------------ ------------ ------------
Property and equipment, net .............................. 12,416,471 15,419,825 15,752,351
Cost in excess of net assets acquired, net of accumulated
amortization of $594,377, $2,310,903 and $4,053,320,
respectively ............................................. 35,093,200 55,367,074 57,451,478
Investment in Connected Corporation (Note 5) ............... -- -- 666,662
Other assets ............................................. 2,067,351 581,375 513,538
------------ ------------ ------------
Total assets ............................................. $79,468,997 $100,175,433 $100,984,791
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 3,316,271 $ 5,952,027 $ 3,551,279
Accrued payroll .......................................... 2,186,478 2,814,509 3,588,027
Accrued liabilities ....................................... 804,569 1,344,791 950,209
Deferred revenue .......................................... 2,856,621 3,469,265 3,525,806
Due to parent (Notes 2 and 9) .............................. 339,500 1,061,202 1,748,824
Current portion of long-term debt ........................ 2,272,237 4,406,794 3,905,822
------------ ------------ ------------
Total current liabilities .............................. 11,775,676 19,048,588 17,269,967
Long-term debt (Note 4) .................................... 29,724,941 38,325,473 38,660,602
Deferred income taxes ....................................... 1,000 501,000 676,000
Other liabilities .......................................... 266,540 226,700 296,491
Commitments and contingencies (Notes 3 and 11) ............
Minority interest in subsidiary ........................... 2,416,664 5,893,910 6,349,047
Stockholders' equity (Notes 6, 7 and 8):
Preferred stock:
Undesignated, cumulative preferred stock, $.01 par value:
Authorized shares--200,000
Issued and outstanding shares--None ..................... -- -- --
Series A, 8% redeemable cumulative preferred stock, $.01 par
value, $1,000 per share liquidation value:
Authorized shares--50,000
Issued and outstanding shares--23,682, 25,576 and
27,109, respectively, net of issue expense ............ 23,661,526 25,556,105 27,089,471
Common stock, $.01 par value:
Authorized shares--3,000,000
Issued and outstanding shares--1,000,001 .................. 10,000 10,000 10,000
Capital in excess of par value .............................. 12,720,000 11,927,837 11,893,718
Warrants outstanding ....................................... 15,000 15,000 15,000
Accumulated deficit ....................................... (1,109,398) (1,369,637) (1,286,510)
Translation adjustment .................................... (12,952) 40,457 11,005
------------ ------------ ------------
Total stockholders' equity .............................. 35,284,176 36,179,762 37,732,684
------------ ------------ ------------
Total liabilities and stockholders' equity ............... $79,468,997 $100,175,433 $100,984,791
============ ============ ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
UNITED ACQUISITION COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
from Inception
(January 6, 1994) Nine Months Ended
Through Year ended December 31, September 30,
December 31, ---------------------------- ----------------------------
1994 1995 1996 1996 1997
------------------ ------------- -------------- -------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Storage and transport $ -- $16,158,490 $43,671,062 $31,853,307 $ 38,173,659
Other ........................... -- 4,519,868 22,310,314 13,315,113 30,795,249
---------- ----------- ------------ ------------ ------------
Total revenue .................. -- 20,678,358 65,981,376 45,168,420 68,968,908
Operating expenses:
Cost of services rendered ......... -- 9,450,781 32,737,753 21,803,502 37,725,824
Selling and administrative
expenses ........................ -- 6,632,234 21,591,852 14,642,683 20,279,524
Holding company expenses ......... 390,903 921,025 1,816,338 911,255 860,852
Depreciation and amortization . 3,765 1,608,479 4,449,025 3,214,479 4,550,373
---------- ----------- ------------ ------------ ------------
Total operating expenses ...... 394,668 18,612,519 60,594,968 40,571,919 63,416,573
---------- ----------- ------------ ------------ ------------
Operating (loss) income ............ (394,668) 2,065,839 5,386,408 4,596,501 5,552,335
Other income (expense):
Interest income (expense), net . 985,945 395,190 (1,864,597) (1,306,079) (2,096,828)
Minority interest ............... -- (137,464) (382,471) (292,113) (411,014)
---------- ----------- ------------ ------------ ------------
Income before income taxes ......... 591,277 2,323,565 3,139,340 2,998,309 3,044,493
Provision for income taxes
(Note 9) ........................ 230,000 1,012,000 1,505,000 1,436,000 1,428,000
---------- ----------- ------------ ------------ ------------
Net income ........................ 361,277 1,311,565 1,634,340 1,562,309 1,616,493
Preferred stock dividends ......... 1,028,000 1,754,240 1,894,579 1,420,934 1,533,366
---------- ----------- ------------ ------------ ------------
Net income (loss) attributed to
common stockholders ............... $ (666,723) $ (442,675) $ (260,239) $ 141,375 $ 83,127
========== =========== ============ ============ ============
Earnings (loss) per common share ... $ (0.67) $ (0.44) $ (0.26) $ 0.14 $ 0.08
========== =========== ============ ============ ============
Weighted average shares
outstanding ........................ 1,000,001 1,000,001 1,000,001 1,000,001 1,000,001
========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
UNITED ACQUISITION COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Preferred Common Excess of Warrants Accumulated
Stock Stock Par Value Outstanding Deficit Other Total
------------- --------- ------------- ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock $ -- $10,000 $12,490,000 $ -- $ -- $ -- $12,500,000
Issuance of preferred
stock, net .................. 20,879,286 -- -- -- -- -- 20,879,286
Preferred stock dividends
in-kind .................. 1,028,000 -- -- -- (1,028,000) -- --
Parent contribution to
capital of 1994 income
taxes ..................... -- -- 230,000 -- -- -- 230,000
Issuance of common stock
warrants .................. -- -- -- 15,000 -- -- 15,000
Net income .................. -- -- -- -- 361,277 -- 361,277
------------ -------- ----------- -------- ------------ --------- -----------
Balances at December 31, 1994 21,907,286 10,000 12,720,000 15,000 (666,723) -- 33,985,563
Preferred stock dividends
in-kind .................. 1,754,240 -- -- -- (1,754,240) -- --
Currency translation
adjustment ............... -- -- -- -- -- (12,952) (12,952)
Net income .................. -- -- -- -- 1,311,565 -- 1,311,565
------------ -------- ----------- -------- ------------ --------- -----------
Balances at December 31, 1995 23,661,526 10,000 12,720,000 15,000 (1,109,398) (12,952) 35,284,176
Preferred stock dividends
in-kind .................. 1,894,579 -- -- -- (1,894,579) -- --
Subsidiary stock issuances -- -- (792,163) -- -- -- (792,163)
Currency translation
adjustment ............... -- -- -- -- -- 53,409 53,409
Net income .................. -- -- -- -- 1,634,340 -- 1,634,340
------------ -------- ----------- -------- ------------ --------- -----------
Balances at December 31, 1996 25,556,105 10,000 11,927,837 15,000 (1,369,637) 40,457 36,179,762
Preferred stock dividends
in-kind (unaudited) ...... 1,533,366 -- -- -- (1,533,366) -- --
Subsidiary stock issuances
(unaudited) ............... -- -- (34,119) -- -- -- (34,119)
Currency translation
adjustment (unaudited) . -- -- -- -- -- (29,452) (29,452)
Net income (unaudited) ...... -- -- -- -- 1,616,493 -- 1,616,493
------------ -------- ----------- -------- ------------ --------- -----------
Balance at September 30,
1997 (unaudited) ............ $27,089,471 $10,000 $11,893,718 $15,000 $ (1,286,510) $ 11,005 $37,732,684
============ ======== =========== ======== ============ ========= ===========
</TABLE>
See accompanying notes.
F-26
<PAGE>
UNITED ACQUISITION COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
from Inception
(January 6, 1994) Nine Months Ended
Through Year ended December 31, September 30,
December 31, ------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------------ --------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income .............................. $ 361,277 $ 1,311,565 $ 1,634,340 $ 1,562,309 $ 1,616,493
Adjustments to reconcile net income
to net cash provided by operating
activities:
Minority interest ..................... -- 137,464 382,471 292,113 411,014
Depreciation and amortization ......... 3,765 1,608,479 4,449,025 3,214,479 4,550,373
Deferred tax expense (benefit) ......... -- (47,000) 237,000 181,000 156,000
Provision for losses on
accounts receivable .................. -- 15,000 56,000 32,000 (78,314)
(Gain) loss on disposal
of assets ........................... -- 185 (18,110) (13,106) 802
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable .................. -- (1,642,378) (2,988,055) (1,623,541) (1,567,953)
Inventory .............................. -- (18,239) (65,232) 1,160 28,324
Prepaid expenses ..................... -- (341,081) (72,987) 152,268 (18,136)
Other assets ........................... (18,825) (7,315) (96,821) 44,554 (19,352)
Accounts payable ..................... 11,884 1,383,951 2,118,519 (844,570) (2,610,978)
Accrued, other liabilities and
deferred revenue ..................... -- 646,428 478,018 (210,595) 225,301
----------- ------------- ------------- ------------ -------------
Net cash provided by
operating activities ............... 358,101 3,047,059 6,114,168 2,788,071 2,693,574
Investing Activities:
Acquisitions, net of cash acquired ...... -- (48,751,173) (15,128,889) (7,646,245) (6,911,046)
Purchase of property and equipment -- (2,303,595) (5,303,665) (3,242,460) (2,839,532)
Investment in Connected Corporation -- -- -- -- (666,662)
Sales of properties ..................... -- -- 1,808,959 1,808,959 --
Other investing activities ............... -- (8,085) (4,897) 36,493 (98,941)
----------- ------------- ------------- ------------ -------------
Net cash used for
investing activities ............... -- (51,062,853) (18,628,492) (9,043,253) (10,516,181)
Financing Activities:
Issuance of common stock ............... 12,500,000 -- -- -- --
Issuance of preferred stock, net of
issuance cost ........................ 20,879,286 -- -- -- --
Issuance of common stock warrants 15,000 -- -- -- --
Proceeds from sales of subsidiary
common stock to minority
stockholders ........................... -- 2,279,200 -- -- 10,004
Proceeds from issuances of long-
term debt .............................. -- 30,000,000 9,883,000 5,857,000 6,419,152
Payments on long-term debt ............... -- (1,580,544) (3,540,918) (2,075,585) (2,649,021)
Net increase (decrease) in revolving
line of credit ........................ -- 3,000,000 (1,100,000) (2,100,000) (1,900,000)
Parent contribution to capital of
1994 income taxes ..................... 230,000 -- -- -- --
Increase in due to parent ............... -- 339,500 663,398 902,785 687,622
----------- ------------- ------------- ------------ -------------
Net cash provided by
financing activities ............... 33,624,286 34,038,156 5,905,480 2,584,200 2,567,757
Effect of exchange rate changes
on cash ................................. -- (2,220) 14,839 884 (6,769)
----------- ------------- ------------- ------------ -------------
Net increase (decrease) in cash ......... 33,982,387 (13,979,858) (6,594,005) (3,670,098) (5,261,619)
Cash at beginning of period ............... -- 33,982,387 20,002,529 20,002,529 13,408,524
----------- ------------- ------------- ------------ -------------
Cash at end of period .................. $33,982,387 $ 20,002,529 $ 13,408,524 $ 16,332,431 $ 8,146,905
=========== ============= ============= ============ =============
</TABLE>
See accompanying notes.
F-27
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
1. Organization and Business
United Acquisition Company (UAC or the Company) is an 80% owned subsidiary
of Arcus Group, Inc. (AGI or the Parent), formerly United Gas Holding
Corporation. UAC was formed in January 1994 for the purpose of acquiring either
the assets or stock of corporations in diversified industries. UAC made no
acquisitions and earned no revenues other than interest income prior to the
July 31, 1995 acquisition described below. UAC owns 81% of the outstanding
common stock of Arcus Technology Services, Inc. (ATSI) at June 30, 1997 (81%
and 87% at December 31, 1996 and 1995, respectively).
ATSI, formerly Arcus Holdings Corporation, was formed in June 1995 to
acquire all of the outstanding stock of Arcus, Inc. (Arcus), effective after
the close of business on July 31, 1995. The consideration given was cash and
the acquisition was accounted for using the purchase method. During 1996,
through its wholly-owned subsidiaries Arcus Data Security, Inc. (ADSI), and
Arcus Staffing Resources, Inc. (ASRI), ATSI made eight acquisitions for a
combined purchase price of approximately $23.3 million, net of cash acquired
(see Note 3).
These financial statements include the accounts of UAC and its
subsidiaries, ATSI, Arcus, ADSI, ASRI, TPI Holding Corporation, Wolf Advisory
International Ltd., Wolf Advisory International, Inc., and Towler Data
Services, Inc. and ADSI's U.K. subsidiary, Arcus Data Security Limited (ADSL).
All intercompany transactions between UAC and its subsidiaries have been
eliminated. The term "Company" includes UAC, ATSI, Arcus, ADSI, ADSL, ASRI, TPI
Holding Corporation, Wolf Advisory International, Ltd., Wolf Advisory
International, Inc., and Towler Data Services, Inc. taken together, except
where otherwise indicated.
The Company, through ATSI and its subsidiaries, provides data security and
technical staffing services to information technology departments of its
business customers. Data security services involve the secure transport,
handling and storage of duplicate or backup computer data. Recognizing that
customers' data centers are vulnerable to natural disasters as well as other
types of disasters, including terrorism and employee sabotage, Arcus provides
services that enable businesses to recover successfully from such disasters. To
protect against loss of information in such a disaster, the Company provides
secure off-site storage of duplicate data processing records whereby computer
tapes and cartridges are transported on a regular basis by specially equipped
vehicles and stored in climate controlled, concrete, steel-reinforced vaults.
If a disaster occurs, the Company delivers the duplicate data quickly to a
specified location, often a hot site (an alternate data processing site for use
by businesses when their normal processing center is not available because of a
disaster). The Company's disaster recovery services also include assisting its
customers in the testing of their disaster recovery plans. As part of its data
security services, the Company also performs media library relocations. In
addition, the Company sells a variety of brand name data products to its
customers. Through its staffing services, the Company helps customers meet
their personnel needs by supplying information technology professionals on
either a contract or temporary basis. The Company also recruits information
technology professionals for permanent placement with its customers.
Approximately 96%, 81%, 86% and 65% of the Company's revenue during the years
ended December 31, 1995 and 1996, and the nine month periods ended September
30, 1996 and 1997, respectively, came from data security services. The Company
serves customers from 45 locations in the United States and one location in the
United Kingdom.
The Company provides services, generally on a contract basis, to a
diversified customer base, with no single customer accounting for more than 5%
of revenue. A majority of the Company's data security revenue is billed monthly
in advance and trade accounts receivable are due within 30 days. Accounts
receivable are not collateralized.
2. Summary of Significant Account Policies
Cash and Cash Equivalents
Cash represents cash deposits and cash equivalents comprised of high
quality debt instruments with maturities of 60 days or less.
F-28
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
Inventory
Data products inventory purchased for resale are carried at the lower of
cost, which approximates first-in, first-out, or market. However, items are
generally purchased for a specific customer and shipped directly to the
customer by the supplier.
Property and Equipment
Property and equipment consisting primarily of land, buildings, vault
equipment, and leasehold improvements are carried at cost and are depreciated
using the straight-line method over their estimated useful lives: buildings --
40 years, vault equipment 4-20 years, vehicles 3-7 years, furniture and other
equipment 3-10 years. Leasehold improvements are amortized over the shorter of
their useful lives or the applicable lease term. The Company expenses repair
and maintenance costs as incurred unless they significantly extend the
remaining life of the asset, in which case they are capitalized. Repair and
maintenance expense for facilities and equipment, including vehicles, was
$495,000, $1,230,000, $859,000 and $971,000 for the years ended December 31,
1995 and 1996 and the nine month periods ended September 30, 1996 and 1997,
respectively.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired arose from ATSI's acquisition of
Arcus in 1995 and ATSI's eight acquisitions in 1996 (see Note 3). These costs
are being amortized over 25 years on a straight-line basis.
Other Assets
Other assets are comprised of long-term deposits, intangible assets,
deferred organization costs and, in 1995, certain property and improvements
being held for sale. Intangible assets, consisting mainly of covenants not-to-
compete, are amortized over three to five years on a straight-line basis.
Deferred organization costs, incurred in conjunction with the formation of the
Company, are being amortized over 5 years. Related amortization expense was
$4,000, $100,000, $216,000, $177,000 and $87,000 for the years ended December
31, 1994, 1995 and 1996 and the nine month periods ended September 30, 1996 and
1997, respectively.
Foreign Currency Translation
The Company's only international operation is in the United Kingdom. The
functional currency of that operation is the Pound Sterling. The translation of
this currency into U.S. Dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during the period.
Revenue
Storage and transport revenues include monthly billings to customers for
basic data security services. Other revenues include specialized data security
services, data product sales and staffing services revenues. Certain storage
and transport services are billed in advance of the delivery of service. These
billings are accounted for as deferred revenue on the Company's balance sheet
until the service is delivered, at which time the revenue is recognized. See
Note 13 for revenues by business segment.
Included in other revenue are product sales, net of product costs,
totaling $665,000, $1,800,000, $1,226,000, and $1,640,000 for the years ended
December 31, 1995 and 1996 and the nine month periods ended September 30, 1996
and 1997, respectively. Product sales are presented on a net basis since the
Company generally functions as a sales representative of the product
manufacturers and the Company seldom receives or takes title to the products.
Gross product sales were $4,367,000, $10,465,000, $6,811,000 and $9,370,000 for
the years ended December 31, 1995 and 1996 and the nine month periods ended
September 30, 1996 and 1997, respectively.
F-29
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
Holding Company Expenses
Holding company expenses include salaries and other administrative
expenses incurred by the Company which are unrelated to the ongoing operations
of ATSI and its subsidiaries.
Interest Rate Cap Agreement
The Company entered into an interest rate cap agreement to effectively
limit the interest rate which it pays on a portion of its long-term debt. This
interest rate differential to be received, if any, is accrued as a reduction in
interest expense. The fair value of the cap is not recognized in the financial
statements.
Income Taxes
For tax return purposes, the Company is included in the Parent's
consolidated federal income tax return. The Company's tax expense and payable
is determined on a separate return basis at maximum tax rates without regard to
graduated rates. Accordingly, the Company's federal income taxes payable
represents an intercompany payable to Parent at December 31, 1995 and 1996 and
September 30, 1997, and is shown as Due to Parent on the Consolidated Balance
Sheets. The Parent contributed the 1994 separate company income taxes to
capital.
Deferred income taxes are recorded using the liability method and reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
Earnings (Loss) Per Common Share
Earnings (loss) per common and common equivalent share data is calculated
based on the weighted average common and common equivalent shares outstanding
for the respective period, except for loss periods where the common equivalent
shares are excluded because their effect is antidilutive. Common equivalent
shares assume the exercise of all dilutive stock options using the treasury
stock method. Primary and fully diluted earnings per share are not materially
different in the years presented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The change is expected
to have no effect on earnings (loss) per share for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997.
Stock Options
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations in the primary financial statements
and provide the supplementary disclosures required by SFAS No. 123, "Accounting
for Stock-Based Compensation" (see Note 8).
Reclassifications
Certain 1994 and 1995 amounts have been reclassified in order to conform
to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-30
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
3. Acquisitions
During 1996, the Company completed eight acquisitions in the data security
and information technology staffing industries. Each acquisition was accounted
for using the purchase method. For each acquisition, results of operations and
cash flows of the acquired company are included in the Company's income
statement and statement of cash flows for the period from the purchase date
through December 31, 1996. In connection with certain of the acquisitions ATSI
issued shares of its common stock to the sellers as partial consideration and
the Company bought additional ATSI shares to assist in financing the cash
portion of the acquisitions. The fair value of ATSI's stock issued to sellers
or sold to the Company in connection with the acquisitions was determined by
the ATSI Board of Directors based on formulas used in similar transactions.
On June 19, 1996, the Company acquired the stock of Wolf Advisory
International, Inc. and Wolf Advisory International, Ltd. and acquired
substantially all of the operating assets and assumed certain liabilities of
Computer Plus Temporaries, Inc. (collectively Wolf), a provider of contract and
temporary information technology staffing services in eastern Pennsylvania and
northern Florida, for approximately $10,931,000, net of cash acquired. The
purchase price was comprised of net cash payments of approximately $6,240,000,
228,242 shares of ATSI common stock, and a $3,156,000 obligation to the seller.
Cash payment of the obligation to the seller was made in March 1997.
On October 30, 1996, the Company acquired the stock of Trinity Partners,
Inc. (Trinity), a provider of contract information technology staffing services
in northern California, for approximately $2,510,000, net of cash acquired. The
purchase price was comprised of net cash payments of approximately $2,330,000,
a subordinated note payable to the seller for $180,000, and immediately vested
five-year options to purchase 15,000 shares of ATSI's common stock at $16.55
per share (see Note 8). In addition, should Trinity meet certain predefined
profitability targets for the twelve months ended March 31, 1997, the former
owner will be entitled to a contingent amount based on a multiple of increased
earnings, as defined. The contingent purchase price, if any, will be paid in a
combination of cash (80%), a subordinated note payable (20%), and immediately
vested five-year options to purchase additional shares of ATSI's common stock.
The contingent purchase price, if any, will increase costs in excess of net
assets acquired. See Note 15--"Subsequent Events."
On November 5, 1996, the Company acquired substantially all of the
operating assets of the data security business of Zurich Data Corporation, a
two-facility provider of such services in northern New Jersey and the New York
City metropolitan area, for approximately $5,146,000. The purchase price was
comprised of approximately $3,570,000 in cash, 100,000 shares of ATSI's common
stock, a 10-year warrant for the purchase of 10,000 additional shares of ATSI's
common stock at $8.00 per share, and ten annual payments having a net present
value of approximately $859,000.
During 1996, the Company made five additional acquisitions, primarily in
the data security industry, for a combined purchase price of $4,703,000. The
combined purchase price was comprised of cash payments of $2,989,000, notes
payable and other obligations to sellers totaling $1,665,000, 7,896 shares of
ATSI's common stock, and assumption of specific liabilities.
F-31
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
4. Long-Term Debt
In connection with the acquisition of Arcus, ATSI entered into a $52
million credit facility (the Facility). Under the Facility, ATSI received $18
million under a five-year term loan agreement (Term A Loan), $12 million under
a seven year term loan agreement (Term B Loan), a commitment for a five-year
$7.5 million revolving line of credit (the Revolver), a seven-year $12.5
million acquisition loan facility (the Acquisition Facility) and a five-year $2
million additional line of credit (the Swingline Loan). In December 1996, ATSI
amended the Facility. As a result, the total acquisition loan commitment was
increased by $20 million and the maturity date of this commitment was extended
by one year. See Note 15--"Subsequent Events."
Under the Facility, ATSI may, at its option and subject to certain
restrictions, designate certain borrowings as either "Base Rate" or
"Eurodollar" borrowings. This designation determines the interest rates which
ATSI pays under the agreement. The Base Rate is defined as the higher of the
bank's prime rate (8.25% at December 31, 1996) or 1/2% over the US Federal
Funds Rate (5% at December 31, 1996) plus an applicable margin interest rate.
The Eurodollar rate is defined as the London Interbank Offering Rate (LIBOR)
(5.7% at December 31, 1996) plus an applicable margin spread. Base Rate
borrowings bear interest at the Base Rate plus 1% to 1.5% and Eurodollar
borrowings bear interest at LIBOR plus 2.5% to 3%.
The Facility requires mandatory repayments of term borrowings from the
proceeds that result from specified types of transactions. Additionally, excess
cash flow, as defined, is to be applied to reduce borrowings. Voluntary
prepayments of principal are also allowed under the Facility, with $750,000 of
such prepayments made during 1996. Both mandatory and voluntary payments reduce
the outstanding balances and future repayments under the Term A Loan, Term B
Loan and Acquisition Facility on a pro rata basis.
The Facility subjects ATSI to financial covenants including restrictions
on mergers and acquisitions of businesses; limitations on lease and rental
expenses incurred, intercompany indebtedness, loans to employees, and capital
expenditures; and maintenance of specified levels of profitability and cash
flows, both in absolute terms and in relation to interest and other fixed
charges. The Facility is collateralized by substantially all of the assets of
ATSI and its subsidiaries.
In connection with five of the acquisitions completed by ATSI during 1996
(see Note 3), ATSI issued notes payable and incurred other long-term
obligations (including contingent purchase price obligations) of which
approximately $5,485,000 and $1,954,000 remains outstanding at December 31,
1996 and September 30, 1997. Of this amount, $4,405,000 and $1,053,000 is due
to individuals who are shareholders, employees, or consultants of the Company
at December 31, 1996 and September 30, 1997. These obligations bear interest
annually at rates ranging from 5% to 9%. An obligation for $1,040,000 and
$900,000 at December 31, 1996 and September 30, 1997, respectively, is a demand
obligation, guaranteed by a bank letter of credit, which ATSI plans to
refinance, if required, using the Revolver and, therefore, has been classified
as a long-term liability. In 1997, $1,968,000 of acquisition obligations were
financed through the Acquisition Facility.
F-32
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
Long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------- September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Term A Loan, increasing quarterly principal payments
over a four-year period beginning March 31, 1996 ...... $17,082,000 $14,316,000 $12,271,000
Term B Loan, nominal quarterly principal payments for
the five year period beginning September 30, 1995
with the balance due in equal quarterly installments
for the following two years ........................... 11,364,000 10,839,000 10,805,000
Acquisition Facility, increasing quarterly principal
payments over a four year period starting
September 30, 1999 .................................... -- 9,725,000 16,144,000
Revolver, principal due five years from July 31, 1995,
with ATSI having the option to extend for an
additional three years with bank approval ............... 3,000,000 1,900,000 --
Acquisition notes and obligations ..................... -- 5,485,000 2,954,000
7% mortgage note payable in quarterly principal and
interest installments, maturing April 2001 ............ 521,000 441,000 376,000
Capital lease obligations .............................. 30,000 26,000 16,000
------------ ------------ ------------
31,997,000 42,732,000 42,566,000
Less current portion .................................... 2,272,000 4,407,000 3,906,000
------------ ------------ ------------
$29,725,000 $38,325,000 $38,660,000
============ ============ ============
</TABLE>
On August 17, 1995, the Company paid $20,250 to enter into an interest
rate cap agreement with a commercial bank having a notional principal of $15
million. This agreement effectively entitles the Company to receive from the
bank the amount, if any, by which the Company's interest payments on $15
million of its long-term debt exceeds 8.9375% plus the related premium (2.5% to
3.0%). The interest rate cap agreement expired on September 5, 1997.
Scheduled payments based on long-term debt outstanding at December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 ............ $ 4,407,000
1998 ............ 4,028,000
1999 ............ 4,499,000
2000 ............ 8,557,000
2001 ............ 8,632,000
Thereafter ...... 12,609,000
------------
$42,732,000
============
</TABLE>
Cash payments for interest during the years ended December 31, 1995 and
1996 and the nine month periods ended September 30, 1996 and 1997, were
$913,000, $3,131,000, $2,284,000 and $2,670,000, respectively.
At December 31, 1996 and 1995 and September 30, 1997, the fair value of
ATSI's revolving line of credit and long-term debt approximated its carrying
value.
5. Investment
In June 1997, UAC purchased 158,729 shares of Convertible, Series C,
Preferred Stock of Connected Corporation for $667,000. If these shares were
converted into common stock, the Company would own less than 20% of Connected
Corporation. Accordingly, the Company accounts for this investment under the
cost method.
F-33
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
6. Preferred Stock
UAC has authorized 200,000 shares of undesignated preferred stock with a
par value of $0.01. No shares have been issued.
UAC has also authorized 50,000 shares of Series A preferred stock with a
par value of $0.01 per share and a liquidation value of $1,000 per share.
Holders of Series A preferred stock are entitled to receive cumulative
dividends at the rate of 8% per annum on the amount of the liquidation
preference of $1,000 per share. Dividends are to be declared quarterly,
compounded and paid annually on the last business day of December through
additional shares of Series A preferred stock. As of September 30, 1997, UAC
had accrued the payment of a dividend for the years ended December 31, 1994,
1995 and 1996 and the nine month period ended September 30, 1997 on its Series
A preferred stock, payable in additional shares of Series A preferred stock.
Series A preferred stock is redeemable, in whole, at the option of UAC at
a redemption price of $1,000 per share plus accrued and unpaid dividends.
7. Warrants to Purchase Common Stock
UAC has issued 1.5 million warrants to purchase shares of UAC's common
stock. Each warrant entitles the holder to purchase one share of common stock
at the exercise price upon the occurrence of a capital change (as defined in
the warrant agreement) or after January 13, 2005, and on or before January 13,
2010. The exercise price is $13.75 per share, subject to adjustment as provided
in the warrant agreement.
8. Stock Option Plans
On July 31, 1995, UAC's Board of Directors approved the United Acquisition
Company 1995 stock option plan whereby UAC could award options to purchase up
to 260,000 shares of common stock of UAC to its officers and employees. The
options granted to date vest one third at the date of grant with the remainder
vesting in equal amounts on the first and second anniversaries of the date of
grant and expire 10 years from the date of grant with extension possible. The
options contain certain restrictions on exercise as defined in the stock option
plan. No options were granted during 1996. As of December 31, 1996, no shares
had been exercised, 144,926 shares were exercisable and 42,610 shares were
available for grant.
The following is a summary of employee stock option transactions under
UAC's Stock Option Plan:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
----------- -------------
<S> <C> <C>
Granted on July 31, 1995 ........................ 217,390 $12.50
-------
Outstanding at December 31, 1995 and 1996 ...... 217,390 $12.50
=======
</TABLE>
A total of 260,000 shares of common stock were reserved for issuance under
UAC's 1995 stock option plan at December 31, 1996. At December 31, 1996 UAC had
1,000,001 shares of Common Stock outstanding and the net book value per share
of UAC's Common Stock was $10.62.
Vested options only become exercisable if the Parent's ownership of UAC
falls below 80%. No options were exercisable at December 31, 1995 or 1996.
The ATSI 1995 Stock Option Plan reserves 340,000 and 455,000 shares at
December 31, 1996 and September 30, 1997, respectively, of authorized but
unissued common stock of ATSI for sale or award to directors, officers, and key
employees as stock options, stock appreciation rights, restricted stock awards
or performance share awards. Both nonqualified and incentive stock options
(ISO's) can be granted and in the case of an ISO, the purchase price cannot be
less than the fair market value at grant date.
Options expire on the date set by the Plan Administration Committee of the
ATSI Board of Directors (the Committee), but in no case later than the ten
years from the grant date and, in some cases, no later than five years from the
grant date for ISO's.
F-34
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
During 1995 and 1996, ATSI granted nonqualified stock options to certain
directors and key members of management. In general, the options granted are
20% vested at the grant date with the remaining options becoming vested
semi-annually over a four year period. As of December 31, 1996, 101,060 shares
were vested.
Vested options only become exercisable if the Company's ownership of ATSI
or the Parent's ownership of UAC falls below 80%. No options were exercisable
at December 31, 1995 or 1996. As of December 31, 1996, no shares had been
exercised or canceled and 53,000 shares remain available for grant.
The following is a summary of employee stock option transactions under
ATSI's 1995 Stock Option Plan:
<TABLE>
<CAPTION>
Number Option Price Weighted Average Option
of Shares Per Share Price per Share
----------- --------------- ------------------------
<S> <C> <C> <C>
Granted after July 31, 1995 ............ 198,100 $8.00 $ 8.00
--------
Outstanding at December 31, 1995 ...... 198,100 $8.00 $ 8.00
Granted in 1996 ........................ 88,900 $10.24-$11.03 $10.71
--------
Outstanding at December 31, 1996 ...... 287,000 $8.00-$11.03 $ 8.84
========
</TABLE>
The weighted average remaining contractual life for ATSI options
outstanding at December 31, 1996 was approximately 9 years.
A total of 365,000 and 465,000 shares of ATSI common stock were reserved
for issuance under ATSI's 1995 Stock Option Plan, the acquisition options (see
Notes 3 and 15) and the acquisition warrant (see Note 3) at December 31, 1996
and September 30, 1997, respectively. At December 31, 1996 ATSI had 3,205,263
shares of common stock outstanding and the net book value per share of ATSI
common stock was $9.55.
Pro forma information regarding net income and the net loss attributed to
common stockholders is required by SFAS No. 123, and has been determined as if
the Company had accounted for its employee stock options under the fair value
method. The fair value for options granted ($217,000 in 1995 and $0 and 1996)
was estimated at the date of grant using a minimum value option pricing model
and the following weighted-average assumptions for 1995 and 1996; risk-free
interest rates of 5.6%; no dividends expected to be declared; volatility factor
of zero for the expected price of the Company's common stock as it is not
publicly traded; and a weighted-average expected life of the options of 2.3
years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income for 1995 and 1996, would be $1,269,000 and $1,550,000,
respectively, and the net loss attributed to common stockholders would be
$485,000 and $345,000, respectively.
F-35
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
9. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Property and equipment ....................................... $ 122,000 $ -- $ 4,000
Accrued liabilities .......................................... 43,000 166,000 187,000
Other ......................................................... 5,000 14,000 8,000
---------- ---------- ----------
170,000 180,000 199,000
Deferred tax liabilities:
Costs in excess of net assets acquired and other assets ...... (123,000) (455,000) (676,000)
Property and equipment ....................................... -- (46,000) --
---------- ---------- ----------
(123,000) (501,000) (676,000)
---------- ---------- ----------
Net deferred tax assets (liabilities) ........................ $ 47,000 $ (321,000) $ (477,000)
========== ========== ==========
</TABLE>
Deferred tax assets totaling $48,000, $180,000 and $199,000 as of December
31, 1995 and 1996, and September 30, 1997, respectively, are included in
prepaid expenses and other current assets on the Consolidated Balance Sheets.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31, September 30,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
---------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal ............... $200,000 $ 883,000 $ 858,000 $ 932,000 $ 915,000
State ............... 30,000 176,000 410,000 323,000 357,000
--------- ---------- ----------- ----------- -----------
230,000 1,059,000 1,268,000 1,255,000 1,272,000
Deferred Federal ...... -- (47,000) 237,000 181,000 156,000
--------- ---------- ----------- ----------- -----------
$230,000 $1,012,000 $1,505,000 $1,436,000 $1,428,000
========= ========== =========== =========== ===========
</TABLE>
The effective tax rates differ from the federal statutory rates primarily
as a result of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31, September 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Federal tax at statutory rate ............... 34.0% 34.0% 34.0% 34.0% 34.0%
State tax provision ........................ 5.0 5.0 8.6 7.1 7.7
Impact of minority interest and other ...... -- 4.5 5.3 6.8 5.2
------ ------ ------ ------ ------
39.0% 43.5% 47.9% 47.9% 46.9%
====== ====== ====== ====== ======
</TABLE>
Cash payments for income taxes during the years ended December 31, 1995
and 1996 and the nine month periods ended September 30, 1996 and 1997 were
$720,000, $609,000, $499,000 and $619,000, respectively.
10. Retirement Plans
On August 1, 1995, ATSI adopted the Arcus, Inc. 401(k) Profit Sharing Plan
(the Plan). Employees of ATSI and its subsidiaries who satisfy a six month
service requirement as of open enrollment each January 1st participate in the
Plan. Participants in the Plan may contribute from 1% to 15% of their annual
compensation. ATSI matches
F-36
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
one half of employee contributions up to a total of 1.5% of their annual
compensation. Company matching expense, net of forfeitures, was $52,000,
$132,000, $115,000 and $145,000 for the years ended December 31, 1995 and 1996
and the nine month periods ended September 30, 1996 and 1997, respectively.
ATSI may also make an annual voluntary contribution for all eligible employees,
whether or not they elect a salary deferral. ATSI provided for a voluntary
contribution in 1995 and 1996, to be funded in the following year, based upon a
percentage of participant compensation. Voluntary contribution expense, net of
forfeitures, for the years ended December 31, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 was $147,000, $430,000, $348,000 and
$382,000, respectively.
11. Commitments and Contingencies
As of September 30, 1997, the Company leased 29 vault facilities, 14
staffing offices and certain equipment under noncancelable operating lease
agreements. Twelve of the Company's vault facilities are leased from a single
landlord of which nine have fifteen-year terms beginning January 1, 1995, with
two five-year renewal options, providing for cost of living increases every
three years based upon the Consumer Price Index, with a 3.33% ceiling per year.
The remaining vault facilities are leased under leases which commenced June
1989 or later, and have primary lease terms ranging from four to twenty years,
generally with one or two five-year renewal options. During 1996, the Company
signed leases in regard to two vault facilities that were under construction at
December 31, 1996. These two leases each have fifteen-year terms that will
commence during 1997. With respect to vault facilities, the Company generally
is required to pay property tax, insurance, and facility maintenance expenses.
Staffing offices, located in multi-tenant commercial office buildings, have
primary lease terms ranging from one to five years, generally with no renewal
options. The Company has an irrevocable letter of credit for $50,000 expiring
on April 9, 1998 that supports an office lease obligation. Other operating
leases are for equipment and vehicles. Rental expense under operating leases,
including month-to-month rentals, was $1,578,000 and $4,500,000 for the years
ended December 31, 1995 and 1996, respectively. Included in these amounts are
$554,000 and $1,361,000, respectively, of operating lease expense related to
facilities leased from ATSI shareholders.
Future minimum rentals required under operating leases having an initial
or remaining noncancelable lease term in excess of one year as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 .............................. $ 5,153,000
1998 .............................. 4,808,000
1999 .............................. 4,363,000
2000 .............................. 3,871,000
2001 .............................. 3,106,000
Thereafter ........................ 19,441,000
------------
Total minimum lease payments ...... $40,742,000
============
</TABLE>
The Company has a $250,000 standby letter of credit payable to its bank to
secure its operating cash accounts.
12. Related Party Transactions
During the years ended December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997, the Company paid GKH Partners, a
stockholder of the Company and of AGI, investment advisory and other fees of
$125,000, $125,000, $178,000, $118,000 and $148,000, respectively. The
investment advisory fee is included in holding company expenses on the
Consolidated Statements of Operations.
F-37
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
13. Business Segments
The following tables present data relating to the Company's revenues, cost
of services rendered, depreciation, operating income, identifiable assets and
capital expenditures by business segment.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
--------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- -------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Data security ........................... $ -- $19,867,759 $ 53,145,334 $ 38,553,505 $ 44,573,634
Technical staffing ........................ -- 810,599 12,997,907 6,711,491 24,717,499
Intercompany eliminations ............... -- -- (161,865) (96,576) (322,225)
---------- ------------ ------------ ------------ ------------
Total revenues ........................... $ -- $20,678,358 $ 65,981,376 $ 45,168,420 $ 68,968,908
========== ============ ============ ============ ============
Cost of Services Rendered
Data security ........................... $ -- $ 8,929,784 $ 23,554,642 $ 17,063,800 $ 19,831,627
Technical staffing ........................ -- 520,997 9,344,976 4,836,278 18,216,422
Intercompany eliminations ............... -- -- (161,865) (96,576) (322,225)
---------- ------------ ------------ ------------ ------------
Total costs of services rendered ......... $ -- $ 9,450,781 $ 32,737,753 $ 21,803,502 $ 37,725,824
========== ============ ============ ============ ============
Depreciation and Amortization
Data security ........................... $ -- $ 1,488,093 $ 3,907,825 $ 2,881,767 $ 3,310,817
Technical staffing ........................ -- 1,575 219,586 103,694 929,076
Corporate ................................. 3,765 118,811 321,614 229,018 310,480
---------- ------------ ------------ ------------ ------------
Total depreciation and amortization ...... $ 3,765 $ 1,608,479 $ 4,449,025 $ 3,214,479 $ 4,550,373
========== ============ ============ ============ ============
Operating Income
Data security ........................... $ -- $ 4,629,540 $ 12,149,565 $ 9,040,836 $ 9,888,168
Technical staffing ........................ -- 114,709 442,812 233,283 257,714
Corporate ................................. (394,668) (2,678,410) (7,205,969) (4,677,618) (4,593,547)
---------- ------------ ------------ ------------ ------------
Total operating income .................. $ (394,668) $ 2,065,839 $ 5,386,408 $ 4,596,501 $ 5,552,335
========== ============ ============ ============ ============
Capital Expenditures
Data security ........................... $ -- $ 2,115,127 $ 4,363,670 $ 2,752,349 $ 2,054,901
Technical staffing ........................ -- 43,662 317,302 157,238 634,484
Corporate ................................. -- 144,806 622,693 332,873 150,147
---------- ------------ ------------ ------------ ------------
Total capital expenditures ............... $ -- $ 2,303,595 $ 5,303,665 $ 3,242,460 $ 2,839,532
========== ============ ============ ============ ============
Identifiable Assets
Data security ........................... $59,657,300 $ 85,687,540 $ 88,429,038
Technical staffing ........................ 152,260 2,041,337 3,835,987
Corporate ................................. 19,659,437 12,446,556 8,719,766
------------ ------------ ------------
Total identifiable assets ............... $79,468,997 $100,175,433 $100,984,791
============ ============ ============
</TABLE>
F-38
<PAGE>
UNITED ACQUISITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
14. Supplemental Pro Forma Acquisition Information (Unaudited)
The following supplemental pro forma information has been presented as if
the acquisition of ATSI described in Note 1 and the acquisitions discussed in
Note 3 occurred on January 1, 1995 and as if the acquisition discussed in Note
15 occurred on January 1, 1996.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
----------------------------- --------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Revenues ................................................ $64,512,369 $89,208,750 $74,630,285
=========== ============ ============
Operating income .......................................... $5,498,789 $ 7,695,968 $ 6,045,779
=========== ============ ============
Net income ................................................ $1,183,528 $ 2,516,673 $ 1,881,116
=========== ============ ============
Net income (loss) attributed to common stockholders ...... $ (570,712) $ 622,094 $ 347,750
=========== ============ ============
Earnings (loss) per common share ........................... $ (0.57) $ 0.62 $ 0.35
=========== ============ ============
</TABLE>
15. Subsequent Events
In June 1997, the Company sold the operating assets of the non-staffing
portion of Trinity's business. The assets were sold to the former owner of
Trinity and other former Trinity employees for a $400,000 five year note,
bearing interest at 12% with all principal due at maturity. In conjunction with
the sale, and in consideration of a cash payment of $250,000 to the former
owner, the former owner and the Company signed a mutual release. Among the
Company's obligations released were any contingent consideration due to the
former owner under the original agreement to acquire Trinity, the $180,000
subordinated note payable to the former owner, certain stock options held by
the former owner and certain other agreements signed with the former owner.
On June 11, 1997, ATSI amended its credit agreement to increase the size
of the Revolving Facility from $7.5 million to $11 million and reduced the size
of the Acquisition Facility by $3.5 million.
On August 20, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of a company operating in the contract
information technology staffing services business in northern California,
Oregon and Washington state for approximately $4,889,000, net of cash acquired.
The purchase price consisted of net cash payments of approximately $3,889,000,
a subordinated note payable to the seller for $1,000,000 and 60,000 options to
purchase the Company's common stock at $16.41. Additionally, if certain
profitability targets are met, the Company could be obligated to make an
additional cash payment of up to $750,000. The acquired company had revenues
and operating income for the year ended December 31, 1996 of approximately $8.4
million and $1.2 million, respectively.
On September 26, 1997, Iron Mountain Incorporated signed a definitive
agreement to acquire all of the outstanding stock of the Company with
anticipated closing in the first quarter of 1998.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Arcus Technology Services, Inc.
We have audited the consolidated balance sheets of Arcus Technology Services,
Inc. (Successor Company) as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
five month period ended December 31, 1995 and the year ended December 31, 1996.
We have also audited the consolidated statements of income, stockholders'
equity, and cash flows of Arcus, Inc. (Predecessor Company) for the year ended
December 31, 1994 and the seven month period ended July 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arcus Technology
Services, Inc. (Successor Company) at December 31, 1995 and 1996, and the
consolidated results of its operations and cash flows for the five month period
ended December 31, 1995 and the year ended December 31, 1996, and the
consolidated results of Arcus, Inc.'s (Predecessor Company) operations and cash
flows for the year ended December 31, 1994 and the seven month period ended
July 31, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
February 28, 1997, except for
Note 12, as to which the date is
September 26, 1997
F-40
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
(Successor Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
September 30,
1995 1996 1997
------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS (Note 4)
Current Assets:
Cash ................................................ $ 712,818 $ 1,687,101 $ 803,024
Accounts receivable, less allowance for doubtful
accounts of $123,055, $156,227 and $68,000,
respectively ....................................... 8,846,628 14,008,613 17,058,766
Inventory .......................................... 293,393 371,715 342,230
Prepaid expenses and other current assets ............ 721,558 1,018,281 1,052,835
----------- ------------ ------------
Total Current Assets ........................... 10,574,397 17,085,710 19,256,855
Property and Equipment, at Cost:
Land, buildings, and leasehold improvements ......... 5,395,640 6,266,886 6,756,226
Vault equipment and vehicles ........................ 6,628,169 8,819,780 10,097,416
Furniture and other equipment ........................ 1,275,251 3,958,006 4,766,392
----------- ------------ ------------
13,299,060 19,044,672 21,620,034
Less accumulated depreciation .................. 892,339 3,649,357 5,888,313
----------- ------------ ------------
Property and Equipment, Net ........................... 12,406,721 15,395,315 15,731,721
Cost In Excess of Net Assets Acquired, Net of
Accumulated Amortization of $594,377, $2,310,903
and $4,053,320, respectively ........................ 35,093,200 55,367,074 57,451,478
Other Assets .......................................... 2,056,056 609,649 524,171
----------- ------------ ------------
Total Assets ................................. $60,130,374 $88,457,748 $92,964,225
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,309,324 $ 5,796,844 $ 3,536,622
Accrued payroll ....................................... 2,186,478 2,441,433 3,568,184
Other accrued liabilities ........................... 926,069 1,344,001 949,369
Deferred revenue .................................... 2,856,621 3,469,265 3,525,806
Due to parent (Note 2) .............................. 13,500 1,335,702 2,382,199
Current portion of long-term debt ..................... 2,272,237 3,218,794 3,905,822
----------- ------------ ------------
Total Current Liabilities ..................... 11,564,229 17,606,039 17,868,002
Long-Term Debt (Note 4) .............................. 29,724,941 39,513,473 40,160,602
Deferred Income Taxes (Note 6) ........................ 1,000 501,000 676,000
Other Liabilities .................................... 266,540 226,700 296,491
Commitments and Contingencies (Notes 3 and 9)
Stockholders' Equity:
Common stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--2,191,150,
3,205,263 and 3,325,229, respectively ............ 21,911 32,052 33,252
Capital in excess of par value ..................... 17,507,289 26,918,088 28,115,156
Retained earnings .................................... 1,057,416 3,619,939 5,803,717
Translation adjustment .............................. (12,952) 40,457 11,005
----------- ------------ ------------
Total Stockholders' Equity ..................... 18,573,664 30,610,536 33,963,130
----------- ------------ ------------
Total Liabilities and Stockholders' Equity ...... $60,130,374 $88,457,748 $92,964,225
=========== ============ ============
</TABLE>
See accompanying notes.
F-41
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
Seven Five September 30,
Year Ended Months Ended Months Ended Year Ended --------------------------
December 31, July 31, December 31, December 31,
1994 1995 1995 1996 1996 1997
--------------- --------------- -------------- ------------- ------------- ------------
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Storage and transport ...... $34,493,858 $21,401,465 $16,158,490 $43,671,062 $31,853,307 $38,173,659
Other ..................... 6,339,489 4,276,499 4,519,868 22,310,314 13,315,113 30,795,249
----------- ----------- ------------ ------------ ------------ ------------
Total Revenues ...... 40,833,347 25,677,964 20,678,358 65,981,376 45,168,420 68,968,908
Operating Expenses:
Cost of services rendered . 18,034,862 11,345,153 9,450,781 32,737,753 21,803,502 37,725,824
Selling and administrative
expenses ............... 14,027,645 8,730,900 6,632,234 21,591,852 14,642,683 20,279,524
Depreciation and
amortization ............ 2,850,154 1,532,211 1,601,464 4,436,529 3,205,404 4,538,429
----------- ----------- ------------ ------------ ------------ ------------
Total Operating
Expenses ............ 34,912,661 21,608,264 17,684,479 58,766,134 39,651,589 62,543,777
----------- ----------- ------------ ------------ ------------ ------------
Operating Income ............ 5,920,686 4,069,700 2,993,879 7,215,242 5,516,831 6,425,131
Interest (Income) Expense,
Net ........................ (264,788) (336,556) 1,128,963 2,668,719 1,932,303 2,454,353
----------- ----------- ------------ ------------ ------------ ------------
Income Before Income
Taxes ..................... 6,185,474 4,406,256 1,864,916 4,546,523 3,584,528 3,970,778
Provision for Income Taxes
(Note 6) .................. 2,601,000 1,852,000 807,500 1,984,000 1,563,000 1,787,000
----------- ----------- ------------ ------------ ------------ ------------
Net Income .................. $ 3,584,474 $ 2,554,256 $ 1,057,416 $ 2,562,523 $ 2,021,528 $ 2,183,778
=========== =========== ============ ============ ============ ============
Earnings per share ......... $ 0.46 $ 0.32 $ 0.48 $ 0.99 $ 0.83 $ 0.66
=========== =========== ============ ============ ============ ============
Weighted average shares
outstanding ............... 7,848,632 7,885,252 2,191,150 2,583,642 2,446,351 3,293,364
=========== =========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-42
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital in
Excess of Retained Translation
Shares Amount Par Value Earnings Adjustment Total
----------- --------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor:
Balances at December 31, 1993 ... 7,770,697 $77,707 $ 2,025,519 $11,166,241 $(512,953) $12,756,514
Currency translation
adjustment ..................... -- -- -- -- 25,786 25,786
Net income ..................... -- -- -- 3,584,474 -- 3,584,474
---------- -------- ------------ ------------ ---------- -----------
Balances at December 31, 1994 ... 7,770,697 77,707 2,025,519 14,750,715 (487,167) 16,366,774
Currency translation
adjustment ..................... -- -- -- -- 9,440 9,440
Exercise of stock options ...... 10,000 100 42,400 -- -- 42,500
Net income ..................... -- -- -- 2,554,256 -- 2,554,256
---------- -------- ------------ ------------ ---------- -----------
Balances at July 31, 1995 ......... 7,780,697 $77,807 $ 2,067,919 $17,304,971 $(477,727) $18,972,970
========== ======== ============ ============ ========== ===========
Successor:
Issue Successor equity at
August 1, 1995 .................. 2,191,150 $21,911 $17,507,289 $ -- $ -- $17,529,200
Currency translation
adjustment ..................... -- -- -- -- (12,952) (12,952)
Net income ..................... -- -- -- 1,057,416 -- 1,057,416
---------- -------- ------------ ------------ ---------- -----------
Balances at December 31, 1995 ... 2,191,150 21,911 17,507,289 1,057,416 (12,952) 18,573,664
Issuances of common stock in
connection with acquisitions
(Note 3) ..................... 333,007 3,330 2,299,282 -- -- 2,302,612
Sales of common stock to
Parent (Note 3) ............... 681,106 6,811 7,111,517 -- -- 7,118,328
Currency translation
adjustment ..................... -- -- -- -- 53,409 53,409
Net income ..................... -- -- -- 2,562,523 -- 2,562,523
---------- -------- ------------ ------------ ---------- -----------
Balances at December 31, 1996 ... 3,205,263 32,052 26,918,088 3,619,939 40,457 30,610,536
Issuances of common stock
(unaudited) .................. 4,038 41 9,963 -- -- 10,004
Sales of common stock to
Parent (Note 3) (unaudited) . 115,928 1,159 1,187,105 -- -- 1,188,264
Currency translation
adjustment (unaudited) ......... -- -- -- -- (29,452) (29,452)
Net income (unaudited) ......... -- -- -- 2,183,778 -- 2,183,778
---------- -------- ------------ ------------ ---------- -----------
Balances at September 30, 1997
(unaudited) ..................... 3,325,229 $33,252 $28,115,156 $ 5,803,717 $ 11,005 $33,963,130
========== ======== ============ ============ ========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Five Nine Months Ended
Year Ended Seven Months Months Ended Year Ended September 30,
December 31, Ended July 31, December 31, December 31, --------------------------
1994 1995 1995 1996 1996 1997
--------------- -------------- ---------------- ---------------- ---------- ------------
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income ........................ $ 3,584,474 $ 2,554,256 $ 1,057,416 $ 2,562,523 $ 2,021,528 $ 2,183,778
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization .................. 2,850,154 1,532,211 1,601,464 4,436,529 3,205,404 4,538,429
Deferred tax provision
(benefit) ..................... (183,912) (124,000) (47,000) 237,000 181,000 156,000
Provision for losses on
accounts receivable ......... 24,000 21,000 15,000 56,000 32,000 (78,314)
(Gain) loss on disposal
of assets ..................... 105,613 3,961 185 (18,110) (13,106) 802
Changes in operating
assets and liabilities, net
of acquisitions:
Accounts receivable ......... (626,622) (138,515) (1,614,511) (2,988,055) (1,623,541) (1,567,953)
Inventory .................. (84,287) (64,996) (18,239) (65,232) 1,160 28,324
Prepaid expenses ............ 99,233 42,197 (341,081) (72,961) 152,268 (18,136)
Other assets ............... 42,084 11,773 (7,315) (96,822) 9,217 715
Accounts payable ............ 161,186 41,491 1,388,888 1,970,283 (838,538) (2,470,452)
Accrued and other
liabilities ............... 75,320 332,906 719,665 (330,112) (569,269) 521,943
Deferred revenue ............ 159,545 87,259 48,263 254,460 333,019 56,541
------------ ----------- ------------- -------------- ------------- -------------
Net Cash Provided by
Operating Activities ............ 6,206,788 4,299,543 2,802,735 5,945,503 2,891,142 3,351,677
Investing Activities:
Acquisitions, net of cash
acquired ........................ -- -- (48,751,173) (15,128,889) (7,646,245) (6,911,046)
Purchase of property and
equipment ..................... (1,840,880) (1,831,165) (2,290,595) (5,280,173) (3,228,803) (2,833,894)
Funds invested with Parent ...... (3,987,731) (1,515,060) -- -- -- --
Sales of property and
equipment ..................... -- 13,087 -- 1,808,959 1,808,959 --
Other investing activities ...... 64,447 293 (8,085) (68,568) 8,626 (98,941)
------------ ----------- ------------- -------------- ------------- -------------
Net Cash Used for Investing
Activities ........................ (5,764,164) (3,332,845) (51,049,853) (18,668,671) (9,057,463) (9,843,881)
Financing Activities:
Proceeds from sales of
common stock .................. -- 42,500 17,529,200 7,118,328 3,813,829 1,198,268
Proceeds from issuances of
long-term debt .................. (458,889) -- 30,000,000 9,883,000 5,857,000 7,919,152
Payments on long-term debt ...... -- (131,071) (1,580,544) (3,540,918) (2,075,585) (2,649,021)
Increase (decrease) in due
to parent ........................ (18,530) -- 13,500 1,322,202 1,041,407 1,046,497
Net increase (decrease) in
revolving line of credit ...... -- -- 3,000,000 (1,100,000) (2,100,000) (1,900,000)
------------ ----------- ------------- -------------- ------------- -------------
Net Cash Provided by (Used
for) Financing Activities ...... (477,419) (88,571) 48,962,156 13,682,612 6,536,651 5,614,896
Effect of Exchange Rate
Changes on Cash .................. 2,432 1,093 (2,220) 14,839 884 (6,769)
------------ ----------- ------------- -------------- ------------- -------------
Net Increase (Decrease) in
Cash ........................... (32,363) 879,220 712,818 974,283 371,214 (884,077)
Cash at Beginning of Period ...... 88,999 56,636 -- 712,818 712,818 1,687,101
------------ ----------- ------------- -------------- ------------- -------------
Cash at End of Period ............ $ 56,636 $ 935,856 $ 712,818 $ 1,687,101 $ 1,084,032 $ 803,024
============ =========== ============= ============== ============= =============
</TABLE>
See accompanying notes.
F-44
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
1. Organization and Business
Arcus Technology Services, Inc. (ATSI or Successor) is an 81% owned
subsidiary of United Acquisition Company (UAC or the Parent) which is an 80%
owned subsidiary of Arcus Group, Inc. (AGI), formerly United Gas Holding
Corporation. ATSI was formed in June 1995 to acquire all of the outstanding
stock of Arcus, Inc. (Arcus or Predecessor), effective after the close of
business on July 31, 1995. The consideration given was cash and the acquisition
was accounted for using the purchase method in the Successor financial
statements. The Predecessor financial statements have been prepared using the
historical cost of its assets and have not been adjusted to reflect the
purchase by ATSI. During 1996, through its wholly-owned subsidiaries Arcus Data
Security, Inc. (ADSI), and Arcus Staffing Resources, Inc. (ASRI), ATSI made
eight acquisitions for a combined purchase price of approximately $23.3
million, net of cash acquired (see Note 3).
The Successor financial statements include the accounts of ATSI and its
subsidiaries, Arcus, ADSI, ASRI, TPI Holding Corporation, Wolf Advisory
International, Ltd., Wolf Advisory International, Inc., and Towler Data
Services, Inc. and ADSI's U.K. subsidiary, Arcus Data Security Limited (ADSL).
All intercompany transactions between ATSI and its subsidiaries have been
eliminated. The term "Company" includes ATSI, Arcus, ADSI, ADSL, ASRI, TPI
Holding Corporation, Wolf Advisory International, Ltd., Wolf Advisory
International, Inc., and Towler Data Services, Inc. taken together, except
where otherwise indicated. The Predecessor financial statements include the
accounts of Arcus, and its wholly owned subsidiaries, ADSI and ADSL.
The Company provides data security and technical staffing services to
information technology departments of its business customers. Data security
services involve the secure transport, handling and storage of duplicate or
back-up computer data. Recognizing that customers' data centers are vulnerable
to natural disasters as well as other types of disasters, including terrorism
and employee sabotage, ATSI provides services that enable businesses to recover
successfully from such disasters. To protect against loss of information in
such a disaster, the Company provides secure off-site storage of duplicate data
processing records whereby computer tapes and cartridges are transported on a
regular basis by specially equipped vehicles and stored in climate controlled,
concrete, steel-reinforced vaults. If a disaster occurs, the Company delivers
the duplicate data quickly to a specified location, often a hot site (an
alternate data processing site for use by businesses when their normal
processing center is not available because of a disaster). The Company's
disaster recovery services also include assisting its customers in the testing
of their disaster recovery plans. As part of its data security services, the
Company also performs media library relocations. In addition, the Company sells
a variety of brand name data products to its customers. Through its staffing
services, the Company helps customers meet their personnel needs by supplying
information technology professionals on either a contract or temporary basis.
The Company also recruits information technology professionals for permanent
placement with its customers. Approximately 100%, 97%, 96%, 81%, 86% and 65% of
the Company's revenue during the year ended December 31, 1994, the seven month
period ended July 31, 1995, the five month period ended December 31, 1995, the
year ended December 31, 1996, and the nine month periods ended September 30,
1996 and 1997, respectively, came from data security services. The Company
serves customers from 45 locations in the United States and one location in the
United Kingdom.
The Company provides services, generally on a contract basis, to a
diversified customer base, with no single customer accounting for more than 5%
of revenue. A majority of the Company's data security revenue is billed monthly
in advance and trade accounts receivable are due within 30 days. Accounts
receivable are not collateralized.
In management's opinion, the accompanying interim consolidated financial
statements for the nine month periods ended September 30, 1996 and 1997 contain
all adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the consolidated financial position of the Company as of
September 30, 1997, and the consolidated results of operations and cash flows
of the Company for the nine month periods ended September 30, 1996 and 1997.
The consolidated results of operations for the nine month period ended
September 30, 1997, are not necessarily indicative of the results expected for
the full year.
F-45
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
2. Summary of Significant Accounting Policies
Inventory
Data products inventory purchased for resale are carried at the lower of
cost, which approximates first-in, first-out, or market. However, items are
generally purchased for a specific customer and shipped directly to the
customer by the supplier.
Property and Equipment
Property and equipment consisting primarily of land, buildings, vault
equipment, and leasehold improvements are carried at cost and are depreciated
using the straight-line method over their estimated useful lives. The estimated
useful lives for the Predecessor are: buildings-20 years, vault equipment 5-20
years, vehicles 3-5 years, furniture and other equipment 3-7 years. The
estimated useful lives for the Successor are: buildings-40 years, vault
equipment 4-20 years, vehicles 3-7 years, furniture and other equipment 3-10
years. Leasehold improvements are amortized over the shorter of their useful
lives or the applicable lease term. The Company expenses repair and maintenance
costs as incurred unless they significantly extend the remaining life of the
asset, in which case they are capitalized. Repair and maintenance expense for
facilities and equipment, including vehicles, was $1,020,000, $588,000,
$495,000, $1,228,000, $859,000 and $971,000 for the year ended December 31,
1994, the seven month period ended July 31, 1995, the five month period ended
December 31, 1995, the year ended December 31, 1996, and the nine month periods
ended September 30, 1996 and 1997, respectively.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired arose from ATSI's acquisition of
Arcus in 1995 and ATSI's eight acquisitions in 1996 (see Note 3). These costs
are being amortized over 25 years on a straight-line basis.
Other Assets
Other assets are comprised of long-term deposits, intangible assets,
deferred organization costs, and, in 1995, certain property and improvements
being held for sale. Intangible assets, consisting mainly of covenants not-to-
compete, are amortized over three to five years on a straight-line basis.
Related amortization expense was $205,000, $75,000, $96,000, $212,000,
$174,000, and $84,000 for the year ended December 31, 1994, the seven month
period ended July 31, 1995, the five month period ended December 31, 1995, the
year ended December 31, 1996, and the nine month periods ended September 30,
1996 and 1997, respectively.
Foreign Currency Translation
The Company's only international operation is in the United Kingdom. The
functional currency of that operation is the Pound Sterling. The translation of
this currency into U.S. Dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during the period.
Revenues
Storage and transport revenues include monthly billings to customers for
basic data security services. Other revenues include specialized data security
services, data product sales and staffing services revenues. Certain storage
and transport services are billed in advance of the delivery of service. These
billings are accounted for as deferred revenue on the Company's balance sheet
until the service is delivered, at which time the revenue is recognized. See
Note 10 for revenues by business segment.
Included in other revenues are product sales, net of product costs,
totaling $1,252,000, $834,000, $665,000, $1,800,000, $1,226,000, and $1,640,000
for the year ended December 31, 1994, the seven month period ended
F-46
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
July 31, 1995, the five month period ended December 31, 1995, the year ended
December 31, 1996, and the nine month periods ended September 30, 1996 and
1997, respectively. Product sales are presented on a net basis since the
Company generally functions as a sales representative of the product
manufacturers and the Company seldom receives or takes title to the products.
Gross product sales were $6,600,000, $4,502,000, $4,367,000, $10,465,000,
$6,811,000, and $9,370,000 for the year ended December 31, 1994, the seven
month period ended July 31, 1995, the five month period ended December 31,
1995, the year ended December 31, 1996, and the nine month periods ended
September 30, 1996 and 1997, respectively.
Interest Rate Cap Agreement
The Company entered into an interest rate cap agreement to effectively
limit the interest rate which it pays on a portion of its long-term debt. The
interest rate differential to be received, if any, is accrued as a reduction in
interest expense. The fair value of the cap is not recognized in the financial
statements.
Income Taxes
For tax return purposes, the Company is included in AGI's consolidated
federal income tax return. The Company's tax expense and payable is determined
on a separate return basis at maximum tax rates without regard to graduated
rates. Accordingly, the Company's federal income taxes payable represents an
intercompany payable to Parent at December 31, 1995 and 1996, and September 30,
1997, and is shown as Due to Parent on the Consolidated Balance Sheets.
Deferred income taxes recorded using the liability method reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Earnings Per Share
Earnings (loss) per common and common equivalent share data is calculated
based on the weighted average common and common equivalent shares outstanding
for the respective period. Common equivalent shares assume the exercise of all
dilutive stock options using the treasury stock method. Primary and fully
diluted earnings per share are not materially different in the years presented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded. The change is expected to
have no effect on earnings per share for the five month period ended December
31, 1995, the year ended December 31, 1996 and the nine month periods ended
September 30, 1996 and 1997. The change is expected to result in an increase in
basic earnings per share for the year ended December 31, 1994 and the seven
month period ended July 31, 1995 to $0.47 and $0.33, respectively.
Stock Options
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations in the primary financial statements
and provide the supplementary disclosures required by SFAS No. 123, "Accounting
for Stock-Based Compensation" (see Note 5).
F-47
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
Reclassifications
Certain 1994 and 1995 amounts have been reclassified in order to conform
to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Acquisitions
During 1996, the Company completed eight acquisitions in the data security
and information technology staffing industries. Each acquisition was accounted
for using the purchase method. For each acquisition, results of operations and
cash flows of the acquired company are included in the Company's income
statement and statement of cash flows for the period from the purchase date
through December 31, 1996. In connection with certain of the acquisitions, the
Company issued shares of its common stock to the sellers as partial
consideration and sold shares of its common stock to its Parent to assist in
financing the cash portion of the acquisitions. The fair value of the Company's
stock issued or sold in connection with the acquisitions was determined by the
Board of Directors of the Company based on formulas used in similar
transactions.
On June 19, 1996, the Company acquired the stock of Wolf Advisory
International, Inc. and Wolf Advisory International, Ltd. and acquired
substantially all of the operating assets and assumed certain liabilities of
Computer Plus Temporaries, Inc. (collectively Wolf), a provider of contract and
temporary information technology staffing services in eastern Pennsylvania and
northern Florida, for approximately $10,931,000, net of cash acquired. At
December 31, 1996, the purchase price was comprised of approximately $6,240,000
of net cash payments, 228,242 shares of the Company's common stock, and a
$3,156,000 obligation to the seller. Cash payment of the obligation to the
seller was made in March 1997.
On October 30, 1996, the Company acquired the stock of Trinity Partners,
Inc. (Trinity), a provider of contract information technology staffing services
in northern California, for approximately $2,510,000, net of cash acquired. The
purchase price was comprised of net cash payments of approximately $2,330,000,
a subordinated note payable to the seller for $180,000, and immediately vested
five-year options to purchase 15,000 shares of the Company's common stock at
$16.55 per share (see Note 5). In addition, should Trinity meet certain
predefined profitability targets for the twelve months ended March 31, 1997,
the former owner will be entitled to a contingent amount based upon a multiple
of increased earnings, as defined. The contingent purchase price, if any, will
be paid in a combination of cash (80%), a subordinated note payable (20%), and
immediately vested five-year options to purchase additional shares of the
Company's common stock. The contingent purchase price, if any, will increase
costs in excess of net assets acquired. See Note 12--"Subsequent Events."
On November 5, 1996, the Company acquired substantially all of the
operating assets of the data security business of Zurich Data Corporation, a
two-facility provider of such services in northern New Jersey and the New York
City metropolitan area, for approximately $5,146,000. The purchase price was
comprised of approximately $3,570,000 in cash, 100,000 shares of the Company's
common stock, a 10-year warrant for the purchase of 10,000 additional shares of
the Company's common stock at $8.00 per share, and ten annual payments having a
net present value of approximately $859,000.
During 1996, the Company made five additional acquisitions, primarily in
the data security industry, for a combined purchase price of $4,703,000. The
combined purchase price was comprised of cash payments of $2,989,000, notes
payable and other obligations to sellers totaling $1,665,000, 7,896 shares of
the Company's common stock, and assumption of specific liabilities.
F-48
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
4. Long-Term Debt
In connection with the acquisition of Arcus, the Company entered into a
$52 million credit facility (the Facility). Under the Facility, the Company
received $18 million under a five-year term loan agreement (Term A Loan), $12
million under a seven year term loan agreement (Term B Loan), a commitment for
a five-year $7.5 million revolving line of credit (the Revolver), a seven-year
$12.5 million acquisition loan facility (the Acquisition Facility) and a
five-year $2 million additional line of credit (the Swingline Loan). In
December 1996, the Company amended the Facility. As a result, the total
acquisition loan commitment was increased by $20 million and the maturity date
of this commitment was extended by one year. See Note 12--"Subsequent Events."
Under the Facility, the Company may, at its option and subject to certain
restrictions, designate certain borrowings as either "Base Rate" or
"Eurodollar" borrowings. This designation determines the interest rates which
ATSI pays under the agreement. The Base Rate is defined as the higher of the
bank's prime rate (8.25% at December 31, 1996) or 1/2% over the US Federal
Funds Rate (5% at December 31, 1996) plus an applicable margin interest rate.
The Eurodollar rate is defined as the London Interbank Offering Rate (LIBOR)
(5.7% at December 31, 1996) plus an applicable margin spread. Base Rate
borrowings bear interest at the Base Rate plus 1% to 1.5% and Eurodollar
borrowings bear interest at LIBOR plus 2.5% to 3%.
The Facility requires mandatory repayments of term borrowings from the
proceeds that result from specified types of transactions. Additionally, excess
cash flow, as defined, is to be applied to reduce borrowings. Voluntary
prepayments of principal are also allowed under the Facility, with $750,000 of
such prepayments made during 1996. Both mandatory and voluntary payments reduce
the outstanding balances and future repayments under the Term A Loan, Term B
Loan and Acquisition Facility on a pro rata basis.
The Facility subjects the Company to financial covenants including
restrictions on mergers and acquisitions of businesses; limitations on lease
and rental expenses incurred, intercompany indebtedness, loans to employees,
and capital expenditures; and maintenance of specified levels of profitability
and cash flows, both in absolute terms and in relation to interest and other
fixed charges. The Facility is collateralized by substantially all of the
assets of the Company.
In connection with five of the acquisitions completed by ATSI during 1996
(see Note 3), the Company issued notes payable and incurred other long-term
obligations (including contingent purchase price obligations) of which
approximately $5,485,000 and $1,954,000 remains outstanding at December 31,
1996 and September 30, 1997, respectively. Of this amount, $4,405,000 and
$1,053,000 is due to individuals who are shareholders, employees, or
consultants of the Company at December 31, 1996 and September 30, 1997,
respectively. These obligations bear interest annually at rates ranging from 5%
to 9%. An obligation for $1,040,000 and $900,000 at December 31, 1996 and
September 30, 1997, respectively, is a demand obligation, guaranteed by a bank
letter of credit for the same amount expiring on February 3, 1998, which the
Company plans to refinance, if required, using the Revolver and, therefore, has
been classified as a long-term liability. In 1997, $3,156,000 of acquisition
obligations were financed through the Acquisition Facility and the sale of
common stock to the Parent.
On August 17, 1995, the Company paid $20,250 to enter into an interest
rate cap agreement with a commercial bank having a notional principal of $15
million. This agreement effectively entitles the Company to receive from the
bank the amount, if any, by which the Company's interest payments on $15
million of its long-term debt exceeds 8.9375% plus the related premium (2.5% to
3.0%). The interest rate cap agreement expired on September 5, 1997.
F-49
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Term A Loan, increasing quarterly principal payments
over a four-year period beginning March 31, 1996 ...... $17,082,000 $14,316,000 $12,271,000
Term B Loan, nominal quarterly principal payments for
the five year period beginning September 30, 1995
with the balance due in equal quarterly installments for
the following two years .............................. 11,364,000 10,839,000 10,805,000
Acquisition Facility, increasing quarterly principal
payments over a four year period starting September
30, 1999 ............................................. -- 9,725,000 16,144,000
Revolver, principal due five years from July 31, 1995,
with the Company having the option to extend for an
additional three years with bank approval ............ 3,000,000 1,900,000 --
Acquisition notes and obligations ..................... -- 5,485,000 2,954,000
Note payable to Parent ................................. -- -- $ 1,500,000
7% mortgage note payable in quarterly principal and
interest installments, maturing April 2001 ............ 521,000 441,000 376,000
Capital lease obligations .............................. 30,000 26,000 16,000
------------ ------------ ------------
31,997,000 42,732,000 44,066,000
Less current portion .................................... 2,272,000 3,219,000 3,906,000
------------ ------------ ------------
$29,725,000 $39,513,000 $40,160,000
============ ============ ============
</TABLE>
Scheduled payments based on long-term debt outstanding at December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 ............ $ 3,219,000
1998 ............ 4,028,000
1999 ............ 4,499,000
2000 ............ 8,557,000
2001 ............ 8,632,000
Thereafter ...... 13,797,000
------------
$42,732,000
============
</TABLE>
Cash payments for interest during the year ended December 31, 1994, the
seven month period ended July 31, 1995, the five month period ended December
31, 1995, the year ended December 31, 1996, and the nine month periods ended
September 30, 1996 and 1997 were $79,000, $35,000, $913,000, $3,131,000,
$2,284,000 and $2,670,000, respectively.
At December 31, 1995 and 1996 and September 30, 1997, the fair value of
the Company's revolving line of credit and long-term debt approximated its
carrying value.
F-50
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
5. Stock Option Plans
The Company's 1995 Stock Option Plan reserves 340,000 and 455,000 shares
at December 31, 1996 and September 30, 1997, respectively, of authorized but
unissued common stock for sale or award to directors, officers, and key
employees as stock options, stock appreciation rights, restricted stock awards
or performance share awards. Both nonqualified and incentive stock options
(ISO's) can be granted and in the case of an ISO, the purchase price cannot be
less than the fair market value at grant date.
Options expire on the date set by the Plan Administration Committee of the
Company's Board of Directors (the Committee), but in no case later than ten
years from the grant date and, in some cases, no later than five years from the
grant date for ISO's.
During 1995 and 1996, the Company granted nonqualified stock options to
certain directors and key members of management. In general, the options
granted are 20% vested at the grant date with the remaining options becoming
vested semi-annually over a four year period. At December 31, 1996, 101,060
shares were vested.
Vested options only become exercisable if either UAC's ownership of ATSI
or AGI's ownership of UAC falls below 80%. No options were exercisable at
December 31, 1995, December 31, 1996 or September 30, 1997. As of December 31,
1996, no shares had been exercised or canceled and 53,000 shares remain
available for grant.
The following is a summary of employee stock option transactions under the
1995 Stock Option Plan:
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Option
Shares Per Share Price per Share
----------- ---------------- ----------------
<S> <C> <C> <C>
Granted after July 31, 1995 ............ 198,100 $8.00 $ 8.00
--------
Outstanding at December 31, 1995 ...... 198,100 $8.00 $ 8.00
Granted in 1996 ........................ 88,900 $10.24--$11.03 $10.71
--------
Outstanding at December 31, 1996 ...... 287,000 $ 8.00--$11.03 $ 8.84
========
</TABLE>
The weighted average remaining contractual life for ATSI options
outstanding at December 31, 1996 was approximately 9 years.
A total of 365,000 and 465,000 shares of common stock were reserved for
issuance under the 1995 Stock Option Plan, the acquisition options (see Note 3)
and the acquisition warrant (see Note 3) at December 31, 1996 and September 30,
1997, respectively. At December 31, 1996, ATSI had 3,205,263 shares of common
stock outstanding and the net book value per share of ATSI common stock was
$9.55.
Pro forma information regarding net income is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee share
options under the fair value method. The fair value for options granted ($0 for
1995 and 1996) was estimated at the date of grant using a minimum value option
pricing model with the following assumptions for 1996 and 1995: a risk-free
interest rate of 5.6%; no dividends expected to be declared; volatility factor
of zero for the expected price of the Company's common stock as it is not
publicly traded; and a weighted-average expected life of the options of 2.3
years.
F-51
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
6. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Property and equipment ........................ $ 122,000 $ -- $ 4,000
Accrued liabilities ........................... 43,000 166,000 187,000
Other .......................................... 5,000 14,000 8,000
---------- ---------- ----------
170,000 180,000 199,000
Deferred tax liabilities:
Costs in excess of net assets acquired in stock
purchase transactions and other assets ...... (123,000) (455,000) (676,000)
Property and equipment ........................ -- (46,000) --
---------- ---------- ----------
(123,000) (501,000) --
---------- ---------- ----------
Net deferred tax assets (liabilities) ......... $ 47,000 $ (321,000) $ (477,000)
========== ========== ==========
</TABLE>
Deferred tax assets totaling $48,000, $180,000 and $199,000 as of December
31, 1995 and 1996 and September 30, 1997, respectively, are included in prepaid
expenses and other current assets on the Consolidated Balance Sheets.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Seven Five September 30,
Year Ended Months Ended Months Ended Year Ended ------------------------
December 31, July 31, December 31, December 31,
1994 1995 1995 1996 1996 1997
-------------- -------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal ...... $2,176,000 $1,532,000 $ 678,500 $1,337,000 $1,059,000 $1,274,000
State ......... 609,000 444,000 176,000 410,000 323,000 357,000
---------- ---------- --------- ----------- ----------- -----------
2,785,000 1,976,000 854,500 1,747,000 1,382,000 1,631,000
Deferred ...... (184,000) (124,000) (47,000) 237,000 181,000 156,000
---------- ---------- --------- ----------- ----------- -----------
$2,601,000 $1,852,000 $ 807,500 $1,984,000 $1,563,000 $1,787,000
========== ========== ========= =========== =========== ===========
</TABLE>
The effective tax rates differ from the federal statutory rates primarily
as a result of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Seven Five September 30,
Year Ended Months Ended Months Ended Year Ended ---------------------
December 31, July 31, December 31, December 31,
1994 1995 1995 1996 1996 1997
-------------- -------------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal tax at statutory rate 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
State tax provision ......... 6.3 6.6 6.2 6.0 6.0 6.0
Other ........................ 1.8 1.4 3.1 3.6 3.6 5.0
------ ------ ------ ------ ------ ------
42.1% 42.0% 43.3% 43.6% 43.6% 45.0%
====== ====== ====== ====== ====== ======
</TABLE>
Cash payments for income taxes during the year ended December 31, 1994,
the seven month period ended July 31, 1995, the five-month period ended
December 31, 1995, the year ended December 31, 1996 and the nine month periods
ended September 30, 1996 and 1997, were $2,785,000, $1,961,000, $720,000,
$609,000, $499,000 and $619,000, respectively.
F-52
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
7. Retirement Plans
On August 1, 1995, the Company adopted the Arcus, Inc. 401(k) Profit
Sharing Plan (the Plan). Employees of the Company and its subsidiaries who
satisfy a six month service requirement as of open enrollment each January 1st
and July 1st participate in the Plan. Participants in the Plan may contribute
from 1% to 15% of their annual compensation. The Company matches one half of
employee contributions up to a total of 1.5% of their annual compensation.
Company matching expense, net of forfeitures, was $52,000, $132,000, $115,000
and $145,000, for the five month period ended December 31, 1995 and the year
ended December 31, 1996 and the nine month periods ended September 30, 1996 and
1997, respectively. Company matching expense relating to a similar plan of the
Predecessor's former parent was $109,000 and $75,000 for the year ended
December 31, 1994 and the seven month period ended July 31, 1995. The Company
may also make an annual voluntary contribution for all eligible employees,
whether or not they elect a salary deferral. The Company provided for a
voluntary contribution in 1995 and 1996, to be funded in the following year,
based upon a percentage of participant compensation. Voluntary contribution
expense, net of forfeitures, for the five month period ended December 31, 1995,
the year ended December 31, 1996 and the nine month periods ended September 30,
1996 and 1997 was $147,000, $427,000, $338,000 and $371,000, respectively. The
Predecessor had voluntary contribution expense for the year ended December 31,
1994 and the seven month period ended July 31, 1995, of $329,000 and $212,000,
respectively.
8. Related Party Transactions
During the year ended December 31, 1994 and the seven month period ended
July 31, 1995, the Predecessor's parent provided management, accounting and
other administrative services to the Company. The cost of such services was
based upon standard charges for the Company's relative use of the underlying
services compared to the parent's other operating companies. Charges for these
services were $334,000 and $255,000 for the year ended December 31, 1994 and
the seven month period ended July 31, 1995, respectively.
The Company leases twelve of its facilities from its former parent (Note
9). The Predecessor paid rental expense to its former parent of $1,209,000 and
$766,000 for the year ended December 31, 1994 and the seven month period ended
July 31, 1995, respectively.
During the year ended December 31, 1994 and the seven month period ended
July 31, 1995, insurance was purchased by the Predecessor's parent for the
parent's consolidated group. Policy premiums were charged to each company based
upon relative payroll, revenue, vehicles, property values or losses, depending
on the type of insurance coverage. In 1994, group health insurance was
purchased from an independent health maintenance organization by the parent on
behalf of the Company.
9. Commitments and Contingencies
As of September 30, 1997, the Company leased 29 vault facilities, 14
staffing offices and certain equipment under noncancelable operating lease
agreements. Twelve of the Company's vault facilities are leased from a single
landlord of which nine have fifteen-year terms beginning January 1, 1995, with
two five-year renewal options, providing for cost of living increases every
three years based upon the Consumer Price Index, with a 3.33% ceiling per year.
The remaining vault facilities are leased under leases which commenced June
1989 or later, and have primary lease terms ranging from four to twenty years,
generally with one or two five-year renewal options. During 1996, the Company
signed leases in regard to two vault facilities that were under construction at
December 31, 1996. These two leases each have fifteen-year terms that will
commence during 1997. With respect to vault facilities, the Company generally
is required to pay property tax, insurance, and facility maintenance expenses.
Staffing offices, located in multi-tenant commercial office buildings, have
primary lease terms ranging from one to five years, generally with no renewal
options. The Company has an irrevocable letter of credit for $50,000 expiring
on April 9, 1998 that supports an office lease obligation. Other operating
leases are for equipment and vehicles. Rental expense under operating leases,
including month-to-month rentals, was $3,488,000, $2,293,000, $1,578,000 and
$4,409,000
F-53
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
for the year ended December 31, 1994, the seven month period ended July 31,
1995, the five month period ended December 31, 1995 and the year ended December
31, 1996, respectively. Included in these amounts are $1,209,000, $766,000,
$554,000 and $1,361,000, respectively, of operating lease expense related to
facilities leased from shareholders.
Future minimum rentals required under operating leases having an initial
or remaining noncancelable lease term in excess of one year as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 .............................. $ 5,153,000
1998 .............................. 4,808,000
1999 .............................. 4,363,000
2000 .............................. 3,871,000
2001 .............................. 3,106,000
Thereafter ........................ 19,441,000
------------
Total minimum lease payments ...... $40,742,000
============
</TABLE>
The Company has a $250,000 standby letter of credit payable to its bank to
secure its operating cash accounts.
10. Business Segments
The following tables present data relating to the Company's revenues, cost
of services rendered, depreciation, operating income, identifiable assets and
capital expenditures by business segment.
<TABLE>
<CAPTION>
Nine Months Ended
Seven Five September 30,
Year Ended Months Ended Months Ended Year Ended -------------------------------
December 31, July 31, December 31, December 31,
1994 1995 1995 1996 1996 1997
--------------- --------------- -------------- --------------- --------------- ---------------
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Data security ............ $40,833,347 $24,964,319 $19,867,759 $53,145,334 $38,553,505 $44,573,634
Technical staffing ...... -- 713,645 810,599 12,997,907 6,711,491 24,717,499
Intercompany
eliminations ............ -- -- -- (161,865) (96,576) (322,225)
------------ ------------ ------------ ----------- ----------- -----------
Total operating
revenues ............... $40,833,347 $25,677,964 $20,678,358 $65,981,376 $45,168,420 $68,968,908
============ ============ ============ =========== =========== ===========
Cost of Services
Rendered
Data security ............ $18,034,862 $10,874,499 $ 8,929,784 $23,554,642 $17,063,800 $19,831,627
Technical staffing ...... -- 470,654 520,997 9,344,976 4,836,278 18,216,422
Intercompany
eliminations ............ -- -- -- (161,865) (96,576) (322,225)
------------ ------------ ------------ ----------- ----------- -----------
Total costs of services
rendered ............... $18,034,862 $11,345,153 $ 9,450,781 $32,737,753 $21,803,502 $37,725,824
============ ============ ============ =========== =========== ===========
</TABLE>
F-54
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Seven Five September 30,
Year Ended Months Ended Months Ended Year Ended ------------------------------
December 31, July 31, December 31, December 31,
1994 1995 1995 1996 1996 1997
--------------- --------------- -------------- -------------- -------------- ---------------
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Depreciation and
Amortization
Data security .................. $ 2,693,533 $ 1,431,684 $ 1,488,093 $ 3,907,825 $ 2,881,767 $ 3,310,817
Technical staffing ............ -- -- 1,575 219,586 103,694 929,076
Corporate ..................... 156,621 100,527 111,796 309,118 219,943 298,536
------------ ------------ ------------ ------------ ------------ ------------
Total depreciation and
amortization ............... $ 2,850,154 $ 1,532,211 $ 1,601,464 $ 4,436,529 3,205,404 $ 4,538,429
============ ============ ============ ============ ============ ============
Operating Income
Data security .................. $ 9,321,434 $ 5,958,390 $ 4,629,540 $12,149,565 $ 9,040,836 $ 9,888,168
Technical staffing ............ -- 242,991 114,709 442,812 233,283 257,714
Corporate ..................... (3,400,748) (2,131,681) (1,750,370) (5,377,135) (3,757,288) (3,720,751)
------------ ------------ ------------ ------------ ------------ ------------
Total operating income . $ 5,920,686 $ 4,069,700 $ 2,993,879 $ 7,215,242 $ 5,516,831 $ 6,425,131
============ ============ ============ ============ ============ ============
Capital Expenditures
Data security .................. $ 1,666,190 $ 1,785,025 $ 2,115,127 $ 4,363,670 $ 2,752,349 $ 2,054,901
Technical staffing ............ -- -- 43,662 317,302 157,238 634,484
Corporate ..................... 174,690 46,140 131,806 599,201 319,216 144,509
------------ ------------ ------------ ------------ ------------ ------------
Total capital
expenditures .................. $ 1,840,880 $ 1,831,165 $ 2,290,595 $ 5,280,173 $ 3,228,803 $ 2,833,894
============ ============ ============ ============ ============ ============
Identifiable Assets
Data security .................. $59,657,300 $85,687,540 $ 88,429,038
Technical staffing ............ 152,260 2,041,337 3,835,987
Corporate ..................... 320,814 728,871 699,200
------------ ------------ ------------
Total identifiable assets . $60,130,374 $88,457,748 $ 92,964,225
============ ============ ============
</TABLE>
11. Supplemental Pro Forma Acquisition Information (Unaudited)
The following supplemental pro forma information has been presented as if
the acquisition of ATSI described in Note 1 and the acquisitions discussed in
Note 3 occurred on January 1, 1995 and as if the acquisition described in Note
12 occurred on January 1, 1996.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months
----------------------------- Ended
September 30,
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Revenues ............... $64,512,369 $89,208,750 $74,630,285
============ ============ ============
Operating income ......... $ 6,426,829 $ 9,524,802 $ 6,918,575
============ ============ ============
Net income ............... $ 1,757,474 $ 3,377,656 $ 2,402,834
============ ============ ============
Earnings per share ...... $ 0.53 $ 1.02 $ 0.72
============ ============ ============
</TABLE>
F-55
<PAGE>
ARCUS TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Information for the nine months ended September 30, 1996
and the nine months ended September 30, 1997 is unaudited)
12. Subsequent Events
In June 1997, the Company sold the operating assets of the non-staffing
portion of Trinity's business. The assets were sold to the former owner of
Trinity and other former Trinity employees for a $400,000 five year note,
bearing interest at 12% with all principal due at maturity. In conjunction with
the sale, and in consideration of a cash payment of $250,000 to the former
owner, the former owner and the Company signed a mutual release. Among the
Company's obligations released were any contingent consideration due to the
former owner under the original agreement to acquire Trinity, the $180,000
subordinated note payable to the former owner, certain stock options held by
the former owner and certain other agreements signed with the former owner.
On June 11, 1997, the Company amended its Credit Agreement to increase the
size of the Revolving Facility from $7.5 million to $11 million and reduced the
size of the Acquisition Facility by $3.5 million.
On August 20, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of a company operating in the contract
information technology staffing services business in northern California,
Oregon and Washington state for approximately $4,889,000, net of cash acquired.
The purchase price consisted of net cash payments of approximately $3,889,000,
a subordinated note payable to the seller for $1,000,000 and 60,000 options to
purchase the Company's common stock at $16.41. The cash payment was partially
financed by issuance of a $1.5 million subordinated convertible note payable to
UAC. Additionally, if certain profitability targets are met, the Company could
be obligated to make an additional cash payment of up to $750,000. The acquired
company had revenues and operating income for the year ended December 31, 1996
of approximately $8.4 million and $1.2 million, respectively.
On September 26, 1997, Iron Mountain Incorporated signed a definitive
agreement to acquire all of the outstanding stock of the Company with
anticipated closing in the first quarter of 1998.
F-56
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
By and Among
IRON MOUNTAIN INCORPORATED,
ARCUS GROUP, INC.,
UNITED ACQUISITION COMPANY
and
ARCUS TECHNOLOGY SERVICES, INC.
dated as of
September 26, 1997
as amended as of November 25, 1997
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. THE MERGER .................................................................. I-6
Section 1.1 The Merger .................................................................. I-6
Section 1.2 Action by Stockholders ...................................................... I-6
Section 1.3 Closing ..................................................................... I-6
Section 1.4 Effective Time ............................................................ I-6
Section 1.5 Effect of the Merger ...................................................... I-7
Section 1.6 Certificate of Incorporation ................................................ I-7
Section 1.7 Bylaws ..................................................................... I-7
Section 1.8 Directors and Officers ...................................................... I-7
ARTICLE 2. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES ........................ I-7
Section 2.1 Conversion of Securities ................................................... I-7
Section 2.2 Exchange of Certificates; Exchange Agent and Exchange Procedures ............ I-9
Section 2.3 Stock Transfer Books ...................................................... I-10
Section 2.4 Option Securities ......................................................... I-11
Section 2.5 Dissenting Shares ......................................................... I-11
Section 2.6 Further Adjustment ......................................................... I-12
Section 2.7 Standstill .................................................................. I-12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE ARCUS PARTIES ........................ I-13
Section 3.1 Organization and Qualification; Power and Authority; Effect of Transaction I-13
Section 3.2 Financial and Other Information ............................................. I-14
Section 3.3 Changes in Condition ...................................................... I-15
Section 3.4 Liabilities ............................................................... I-15
Section 3.5 Title to Properties; Leases ................................................ I-15
Section 3.6 Compliance with Private Authorizations .................................... I-16
Section 3.7 Compliance with Governmental Authorizations and Applicable Law ............ I-17
Section 3.8 Intangible Assets ......................................................... I-17
Section 3.9 Related Transactions ...................................................... I-17
Section 3.10 Insurance .................................................................. I-17
Section 3.11 Tax Matters ............................................................... I-18
Section 3.12 ERISA ..................................................................... I-19
Section 3.13 Authorized and Outstanding Capital Stock .................................... I-20
Section 3.14 Employment Arrangements ................................................... I-21
Section 3.15 Material Agreements ......................................................... I-21
Section 3.16 Ordinary Course of Business ................................................ I-22
Section 3.17 Bank Accounts, Etc. ......................................................... I-23
Section 3.18 Adverse Restrictions ...................................................... I-23
Section 3.19 Broker or Finder ............................................................ I-23
Section 3.20 Environmental Matters ...................................................... I-24
Section 3.21 Customer Contracts ......................................................... I-24
Section 3.22 Reorganization ............................................................ I-25
Section 3.23 Materiality ............................................................... I-25
Section 3.24 Fairness Opinion ............................................................ I-25
Section 3.25 Inapplicability of Specified Statute ....................................... I-25
Section 3.26 Bankruptcy Plan ............................................................ I-25
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR ................................. I-25
Section 4.1 Organization and Qualification; Power and Authority; Effect of Transaction I-25
Section 4.2 Changes in Condition ...................................................... I-26
Section 4.3 Capitalization of Acquiror ................................................ I-26
Section 4.4 SEC Filings; Financial Statements and Other Information .................. I-26
Section 4.5 Registration Statement ................................................... I-27
Section 4.6 Brokers .................................................................. I-27
Section 4.7 Liabilities ............................................................... I-27
Section 4.8 Related Transactions ...................................................... I-28
Section 4.9 Materiality ............................................................... I-28
Section 4.10 [Intentionally Omitted] ................................................... I-28
Section 4.11 Ordinary Course of Business ................................................ I-28
Section 4.12 Fairness Opinion ......................................................... I-28
Section 4.13 Inapplicability of Specified Statutes .................................... I-28
ARTICLE 5. ADDITIONAL COVENANTS ...................................................... I-28
Section 5.1 Access to Information; Confidentiality .................................... I-28
Section 5.2 Agreement to Cooperate ................................................... I-29
Section 5.3 Affiliate Agreements ...................................................... I-30
Section 5.4 No Solicitation ............................................................ I-30
Section 5.5 Directors' and Officers' Indemnification and Insurance ..................... I-31
Section 5.6 Notification of Certain Matters and Cure ................................. I-31
Section 5.7 Public Announcements ...................................................... I-32
Section 5.8 Employee Benefits; Severance Policy ....................................... I-32
Section 5.9 Certain Actions Concerning Business Combinations ........................... I-32
Section 5.10 Option Securities ......................................................... I-33
Section 5.11 Tax Treatment ............................................................ I-33
Section 5.12 Preparation of the Registration Statement ................................. I-33
Section 5.13 Disclosure of Acquisitions ................................................ I-34
Section 5.14 Amendment to Preserve Tax-Free Transaction ................................. I-34
Section 5.15 Warrant Purchase Agreement, Non-Competition Agreement, Etc. ............... I-34
Section 5.16 Customers .................................................................. I-35
ARTICLE 6. CLOSING CONDITIONS ......................................................... I-35
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger ............... I-35
Section 6.2 Conditions to Obligations of Acquiror .................................... I-36
Section 6.3 Conditions to Obligations of the Company ................................. I-37
ARTICLE 7. TERMINATION, AMENDMENT AND WAIVER .......................................... I-37
Section 7.1 Termination ............................................................... I-37
Section 7.2 Effect of Termination ...................................................... I-39
Section 7.3 Amendment .................................................................. I-39
Section 7.4 Waiver ..................................................................... I-39
Section 7.5 Fees, Expenses and Other Payments .......................................... I-39
Section 7.6 Effect of Investigation ................................................... I-40
ARTICLE 8. INDEMNIFICATION; ADJUSTMENT ................................................ I-40
Section 8.1 Survival .................................................................. I-40
Section 8.2 Escrow; Indemnification ................................................... I-40
Section 8.3 Limitation of Liability; Disposition of Escrow Indemnity Funds ............ I-41
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.4 Notice of Claims ....................................... I-42
Section 8.5 Defense of Third Party Claims ........................... I-43
Section 8.6 Balance Sheet Adjustment; Arcus Parties' Expenses ...... I-43
Section 8.7 Exclusive Remedy ....................................... I-44
ARTICLE 9. ARBITRATION ............................................. I-45
ARTICLE 10. GENERAL PROVISIONS .................................... I-45
Section 10.1 Notices ................................................ I-45
Section 10.2 Headings ................................................ I-46
Section 10.3 Severability .......................................... I-46
Section 10.4 Entire Agreement ....................................... I-46
Section 10.5 Assignment ............................................. I-46
Section 10.6 Parties in Interest .................................... I-46
Section 10.7 Governing Law; Attorneys Fees ........................... I-47
Section 10.8 Enforcement of the Agreement ........................... I-47
Section 10.9 Counterparts .......................................... I-47
Section 10.10 Mutual Drafting ....................................... I-47
ARTICLE 11. DEFINITIONS ............................................. I-47
EXHIBITS [OMITTED]
2.7 Form of Amendment to the Restated By-Laws of Acquiror
5.3 Form of Affiliate Agreement
5.15(a) Form of Non-Competition Agreement
5.15(b) Form of Non-Competition Agreement
5.16 Form of Liability Limitation
6.1(g) Form of Warrant Purchase Agreement
7.1(f) Form of Acquiror Voting Agreement
8.3(b) Form of Escrow Agreement
SCHEDULES [OMITTED]
A UAC Plan of Merger
B ATSI Plan of Merger
C Pre-Merger Reorganization
D Disclosure Schedule
E Acquiror Disclosure Schedule
</TABLE>
I-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 26, 1997, by and among
Iron Mountain Incorporated, a Delaware corporation ("Acquiror"), Arcus Group,
Inc., a Delaware corporation (the "Company"), United Acquisition Company, a
Nevada corporation ("UAC"), and Arcus Technology Services, Inc., a Delaware
corporation ("ATSI," and together with UAC and the Company, the "Arcus
Parties").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement
(this and other capitalized terms used herein are either defined in Article 11
below or in a Section of this Agreement and, in such case, Article 11 includes
a reference to such Section), in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), the Company and Acquiror will carry out a
business combination transaction pursuant to which the Company will merge with
and into Acquiror with Acquiror continuing as the surviving corporation (the
"Merger") and the stockholders of the Company (the "Stockholders") will convert
their holdings into a combination of cash and shares of the Common Stock, par
value $.01 per share, of Acquiror ("Acquiror Stock"); and
WHEREAS, upon the terms and subject to the conditions of this Agreement,
on or prior to the Closing Date each of the Arcus Parties shall cause (i) UAC
to merge with and into the Company (the "UAC Merger") pursuant to and in
accordance with the Agreement and Plan of Merger between UAC and the Company
substantially in the form set forth in Schedule A hereto (the "UAC Plan of
Merger"), with the Company continuing as the surviving corporation, and (ii)
ATSI to merge with and into the Company (the "ATSI Merger") pursuant to and in
accordance with the Agreement and Plan of Merger between ATSI and the Company
substantially in the form set forth in Schedule B hereto (the "ATSI Plan of
Merger"), with the Company continuing as the surviving corporation (such
transactions, together with the actions required or desirable to effectuate
such transactions, as described on Schedule C hereto, being hereafter referred
to as the "Reorganization"); and
WHEREAS, the Board of Directors of the Company has unanimously determined
that the Merger and the Reorganization are fair to, and in the best interests
of, the Company and the Stockholders and has approved this Agreement as a
tax-free plan of reorganization within the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), has approved this
Agreement, the Merger and the Transactions for which its approval is required
under Applicable Law and has recommended approval and adoption of this
Agreement, the Merger and the Transactions for which approval is required under
Applicable Law by the Stockholders; and
WHEREAS, the Board of Directors of each of UAC and ATSI has unanimously
determined that the Reorganization is fair to, and in the best interests of,
UAC and ATSI, respectively, and their respective stockholders, has approved
this Agreement and, subject to stockholder approval where required, the
Transactions and has recommended approval and adoption of the Transactions for
which approval is required by their respective stockholders; and
WHEREAS, the Company has approved and adopted this Agreement and, in its
capacity as a stockholder of UAC, has agreed to vote its shares in favor of the
Reorganization (including, without limitation, the UAC Merger) in accordance
with the DGCL and the Nevada Revised Statutes (the "NRS"), as applicable, and
UAC has approved and adopted this Agreement and, in its capacity as a
stockholder of ATSI, has agreed to vote its shares in favor of the
Reorganization (including, without limitation, the ATSI Merger) in accordance
with the DGCL and the NRS, as applicable; and
WHEREAS, the Board of Directors of Acquiror has unanimously approved this
Agreement, the Merger and the Transactions for which approval is required under
Applicable Law and, to the extent such approval is required under Applicable
Law or Schedule D of the NASD By-Laws, has recommended to its stockholders the
approval and adoption of this Agreement, the Merger and the Transactions.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto, intending to be legally bound, agree as follows:
I-5
<PAGE>
ARTICLE 1.
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the Effective
Time, the Company shall be merged with and into Acquiror. As a result of the
Merger and as provided in the DGCL, the separate existence of the Company shall
cease and Acquiror shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
Section 1.2. Action by Stockholders.
(a) Each of the Arcus Parties, acting through its Board of Directors,
shall, in accordance with and subject to Applicable Law and its Organic
Documents, as soon as practicable, duly call, give notice of, convene and hold
a special meeting of the stockholders of such Arcus Party for the purpose of
adopting and approving (i) in the case of the Company, the UAC Plan of Merger,
the UAC Merger, the ATSI Plan of Merger, the ATSI Merger, this Agreement, the
Merger and the Transactions for which stockholder approval is required as set
forth on Schedule C, (ii) in the case of UAC, the UAC Plan of Merger, the UAC
Merger and the Transactions for which stockholder approval is required as set
forth on Schedule C and (iii) in the case of ATSI, the ATSI Plan of Merger, the
ATSI Merger and the Transactions for which stockholder approval is required as
set forth on Schedule C (collectively, the "Arcus Special Meetings"); include
in any proxy statement related to the Arcus Special Meetings the conclusion and
recommendation of each such Board of Directors to the effect that such Board of
Directors, having determined that (x) in the case of the Company, this
Agreement, the Merger and the Transactions, including, without limitation, the
UAC Plan of Merger, the UAC Merger, the ATSI Plan of Merger and the ATSI
Merger, (y) in the case of UAC, this Agreement, the Merger and the
Transactions, including, without limitation, the UAC Plan of Merger and the UAC
Merger and (z) in the case of ATSI, this Agreement, the Merger and the
Transactions, including, without limitation, the ATSI Plan of Merger and the
ATSI Merger, are in the best interests of such Arcus Party and its
stockholders, has approved each such matter and recommends that the
stockholders of such Arcus Party vote in favor of each such matter; and use its
best efforts to obtain the necessary approval and adoption of each such matter.
(b) If required by Applicable Law or by Schedule D of the NASD By-Laws,
Acquiror, acting through its Board of Directors, shall, in accordance with and
subject to Applicable Law and its Organic Documents, as soon as practicable,
duly call, give notice of, convene and hold a special meeting of the
stockholders of Acquiror for the purpose of adopting and approving this
Agreement, the Merger and the Transactions for which approval is required under
Applicable Law or by Schedule D of the NASD By-Laws (the "Acquiror Special
Meeting"); include in any proxy statement related to the Acquiror Special
Meeting the conclusion and recommendation of the Board of Directors of Acquiror
to the effect that the Board of Directors of Acquiror, having determined that
this Agreement, the Merger and the Transactions for which approval is required
under Applicable Law or by Schedule D of the NASD By-Laws are in the best
interests of Acquiror and the stockholders of Acquiror, has approved this
Agreement, the Merger and the Transactions for which approval is required under
Applicable Law and recommends that the stockholders of Acquiror vote in favor
of the approval and adoption of this Agreement, the Merger and the Transactions
for which approval is required under Applicable Law or by Schedule D of the
NASD By-Laws; and use its best efforts to obtain the necessary approval and
adoption of this Agreement, the Merger and the Transactions by the stockholders
of Acquiror.
Section 1.3. Closing. Unless this Agreement shall have been terminated
pursuant to Section 7.1 hereof, the closing of the Merger (the "Closing") will
take place as promptly as practicable (and in any event within five (5)
business days) after the date on which the last of the conditions set forth in
Article 6 is satisfied or waived, at the offices of Sullivan & Worcester LLP,
One Post Office Square, Boston, Massachusetts 02109, unless another date, time
or place is agreed to in writing by the Company and Acquiror (the date on which
the Closing occurs being referred to herein as the "Closing Date").
Section 1.4. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
6 (but subject to Section 1.3 hereof), the Parties shall cause the Merger to be
consummated by filing a certificate of merger with the Secretary of State of
the State of Delaware and by making any related filings required under the
DGCL. The Merger shall become effective at such time (but not prior to the
I-6
<PAGE>
Closing Date) as such certificate is duly filed with the Secretary of State of
the State of Delaware or at such later time as is specified in such certificate
(the "Effective Time"), but in no event more than ninety (90) days after the
filing of such certificate.
Section 1.5. Effect of the Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all the restrictions, disabilities and duties of
Acquiror and the Company, after giving effect to the Reorganization, including,
without limitation, any duties to stockholders that dissent from, or exercise
appraisal rights in connection with, the Reorganization, and the Merger shall
otherwise have the effect, all as provided under the DGCL.
Section 1.6. Certificate of Incorporation. From and after the Effective
Time, the Certificate of Incorporation of Acquiror as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, until amended in accordance with Applicable Law.
Section 1.7. Bylaws. Subject to Section 2.7 hereof, from and after the
Effective Time, the By-Laws of Acquiror as in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation, until amended
in accordance with Applicable Law.
Section 1.8. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified (or their earlier
resignation or removal) in accordance with Applicable Law, the directors of
Acquiror at the Effective Time shall be the directors of the Surviving
Corporation and the officers of Acquiror at the Effective Time shall be the
officers of the Surviving Corporation. At the Effective Time, Clarke H. Bailey
shall be appointed or elected as a Class C Director of Acquiror, to hold office
in accordance with the Restated Certificate of Incorporation and By-Laws of
Acquiror.
ARTICLE 2.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1. Conversion of Securities. Subject to the terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger,
automatically and without any action on the part of Acquiror, the Company or
the holders of any of the following securities:
(a) Each share of the common stock, par value $.0001 per share, of the
Company (the "Company Stock") issued and outstanding immediately prior to the
Effective Time after giving effect to the Reorganization, including all shares
of Company Stock for which shares of UAC Common Stock or ATSI Common Stock are
exchanged pursuant thereto, or deemed to be outstanding immediately prior to
the Effective Time by virtue of the withdrawal, in accordance with Applicable
Law or as otherwise consented to by Acquiror in its sole and absolute
discretion, following the Effective Time, of a demand for appraisal previously
made by a stockholder of UAC or ATSI in connection with the UAC Merger or the
ATSI Merger, as the case may be (each such share of Company Stock, a "Share"
and collectively, the "Shares") (other than any Shares to be cancelled pursuant
to Section 2.1(c) and any Dissenting Shares), shall become and be converted
into the right to receive, subject to the indemnification and adjustment
provisions of Article 8 hereof (i) that number equal to the Common Stock
Conversion Number of fully paid and nonassessable shares of Acquiror Stock (the
"Stock Merger Consideration") and (ii) cash in an amount equal to the Common
Cash Conversion Number (the "Cash Merger Consideration"). At the Effective
Time, all Shares shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each certificate previously
evidencing any Shares, including each certificate evidencing shares of UAC
Common Stock or ATSI Common Stock exchanged for Shares of Company Stock in
connection with the Reorganization (each, a "Share Certificate") (other than
any Share Certificate representing Shares to be cancelled pursuant to Section
2.1(c) or Dissenting Shares) shall thereafter represent the right to receive,
upon the surrender of such Share Certificate in accordance with the provisions
of Section 2.2, but subject to the indemnification and adjustment provisions of
Article 8 hereof, the Stock Merger Consideration and Cash Merger Consideration
multiplied by the number of Shares represented by such Share Certificate, and a
holder of more than one such Share Certificate shall have the right to receive
the Stock Merger Consideration and Cash Merger Consideration multiplied by the
number of Shares represented by all such Share Certificates (the "Exchange
Common Consideration"). The holders of Share
I-7
<PAGE>
Certificates evidencing Shares shall, at and after the Effective Time, cease to
have any rights with respect to such Shares except as otherwise provided herein
or by Applicable Law. Notwithstanding anything to the contrary herein, the Cash
Merger Consideration to be received by any Stockholder shall be adjusted to
give full effect to the indemnification and adjustment provisions in Article 8
hereof.
(b) Each share of preferred stock, par value $.01 per share, of the
Company (the "Company Preferred") issued and outstanding immediately prior to
the Effective Time after giving effect to the Reorganization, including all
shares of Company Preferred for which shares of UAC Preferred Stock are
exchanged pursuant thereto or deemed to be outstanding immediately prior to the
Effective Time by virtue of the withdrawal, in accordance with Applicable Law
or as otherwise consented to by Acquiror in its sole and absolute discretion,
following the Effective Time, of a demand for appraisal previously made by a
holder of UAC Preferred Stock in connection with the UAC Merger (each such
share of Company Preferred, a "Preferred Share" and collectively, the
"Preferred Shares") (other than any Preferred Shares to be cancelled pursuant
to Section 2.1(c)) shall become and be converted into the right to receive (i)
that number equal to the Preferred Stock Conversion Number of fully paid and
nonassessable shares of Acquiror Stock (the "Preferred Stock Merger
Consideration") and (ii) cash in an amount equal to the Preferred Cash
Conversion Number (the "Preferred Cash Merger Consideration"). At the Effective
Time, all Preferred Shares shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
certificate previously evidencing any such Preferred Shares, including each
certificate evidencing shares of UAC Preferred Stock exchanged for shares of
Company Preferred in connection with the UAC Merger (each, a "Preferred
Certificate" and, together with the Share Certificates, the "Certificates")
(other than any Preferred Certificate representing Preferred Shares to be
cancelled pursuant to Section 2.1(c)) shall thereafter represent the right to
receive, upon the surrender of such Preferred Certificate in accordance with
the provisions of Section 2.2, the Preferred Stock Merger Consideration and
Preferred Cash Merger Consideration multiplied by the number of Preferred
Shares represented by such Preferred Certificate, and a holder of more than one
such Preferred Certificate shall have the right to receive the Preferred Stock
Merger Consideration and Preferred Cash Merger Consideration multiplied by the
number of Preferred Shares represented by all such Preferred Certificates (the
"Exchange Preferred Consideration"). The holders of Preferred Certificates
evidencing Preferred Shares shall, at and after the Effective Time, cease to
have any rights with respect to such Preferred Shares except as otherwise
provided herein or by Applicable Law.
(c) Each Share, each Preferred Share and each warrant to acquire shares of
Company Stock (each, a "Company Stock Warrant" and collectively, the "Company
Stock Warrants") outstanding as of the Effective Time and owned of record by
Acquiror shall automatically be cancelled and extinguished without any exercise
or conversion thereof and no exchange or payment shall be made with respect
thereto.
(d) Each share of capital stock of Acquiror, and each security convertible
into or exercisable for shares of capital stock of Acquiror, issued and
outstanding immediately prior to the Effective Time shall remain outstanding.
(e) In lieu of issuing fractional shares, Acquiror shall convert a
holder's right to receive shares of Acquiror Stock pursuant to Sections 2.1(a)
and 2.1(b) into a right to receive the highest whole number of shares of
Acquiror Stock constituting the non-cash portion of the Exchange Common
Consideration or the Exchange Preferred Consideration, as the case may be, plus
cash in an amount equal to the fraction of a share of Acquiror Stock to which
the holder would otherwise be entitled multiplied by the Determination Price,
and the Exchange Common Consideration or the Exchange Preferred Consideration
to which a holder is entitled shall be deemed to be such number of shares of
Acquiror Stock plus such cash in lieu of fractional shares plus the Cash Merger
Consideration or the Preferred Cash Merger Consideration to which the holder is
entitled. For purposes of carrying out the intent of this Section 2.1(e),
Acquiror may aggregate Share Certificates or Preferred Certificates, as the
case may be, so that fractional shares of Acquiror Stock due in exchange for
multiple Share Certificates or multiple Preferred Certificates, as the case may
be, may be combined to yield a number of whole shares thereof plus a single
fraction.
(f) In the event that on or prior to December 31, 1999, (i) one or more
holders of options to acquire shares of Acquiror Stock issued in accordance
with Section 2.4 ceases to be employed by Acquiror or any of its Subsidiaries
(whether by reason of death, disability, a termination by Acquiror or
otherwise) (collectively, a "Termination") and (ii) Acquiror shall not have
duly and irrevocably provided, within sixty (60) days following the date of
Termination,
I-8
<PAGE>
either pursuant to the incentive plan under which such options were issued or
otherwise, for the immediate vesting of all of such options for the benefit of
such employee or such employee's representative, as the case may be, then prior
to March 1, 2000 Acquiror shall deliver cash or immediately saleable shares of
Acquiror Stock (or a combination thereof) having a Deemed Value equal to the
Aggregate Spread Value represented by all such options not so vested in
accordance with the immediately preceding clause (ii) (the "Adjustment
Aggregate Spread Value") to the Stockholder Representative for the benefit of
each former holder of a Share Certificate, each former holder of a Warrant sold
pursuant to a Warrant Purchase Agreement and each holder of an Option Security
that received options to acquire shares of Acquiror Stock pursuant to Section
2.4, other than any such holder of an Option Security who, following the
Effective Time and on or prior to December 31, 1999, was terminated by Acquiror
and for whom Acquiror shall not have provided, within sixty (60) days following
the date of Termination, either pursuant to the incentive plan under which such
options were issued or otherwise, for the immediate vesting of all of such
options for the benefit of such employee or such employee's representative, as
the case may be (an "Acquiror Optionee"). The amount of the Adjustment
Aggregate Spread Value that each such Person shall receive shall be equal to
(x) in the case of a former holder of a Share Certificate, the Adjustment
Aggregate Spread Value times a fraction, the numerator of which shall equal the
value (calculated based on the Determination Price) of such former holder's
Exchange Common Consideration and the denominator of which shall equal the sum
of (1) the value (calculated based on the Determination Price) of the aggregate
Exchange Common Consideration, (2) the aggregate Warrant Purchase Price, and
(3) the Acquiror Optionee Aggregate Spread Value (such sum being hereafter
referred to as the "Total Common Equity Base"), (y) in the case of a former
holder of a Warrant sold pursuant to a Warrant Purchase Agreement, the
Adjustment Aggregate Spread Value times a fraction, the numerator of which
shall equal the Warrant Purchase Price paid to such holder pursuant to the
Warrant Purchase Agreement and the denominator of which shall equal the sum of
the Total Common Equity Base, all as more specifically set forth in the Warrant
Purchase Agreement, and (z) in the case of an Acquiror Optionee, the Adjustment
Aggregate Spread Value times a fraction, the numerator of which shall equal
that portion of the Acquiror Optionee Aggregate Spread Value represented by
Option Securities held by such Acquiror Optionee and the denominator of which
shall equal the Total Common Equity Base.
Section 2.2. Exchange of Certificates; Exchange Agent and Exchange
Procedures.
(a) Prior to the Effective Time, the Company and Acquiror shall designate
Boston Equiserve (or such other bank or trust company as may be reasonably
satisfactory to the Company and Acquiror) to act as Exchange Agent in the
Merger (the "Exchange Agent"). As soon as reasonably practicable after the
Effective Time, Acquiror shall deposit or cause to be deposited with the
Exchange Agent, for exchange in accordance with this Article, through the
Exchange Agent, for the benefit of (i) the holders of Shares (other than Shares
to be cancelled pursuant Section 2.1(c) and Dissenting Shares), (A) cash (by
wire transfer of federal funds pursuant to instructions reasonably satisfactory
to the Exchange Agent) in an amount equal to the Cash Merger Consideration
multiplied by the number of all Shares (other than Shares to be cancelled
pursuant to Section 2.1(c) and Dissenting Shares) (such number of Shares less
Shares to be so cancelled and less Dissenting Shares, the "Net Shares") less
(1) the Common Stock Escrow Indemnity Contribution, (2) the Common Stock
Expense Fund Contribution and (3) the Escrow Holdback Amount, if any, and (B)
the Stock Merger Consideration multiplied by the Net Shares, plus cash in an
amount sufficient to make payment for fractional shares, pursuant to Section
2.1(e), in exchange for all Net Shares (the "Share Exchange Fund") and (ii) the
holders of Preferred Shares (other than Preferred Shares to be cancelled
pursuant to Section 2.1(c)) (A) cash (by wire transfer of federal funds
pursuant to instructions reasonably satisfactory to the Exchange Agent) in an
amount equal to the Preferred Cash Merger Consideration multiplied by the
number of all Preferred Shares (other than Preferred Shares to be cancelled
pursuant to Section 2.1(c)) (such number of Preferred Shares less Preferred
Shares to be so cancelled, the "Net Preferred Shares") and (B) the Preferred
Stock Merger Consideration multiplied by the Net Preferred Shares, plus cash in
an amount sufficient to make payment for fractional shares pursuant to Section
2.1(e), in exchange for all Net Preferred Shares (the "Preferred Exchange Fund"
and, together with the Share Exchange Fund, the "Exchange Fund").
(b) As soon as reasonably practicable after the Effective Time, Acquiror
will instruct the Exchange Agent to issue (pursuant to instructions from each
holder of record reasonably satisfactory to Acquiror, the Company and the
Exchange Agent, and otherwise by mail to the most recent address of such holder
as shown on the books and records of the applicable Arcus Entity) to each
holder of a Certificate which immediately prior to the Effective Time
I-9
<PAGE>
evidenced Net Shares or Net Preferred Shares, a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
such Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions as
Acquiror and the Company may reasonably specify) and instructions to effect the
surrender of such Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate which immediately prior to the Effective Time
evidenced Net Shares or Net Preferred Shares for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Acquiror together
with such letter of transmittal, duly executed, and such other customary
documents as may be reasonably required pursuant to such instructions
(collectively, the "Transmittal Documents"), the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration
which such holder has the right to receive, subject to Article 8 hereof,
pursuant to Sections 2.1(a) and 2.1(b) hereof, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Shares or Preferred Shares that is not registered in the transfer
records of the Company, UAC or ATSI, the Merger Consideration which a
transferee has the right to receive may be issued and paid in accordance with
this Article to such transferee if the Certificate is presented to the Exchange
Agent, accompanied by all documents reasonably required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. The appropriate Merger Consideration will be delivered by the
Exchange Agent promptly following surrender of a Certificate and delivery of
the related Transmittal Documents, and cash payments for fractional shares and
the cash portion of the Merger Consideration may be made by check (or, pursuant
to instructions reasonably satisfactory to the Exchange Agent, by wire
transfer). Each Certificate (other than Certificates representing Shares or
Preferred Shares to be cancelled pursuant to Section 2.1(c) or Dissenting
Shares) shall be deemed at all times after the Effective Time to evidence only
the right to receive, upon such surrender, the Exchange Common Consideration or
the Exchange Preferred Consideration, as appropriate, without interest from the
Effective Time.
(c) In the event any Share Certificate or Preferred Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and
subject to such other conditions as Acquiror and the Company reasonably may
impose, the Surviving Corporation shall issue in exchange for such lost, stolen
or destroyed Certificate the Exchange Common Consideration or Exchange
Preferred Consideration deliverable in respect thereof as determined in
accordance with Sections 2.1(a) and 2.1(b). Acquiror may, in its discretion and
as a condition precedent to authorizing the issuance thereof by the Surviving
Corporation, require the owner of such lost, stolen or destroyed Certificate to
provide a bond or other surety to Acquiror and the Surviving Corporation in
such sum as Acquiror may reasonably direct as indemnity against any claim that
may be made against Acquiror or the Surviving Corporation (and their
Affiliates) with respect to the Certificate alleged to have been lost, stolen
or destroyed.
(d) Any portion of the Exchange Fund which remains undistributed to the
holders of the Company Stock or the Company Preferred, as the case may be, for
ninety (90) days after the Effective Time shall be delivered to Acquiror upon
demand by Acquiror, and any holders of Certificates who have not theretofore
complied with this Article shall thereafter look only to Acquiror for the
Exchange Merger Consideration or Exchange Preferred Consideration to which they
are entitled pursuant to this Article.
(e) None of Acquiror, the Company, UAC, ATSI, the Surviving Corporation or
the Exchange Agent shall be liable to any holder of Shares or Preferred Shares
for any shares of Acquiror Stock or cash from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Each of Acquiror and the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares or Preferred Shares such amounts as Acquiror
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of federal, state,
local or foreign tax law. To the extent that amounts are so withheld by
Acquiror or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares or
Preferred Shares in respect of which such deduction and withholding was made by
Acquiror or the Exchange Agent.
Section 2.3. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Shares or Preferred Shares thereafter on the
records
I-10
<PAGE>
of the Company other than to Acquiror. On or after the Effective Time, any
Certificate presented to the Exchange Agent or the Surviving Corporation shall
be converted into the Exchange Common Consideration or the Exchange Preferred
Consideration, as appropriate, deliverable in respect thereof as determined in
accordance with Sections 2.1(a) and 2.1(b).
Section 2.4. Option Securities. Subject to and as more fully provided in
Section 5.10, each Option Security comprising a stock option that is
outstanding at the Effective Time shall automatically be converted into an
option (an "Exchange Option") to purchase Acquiror Stock, which Exchange Option
shall (A) have an exercise price per share of Acquiror Stock determined by
dividing (x) the exercise price per share of the applicable Option Security
(after giving effect to any changes thereto resulting from the Reorganization)
by (y) the quotient of the Share Price divided by the Determination Price, (B)
entitle the holder to purchase that number of shares of Acquiror Stock as
equals the product of (x) the number of shares subject to such Option Security
(after giving effect to any changes thereto resulting from the Reorganization)
and (y) the quotient of the Share Price divided by the Determination Price and
(C) have the same vesting schedule as is currently included in such Option
Security (except as required pursuant to Section 5.10 and except that there
shall be immediate vesting of any unvested portion thereof upon termination by
the Surviving Corporation or any of its Subsidiaries of employment of the
holder of such Exchange Option (other than any termination for Cause)). In lieu
of issuing any option to acquire a fractional share of Acquiror Stock, Acquiror
shall convert a holder's right to receive an option pursuant to this Section
2.4 into a right to receive an option to acquire the nearest whole number of
shares of Acquiror Stock (with no adjustment to any cash amount received in
connection with the conversion of an Option Security). Each Option Security
comprising a warrant that is outstanding at the Effective Time shall
automatically be converted into a warrant to purchase Acquiror Stock at a value
equivalent to that set forth in such Option Security based upon the formula set
forth in the first sentence of this Section 2.4.
Section 2.5. Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to the contrary,
Shares that are held by Stockholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall be entitled to and shall
have demanded properly in writing appraisal for such Shares in accordance with
the DGCL, and who shall not have withdrawn such demand within the statutory
time period allowed or otherwise have forfeited appraisal rights (collectively,
the "Dissenting Shares") shall not be converted into or represent the right to
receive the Exchange Common Consideration. Such Stockholders shall be entitled
to receive payment of the appraised value of such Shares in accordance with the
provisions of the DGCL, except that all Dissenting Shares held by Stockholders
who effectively shall have withdrawn, forfeited or lost their rights to
appraisal of such Dissenting Shares under the DGCL shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive, without any interest thereon, the
Exchange Common Consideration upon surrender, in the manner provided in Section
2.2, of the Certificate or Certificates that formerly evidenced such Shares.
(b) The Company shall give Acquiror prompt notice of any demands for
appraisal received by it as a result of the Transactions, or by ATSI as a
result of the ATSI Merger or by UAC as a result of the UAC Merger, withdrawals
of such demands, and any other instruments served pursuant to the DGCL or the
NRS and received by an Arcus Party and relating thereto. The Arcus Parties and
Acquiror shall jointly direct all negotiations and proceedings with respect to
demands for appraisal under Applicable Law; provided, however, that Acquiror
shall be and remain the Person obligated to satisfy such demands as required by
Applicable Law. No Arcus Party shall, except with the prior written consent of
Acquiror, make any payment with respect to any demands for appraisal, or offer
to settle, or settle, any such demands.
(c) The Parties hereto acknowledge and agree that, as more fully set forth
in the ATSI Plan of Merger and the UAC Plan of Merger, shares of ATSI Common
Stock, UAC Common Stock and UAC Preferred Stock that are outstanding
immediately prior to the effective time of the ATSI Merger and UAC Merger, as
the case may be, and which are held by stockholders of ATSI and UAC,
respectively, who shall have not voted in favor of the ATSI Merger or the UAC
Merger, as the case may be, or consented thereto in writing and who shall be
entitled to and shall have demanded properly the fair value of, or appraisal
for, such shares in accordance with the DGCL or the NRS, as
I-11
<PAGE>
applicable, and, where the DGCL applies, who shall not have withdrawn such
demand within the statutory time period allowed or otherwise forfeited
appraisal rights, shall not be converted into or represent the right to receive
shares of capital stock of the Company and, as a result thereof, shall not be
converted into or represent the right to receive the Exchange Common
Consideration or the Exchange Preferred Consideration, as the case may be,
except if and to the extent such holders shall have effectively withdrawn,
forfeited or lost their rights to appraisal of such shares, as more fully set
forth in the ATSI Plan of Merger and UAC Plan of Merger, or as otherwise
consented to by Acquiror in its sole discretion.
Section 2.6. Further Adjustment. If the value of the sum of the aggregate
Stock Merger Consideration (excluding shares of Acquiror Stock issued to
Persons who have exercised Option Securities since January 1, 1997) and the
Preferred Stock Merger Consideration, in each case based on the closing price
of Acquiror Stock on the Nasdaq National Market System for the trading day
immediately prior to the Closing Date, as provided by the Nasdaq National
Market System or, if unavailable from such source, then as reported in the Wall
Street Journal, is less than 47% (the "Threshold Percentage") of the sum of the
value of the aggregate Merger Consideration, based on such closing price, and
the amount of cash and the fair market value of assets distributed by the Arcus
Entities to holders of their capital stock on or after August 1, 1997
(collectively, the "Aggregate Consideration Amount"), then (i) the number of
shares of Acquiror Stock deliverable pursuant to Sections 2.1(a) and 2.1(b)
shall be increased such that the sum of the value of the aggregate Stock Merger
Consideration (excluding shares of Acquiror Stock issued to Persons who have
exercised Option Securities since January 1, 1997) and the Preferred Stock
Merger Consideration (based on such closing price and after giving effect to
the decrease in the cash consideration contemplated by this Section 2.6) equals
the Threshold Percentage of the Aggregate Consideration Amount, and (ii) the
Cash Merger Consideration and Preferred Cash Merger Consideration,
respectively, shall be reduced by an amount equal to the product of (A) the
number of such additional shares of Acquiror Stock and (B) the Determination
Price (calculated without giving effect to the first proviso in the definition
of Determination Price).
Section 2.7. Standstill.
(a) Until the earlier of (i) the first anniversary of the Effective Time
or (ii) the date on which a Transfer (as such term is defined in Exhibit 2.7
hereto) may be effected in a manner that Acquiror reasonably determines does
not adversely affect the tax-free nature of the Merger under Section 368(a) of
the Code, except as permitted by Acquiror's Restated By-Laws, any Person who
receives or is entitled to receive at or after the Effective Time any shares of
Acquiror Stock pursuant to Section 2.1 shall not Transfer, and Acquiror shall
not be required to register the Transfer of, the shares of Acquiror Stock
issued to such Person in the Merger.
(b) Each certificate representing shares of Acquiror Stock issued pursuant
to the Merger shall bear the following legend:
"The shares represented by this certificate may not be transferred prior
to [the first anniversary date of the Effective Time to be inserted]
except as otherwise permitted by the Restated By-Laws of the
Corporation. A copy of the Restated By-Laws of the Corporation will be
furnished without charge upon written request addressed to the
Corporation at 745 Atlantic Avenue, Boston, Massachusetts 02111,
Attention: Chief Executive Officer."
(c) In order to implement the provisions of this Section 2.7, the Restated
By-Laws of Acquiror shall be amended on or prior to the Closing Date to include
the provisions as to the limitations on the transferability of the Acquiror
Stock set forth in Exhibit 2.7 hereto.
(d) Notwithstanding the foregoing, the provisions of this Section 2.7
shall not apply to any Person who receives shares of Acquiror Stock as a result
of the application of Section 5.10(a) or to the certificates representing such
shares.
I-12
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE ARCUS PARTIES
Each of the Arcus Parties hereby represents and warrants to, and in
respect of Sections 3.16 and 3.22 represents, warrants and covenants to, and
agrees with, Acquiror as follows:
Section 3.1. Organization and Qualification; Power and Authority; Effect
of Transaction.
(a) The Company:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has no direct
Subsidiaries other than UAC,
(ii) has all requisite power and corporate authority to own or hold under
lease its properties and to conduct its business as now conducted and as
presently proposed to be conducted, and to the Arcus Parties' knowledge,
except as set forth in Section 3.1(a)(ii) of the Disclosure Schedule, has
in full force and effect all material Governmental Authorizations and
Private Authorizations and has made all Governmental Filings, to the extent
required for such ownership and lease of its property and conduct of its
business,
(iii) is duly qualified and authorized to do business and is in good
standing as a foreign corporation in each jurisdiction (a true and correct
list of which is set forth in Section 3.1(a)(iii) of the Disclosure
Schedule) in which the character of its property or the nature of its
business or operations requires such qualification or authorization, except
to the extent the failure to so qualify or to maintain such authorizations
could not reasonably be expected to have an Adverse Effect on the Arcus
Entities, and
(iv) is, and at all times since its formation has been, a corporation
whose sole purpose is to hold assets (including ownership interests in
Subsidiaries or other entities controlled by it), and is not now
conducting, and at all times since its formation has not conducted, any
business operations other than through its Subsidiaries or other entities
controlled by it and other than incidental, nonmaterial operations relating
to other assets held by it.
(b) UAC:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada; each Subsidiary of UAC
listed in Section 3.1(b) of the Disclosure Schedule is duly organized,
validly existing and in good standing under the laws of its respective
state of incorporation,
(ii) and each of its Subsidiaries has all requisite power and corporate
authority to own or hold under lease its properties and to conduct its
business as now conducted and as presently proposed to be conducted, and,
to the Arcus Parties' knowledge, except as set forth in Section 3.1(b)(ii)
of the Disclosure Schedule, has in full force and effect all Governmental
Authorizations and Private Authorizations and has made all Governmental
Filings, to the extent required for such ownership and lease of its
property and conduct of its business, and
(iii) and each of its Subsidiaries is duly qualified and authorized to do
business and is in good standing as a foreign corporation in each
jurisdiction (a true and correct list of which is set forth in Section
3.1(b)(iii) of the Disclosure Schedule) in which the character of its
property or the nature of its business or operations requires such
qualification or authorization, except to the extent the failure to so
qualify or to maintain such authorizations could not reasonably be expected
to have an Adverse Effect on the Arcus Entities.
(c) Each of the Arcus Parties has all requisite power and corporate
authority and has in full force and effect all Governmental Authorizations and
Private Authorizations in order to enable it to execute and deliver, and to
perform its obligations under, this Agreement and each Collateral Document
executed or required to be executed by it pursuant hereto or thereto and to
consummate the Merger and the Transactions, and the execution, delivery and
performance of this Agreement and each Collateral Document executed or required
to be executed pursuant hereto or thereto have been duly authorized by all
requisite corporate or other action (other than that of the stockholders of the
Arcus Parties). This Agreement has been duly executed and delivered by each
Arcus Party and,
I-13
<PAGE>
subject to the affirmative vote of the stockholders of the Arcus Parties
referred to below, constitutes, and each Collateral Document executed or
required to be executed pursuant hereto or thereto or to consummate the Merger
and the Transactions, when executed and delivered by an Arcus Party or an
Affiliate of an Arcus Party will constitute, legal, valid and binding
obligations of such Arcus Party or such Affiliate, enforceable in accordance
with their respective terms, except as such enforceability may be subject to
bankruptcy, moratorium, insolvency, reorganization, arrangement, voidable
preference, fraudulent conveyance and other similar laws relating to or
affecting the rights of creditors and except as the same may be subject to the
effect of general principles of equity (the "Enforceability Exceptions").
Schedule C hereto sets forth the affirmative votes, actions by written consent
or other actions required of the holders of any class or series of the capital
stock of the Arcus Parties necessary to approve this Agreement, the Merger and
the Transactions under Applicable Law and the Arcus Parties' Organic Documents.
Neither the provisions of Section 203 of the DGCL nor the provisions of Section
78.411 of the NRS will apply to this Agreement, the Merger or the Transactions.
(d) Except as set forth in Section 3.1(d) of the Disclosure Schedule,
neither the execution and delivery of this Agreement or any Collateral Document
executed or required to be executed pursuant hereto or thereto, nor the
consummation of the Transactions, nor compliance with the terms, conditions and
provisions hereof or thereof by any Arcus Parties or any of the other parties
hereto or thereto which is Affiliated with the Arcus Parties:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Applicable Law on the part of any Arcus
Party or their respective Subsidiaries or will conflict with, or result in
a breach or violation of, or constitute a default under, or permit the
acceleration of any obligation or liability in, or but for any requirement
of giving of notice or passage of time or both would constitute such a
conflict with, breach or violation of, or default under, or permit any such
acceleration in, any Contractual Obligation of any Arcus Party or any of
their respective Subsidiaries,
(ii) will result in or permit the creation or imposition of any material
Lien upon any property now owned or leased by any Arcus Entity or any such
other party, or
(iii) will require any Governmental Authorization or Governmental Filing
or Private Authorization, except pursuant to the HSR Act or as otherwise
set forth on Schedule C hereto.
Section 3.2. Financial and Other Information.
(a) The Arcus Parties have heretofore furnished to Acquiror copies of the
consolidated financial statements of the Arcus Parties, as listed in Section
3.2(a) of the Disclosure Schedule (the "Financial Statements"). The Financial
Statements, including in each case the notes thereto, have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, except as otherwise noted therein or in Section 3.2(a) of the
Disclosure Schedule, and fairly present the financial condition and results of
operations of such entities and their respective Subsidiaries, on the bases
therein stated, as of the respective dates thereof, and for the respective
periods covered thereby and include, in the case of unaudited financial
statements, all material adjustments and accruals consistent with those
included in the audited financial statements.
(b) Except as set forth in Section 3.2(b) of the Disclosure Schedule,
neither the Disclosure Schedule, the Financial Statements, this Agreement nor
any Collateral Document, including the information memorandum prepared by
Donaldson, Lufkin & Jenrette Securities Corporation dated May 1997, furnished
or to be furnished by or on behalf of the Arcus Parties or any of their
stockholders pursuant to this Agreement or any Collateral Document executed or
required to be executed by or on behalf of the Arcus Parties or their
stockholders to consummate the Merger and the Transactions, taken as a whole,
contained on the date delivered or will contain when delivered any untrue
statement of a material fact or omitted on the date delivered or will omit when
delivered to state a material fact required to be stated in such documents by
their terms or necessary in order to make the statements contained herein or
therein not misleading and, to the Arcus Parties' knowledge, all such
Collateral Documents, taken as a whole, are on the date delivered and will be
when delivered true, correct and complete.
(c) As of the date hereof, a true and correct list of all Subsidiaries of
each of the Arcus Parties is set forth in Section 3.2(c) of the Disclosure
Schedule. None of the Arcus Parties own any capital stock or equity or other
I-14
<PAGE>
beneficial ownership interest in any other Entity or enterprise, however
organized and however such interest may be denominated or evidenced, except as
set forth in Section 3.2(c) of the Disclosure Schedule.
(d) The copies of the Organic Documents and all amendments thereto of each
of the Arcus Entities that have been delivered to Acquiror are true, correct
and complete copies thereof, as in effect on the date hereof. The minute books
of each of the Arcus Entities (other than the Company and UAC) for the period
January 1, 1992 to the date hereof and the minute books of each of the Company
and UAC for the period January 1, 1993 to the date hereof, copies of which have
been made available to Acquiror, contain accurate minutes of all actions taken
at all meetings of, and accurate consents to all actions taken without meetings
by, the Board of Directors (and any committees thereof) and the stockholders of
each of the Arcus Entities during such periods (except as set forth in Section
3.2(d) of the Disclosure Schedule and except to the extent any such minutes
have not yet been approved by the Board of Directors of any such Arcus Entity).
Section 3.3. Changes in Condition. Since the applicable Balance Sheet
Date, except to the extent described in Section 3.3 of the Disclosure Schedule,
there has been no Adverse Change in the Arcus Entities. There is no Event known
to the Arcus Parties which Adversely Affects or could reasonably be expected to
Adversely Affect the Arcus Entities, except for changes in general economic
conditions or the industries in which the Arcus Entities operate and to the
extent set forth in Section 3.3 of the Disclosure Schedule.
Section 3.4. Liabilities. At the applicable Balance Sheet Date, none of
the Arcus Entities had any obligations or liabilities, past, present or
deferred, accrued or unaccrued, fixed, absolute, contingent or other, except as
disclosed in such balance sheet, or the notes thereto, and since such date none
of the Arcus Entities has incurred any such obligations or liabilities, other
than obligations and liabilities incurred in the ordinary course of business
consistent with past practice of the Arcus Entities, which do not, and could
not reasonably be expected to, in the aggregate, Adversely Affect the Arcus
Entities, except to the extent set forth in Section 3.4 of the Disclosure
Schedule. None of the Arcus Entities has Guaranteed or is otherwise primarily
or secondarily liable in respect of any obligation or liability of any other
Person (other than a Subsidiary), except for endorsements of negotiable
instruments for deposit in the ordinary course of business, consistent with
prior practice, or as disclosed in the most recent balance sheet, or the notes
thereto, forming part of the Financial Statements or in Section 3.4 of the
Disclosure Schedule.
Section 3.5. Title to Properties; Leases.
(a) Each of the Arcus Entities has good legal, marketable and insurable
title, with respect to all real property owned (in fee simple), good title with
respect to all real property leased (in leasehold) reflected as an asset on the
most recent balance sheet forming part of the Financial Statements, or held by
any such Arcus Entity for use in its business, if not so reflected, and good
indefeasible and merchantable title to all other assets, tangible and
intangible, reflected on such balance sheet, or (excluding leased real estate)
held by any such Arcus Entity for use in its business if not so reflected, or
purported to have been acquired by such Arcus Entity since such date, except
inventory sold or depleted, or property, plant and other equipment used up or
retired, since such date, in each case in the ordinary course of business
consistent with past practice of the Arcus Entities, free and clear of all
Liens, except such as are reflected in the most recent balance sheet, or the
notes thereto, forming part of the Financial Statements or set forth in Section
3.5(a) of the Disclosure Schedule. Except for financing statements evidencing
Liens referred to in the preceding sentence (a true, correct and complete list
and description of which is set forth in Section 3.5(a) of the Disclosure
Schedule), to the Arcus Parties' knowledge, no financing statements under the
Uniform Commercial Code and no other filing which names any Arcus Entity as
debtor or which covers or purports to cover any of the property of the Arcus
Entities is on file in any state or other jurisdiction, and no Arcus Entity has
signed or agreed to sign any such financing statement or filing or any
agreement authorizing any secured party thereunder to file any such financing
statement or filing. Each Lease or other occupancy or other agreement under
which any Arcus Entity holds real or personal property has been duly
authorized, executed and delivered by such Arcus Entity and, to the Arcus
Parties' knowledge, by each of the parties thereto; each such Lease is a legal,
valid and binding obligation of such Arcus Entity and, to the Arcus Parties'
knowledge, of each other party thereto, enforceable in accordance with its
terms subject to the Enforceability Exceptions. Each of the Arcus Entities has
a valid leasehold interest in and enjoys peaceful and undisturbed possession
under all Leases pursuant to which it holds any real property or tangible
personal property, none of which contains any provision which would impair
I-15
<PAGE>
in any material respect such Arcus Entity's ability to use such property as it
is currently used by such Arcus Entity, except as described in Section 3.5(a)
of the Disclosure Schedule. To the Arcus Parties' knowledge, except as
disclosed in Section 3.5(a) of the Disclosure Schedule, all of such Leases are
valid and subsisting and in full force and effect; and neither the Arcus
Entities nor, to the Arcus Parties' knowledge, any other party thereto, is in
default in the performance, observance or fulfillment of any obligation,
covenant or condition contained in any such Lease.
(b) Section 3.5(b) of the Disclosure Schedule contains a true, correct and
complete description of all real estate owned or leased by the Arcus Entities
and all Leases. To the Arcus Parties' knowledge, except as disclosed in Section
3.5(b) of the Disclosure Schedule, the real property (other than land),
fixtures, fixed assets and machinery and equipment are in a state of good
repair and maintenance and are in good operating condition, reasonable wear and
tear excepted.
(c) Except as set forth in Section 3.5(c) of the Disclosure Schedule, all
real property owned or leased by the Arcus Entities conforms to and complies
with, in all material respects, all applicable title covenants, conditions,
restrictions and reservations and all applicable zoning, wetland, land use and
other Applicable Laws.
(d) The Arcus Parties have no knowledge of any public plans or proposals
for changes in road grade, access or other municipal improvements which would
materially and adversely affect the real property owned or leased by the Arcus
Entities or result in any assessment against the real property owned or leased
by the Arcus Parties or the ownership thereof, and, to the Arcus Parties'
knowledge, no ordinance authorizing improvements, the cost of which might be
assessed against any of the Arcus Entities or the real property owned or leased
by the Arcus Entities, is pending or contemplated.
(e) There is no condemnation or eminent domain proceeding, or proceeding
in lieu thereof, pending as to which any of the Arcus Entities has been served
with process or written notice or threatened in writing relating to any
material part of the real property owned by the Arcus Entities. To the Arcus
Parties' knowledge, there are no boundary claims made by any adjoining land
owner against any portion of the real property owned by the Arcus Entities, the
presence of which, singly or in the aggregate, would be reasonably likely to
have an Adverse Effect on the Arcus Entities.
(f) Except as set forth in Section 3.5(f) of the Disclosure Schedule, to
the Arcus Parties' knowledge, there are no facts or conditions that could
result in the termination of the present access from the real property owned or
leased by the Arcus Entities to any existing highways, streets or roads, or in
the termination or expiration of any conditional use permits, tentative tract
maps, sign permits or similar governmental permits or approvals necessary for
the ownership, development and/or operation of the real property owned or
leased by the Arcus Entities. Except as set forth in Section 3.5(f) of the
Disclosure Schedule, to the Arcus Parties' knowledge, there are no geological
conditions, other than generally known earthquake fault lines, affecting the
real property owned or leased by the Arcus Entities that could materially and
adversely affect the real property owned or leased by the Arcus Entities or the
ownership, operation and/or development thereof.
Section 3.6. Compliance with Private Authorizations. Section 3.6 of the
Disclosure Schedule sets forth, to the Arcus Parties' knowledge, a true,
correct and complete list and description of each Private Authorization which
individually is material to the Arcus Entities. The Arcus Entities have
obtained all Private Authorizations which are necessary for the ownership by
the Arcus Entities of their properties and the conduct of their business as now
conducted or as presently proposed to be conducted or which, if not obtained
and maintained, could, singly or in the aggregate, reasonably be expected to
Adversely Affect the Arcus Entities. Except as set forth in Section 3.6 of the
Disclosure Schedule, (i) each Private Authorization which individually is
material to the Arcus Entities is, to the Arcus Parties' knowledge, in full
force and effect, (ii) none of the Arcus Entities is in breach or violation of,
or is in default in the performance, observance or fulfillment of, any Private
Authorization, and (iii) no Event exists or has occurred, which constitutes, or
but for any requirement of giving of notice or passage of time or both would
constitute, such a breach, violation or default, under any Private
Authorization, except for such defaults, breaches or violations as do not and
could not reasonably be expected to, in the aggregate, have any Adverse Effect
on the Arcus Entities. No material Private Authorization is the subject of any
pending or, to the Arcus Parties' knowledge, threatened attack, revocation or
termination.
I-16
<PAGE>
Section 3.7. Compliance with Governmental Authorizations and Applicable
Law.
(a) Section 3.7(a) of the Disclosure Schedule contains a description of:
(i) all Legal Actions which are pending in which any of the Arcus
Entities is engaged, or which involve the business, operations or
properties of any of the Arcus Entities or, to the Arcus Parties'
knowledge, which are threatened or contemplated against, any of the Arcus
Entities or any of their respective business, operations or properties; and
(ii) to the Arcus Parties' knowledge, each material Governmental
Authorization to which the Arcus Entities are subject and which relates to
the business, operations, properties, condition (financial or other), or
results of operations of the Arcus Entities, all of which are in full force
and effect, except as set forth in Section 3.7(a)(ii) of the Disclosure
Schedule.
(b) Each of the Arcus Entities has obtained all Governmental
Authorizations which are necessary for the ownership or use of its properties
and the conduct of its business as now conducted or as presently proposed to be
conducted by the Arcus Entities or which, if not obtained and maintained, could
singly or in the aggregate reasonably be expected to have any Adverse Effect on
the Arcus Entities. No material Governmental Authorization is the subject of
any pending or, to the Arcus Parties' knowledge, threatened attack, revocation
or termination and, to the Arcus Parties' knowledge, all material Governmental
Authorizations are in full force and effect. Except as set forth in Section
3.7(b) of the Disclosure Schedule, none of the Arcus Entities is in material
breach or violation of, or in default in the performance, observance or
fulfillment of, any Governmental Authorization or any Applicable Law, and no
Event exists or has occurred, which constitutes, or but for any requirement of
giving of notice or passage of time or both would constitute, such a breach,
violation or default, under any Governmental Authorization or any Applicable
Law, except for such breaches, violations or defaults as do not and could not
reasonably be expected to have in the aggregate any Adverse Effect on the Arcus
Entities.
(c) Except as set forth in Section 3.7(c) of the Disclosure Schedule, the
matters, if any, referred to in Section 3.7(a) or 3.7(b) of the Disclosure
Schedule, if adversely determined against any of the Arcus Entities, could not
reasonably be expected to have an Adverse Effect on the Arcus Entities, except
to the extent set forth in the Disclosure Schedule.
Section 3.8. Intangible Assets. To the Arcus Parties' knowledge, Section
3.8 of the Disclosure Schedule sets forth a true, accurate and complete
description of all material Intangible Assets held or used by the Arcus
Entities, including without limitation the nature of the Arcus Entities'
interest in each and the extent to which the same have been duly registered in
the offices as indicated therein, but excluding general contract rights or
other rights or remedies under contracts or other instruments in favor of any
of the Arcus Entities. Each Arcus Entity owns or possesses or otherwise has the
right to use all Intangible Assets necessary for the present and planned future
conduct of its business, except where the failure to so own, possess or have
the right to use could not individually or in the aggregate, reasonably be
expected to have an Adverse Effect on the Arcus Entities. Except as set forth
in Section 3.8 of the Disclosure Schedule, each Arcus Entity possesses all
proprietary rights in or has a valid license to the principal software used in
operating and conducting its business and, other than in the case of software
generally available in the market, no other Person has any rights therein or
with respect thereto.
Section 3.9. Related Transactions. Section 3.9 of the Disclosure Schedule
sets forth a true, correct and complete description of any Contractual
Obligation or transaction, whether now existing or existing during the period
covered by the most recent audited Financial Statements, between the Arcus
Entities and any Affiliate thereof (other than reasonable compensation for
services as officers, directors and employees and reimbursement for out-
of-pocket expenses reasonably incurred in support of the Arcus Entities'
businesses), including without limitation any providing for the furnishing of
services to or by, providing for rental of property, real, personal or mixed,
to or from, or providing for the lending or borrowing of money to or from or
otherwise requiring payments to or from, any such Affiliate.
Section 3.10. Insurance.
(a) Section 3.10(a) of the Disclosure Schedule lists all insurance
policies maintained by the Arcus Entities and includes the insurers' names,
policy numbers, expiration dates, risks insured against, amounts of coverage,
the
I-17
<PAGE>
annual premiums, exclusions, deductibles and self-insured retention and
describes in reasonable detail any retrospective rating plan, fronting
arrangement or any other self-insurance or risk assumption agreed to by the
Arcus Entities or imposed upon each Arcus Entity by any such insurers, as well
as any self-insurance program that is in effect.
(b) No Arcus Entity is in breach or violation of or in default under any
such policy, and all premiums due thereon have been paid, and each such policy
or a comparable replacement policy will continue to be in force and effect up
to and including the Closing Date.
Section 3.11. Tax Matters.
(a) Except as set forth in Section 3.11(a) of the Disclosure Schedule,
each Arcus Entity has in accordance with all Applicable Laws filed all Tax
Returns which are required to be filed, and has paid, or made adequate
provision for the payment of, all Taxes which have or may become due and
payable pursuant to said Returns and all other governmental charges and
assessments received to date. The Tax Returns of each Arcus Entity have been
prepared in accordance with all Applicable Laws and generally accepted
principles applicable to taxation consistently applied. All Taxes which each
Arcus Entity is required by law to withhold and collect have been duly withheld
and collected, and have been paid over, in a timely manner, to the proper
Authorities to the extent due and payable. Except as set forth in Section
3.11(a) of the Disclosure Schedule, no Arcus Entity has executed any waiver to
extend, or otherwise taken or failed to take any action that would have the
effect of extending, the applicable statute of limitations in respect of any
Tax liabilities of any Arcus Entity for the fiscal years prior to and including
the most recent fiscal year. Except as set forth in Section 3.11(a) of the
Disclosure Schedule, adequate provision has been made on the most recent
balance sheet forming part of the Financial Statements for all Taxes of any
kind, including interest and penalties in respect thereof, whether disputed or
not, and whether past, current or deferred, accrued or unaccrued, fixed,
contingent, absolute or other, and to the knowledge of the Arcus Parties there
are no transactions or matters or any basis which might or could result in
additional Taxes of any nature to any Arcus Entity for which an adequate
reserve has not been provided on such balance sheet. No Arcus Entity is a
"consenting corporation" within the meaning of Section 341(f) of the Code. Each
Arcus Entity has at all times been taxable as a Subchapter C corporation under
the Code, except as otherwise set forth in Section 3.11(a) of the Disclosure
Schedule. No Arcus Entity has ever been a member of any consolidated group
(other than exclusively with the Arcus Parties and their former Subsidiaries)
for Tax purposes, except as set forth in Section 3.11(a) of the Disclosure
Schedule.
(b) Except as set forth in Section 3.11(b) of the Disclosure Schedule,
each Arcus Entity has paid all Taxes which have become due pursuant to its
Returns and has paid all installments (to the extent required to avoid material
underpayment penalties) of estimated Taxes due and payable.
(c) From the end of its most recent fiscal year to the date hereof, no
Arcus Party has made any payment on account of any Taxes except regular
payments required in the ordinary course of business, consistent with prior
practice, with respect to current operations or property presently owned.
(d) The information shown on the Federal income Tax Returns of each Arcus
Entity, to the extent any such Tax Return remains open pursuant to the
applicable statute of limitations, is true, correct and complete and fairly and
accurately reflects the information purported to be shown. True, correct and
complete copies of the Tax Returns set forth in Section 3.11(d) of the
Disclosure Schedule have been furnished by the Arcus Parties to Acquiror.
Federal and state income Tax Returns of each Arcus Entity have been examined or
audited by the IRS or applicable state, local, foreign or other Authority
through the taxable periods set forth in Section 3.11(d) of the Disclosure
Schedule and, except to the extent set forth in Section 3.11(d) of the
Disclosure Schedule, all Federal and State income Tax Returns of the Arcus
Entities are closed pursuant to the applicable statute of limitations and there
are no open, pending or threatened Tax-related proceedings, audits,
examinations, assessments, asserted deficiencies or claims for additional Taxes
with respect to any Arcus Entity, except as shown in Section 3.11(d) of the
Disclosure Schedule. Except as shown in Section 3.11(d) of the Disclosure
Schedule, there are no current revenue agents' reports or any other assertions
of unpaid or unresolved deficiencies or other liabilities for Taxes (including
any reports, statements, summaries and other communications or assertions or
claims of unpaid or unresolved deficiencies or other liabilities) with respect
to any Arcus Entity.
I-18
<PAGE>
(e) Except as set forth in Section 3.11(e) of the Disclosure Schedule, no
Arcus Party is a party to any tax sharing agreement or arrangement.
(f) No Arcus Party is, or within five (5) years of the date hereof has
been, a "United States real property holding corporation" as defined in Section
897 of the Code.
Section 3.12. ERISA.
(a) No Arcus Entity (which for purposes of this Section 3.12 shall include
any ERISA Affiliate with respect to any Plan subject to Title IV of ERISA)
contributes to any Plan or sponsors any Plan or Benefit Arrangement and, no
Arcus Entity has contributed to or sponsored any Plan or Benefit Arrangement,
except (i) as set forth in Section 3.12(a) of the Disclosure Schedule or (ii)
as would not result in any liability to an Arcus Entity. As to all Plans and
Benefit Arrangements listed in Section 3.12(a) of the Disclosure Schedule, and
except as disclosed in such Section 3.12(a) of the Disclosure Schedule:
(i) all such Plans and Benefit Arrangements comply and have been
administered in all material respects in form and in operation with all
Applicable Laws, and the Arcus Entities have not received any outstanding
notice from any Authority questioning or challenging such compliance;
(ii) all such Plans maintained or previously maintained by the Arcus
Entities that are or were intended to comply with Section 401 of the Code
comply and complied in all material respects in form and in operation with
all applicable requirements of such Section, and, except as set forth in
Section 3.12(a)(ii) of the Disclosure Schedule, a favorable determination
letter has been received from the Internal Revenue Service with respect to
each such Plan, or the sponsor of the Plan is entitled to rely on a
favorable determination opinion letter issued to the prototype sponsor by
the Internal Revenue Service with respect to each such Plan and no event
has occurred which will or could reasonably be expected to give rise to
disqualification of any such Plan under such Section or to a tax under
Section 511 of the Code;
(iii) none of the assets of any such Plan are invested in employer
securities or employer real property;
(iv) the Arcus Entities have not engaged in nor, to the Arcus Parties'
knowledge, have there been, any "prohibited transactions" (as described in
Section 406 of ERISA or Section 4975 of the Code) with respect to any such
Plan;
(v) there have been no acts or omissions by the Arcus Entities which have
given rise to or may reasonably be expected to give rise to material fines,
penalties, taxes or related charges under Sections 502(c), 502(i) or 4071
of ERISA or Chapter 43 of the Code for which the Arcus Entities may be
liable;
(vi) there are no Claims (other than routine claims for benefits) pending
or, to the Arcus Parties' knowledge, threatened involving such Plans or the
assets of such Plans, except as set forth on Section 3.12(a)(vi) of the
Disclosure Schedule;
(vii) no such Plan is subject to Title IV of ERISA, or if subject, there
have been no "reportable events" (as described in Section 4043 of ERISA) as
to which there is any material risk of termination of such Plan, and no
steps have been taken to terminate any such Plan;
(viii) to the extent that the most recent balance sheets forming part of
the Financial Statements do not include a pro rata amount of the
contributions which would otherwise have been made in accordance with past
practices for the plan years which include the Closing Date, such amounts
are set forth in Section 3.12(a)(viii) of the Disclosure Schedule;
(ix) neither the Arcus Entities nor any of their directors, officers,
employees or any other fiduciary have committed any breach of fiduciary
responsibility imposed by ERISA that would subject the Arcus Entities or
any of their directors, officers or employees to liability under ERISA;
(x) no such Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA or Section 412 of the Code had an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or
not waived, as of the last day of the most recently completed fiscal year
of such Plan;
I-19
<PAGE>
(xi) no material liability to the PBGC has been or is expected by the
Arcus Entities to be incurred by the Arcus Entities with respect to any
such Plan, and there has been no event or condition which presents a
material risk of termination of any such Plan by the PBGC;
(xii) except as set forth in Section 3.12(a)(xii) of the Disclosure
Schedule (which entry, if applicable, shall indicate the present value of
accumulated plan liabilities calculated in a manner consistent with FAS 106
and actual annual expense for such benefits for each of the last two (2)
years) and pursuant to the provisions of COBRA, which provisions have been
complied with in all material respects, the Arcus Entities do not maintain
any Plan that provides benefits described in Section 3(1) of ERISA to any
former employees or retirees of the Arcus Entities;
(xiii) the Arcus Entities have made available to Acquiror a copy of the
two most recently filed Federal Form 5500 series and accountant's opinion,
if applicable, for each Plan (and the two (2) most recent actuarial
valuation reports for each Plan, if any, that is subject to Title IV of
ERISA), and all information provided by the Arcus Entities to any actuary
in connection with the preparation of any such actuarial valuation report
was true, correct and complete in all material respects; and
(xiv) the Arcus Entities have delivered to Acquiror correct and complete
copies of all Plans and Benefit Arrangements which, as of the Closing Date,
are sponsored by any Arcus Entity, or to which any of the Arcus Entities
contribute, and, where applicable, each of the following documents with
respect to such plans: (i) any amendments; (ii) any related trust
documents; (iii) the most recent summary plan descriptions and summaries of
material modifications; and (iv) written communications to employees to the
extent the substance of the Plans and Benefit Arrangements described
therein differ materially from the other documentation furnished under this
clause.
(b) The Arcus Entities have not and have never been party to any
Multiemployer Plan or made contributions to any such plan.
Section 3.13. Authorized and Outstanding Capital Stock.
(a) As of the date hereof, the authorized and outstanding capital stock,
Option Securities and Convertible Securities of each Arcus Entity is as set
forth in Section 3.13(a) of the Disclosure Schedule. All shares of such
outstanding capital stock have been duly authorized and validly issued, are
fully paid and nonassessable and are not subject to any preemptive or similar
rights. Except as set forth in Section 3.13(a) of the Disclosure Schedule or
contemplated by Schedule C hereto, (i) there is neither outstanding nor has any
Arcus Entity agreed to grant or issue any shares of its capital stock or any
Option Security or Convertible Security, and (ii) no Arcus Entity is a party to
and no Arcus Entity is bound by any agreement, put or commitment pursuant to
which it is obligated to purchase, redeem or otherwise acquire any shares of
capital stock or any Option Security or Convertible Security. Between the date
hereof and the Closing, except as set forth in Section 3.13(a) of the
Disclosure Schedule or contemplated by Schedule C hereto, no Arcus Entity will
issue, sell or purchase or agree to issue, sell or purchase any capital stock
or any Option Security or Convertible Security of any Arcus Entity, except to
the extent required pursuant to the terms hereof. All of the issued and
outstanding shares of capital stock and any Option Security or Convertible
Security of each Arcus Entity were sold or granted, as applicable, in
compliance with the Securities Act, the Exchange Act and applicable state
securities laws.
(b) As of the date hereof, (i) Option Securities to acquire 217,390 shares
of UAC Common Stock are outstanding under UAC's 1995 Stock Option Plan (the
"UAC Option Plan"), all of which are currently vested, none of which Option
Securities is currently exercisable and of which the Minimum Exercise Number
will be exercisable as of the Effective Time; and (ii) 42,610 shares of UAC
Common Stock are reserved for future issuance pursuant to Option Securities
which may be granted under the UAC Option Plan. UAC has duly complied in all
material respects with all of the terms and conditions of the UAC Option Plan
and no amendment, modification or other revision to the UAC Option Plan or any
related option award agreement which required the consent or approval of a
holder of an Option Security has been made unless, in each case, such consent
or approval was duly obtained. All shares of UAC capital stock subject to
issuance under an Option Security will be, upon issuance on the terms and
conditions specified in such Option Security, validly issued, fully paid and
nonassessable.
I-20
<PAGE>
(c) As of the date hereof, (i) Option Securities to acquire 409,980 shares
of ATSI Common Stock are outstanding under ATSI's 1995 Stock Option Plan (the
"ATSI Option Plan"), none of which Option Securities is currently exercisable
and the vesting schedule for which, except as may be provided pursuant to
Section 5.10, is as set forth in Schedule 3.13(d) of the Disclosure Schedule;
and (ii) 45,020 shares of ATSI Common Stock are reserved for future issuance
pursuant to Option Securities which may be granted under the ATSI Option Plan.
The UAC Option Plan, the ATSI Option Plan and the ZDC Warrant constitute the
only plans or arrangements pursuant to which Option Securities or Convertible
Securities are currently outstanding. Other than as set forth in Section
3.13(c) of the Disclosure Schedule and except as provided in Section 5.10
hereof, neither the execution and delivery of this Agreement nor the
consummation of the Merger or the Transactions are events which will cause an
acceleration of the exercise or vesting schedule of any Option Security of
ATSI. ATSI has duly complied in all material respects with all of the terms and
conditions of the ATSI Option Plan and no amendment, modification or other
revision to the ATSI Option Plan or any related option award agreement which
required the consent or approval of a holder of an Option Security of ATSI has
been made unless, in each case, such consent or approval was duly obtained. All
shares of ATSI capital stock subject to issuance under an Option Security of
ATSI will be, upon issuance on the terms and conditions specified in such
Option Security, validly issued, fully paid and nonassessable.
(d) As of the date hereof, all of the outstanding capital stock of each
Arcus Entity is owned of record as set forth in Section 3.13(d) of the
Disclosure Schedule and all of the outstanding Option Securities and
Convertible Securities of each Arcus Entity are owned of record by the Persons
as set forth in Section 3.13(d) of the Disclosure Schedule, and are in each
case, to the Arcus Parties' knowledge in the case of capital stock owned by a
party other than an Arcus Entity, free and clear of all Liens, except as set
forth in Section 3.13(d) of the Disclosure Schedule, and, to the Arcus Parties'
knowledge, except as set forth in Section 3.13(d) of the Disclosure Schedule or
as contemplated by Schedule C hereto, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which any
stockholder is a party relating to the pledge, disposition or voting of any
shares of the Company Stock that are owned by such stockholder, and there are
no voting trusts or voting agreements with respect to such shares.
Section 3.14. Employment Arrangements.
(a) No Arcus Entity has any obligation or liability, contingent or other,
under any Employment Arrangement, other than those listed or described in
Section 3.14(a) of the Disclosure Schedule. No Arcus Entity is now or during
the past five (5) years has been subject to or involved in or, to the Arcus
Parties' knowledge, threatened with any union elections, petitions therefor or
other union organizing activities, except as described in Section 3.14(a) of
the Disclosure Schedule. None of the employees of the Arcus Entities is now, or
during the past five (5) years has been, in his or her capacity as an Arcus
Entity employee, represented by any labor union or other employee collective
bargaining organization or is party to any labor or other collective bargaining
agreement, and there are no pending grievances, disputes or controversies with
any labor union or any other employee collective bargaining organization of
such employees, or, to the Arcus Parties' knowledge, threats of strikes, work
stoppages or slowdowns or any pending demands for collective bargaining by any
labor union or other such organization, except as set forth in Section 3.14(a)
of the Disclosure Schedule. The Arcus Entities have performed all obligations
required to be performed under all Employment Arrangements and are not in
material breach or violation of or in default or arrears under any of the
terms, provisions or conditions thereof, except as set forth in Section 3.14(a)
of the Disclosure Schedule.
(b) Except as set forth in Section 3.14(b) of the Disclosure Schedule, no
employee of any Arcus Entity will accrue or receive or is entitled to accrue or
receive additional benefits, service or accelerated rights to payments of
benefits, whether under any Employment Arrangement or otherwise, including the
right to receive any parachute payment, as defined in Section 280G of the Code,
or become entitled to severance, termination allowance or similar payments as a
result of this Agreement, the Merger or the Transactions.
Section 3.15. Material Agreements. To the Arcus Parties' knowledge, listed
on Section 3.15 of the Disclosure Schedule are all Material Agreements (other
than customer contracts) relating to the ownership or operation of the business
and property of the Arcus Entities presently held or used by the Arcus Entities
or to which any of the Arcus Entities is a party or to which they or any of
their property is subject or bound. True, complete and correct copies
I-21
<PAGE>
of each of the Material Agreements have been made available to or furnished by
the Arcus Parties to Acquiror (or true, complete and correct descriptions
thereof have been set forth in Section 3.15 of the Disclosure Schedule, if any
such Material Agreements are oral). All of the Material Agreements are valid,
binding and legally enforceable obligations of the Arcus Entities and, to the
Arcus Parties' knowledge, of each other party thereto (subject to the
Enforceability Exceptions). The Arcus Entities are validly and lawfully
operating their business and owning their property under each of the Material
Agreements. The Arcus Entities have duly complied in all material respects with
all of the terms and conditions of each Material Agreement and have not done or
performed, or failed to do or perform (and, to the knowledge of the Arcus
Parties, there is no pending or threatened Claim that any of the Arcus
Entities, as the case may be, has not so complied, done and performed or fail
to do and perform) any act the effect of which would be to invalidate or
provide grounds for the other party thereto to terminate (with or without
notice, passage of time or both) such Material Agreement or impair the rights
or benefits, or increase the costs, of the Arcus Entities, as the case may be,
under any of the Material Agreements.
Section 3.16. Ordinary Course of Business.
(a) The Arcus Parties, from July 31, 1997 to the date hereof, and until
the Closing Date, except (i) as may be described on Section 3.16(a) of the
Disclosure Schedule, (ii) as may be required or expressly contemplated by the
terms of this Agreement (including without limitation Schedule C hereto and
Section 3.22 hereof), (iii) as may be reflected in the Financial Statements, or
(iv) as may be consented to by Acquiror, which consent shall not be
unreasonably withheld or delayed:
(i) have operated, and will continue to operate, their businesses in the
normal, usual and customary manner in the ordinary course of business,
consistent with prior practice;
(ii) have not sold or otherwise disposed of, or contracted to sell or
otherwise dispose of, and will not sell or otherwise dispose of or contract
to sell or otherwise dispose of, any of their properties or assets, other
than in the ordinary course of business;
(iii) except in each case in the ordinary course of business, consistent
with prior practice:
(A) have not incurred and will not incur any obligations or liabilities
(fixed, contingent or other);
(B) have not entered and will not enter into any commitments; and
(C) have not cancelled and will not cancel any debts or claims;
(iv) have not made or committed to make, and will not make or commit to
make, any additions to their property or any purchases of machinery or
equipment, except in the ordinary course of business, consistent with past
practice; provided, however, that the Arcus Entities shall continue to make
capital expenditures consistent with past practice in an amount equal to
not less than 80% of the amount provided therefor in their respective
capital budgets;
(v) have not discharged or satisfied, and will not discharge or satisfy,
any Lien and have not paid and will not pay any obligation or liability
(absolute or contingent) other than current liabilities or obligations
under contracts then existing or thereafter entered into in the ordinary
course of business, consistent with prior practice, and commitments under
Leases existing on that date or incurred since that date in the ordinary
course of business and regularly scheduled payments under contracts
relating to long-term indebtedness or the current portion thereof in
accordance with the applicable payment schedule;
(vi) have not created or permitted to be created, and will not create or
permit to be created any material Lien on any of their tangible property;
(vii) except in the ordinary course of business, have not transferred or
created, or permitted to be created, and will not transfer or create, or
permit to be created, any Lien on any Intangible Assets;
(viii) except in the ordinary course of business, consistent with prior
practice, have not increased and will not increase the compensation payable
or to become payable to any of their directors, officers, employees,
advisers, consultants, salesmen or agents or otherwise alter, modify or
change the terms of their employment or engagement;
I-22
<PAGE>
(ix) have not suffered any material damage, destruction or loss (whether
or not covered by insurance) or any acquisition or taking of property by
any Authority;
(x) have not waived, and will not waive, any rights of material value
without fair and adequate consideration;
(xi) have not entered into, amended or terminated and will not enter
into, amend or terminate any Lease, Private Authorization, Governmental
Authorization, Material Agreement or Employment Arrangement or any
Contractual Obligation or transaction with any Affiliate, except for
terminations in the ordinary course of business, consistent with prior
practice, in accordance with the terms thereof;
(xii) have not amended or terminated and will not amend or terminate
(other than to increase coverage), and have kept and will keep in full
force and effect including without limitation renewing to the extent the
same would otherwise expire or terminate, all insurance policies and
coverage;
(xiii) have not amended and will not amend any provision of their Organic
Documents;
(xiv) have not issued and will not issue any additional shares of capital
stock (other than the issuance of shares in accordance with the terms of
Option Securities outstanding on the date hereof, or except as set forth in
Section 3.13(a), 3.13(b), 3.13(c) or 3.13(d) of the Disclosure Schedule) or
any Option Securities or Convertible Securities and have not entered, and
will not enter into any agreement to do the same;
(xv) have not entered into and will not enter into any other transaction
or series of related transactions which individually or in the aggregate is
material to the Arcus Entities, except in the ordinary course of business;
and
(xvi) have maintained and will continue to maintain their policies
regarding collection of accounts receivable and payment of accounts payable
consistent with prior practice.
(b) Except as set forth in Section 3.16(b) of the Disclosure Schedule,
from the end of its most recent fiscal year to the date hereof, none of the
Arcus Entities has, nor on or prior to the Closing Date will any of them have,
declared, made or paid, or agreed to declare, make or pay, any Distribution
(other than Distributions made in connection with the Reorganization which are
expressly set forth in Schedule C hereto and Distributions paid only to an
Arcus Entity).
(c) The Arcus Parties shall cause each other Arcus Entity which is not a
party to this Agreement to comply with the terms and provisions of this Section
3.16.
Section 3.17. Bank Accounts, Etc. Section 3.17 of the Disclosure Schedule
contains a true and correct and complete list as of the date hereof of all
banks, trust companies, savings and loan associations and brokerage firms in
which the Arcus Entities have an account or a safe deposit box and the names of
all Persons authorized to draw thereon, to have access thereto, or to authorize
transactions therein, the names of all Persons, if any, holding powers of
attorney from the Arcus Entities and a summary statement as to the terms
thereof.
Section 3.18. Adverse Restrictions. To the Arcus Parties' knowledge, the
Arcus Entities are not a party to or subject to, nor is any of their property
subject to, any Applicable Law, Governmental Authorization, Contractual
Obligation, Employment Arrangement, Material Agreement or Private
Authorization, or any other obligation or restriction of any kind or character,
or any aggregation thereof, which impairs in any material respect the Arcus
Entities' ability to conduct their businesses as they are currently being
conducted or which could reasonably be expected to have any Adverse Effect on
the Arcus Entities, except as set forth in Section 3.18 of the Disclosure
Schedule.
Section 3.19. Broker or Finder. No Person assisted in or brought about the
negotiation of this Agreement, the Merger or the subject matter of the
Transactions in the capacity of broker, agent or finder or in any similar
capacity on behalf of the Arcus Entities (other than Donaldson, Lufkin &
Jenrette Securities Corporation, whose fees and expenses will be paid out of
the Expense Fund).
I-23
<PAGE>
Section 3.20. Environmental Matters.
(a) Except as set forth in Section 3.20(a) of the Disclosure Schedule:
(i) Each of the Arcus Entities is, and at all times since its
organization has been, in compliance in all material respects with all
applicable Environmental Laws and has not received written notice that it
is potentially liable, has not received any written request for information
or other correspondence concerning any site or facility, and, no Arcus
Entity is a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
the Resource Conservation Recovery Act, as amended, or any similar state
law;
(ii) no Arcus Entity has entered into or is otherwise bound by any
consent decree, compliance order, or administrative order relating to
Environmental Law;
(iii) no Arcus Entity is in violation of any judgment, order, writ,
injunction or decree of any final order relating to Environmental Law;
(iv) (1) each Arcus Entity has obtained all material Environmental
Permits and made all material Governmental Filings which are required to be
filed by such Arcus Entity for the ownership of its property, facilities
and assets and the operation of its businesses under all applicable
Environmental Laws, (2) no Arcus Entity is the subject of any pending Legal
Action nor has any Arcus Entity received any written notice threatening
Legal Action, in each case involving a demand for damages or other
potential liability in any amount with respect to material violations of
applicable Environmental Law; and
(v) no Arcus Entity has assumed or agreed to any obligation under any of
its leases of real property to clean up any Hazardous Materials which exist
on such property other than as a result of the Arcus Entities' operating
and occupying such property.
(b) Except as set forth in Section 3.20(b) of the Disclosure Schedule:
(i) no Arcus Entity has disposed, released, buried or placed Hazardous
Materials on, and, to the Arcus Parties' knowledge, no other disposal,
release, burial or placement of Hazardous Materials has occurred on, any
property or facility owned, leased, operated or occupied by any Arcus
Entity during the period that such facilities and properties were owned,
leased, operated or occupied by it or, to the knowledge of the Arcus
Entities, at any other time; and
(ii) to the Arcus Parties' knowledge, there has been no disposal,
release, burial or placement of Hazardous Materials on any property which
has resulted in or, to the Arcus Parties' knowledge, is likely to have
resulted in contamination or the threat of contamination of or beneath any
properties or facilities owned, leased, operated or occupied by the Arcus
Entities; and
(iii) no written notice has been received by any Arcus Entity and, to the
Arcus Parties' knowledge, no Lien has arisen on its properties or
facilities, in each case under Environmental Law.
(c) Except as disclosed in Section 3.20(c) of the Disclosure Schedule, no
Arcus Entity has installed, used or otherwise operated any above-ground or
underground fuel storage tanks on property owned, leased, operated or occupied
by it and, to the Arcus Parties' knowledge, no above-ground or underground fuel
storage tanks exist on property owned, leased, operated or occupied by it.
(d) Section 3.20(d) of the Disclosure Schedule sets forth all site
assessments, audits or other investigations that have been conducted by or on
behalf of the Arcus Entities as to environmental matters at any property owned,
leased, operated or occupied by the Arcus Entities.
Section 3.21. Customer Contracts. Except as set forth in Section 3.21 of
the Disclosure Schedule, to the Arcus Parties' knowledge, substantially all of
the Arcus Entities' data storage customers are parties to a customer contract
which limits such Arcus Entity's liability in the event of loss, damage or
destruction to (i) replacement value of media or (ii) a nominal dollar value
per storage unit.
I-24
<PAGE>
Section 3.22. Reorganization. On or prior to the Closing Date, each of the
Arcus Parties shall (i) cause UAC to merge with and into the Company with the
Company continuing as the surviving corporation and ATSI to merge with and into
the Company with the Company continuing as the surviving corporation, in each
case substantially according to the procedure and on the terms described in
Schedule A, Schedule B and Schedule C hereto and (ii) take the other actions
called for by, and in accordance with the terms set forth on, Schedule C
hereto.
Section 3.23. Materiality. The matters and items excluded from the
representations and warranties set forth in this Article by operation of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, could not reasonably be expected to be Adverse to the Arcus
Entities.
Section 3.24. Fairness Opinion. The Arcus Parties have received the
opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated as of
September 25, 1997, to the effect that, as of the date thereof, the aggregate
consideration to be received by the holders of securities of the Company
pursuant to this Agreement is fair to such holders from a financial point of
view. A signed, true and complete copy of such opinion has been delivered to
Acquiror.
Section 3.25. Inapplicability of Specified Statutes. No Arcus Entity is a
"holding company", or a "subsidiary company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended, or an "investment company" or a company "controlled" by or
acting on behalf of an "investment company", as defined in the Investment
Company Act of 1940, as amended. No Arcus Entity is subject to regulation by
the Federal Energy Regulatory Commission.
Section 3.26. Bankruptcy Plan. The Company has previously filed a
reorganization petition in the United States Bankruptcy Court, Southern
District of Texas, Houston Division (the "Court") pursuant to 11 U.S.C. [sec]
101, et seq., and was the proponent of a Plan of Reorganization filed with the
Court (the "Plan of Reorganization"), which Plan of Reorganization was filed on
or about August 7, 1990. The Plan of Reorganization was confirmed by the Court,
and has since been substantially consummated. Any and all disbursements
required under the Plan of Reorganization have been made, and the Chapter 11
case has been closed. The Company has no further obligations or liabilities
pursuant to the Plan of Reorganization or in its capacity as a
debtor-in-possession.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents, warrants and covenants to, and agree with, the Arcus
Parties as follows:
Section 4.1. Organization and Qualification; Power and Authority; Effect
of Transaction.
(a) Acquiror: (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware, (ii) has all requisite power and
corporate authority to own or hold under lease its properties and to conduct
its business as now conducted and as presently proposed to be conducted, and to
Acquiror's knowledge, except as set forth in Section 4.1(a)(ii) of the Acquiror
Disclosure Schedule, has in full force and effect all Governmental
Authorizations and Private Authorizations and has made all Governmental
Filings, to the extent required for such ownership and lease of its property
and conduct of its business, and (iii) is duly qualified and authorized to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the character of its property or the nature of its business or
operations requires such qualification or authorization, except to the extent
the failure to so qualify or to maintain such authorizations could not
reasonably be expected to have an Adverse Effect.
(b) Acquiror has all requisite power and authority (corporate and other)
and has in full force and effect all Governmental Authorizations and Private
Authorizations in order to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each Collateral Document executed or
required to be executed by it pursuant hereto or thereto and to consummate the
Merger and the Transactions and the execution, delivery and performance of this
Agreement and each Collateral Document executed or required to be executed
pursuant hereto or thereto have been duly authorized by all requisite corporate
or other action (other than that of the stockholders
I-25
<PAGE>
of Acquiror). This Agreement has been duly executed and delivered by Acquiror
and, subject to the affirmative vote of the stockholders of Acquiror referred
to below, constitutes, and each Collateral Document executed or required to be
executed pursuant hereto or thereto or to consummate the Merger and the
Transactions, when executed and delivered by it will constitute, legal, valid
and binding obligations of Acquiror, enforceable in accordance with their
respective terms (subject to the Enforceability Exceptions). If a vote of the
stockholders of Acquiror is required by Applicable Law or by Schedule D of the
NASD ByLaws, the affirmative vote of the holders of a majority of the
outstanding shares of Acquiror Stock are the only votes of the holders of any
class or series of the capital stock of Acquiror necessary to approve this
Agreement, the Merger and the Transactions under Applicable Law, Schedule D of
the NASD ByLaws and Acquiror's Organic Documents.
(c) Neither the execution and delivery of this Agreement or any Collateral
Document executed or required to be executed pursuant hereto or thereto, nor
the consummation of the Transactions, nor compliance with the terms, conditions
and provisions hereof or thereof by Acquiror:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Applicable Law on the part of Acquiror or
will conflict with, or result in a breach or violation of, or constitute a
default under, or permit the acceleration of any obligation or liability
in, or but for any requirement of giving of notice or passage of time or
both would constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any Contractual
Obligation of Acquiror,
(ii) will result in or permit the creation or imposition of any Lien upon
any property now owned or leased by Acquiror, or
(iii) will require any Governmental Authorization or Governmental Filing
or Private Authorization, except for the certificate of merger and related
filings under the DGCL in connection with the Merger and the Transactions
and as the Securities Act and applicable state securities laws may apply to
compliance by Acquiror with the provisions of this Agreement relating to
the Registered Stock and except pursuant to the HSR Act.
Section 4.2. Changes in Condition. Since June 30, 1997, except to the
extent specifically described in Section 4.2 of the Acquiror Disclosure
Schedule, there has been no Adverse Change in Acquiror. There is no Event known
to Acquiror which Adversely Affects, or could reasonably be expected to
Adversely Affect, Acquiror except for changes in general economic conditions or
the industries in which Acquiror and its Subsidiaries operate and to the extent
set forth in Section 4.2 of the Acquiror Disclosure Schedule.
Section 4.3. Capitalization of Acquiror. As of the date hereof, the
authorized and outstanding capital stock, Option Securities and Convertible
Securities of Acquiror is as set forth in Section 4.3 of the Acquiror
Disclosure Schedule. All of such outstanding capital stock has been duly
authorized and validly issued, is fully paid and nonassessable and is not
subject to any preemptive or similar rights. When issued to the Stockholders in
connection with the Merger, the Acquiror Stock will be duly authorized, validly
issued, fully paid and nonassessable and will not be subject to any preemptive
or similar rights.
Section 4.4. SEC Filings; Financial Statements and Other Information.
(a) Acquiror has filed all forms, reports and documents required to be
filed by it with the SEC since January 30, 1996, and has heretofore made
available to the Company, in the form filed with the SEC (including any
exhibits thereto), (i) its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) its Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, and June 30, 1997, (iii) its Current Report on Form 8-K
dated June 12, 1997 relating to the acquisition of Safesite Records Management
Corporation, as amended by its Current Report on Form 8- K/A dated August 26,
1997; (iv) its proxy statement relating to its 1997 meeting of stockholders,
and (v) all other forms, reports and registration statements filed by it with
the SEC since June 30, 1997 (the forms, reports and other documents referred to
in clauses (i) through (v) above being referred to herein collectively as the
"Acquiror SEC Reports"). The Acquiror SEC Reports and any forms, reports and
other documents filed by Acquiror with the SEC after the date of this Agreement
and until the Closing Date, (x) complied with or will comply in all material
respects with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations thereunder and (y) did not at
the time they were filed, or will not at the time
I-26
<PAGE>
they are filed, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.
(b) Acquiror's financial statements ("Acquiror Financial Statements"),
including in each case the notes thereto, contained in the Acquiror SEC Reports
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, except as otherwise noted therein, do
not contain any untrue statement of a material fact or omit to state a material
fact required by GAAP to be stated therein or necessary in order to make the
statements contained therein not misleading, and fairly present the
consolidated financial condition and results of operations of Acquiror and its
Subsidiaries, on the bases therein stated, as of the respective dates thereof,
and for the respective periods covered thereby and include, in the case of
unaudited financial statements, all material adjustments and accruals
consistent with those included in the audited financial statements.
(c) As of the date hereof, a true and correct list of all Subsidiaries of
Acquiror is set forth in Section 4.4(c) of the Acquiror Disclosure Schedule.
Acquiror does not own any capital stock or equity or other beneficial ownership
interest in any other Entity or enterprise, however organized and however such
interest may be denominated or evidenced, except as set forth in Section 4.4(c)
of the Acquiror Disclosure Schedule.
(d) The copies of the Organic Documents and all amendments thereto of
Acquiror and each of its Subsidiaries that have been delivered to the Arcus
Parties are true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror and each of its Subsidiaries for the last
five (5) years, copies of which have been made available for review to the
Arcus Parties, contain accurate minutes of all actions taken at all meetings
of, and accurate consents to all actions taken without meetings by, the Board
of Directors (and any committees thereof) and the stockholders of Acquiror and
each of its Subsidiaries during such period and on or prior to the date hereof
(except to the extent any such minutes have not yet been approved by the Board
of Directors of any such entity).
Section 4.5. Registration Statement. As of the Closing Date, the
Registration Statement and any amendments thereto will comply in all material
respects with the provisions of the Securities Act and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus will not as of the date it is first mailed to the
Stockholders of any of the Arcus Parties, at the time of the Arcus Special
Meetings or at the Closing Date contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, the representations and warranties
contained in Section 4.4(a) and this Section 4.5 shall not apply to statements
or omissions in the Registration Statement or the Prospectus based on
information furnished by and relating to the Arcus Entities. Neither the
Acquiror Disclosure Schedule, this Agreement nor any Collateral Document,
furnished or to be furnished by or on behalf of Acquiror pursuant to this
Agreement or any Collateral Document executed or required to be executed by or
on behalf of Acquiror pursuant hereto or thereto or to consummate the Merger
and the Transactions, taken as a whole, contained on the date delivered or will
contain when delivered any untrue statement of a material fact or omitted on
the date delivered or will omit when delivered to state a material fact
required to be stated herein or therein or necessary in order to make the
statements contained herein or therein not misleading and all such Collateral
Documents, taken as a whole, are on the date delivered and will be when
delivered true, accurate and complete.
Section 4.6. Brokers. No Person assisted in or brought about the
negotiation of this Agreement, the Merger or the subject matter of the
Transactions in the capacity of broker, agent or finder or in any similar
capacity on behalf of Acquiror (other than Bear, Stearns & Co. Inc., whose fees
and expenses will be paid by Acquiror).
Section 4.7. Liabilities. At the date of the most recent balance sheet
forming part of the Acquiror Financial Statements, Acquiror had no obligations
or liabilities, past, present or deferred, accrued or unaccrued, fixed,
absolute, contingent or other, except as disclosed in such balance sheet, or
the notes thereto, and since such date Acquiror has not incurred any such
obligations or liabilities, other than obligations and liabilities incurred in
the ordinary course of business consistent with past practice of Acquiror,
which do not and could not reasonably be expected to, in the aggregate,
Adversely Affect Acquiror, except to the extent set forth in Section 4.7 of the
Acquiror Disclosure Schedule. Acquiror has not Guaranteed and is not otherwise
primarily or secondarily liable in respect
I-27
<PAGE>
of any obligation or liability of any other Person (other than a Subsidiary),
except for endorsements of negotiable instruments for deposit in the ordinary
course of business, consistent with prior practice, or as disclosed in the most
recent balance sheet, or the notes thereto, forming part of the Acquiror
Financial Statements or in Section 4.7 of the Acquiror Disclosure Schedule.
Section 4.8. Related Transactions. The Acquiror SEC Reports set forth
true, correct and complete summaries (to the extent required to be disclosed by
the rules and regulations promulgated under the Securities Act and the Exchange
Act) of any Contractual Obligation or transaction, whether now existing or
existing during the period covered by the most recent audited Acquiror
Financial Statements, between Acquiror and any Affiliate thereof (to the extent
required to be disclosed by the rules and regulations promulgated under the
Securities Act and the Exchange Act).
Section 4.9. Materiality. The matters and items excluded from the
representations and warranties set forth in this Article by operation of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to be Adverse to
Acquiror.
Section 4.10. [Intentionally Omitted]
Section 4.11. Ordinary Course of Business. Acquiror, from the date of the
most recent balance sheet forming part of the Acquiror Financial Statements to
the date hereof, and until the Closing Date, except (i) as may be described in
Section 4.11 of the Acquiror Disclosure Schedule, (ii) as may be required or
expressly contemplated by the terms of this Agreement, (iii) as may be
reflected in the Acquiror Financial Statements, or (iv) as may be consented to
by the Arcus Parties, which consent shall not be unreasonably withheld or
delayed, (A) has operated, and will continue to operate, in the line of
businesses described in the Acquiror SEC Reports, (B) has not declared or paid
and will not declare or pay, directly or indirectly, any dividend or
distribution, in cash or otherwise, to any holder of its capital stock, (C) has
not repurchased, redeemed or otherwise acquired and will not repurchase, redeem
or otherwise acquire, directly or indirectly, any of its capital stock and (D)
has not sold, transferred or otherwise disposed of and will not sell, transfer
or otherwise dispose of, directly or indirectly, in one or more transaction or
series of transaction assets or properties having an aggregate fair market
value in excess of $5,000,000.
Section 4.12. Fairness Opinion. Acquiror has received the opinion of Bear,
Stearns & Co. Inc., dated as of September 26, 1997, to the effect that, as of
the date thereof, the consideration to be paid in the Merger is fair, from a
financial point of view, to Acquiror. A signed, true and complete copy of such
opinion has been delivered to the Company.
Section 4.13. Inapplicability of Specified Statutes. Acquiror is not an
"investment company" or a company "controlled" by or acting on behalf of an
"investment company", as defined in the Investment Company Act of 1940, as
amended.
ARTICLE 5.
ADDITIONAL COVENANTS
Section 5.1. Access to Information; Confidentiality.
(a) Each Party shall afford to the other Parties and their Representatives
full access during normal business hours throughout the period prior to the
Effective Time to all of such Party's properties, books, contracts, commitments
and records (including without limitation Tax Returns) and, during such period,
shall furnish promptly upon request (i) to the extent not provided for pursuant
to the preceding clause, all financial records, ledgers, workpapers and other
sources of financial information possessed or controlled by such Party or its
accountants deemed by the other Party or its Representatives necessary or
useful for the purpose of performing an audit of such Party and certifying
financial statements and financial information, and (ii) such other information
concerning any of the foregoing as the other Party shall reasonably request. In
addition, each Party shall furnish promptly upon request a copy of each report,
schedule and other document filed or received by any of them pursuant to the
requirements of any Applicable Law (including without limitation federal or
state securities laws) or filed by it or
I-28
<PAGE>
any of its Subsidiaries with any Authority in connection with the Transactions
or which may have a material effect on their respective businesses, operations,
properties, prospects, personnel, condition (financial or other), or results of
operations. ATSI and Acquiror acknowledge that they have heretofore executed a
confidentiality agreement, dated April 25, 1997 (the "Confidentiality
Agreement"), which separately and as incorporated herein shall remain in full
force and effect after and notwithstanding the execution and delivery or
termination of this Agreement, and that information obtained from each Party by
any of the other Parties or their Representatives, pursuant to this Agreement,
the Confidentiality Agreement or otherwise, shall be subject to the provisions
of the Confidentiality Agreement. The Company and UAC agree to be bound by the
terms of the Confidentiality Agreement.
(b) Subject to the terms and conditions of the Confidentiality Agreement,
Acquiror and the Arcus Parties may disclose such information as may be
necessary in connection with seeking all Governmental Authorizations and
Private Authorizations or that is required by Applicable Law to be disclosed.
In the event that this Agreement is terminated in accordance with its terms,
Acquiror and the Company shall each promptly redeliver all non-public written
material provided pursuant to this Section or any other provision of this
Agreement or otherwise in connection with the Merger and the Transactions and
shall not retain any copies, extracts, notes or other reproductions in whole or
in part of such written material other than one copy thereof which shall be
delivered to independent counsel for such party.
(c) No investigation pursuant to this Section 5.1 shall affect any
representation or warranty in this Agreement of any Party hereto or any
condition to the obligations of the Parties hereto.
Section 5.2. Agreement to Cooperate.
(a) Each of the Parties shall use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under Applicable Law to consummate the Merger and make effective
the Transactions, including using its best efforts (i) to prepare and file with
the applicable Authorities as promptly as practicable after the execution of
this Agreement all requisite applications and amendments thereto, together with
related information, data and exhibits, necessary to request issuance of orders
approving the Merger and the Transactions by all such applicable Authorities,
each of which must be obtained or become final in order to satisfy the
condition applicable to it set forth in Section 6.1; (ii) to obtain all
necessary or appropriate waivers, consents and approvals, and to reasonably
agree on and implement a procedure for obtaining the foregoing; (iii) to effect
all necessary registrations, filings and submissions (including without
limitation filings under federal or state securities laws or the HSR Act and
any other submissions requested by the SEC, the Federal Trade Commission or the
Department of Justice) and (iv) to lift any injunction or other legal bar to
the Merger and the Transactions (and, in such case, to proceed with the Merger
and the Transactions as expeditiously as possible), subject, however, to the
requisite vote of the stockholders of the Arcus Parties and the stockholders of
Acquiror. Each of the Parties recognizes that the consummation of the Merger
and the Transactions is subject to the preacquisition notification requirements
of the HSR Act and agrees to make all further filings and submissions with, and
respond to all further inquiries of, the Antitrust Division of the Department
of Justice and the Federal Trade Commission in a manner so as to consummate the
Merger and Transactions as expeditiously as possible. Notwithstanding anything
to the contrary contained in this Agreement, in connection with or as a
condition to receiving the consent or approval of any Authority or otherwise,
Acquiror shall not be required to divest, abandon, license or take similar
action with respect to any assets (tangible or intangible) of it or any of its
Subsidiaries (including, without limitation, the Surviving Corporation after
consummation of the Merger) which, in the aggregate, have a fair market value
(determined in the reasonable judgment of the Board of Directors of Acquiror)
in excess of $2,000,000.
(b) Each of the Parties agrees to take such actions as may be necessary to
obtain any Governmental Authorizations legally required for the consummation of
the Merger and the Transactions, including the making of any Governmental
Filings, publications and requests for extensions and waivers.
(c) The Arcus Parties will use their best efforts on or prior to the
Closing Date to obtain the satisfaction of the conditions applicable to them
specified in Sections 6.1 and 6.2. Acquiror will use its best efforts on or
prior to the Closing Date to obtain the satisfaction of the conditions
applicable to it specified in Sections 6.1 and 6.3.
(d) The Arcus Parties shall take such steps as are necessary and
appropriate to obtain, and shall promptly obtain, satisfaction and discharge of
all Liens set forth in Section 3.5(a) of the Disclosure Schedule but only to
the extent that Acquiror elects to repay or prepay the Indebtedness
corresponding to such Liens from its own funds.
I-29
<PAGE>
(e) The parties shall cooperate with one another in the preparation,
execution and filing of all Returns, questionnaires, applications, or other
documents regarding any real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp Taxes or any Plan, Benefit Arrangement or
Employment Arrangement, any transfer, recording, registration and other fees,
and any similar Taxes which become payable in connection with the Transactions
that are required or permitted to be filed on or before the Effective Time.
(f) The Arcus Parties (i) shall supply consolidated financial statements
for the Arcus Entities (and any and all documents and consents related thereto)
which comply with Regulation S-X under the Securities Act and the applicable
published rules and regulations thereunder for inclusion in the Registration
Statement, any other registration statement or other public filing of Acquiror
under the Securities Act or the Exchange Act, and any other offering circular
or document used by Acquiror in any other offering, whether public or private,
and (ii) shall use their best efforts to cause the Arcus Entities' independent
accountants to cooperate with Acquiror in connection with the foregoing
(including, without limitation, causing such independent accountants to deliver
Comfort Letters, written consents and representation letters relating to the
foregoing); provided, however, that Acquiror shall reimburse the Arcus Entities
for the reasonable fees and expenses of such accountants incurred in connection
with preparing and delivering any such Comfort Letters. Without limiting the
generality of the foregoing, the Arcus Parties agree that they will (i) consent
to the use of such audited financial statements in any such registration
statement, document or circular and (ii) execute and deliver, and cause their
officers to execute and deliver, such "representation" letters as are
customarily delivered in connection with audits and as their and Acquiror's
independent accountants may reasonably request under the circumstances.
(g) Without intending to limit the generality of the covenants set forth
in Section 3.16, the Arcus Parties agree that they and the other Arcus Entities
shall not, without the prior written consent of Acquiror, which consent shall
not unreasonably be withheld or delayed, (i) enter into, agree to or otherwise
become bound by any new leases of real property or amend or exercise any option
to extend any existing lease of real property or (ii) hire any new non-billable
employee whose annual compensation exceeds $50,000. In addition, the Arcus
Parties shall confer on a regular and frequent basis with Acquiror with respect
to operational matters of the Arcus Entities.
Section 5.3. Affiliate Agreements. Prior to the Closing Date, the Arcus
Parties shall deliver to Acquiror a letter identifying all Persons who are, at
the time this Agreement is submitted to the Stockholders, "affiliates" of the
Arcus Parties for purposes of Rule 145 under the Securities Act. Each of
Acquiror and the Arcus Parties shall use their best efforts to cause each such
"affiliate", or each Person who will, upon consummation of the Merger and the
Transactions, become an "affiliate" of Acquiror, to deliver to Acquiror on or
prior to the Closing Date a written agreement (an "Affiliate Agreement")
substantially in the form attached hereto as Exhibit 5.3.
Section 5.4. No Solicitation. The Arcus Parties shall not, nor shall they
permit any of the Arcus Parties' Representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) to,
initiate, solicit or facilitate, directly or indirectly, any inquiries or the
making of any proposal with respect to an Other Transaction, engage in any
discussions or negotiations concerning, or provide to any other Person any
information or data relating to, any Arcus Entity for the purposes of, or
otherwise cooperate in any way with or assist or participate in, facilitating
any inquiries or the making of any proposal which constitutes, or may
reasonably be expected to lead to, a proposal to seek or effect an Other
Transaction, or agree to or endorse any Other Transaction; provided, however,
that, notwithstanding anything to the contrary in this Agreement, prior to the
approval of this Agreement and the Reorganization by the stockholders of each
of the Arcus Parties, the Arcus Entities may engage in discussions or
negotiations with, and may furnish information concerning the Arcus Entities
and their business, properties and assets to, a third party who, without any
solicitation, initiation, encouragement, discussion or negotiation, directly or
indirectly, by or with the Arcus Parties or any Representatives of the Arcus
Parties, or in furtherance thereof makes a written, bona fide proposal
regarding an Other Transaction that is not subject to any material
contingencies relating to financing and that is reasonably capable of being
financed and is financially superior to the consideration to be received by the
Stockholders pursuant to the Merger (as determined in good faith by the Board
of Directors of each of the Arcus Parties after consultation with the Arcus
Parties' financial advisors) if (1) the Boards of Directors of the Arcus
Parties determine in their good faith, after receipt of written advice of the
Arcus Parties' outside legal counsel, that such action is required for the
Boards of Directors of the Arcus Parties to act in a manner consistent with
their fiduciary duties under Applicable Law and (2) prior to
I-30
<PAGE>
furnishing information with respect to the Arcus Entities to such third party,
the Arcus Parties shall have received from such third party an executed
confidentiality agreement in reasonably customary form on terms not more
favorable to such Person or entity than the terms contained in the
Confidentiality Agreement. In the event of a purported termination of this
Agreement by an Arcus Party pursuant to Section 7.1(h), any violation prior to
such termination of the restrictions set forth in the preceding sentence (after
giving effect to the proviso contained therein) by any investment banker or
financial advisor retained by the Arcus Parties, whether or not such Person is
purporting to act on behalf of any Arcus Entity or otherwise, shall be deemed
to constitute a breach of this Section 5.4 by the Arcus Parties. The Arcus
Parties shall promptly advise Acquiror of, and communicate the material terms
of, any proposal it may receive, or any inquiries it receives which may
reasonably be expected to lead to such a proposal relating to an Other
Transaction, and the identity of the Person making it. The Arcus Parties shall
further advise Acquiror of the status and changes in the material terms of any
such proposal or inquiry (or any amendment to any of them). During the term of
this Agreement, except as contemplated by this Section 5.4, the Arcus Parties
shall not enter into any agreement, whether oral or written and whether or not
legally binding, with any Person that provides for, or in any way facilitates,
an Other Transaction, or affects any other obligation of the Arcus Parties
under this Agreement.
Section 5.5. Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless each Person who is now, or has been at any
time prior to the date of this Agreement or who becomes prior to the Effective
Time, an officer or director of any of the Arcus Entities (collectively, the
"Indemnified Parties") against all Claims or amounts that, with the approval of
the Surviving Corporation as to settlements only, are paid in settlement of or
otherwise in connection with any Claim based in whole or in part on or arising
in whole or in part out of the fact that such Person is or was a director or
officer of any of the Arcus Entities and pertaining to any matter existing or
arising out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, any Claims arising out of this Agreement, the
Merger or any Transaction), whether asserted or claimed prior to, at or after
the Effective Time, in each case to the fullest extent currently provided under
the applicable Arcus Entity's Organic Documents (but only to the extent
permitted under Applicable Law), and shall pay any expenses, as incurred, in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under Applicable Law, upon
receipt from the Indemnified Party to whom expenses are advanced of an
undertaking to repay such advances to the extent required under Applicable Law.
Without limiting the foregoing (but only to the extent provided for under the
applicable Arcus Entity's Organic Documents), in the event any such Claim is
brought against any of the Indemnified Parties, such Indemnified Parties may
retain counsel (including local counsel) satisfactory to them and which shall
be reasonably satisfactory to the Surviving Corporation, and the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for such
Indemnified Parties. The Indemnified Parties as a group shall retain only one
law firm (plus appropriate local counsel) to represent them with respect to
each such Claim unless there is, as determined by counsel to the Indemnified
Parties, under applicable standards of professional conduct, a conflict or a
reasonable likelihood of a conflict on any significant issue between the
positions of any two or more Indemnified Parties, in which event such
Indemnified Party shall be entitled to retain separate legal counsel at the
expense of the Surviving Corporation.
(b) For a period of six (6) years after the Effective Time, Acquiror shall
cause the individuals currently covered by directors' and officers' liability
insurance maintained by the Arcus Entities to be covered by the directors' and
officers' liability insurance maintained by Acquiror, with coverage
substantially similar to the coverage provided to Acquiror's directors and
officers, with respect to claims arising from facts or events which occurred at
or prior to the Effective Time; provided, that Acquiror shall not be obligated
to maintain such liability insurance in the event that the Board of Directors
of Acquiror elects to discontinue maintaining liability insurance for all of
its officers and directors.
Section 5.6. Notification of Certain Matters and Cure. Each Party shall
give prompt notice to the other Parties of the occurrence or non-occurrence of
any Event the occurrence or non-occurrence of which would be likely to cause in
any material respect (i) any representation or warranty made by it contained in
this Agreement to be untrue or inaccurate, or (ii) any change to be made in the
Disclosure Schedule or the Acquiror Disclosure Schedule, as the case may be, or
(iii) any failure of the Arcus Parties or Acquiror, as the case may be, to
comply with or satisfy,
I-31
<PAGE>
or be able to comply with or satisfy, any material covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that, except as set forth in this Section 5.6, the delivery of any notice
pursuant to this Section 5.6 shall not limit or otherwise affect the remedies
available hereunder to the Party receiving such notice. In the event that a
representation or warranty of any Party is true and accurate at the date of
execution of this Agreement and thereafter, not as a result of an intentional
act or omission of such Party, becomes false or untrue subsequent to such date
and prior to the Effective Time, the Parties hereto shall have the right to
fully and adequately remedy and cure such breach prior to the Effective Time;
provided, however, that no such remedy or cure shall otherwise cause the other
representations and warranties contained herein to be untrue or inaccurate or
result in a failure of the conditions hereunder at the Effective Time or
otherwise affect the other rights or obligations of any Party hereunder. In the
event that a representation or warranty of any Party is breached as of the date
of execution of this Agreement and (x) such breach can be fully and adequately
remedied and cured prior to the Effective Time, (y) such remedy and cure does
not require the payment by any Party hereto or their respective Subsidiaries of
any cash, property or assets and (z) such breach and remedy or cure will not
have any Adverse Effect, such Party shall have the right to fully and
adequately remedy and cure such breach prior to the Effective Time but no later
than ten (10) days after the discovery of such breach; provided, however, that
no such remedy or cure shall otherwise cause the other representations and
warranties contained herein to be untrue or inaccurate or result in a failure
of the conditions hereunder at the Effective Time or otherwise affect the other
rights or obligations of any Party hereunder.
Section 5.7. Public Announcements. Until the Closing or, in the event of
termination of this Agreement, until the date of such termination, each Party
or its Affiliates shall consult with the other before issuing any press release
or otherwise making any public statements with respect to this Agreement, the
Merger or any Transaction and shall not issue any such press release or make
any such public statement without the prior consent of the other, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing,
any Party may, without the prior consent of the other Party, issue such press
releases or make such public statements which, in the opinion of outside
counsel to such Party, are required by Applicable Law, or by the terms of any
agreement or instrument with any exchange, including without limitation the
Nasdaq National Market System, on which such Party's or Affiliate's securities
are listed (each, a "Required Disclosure"), in which case the Party proposing
to make the Required Disclosure shall advise the other Party and afford it the
opportunity to review and comment upon its contents.
Section 5.8. Employee Benefits; Severance Policy.
(a) Provided that it complies in all material respects with Applicable Law
and except as set forth in Section 2.4 hereof, the Surviving Corporation may,
in its sole discretion, substitute employee compensation, benefit and severance
programs for those of the Arcus Entities and any ERISA Affiliates as are
comparable with the programs provided from time to time to Acquiror's employees
and the employees of Acquiror's Subsidiaries. For purposes of vesting in
benefits under, and eligibility to participate in, Acquiror's benefit programs,
service for any Arcus Entity shall be treated as service for the Acquiror for
all persons who were employed by an Arcus Entity on the day before the Merger
and employed by the Surviving Corporation or one of its Subsidiaries as of the
Effective Time. Subject to the first sentence of this Section 5.8(a), the
Surviving Corporation shall have no obligation to continue the existence of any
Plan or Benefit Arrangements maintained by an Arcus Entity or an ERISA
Affiliate thereof.
(b) At least one day prior to the Closing Date, the Arcus Parties shall,
and shall cause their ERISA Affiliates to, take all actions necessary to
terminate each Plan maintained by the Arcus Entities and any ERISA Affiliate
that complies or is intended to comply with Section 401 of the Code (each, a
"Qualified Plan"). If a Qualified Plan is terminated in accordance with this
Section 5.8(b), benefit accruals, including contributions of salary reduction
contributions, if any, shall cease. The Arcus Parties agree not to take, and
shall cause each of their ERISA Affiliates not to take, any action to merge any
of the Qualified Plans, transfer the assets of any of the Qualified Plans or
terminate any of the Qualified Plans, except as otherwise provided in this
Section 5.8(b), following the execution of this Agreement without the consent
of Acquiror.
Section 5.9 Certain Actions Concerning Business Combinations. The Arcus
Parties will not apply, and will not take any action resulting in the
application of, or otherwise elect to apply, the provisions of applicable state
takeover laws, if any, with respect to or as a result of the Merger or the
Transactions.
I-32
<PAGE>
Section 5.10 Option Securities. The Arcus Parties will take all action
necessary (a) if requested by Acquiror not less than thirty (30) days prior to
the Closing Date, to require the exercise, on the Designated Exercise Date (or,
if a period is provided as the Designated Exercise Date, then on or prior to
the last date of such period), of the Minimum Exercise Number of Option
Securities comprising non-qualified stock options of an Arcus Party, including,
if applicable, by accelerating the vesting prior to the Effective Time of such
Option Securities that would otherwise not be vested as of the Effective Time,
(b) if requested by Acquiror not less than thirty (30) days prior to the
Closing Date, to provide that any such Option Security which is not so
exercised on (or prior to, as applicable) a Designated Exercise Date shall
terminate and be forfeited as of the close of business on such Designated
Exercise Date, (c) to accelerate, if the Arcus Parties so choose, in their sole
discretion, the vesting of any Option Security held by an employee whose
employment by an Arcus Party is terminated prior to the Effective Time, (d) to
amend, prior to the Effective Time, the UAC Option Plan and the ATSI Option
Plan as may be reasonably requested by Acquiror not less than ten (10) days
prior to the Closing Date, and to cooperate with Acquiror to amend the UAC
Option Plan and the ATSI Option Plan and any Option Security granted thereunder
as the Parties may reasonably agree so as to minimize taxes payable in
connection therewith, (e) to provide timely written notice to all Persons
holding Option Securities to the effect that all Option Securities outstanding
as of the Effective Time (after giving effect to the required exercise
described in clause (a)) will be assumed by Acquiror and thereafter, in
accordance with Section 2.4, will represent options (or warrants as applicable)
to acquire Acquiror Stock, and (f) to obtain any consent or waiver from the
holder of an Option Security which may be necessary to give effect to the
actions contemplated by this Section 5.10 and Section 2.4. Without the prior
written consent of Acquiror, except as set forth above and in Sections 3.13(b)
and 3.13(c) of the Disclosure Schedule, the Arcus Parties will not accelerate,
or cause an acceleration of, the exercise, exchange or vesting schedule of any
Option Security. As of the Effective Time, Acquiror shall assume all of the
Company's obligations with respect to the Option Securities (as amended in
accordance with Section 2.4 and this Section 5.10) and shall, from and after
the Effective Time, have reserved for issuance upon the exercise of the Option
Securities the shares of Acquiror Stock covered thereby, and, as of the
Effective Time, shall have filed a Registration Statement on Form S-8 (or, if
appropriate, an amendment to its Registration Statement on Form S-8) to
register the shares of Acquiror Stock subject to such Option Securities (as so
amended).
Section 5.11 Tax Treatment. Acquiror and each Arcus Party shall use its
reasonable best efforts to cause the Merger to qualify as a tax-free
reorganization under the provisions of Section 368(a) of the Code and to obtain
the opinions of counsel referred to in Sections 6.2(i) and 6.3(d). Without
limiting the foregoing, Acquiror covenants that (i) it will not dispose of the
Company, whether by sale of stock, sale of assets, merger, consolidation,
liquidation, redemption, or otherwise, for a period of one year after the
Closing Date, except as permitted under Section 368(a)(2)(C) of the Code and
the administrative authorities under Section 368 of the Code, or unless it
first shall have received an opinion of counsel, addressed to Acquiror and the
Stockholders, that the proposed disposition will not affect the tax-free nature
of the Merger and (ii) it will deliver cash or shares of Acquiror Stock
pursuant to Section 2.1(f) hereof in relative amounts that do not affect the
tax-free nature of the Merger.
Section 5.12 Preparation of the Registration Statement.
(a) Promptly following the date of this Agreement, Acquiror shall prepare
and file with the SEC the Registration Statement. Each of the Arcus Parties and
Acquiror shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing and to cause the Prospectus to be mailed to the
stockholders of the Arcus Parties and, if required by Applicable Law or
Schedule D of the NASD By-Laws, to the stockholders of Acquiror as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act. Acquiror shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified or
consenting to service of process in any jurisdiction in which it has not
previously so consented in any action other than one arising out of the
offering of the Acquiror Stock in such jurisdiction) required to be taken to
qualify the Acquiror Stock to be issued in the Merger under any applicable
state securities or "blue sky" laws prior to the Effective Time, and the Arcus
Parties shall furnish all information concerning the Arcus Entities and the
holders of the capital stock, Option Securities and Convertible Securities of
the Arcus Parties as may be requested in connection with any such action.
(b) The Arcus Parties and Acquiror shall cooperate with each other and
provide to each other all information necessary in order to prepare the
Registration Statement. Acquiror shall notify the Arcus Parties promptly of the
I-33
<PAGE>
receipt of any comments from the SEC or its staff and of any requests by the
SEC or its staff for amendments or supplements to the Registration Statement or
for additional information and shall supply the Arcus Parties with copies of
all correspondence between Acquiror or any of its Representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect thereto. The
Arcus Parties and Acquiror shall use their respective reasonable best efforts
to respond to any comments of the SEC with respect to the Registration
Statement as promptly as practicable. If at any time prior to the Effective
Time there shall occur any event with respect to the Arcus Entities or Acquiror
or any of its Subsidiaries, as the case may be, or with respect to other
information supplied by the Arcus Parties or Acquiror, as the case may be, for
inclusion in the Registration Statement, in either case which event is required
to be described in an amendment of, or a supplement to, the Prospectus or the
Registration Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the Stockholders. Acquiror shall notify the Arcus Parties
promptly upon (i) the declaration by the SEC of the effectiveness of the
Registration Statement, (ii) the issuance or threatened issuance of any stop
order or other order preventing or suspending the use of any prospectus
relating to the Registration Statement, (iii) any suspension or threatened
suspension of the use of any prospectus relating to the Registration Statement
in any state, (iv) any proceedings commenced or threatened to be commenced by
the SEC or any state securities commission that might result in the issuance of
a stop order or other order or suspension of use or (v) any request by the SEC
to supplement or amend the Prospectus after the effectiveness thereof. Acquiror
and, to the extent applicable, the Arcus Parties, shall use their reasonable
best efforts to prevent or promptly remove any stop order or other order
preventing or suspending the use of any prospectus relating to the Registration
Statement and to comply with any such request by the SEC or any state
securities commission to amend or supplement the Registration Statement or the
Prospectus.
(c) None of the information supplied or to be supplied by Acquiror, the
Arcus Parties or any stockholder of any of the Arcus Parties for inclusion in
(i) the Registration Statement will, at the time the Registration Statement is
filed with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) the
Prospectus or any other proxy statement or information furnished to the
stockholders of any of the Arcus Parties in connection with the Arcus Special
Meetings will, at the date it is first mailed to such stockholders, at the time
of the Arcus Special Meetings or at the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Prospectus
and the Registration Statement will comply as to form in all material respects
with the requirements of the Securities Act. Notwithstanding the foregoing, no
representation is made by the Arcus Parties with respect to statements made or
incorporated by reference in the Registration Statement other than with respect
to information which is supplied by the Arcus Parties or any stockholder of any
of the Arcus Parties specifically for inclusion or incorporation by reference
in the Registration Statement.
Section 5.13 Disclosure of Acquisitions. In the event that, between the
date hereof and the Closing, Acquiror or any of its Subsidiaries enters into a
letter of intent or definitive agreement in respect of any potential
acquisition (whether structured as a stock or asset acquisition, business
combination or joint venture and without regard to whether Acquiror is then
required to publicly disclose such agreement, arrangement or understanding)
with respect to which the aggregate consideration (or potential aggregate
consideration) is $5,000,000 or more, Acquiror shall promptly disclose such
letter of intent or agreement and the terms and conditions thereof to the Arcus
Parties.
Section 5.14 Amendment to Preserve Tax-Free Transaction. In the event
Dissenting Shares exist and any Party reasonably determines that the existence
of such Dissenting Shares adversely affects the tax-free nature of the Merger,
the Parties shall promptly negotiate in good faith to amend, supplement or
otherwise modify this Agreement and any applicable Collateral Documents to
preserve the tax-free nature of the Transactions.
Section 5.15 Warrant Purchase Agreement, Non-Competition Agreement, Etc.
Following the execution of this Agreement, (a) the Parties shall use their best
efforts to facilitate the execution of a Warrant Purchase Agreement by those
holders of Warrants that have not, as of the date hereof, executed a Warrant
Purchase Agreement, and (b) the Arcus Parties shall use their best efforts (i)
to facilitate the execution of a Non-Competition Agreement by those individuals
and in the form attached as Exhibit 5.15(a) or Exhibit 5.15(b), in each case as
identified in writing by
I-34
<PAGE>
Acquiror on the date hereof and (ii) to obtain the resignation (which
resignation shall release Acquiror and its Subsidiaries (including, without
limitation, the Arcus Entities after the Effective Time) from any and all
liabilities, claims and actions, which release shall be in form and substance
reasonably acceptable to Acquiror), effective as of the Closing Date, of those
employees of an Arcus Entity identified in writing by Acquiror on the date
hereof.
Section 5.16 Customers. Between the date hereof and the Closing Date, the
Arcus Entities will continue to enter into customer contracts in the ordinary
course of business; provided that no Arcus Entity will enter into any customer
contract relating to the provision of data protection services or the storage
of, and related services for, computer media or items held for storage or
transport in which the limitation on liability is different from that set forth
in Exhibit 5.16 attached hereto without the prior consent of Acquiror.
ARTICLE 6.
CLOSING CONDITIONS
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each Party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by Applicable Law:
(a) To the extent required by the DGCL or Schedule D of the NASD By-Laws,
this Agreement and the Merger shall have been approved and adopted in
accordance with the DGCL and, if applicable, Schedule D of the NASD By-Laws by
the affirmative vote of the stockholders of Acquiror holding at least the
minimum number of shares of capital stock of Acquiror then issued and
outstanding as are required by Applicable Law, Acquiror's Organic Documents
and, if applicable, Schedule D of the NASD By-Laws for such approval and
adoption;
(b) This Agreement, the Merger and the Transactions for which approval is
required by Applicable Law or as set forth on Schedule C shall have been
approved and adopted in accordance with the DGCL and the NRS, as applicable, or
as set forth on by Schedule C hereto by the affirmative vote or consent of the
stockholders of the Company, UAC and ATSI holding at least the minimum number
of shares of capital stock of the Company, UAC and ATSI, as the case may be,
then issued and outstanding as are required by Applicable Law and the Arcus
Parties' Organic Documents or as otherwise contemplated by Schedule C hereto
for such approval and adoption;
(c) No Legal Action or other Claim (excluding dissenter's rights) shall be
pending or threatened in writing at any time prior to or on the Closing Date
before or by any Authority or by any other Person seeking to restrain or
prohibit, make illegal or delay materially, or seeking material damages or
other relief in connection with, the execution and delivery of this Agreement
or the consummation of the Merger and the Transactions or which might in the
reasonable judgment of Acquiror or the Arcus Parties, as the case may be, have
any Adverse Effect on the Arcus Entities or, assuming consummation of the
Merger, Acquiror and its Subsidiaries taken as a whole;
(d) Other than the filing of the certificate of merger for the Merger and
the other actions contemplated by Schedule C hereto, including other related
filings in accordance with the DGCL and the NRS, all authorizations, consents,
waivers, orders or approvals required to be obtained, and all filings,
submissions, registrations, notices or declarations required to be made, by
Acquiror and the Arcus Parties prior to the consummation of the Merger and the
Transactions shall have been obtained from, and made with, all required
Authorities, except for such authorizations, consents, waivers, orders,
approvals, filings, registrations, notices or declarations the failure to
obtain or make would not, in the reasonable judgment of Acquiror, assuming
consummation of the Merger, have an Adverse Effect on the Arcus Entities;
(e) The filing and waiting period requirements under the HSR Act relating
to the consummation of the Merger shall have been complied with;
(f) The Registration Statement shall have been declared effective, and no
stop order suspending the effectiveness of the Registration Statement shall be
in effect; and
(g) The holders of all Warrants that have accepted Acquiror's offer to
purchase Warrants and executed a Warrant Purchase Agreement as of the date
hereof shall have sold, and Acquiror shall have purchased, all such
I-35
<PAGE>
Warrants for a cash purchase price equal to the aggregate Warrant Purchase
Price.
Section 6.2 Conditions to Obligations of Acquiror. The obligations of
Acquiror to effect the Merger shall be subject to the satisfaction at or prior
to the Effective Time of the following additional conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by Applicable
Law:
(a) All agreements, certificates, opinions and other documents shall be
reasonably satisfactory in form, scope and substance to Acquiror and its
counsel, and Acquiror and its counsel shall have received all information and
copies of all documents, including records of corporate proceedings, which they
may reasonably request in connection therewith, such documents where
appropriate to be certified by proper corporate officers;
(b) The representations, warranties, covenants and agreements of the Arcus
Parties contained in this Agreement or otherwise made in writing by them or on
their behalf pursuant hereto or otherwise made in connection with the Merger
and the Transactions shall be true and correct in all material respects at and
as of the Closing Date with the same force and effect as though made on and as
of such date except those which speak as of a certain date which shall continue
to be true and correct as of such date on the Closing Date; each and all of the
agreements and conditions to be performed or satisfied by the Arcus Parties or
any stockholders of the Arcus Parties hereunder or under the Stockholders'
Agreement at or prior to the Closing Date shall have been duly performed or
satisfied in all material respects; and the Arcus Parties shall have furnished
Acquiror with such certificates and other documents evidencing the truth of
such representations, warranties, covenants and agreements and the performance
of such covenants, agreements or conditions as Acquiror shall have reasonably
requested;
(c) The Arcus Parties shall have furnished Acquiror and, at Acquiror's
request, any bank or other financial institution providing credit to Acquiror,
with favorable opinions dated the Closing Date of Paul, Hastings, Janofsky &
Walker LLP, counsel for the Arcus Parties, or such other counsel reasonably
acceptable to Acquiror, Neal, Gerber & Eisenberg, special tax counsel for the
Arcus Parties, or such other counsel reasonably acceptable to Acquiror, and
Bible, Hoy & Trachok, special Nevada counsel for the Arcus Parties, or such
other counsel reasonably acceptable to Acquiror, in each case in form and
substance reasonably acceptable to Acquiror;
(d) Each Affiliate of the Company, as identified by the Company to
Acquiror in writing not less than fifteen (15) business days preceding the
Closing Date, shall have executed and delivered an Affiliate Agreement in the
form of Exhibit 5.3 hereto;
(e) The Arcus Parties shall have obtained (i) consents to the assignment
and continuation of (A) all Material Agreements listed in Schedule 3.1(d) with
respect to which Acquiror shall have notified the Arcus Parties in writing
within ten (10) days after the date hereof and (B) any Material Agreement the
consent to which is not identified on Schedule 3.1(d) but which, in the
reasonable judgment of Acquiror, requires such consent and with respect to
which Acquiror shall have notified the Arcus Parties in writing within ten (10)
days after such Material Agreement shall have been delivered or otherwise
provided to Acquiror (or, if later, ten (10) days after the date hereof), and
(ii) satisfaction and discharge of all Liens set forth in Section 3.5(a) of the
Disclosure Schedule, but only to the extent that Acquiror elects to repay or
prepay the Indebtedness secured by such Liens from its own funds;
(f) Each of the stockholders agreements listed on Schedule 3.13(d) of the
Disclosure Schedule shall have been, as of the Effective Time, terminated or
otherwise of no further force or effect with no liability to any Arcus Entity;
(g) Each trustee under each Plan and each other officer and director of
the Arcus Entities identified in writing by Acquiror to the Company not less
than ten (10) days prior to the Closing Date shall, if required, have submitted
his or her unqualified written resignation, dated as of the Closing Date, from
all such positions held with the Arcus Entities and as a trustee for each such
Plan;
(h) Except for such Contractual Obligations as to which Acquiror has
notified the Arcus Parties that it wants to retain, which notice shall be
delivered not less than thirty (30) days prior to Closing and which Contractual
I-36
<PAGE>
Obligations shall be effective as of the Effective Time, all Contractual
Obligations set forth in Section 3.9 of the Disclosure Schedule shall have been
satisfied and discharged as of the Closing Date;
(i) Acquiror shall have received a favorable opinion, dated the Closing
Date, of Sullivan & Worcester LLP, counsel to Acquiror, or such other counsel
reasonably acceptable to the Arcus Parties, to the effect that this Agreement
constitutes a tax-free plan of reorganization in accordance with the provisions
of Section 368(a) of the Code and as to the consequences thereof to Acquiror;
(j) The Arcus Parties, the Stockholder Representative and the Escrow
Agent shall have executed and delivered the Escrow Agreement; and
(k) The Arcus Parties shall have furnished Acquiror with such
certificates, at or prior to the Closing Date, evidencing the payment by the
Arcus Parties of substantially all Expenses incurred by each of the Arcus
Parties in connection with or related to this Agreement, the Merger and the
Transactions, using (i) funds drawn under the Credit Facility or (ii) cash.
Section 6.3 Conditions to Obligations of the Company. The obligations of
the Arcus Parties to effect the Merger shall be subject to the satisfaction at
or prior to the Effective Time of the following additional conditions, any or
all of which may be waived, in whole or in part, to the extent permitted by
Applicable Law:
(a) Acquiror shall have furnished the Arcus Parties with the favorable
opinion, dated the Closing Date, of Sullivan & Worcester LLP, counsel to
Acquiror, or such other counsel reasonably acceptable to the Arcus Parties, in
form and substance reasonably acceptable to the Arcus Parties;
(b) All agreements, certificates, opinions and other documents shall be
reasonably satisfactory in form, scope and substance to the Arcus Parties and
their counsel, and the Arcus Parties and their counsel shall have received all
information and copies of all documents, including records of corporate
proceedings, which they may reasonably request in connection therewith, such
documents where appropriate to be certified by proper corporate officers;
(c) The representations, warranties, covenants and agreements of Acquiror
contained in this Agreement or otherwise made in writing by it or on its behalf
pursuant hereto or otherwise made in connection with the Merger and the
Transactions shall be true and correct in all material respects at and as of
the Closing Date with the same force and effect as though made on and as of
such date except those which speak as of a certain date which shall continue to
be true and correct as of such date on the Closing Date; each and all of the
agreements and conditions to be performed or satisfied by Acquiror hereunder at
or prior to the Closing Date shall have been duly performed or satisfied in all
material respects; and Acquiror shall have furnished the Arcus Parties with
such certificates and other documents evidencing the truth of such
representations, warranties, covenants and agreements and the performance of
such covenants, agreements or conditions as the Arcus Parties shall have
reasonably requested;
(d) The Arcus Parties shall have received a favorable opinion, dated the
Closing Date, of Neal, Gerber & Eisenberg, their special tax counsel or such
other counsel reasonably acceptable to Acquiror, to the effect that this
Agreement constitutes a tax-free plan of reorganization in accordance with the
provisions of Section 368(a) of the Code and as to the consequences thereof to
the Stockholders; and
(e) The Escrow Agreement shall have been executed and delivered by Acquiror
and the Escrow Agent.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this
Agreement, the Merger and the Transactions by the stockholders of the Arcus
Parties or the stockholders of Acquiror:
(a) by mutual consent of Acquiror and the Arcus Parties;
(b) by either Acquiror or the Arcus Parties if any permanent injunction,
decree or judgment by any Authority preventing the consummation of the Merger
shall have become final and nonappealable;
(c) by the Arcus Parties in the event (i) the parties (other than Acquiror)
to this Agreement, the Stockholders' Agreement or a Warrant Purchase Agreement
executed on the date hereof are not in breach of this Agreement, the
Stockholders' Agreement or any such Warrant Purchase Agreement and none of their
representations and warranties shall have become and continue to be untrue in
any material respect, unless such breach or untruth is capable of
I-37
<PAGE>
being cured in accordance with Section 5.6 (if applicable) by and will not
prevent or delay consummation of the Merger beyond the Termination Date and
(ii) either (A) Acquiror is in breach of this Agreement or any of its
representations or warranties shall have become and continue to be untrue in
any material respect, unless, in either case such breach or untruth is capable
of being cured in accordance with Section 5.6 (if applicable) by and will not
prevent or delay consummation of the Merger by or beyond the Termination Date,
or (B) the Merger and the Transactions have not been consummated by the
Termination Date;
(d) [Intentionally Omitted];
(e) by the Arcus Parties if the Merger or the Transactions fail to receive
the approval, if any, required by Applicable Law or by Schedule D of the NASD
By-Laws, by vote of the holders of the capital stock of Acquiror;
(f) by Acquiror if the Merger or the Transactions fail to receive the
approval, if any, required by Applicable Law or by Schedule D of the NASD
By-Laws, by vote of the holders of the capital stock of Acquiror unless such
failure resulted from the breach by any stockholder of Acquiror who is a party
to the Acquiror Voting Agreement of the terms of such agreement;
(g) by Acquiror:
(i) in the event (A) Acquiror is not in breach of this Agreement, the
Stockholders' Agreement or one or more Warrant Purchase Agreements, none of
its stockholders is in breach of the Acquiror Voting Agreement and none of
its representations or warranties shall have become and continue to be
untrue in any material respect (but, as to the Acquiror Voting Agreement,
only if the approval of the Merger and the Transactions, or the taking of
other action specified in the Acquiror Voting Agreement, by Acquiror's
stockholders is required), unless such breach or untruth is capable of
being cured in accordance with Section 5.6 (if applicable) by and will not
prevent or delay consummation of the Merger by or beyond the Termination
Date, and (B) either (1) the Arcus Parties are in breach of this Agreement
or any of their representations or warranties shall have become and
continue to be untrue in any material respect, unless, in either case, such
breach or untruth is capable of being cured in accordance with Section 5.6
(if applicable) by and will not prevent or delay consummation of the Merger
beyond the Termination Date, (2) the Merger and the Transactions have not
been consummated prior to the Termination Date, or (3) any of the parties
(other than Acquiror) to the Stockholders' Agreement or a Warrant Purchase
Agreement executed on the date hereof is in breach thereof or any of their
representations or warranties shall have become and continue to be untrue
in any material respect, unless, in either case, such breach or untruth is
capable of being cured in accordance with Section 5.6 (if applicable) by
and will not prevent or delay consummation of the Merger by or beyond the
Termination Date; or
(ii) if (A) the Board of Directors of any Arcus Party shall (1) withdraw,
modify or change its recommendation so that it is not in favor of this
Agreement, the Merger or the Transactions (including, without limitation,
if any one or more members of the Board of Directors of any Arcus Party
shall withdraw, modify or change his or her recommendation so that he or
she is not in favor of this Agreement, the Merger or the Transactions in
circumstances where approval thereof by such member is required (whether
pursuant to Applicable Law, such Arcus Party's Organic Documents or any
Contractual Obligation to which such Arcus Party is a party), or shall have
resolved to do any of the foregoing, or (2) have recommended or resolved to
recommend to the Stockholders any Other Transaction, or (B) any Arcus Party
shall have entered into or agreed to enter into any Other Transaction;
(h) by any Arcus Party, prior to the approval and adoption of this
Agreement by the stockholders of such Arcus Party, if the Board of Directors of
such Arcus Party shall withdraw its recommendation of this Agreement, the Merger
and the Transactions and recommend any Other Transaction to its stockholders;
provided, however, that (i) the Arcus Parties are not then in breach of Section
5.4, (ii) prior to such termination, the Arcus Parties have negotiated with
Acquiror in good faith to make such adjustments in the terms and conditions of
this Agreement as would enable the Arcus Parties to proceed with the
transactions contemplated hereby and (iii) the Board of Directors of such Arcus
Party has determined in good faith (on the basis of the terms of such Other
Transaction and the terms of this Agreement, after giving effect to any
adjustments offered by Acquiror pursuant to clause (ii) above), after receipt of
written advice from the Company's outside legal counsel, that such termination
is required for the Board of Directors to act in a manner consistent with its
fiduciary duties to stockholders under Applicable Law and (iv) the Arcus Parties
shall provide to Acquiror prior written notice of such termination, which notice
shall advise Acquiror of the matters described in clauses (ii) and (iii) above;
I-38
<PAGE>
(i) by the Arcus Parties if there is a Change in Control of Acquiror;
(j) by any Party if an adjustment to the Merger Consideration is required
pursuant to Section 2.6 and the Determination Price, calculated without giving
effect to the first proviso in the definition thereof, is $20.00 or less; or
(k) by Acquiror if the independent accountants of the Arcus Entities shall
fail to deliver a Comfort Letter pursuant to the terms of Section 5.2(f);
provided, however, that any such failure shall not constitute a breach by any
Arcus Party of this Agreement if the Arcus Parties shall have complied with the
provisions of Section 5.2(f).
Section 7.2. Effect of Termination. Except as provided in Sections 5.1,
7.2 and 7.5, in the event of the termination of this Agreement pursuant to
Section 7.1, this Agreement shall forthwith become void, there shall be no
liability on the part of any Party, or any of their respective officers or
directors, to any other Party and all rights and obligations of any Party shall
cease; provided, however, that such termination shall not prejudice the ability
of a Party to seek damages from any other Party for any breach of this
Agreement, including, without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity.
Section 7.3. Amendment. This Agreement may be amended by the Parties by
action taken by or on behalf of the respective Boards of Directors thereof at
any time prior to the Effective Time; provided, however, that, after approval
of this Agreement and the Merger by the stockholders of the Company or the
stockholders of Acquiror (if such approval is required), no amendment, which
under Applicable Law may not be made without the approval of such stockholders,
may be made without such approval. This Agreement may not be amended except by
an instrument in writing signed by the Parties hereto.
Section 7.4. Waiver. At any time prior to the Effective Time, except to
the extent Applicable Law does not permit, either Acquiror or the Arcus Parties
may extend the time for the performance of any of the obligations or other acts
of the other, subject, however, to the terms and conditions of Section 7.1,
waive any inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto and waive
compliance by the other with any of the agreements, covenants or conditions
contained herein. Any such extension or waiver shall be valid only if set forth
in an agreement in writing signed by the Party or Parties to be bound thereby.
Section 7.5. Fees, Expenses and Other Payments.
(a) Except as otherwise set forth in Section 5.2(f), all costs and
expenses incurred in connection with this Agreement, the Merger and the
Transactions, and compliance with Applicable Law and Contractual Obligations as
a consequence hereof and thereof, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred by the
Parties shall be borne solely and entirely by the Party which has incurred such
costs and expenses (with respect to such Party, its "Expenses").
(b) The Arcus Parties agree that if this Agreement shall be terminated by
Acquiror pursuant to Section 7.1(g) (other than a termination by Acquiror
pursuant to Section 7.1(g)(i)(B)(2) unless the reason for the failure to
consummate the Merger prior to the Termination Date is due to any breach by any
party (other than Acquiror) to this Agreement, the Stockholders' Agreement or a
Warrant Purchase Agreement executed on the date hereof of its covenants herein
or therein or the failure of the representations and warranties of such Person
to be true and correct in all material respects, in each case, which breach or
failure has not been cured) or, subject to the proviso below, by an Arcus Party
pursuant to Section 7.1(h), then the Arcus Parties will pay to Acquiror an
amount equal to $5,000,000 (the "Termination Fee"), which amount is in
recognition of, among other things, the out-of-pocket Expenses of Acquiror
related to this Agreement, the reliance of Acquiror on the Arcus Parties'
fulfillment of their obligations hereunder, the costs in delayed opportunity to
Acquiror, and the benefit to the Arcus Parties, which heretofore has been a
private closely-held business, in establishing a market price for it, but which
amount shall not be considered to constitute liquidated damages; provided,
however, that in the event of a termination of this Agreement by Acquiror
pursuant to Section 7.1(g)(ii) or by an Arcus Party pursuant to Section 7.1(h),
the Termination Fee shall be an amount equal to $7,000,000. Any payment
required to be made pursuant to this Section 7.5(b) shall be made as promptly
as practicable but not later than ten (10) business days after termination of
this Agreement and, in any such case, shall be made by wire transfer of
immediately available funds to an account designated by Acquiror.
I-39
<PAGE>
(c) Acquiror agrees that if this Agreement shall be terminated by the
Arcus Parties pursuant to Section 7.1(c) (other than a termination by the Arcus
Parties pursuant to Section 7.1(c)(ii)(B) unless the reason for the failure to
consummate the Merger prior to the Termination Date is due to any breach by
Acquiror of any of its covenants herein or in the Stockholders' Agreement or
the Warrant Purchase Agreements, any breach by a stockholder of Acquiror of the
Acquiror Voting Agreement or the failure of the representations and warranties
of Acquiror to be true and correct in all material respects, in each case,
which breach or failure has not been cured), then Acquiror will pay to the
Company an amount equal to $5,000,000, which amount is in recognition of, among
other things, the out-of-pocket Expenses of the Arcus Parties related to this
Agreement, the reliance of the Arcus Parties on Acquiror's fulfillment of its
obligations hereunder, the costs in delayed opportunity to the Arcus Parties,
but which amount shall not be considered to constitute liquidated damages. Any
payment required to be made pursuant to this Section 7.5(c) shall be made as
promptly as practicable but not later than ten (10) business days after
termination of this Agreement and, in any such case, shall be made by wire
transfer of immediately available funds to an account designated by the
Company.
Section 7.6. Effect of Investigation. The right of any Party to terminate
this Agreement pursuant to Section 7.1 shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any Party,
or any Person controlling any such Party or any of their respective
Representatives, whether prior to or after the execution of this Agreement.
ARTICLE 8.
INDEMNIFICATION; ADJUSTMENT
Section 8.1. Survival. The representations, warranties, covenants and
agreements of the Arcus Parties contained in or made pursuant to this Agreement
or any Collateral Document shall survive the Closing and shall remain operative
and in full force and effect for a period of eighteen (18) months after the
Closing Date (the "Escrow Indemnity Period"), regardless of any investigation
or statement as to the results thereof made by or on behalf of any Party. No
claim for indemnification may be asserted after the expiration of the Escrow
Indemnity Period. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant and agreement which is the subject of a
Claim which is asserted in writing prior to the expiration of the Escrow
Indemnity Period shall survive with respect to such Claim or any dispute with
respect thereto until the final resolution thereof.
Section 8.2. Escrow; Indemnification.
(a) The Parties hereto agree, and by adopting and approving this Agreement
and the Merger or the ATSI Plan of Merger, the ATSI Merger, the UAC Plan of
Merger or the UAC Merger, as the case may be, the stockholders of the Arcus
Parties shall agree, that an aggregate amount equal to the Common Stock Escrow
Indemnity Contribution will be withheld from the Cash Merger Consideration and,
together with the Warrant Escrow Indemnity Contribution to be withheld pursuant
to the Warrant Purchase Agreements from the Warrant Purchase Price
(collectively, the "Escrow Indemnity Funds"), will be deposited into escrow and
held and disbursed in accordance with the terms of this Article 8 and the
Escrow Agreement in order to provide a fund to indemnify Acquiror and hold
Acquiror harmless from and against any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including without limitation
liabilities for all reasonable attorneys', accountants', and experts' fees and
expenses including those incurred to enforce the terms of this Agreement or any
Collateral Document (collectively, "Loss and Expense"), suffered, directly or
indirectly, by Acquiror by reason of, or arising out of:
(i) any breach of representation or warranty made by the Arcus Parties
pursuant to this Agreement or any Collateral Document or any failure by the
Arcus Parties to perform or fulfill any of their respective covenants or
agreements set forth in this Agreement or any Collateral Document;
(ii) any Legal Action or other Claim by any third party relating to the
Arcus Parties to the extent such Legal Action or other Claim has resulted
in a breach of representation or warranty by the Arcus Parties pursuant to
this Agreement or any Collateral Document;
I-40
<PAGE>
(iii) the Final Indebtedness Amount exceeding the amount set forth in the
Company Indebtedness Calculation (but only to the extent such Loss or
Expense is not satisfied out of the Combined Escrow Holdback Amount) or the
Expenses of the Arcus Entities exceeding the amount available therefor in
the Expense Fund; or
(iv) any one or more of the matters listed in Section 8.2(a) of the
Disclosure Schedule.
(b) The Parties hereby appoint, and by adopting and approving this
Agreement and the Merger or the ATSI Plan of Merger, the ATSI Merger, the UAC
Plan of Merger or the UAC Merger, as the case may be, the stockholders of the
Arcus Parties shall appoint, The Bank of New York, or such other entity as is
reasonably satisfactory to the Parties (the "Escrow Agent", with full and
unqualified power to delegate to one or more Persons the authority granted to
it hereunder). The Arcus Parties hereby appoint, and by adopting and approving
this Agreement and the Merger, the stockholders of the Arcus Parties shall
appoint, Mr. Clarke H. Bailey (the "Stockholder Representative"), with full and
unqualified power to delegate (with the approval of Acquiror, which shall not
be unreasonably withheld) to one or more Persons the authority granted to him
hereunder) to act as his, her or its agent and attorney-in-fact, with full
power of substitution, to execute the Escrow Agreement and to take all actions
called for by this Article 8 and the Escrow Agreement on his, her or its
behalf, in accordance with the terms of this Article 8 and the Escrow
Agreement.
(c) In the event Acquiror or any of its Representatives determines to
settle, compromise, dispute, commence or join in any legal action or proceeding
relating to, or take any other significant action with respect to, any of the
matters listed in Section 8.2(a) of the Disclosure Schedule (other than the
matters listed in item (4) thereof), Acquiror shall communicate such intended
course of action to the Stockholder Representative on behalf of the
Stockholders and, in the event the Stockholder Representative reasonably
disputes such intended course of action (setting forth the basis of such
objection and an alternative course of action), Acquiror and the Stockholder
Representative shall use their best efforts to agree on a mutually acceptable
course of action. In the event such agreement is not reached within fifteen
(15) days following the date of such dispute notice, then Acquiror and the
Stockholder Representative shall jointly retain an independent third party to
review Acquiror's and the Stockholder Representative's proposed courses of
action. Such independent third party shall select the more appropriate of the
two alternative courses of action, which conclusion shall be binding on
Acquiror and the Stockholder Representative for all purposes hereunder.
(d) The Parties hereto agree, and by adopting and approving this Agreement
and the Merger or the ATSI Plan of Merger, the ATSI Merger, the UAC Plan of
Merger or the UAC Merger, as the case may be, the stockholders of the Arcus
Parties shall agree, that notwithstanding any other provision of this
Agreement, the Stockholder Representative's liability to such Parties or any
third party under this Agreement or the Escrow Agreement shall be limited to
any claim or liability arising as a result of the Stockholder Representative's
willful misconduct or bad faith in performing its specified duties hereunder or
under the Escrow Agreement, and such Parties further agree that any such
liability shall be limited to direct damages resulting from such conduct and
that in no event shall the Stockholder Representative be liable for special,
incidental or consequential damages incurred or suffered by such Parties or any
third party.
Section 8.3. Limitation of Liability; Disposition of Escrow Indemnity
Funds.
(a) Notwithstanding the provisions of Section 8.2, after the Closing,
Acquiror's rights to indemnification shall be subject to the following
limitations: (i) Acquiror shall be entitled to recover its Loss and Expense in
respect of any Claim only to the extent the Loss and Expense for all Claims
exceeds, in the aggregate, $200,000 and (ii) in no event shall the aggregate
amount to be paid to Acquiror exceed the Escrow Indemnity Funds. The
limitations in clause (i) of the immediately preceding sentence shall not apply
to a claim pursuant to Section 8.2(a)(iii) of this Agreement.
(b) Anything in this Agreement, including without limitation the
provisions of Sections 8.2 and 8.3(a), to the contrary notwithstanding, the
exclusive recourse of Acquiror with respect to Claims brought after the
Effective Time arising out of the transactions contemplated by this Agreement
(other than under the Stockholders' Agreement and the Non-Competition
Agreements) shall be to the Escrow Indemnity Funds. On or before the Closing
Date, Acquiror, the Arcus Parties, the Stockholder Representative and the
Escrow Agent shall execute and deliver an
I-41
<PAGE>
escrow agreement substantially in the form attached hereto as Exhibit 8.3(b)
(the "Escrow Agreement"). Any Claims of Acquiror for indemnification to be
satisfied out of the Escrow Indemnity Funds shall be made in accordance with
the terms of the Escrow Agreement.
(c) In the event there are no Unresolved Claims (as defined in the Escrow
Agreement), on the nine month anniversary of the Closing Date, or the next
business day if such date is not a business day (the "Initial Distribution
Date"), an aggregate of $3,000,000 of the Escrow Indemnity Funds less any
amounts previously paid to Acquiror from the Escrow Indemnity Funds (the
"Initial Distribution Amount") shall be distributed to the Stockholder
Representative for the benefit of each former holder of a Share Certificate and
each former holder of a Warrant as follows: (i) to each former holder of a
Share Certificate (or his, her or its nominee or transferee, as set forth in
the Transmittal Documents in respect of the Cash Merger Consideration) an
amount equal to the Initial Distribution Amount times a fraction, the numerator
of which shall equal the value (calculated based on the Determination Price) of
such former holder's Exchange Common Consideration and the denominator of which
shall equal the Total Primary Equity Base, and (ii) to each former holder of a
Warrant sold pursuant to a Warrant Purchase Agreement an amount equal to the
Initial Distribution Amount times a fraction, the numerator of which shall
equal the sum of the Warrant Purchase Price paid to such holder pursuant to a
Warrant Purchase Agreement and the value (calculated based on the Determination
Price) of such holder's Exchange Preferred Consideration and the denominator of
which shall equal the Total Primary Equity Base, as more specifically set forth
in the Warrant Purchase Agreement. In the event one or more Unresolved Claims
with respect to the Escrow Indemnity Funds, if any, shall exist on the Initial
Distribution Date, cash in the amount equal to the sum of (i) $5,000,000, (ii)
the aggregate amount of such Unresolved Claims and (iii) the amount reasonably
estimated by Acquiror to cover the fees, expenses and other costs (including
reasonable counsel fees and expenses) which will be required to resolve such
Unresolved Claims shall be retained as part of the Escrow Indemnity Funds and
the balance thereof, if any, shall be distributed to the Stockholder
Representative for the benefit of the Persons entitled thereto in accordance
with their proportionate interests, calculated in accordance with the first
sentence of this Section 8.3(c). Upon the resolution of all such Unresolved
Claims made prior to the Initial Distribution Date and the payment of all such
fees, expenses and costs with respect thereto out of the Escrow Indemnity
Funds, the balance of the cash, if any, so retained on the Initial Distribution
Date shall be distributed to the Stockholder Representative for the benefit of
the Persons entitled thereto in accordance with their proportionate interests,
calculated in accordance with the first sentence of this Section 8.3(c).
In the event there are no Unresolved Claims on the date which is one day
after the expiration of the Escrow Indemnity Period, or the next business day
if such date is not a business day, the Escrow Indemnity Funds then remaining
shall be distributed to the Stockholder Representative for the benefit of each
former holder of a Share Certificate (or his, her or its nominee or transferee,
as set forth in the Transmittal Documents in respect of the Cash Merger
Consideration) and each former holder of a Warrant sold pursuant to a Warrant
Purchase Agreement in accordance with their proportionate interests, calculated
in accordance with the first sentence of this Section 8.3(c). In the event one
or more Unresolved Claims with respect to the Escrow Indemnity Funds, if any,
shall exist upon the expiration of the Escrow Indemnity Period, cash in the
amount equal to the sum of (i) the aggregate amount of such Unresolved Claims
and (ii) the amount reasonably estimated by Acquiror to cover the fees,
expenses and other costs (including reasonable counsel fees and expenses) which
will be required to resolve such Unresolved Claims shall be retained as part of
the Escrow Indemnity Funds and the balance thereof, if any, shall be
distributed to the Stockholder Representative for the benefit of the Persons
entitled thereto in accordance with their proportionate interests, calculated
in accordance with the first sentence of this Section 8.3(c). Upon the
resolution of all such Claims and the payment of all such fees, expenses and
costs out of the Escrow Indemnity Funds, the balance of the cash, if any, shall
be distributed to the Stockholder Representative for the benefit of the Persons
entitled thereto in accordance with their proportionate interests, calculated
in accordance with the first sentence of this Section 8.3(c).
Section 8.4. Notice of Claims. If Acquiror believes that it has suffered
or incurred any Loss and Expense, it shall notify the Escrow Agent and the
Stockholder Representative promptly in writing, and in any event within the
applicable time period specified in Section 8.1, describing such Loss and
Expense, all with reasonable particularity and containing a reference to the
provisions of this Agreement in respect of which such Loss and Expense shall
have occurred. If any Legal Action is instituted by a third party with respect
to which Acquiror intends
I-42
<PAGE>
to claim any liability or expense as Loss and Expense under this Article,
Acquiror shall promptly give written notice (a "Claim Notice") to notify the
Escrow Agent and the Stockholder Representative of such Legal Action. In any
event, the failure to so notify the Escrow Agent and the Stockholder
Representative shall not relieve the Stockholders of their obligations under
this Article, except to the extent such notice is not given within the
applicable time period specified in Section 8.1 or such failure to notify
prejudices their ability to defend against such Claim.
Section 8.5. Defense of Third Party Claims. The Stockholder Representative
shall have the right to conduct and control, through counsel of his own
choosing, reasonably acceptable to Acquiror, any third party Legal Action or
other Claim (unless the amount claimed under such Legal Action or other Claim
exceeds the Escrow Indemnity Funds, in which case Acquiror shall retain the
right to control such Legal Action or other Claim, but the Stockholder
Representative shall be entitled to participate at his sole cost and expense),
but Acquiror may, at its election, participate in the defense thereof at its
sole cost and expense; provided, however, that if the Stockholder
Representative shall fail to defend any such Legal Action or other Claim, then
Acquiror may defend, through counsel of its own choosing, such Legal Action or
other Claim, and (so long as it gives the Stockholder Representative at least
fifteen (15) days' notice of the terms of the proposed settlement thereof and
permits the Stockholder Representative to then undertake the defense thereof,
except as set forth above) settle such Legal Action or other Claim, and to
recover out of the Escrow Indemnity Funds the amount of such settlement or of
any judgment and the costs and expenses of such defense. The Stockholder
Representative shall not compromise or settle any such Legal Action or other
Claim without the prior written consent of Acquiror. All reasonable costs and
expenses defending any such third party Legal Action or other Claim, including
the amount of any settlement or of any judgment, shall be paid out of the
Escrow Indemnity Funds.
Section 8.6. Balance Sheet Adjustment; Arcus Parties' Expenses.
(a) Three business days immediately preceding the Closing Date, the
Company shall prepare and deliver to Acquiror a schedule showing the Company's
good faith estimate of Net Indebtedness as of the Effective Time (the "Company
Indebtedness Calculation"), which schedule shall be accompanied by a letter
from Banque Paribas certifying to Acquiror the entire unpaid balance (principal
and interest) of the Arcus Entities' Indebtedness under the Credit Facility,
such that the payment thereof on the Closing Date would terminate that
Indebtedness. If Acquiror disagrees with such estimate, Representatives of the
Company and Acquiror shall meet to discuss such estimate, and the Company
Indebtedness Calculation shall be revised, to the extent agreed, to reflect
such discussion. Within eighty (80) days subsequent to the Closing Date,
Acquiror shall prepare and deliver to the Stockholder Representative and the
Escrow Agent a schedule showing Acquiror's calculation of the Company's Net
Indebtedness as of the Effective Time. Acquiror's determination of the
Company's Net Indebtedness as set forth in such schedule shall be final,
conclusive and binding on the Parties unless the Stockholder Representative
shall, with fifteen (15) days following receipt of such schedule, notify
Acquiror and the Escrow Agent in writing (a "Dispute Notice") of an objection
to such calculation, setting forth with reasonable specificity the basis of
such objection. If a Dispute Notice is submitted by the Stockholder
Representative and if the Stockholder Representative and Acquiror cannot agree
as to the calculation of the Company's Net Indebtedness as of the Effective
Time within fifteen (15) days following delivery of such Dispute Notice, the
determination of the amount of the Company's Net Indebtedness shall be fully
and finally resolved in accordance with Article 9. The amount of the Company's
Net Indebtedness, as finally determined pursuant to this Section 8.6(a) or, if
applicable, Article 9, shall be referred to herein as the "Final Indebtedness
Amount" and the date on which such final determination is made shall be
referred to herein as the "Final Determination Date."
(b) The Parties hereto agree, and by adopting and approving this Agreement
and the Merger or the ATSI Plan of Merger, the ATSI Merger, the UAC Plan of
Merger or the UAC Merger, as the case may be, the stockholders of the Arcus
Parties shall agree, that cash in the Estimated Expense Amount will be withheld
from the aggregate Cash Merger Consideration and the aggregate Warrant Purchase
Price and deposited into the Expense Fund in order for the Stockholder
Representative, on behalf of former holders of Share Certificates and former
holders of Warrants sold pursuant to one or more Warrant Purchase Agreements,
to have funds available (i) to pay Expenses incurred by the Arcus Parties in
connection with or related to this Agreement, the Merger and the Transactions
and (ii) to pay fees and expenses, if any, incurred by the Stockholder
Representative in connection with the payment of any expense contemplated by
this Agreement or the Escrow Agreement. The Stockholder Representative shall,
upon receipt of invoices or other appropriate documentation detailing the Arcus
Parties' Expenses, be authorized, entitled and directed to make payment of such
Arcus Parties' Expenses out of the Expense Fund. The Stockholder
I-43
<PAGE>
Representative shall pay (i) on the date that is one hundred eighty (180) days
following the Closing Date, the balance, if any, of any funds on deposit in the
Expense Fund in excess of $500,000 and (ii) on the last date on which the
balance of the Escrow Indemnity Funds may be distributed to the Stockholder
Representative pursuant to Section 8.3(c) (or on such earlier date as the
Stockholder Representative, in its sole discretion, may choose but in no event
earlier than the Initial Distribution Date), the balance, if any, of any funds
on deposit in the Expense Fund as follows: to (A) each former holder of a Share
Certificate (or his, her or its nominee or transferee, as set forth in the
Transmittal Documents in respect of the Cash Merger Consideration) in an amount
equal to the applicable balance on deposit in the Expense Fund times a
fraction, the numerator of which shall equal the value (calculated based on the
Determination Price) of such former holder's Exchange Common Consideration and
the denominator of which shall equal the Total Primary Equity Base, and (B)
each former holder of a Warrant sold pursuant to a Warrant Purchase Agreement
in an amount equal to the applicable balance on deposit in the Expense Fund
times a fraction, the numerator of which shall equal the sum of the Warrant
Purchase Price paid to such holder pursuant to the Warrant Purchase Agreement
and the value (calculated based on the Determination Price) of such holder's
Exchange Preferred Consideration and the denominator of which shall equal the
Total Primary Equity Base, as more specifically set forth in the Warrant
Purchase Agreement.
(c) The Parties hereto agree, and by adopting and approving this Agreement
and the Merger or the ATSI Plan of Merger, the ATSI Merger, the UAC Plan of
Merger or the UAC Merger, as the case may be, the stockholders of the Arcus
Parties shall agree, that if the Company Indebtedness Calculation reflects a
Net Working Capital Surplus of $300,000 or less, then cash in an aggregate
amount equal to the Escrow Holdback Amount will be withheld from the aggregate
Cash Merger Consideration and, together with the Warrant Escrow Holdback Amount
to be withheld pursuant to the Warrant Purchase Agreements from the Warrant
Purchase Price (collectively, the "Combined Escrow Holdback Amount"), will be
deposited into escrow and held and disbursed in accordance with the terms of
this Article 8 and the Escrow Agreement in order to have funds available in the
event that the Final Indebtedness Amount is greater than the Company
Indebtedness Calculation. The Combined Escrow Holdback Amount shall be
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Amount of Net Combined Escrow
Working Capital Surplus Holdback Amount
- ------------------------------- ----------------
<S> <C>
$300,001 or More $ 0
$250,001--$300,000 $ 50,000
$200,001--$250,000 $100,000
$150,001--$200,000 $150,000
$100,001--$150,000 $200,000
$ 50,001--$100,000 $250,000
$ 0--$50,000 $300,000
</TABLE>
In the event that the Final Indebtedness Amount is greater than the
Company Indebtedness Calculation, then on the second business day after the
Final Determination Date, (i) cash in an amount equal to the difference between
the Final Indebtedness Amount and the Company Indebtedness Calculation shall be
distributed to Acquiror out of the Combined Escrow Holdback Amount and, if the
Combined Escrow Holdback Amount is not sufficient to provide for such payments,
out of the Escrow Indemnity Funds pursuant to Section 8.2(a)(iii), and (ii) the
balance, if any, of the Combined Escrow Holdback Amount shall be distributed to
the Stockholder Representative for the benefit of each former holder of a Share
Certificate and each former holder of a Warrant in accordance with their
proportionate interests, calculated in accordance with the first sentence of
Section 8.3(c). In the event that the Final Indebtedness Amount is equal to or
less than the Company Indebtedness Calculation, then on the second business day
after the Final Determination Date the balance of the Combined Escrow Holdback
Amount shall be distributed to the Stockholder Representative for the benefit
of the Persons entitled thereto in accordance with their proportionate
interests, calculated in accordance with the first sentence of Section 8.3(c).
Section 8.7. Exclusive Remedy. The indemnification provided in this
Article shall be the sole and exclusive post-Closing remedy available to
Acquiror or any of its Affiliates against the Arcus Parties, the Stockholders
or any of their respective Affiliates for any Claim under this Agreement or
otherwise relating to the Merger or the Transactions (excluding under the
Stockholders' Agreement and the Non-Competition Agreements).
I-44
<PAGE>
ARTICLE 9.
ARBITRATION
Except as otherwise set forth herein, any claim or controversy arising out
of relating to this Agreement, any breach thereof or the transactions
contemplated hereby shall be settled by arbitration before a panel of three (3)
arbitrators in accordance with the procedures set forth in this Article 9. The
venue for any such arbitration shall be Boston, Massachusetts or such other
location as the Parties may mutually agree. Except as expressly set forth
herein, all proceedings under this Article 9 shall be undertaken in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") then in force. Only individuals who are (i) lawyers engaged
full-time in the practice of law or former judges of a state or federal court
of general or appellate jurisdiction, and (ii) on the AAA register of
arbitrators, shall be selected as arbitrators. Each Party shall select one (1)
arbitrator within thirty (30) days after a demand for arbitration is made
hereunder. If any Party shall fail to select an arbitrator, the arbitrator
selected by the other Party shall proceed to hear and determine the dispute.
The two (2) arbitrators so selected shall select a third arbitrator (the
"Neutral"), failing which the Neutral shall be appointed by the AAA. The three
(3) arbitrators so chosen shall determine any dispute hereunder by not less
than a majority vote. Any arbitration award shall be in writing and signed by
not less than two (2) of the arbitrators. Judgment upon the written award may
be entered and enforced in any court of competent jurisdiction. The written
decision of the arbitrators shall be valid, binding, final and non-appealable
except for such grounds as are specified in 9 U.S.C. [sec][sec]10, 11. The
arbitrators shall not be empowered to award punitive damages against any Party
to such arbitration. Nor shall the arbitrators be empowered to issue any form
of injunctive or equitable relief against any Party, jurisdiction over which
shall remain in the courts of competent jurisdiction. The arbitrators shall
require the non-prevailing Party or Parties to pay the Neutral's reasonable
fees and expenses. If, in the opinion of a majority of the arbitrators, there
is no prevailing Party, the Neutral's reasonable fees and expenses will be
borne equally by the Parties to the arbitration. Notwithstanding anything to
the contrary contained in this Agreement, in the event any action is brought to
enforce the provisions of this Article 9, the non-prevailing Party or Parties
shall be required to pay the reasonable attorneys' fees and expenses of the
prevailing Party or Parties, except that if in the opinion of the court or
arbitrator deciding such action there is no prevailing Party, each Party shall
pay its own attorneys' fees and expenses.
ARTICLE 10.
GENERAL PROVISIONS
Section 10.1. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the Parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Acquiror:
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, MA 02111
Attention: C. Richard Reese
Telecopier No.: (617) 350-7881 with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: William J. Curry
Telecopier No.: (617) 338-2880
I-45
<PAGE>
(b) If to any of the Arcus Parties: c/o United Acquisition Company
667 Madison Avenue, 25th Floor
New York, NY 10021-8029
Attention: Clarke H. Bailey
Telecopier No.: (212) 758-8531
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue New York, NY 10022
Attention: William F. Schwitter
Telecopier No.: (212) 319-4090
(c) If to the Stockholder Representative:
Mr. Clarke H. Bailey
10 Oxford Road
Larchmont, NY 10538
Telecopier No.: (914) 834-4778
Section 10.2. Headings. The headings contained in this Agreement are for
purposes of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.3. Severability. If any term or provision of this Agreement
shall be held or deemed to be, or shall in fact be, invalid, inoperative,
illegal or unenforceable as applied to any particular case in any jurisdiction
or jurisdictions, or in all jurisdictions or in all cases, because of the
conflicting of any provision with any constitution or statute or rule of public
policy or for any other reason, such circumstance shall not have the effect of
rendering the provision or provisions in question invalid, inoperative, illegal
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative, illegal or unenforceable to the extent that such other provisions
are not themselves actually in conflict with such constitution, statute or rule
of public policy, but this Agreement shall be reformed and construed in any
such jurisdiction or case as if such invalid, inoperative, illegal or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case. Notwithstanding the
foregoing, in the event of any such determination the effect of which is to
Affect Materially and Adversely any Party, the Parties shall negotiate in good
faith to modify this Agreement as to effect the original intent of the Parties
as closely as possible to the fullest extent permitted by Applicable Law in an
acceptable manner to the end that the Transactions are fulfilled and
consummated to the maximum extent possible.
Section 10.4. Entire Agreement. This Agreement (together with the
Confidentiality Agreement, the Disclosure Schedule, the Acquiror Disclosure
Schedule and the other Collateral Documents delivered in connection herewith)
constitutes the entire agreement of the Parties and supersedes all prior
agreements and undertakings, both written and oral (other than the
Confidentiality Agreement), between the Parties, or any of them, with respect
to the subject matter hereof.
Section 10.5. Assignment. This Agreement shall not be assigned by
operation of law or otherwise and any purported assignment shall be null and
void, provided that after the Effective Time Acquiror may assign its rights
under this Agreement to any Affiliate of Acquiror or any Person who acquires
all or substantially all of the assets of Acquiror (including, without
limitation, through merger or otherwise).
Section 10.6. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party, and except for the provisions of
Section 5.5, nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
I-46
<PAGE>
Section 10.7. Governing Law; Attorneys Fees. The validity, interpretation,
construction and performance of this Agreement shall be governed by, and
construed in accordance with, the applicable laws of the United States of
America and the laws of the State of New York applicable to contracts made and
performed in such State and, in any event, without giving effect to any choice
or conflict of laws provision or rule that would cause the application of
domestic substantive laws of any other jurisdiction, except to the extent that
the provisions of the DGCL apply to the Merger.
Section 10.8. Enforcement of the Agreement. Subject to Section 8.7 and
Article 9 of this Agreement, each Party recognizes and agrees that each other
Party's remedy at law for any breach of the provisions of this Agreement would
be inadequate and agrees that for breach of such provisions, such Party shall,
in addition to such other remedies as may be available to it at law or in
equity or as provided in this Agreement, be entitled to injunctive relief and
to enforce its rights by an action for specific performance to the extent
permitted by Applicable Law. Each Party hereby waives any requirement for
security or the posting of any bond or other surety in connection with any
temporary or permanent award of injunctive, mandatory or other equitable
relief. Subject to Section 8.7 and Article 9 of this Agreement, nothing herein
contained shall be construed as prohibiting a Party from pursuing any other
remedies available to such Party for any breach or threatened breach hereof or
failure to take or refrain from any action as required hereunder to consummate
the Merger and carry out the Transactions.
Section 10.9. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 10.10. Mutual Drafting. This Agreement is the result of the joint
efforts of Acquiror and the Company, and each provision hereof has been subject
to the mutual consultation, negotiation and agreement of the parties and there
shall be no construction against any Party based on any presumption of that
Party's involvement in the drafting thereof.
ARTICLE 11.
DEFINITIONS
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings. Terms defined in the singular shall
have a comparable meaning when used in the plural, and vice versa, and the
reference to any gender shall be deemed to include all genders. Unless
otherwise defined or the context otherwise clearly requires, terms for which
meanings are provided herein shall have such meanings when used in the
Disclosure Schedule, the Acquiror Disclosure Schedule and each Collateral
Document, notice, certificate, communication, opinion or other document
executed or required to be executed pursuant hereto or thereto or otherwise
delivered, from time to time, pursuant hereto or thereto.
"Acquiror" shall have the meaning given to it in the Preamble.
"Acquiror Disclosure Schedule" shall mean the disclosure schedule dated as
of the date of this Agreement delivered by Acquiror to the Arcus Parties.
"Acquiror Financial Statements" shall have the meaning given to it in
Section 4.4(b).
"Acquiror Optionee" shall have the meaning given to it in Section 2.1(f).
"Acquiror Optionee Aggregate Spread Value" shall mean the sum of the
product of (i) the difference between the Share Price and the exercise price of
each Option Security (whether vested or unvested) as of the Effective Time held
by the Acquiror Optionees and (ii) the number of shares of Company Stock
issuable upon exercise of such Option Securities.
"Acquiror SEC Reports" shall have the meaning given to it in Section
4.4(a).
"Acquiror Stock" shall have the meaning given to it in the Preamble.
"Acquiror Voting Agreement" shall mean the agreement substantially in the
form of Exhibit 7.1(f) hereto.
I-47
<PAGE>
"Adjustment Aggregate Spread Value" shall have the meaning given to it in
Section 2.1(f).
"Adverse," "Adversely," when used alone or in conjunction with other terms
(including without limitation "Affect," "Change" and "Effect") shall mean, with
respect to the Arcus Entities or Acquiror, as the case may be, any Event which
could reasonably be expected to (a) adversely affect the validity or
enforceability of this Agreement or any Collateral Document or the likelihood
of consummation of the Merger, (b) adversely affect in any material respect the
business, operations, properties, condition (financial or other), or results of
operation (including without limitation, earnings before interest, taxes,
depreciation and amortization) of the Arcus Entities, or Acquiror and its
Subsidiaries, in each case taken as a whole, as the case may be (it being
understood that a reduction in the market value of Acquiror Stock shall not, in
and of itself, constitute or be deemed to reflect an Adverse Change), (c)
impair in any material respect the Company's or Acquiror's, as the case may be,
ability to fulfill its obligations under the terms of this Agreement or any
Collateral Document, or (d) adversely affect in any material respect the
aggregate rights and remedies of the Arcus Entities or Acquiror, as the case
may be, under this Agreement or any Collateral Document.
"Affiliate," "Affiliated" shall mean, with respect to any Person, (a) any
other Person at the time directly or indirectly controlling, controlled by or
under direct or indirect common control with such Person, (b) any other Person
of which such Person at the time owns, or has the right to acquire, directly or
indirectly, ten percent (10%) or more of any class of the capital stock or
beneficial interest, (c) any other Person which at the time owns, or has the
right to acquire, directly or indirectly, ten percent (10%) or more of any
class of the capital stock or beneficial interest of such Person, (d) any
executive officer or director of such Person, (e) with respect to any
partnership, joint venture or similar Entity, any general partner thereof, and
(f) when used with respect to an individual, shall include any member of such
individual's immediate family or a family trust.
"Affiliate Agreement" shall have the meaning given to it in Section 5.3.
"Aggregate Consideration Amount" shall have the meaning given to it in
Section 2.6.
"Aggregate Spread Value" shall mean the product of (i) the amount of the
difference between the closing price per share of Acquiror Stock on the Nasdaq
National Market System (as provided by the Nasdaq National Market System or, if
unavailable from such source, then as reported in the Wall Street Journal) for
the date of termination of employment of the applicable employee (or, if such
date is not a trading day, then for the trading day immediately preceding such
date of termination) and the exercise price of each Exchange Option immediately
after the Effective Time, as it may be adjusted for stock splits, stock
dividends or similar events and (ii) the number of shares of Acquiror Stock
issuable upon exercise of such Exchange Option.
"Agreement" shall mean this Agreement as originally in effect, including
unless the context otherwise specifically requires, all schedules and exhibits
hereto, as the same may from time to time be supplemented, amended, modified or
restated in the manner herein or therein provided.
"Applicable Law" shall mean any Law of any Authority, whether domestic or
foreign, including without limitation the DGCL and the NRS, all federal and
state securities laws, the Code, ERISA and Environmental Laws, to or by which a
Person or it or any of its business or operations is subject or any of its
property or assets is bound.
"Arcus Entities" means, collectively, the Company, UAC, ATSI and their
respective Subsidiaries.
"Arcus Parties" shall have the meaning given to it in the Preamble.
"Arcus Parties' knowledge" (including the term "to the knowledge of the
Arcus Parties") means the knowledge, information or belief of any director or
executive officer of the Arcus Parties; and, solely in the case of Messrs.
Clarke H. Bailey, Richard A. Drutman, Frank G. Hayes, Julien H. Meyer III,
Thomas H. Seefurth, and G. Theodore Wolf II, that such director or executive
officer, after reasonable investigation (which shall include, without
limitation, interrogation of James Giess, George Groff, Thomas Hammer, James
Leffel, Kathleen Leffel-Perkins and Donald Muskopf but, due to the Parties'
desire and need for secrecy, shall not include interrogation of any other
employee, including, without limitation, any branch manager), shall have reason
to believe and shall believe that the subject representation or warranty is
true and accurate as stated.
I-48
<PAGE>
"Arcus Special Meetings" shall have the meaning given to it in Section
1.2(a).
"ATSI" shall have the meaning given to it in the Preamble.
"ATSI Common Stock" shall mean the common stock, par value $.01 per share,
of ATSI.
"ATSI Merger" shall have the meaning given to it in the Preamble.
"ATSI Option Plan" shall have meaning given to it in Section 3.13(c).
"ATSI Plan of Merger" shall have the meaning given to it in the Preamble.
"Authority" shall mean any governmental or quasi-governmental authority,
whether administrative, executive, judicial, legislative or other, or any
combination thereof, including without limitation any federal, state,
territorial, county, municipal or other government or governmental or
quasi-governmental agency, authority, board, body, branch, bureau, central bank
or comparable agency or Entity, commission, court, department, instrumentality,
or other political unit or subdivision or other Entity of any of the foregoing,
whether domestic or foreign.
"Balance Sheet Date" means, with respect to the Arcus Entities other than
the Company and UAC, June 30, 1997 and, with respect to the Company and UAC,
December 31, 1996.
"Benefit Arrangement" shall mean any material benefit arrangement that is
not a Plan, including (i) any employment or consulting agreement, (ii) any
arrangement providing for insurance coverage or workers' compensation benefits,
(iii) any incentive bonus or deferred bonus arrangement, (iv) any arrangement
providing termination allowance, severance pay, salary continuation for
disability, or other leave of absence, supplemental unemployment benefits,
lay-off, reduction in force or similar benefits, (v) any stock option or equity
compensation plan, (vi) any deferred compensation plan, (vii) any compensation
policy and practice, (viii) any educational assistance arrangements or policies
and (ix) any change of control arrangements or policies.
"Cash Merger Consideration" shall have the meaning given to it in Section
2.1(a).
"Cause" shall mean if (i) the Person has committed a willful act, such as
fraud, conversion, embezzlement, falsifying records or reports, or a similar
act against Acquiror or any of its Subsidiaries, intending to enrich himself at
the expense of Acquiror or any of its Subsidiaries, (ii) the Person has been
guilty of willful misconduct or gross negligence in carrying out his duties, or
(iii) the Person has been convicted of, or entered a plea of guilty to, a
felony crime involving moral turpitude.
"Certificate" shall have the meaning given to it in Section 2.1(b).
"Change in Control" shall mean (i) the acquisition of, or the commencement
of a tender offer which is being made pursuant to a binding agreement to which
Acquiror is a party or which otherwise has been approved by Acquiror's Board of
Directors for, beneficial ownership of 50% or more of the voting capital stock
of a Person, directly or indirectly, by a Person or group of Persons under
common control (other than Vincent J. Ryan, Schooner Capital Corporation, C.
Richard Reese, Eugene B. Doggett, B. Thomas Golisano and/or any of their
respective Affiliates); (ii) a change in the membership of the Board of
Directors of a Person such that, following such change, at least 50% of the
members were not members on the date of this Agreement; or (iii) approval by
the stockholders of a Person of a sale of the Person's businesses and/or assets
which represent all or substantially all of the Person's total assets.
"Claim Notice" shall have the meaning given to it in Section 8.4.
"Claims" shall mean any and all debts, liabilities, obligations, losses,
damages, deficiencies, assessments and penalties, together with all Legal
Actions, pending or threatened, claims and judgments of whatever kind and
nature relating thereto, and all fees, costs, expenses and disbursements
(including without limitation reasonable attorneys' and other legal fees, costs
and expenses) relating to any of the foregoing.
"Closing" shall have the meaning given to it in Section 1.3.
"Closing Date" shall have the meaning given to it in Section 1.3.
I-49
<PAGE>
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code and Part 6 of Title
I of ERISA.
"Code" shall have the meaning given to it in the Preamble.
"Collateral Document" shall mean any agreement, instrument, certificate,
opinion, memorandum, schedule or other document delivered by a Party or a
Stockholder pursuant to this Agreement or in connection with the Merger and the
Transactions.
"Combined Escrow Holdback Amount" shall have the meaning given to it in
Section 8.6(c).
"Comfort Letter" shall mean an accountant's comfort letter to be delivered
to one or more underwriters or initial purchasers (in the case of a financing
under Rule 144A of the Securities Act) of Acquiror's securities; provided that
such underwriter's or initial purchaser's request conforms with AICPA Statement
on Auditing Standards 72, as amended, and is comparable to the information
requested by similarly situated companies in comparable financing transactions.
"Common Cash Amount" shall mean the product of (i) the Fully Diluted
Common Equity Value and (ii) 58%; provided, however, that such amount shall be
reduced, if necessary, consistent with Section 2.6 hereof.
"Common Cash Conversion Number" shall mean the quotient obtained by
dividing (i) the Common Cash Amount by (ii) the number of Fully Diluted Common
Shares.
"Common Equity Value" shall mean an amount equal to the remainder of (A)
the Total Equity Consideration less (B) the Preferred Equity Value.
"Common Stock Amount" shall mean the quotient obtained by dividing (a) the
product of (i) the Fully Diluted Common Equity Value and (ii) 42% by (b) the
Determination Price; provided, however, that the number of shares of Acquiror
Stock resulting from such formula shall be increased, if necessary, consistent
with Section 2.6 hereof.
"Common Stock Conversion Number" shall mean the quotient obtained by
dividing (i) the Common Stock Amount by (ii) the number of Fully Diluted Common
Shares.
"Common Stock Escrow Indemnity Contribution" shall mean Eight Million
Dollars ($8,000,000) times a fraction, the numerator of which shall equal the
aggregate Exchange Common Consideration and the denominator of which shall
equal the Total Primary Equity Base.
"Common Stock Expense Fund Contribution" shall mean an amount equal to the
Estimated Expense Amount times a fraction, the numerator of which shall equal
the aggregate Exchange Common Consideration and the denominator of which shall
equal the Total Primary Equity Base.
"Company" shall have the meaning given to it in the Preamble.
"Company Indebtedness Calculation" shall have the meaning given to it in
Section 8.6(a).
"Company Preferred" shall have the meaning given to it in Section 2.1(b).
"Company Stock" shall have the meaning given to it in Section 2.1(a).
"Company Stock Warrant" shall have the meaning given to it in Section
2.1(c).
"Confidentiality Agreement" shall have the meaning given to it in Section
5.1(a).
"Connected Stock" shall mean 158,729 shares of Convertible Series C
Preferred Stock in Connected Corp., a Delaware corporation, held by UAC.
"Contract," "Contractual Obligation" shall mean any term, condition,
provision, representation, warranty, agreement, covenant, undertaking,
commitment, indemnity or other obligation which is outstanding or existing
under any instrument, contract, lease or other contractual undertaking to which
the obligee is a party or by which it or any of its business is subject or
property or assets is bound.
I-50
<PAGE>
"control" (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person, or the disposition of such Person's assets
or properties, whether through the ownership of stock, equity or other
ownership, by contract, arrangement (including credit arrangement) or
understanding, or as trustee or executor or otherwise.
"Convertible Securities" shall mean any evidences of indebtedness, shares
of capital stock (other than common stock) or other securities directly or
indirectly convertible into or exchangeable for shares of capital stock of an
Arcus Entity, whether or not the right to convert or exchange thereunder is
immediately exercisable or is conditioned upon the passage of time, the
occurrence or non-occurrence or existence or non-existence of some other Event,
or both.
"Court" shall have the meaning given to it in Section 3.26.
"Credit Facility" shall mean the Credit Facility, dated as of July 31,
1995 among ATSI, Arcus, Inc., the various financial institutions from time to
time party thereto, and Banque Paribas, as Agent, as amended from time to time
in accordance with the terms thereof.
"Deemed Value" shall mean, with respect to cash and/or shares of Acquiror
Stock delivered pursuant to Section 2.1(f), the sum of (i) any cash so
delivered and (ii) the value of any shares so delivered, assuming such shares
were valued at the closing price per share of Acquiror Stock on the Nasdaq
National Market System (as provided by the Nasdaq National Market System or, if
unavailable from such source, then as reported in the Wall Street Journal) for
the trading day immediately prior to the date such Acquiror Stock is delivered
to the Stockholder Representative pursuant to Section 2.1(f).
"Designated Exercise Date" shall mean the dates (or periods, as
applicable) designated by Acquiror for the exercise of the Minimum Exercise
Number in a written notice delivered by Acquiror to the Arcus Parties not less
than thirty (30) days prior to the Closing Date.
"Determination Price" shall mean the average closing price per share of
Acquiror Stock, based on each day's closing price as provided by the Nasdaq
National Market System or, if unavailable from such source, then as reported in
the Wall Street Journal, for the period of twenty (20) trading days ending on
the third trading day prior to (and not including) the Closing Date; provided,
however, that if the average closing price per share of Acquiror Stock so
calculated is less than $29.00, then the Determination Price shall be $29.00;
and provided, further, that if the average closing price per share of Acquiror
Stock so calculated is greater than $36.00, then the Determination Price shall
be $36.00.
"Determination Time" shall mean the Closing Date immediately prior to the
purchase of any Warrants by Acquiror pursuant to any agreement.
"DGCL" shall have the meaning given to it in the Preamble.
"Disclosure Schedule" shall mean the disclosure schedule dated as of the
date of this Agreement delivered by the Arcus Parties to Acquiror.
"Dispute Notice" shall have the meaning given to it in Section 8.6(a).
"Dissenting Shares" shall have the meaning given to it in Section 2.5(a).
"Distribution" shall mean, with respect to the Arcus Entities: (a) the
declaration or payment of any dividend (except dividends payable in capital
stock of an Arcus Entity) on or in respect of any shares of any class of
capital stock of an Arcus Entity owned by a Person other than an Arcus Entity,
(b) the purchase, redemption or other retirement of any shares of any class of
capital stock of an Arcus Entity, owned by a Person other than an Arcus Entity,
and (c) any other distribution on or in respect of any shares of any class of
capital stock of an Arcus Entity, owned by a Person other than an Arcus Entity.
"Effective Time" shall have the meaning given to it in Section 1.4.
I-51
<PAGE>
"Employment Arrangement" shall mean, with respect to any Person, any
employment, consulting, retainer or severance contract, agreement, plan,
arrangement or policy (exclusive of any which is terminable within thirty (30)
days without liability, penalty or payment of any kind by such Person or any
Affiliate (other than any such liability, penalty or payment of general
application to all the Arcus Entities' employees)), providing for severance,
termination payments, insurance coverage (including any self-insured
arrangements), workers compensation, disability benefits, life, health,
medical, dental or hospitalization benefits, supplemental unemployment
benefits, vacation or sick leave benefits, pension or retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
purchase or appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits, or any collective
bargaining or other labor agreement, whether or not any of the foregoing is
subject to the provisions of ERISA.
"Enforceability Exceptions" shall have the meaning set forth in Section
3.1(c).
"Entity" shall mean any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, insane or incompetent individual, business
trust, joint stock company, joint venture or other organization, entity or
business, whether acting in an individual, fiduciary or other capacity, or any
Authority.
"Environmental Law" shall mean any Law relating to or otherwise imposing
liability or standards of conduct concerning pollution or protection of the
environment or occupational health and safety, including without limitation
Laws relating to emissions, discharges, releases or threatened releases of
Hazardous Materials or other pollutants, contaminants, chemicals, noises, toxic
or hazardous substances, materials or wastes, as matter, into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances, materials or wastes.
"Environmental Permit" shall mean any Governmental Authorization required
by or pursuant to any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
and the rules and regulations thereunder, all as from time to time in effect,
or any successor law, rules or regulations, and any reference to any statutory
or regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
"ERISA Affiliate" shall mean any Person that is or has ever been treated
as a single employer with the Arcus Entities under Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA.
"Escrow Agent" shall have the meaning given to it in Section 8.2(b).
"Escrow Agreement" shall have the meaning given to it in Section 8.3(b).
"Escrow Holdback Amount" shall mean an amount equal to the Combined Escrow
Holdback Amount times a fraction, the numerator of which shall equal the
aggregate Exchange Common Consideration and the denominator of which shall
equal the Total Primary Equity Base.
"Escrow Indemnity Funds" shall have the meaning given to it in Section
8.2(a).
"Escrow Indemnity Period" shall have the meaning given to it in Section
8.1.
"Estimated Expense Amount" shall mean a cash amount equal to $750,000.
"Event" shall mean the occurrence or existence of any act, action,
activity, circumstance, condition, event, fact, failure to act, omission,
incident or practice, or any set or combination of any of the foregoing.
"Exchange Act" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the SEC thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provision shall be deemed to be a reference to any
successor statutory or regulatory provision.
"Exchange Agent" shall have the meaning given to it in Section 2.2(a).
I-52
<PAGE>
"Exchange Common Consideration" shall have the meaning given to it in
Section 2.1(a).
"Exchange Fund" shall have the meaning given to it in Section 2.2(a).
"Exchange Option" shall have the meaning given to it in Section 2.4.
"Exchange Preferred Consideration" shall have the meaning given to it in
Section 2.1(b).
"Expense Fund" shall mean that certain account established at or prior to
the Effective Time with a bank or other financial institution reasonably
acceptable to the Parties hereto, which shall be under the dominion and control
of the Stockholder Representative for the benefit of the former holders of
Share Certificates and former holders of Warrants and into which shall be
deposited, in addition to certain other monies, the Estimated Expense Amount.
"Expenses" shall have the meaning set forth in Section 7.5(a).
"Final Determination Date" shall have the meaning given to it in Section
8.6(a).
"Final Indebtedness Amount" shall have the meaning given to it in Section
8.6(a).
"Financial Statements" shall have the meaning given to it in Section
3.2(a).
"Fully Diluted Common Equity Value" shall mean the sum of (i) the Common
Equity Value, (ii) the aggregate exercise price of all Option Securities
(whether vested or unvested and excluding Company Stock Warrants) as of the
Effective Time, and (iii) the aggregate exercise price of all Company Stock
Warrants which are outstanding as of the Effective Time (without giving effect
to Section 2.1(c)).
"Fully Diluted Common Shares" shall mean the sum of (i) the number of
shares of Company Stock issued and outstanding immediately prior to the
Effective Time after giving effect to the Reorganization and including all
shares of Company Stock for which shares of UAC Common Stock or ATSI Common
Stock are exchanged pursuant thereto (except Shares to be canceled pursuant to
Section 2.1(c)), (ii) the number of Shares of Company Stock which would have
been issued or remained outstanding as a result of the Reorganization had
holders of UAC Common Stock, ATSI Common Stock or Company Stock not exercised
dissenters or appraisal rights in connection with the UAC Merger or ATSI
Merger, as the case may be, (iii) the number of Shares of Company Stock which
may be issued pursuant to Option Securities (whether vested or unvested) as of
the Effective Time, and (iv) the maximum number of Shares of Company Stock
which may be issued pursuant to the Company Stock Warrants which are
outstanding as of the Effective Time (without giving effect to Section 2.1(c)).
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States of America applied on a basis consistent
with past practice.
"Governmental Authorizations" shall mean all approvals, concessions,
consents, franchises, licenses, permits, plans, registrations and other
authorizations of all Authorities.
"Governmental Filings" shall mean all filings, including franchise and
similar Tax filings, and the payment of all fees, assessments, interest and
penalties associated with such filings, with all Authorities.
"Guaranty" or "Guaranteed" shall mean any agreement, undertaking or
arrangement by which any of the Arcus Entities guarantees, endorses or
otherwise becomes or is liable, directly or indirectly, contingently or
otherwise, upon any indebtedness of any other Person including without
limitation the payment of amounts drawn down by beneficiaries of letters of
credit (other than by endorsements of negotiable instruments for deposit or
collection in the ordinary course of business). The amount of the obligor's
obligation under any Guaranty shall be deemed to be the outstanding amount (or
maximum permitted amount, if larger) of the indebtedness directly or indirectly
guaranteed thereby (subject to any limitation set forth therein).
"Hazardous Materials" shall mean any substance (in whatever state of
matter): (a) the presence of which requires investigation or remediation under
any Environmental Law; (b) that is defined as a "hazardous waste","hazardous
material" or "hazardous substance" under any Environmental Law; (c) that is
toxic, explosive, corrosive, infectious, radioactive, carcinogenic, mutagenic
or otherwise hazardous and is regulated by any
I-53
<PAGE>
Authority; or (d) that contains or consists of petroleum or petroleum products,
polychlorinated biphenyls, asbestos, or urea formaldehyde foam insulation.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of
1976, and the rules and regulations thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provision shall be deemed to be a reference to any
successor statutory or regulatory provision.
"Indebtedness" shall mean, with respect to the Arcus Entities, the sum of
(i) all obligations, contingent or otherwise, in respect of borrowed money,
notes or similar interests and all guarantees, endorsements and other
contingent obligations in respect of Indebtedness of others (it being
understood that obligations of the Arcus Entities in respect of trade payables
incurred in the ordinary course of business shall not constitute Indebtedness)
and (ii) any Net Working Capital Deficit.
"Indemnified Parties" shall have the meaning given to it in Section 5.5.
"Initial Disbursement Amount" shall mean the meaning given to it in
Section 8.3(c).
"Initial Distribution Date" shall have the meaning given to it in Section
8.3(c).
"Intangible Assets" shall mean all assets and property lacking physical
properties the evidence of ownership of which must customarily be maintained by
independent registration, documentation, certification, recordation or other
means.
"Law" shall mean (a) any administrative, judicial, legislative or other
action, code, consent decree, constitution, decree, directive, enactment,
finding, guideline, law, injunction, interpretation, judgment, order,
ordinance, policy statement, proclamation, promulgation, regulation,
requirement, rule, rule of law, rule of public policy, settlement agreement,
statute, or writ of any Governmental Authority, domestic or foreign; or (b) the
common law, or other legal precedent; including, in each such case or instance,
any interpretation or directive, whether or not having the force of law
including, in all cases, without limitation any particular section, part or
provision thereof.
"Lease" shall mean any lease of property, whether real, personal or mixed,
and all amendments thereto.
"Legal Action" shall mean any litigation or legal or other actions,
arbitrations, counterclaims, proceedings, requests for material information by
or pursuant to the order of any Authority, or suits, at law or in arbitration,
equity or admiralty commenced by any Person, whether or not purported to be
brought on behalf of a party hereto affecting such party or any of such party's
business, property or assets.
"Lien" shall mean any of the following: mortgage; lien (statutory or
other); preference, priority or other security agreement, arrangement or
interest; hypothecation, pledge or other deposit arrangement; assignment;
charge; levy; executory seizure; attachment; garnishment; encumbrance
(including any easement, exception, variance, reservation or limitation, right
of way, zoning restriction, building or use restriction, and the like, which
would adversely affect any party's ability to use the affected property as it
is currently used by an Arcus Entity); conditional sale, title retention or
other similar agreement, arrangement, device or restriction; preemptive or
similar right; any financing lease involving substantially the same economic
effect as any of the foregoing; the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction; restriction on
sale, transfer, assignment, disposition or other alienation; or any option,
equity, claim or right of or obligation to, any other Person, of whatever kind
and character.
"Loss and Expense" shall have the meaning given to it in Section 8.2(a).
"Material" or "materiality" for the purposes of this Agreement, shall,
unless specifically stated to the contrary, be determined without regard to the
fact that various provisions of this Agreement set forth specific dollar
amounts.
"Material Agreement" or "Material Commitment" shall mean, with respect to
the Arcus Entities or Acquiror, as the case may be, any Contractual Obligation
(a) which involves the purchase, sale or lease of goods or materials or
performance of services aggregating more than $100,000 (other than those
relating to billable consulting staff), or (b) which involves indebtedness for
money borrowed in excess of $100,000 or (c) which is or otherwise
I-54
<PAGE>
constitutes a written agency, dealer, license, distributorship, sales
representative or similar written agreement involving more than $100,000.
"Merger" shall have the meaning given to it in the Preamble.
"Merger Consideration" shall mean the Exchange Common Consideration and
the Exchange Preferred Consideration.
"Minimum Exercise Number" shall mean the aggregate number of Option
Securities vested as of the Effective Time and Option Securities that vest on
or before June 30, 1998, or such other number as the Parties shall reasonably
agree not less than thirty (30) days prior to the Closing Date.
"Multiemployer Plan" shall mean a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA.
"Net Indebtedness" shall mean with respect to Arcus Entities, the
difference of (A) the sum of (without duplication) (a) all Indebtedness, (b)
all obligations, contingent or otherwise, (i) under leases which are
capitalized on the consolidated balance sheet of the Arcus Entities, (ii) in
respect of the deferred purchase price of property (excluding any amounts held
in or payable from that certain escrow account established in connection with
the acquisition of Wolf Advisory International, Inc. and Wolf Advisory
International, Ltd. and certain assets of Computer Plus Temporaries, Inc. on or
about June 19, 1996) and (iii) in respect of any deferred compensation plan or
arrangement (other than any 401(K) plan) and all guarantees, endorsements and
other contingent obligations in respect of obligations of the type referred in
this clause (b) of others, (c) the aggregate full amount of all installment
sales amounts, contingent payments or "earnouts" that an Arcus Entity may be
required to pay under any agreements pursuant to which such Arcus Entity
acquired the outstanding capital stock or assets of another Person (other than
(A) contingent payments in an amount not to exceed $750,000 payable in respect
of the PSI Acquisition and (B) contingent payments payable by Arcus Data
Security, Inc. pursuant to Section 4.01(b) and Section 4.01(c) of that certain
Purchase Agreement dated as of October 31, 1996 among Towler Companies, Inc.
d/b/a/ The Rock Island Group, William A. Towler and Arcus Data Security, Inc.)
and (d) accrued interest to the date of the Merger in respect of Indebtedness
or the obligations of the type referred to in clause (b) of this definition and
all fees, expenses and other amounts (including so-called "breakage" amounts)
due in connection with the prepayment in full of such Indebtedness which will
be prepaid at Closing; minus (B) (i) cash and cash equivalents, (ii) the lesser
of $150,000 or the principal amount outstanding as of the Effective Time of the
promissory note payable to an Arcus Entity by TPI Acquisition Corp., (iii) the
principal amount outstanding in an amount not to exceed $26,000 of a promissory
note payable to an Arcus Entity by an employee), (iv) obligations under
performance bonds and reimbursement obligations under letters of credit and (v)
any amounts otherwise included within clauses (b) and (c) above to the extent
that such obligations have been fully funded or otherwise cash collateralized,
so long as the cash which has funded or collateralized such obligation is not
considered a reduction in calculating Net Indebtedness.
"Net Preferred Shares" shall have the meaning given to it in Section
2.2(a).
"Net Shares" shall have the meaning given to it in Section 2.2(a).
"Net Working Capital" shall mean (x) the sum of accounts receivable (less
allowance for doubtful accounts), inventory and prepaid expenses and other
current assets (excluding cash, notes receivable and deferred income taxes) of
ATSI, in each case as recorded in accordance with GAAP consistently applied,
minus (y) the sum of deferred revenue, state income taxes payable, accounts
payable, accrued payroll and other accrued liabilities (including reserves but
excluding amounts due to parent, deferred compensation and liabilities related
to debt, including, without limitation, accrued interest) of ATSI, in each case
as recorded in accordance with GAAP consistently applied; provided, however,
that (a) any effect on Net Working Capital resulting from the exercise of any
Option Security between the Balance Sheet Date and the Effective Time shall be
excluded from the calculation thereof and (b) Expenses of the Arcus Parties in
respect of the Transactions shall not be included in calculating Net Working
Capital.
"Net Working Capital Deficit" shall mean, as of the Effective Time, the
excess, if any, of (x) Net Working Capital as derived from the ATSI Financial
Statements at June 30, 1997 (which amount equals $4,986,429), over (y) Net
Working Capital immediately prior to the ATSI Merger.
I-55
<PAGE>
"Net Working Capital Surplus" shall mean, as of the Effective Time, the
excess, if any, of (x) Net Working Capital immediately prior to the ATSI Merger
over (y) Net Working Capital as derived from the ATSI Financial Statements at
June 30, 1997 (which amount equals $4,986,429).
"Non-Competition Agreements" shall mean the several agreements between an
Arcus Entity or Acquiror, on the one hand, and another Person, on the other
hand, in the form attached as Exhibit 5.15(a) or Exhibit 5.15(b), as
applicable.
"NRS" shall have the meaning given to it in the Preamble.
"Option Securities" shall mean all rights, options and warrants, and calls
or commitments evidencing the right, to subscribe for, purchase or otherwise
acquire shares of an Arcus Entity's capital stock or Convertible Securities,
whether or not the right to subscribe for, purchase or otherwise acquire is
immediately exercisable or is conditioned upon the passage of time, the
occurrence or non-occurrence or the existence or non-existence of some other
Event or both.
"Organic Documents" shall mean the Arcus Parties' or Acquiror's, as the
case may be, Articles of Incorporation, Certificate of Incorporation, its
by-laws and all stockholder agreements, voting trusts and similar arrangements
applicable to any of its capital stock, each as in effect from time to time.
"Other Transaction" shall mean a transaction or series of related
transactions (other than the Merger and the Reorganization) resulting in (a)
any change in control of an Arcus Entity, (b) any merger or consolidation of an
Arcus Entity, regardless of whether such Arcus Entity is the surviving Entity,
(c) any tender offer or exchange offer for, or any acquisition of, any
securities of any Arcus Entity (other than the issuance of shares in accordance
with the terms of Option Securities outstanding on the date hereof), (d) any
sale or other disposition of assets of an Arcus Entity not otherwise permitted
under Section 3.16 hereof, or (e) so long as this Agreement remains in effect,
any issue or sale, or any agreement to issue or sell, any capital stock,
Convertible Securities or Option Securities of any Arcus Entity (other than (i)
pursuant to the Transactions and (ii) the issuance of shares in accordance with
the terms of Option Securities outstanding on the date hereof).
"Party" shall mean a signatory to this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any Entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean any natural individual or any Entity.
"Plan" shall mean, with respect to the Arcus Entities and at a particular
time, any employee benefit plan which is covered by ERISA and in respect of
which the Arcus Entities, or,in the case of any such plan subject to Title IV
of ERISA, an ERISA Affiliate is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer," as defined in
Section 3(5) of ERISA, other than a Multiemployer Plan.
"Plan of Reorganization" shall have the meaning given to it in Section
3.26.
"Preferred Cash Amount" shall mean the product of (i) the Preferred Equity
Value and (ii) 5%; provided, however, that such amount shall be reduced, if
necessary, consistent with Section 2.6 hereof.
"Preferred Cash Conversion Number" shall mean the quotient obtained by
dividing (i) the Preferred Cash Amount by (ii) the sum of (a) the number of
Preferred Shares issued and outstanding immediately prior to the Effective Time
(except Preferred Shares to be cancelled pursuant to Section 2.1(c)) and (b)
the number of Preferred Shares which would have been issued as a result of the
UAC Merger had holders of UAC Preferred Stock not exercised appraisal rights.
"Preferred Certificate" shall have the meaning given to it in Section
2.1(b).
"Preferred Equity Value" shall mean the aggregate liquidation preference
of the Company Preferred, calculated in accordance with the Amended and
Restated Certificate of Incorporation of the Company to be filed with the
Secretary of State of the State of Delaware immediately prior to the Effective
Time in connection with the UAC
I-56
<PAGE>
Merger (including Preferred Shares which would have been issued as a result of
the UAC Merger had holders of UAC Preferred Stock not exercised appraisal
rights).
"Preferred Exchange Fund" shall have the meaning given to it in Section
2.2(a).
"Preferred Shares" shall have the meaning given to it in Section 2.1(b).
"Preferred Stock Amount" shall mean the quotient obtained by dividing (a)
the product of the Preferred Equity Value and 95% by (b) the Determination
Price; provided, however, that such amount shall be increased, if necessary,
consistent with Section 2.6 hereof.
"Preferred Stock Conversion Number" shall mean the quotient obtained by
dividing (i) the Preferred Stock Amount by (ii) the sum of (a) the number of
shares of Company Preferred issued and outstanding immediately prior to the
Effective Time (except Preferred Shares to be cancelled pursuant to Section
2.1(c)) and (b) the number of Preferred Shares which would have been issued as
a result of the UAC Merger had holders of UAC Preferred Stock not exercised
appraisal rights.
"Preferred Stock Merger Consideration" shall have the meaning given to it
in Section 2.1(b).
"Principal Stockholders" shall mean GKH Investments, L.P., GKH Partners
L.P., GKH Partners L.P. as nominee of GKH Private Limited, Hudson River Capital
LLC and Clarke H. Bailey.
"Private Authorizations" shall mean all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all Persons (other
than Authorities) including without limitation those with respect to patents,
trademarks, service marks, trade names, copyrights, computer software programs,
technology and know-how, but not including those with respect to Leases and
other general contract rights.
"Prospectus" shall mean the form of prospectus included in the
Registration Statement.
"PSI Acquisition" shall mean the acquisition by Arcus Staffing Resources,
Inc. of all of the assets of Image Solutions, Inc. (d/b/a Professional
Solutions, Inc.) pursuant to that certain Asset Purchase Agreement dated as of
August 20, 1997 by and among Image Solutions, Inc., Pam Kunhart, John Kunhart,
Arcus Technology Services, Inc. and Arcus Staffing Resources, Inc., and all
related transactions.
"Qualified Plan" shall have the meaning given to it in Section 5.8(b).
"Registered Stock" shall mean that portion of the Stock Merger
Consideration and Preferred Stock Merger Consideration consisting of shares of
Acquiror Stock to be registered pursuant to the Securities Act.
"Registration Statement" shall mean the registration statement (including
the Prospectus, exhibits, financial statements and schedules included therein),
and all amendments thereof (including post-effective amendments) and
supplements to the Prospectus which are a part thereof, filed under the
Securities Act registering the Registered Stock.
"Reorganization" shall have the meaning given to it in the Preamble.
"Representatives" of a Party shall mean the officers, directors,
employees, accountants, counsel, financial advisors, consultants and other
representatives of such Party.
"Required Disclosure" shall have the meaning given to it in Section 5.7.
"SEC" shall mean the Securities and Exchange Commission of the United
States or any successor Authority.
"Securities Act" shall mean the Securities Act of 1933, and the rules and
regulations of the SEC thereunder, all as from time to time in effect, or any
successor law, rule or regulation, and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
"Share Certificate" shall have the meaning given to it in Section 2.1(a).
"Share Exchange Fund" shall have the meaning given to it in Section
2.2(a).
I-57
<PAGE>
"Share Price" equals the quotient of the Fully Diluted Common Equity Value
divided by the Fully Diluted Common Shares.
"Shares" shall have the meaning given to it in Section 2.1(a).
"Stockholders" shall mean all Persons entitled to receive Merger
Consideration (or who would be entitled thereto but for their dissent from the
Merger or the Reorganization) pursuant to Sections 2.1(a) and 2.1(b).
"Stockholders' Agreement" shall mean that certain Stockholders' Agreement
of even date herewith among the Principal Stockholders and Acquiror, as the
same may from time to time be supplemented amended, modified or restated in the
manner therein provided.
"Stock Merger Consideration" shall have the meaning given to it in Section
2.1(a).
"Subsidiary" shall mean, with respect to a Person, any Entity a majority
of the capital stock ordinarily entitled to vote for the election of directors
of which, or if no such voting stock is outstanding, a majority of the equity
interests of which, is owned directly or indirectly, legally or beneficially,
by such Person or any other Person controlled by such Person.
"Surviving Corporation" shall have the meaning given to it in Section 1.1.
"Tax" (and "Taxable", which shall mean subject to Tax), shall mean (a) all
taxes (domestic or foreign), including without limitation any income (net,
gross or other, including recapture of any tax items such as investment tax
credits), alternative or add-on minimum tax, gross income, gross receipts,
gains, sales, use, leasing, lease, user, ad valorem, transfer, recording,
franchise, profits, property (real or personal, tangible or intangible), fuel,
license, withholding on amounts paid to or by the Arcus Entities or Acquiror,
as the case may be, payroll, employment unemployment, social security, excise,
severance, stamp, occupation, premium, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest, levies, assessments,
charges, penalties, addition to tax or additional amount imposed by any Taxing
Authority, (b) any joint or several liability of any Arcus Entity or Acquiror,
as the case may be with any other Person for the payment of any amounts of the
type described in (a), and (c) any liability of any Arcus Entity or Acquiror,
as the case may be for the payment of any amounts of the type described in (a)
as a result of any express or implied obligation to indemnify any other Person.
"Tax Return" or "Returns" shall mean all returns, consolidated or
otherwise (including without limitation information returns), required to be
filed with any Authority with respect to Taxes.
"Taxing Authority" shall mean any Authority responsible for the imposition
of any Tax.
"Termination" shall have the meaning given to it in Section 2.1(f).
"Termination Date" shall mean March 31, 1998 or such other date as the
Parties may, from time to time, mutually agree.
"Termination Fee" shall have the meaning given to it in Section 7.5(b).
"Threshold Percentage" shall have the meaning given to it in Section 2.6.
"Total ATSI Equity Value" shall mean the total common equity value of ATSI
at the Determination Time as determined in good faith by ATSI based on the (i)
Total Consideration to be paid by Acquiror in the Merger, and (ii) the Net
Indebtedness (excluding cash and cash equivalents held by the Company and UAC,
but assuming the deemed exercise of all outstanding warrants and options to
acquire ATSI Common Stock) at the Determination Time.
"Total Common Equity Base" shall have the meaning given to it in Section
2.1(f).
"Total Consideration" shall mean One Hundred Sixty Million Dollars
($160,000,000).
"Total Equity Consideration" shall mean the difference between the Total
Consideration and Net Indebtedness as of the Effective Time.
I-58
<PAGE>
"Total Primary Equity Base" shall mean the sum of (1) the value
(calculated based on the Determination Price) of the aggregate Exchange Common
Consideration, (2) the aggregate Warrant Purchase Price and (3) the value
(calculated based on the Determination Price) of the aggregate Exchange
Preferred Consideration.
"Total UAC Common Equity Value" equals the total common equity value of
UAC at the Determination Time as determined in good faith by UAC based on (i)
the Total ATSI Equity Value, (ii) the number of fully diluted shares of ATSI
Common Stock outstanding as of the Determination Time (assuming the exercise of
all warrants and options to acquire shares of ATSI Common Stock) and the number
of such shares held by UAC, (iii) cash and cash equivalents held by UAC
(assuming the deemed exercise of all outstanding options to acquire shares of
UAC Common Stock and Warrants), (iv) the value of the Connected Stock as of the
Determination Time, and (v) the UAC Preferred Equity Value as of the
Determination Time.
"Transactions" shall mean the transactions contemplated by this Agreement
or the Merger or by any Collateral Document executed or required to be executed
in connection herewith or therewith including, without limitation, the
transactions comprising the Reorganization.
"Transmittal Documents" shall have the meaning given to it in Section
2.2(b).
"UAC" shall have the meaning given to it in the Preamble.
"UAC Common Stock" shall mean the common stock, par value $.01 per share,
of UAC.
"UAC Equity Value Per Share" equals the quotient obtained by dividing (a)
the Total UAC Common Equity Value by (b) the sum of (i) the total number of
shares of UAC Common Stock issued and outstanding at the Determination Time,
plus (ii) the total number of shares of UAC Common Stock which, at the
Determination Time, may be issued pursuant to options to purchase or otherwise
acquire shares of UAC Common Stock, whether or not such options are immediately
exercisable, plus (iii) the total number of shares of UAC Common Stock which,
at the Determination Time, may be issued pursuant to Warrants, whether or not
such Warrants are immediately exercisable.
"UAC Merger" shall have the meaning given to it in the Preamble.
"UAC Option Plan" shall have the meaning given to it in Section 3.13(b).
"UAC Plan of Merger" shall have the meaning given to it in the Preamble.
"UAC Preferred Equity Value" shall mean, as of any time of determination,
the aggregate liquidation preference of the preferred stock of UAC, calculated
in accordance with the Articles of Incorporation of UAC, at such time.
"UAC Preferred Stock" shall mean the Series A preferred stock, par value
$.01 per share, of UAC.
"Warrant Escrow Holdback Amount" shall have the meaning given to it in the
Warrant Purchase Agreement.
"Warrant Escrow Indemnity Contribution" shall have the meaning given to it
in the Warrant Purchase Agreement.
"Warrant Purchase Agreement" shall mean a Warrant Purchase Agreement
between Acquiror and one or more holders of the Warrants, substantially in the
form of Exhibit 6.1(g) hereto, as such agreement may be amended, supplemented
or otherwise modified in accordance with the terms thereof and hereof.
"Warrant Purchase Price" shall mean the dollar amount equal to the product
of (i) the number of shares of UAC Common Stock underlying a Warrant that will
be purchased by Acquiror pursuant to the terms of the Warrant Purchase
Agreement and (ii) the difference between the UAC Equity Value Per Share and
the exercise price per share of UAC Common Stock applicable to such Warrant.
"Warrants" shall mean the warrants to acquire shares of UAC Common Stock.
"ZDC Warrant" shall mean the warrant to purchase 10,000 shares of ATSI
Common Stock held by Zurich Depository Corporation or its assignee.
I-59
<PAGE>
IN WITNESS WHEREOF, Acquiror, the Company, UAC and ATSI have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
--------------------------------------
Name: C. Richard Reese
Title: Chairman and Chief Executive
Officer
ARCUS GROUP, INC.
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
UNITED ACQUISITION COMPANY
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
ARCUS TECHNOLOGY SERVICES, INC.
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
I-60
<PAGE>
Schedule A
AGREEMENT AND PLAN OF MERGER
OF UAC AND AGI
THIS AGREEMENT AND PLAN OF MERGER (this "UAC Merger Agreement") is made
and entered into this day of , 1997, by and between United
Acquisition Company, a Nevada corporation whose address is 232 Court Street,
Reno, Nevada 89501 ("UAC"), and Arcus Group, Inc., a Delaware corporation whose
address is 901 Main Street, Suite 6100, Dallas, Texas 75202 ("AGI") (UAC and
AGI are individually referred to as a "Constituent Corporation" and together
referred to as "Constituent Corporations"). All capitalized terms used herein
shall have the meanings ascribed to them in the IM Merger Agreement, as
hereafter defined, as amended, unless otherwise specified herein.
W I T N E S S E T H:
WHEREAS, UAC is a corporation duly organized and existing under the laws of
the State of Nevada;
WHEREAS, AGI is a corporation duly organized and existing under the laws
of the State of Delaware;
WHEREAS, on the date of this UAC Merger Agreement (except as specified
below), UAC has the authority to issue (i) Three Million (3,000,000) shares of
Common Stock, par value $0.01 per share (the "UAC Common"), One Million One
(1,000,001) shares of which are issued and outstanding; (ii) Two Hundred
Thousand (200,000) shares of undesignated Preferred Stock, no shares of which
are issued and outstanding, and (iii) Fifty Thousand (50,000) shares of Series
A Preferred Stock, par value $0.01 per share (the "UAC Preferred"), 27,396
shares of which are issued and outstanding after giving effect to the payment
of payment-in-kind dividends through November 20, 1997, as if such payments had
occurred;
WHEREAS, on the date of this UAC Merger Agreement (before giving effect to
the amendments to the Certificate of Incorporation of AGI, discussed below),
AGI has the authority to issue Eleven Million, Six Hundred Sixty-One Thousand,
Two Hundred Ninety (11,661,290) shares of Common Stock, par value $0.0001 per
share (the "AGI Common"), Eleven Million, Four Hundred Twenty-Six Thousand,
Five Hundred Twenty-Five (11,426,525) shares of which are issued and
outstanding;
WHEREAS, following the merger of UAC into AGI, AGI will merge with and
into Iron Mountain Incorporated, a Delaware corporation ("IM"), pursuant to the
Agreement and Plan of Merger (the "IM Merger Agreement") by and among IM, AGI,
UAC and Arcus Technology Services, Inc., dated as of September 26, 1997, as
amended pursuant to Amendment No. 1 dated as of November 25, 1997, a true and
correct copy of which agreement and amendment is attached hereto as Appendix A
(the "IM Merger");
WHEREAS, the Board of Directors of each Constituent Corporation has
determined that it is advisable and to the advantage of such Constituent
Corporation and its stockholders that UAC merge with and into AGI, upon the
terms and conditions herein provided; and
WHEREAS, the Board of Directors of each Constituent Corporation has
adopted this UAC Merger Agreement and has directed that this UAC Merger
Agreement be submitted to a vote of such Constituent Corporation's
stockholders;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, UAC and AGI hereby agree to merge as follows:
1. Merger UAC shall be merged with and into AGI, and AGI shall survive the
merger ("UAC Merger"), effective upon the date when this UAC Merger Agreement
is made effective in accordance with applicable law (the "UAC Effective Time").
2. Directors and Officers and Governing Documents. The directors and
officers of AGI shall be the same at the UAC Effective Time as they are
immediately prior thereto. The Certificate of Incorporation of AGI, as amended
and restated and in effect at the UAC Effective Time, shall continue to be the
Certificate of Incorporation
I-61
<PAGE>
of AGI as the surviving corporation, as amended in accordance with Section 3
hereto, until further amended in accordance with the provisions thereof and
applicable laws. The bylaws of AGI, as amended and in effect at the UAC
Effective Time, shall continue to be the bylaws of AGI as the surviving
corporation without change or amendment until further amended in accordance
with the provisions thereof and applicable laws.
3. Changes in the Certificate of Incorporation To Be Effected By the
Merger. Prior to the UAC Effective Time AGI will amend its Certificate of
Incorporation (i) to create a class of Preferred Shares of which 50,000 shares
shall be authorized for issuance by the Board of Directors, with identical
rights, preferences and privileges applicable to the UAC Preferred, after
giving effect to the amendment to the Articles of Incorporation of UAC on the
Closing Date prior to the UAC Effective Time as contemplated by the IM Merger
Agreement ("UAC Charter Amendments"), (ii) to increase the number of authorized
shares of common stock from 11,661,290 to 100,000,000, and (iii) to exempt the
Merger from the limitations on transfers of shares of AGI, stock set forth in
Article XI of the AGI Certificate (collectively, the "AGI Charter Amendments.")
4. Effect of Merger. From and after the UAC Effective Time, AGI as the
surviving corporation shall possess all rights, privileges, powers and
franchises and be subject to all restrictions, disabilities and duties of UAC
and AGI, including without limitation, any duties to stockholders who exercise
appraisal rights in connection with the UAC Merger, and the UAC Merger shall
have all other effects, as provided under Section 259 of the DGCL. Pursuant to
NRS [sec][sec].92A.250(e) and (f), all ownership rights in UAC shares prior to
the UAC Merger will cease to exist at the UAC Effective Time and the former
holders of UAC shares will be entitled only to the rights provided in this UAC
Merger Agreement or created pursuant to NRS [sec][sec].92A.300 to 92A.500.
5. Stock Transfer Books. At the UAC Effective Time, the stock transfer
books of UAC shall be closed, and there shall be no further registrations or
transfers of UAC Common or UAC Preferred thereafter on the records of UAC other
than to AGI.
6. Further Assurances. From time to time, as and when required by AGI or
by its successors and assigns, there shall be executed and delivered on behalf
of UAC such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in AGI
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of UAC and otherwise
to carry out the purposes of this UAC Merger Agreement, and the officers and
directors of AGI are fully authorized in the name and on behalf of UAC or
otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
7. Merger Consideration. At the UAC Effective Time, by virtue of the UAC
Merger and without any action on the part of the stockholder thereof, (i) each
share of the AGI Common outstanding immediately prior to the UAC Effective Time
(other than Dissenting Shares) shall continue to remain outstanding, (ii)
except as otherwise set forth in clause (iv) below, each share of the UAC
Common outstanding immediately prior to the UAC Effective Time (other than
Dissenting Shares) shall be changed and converted into that number ("UAC Common
Conversion Number") of fully paid and nonassessable shares of AGI Common that
is equal to the quotient of the UAC Equity Value Per Share, as hereafter
defined, divided by the AGI Equity Value Per Share, as hereafter defined, (iii)
each share of the UAC Preferred outstanding immediately prior to the UAC
Effective Time (other than Dissenting Shares), together with any accrued and
unpaid dividends thereon, shall be changed and converted into one (1) fully
paid and nonassessable share of AGI Preferred with the same rights, preferences
and privileges as applicable to the UAC Preferred after giving effect to the
UAC Charter Amendments and the AGI Charter Amendments with an equal amount of
accrued and unpaid dividends thereon and (iv) each share of the UAC Common
outstanding immediately prior to the UAC Effective Time and owned of record by
AGI shall be cancelled.
7.1 UAC Equity Value Per Share. The UAC Equity Value Per Share shall mean
the UAC Equity Value Per Share at the Determination Time under the IM Merger
Agreement, as amended, immediately prior to the purchase of Warrants by IM
pursuant to the Warrant Purchase Agreements (the "Determination Time").
7.2 AGI Equity Value Per Share. The AGI Equity Value Per Share shall mean
(a) the total common equity value of AGI as of the Determination Time as
determined in good faith by AGI based on (i) the Total UAC Common
I-62
<PAGE>
Equity Value, (ii) the number of fully diluted shares of UAC Common as of the
Determination Time (assuming the exercise of the Warrants and outstanding
options to acquire UAC Common) and the number of such shares held by AGI, (iii)
the cash and cash equivalents of AGI and (iv) the value of the 57% limited
partnership interest of AGI in Damson East Texas Partners, L.P., valued by AGI
at its fair value, as of the Determination Time, divided by (b) the total
number of shares of AGI Common issued and outstanding as of the Determination
Time.
8. Stock Certificates. At the UAC Effective Time, all of the outstanding
certificates which prior to that time represented shares of UAC Common shall
for all purposes evidence ownership of and represent the shares of AGI Common
into which the shares of UAC Common represented by such certificates have been
converted as herein provided.
9. Warrants. At the UAC Effective Time, each outstanding Warrant (if any)
to purchase shares of UAC Common shall be converted into and become a warrant
to purchase the UAC Warrant Conversion Number of shares of AGI Common as
hereafter defined, at the UAC Warrant Conversion Price, as hereafter defined,
and otherwise upon the same terms and subject to the same conditions as set
forth in the award and agreement pursuant to which the warrant in question was
issued. A sufficient number of shares of AGI Common shall be reserved for
purposes of any outstanding warrants as of the UAC Effective Time. As of the
UAC Effective Time, AGI hereby assumes all obligations of UAC under the awards
and agreements pursuant to which any outstanding UAC warrants were issued.
9.1 UAC Warrant Conversion Number. The UAC Warrant Conversion Number shall
mean (a) the UAC Equity Value Per Share multiplied by the total number of
shares for which the warrant in question may be exercised (whether or not such
warrant is immediately exercisable), divided by (b) the AGI Equity Value Per
Share.
9.2 UAC Warrant Conversion Price. The UAC Warrant Conversion Price shall
mean (a) the per share price for which the warrant in question may be exercised
(whether or not such warrant is immediately exercisable) multiplied by the AGI
Equity Value Per Share at the UAC Effective Time, divided by (b) the UAC Equity
Value Per Share.
10. Stock Options. At the UAC Effective Time, each option ("Plan Option"
or "Options") to purchase shares of UAC Common granted under the UAC 1995 Stock
Option Plan (the "UAC Stock Option Plan") that is outstanding at the
Determination Time shall automatically be converted into and become an option
to purchase the UAC Option Conversion Number, as hereafter defined, of shares
of AGI Common at the UAC Option Conversion Price, as hereafter defined, and
otherwise upon the same terms and subject to the same conditions as set forth
in the UAC Stock Option Plan. A sufficient number of shares of AGI Common shall
be reserved for purposes of the UAC Stock Option Plan as of the UAC Effective
Time. As of the UAC Effective Time, AGI hereby assumes all obligations of UAC
under the UAC Stock Option Plan, the outstanding Plan Options or portions
thereof granted pursuant to the UAC Stock Option Plan. The UAC Option
Conversion Number shall be (a) the UAC Equity Value Per Share multiplied by the
total number of shares for which the option in question may be exercised as of
the UAC Effective Time (whether or not such option is immediately exercisable),
divided by (b) the AGI Equity Value Per Share. The UAC Option Conversion Price
shall mean (a) the per share price for which the option in question may be
exercised at the UAC Effective Time (whether or not such option is immediately
exercisable) multiplied by the AGI Equity Value Per Share, divided by (b) the
UAC Equity Value Per Share.
11. Other Employee Benefit Plans. As of the UAC Effective Time, AGI hereby
assumes all obligations of UAC under and undertakes sponsorship of any and all
employee benefit plans in effect as of said date or with respect to which
employee rights or accrued benefits are outstanding as of said date.
12. Termination. Subject to the terms and conditions of the IM Merger
Agreement, as amended, this UAC Merger Agreement may be terminated and
abandoned whether before or after approval of this Agreement by the
stockholders of UAC or AGI, or both, by mutual consent of the Boards of
Directors of both Constituent Corporations at any time prior to the UAC
Effective Time.
13. Amendment. Subject to the terms and conditions of the IM Merger
Agreement, this UAC Merger Agreement may be amended by the Boards of Directors
of both Constituent Corporations at any time prior to the UAC Effective Time;
provided, however, that after approval of this Agreement by the stockholders of
UAC and
I-63
<PAGE>
AGI, no amendment which, under Nevada or Delaware law, would have required
approval of the UAC stockholders or AGI stockholders, respectively, if made
before approval, may be made after approval without the approval of the UAC
stockholders or AGI stockholders, respectively. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
14. Counterparts. This UAC Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, this UAC Merger Agreement, having first been duly
approved by resolution of the boards of directors of UAC and AGI is hereby
executed on behalf of each said two corporations by their respective officers
thereunto duly authorized.
UNITED ACQUISITION COMPANY,
a Nevada corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
ARCUS GROUP, INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
I-64
<PAGE>
Schedule B
AGREEMENT AND PLAN OF MERGER
OF ATSI AND AGI
THIS AGREEMENT AND PLAN OF MERGER (this "ATSI Merger Agreement") is made
and entered into this day of , 1997, by and between Arcus
Technology Services, Inc., a Delaware corporation, ("ATSI"), and Arcus Group,
Inc., a Delaware corporation ("AGI") (ATSI and AGI are individually referred to
as a "Constituent Corporation" and together referred to as "Constituent
Corporations"). All capitalized terms used herein shall have the meanings
ascribed to them in the IM Merger Agreement, as hereafter defined, as amended,
unless otherwise specified herein.
W I T N E S S E T H:
WHEREAS, ATSI is a corporation duly organized and existing under the laws
of the State of Delaware;
WHEREAS, AGI is a corporation duly organized and existing under the laws
of the State of Delaware;
WHEREAS, on the date of this ATSI Merger Agreement, ATSI has the authority
to issue Five Million (5,000,000) shares of Common Stock, par value $0.01 per
share (the "ATSI Common"), Three Million, Three Hundred Twenty-Five Thousand,
Two Hundred Twenty-Nine (3,325,229) shares of which are issued and outstanding;
WHEREAS, as of the date of this ATSI Merger Agreement, AGI has the
authority to issue Eleven Million, Six Hundred Sixty-One Thousand, Two Hundred
Ninety (11,661,290) shares of Common Stock, par value $0.0001 per share (the
"AGI Common"), 11,426,525 shares of which are issued and outstanding;
WHEREAS, as of the ATSI Effective Time, as defined below, AGI will have
amended its Certificate of Incorporation to increase the authorized number of
shares of AGI Common from Eleven Million Six Hundred Sixty-One Thousand, Two
Hundred Ninety (11,661,290) to One Hundred Million (100,000,000) and create a
class of preferred shares of which there will be authorized Fifty Thousand
(50,000) shares, par value $0.0001 per share (the "AGI Preferred") with the
same rights, preferences and privileges applicable to shares to Series A
Preferred Stock of UAC, after giving effect to the amendments to the Articles
of incorporation of UAC as contemplated by the IM Merger Agreement, as amended,
(including Schedule C thereto);
WHEREAS, following the merger of ATSI with and into AGI, AGI will merge
with and into Iron Mountain Incorporated, a Delaware corporation ("IM"),
pursuant to the Agreement and Plan of Merger (the "IM Merger Agreement") by and
among IM, AGI, United Acquisition Company, a Delaware corporation ("UAC") and
ATSI, dated as of September 26, 1997, as amended pursuant to Amendment No. 1
dated as of November 25, 1997, a true and correct copy of which agreement and
amendment is attached hereto as Appendix A (the "IM Merger");
WHEREAS, the Board of Directors of each Constituent Corporation has
determined that it is advisable and to the advantage of such Constituent
Corporation and its stockholders that ATSI merge with and into AGI, upon the
terms and conditions herein provided; and
WHEREAS, the Board of Directors of each Constituent Corporation has
adopted this ATSI Merger Agreement and has directed that this ATSI Merger
Agreement be submitted to a vote of such Constituent Corporation's
stockholders;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, ATSI and AGI hereby agree to merge as follows:
1. Merger. ATSI shall be merged with and into AGI, and AGI shall survive
the merger ("ATSI Merger"), effective on the date and at the time when this
ATSI Merger Agreement is made effective in accordance with applicable law (the
"ATSI Effective Time").
2. Directors and Officers and Governing Documents. The directors and
officers of AGI shall be the same at the ATSI Effective Time as they are
immediately prior thereto. The Certificate of Incorporation of AGI, as
I-65
<PAGE>
amended and restated and in effect at the ATSI Effective Time, shall continue
to be the Certificate of Incorporation of AGI as the surviving corporation,
until further amended in accordance with the provisions thereof and applicable
laws. The bylaws of AGI, as amended and in effect at the ATSI Effective Time,
shall continue to be the bylaws of AGI as the surviving corporation without
change or amendment until further amended in accordance with the provisions
thereof and applicable laws.
3. Effect of Merger. From and after the ATSI Effective Time, AGI as the
surviving corporation shall possess all rights, privileges, powers and
franchises and be subject to all restrictions, disabilities and duties of ATSI
and AGI, including without limitation, any duties to stockholders who exercise
appraisal rights in connection with the ATSI Merger, and the ATSI Merger shall
have all other effects, as provided under Section 259 of the DGCL. All
ownership rights in ATSI shares prior to the ATSI Merger will cease to exist at
the ATSI Effective Time except as provided by law.
4. Stock Transfer Books. At the ATSI Effective Time, the stock transfer
books of ATSI shall be closed, and there shall be no further registrations or
transfers of ATSI Common thereafter on the records of ATSI other than to AGI.
5. Further Assurances. From time to time, as and when required by AGI or
by its successors and assigns, there shall be executed and delivered on behalf
of ATSI such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in AGI
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of ATSI and otherwise
to carry out the purposes of this ATSI Merger Agreement, and the officers and
directors of AGI are fully authorized in the name and on behalf of ATSI or
otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
6. Merger Consideration. At the ATSI Effective Time, by virtue of the ATSI
Merger and without any action on the part of any stockholder thereof, (i) each
share of the AGI Common and AGI Preferred outstanding immediately prior to the
ATSI Effective Time (other than, as to shares of AGI Common outstanding on the
record date for determining shares entitled to vote on the Merger of UAC with
and into AGI, Dissenting Shares) shall continue to remain outstanding, (ii)
except as set forth in clause (iii) below, each share of the ATSI Common
outstanding immediately prior to the ATSI Effective Time (other than Dissenting
Shares) shall be changed and converted into that number ("ATSI Common
Conversion Number") of fully paid and nonassessable shares of AGI Common that
is equal to the quotient of the ATSI Equity Value Per Share, as hereafter
defined, divided by the AGI Equity Value Per Share, as hereafter defined and
(iii) each share of the ATSI Common outstanding immediately prior to the ATSI
Effective Time and owned of record by AGI shall be cancelled.
6.1 ATSI Equity Value Per Share. The ATSI Equity Value Per Share shall
mean (a) the Total Equity Value of ATSI as of the time of the Closing Date
under the IM Merger Agreement, as amended, immediately prior to the purchase of
Warrants by IM pursuant to the Warrant Purchase Agreements (the "Determination
Time") divided by (b) the sum of (i) the total number of shares of ATSI Common
issued and outstanding as of the Determination Time, plus (ii) the number of
shares of ATSI Common which, as of the Determination Time, may be issued
pursuant to options to purchase or otherwise acquire shares of ATSI Common
whether or not such options are vested or immediately exercisable, plus (iii)
the number of shares of ATSI Common which, as of the Determination Time, may be
issued pursuant to any warrants to purchase or otherwise acquire shares of ATSI
Common whether or not such warrant is immediately exercisable.
6.2 AGI Equity Value Per Share. The AGI Equity Value Per Share shall mean
(a) the total common equity value of AGI as of the Determination Time as
determined in good faith by AGI based on (i) the Total UAC Common Equity Value,
(ii) the number of fully diluted shares of UAC Common as of the Determination
Time (assuming the exercise of the Warrants and outstanding options to acquire
UAC Common) and the number of such shares held by AGI, (iii) the cash and cash
equivalents of AGI and (iv) the value of the 57% limited partnership interest
of AGI in Damson East Texas Partners, L.P., valued by AGI at its fair value, as
of the Determination Time divided by (b) the total number of shares of AGI
Common issued and outstanding as of the Determination Time.
7. Stock Certificates. At the ATSI Effective Time, all of the outstanding
certificates which prior to that time represented shares of ATSI Common shall
for all purposes evidence ownership of and represent the shares of AGI
I-66
<PAGE>
Common into which the shares of ATSI Common represented by such certificates
have been converted as herein provided.
8. Warrants. At the ATSI Effective Time, each outstanding warrant (if any)
to purchase shares of ATSI Common shall be converted into and become a warrant
to purchase the AGI Warrant Conversion Number, as hereafter defined, of shares
of AGI Common at the AGI Warrant Conversion Price, as hereafter defined, and
otherwise upon the same terms and subject to the same conditions as set forth
in the award and agreement pursuant to which the warrant in question was
issued. A sufficient number of shares of AGI Common shall be reserved for
purposes of any outstanding warrants as of the ATSI Effective Time. As of the
ATSI Effective Time, AGI hereby assumes all obligations of ATSI under the
awards and agreements pursuant to which any outstanding ATSI warrants were
issued. The ATSI Warrant Conversion Number shall mean the (a) the ATSI Equity
Value Per Share less the exercise price of such warrant, multiplied by (b) the
total number of shares for which the warrant in question may be exercised
(whether or not such warrant is immediately exercisable), divided by (c) the
AGI Equity Value Per Share. The ATSI Warrant Conversion Price shall be one
hundreth of one cent ($0.0001) per underlying share.
9. Stock Options. At the ATSI Effective Time, each outstanding option
("Plan Option" or "Options") to purchase shares of ATSI Common granted under
the UAC Holdings Corporation 1995 Stock Option Plan (the "ATSI Stock Option
Plan") shall be converted into and become an option to purchase the ATSI Option
Conversion Number of shares of AGI Common at the ATSI Option Conversion Price
and otherwise upon the same terms and subject to the same conditions as set
forth in the ATSI Stock Option Plan. A sufficient number of shares of AGI
Common shall be reserved for purposes of the ATSI Stock Option Plan as of the
ATSI Effective Time. As of the ATSI Effective Time, AGI hereby assumes all
obligations of ATSI under the ATSI Stock Option Plan, the outstanding Plan
Options or portions thereof granted pursuant to the ATSI Stock Option Plan. The
ATSI Option Conversion Number shall mean (a) the ATSI Equity Value Per Share
multiplied by the total number of shares for which the option in question may
be exercised as of the Determination Time (whether or not such option is vested
and whether or not such option is immediately exercisable), divided by (b) the
AGI Equity Value Per Share. The ATSI Option Conversion Price shall mean (i) the
per share price for which the option in question may be exercised as of the
Determination Time (whether or not such option is vested and whether or not
such option is immediately exercisable) multiplied by the AGI Equity Value Per
Share, divided by (ii) the ATSI Equity Value Per Share.
10. Other Employee Benefit Plans. As of the ATSI Effective Time, AGI
hereby assumes all obligations of UAC under and undertakes sponsorship of any
and all employee benefit plans in effect as of said date or with respect to
which employee rights or accrued benefits are outstanding as of said date.
11. Termination. Subject to the terms and conditions of the IM Merger
Agreement, as amended, this ATSI Merger Agreement may be terminated and
abandoned whether before or after approval of this Agreement by the
stockholders of ATSI or AGI, or both, by mutual consent of the Boards of
Directors of both Constituent Corporations at any time prior to the ATSI
Effective Time.
12. Amendment. Subject to the terms and conditions of the IM Merger
Agreement, this ATSI Merger Agreement may be amended by the Boards of Directors
of both Constituent Corporations at any time prior to the ATSI Effective Time;
provided, however, that after approval of this Agreement by the stockholders of
ATSI and AGI, no amendment which, under Delaware law, would have required
approval of the ATSI stockholders or AGI stockholders, if made before approval,
may be made after approval without the approval of the ATSI stockholders or AGI
stockholders, respectively. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
13. Counterparts. This ATSI Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original.
I-67
<PAGE>
IN WITNESS WHEREOF, this ATSI Merger Agreement, having first been duly
approved by resolution of the boards of directors of ATSI and AGI is hereby
executed on behalf of each said two corporations by their respective officers
thereunto duly authorized.
ARCUS TECHNOLOGY SERVICES,
INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Julien H. Meyer, III
Secretary
ARCUS GROUP, INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
I-68
<PAGE>
Schedule C
DESCRIPTION OF REORGANIZATION
Step 1: Acquiror Purchases Warrants to Purchase
Approximately 1,467,207 Shares of UAC Common
for Cash in the Amount of Approximately $29,842,000.
1. Acquiror Board authorizes purchase of warrants and adoption of Warrant
Purchase Agreement pursuant to Board Resolutions. (Satisfied as of September 26,
1997, which date is hereafter referred to as the "Execution Date".)
2. Acquiror and selling Warrant Holders enter into Warrant Purchase
Agreement. Pursuant to Section 4.05 of Warrant Agreements. UAC gives prior
written consent to transfer of warrants.
3. Selling Warrant Holders execute forms of Assignment of Warrant, attached
to Warrant Agreements. (Consent requirement satisfied as of Execution Date)
4. All UAC shareholders who are parties to UAC Shareholders Agreement waive
rights of first refusal, inclusion, notice of transfer and right to require sale
of not less than all "Stock" under Article III of UAC Shareholders Agreement and
consent to sale of warrants to Acquiror. (Satisfied as of the Execution Date.)
Step 2: UAC Repurchases Warrants to Purchase Approximately 32,793
Shares of UAC Common In Exchange for Connected Stock
1. UAC Board waives notice of special meeting. Satisfied as of the
Execution Date.
2. By unanimous vote of all UAC directors (in light of waiver of prior
notice of meeting and UAC Shareholders Agreement [sec]2.5) , UAC Board takes
following actions (each of which satisfied as of the Execution Date):
A. Determines that repurchase (i.e., distribution) is authorized under
Nevada law in that after giving effect to the distribution, UAC will be
able to pay its debts as they become due in the usual course of business.
(NRS 78.191).
B. Approves, subject to Series A Preferred Shareholder approval by vote of
66-2/3%, Warrant Repurchase.
C. Approves, subject to Series A Preferred Shareholder approval by vote of
66-2/3%, amendment to UAC articles of incorporation to provide that
prohibition under Article VI, Section 2(b) of UAC Articles of Incorporation
on payment of distributions or dividends or redemption of shares of any
other class or series of UAC stock until all accrued and unpaid dividends
on Series A Preferred shares have been fully paid and until all PIK shares
have been redeemed shall not apply to transactions in connection with
merger of AGI into UAC, including each aspect of this Schedule C.
D. Calls special meeting of UAC Series A Preferred Shareholders for purpose
of approving warrant repurchase and distribution pursuant to Repurchase
Agreement and voting on amendment.
E. Sets record date for Series A Preferred Shareholders entitled to notice
and vote.
3. UAC sends Notice of Special Meeting of Holders of Series A Preferred
shares which sets forth place, date, hour, and specific purpose of special
meeting.
4. All UAC shareholders who are parties to UAC Shareholders Agreement
waive, in writing, rights of first refusal, inclusion, notice of transfer and
right to require sale of not less than all "Stock" under Article III of UAC
Shareholders Agreement and consent to sale of warrants to UAC. (Satisfied as of
the Execution Date)
5. Warrant Holders receive, in writing, prior notice of warrant repurchase.
6. Series A Preferred Shareholders vote to approve Warrant repurchase and
amend UAC Articles of Incorporation, in accordance with commitment to vote
Series A Preferred shares pursuant to Stockholders Agreement among IM and
certain stockholders of UAC and AGI.
I-69
<PAGE>
7. Series A Preferred Shareholders approve warrant repurchase by 66-2/3%
vote.
8. Under Section 4.1(c) of Connected Stock Purchase Agreement, UAC notifies
Connected Corp. of proposed disposition of Connected Stock and provides
statement of surrounding circumstances. If reasonably requested by Connected
Corp., UAC must furnish Connected Corp. with legal opinion that disposition will
not require registration and appropriate action necessary for compliance with
all applicable securities laws has been taken.
9. Selling Warrant Holders agree to be bound by terms and conditions of
Connected Rights Agreement in order to be assignees of registration rights
thereunder, pursuant to Section 1.11 of Connected Rights Agreement. (Satisfied
as of the Execution Date)
10. UAC assigns to selling Warrant Holders all assignable rights under
Connected Co-Sale Agreement.
Step 2a: Thomas Seefurth Transfers Single share of Arcus Data Security Ltd.
(U.K.) to Arcus Data Security, Inc. or IM's designee, whichever IM Directs.
UAC Assigns ATI Stock Purchase Agreement to Wholly Owned Subsidiary of UAC.
ATSI Assigns ATI Environmental Agreement to IM.
Step 3: UAC Merges into AGI. UAC Shareholders Receive AGI Stock at the
Exchange Ratio Set Forth in Schedule A to the Merger Agreement. UAC Option
Holders receive Similar Options in AGI on Tax Free Basis. Holders of UAC
Preferred Receive Similar Preferred Stock in AGI (after giving effect to
AGI Charter Amendment). UAC Warrant Holders Receive AGI Warrants. UAC
Shares Held by AGI are canceled.
Actions by AGI
1. AGI Board waives in writing notice of special meeting. (Satisfied as of
the Execution Date)
2. By unanimous vote of all AGI directors, AGI Board takes following
actions at special meeting: (Satisfied as of the Execution Date)
A. Adopts, subject to shareholder approval, an amendment to articles of
incorporation (i) to authorize a class of 50,000 shares of Preferred Stock,
(ii) to increase the number of shares of common stock from 11,661,290 to
100,000,000 and (iii) to remove restriction of Section 11.01 on transfer by
operation of merger that would otherwise preclude IM Merger. (DGCL 242)
B. Adopts, subject to shareholder approval, agreement and plan of merger of
UAC into AGI.
C. Reserves AGI stock for all holders of former UAC options and holders of
outstanding former UAC warrants.
D. Calls special meeting of AGI Shareholders for purpose of approving
amendments to articles of incorporation and agreement and plan of merger of
UAC into AGI.
E. Sets record date for Shareholders entitled to notice and vote.
3. AGI gives Notice of Special Meeting to AGI Shareholders at address on
AGI's records, which sets forth place, date and hour of special meeting and
specific purpose of meeting.
4. AGI gives AGI Shareholders notice of appraisal rights under DGCL 262,
together with a copy of Section 262, together with the notice of Special
Meeting.
5. AGI shareholders approve amendments to articles of incorporation and
merger of UAC into AGI by vote of holders of majority of shares.
6. AGI files certificate of amendment with Delaware Secretary of State.
7. AGI files certificate of merger with Delaware Secretary of State.
8. AGI assumes in writing the obligation to deliver to each Warrant Holder
such shares of stock, securities or other property (including cash) as the
Warrant Holders may be entitled to receive upon exercise of the warrants.
(Satisfied as of the Execution Date)
I-70
<PAGE>
9. Each UAC Warrant Holder receives, in writing, notice of the "Capital
Change."
10. AGI shareholders who do not vote for merger may have appraisal rights
under Delaware law.
Actions by UAC
1. UAC Board waives in writing notice of special meeting. (UAC Bylaws,
[sec]2.4.4) (Satisfied as of the Execution Date).
2. By unanimous vote of all UAC directors (see UAC Shareholders Agreement,
[sec]2.5), UAC Board takes following actions at special meeting (satisfied as of
the Execution Date) or as to the second clause of paragraph A, November 1997:
A. Adopts, subject to approval of holders of 66-2/3% of Series A Preferred
Shares and majority of Common Shares, amendment to articles of
incorporation to clarify that merger of UAC into controlling shareholder
shall not be treated as liquidation if the surviving corporation is
controlled by shareholders who, immediately prior to the merger,
controlled, directly or indirectly, all of the voting shares of UAC. (See
UAC Articles, IV.3(a), (b)), and to reduce the liquidation preference of
shares of UAC Series A Preferred Stock in connection with the Transactions
from $1,000 per share, plus all accrued but unpaid dividends thereon
(whether or not such dividends have been declared) to the Closing Date by
an amount (not to exceed $50.00) determined by the Board of Directors equal
to the quotient of (i) the product of (A) $1,000, plus all accrued but
unpaid dividends thereon (whether or not such dividends have been declared)
to the Closing and (B) the Expenses to be paid at or prior to the Closing
by the Arcus Parties (such amount is anticipated to be approximately $3.1
million) divided by (ii) the Total Equity Consideration (before giving
effect to the Expenses discussed in clause (i)(B) above).
B. Adopts, subject to approval of holders of 66-2/3% of Series A Preferred
Shares and majority of Common Shares, agreement and plan of merger of UAC
into AGI.
C. Adopts resolution providing for assumption by AGI, of UAC options and
authorizes any amendments to option award agreements, providing that there
shall be no acceleration of options except as required or contemplated by
the merger transactions.
D. Calls special meeting of UAC Series A Preferred Stockholders and Common
Stockholders for purpose of approving amendment to articles and agreement
and plan of merger of UAC and AGI.
E. Sets record date for Series A Preferred Stockholders and Common
Stockholders entitled to notice and vote.
3. UAC gives Notice of Special Meeting to all holders of Series A Preferred
Stock and Common Stock, which sets forth place, date and hour of special meeting
and specific purpose of meeting.
4. UAC gives holders of Series A Preferred Shares at least ten days prior
notice of (i) effective date of UAC merger, and (ii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock or Series A
Preferred shall be entitled to exchange their shares. (UAC Articles IV.8).
5. All UAC shareholders who are parties to the UAC Shareholders Agreement
waive rights of first refusal, inclusion, notice of transfer and right to
require sale of not less than all "Stock" under Article III of UAC Shareholders
Agreement. (Satisfied as of Execution Date)
6. Actions to be taken at special meeting of Series A Preferred
Stockholders and Common Stockholders or by proxy:
A. Holders of Series A Preferred Shares approve amendment to articles and
merger by 66-2/3% vote.
B. Holders of Common Stock approve amendment to articles and agreement and
plan of merger of UAC into AGI by majority vote.
7. UAC files certificates of amendment of articles with Nevada Secretary of
State.
8. UAC files articles of merger with Nevada Secretary of State.
9. UAC Series A Preferred Shareholders and Common Stockholders who do not
approve merger (and who had right to vote thereon) may have dissenters rights
under Nevada law.
I-71
<PAGE>
10. Merger of UAC into AGI triggers right of Zurich Depository Corporation
(or its assignee) to exercise its warrant.
Step 4: ATSI Merges into AGI. ATSI Options are Converted into AGI Options.
Minority ATSI Shareholders Receive AGI Common Stock at the Exchange Ratio
Set Forth in Schedule B to the Merger Agreement. ATSI Shares Held by AGI
are Canceled.
Actions by AGI
1. AGI Board waives in writing notice of special meeting. (Satisfied as of
the Execution Date)
2. By unanimous vote of all AGI directors, AGI Board takes following
actions at special meeting (which actions are taken as of the Execution Date):
A. Adopts, subject to shareholder approval, agreement and plan of merger of
ATSI into AGI.
B. Reserves AGI stock for holders of former ATSI options.
C. Authorizes officers to require exercise of former ATSI options that are
vested and UAC options that are non-qualified.
D. Calls special meeting of holders of AGI Preferred and Common Shares for
purpose of approving agreement and plan of merger of ATSI into AGI.
E. Sets record date for Shareholders entitled to notice and vote.
3. AGI gives Notice of Special Meeting to AGI Common Stockholders at
address on AGI's records, which sets forth place, date and hour of special
meeting and specific purpose of meeting.
4. AGI gives all shareholders notice of appraisal rights under DGCL 262
together with a copy of Section 262.
5. AGI shareholders approve amendments to articles of incorporation and
merger of ATSI into AGI by vote of holders of majority of Common Shares.
6. AGI files certificate of merger with Delaware Secretary of State.
7. AGI holders of Common Stock who do not vote for merger may have
appraisal rights under Delaware law.
Actions by ATSI
1. ATSI Board waives in writing notice of special meeting. (Satisfied as of
Execution Date).
2. ATSI Board takes following actions:
A. Adopts, subject to shareholder approval, agreement and plan of merger of
ATSI into AGI.
B. Adopts resolution providing for assumption of ATSI options by AGI and
providing that there shall be no acceleration of vesting unless Board,
acting through the Committee or as provided in the IM Merger Agreement
provides otherwise.
C. Calls special meeting of ATSI shareholders for purpose of approving
agreement and plan of merger of ATSI into AGI.
D. Sets record date for shareholders entitled to notice and vote.
3. ATSI gives Notice of Special Meeting to ATSI Stockholders.
4. ATSI gives shareholders notice of appraisal rights under DGCL 262
together with a copy of Section 262 not less than 20 days before the meeting.
5. ATSI shareholders approve merger of ATSI into AGI by majority vote.
6. ATSI files certificate of merger with Delaware Secretary of State.
I-72
<PAGE>
7. ATSI shareholders who do not vote for merger may have appraisal rights
under Delaware law.
8. Holders of UAC Series A Preferred Shares approve, by 66-2/3% vote,
merger of ATSI into AGI.
Step 5: AGI may Distribute Damson Interest to Holders of AGI Preferred
Shares.
1. AGI Board waives notice of special meeting. (Satisfied as of the
Execution Date).
2. By unanimous vote of all AGI Directors, AGI Board takes following
actions (satisfied as of the Execution Date):
A. Determines distribution in partial redemption of shares of Preferred
Stock is authorized under Delaware law in that following the distribution,
AGI will be able to pay its debts as they become due.
B. Sets record date for Preferred Shareholders entitled to distribution not
more than 60 days prior to the distribution.
3. AGI obtains waiver of right of first refusal and a consent to transfer
of more than 50% of Damson Interest from other Damson partners, including
General Partner.
4. AGI executes assignment of Damson Interest to each Preferred
Shareholder, or the Damson Interest is disposed of through other means.
I-73
<PAGE>
ANNEX II
UNITED ACQUISITION COMPANY
AMENDMENTS TO ARTICLES OF INCORPORATION
Article Sixth shall be amended to read in its entirety as follows:
SIXTH: The terms of the Series A Preferred Stock are as follows:
1. Designation and Amount: Voting. The shares of such series shall be
designated as the "Series A Preferred Stock" and the number of shares
constituting such series shall be 50,000. Except as otherwise required by
applicable law, the shares of Series A Preferred Stock shall be
non-voting.
2. Dividends.
(a) Dividends. Subject to the provisions hereof, the holders of the Series A
Preferred Stock shall be entitled to receive from the Corporation, and
the Corporation shall be obligated to pay to the holders of the Series A
Preferred Stock, cumulative dividends at the rate of 8% per annum on the
amount of the liquidation preference of $1,000 per share of such stock.
Any and all dividends payable by the Corporation pursuant to the
preceding sentence shall be declared quarterly, compounded and paid
annually on the last business day of December through the delivery to
the holders of the Series A Preferred Stock of that number of additional
shares of Series A Preferred Stock (the "PIK Shares") determined by
dividing the amount of the dividend due to each such holder by $1,000.
To the extent that such calculation yields fractional interests, the
Corporation shall pay the amount of such fractional interest in cash.
(b) Dividends on Capital Stock. Subject to the foregoing, dividends shall
accrue from the date of issuance of the Series A Preferred Stock (the
"Issuance Date") and shall be deemed to accrue from day to day whether
or not earned or declared. Further, except in connection with the merger
of Arcus Group, Inc. ("AGI") with and into Iron Mountain Incorporated
pursuant to that certain Agreement and Plan of Merger dated as of
September 26, 1997, as amended, by and among Iron Mountain Incorporated,
AGI, the Corporation, and Arcus Technology Services, Inc. and the
transactions contemplated by such Merger Agreement including without
limitation the UAC Warrant Repurchases and UAC Reorganization and ATSI
Reorganization, as defined therein (collectively, the "Iron Mountain
Merger"), such dividends shall be payable before any dividends shall be
paid, declared or set apart for any other class of the Corporation's
Stock, and shall be cumulative so that if for any dividend period such
dividends are not paid or declared and set apart therefor, all accrued
and unpaid dividends on the Series A Preferred Stock shall be paid, in
whole or in part (without interest), on the next succeeding dividend
payment date, except in connection with the Iron Mountain Merger. Until
all accrued and unpaid dividends on the Series A Preferred Stock shall
have been fully paid, no distribution, by dividend or otherwise, shall
be paid on, declared or set apart for any other class or series of stock
of the Corporation and no shares of any other class or series of stock
of the Corporation shall be acquired, directly or indirectly, by
redemption or otherwise. Furthermore, except in connection with the Iron
Mountain Merger, until all of the PIK Shares have been redeemed by the
Corporation pursuant to the procedure set forth in Section 4 of this
Article Sixth, no distribution, by dividend or otherwise, shall be paid
in cash on any other class or series of stock of the Corporation.
(c) Priority. Anything herein to the contrary notwithstanding, except in
connection with the Iron Mountain Merger, the Series A Preferred Stock
shall rank senior to all other series or classes of the Corporation's
Preferred Stock as to liquidation preferences and dividend rights.
II-1
<PAGE>
3. Liquidation Preference.
(a) Treatment at Liquidation, Dissolution or Winding Up. On any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
except in connection with the Iron Mountain Merger, the holders of the
Series A Preferred Stock shall receive, out of assets legally available
therefor, an amount equal to $1,000 per share, plus all accrued but
unpaid dividends thereon (whether or not such dividends have been
declared) to the date fixed for payment of such distributive amount
(the "Liquidation Preference"), before any amount shall be paid to the
holders of any other class of the Corporation's stock; provided, however,
that the Liquidation Preference in connection with the Iron Mountain
Merger shall equal $____*. In the event that the assets of the
Corporation are insufficient to permit full payment to the holders of the
Series A Preferred Stock as herein provided, then such assets shall be
distributed ratably according to liquidation preference among the
outstanding Series A Preferred Stock. After such payment shall have been
made in full to the holders of the Series A Preferred Stock or funds
necessary for such payment shall have been set aside by the Corporation
in trust for the account of holders of the Series A Preferred Stock so as
to be available for such payments, the holders of Series A Preferred
Stock shall be entitled to no further participation in the distribution
of the assets of the Corporation, and the remaining assets available for
distribution shall be distributed among the holders of other classes of
securities of the Corporation in accordance with their respective terms.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. Except in connection with the Iron Mountain Merger, any
reorganization, consolidation or merger of the Corporation, or a sale of
all or substantially all of the assets of the Corporation, shall be
regarded as a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this Section 3 of Article Sixth
unless as a consequence of such reorganization, consolidation or merger
those persons who held voting shares of the Corporation immediately
prior to such transaction (not including persons who cease to hold such
voting shares as a result of the merger of the Corporation with and into
such persons) hold a majority of the voting shares of and a majority of
the beneficial interest in the resulting or surviving corporation, in
which event such transaction shall not be regarded as a liquidation,
dissolution or winding up.
(c) Distributions Other than Cash. Except in connection with the Iron
Mountain Merger, whenever the distribution provided for in this Section
3 of Article Sixth shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such
property as determined in good faith by the Board of Directors of the
Corporation.
4. Redemption.
(a) In General. Except as otherwise specifically set forth herein and as
required by applicable law, the shares of the Series A Preferred Stock
are not redeemable by the Corporation.
(b) Redemption. The Corporation shall at its option redeem all, but not less
than all, of the PIK Shares at a redemption price per share equal to a
sum in cash equal to all accrued and unpaid dividends thereon to the date
fixed for redemption. No redemption shall be made pursuant to Section 4
of this Article Sixth, unless the redemption price shall be payable out
of funds legally available therefor and in such event the redemption
shall be made as soon as funds are legally available therefor.
(c) Notice of Redemption. Not less than 5 nor more than 10 days prior to the
date fixed for redemption (the "Redemption Date") pursuant to Section
4(b) of this Article Sixth, a notice specifying the time and place
thereof shall be delivered by the Corporation to holders of record of
the PIK Shares at their respective addresses as the same shall appear on
the stock books and records of the Corporation, but no failure to
- ------------
* This figure will be equal to $1,000 plus all accrued and unpaid dividends
thereon (whether or not such dividends have been declared) to the closing
of the Iron Mountain Merger reduced by an amount (not to exceed $50.00)
determined by the Corporation's Board of Directors according to the
following formula (including defined terms), which is set forth in detail
in the Joint Proxy Statement and Prospectus to be filed in connection with
the Iron Mountain Merger: the quotient of (i) the product of (A) $1,000
plus all accrued and unpaid dividends thereon (whether or not such
dividends have been declared) to the closing of the Iron Mountain Merger
and (B) the Expenses to be paid at or prior to the Closing by the Arcus
Parties (such amount is anticipated to be approximately $3.1 million)
divided by (ii) the Total Equity Consideration (before giving effect to the
Expenses discussed in clause (i)(B) above).
II-2
<PAGE>
mail such notice or defect therein shall affect the validity of the
proceedings for such redemption, except as to the holder to whom or which
the Corporation has failed to mail such notice or except as to the holder
whose notice was defective. Any notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether
or not the holder receives the notice.
(d) Closing of Redemption. On the Redemption Date, each holder of PIK Shares
shall surrender (and endorse if so required by the Board of Directors)
the certificates for the shares to be redeemed pursuant to Section 4(b)
of this Article Sixth and the Corporation shall pay each holder the
redemption price for such shares. On the Redemption Date (unless the
Corporation shall default in payment of the redemption price), the
holders of the PIK Shares to be redeemed on such date shall cease to be
stockholders of the Corporation with respect to (and only with respect
to) such PIK Shares.
5. No Reissuance of Series A Preferred Stock. No share or shares of Series A
Preferred Stock acquired by the Corporation by reason of redemption,
purchase, or otherwise shall be reissued, and the Corporation agrees to
place before the shareholders for a vote all actions necessary such that
all such shares shall be cancelled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may
from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series A
Preferred Stock accordingly.
6. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or as required by
law and except in connection with the Iron Mountain Merger, so long as
any shares of Series A Preferred Stock remain outstanding, the
Corporation shall not, and shall not permit any subsidiary (which shall
mean any corporation or trust of which the Corporation and/or any of its
other subsidiaries directly or indirectly owns at the time more than
fifty percent (50%) of the total voting power of such corporation or
trust, other than directors' qualifying shares) without the approval by
vote or written consent by the holders of at least sixty-six and two
thirds percent (66-2/3%) of the then outstanding shares of Series A
Preferred Stock, voting as a single separate class:
(i) to redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose), or declare and pay or
set aside funds for the payment of any dividend with respect to,
any share or shares of its capital stock, except as required or
permitted pursuant to Sections 2 and 4 hereof;
(ii) to authorize or issue, or obligate itself to authorize or issue,
additional shares of Series A Preferred Stock;
(iii) to authorize or issue, or obligate itself to authorize or issue, any
other equity security senior to or on parity with the Series A
Preferred Stock as to liquidation preferences or dividend rights,
or senior to the Series A Preferred Stock as to conversion rights
or voting rights;
(iv) to merge or consolidate with any other corporation, or sell, assign,
lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions) all,
or substantially all, of its assets (whether now owned or
hereinafter acquired), unless as a consequence of such a
transaction those persons who held all of the voting shares of the
Corporation immediately prior to such transaction hold a majority
of the voting shares of and a majority of the beneficial interest
in the resulting or surviving corporation; or
(v) to amend, restate, modify or alter the by-laws of the Corporation in
any way which adversely affects the rights of the holders of Series
A Preferred Stock.
(b) Amendment to Charter. These Articles of Incorporation shall not be
amended in any manner without the approval, by vote or written consent,
by the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the then outstanding shares of Series A Preferred Stock, voting as a
single class, if such amendment would adversely affect any of the
rights, preferences, privileges of, or limitations provided for in this
Article Sixth for the benefit of any shares of Series A Preferred Stock.
Without limiting the generality
II-3
<PAGE>
of the preceding sentence, the Corporation will not amend its Articles of
Incorporation without the approval by the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the then outstanding shares of Series
A Preferred Stock, voting as single classes, if such amendment would:
(i) change the relative seniority rights of the holders of any Series A
Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation; or
(ii) reduce the amount payable to the holders of Series A Preferred Stock
upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, or change the relative seniority of
the liquidation preferences of the holders of Series A Preferred
Stock to the rights upon liquidation of the holders of any other
capital stock of the Corporation or change the dividend rights of
the holders of Series A Preferred Stock.
7. No Dilution or Impairment. Except in connection with the Iron Mountain
Merger, the Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series A Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, except in connection with the Iron Mountain
Merger, the Corporation will not consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the
Corporation (if the Corporation is not the surviving person), unless such
other person shall expressly assume in writing and will be bound by all
the terms of the Series A Preferred Stock set forth herein.
8. Notices of Record Date. Except in connection with the Iron Mountain Merger;
in the event of:
(a) any taking by the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right;
(b) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person; or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, then and in each such event the Corporation shall mail
or cause to be mailed to each holder of Series A Preferred Stock a
notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right (ii) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up
is expected to become effective and (iii) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon
such reorganization , reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
II-4
<PAGE>
ANNEX III
ARCUS GROUP, INC.
AMENDMENTS TO THE
RESTATED CERTIFICATE OF INCORPORATION
Article IV of the Restated Certificate of Incorporation of the Corporation
shall be amended and restated as follows:
The total number of shares of stock which the Corporation shall have the
authority to issue itemized by class, series and par value, if any, is:
<TABLE>
<CAPTION>
Number of
Par Value Shares
Class Series Per Share Authorized
- ----------------- -------------- ----------- ------------
<S> <C> <C> <C>
Common ......... $.0001 100,000,000
Preferred ...... Undesignated $.0001 50,000
</TABLE>
The terms of the Preferred Stock are as follows:
SECTION 4.01 Voting. Except as otherwise required by applicable law, the
shares of Preferred Stock shall be nonvoting.
SECTION 4.02 Dividends.
(a) Dividends. Subject to the provisions hereof, the holders of the
Preferred Stock shall be entitled to receive from the Corporation, and
the Corporation shall be obligated to pay to the holders of the
Preferred Stock, cumulative dividends at the rate of 8% per annum on
the amount of the liquidation preference of $1,000 per share of such
stock. Any and all dividends payable by the Corporation pursuant to the
preceding sentence shall be declared quarterly, compounded and paid
annually on the last business day of December through the delivery to
the holders of the Preferred Stock of that number of additional shares
of Preferred Stock (the "PIK Shares") determined by dividing the amount
of the dividend due to each such holder by $1,000. To the extent that
such calculation yields fractional interests, the Corporation shall pay
the amount of such fractional interest in cash.
(b) Dividends on Capital Stock. Subject to the foregoing, dividends shall
accrue from the date of issuance of the Preferred Stock (the "Issuance
Date") and shall be deemed to accrue from day to day whether or not
earned or declared. Further, except in connection with the merger of
the Corporation with and into Iron Mountain Incorporated pursuant to
the terms of that certain Agreement and Plan of Merger dated as of
September 26, 1997, as amended (the "Merger Agreement"), by and among
Iron Mountain Incorporated, the Corporation, United Acquisition Company
and Arcus Technology Services, Inc. and the transactions contemplated
by such Merger Agreement, including without limitation, the UAC
Reorganization and the UAC Warrant Repurchases as defined therein
(collectively, the "Iron Mountain Merger"), such dividends shall be
payable before any dividends shall be paid, declared or set apart for
any other class of the Corporation's Stock, and shall be cumulative so
that if for any dividend period such dividends are not paid or declared
and set apart therefor, all accrued and unpaid dividends on the
Preferred Stock shall be paid, in whole or in part (without interest),
on the next succeeding dividend payment date, except in connection with
the Iron Mountain Merger. Until all accrued and unpaid dividends on the
Preferred Stock shall have been fully paid, no distribution, by
dividend or otherwise, shall be paid on, declared or set apart for any
other class or series of stock of the Corporation and no shares of any
other class or series of stock of the Corporation shall be acquired,
directly or indirectly, by redemption or otherwise. Furthermore, except
in connection with the Iron Mountain Merger, until all of the PIK
Shares have been redeemed by the Corporation pursuant to the procedure
set forth in Section 4.04, no distribution, by dividend or otherwise,
shall be paid in cash on any other class or series of stock of the
Corporation.
III-1
<PAGE>
(c) Priority. Anything herein to the contrary notwithstanding, except in
connection with the Iron Mountain Merger, the Preferred Stock shall
rank senior to all other series or classes of the Corporation's
Preferred Stock as to liquidation preferences and dividend rights.
SECTION 4.03 Liquidation Preference.
(a) Treatment at Liquidation, Dissolution or Winding Up. On any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
except in connection with the Iron Mountain Merger, the holders of the
Preferred Stock shall receive, out of assets legally available therefor,
an amount equal to $1,000 per share, plus all accrued but unpaid
dividends thereon (whether or not such dividends have been declared) to
the date fixed for payment of such distributive amount (the "Liquidation
Preference"), before any amount shall be paid to the holders of any other
class of the Corporation's stock; provided, however, that the Liquidation
Preference in connection with the Iron Mountain Merger shall equal $____.
In the event that the assets of the Corporation are insufficient to
permit full payment to the holders of the Preferred Stock as herein
provided, then such assets shall be distributed ratably according to
liquidation preference among the outstanding Preferred Stock. After such
payment shall have been made in full to the holders of the Preferred
Stock or funds necessary for such payment shall have been set aside by
the Corporation in trust for the account of holders of the Preferred
Stock so as to be available for such payments, the holders of Preferred
Stock shall be entitled to no further participation in the distribution
of the assets of the Corporation, and the remaining assets available for
distribution shall be distributed among the holders of other classes of
securities of the Corporation in accordance with their respective terms.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. Any reorganization, consolidation or merger of the Corporation,
or a sale of all or substantially all of the assets of the Corporation,
shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of Section 4.03 unless as
a consequence of such reorganization, consolidation or merger those
persons who held all of the voting shares of the Corporation
immediately prior to such transaction (not including persons who cease
to hold such voting shares as a result of the merger of the Corporation
with and into such persons) hold a majority of the voting shares of and
a majority of the beneficial interest in the resulting or surviving
corporation, in which event such transaction shall not be regarded as a
liquidation, dissolution or winding up; provided, however, that in
connection with the Iron Mountain Merger, holders of Preferred Stock
shall receive the consideration specified therefor in the Merger
Agreement.
(c) Distributions Other than Cash. Except in connection with the Iron
Mountain Merger, whenever the distribution provided for in this Section
4.03 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation.
SECTION 4.04 Redemption.
(a) In General. Except as otherwise specifically set forth herein and as
required by applicable law, the shares of the Preferred Stock are not
redeemable by the Corporation.
(b) Redemption. The Corporation shall at its option redeem all, but not less
than all, of the PIK Shares at a redemption price per share equal to a
sum in cash equal to all accrued and unpaid dividends thereon to the
date fixed for redemption. No redemption shall be made pursuant to
Section 4.04, unless the redemption price shall be payable out of funds
legally available therefor and in such event the redemption shall be
made as soon as funds are legally available therefor.
- ------------
* This figure will be equal to $1,000 plus all accrued and unpaid dividends
thereon (whether or not such dividends have been declared) to the closing
of the Iron Mountain Merger reduced by an amount (not to exceed $50.00)
determined by the Corporation's Board of Directors according to the
following formula (including defined terms), which is set forth in detail
in the Joint Proxy Statement and Prospectus to be filed in connection with
the Iron Mountain Merger: the quotient of (i) the product of (A) $1,000
plus all accrued and unpaid dividends thereon (whether or not such
dividends have been declared) to the closing of the Iron Mountain Merger
and (B) the Expenses to be paid at or prior to the Closing by the Arcus
Parties (such amount is anticipated to be approximately $3.1 million)
divided by (ii) the Total Equity Consideration (before giving effect to the
Expenses discussed in clause (i)(B) above).
III-2
<PAGE>
(c) Notice of Redemption. Not less than 5 nor more than 10 days prior to
the date fixed for redemption (the "Redemption Date") pursuant to
Section 4.04(b), a notice specifying the time and place thereof shall
be delivered by the Corporation to holders of record of the PIK Shares
at their respective addresses as the same shall appear on the stock
books and records of the Corporation, but no failure to mail such
notice or defect therein shall affect the validity of the proceedings
for such redemption, except as to the holder to whom or which the
Corporation has failed to mail such notice or except as to the holder
whose notice was defective. Any notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether
or not the holder receives the notice.
(d) Closing of Redemption. On the Redemption Date, each holder of PIK
Shares shall surrender (and endorse if so required by the Board of
Directors) the certificates for the shares to be redeemed pursuant to
Section 4.04(b) and the Corporation shall pay each holder the
redemption price for such shares. On the Redemption Date (unless the
Corporation shall default in payment of the redemption price), the
holders of the PIK Shares to be redeemed on such date shall cease to be
stockholders of the Corporation with respect to (and only with respect
to) such PIK Shares.
SECTION 4.05 No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
or otherwise shall be reissued, and the Corporation agrees to place before the
shareholders for a vote all actions necessary such that all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Preferred Stock accordingly.
SECTION 4.06 Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or as required by
law or in connection with the Iron Mountain Merger, so long as any
shares of Preferred Stock remain outstanding, the Corporation shall
not, and shall not permit any subsidiary (which shall mean any
corporation or trust of which the Corporation and/or any of its other
subsidiaries directly or indirectly owns at the time more than fifty
percent (50%) of the total voting power of such corporation or trust,
other than directors' qualifying shares) without the approval by vote
or written consent by the holders of at least sixty-six and two-thirds
percent (66-2/3 %) of the then outstanding shares of Preferred Stock,
voting as a single separate class:
(i) to redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose), or declare and pay
or set aside funds for the payment of any dividend with respect to,
any share or shares of its capital stock, except as required or
permitted pursuant to Sections 4.02 and 4.04 hereof;
(ii) to authorize or issue, or obligate itself to authorize or issue,
additional shares of Preferred Stock;
(iii) to authorize or issue, or obligate itself to authorize or issue,
any other equity security senior to or on parity with the Preferred
Stock as to liquidation preferences or dividend rights, or senior to
the Preferred Stock as to conversion rights or voting rights;
(iv) to merge or consolidate with any other corporation, or sell, assign,
lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter
acquired), unless as a consequence of such a transaction those
persons who held all of the voting shares of the Corporation
immediately prior to such transaction hold a majority of the voting
shares of and a majority of the beneficial interest in the resulting
or surviving corporation; or
(v) to amend, restate, modify or alter the by-laws of the Corporation in
any way which adversely affects the rights of the holders of
Preferred Stock.
(b) Amendment to Charter. The Certificate of Incorporation shall not be
amended in any manner without the approval, by vote or written consent,
by the holders of record as of the record date for such approval of at
least sixty-six and two-thirds percent (66-2/3%) of the then
outstanding shares of Preferred Stock, voting as
III-3
<PAGE>
a single class, if such amendment would adversely affect any of the
rights, preferences, privileges of, or limitations provided for in this
Article IV for the benefit of any shares of Preferred Stock. Without
limiting the generality of the preceding sentence, the Corporation will
not amend its Certificate of Incorporation without the approval by the
holders of record as of the record date for such approval of at least
sixty-six and two-thirds percent (66-2/3%) of the then outstanding
shares of Preferred Stock, voting as a single class, if such amendment
would:
(i) change the relative seniority rights of the holders of any Preferred
Stock as to the payment of dividends in relation to the holders of
any other capital stock of the Corporation; or
(ii) reduce the amount payable to the holders of Preferred Stock upon the
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, or change the relative seniority of the liquidation
preferences of the holders of Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the
Corporation or change the dividend rights of the holders of
Preferred Stock.
SECTION 4.07 No Dilution or Impairment. Except in connection with the Iron
Mountain Merger, the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Preferred Stock set forth herein, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders of
the Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, except in connection with the Iron Mountain
Merger, the Corporation will not consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the
Corporation (if the Corporation is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all the terms of
the Preferred Stock set forth herein.
SECTION 4.08 Notices of Record Date. Except in connection with the Iron
Mountain Merger; in the event of:
(a) any taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right;
(b) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person; or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, then and in each such event the Corporation shall mail
or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of
such dividend, distribution or right (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
The first paragraph of Section 11.01 of Article XI of the Restated
Certificate of Incorporation of the Corporation shall be amended and restated
as follows:
Section 11.01 Certain Restrictions on the Transfer of Stock. In order to
preserve for a period of time the net operating loss carryovers, capital loss
carryovers, and business credit carryovers (the "Tax Benefits") to which
III-4
<PAGE>
the Corporation is entitled pursuant to the Internal Revenue Code of 1986, as
amended, or any successor statute (collectively, the "Code") and the
regulations thereunder, the following restrictions shall apply, except in
connection with the Iron Mountain Merger, until December 31, 1998, unless the
Board of Directors shall fix an earlier or later date in accordance with
Section 11.07 of this Article XI (such date is sometimes referred to herein as
the "Expiration Date"):
III-5
<PAGE>
ANNEX IV
ARTICLE XIII
Restrictions on Transfer of Certain Shares of Capital Stock of the Corporation
Section 1. Restrictions on Transfer. Except as otherwise allowed by the
Board of Directors of the Corporation in its sole discretion, until the earlier
of (i) the first anniversary of the effective date (the "Effective Time") under
the Agreement and Plan of Merger, dated as of September 26, 1997, as amended, by
and among the Corporation, Arcus Group, Inc. ("AGI"), United Acquisition Company
("UAC") and Arcus Technology Services, Inc. ("ATSI," and together with AGI and
UAC, the "Arcus Parties") (as amended, the "Merger Agreement"), or (ii) the date
on which a Transfer (as such term is hereinafter defined in this Article XIII)
may be effected in a manner that the Corporation reasonably determines does not
adversely affect the tax-free nature of the Merger (as such term is defined in
the Merger Agreement) under Section 368(a) of the Internal Revenue Code of 1986,
as amended, any Person who receives any shares of Common Stock of the
Corporation issued pursuant to the Merger Agreement (the "Merger Securities")
shall not Transfer, and the Corporation shall not be required to register the
Transfer of, such Merger Securities. The term "Transfer" means any indirect or
direct transfer, offer to sell, sale, assignment, grant of an option to acquire,
pledge, or other disposition; provided, however, that a Transfer by a
partnership or a limited liability company to its partners or members, which
Transfer is to all partners or members in proportion to their interests in such
partnership or limited liability company, shall be permissible except that the
Merger Securities so Transferred shall continue to be subject to the
restrictions on transfer set forth in this Article XIII; provided further that
the provisions of this section shall not apply to Merger Securities to the
extent such Merger Securities were issued in exchange for shares of common stock
of AGI of any Person who received such shares pursuant to the exercise of an
option as a result of the application of Section 5.10 of the Merger Agreement.
Section 2. Legend on Stock Certificates. The Corporation shall note on the
certificates for the Merger Securities issued upon the Merger or upon any
Transfer thereof that the shares represented by such certificates are subject
to the restrictions on transfer and registration of transfer imposed in this
Article XIII.
IV-1
<PAGE>
ANNEX V
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of September 26, 1997, among (i) Iron
Mountain Incorporated, a Delaware corporation ("Acquiror"), (ii) those
stockholders of Arcus Group, Inc., a Delaware corporation ("AGI"), signatory
hereto (the "Initial AGI Stockholders"), including, without limitation, GKH
Investments, L.P., a Delaware limited partnership ("GKH Investments"), GKH
Partners L.P., a Delaware limited partnership ("GKH Partners"), GKH Partners
L.P. as Nominee of GKH Private Limited, a Singapore corporation ("GKH
Private"), Hudson River Capital LLC (f/k/a "Forschner Enterprises Inc."), a
Delaware limited liability company ("Hudson"), and Clarke H. Bailey ("Bailey"),
(iii) those stockholders of United Acquisition Company, a Nevada corporation
("UAC"), signatory hereto (the "Initial UAC Stockholders"), including, without
limitation, GKH Investment, GKH Private, Hudson, and AGI, (iv) those
stockholders of Arcus Technology Services, Inc., a Delaware corporation ("ATSI"
and together with AGI and UAC, the "Companies"), signatory hereto (the "Initial
ATSI Stockholder" and together with the Initial AGI Stockholders and the
Initial UAC Stockholders, the "Initial Stockholders"), including, without
limitation, UAC, and (v) those other stockholders of the Companies which have
become party hereto by execution of an instrument in accordance with Section
6.8 hereof (the "Additional Stockholders" and, together with the Initial
Stockholders, the "Stockholders").
W I T N E S S E T H:
WHEREAS, each of the Initial AGI Stockholders is the beneficial and record
owner of the shares of Common Stock, $.0001 par value per share (the "AGI
Stock"), of AGI, set forth opposite each such Initial AGI Stockholder's name on
Schedule A-1;
WHEREAS, each of the Initial UAC Stockholders is the beneficial and record
owner of the shares of Common Stock, $.01 par value per share (the "UAC Common
Stock"), of UAC and/or shares of the Series A Preferred Stock, $.01 par value
per share (the "UAC Series A Preferred"), of UAC, set forth opposite each such
Initial UAC Stockholder's name on Schedule A-2;
WHEREAS, the Initial ATSI Stockholder is the beneficial and record owner
of the shares of Common Stock, $.01 par value per share (the "ATSI Stock"), of
ATSI, set forth opposite each such Initial ATSI Stockholder's name on Schedule
A-3;
WHEREAS, concurrently with the execution of this Agreement, Acquiror, AGI,
UAC and ATSI are entering into an Agreement and Plan of Merger (as such
agreement may be amended, modified, supplemented and in effect from time to
time, the "Merger Agreement") pursuant to which (i) UAC is required to merge
with and into AGI, with AGI as continuing as the surviving corporation, (ii)
ATSI is required to merge with and into AGI, with AGI continuing as the
surviving corporation and (iii) AGI will merge (the "Merger") with and into
Acquiror, with Acquiror continuing as the surviving corporation; and
WHEREAS, in order to induce Acquiror to enter into the Merger Agreement,
the Stockholders wish to make certain representations, warranties, covenants
and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
V-1
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used herein but not otherwise defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement and the following terms shall have the following meanings:
"Additional Stockholders" shall have the meaning set forth in the opening
paragraph of this Agreement.
"Acquiror" shall have the meaning set forth in the opening paragraph of
this Agreement.
"AGI" shall have the meaning set forth in the opening paragraph of this
Agreement.
"AGI Stock" shall have the meaning set forth in the first recital of this
Agreement.
"ATSI" shall have the meaning set forth in the opening paragraph of this
Agreement.
"ATSI Stock" shall have the meaning set forth in the third recital of this
Agreement.
"beneficially own" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"Companies" shall have the meaning set forth in the opening paragraph of
this Agreement.
"Companies Stock" shall mean, collectively, AGI Stock, UAC Common Stock,
UAC Series A Preferred and ATSI Stock.
"Controlled Affiliate" shall mean, with respect to any Person, (a) any
other Person at the time directly or indirectly controlled by such Person, (b)
any other Person of which such Person at the time owns, or has the right to
acquire, directly or indirectly, thirty percent (30%) or more of any class of
the capital stock or beneficial interest, (c) any executive officer or director
of such Person and (d) when used with respect to an individual, shall include
any member of such individual's immediate family or a family trust.
"Equity Securities" shall have the meaning set forth in Rule 405 under the
Securities Act.
"GKH Investments" shall have the meaning set forth in the opening
paragraph of this Agreement.
"GKH Partners" shall have the meaning set forth in the opening paragraph
of this Agreement.
"Hudson" shall have the meaning set forth in the opening paragraph of this
Agreement.
"Initial AGI Stockholders" shall have the meaning set forth in the opening
paragraph of this Agreement.
"Initial ATSI Stockholders" shall have the meaning set forth in the
opening paragraph of this Agreement.
"Initial Stockholders" shall have the meaning set forth in the opening
paragraph of this Agreement.
"Initial UAC Stockholders" shall have the meaning set forth in the opening
paragraph of this Agreement.
"Merger" shall have the meaning set forth in the fourth recital of this
Agreement.
"Merger Agreement" shall have the meaning set forth in the fourth recital
of this Agreement and shall be deemed to include the Schedules thereto.
"Proxy Statement" shall have the meaning set forth in Section 2.1(d).
"Related Transaction" shall mean a transaction that is in contemplation
of, or related or pursuant to, the Merger or the Merger Agreement.
"Restricted Stockholder" shall mean any Stockholder that, individually or
together with its Affiliates, beneficially owns, or is a member of a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) that beneficially
owns, 5% or more of Acquiror Stock.
"Stockholder Disclosure Letter" shall have the meaning set forth in
Section 2.1(a).
"Stockholders" shall have the meaning set forth in the opening paragraph
of this Agreement.
V-2
<PAGE>
"Third Party" shall mean a party or parties unaffiliated with either the
Companies or Acquiror.
"UAC" shall have the meaning set forth in the opening paragraph of this
Agreement.
"UAC Common Stock" shall have the meaning set forth in the second recital
of this Agreement.
"UAC Series A Preferred" shall have the meaning set forth in the second
recital of this Agreement.
"Voting Securities" shall have the meaning set forth in Rule 405 under the
Securities Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
2.1 Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants, severally but not jointly, to Acquiror as follows:
(a) Ownership of Companies Stock. Except as disclosed in Section 2.1(a) of
the letter from the Stockholders to Acquiror, dated the date hereof or the date
such Stockholder becomes party hereto (the "Stockholder Disclosure Letter"),
such Stockholder is the beneficial owner of the shares of Companies Stock set
forth opposite such Stockholder's name on Schedule A-1, Schedule A-2 and/or
Schedule A-3, as the case may be, free and clear of all Liens and, except for
this Agreement, the Merger Agreement (which for purposes of this Section 2.1(a)
shall be deemed not to include the Disclosure Schedule), the Warrants listed on
Schedule B, any agreement by a holder of such Warrants to resell a portion of
its Warrants to UAC as set forth in Schedule C to the Merger Agreement, the
Warrant Agreements pursuant to which such Warrants were issued or as otherwise
set forth in Section 2.1(a) of the Stockholder Disclosure Letter, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character to which such Stockholder is a party relating to the pledge,
disposition or voting of any shares of the Companies Stock that are owned by
such Stockholder, and there are no voting trusts or voting agreements with
respect to such shares. The shares of Companies Stock set forth opposite such
Stockholder's name on Schedule A-1, Schedule A-2 and/or Schedule A-3, as the
case may be, constitute all of the outstanding shares of capital stock of the
Companies owned beneficially or of record by such Stockholder and such
Stockholder does not have any options, warrants or other rights to acquire any
additional shares of capital stock of the Companies or any security exercisable
or exchangeable for, or convertible into, shares of capital stock of the
Companies other than as set forth on Schedule A-1, Schedule A-2, Schedule A-3
and/or Schedule B, as the case may be.
(b) Authority to Execute and Perform Agreements. Such Stockholder has the
full legal right and power and all authority required to enter into, execute
and deliver this Agreement and to perform fully such Stockholder's obligations
hereunder. The execution and delivery of this Agreement by such Stockholder
have been duly authorized by all requisite organizational action, if any, on
the part of such Stockholder. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of such
Stockholder enforceable against such Stockholder in accordance with its terms
(subject to the Enforceability Exceptions).
(c) No Conflicts; Consents. (i) Except as set forth in Section 2.1(c) of
the Stockholder Disclosure Letter, the execution and delivery by such
Stockholder of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of or
default (with or without notice or lapse of time, or both) under (A) any
contract, agreement or other binding arrangement to which such Stockholder is a
party or (B) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator applicable to such
Stockholder.
(ii) Except as set forth in Section 2.1(c) of the Stockholder Disclosure
Letter, no Governmental Authorizations or Private Authorizations are required
to be obtained or made by such Stockholder in connection with the execution and
delivery by such Stockholder of this Agreement and the consummation of the
transactions contemplated hereby.
(d) Information Supplied. None of the information specifically supplied or
to be supplied by such Stockholder with respect to such Stockholder for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities
V-3
<PAGE>
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) the proxy statement to be delivered to all
stockholders of the Companies (the "Proxy Statement") will, at the date the
Proxy Statement is first mailed to the Companies' stockholders and at the time
of the special meeting of Companies' stockholders for the purpose of voting on
the Merger Agreement, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
(e) Investigation. Such Stockholder has had a full opportunity to review
and discuss this Agreement, the Escrow Agreement and the Merger Agreement
(including, without limitation, with respect to the representations and
warranties in the Merger Agreement and the related Disclosure Schedule) and to
ask all questions of the Companies and their respective directors and executive
officers necessary in order for such Stockholder to make an informed decision
to enter into this Agreement.
ARTICLE III
COVENANTS
3.1 No Disposition or Acquisition of Shares. Each Stockholder agrees that,
except as set forth in Section 3.1 of the Stockholder Disclosure Letter, such
Stockholder shall not, without the prior written consent of Acquiror (such
consent not to be unreasonably withheld), sell, transfer, pledge, hypothecate,
encumber or otherwise dispose of (except upon such Stockholder's death), or
enter into any contract, option or other arrangement or understanding with
respect to the sale, transfer, pledge, hypothecation, encumbrance or other
disposition of, any of the shares of Companies Stock set forth opposite his,
her or its name on Schedule A-1, Schedule A-2 and/or Schedule A-3, as the case
may be. Each Stockholder agrees that, promptly after the execution and delivery
of this Agreement by the parties hereto, the certificates representing the
shares of Companies Stock owned by him shall bear a legend indicating that such
shares are subject to this Agreement, which legend may be removed upon
termination of this Agreement.
3.2 Voting Arrangements. Each of the Stockholders agrees that, except
pursuant to this Agreement, he, she or it shall not grant any proxies, deposit
any shares of Companies Stock into a voting trust or enter into any voting
agreement with respect to any shares of Companies Stock now or hereafter owned,
beneficially or of record, by him, other than proxies to vote such shares at
any annual or special meetings of stockholders of the Companies on matters
unrelated to the matters set forth in Section 4.1 hereof.
3.3 Satisfaction of Conditions to the Merger. Each of the Stockholders
agrees that each, in his, her or its capacity as a Stockholder, shall assist
and cooperate with the parties to the Merger Agreement in doing all things
necessary, proper or advisable under Applicable Laws as promptly as practicable
to consummate and make effective the Merger and the other Transactions
(including, without limitation, any element of the Reorganization which
requires the vote or approval of such Stockholder under Applicable Law) and
each of them shall not take any action that would or is reasonably likely to
result in any of its representations and warranties set forth in this Agreement
being untrue as of the date made or in any of the conditions set forth in
Article 6 of the Merger Agreement not being satisfied. Without limiting the
generality of the foregoing, GKH Investment, GKH Partners, GKH Private and
Hudson each hereby agree to take all action and do all things necessary, proper
or advisable under Applicable Law (i) to accept UAC's assignment of Connected
Stock and UAC's rights under the Connected Co-Sale Agreement and (ii) to accept
AGI's assignment of a Damson Interest, each in the manner set forth in Schedule
C to the Merger Agreement.
3.4 No Solicitation. Each Stockholder agrees that he, she or it shall not,
nor shall he, she or it permit any of such Stockholder's Representatives
(including, without limitation, any investment banker, attorney or accountant
retained by such Stockholder) to, initiate, solicit or facilitate, directly or
indirectly, any inquiries or the making of any proposal with respect to an
Other Transaction, engage in any discussions or negotiations concerning, or
provide to any other Person any information or data relating to such
Stockholder for the purposes of, or otherwise cooperate in any way with or
assist or participate in, or facilitate any inquiries or the making of any
proposal which constitutes,
V-4
<PAGE>
or may reasonably be expected to lead to, a proposal to seek or effect an Other
Transaction, or agree to or endorse any Other Transaction; provided, however,
that nothing contained in this Section shall prohibit any Stockholder, if such
Stockholder is a member of the Board of Directors of one or more of the
Companies, from, prior to the approval of the Merger Agreement, the
Reorganization and the Transactions by the stockholders of the Companies,
engaging in discussions or negotiations with, and furnishing information
concerning the Arcus Entities and their business, properties and assets to, a
third party who, without any solicitation, initiation, encouragement,
discussion or negotiation, directly or indirectly, by or with such Stockholder
or the Companies or any Representatives of such Stockholder or the Companies or
in furtherance thereof, makes a written, bona fide proposal regarding an Other
Transaction that is not subject to any material contingencies relating to
financing and that is reasonably capable of being financed and is financially
superior to the consideration to be received by the stockholders of the
Companies pursuant to the Merger (as determined in good faith by the Board of
Directors of each of the Companies after consultation with the Companies'
financial advisors) if (1) the Boards of Directors of the Companies determine
in their good faith, after receipt of written advice of the Companies' outside
legal counsel, that such action is advisable for the Boards of Directors of the
Companies to act in a manner consistent with their fiduciary duties under
Applicable Law and (2) prior to furnishing information with respect to the
Arcus Entities to such third party, such Stockholder and/or the Companies shall
have received from such third party an executed confidentiality agreement in
reasonably customary form on terms not more favorable to such Person or entity
than the terms contained in the Confidentiality Agreement. Each Stockholder
shall promptly advise Acquiror of, and communicate the material terms of, any
proposal such Stockholder may receive, or any inquiries such Stockholder
receives which may reasonably be expected to lead to such a proposal relating
to an Other Transaction, and the identity of the Person making it. Each
Stockholder shall further advise Acquiror of the status and changes in the
material terms of any such proposal or inquiry (or any amendment to any of
them). During the term of this Agreement, each Stockholder agrees that he, she
or it shall not enter into any agreement, oral or written, and whether or not
legally binding, with any Person that provides for, or in any way facilitates,
an Other Transaction, or affects any other obligation of the other Stockholders
under this Agreement.
3.5 Standstill. (a) Each of GKH Investments, GKH Partners, GKH Private and
Hudson agrees that, (i) from the date hereof until the Closing Date and (ii)
from and after the Closing Date for so long as it shall be a Restricted
Stockholder, it shall not, and shall use his, her or its best efforts to cause
his, her or its Controlled Affiliates not to, without the prior written consent
of Acquiror, (A) in any manner acquire, agree to acquire or make any proposal
to acquire, directly or indirectly, any Equity Securities of Acquiror or any
rights or options to acquire such Equity Securities (other than the shares of
Acquiror Stock received by it in the Merger or any related transaction,
including upon the exercise of options), (B) propose to enter into, directly or
indirectly, a merger or other business combination involving Acquiror or
propose to purchase, directly or indirectly, a material portion of the assets
of Acquiror, (C) make, or in any way participate, directly or indirectly, in,
any "solicitation" of "proxies" (as such terms are used in Regulation 14A under
the Exchange Act) to vote or consent or seek to advise or influence any Person
with respect to the voting of, or granting of a consent with respect to, any
Voting Securities of Acquiror, (D) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) for the
purpose of acquiring, holding, voting or disposing of any Equity Securities of
Acquiror, (E) otherwise act, alone or in concert with others, to seek to
control or influence in any public manner or public forum the management or
policies of Acquiror; provided, however, that the foregoing shall not limit the
ability to vote any shares of any Equity Securities of Acquiror, (F) disclose
any intention, plan or arrangement inconsistent with the foregoing, (G) advise,
assist (including by knowingly providing or arranging financing for that
purpose) or encourage any other Person in connection with any of the foregoing,
(H) take any action which might require Acquiror to make a public announcement
regarding the possibility of a transaction between such Stockholder and
Acquiror or (I) sell, transfer, pledge, encumber or otherwise dispose of
(including any "short sales" or derivative transactions) any Equity Securities
of Acquiror or any rights or options to acquire such Equity Securities in any
case where such Restricted Stockholder sells more than 3% of any class or
series of Equity Securities of Acquiror to a Person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act).
(b) The terms and provisions of Section 3.5(a) notwithstanding, nothing in
this Agreement shall prohibit a Restricted Stockholder from
V-5
<PAGE>
(i) acquiring, agreeing to acquire or making any proposal to acquire,
directly or indirectly, Equity Securities of Acquiror or any rights or
options to acquire such Equity Securities from another Restricted
Stockholder, or
(ii) selling, distributing or otherwise transferring Equity Securities of
Acquiror or any rights or options to acquire such Equity Securities if (A)
such Restricted Stockholder is a partnership or limited liability company
and such sale, distribution or other transfer is to the partners of such
partnership or members of such limited liability company and (B) such sale,
distribution or other transfer is made to all partners of such partnership
or all members in such limited liability company in proportion to their
interests in such partnership or limited liability company.
3.6 Disclosure; Non-Competition.
(a) Except with the prior written consent of Acquiror, for a period of
three (3) years from the Closing Date, each of the Stockholders shall not
disclose or make available, directly or indirectly, to others or use for his,
her or its or others' benefit confidential information, whether or not reduced
to written or other recorded form, of the Companies, Acquiror and their
respective subsidiaries, including, without limitation, the names of customers,
the contact persons at customers, pricing, the software programs utilized by
the Companies, Acquiror and their respective subsidiaries in the operation of
their business and all other information material to the operation, management,
marketing or financing of the Companies, Acquiror and their respective
subsidiaries which is not known or generally available to the public or
competitors in the records management, records storage, electronic records
management (including, without limitation, storage of and related disaster
recovery services for computer media), information technology personnel
staffing businesses or industries (the "Restricted Business").
The confidentiality obligations of this Section shall not apply to
information:
(i) which is required to be disclosed by judicial or administrative
process or order, or by other requirements of law;
(ii) which is or becomes generally available to the public other than as
a result of a breach of this Section;
(iii) which is received from a third party who obtained such information
other than under an obligation of confidentiality; or
(iv) which Acquiror discloses on a nonconfidential basis or otherwise
makes available to the general public or the trade.
(b) Each of the Stockholders agrees that he, she or it shall not, for a
period of three (3) years from the Closing Date, directly or indirectly own,
manage, engage in, participate in, provide consulting services to, be employed
by or have a financial interest in, or solicit or attempt to obtain business
from any customer of Acquiror, the Companies, or any of their respective
subsidiaries on behalf of, any enterprise which is engaged in any Restricted
Business in the United States of America, its territories and possessions
(including, without limitation, those businesses or business facilities located
in any jurisdiction in which Acquiror, the Companies and their respective
subsidiaries operate) (collectively, the "Restricted Territory"); provided,
however, that nothing in this Section 3.6(b) shall be deemed to prohibit (i) a
Stockholder's ownership of Acquiror Stock, (ii) Hudson's ownership of an equity
interest in Staffing Resources, Inc. or (iii) Clarke H. Bailey from serving as
a director of Acquiror or any of its subsidiaries.
This Section 3.6(b) shall not prohibit any Stockholder from acquiring up
to five percent (5%) of any class of securities registered pursuant to the
Exchange Act of any corporation which is engaged in any Restricted Business in
the Restricted Territory.
(c) Each Stockholder agrees that he, she or it shall not on his, her or
its own behalf, or on behalf of any other Person under his, her or its control,
or on behalf of others, for a period of three years from the Closing Date,
directly or indirectly, solicit for employment (including as an independent
contractor), or endeavor to entice away, any of the officers, employees or
independent contractors of Acquiror, the Companies or their respective
subsidiaries.
V-6
<PAGE>
(d) Each Stockholder acknowledges that he, she or it has carefully read
all the terms herein stated and agrees that the same are necessary for the
reasonable and proper protection of the value of the Companies; and that each
and every covenant is reasonable with respect to such matter, length of time,
and the geographical areas described; and that irrespective of all other
conditions, the covenants and restrictions hereinabove provided shall be
operative during the full period and throughout the geographical area
described. In the event any court finds any such restraint or limitation to be
unreasonable, then it is the intent of the parties that such court should
determine the maximum restraint or limitation which is reasonable and
enforcement will be of that restraint or limitation.
(e) Each Stockholder acknowledges that confidential information in his,
her or its possession related to the Companies has particular value, the loss
of confidentiality of which by communication to unauthorized persons cannot be
reasonably or adequately compensated for by damages alone. Moreover, each of
the Stockholders agrees that any breach of paragraphs (a), (b) and (c) of this
Section 3.6 would give rise to damages which would be difficult to calculate.
Therefore, the parties hereby agree that in the event of a breach of any of the
terms and conditions of this Section 3.6, Acquiror shall be entitled to
equitable relief by way of an injunction. This Section 3.6 shall not be
construed as a limitation upon Acquiror's remedies for such breach.
ARTICLE IV
PROXY; CONVERSION; ELECTIONS; WAIVER OF RIGHTS
4.1 Proxy. Each of the Stockholders hereby agrees, at any meetings of the
stockholders of the Companies, however called, and at every adjournment
thereof, and in any actions by written consent of the stockholders of the
Companies, to (a) vote all of the shares of Companies Stock then owned,
beneficially or of record, by it in favor of the adoption of the Merger
Agreement as in effect on the date hereof (as such agreement may be amended (1)
as contemplated by Section 7.3 of the Merger Agreement or (2) with the consent
of such Stockholder) and each of the other transactions contemplated thereby
and any action required in furtherance thereof (including, without limitation,
any element of the Reorganization which requires the vote or approval of such
Stockholder under Applicable Law, a Company's Organic Documents or as otherwise
set forth in Schedule C to the Merger Agreement), (b) vote such shares against
any action or agreement that would result in a breach in any material respect
of any covenant, representation or warranty or any other obligation of the
Companies under the Merger Agreement, and (c) vote such shares against any
Other Transaction or any other action or agreement that, directly or
indirectly, is inconsistent with or that would, or is reasonably likely to,
directly or indirectly, impede, interfere with or attempt to discourage the
Merger or any other transaction contemplated by the Merger Agreement,
including, but not limited to (i) any extraordinary corporate transaction
(other than the Merger and the Reorganization on the terms set forth in the
Merger Agreement), such as a merger, consolidation, business combination,
reorganization, recapitalization or liquidation involving the Companies, (ii) a
sale or transfer of a material amount of assets of any of the Companies, or
(iii) any material change in the Companies' corporate structure or business;
provided, however, that, if any Stockholder is a member of the Board of
Directors of one of the Companies, nothing herein shall be construed to
obligate such Stockholder or representative to act in his, her or its capacity
as a director in any manner inconsistent with or which may conflict with such
Person's fiduciary duties as a director of such Company.
In furtherance of the foregoing, (i) each of the Stockholders hereby
appoints Acquiror and the proper officers of Acquiror, and each of them, with
full power of substitution in the premises, its proxies to vote all his, her or
its shares of Companies Stock at any meeting, general or special, of the
stockholders of the Companies, and to execute one or more written consents or
other instruments from time to time in order to take such action without the
necessity of a meeting of the stockholders of the Companies, in accordance with
the provisions of the preceding paragraph and (ii) Acquiror hereby agrees to
vote such shares or execute written consents or other instruments in accordance
with the provisions of the preceding paragraph.
The proxy and power of attorney granted herein shall be irrevocable during
the term of this Agreement, shall be deemed to be coupled with an interest and
shall revoke all prior proxies granted by such Stockholder. Each of the
Stockholders shall not grant any proxy to any person which conflicts with the
proxy granted herein, and any attempt to do so shall be void. The power of
attorney granted herein is a durable power of attorney and shall survive the
disability or incompetence of such Stockholder.
V-7
<PAGE>
4.2 Appraisal Rights. Each of the Stockholders hereby waives his, her or
its rights to appraisal under Section 262 of the DGCL and/or Section 92A.380 of
the NGCL, as the case may be, with respect to any shares of Companies Stock
owned by him in connection with the transactions contemplated by the Merger
Agreement. Each of the Stockholders hereby agrees that he, she or it will not
in any way attempt to influence, encourage or persuade any Person who
beneficially owns any shares of Companies Stock to exercise any rights to
appraisal such Person may have pursuant to Section 262 of the DGCL and/or
Section 92A.380 of the NGCL, as the case may be, in connection with said
transactions.
4.3 Waiver of Certain Rights. Each Stockholder hereby waives and agrees
not to assert any claims or rights he, she or it may have against any officer
or director of the Companies relating to or arising out of actions or omissions
occurring at or prior to the Effective Time, including, without limitation, in
respect of approval or adoption of the Merger Agreement or the consummation of
the Reorganization and the Merger or the other transactions contemplated
thereby.
ARTICLE V
MISCELLANEOUS
5.1 Termination. Except as set forth in the proviso to this sentence, this
Agreement shall terminate upon the earlier to occur of (i) the mutual consent
of Acquiror and all of the Stockholders, (ii) the termination of the Merger
Agreement prior to the consummation of the Merger and (iii) the fifth
anniversary of the Closing Date.
5.2 Amendment. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
5.3 Notices. Notices, requests, permissions, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by
hand, deposited in the United States mail (registered or certified, return
receipt requested), properly addressed and postage prepaid, or delivered by
telecopy:
If to Acquiror, to:
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111
Telephone: (617) 357-4455
Telecopy: (617) 350-7881
Attention: Chairman of the Board
with a copy (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: William J. Curry, Esq.
If to the Stockholders, to:
c/o Clarke H. Bailey
10 Oxford Road
Larchmont, NY 10538
Telephone: (914) 834-4010
Telecopy: (914) 834-4778
V-8
<PAGE>
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Telephone: (212) 318-6000
Telecopy: (212) 319-4090
Attention: William F. Schwitter, Esq.
5.4 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all of
which shall constitute one and the same original.
5.5 Applicable Law. This Agreement shall be governed by, and construed in
accordance with the laws of the State of Delaware without reference to choice
of law principles, including all matters of construction, validity and
performance.
5.6 Severability; Enforcement. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If
it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction. In furtherance of the foregoing, if any court
construes any of the provisions of Section 3.6, or any part thereof, to be
unreasonable because of the duration of such provision or the geographic scope
thereof, such court shall have the power to reduce the duration or restrict the
geographic scope of such provision and to enforce such provision as so reduced
or restricted.
5.7 Further Assurances. Each party hereto shall execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
5.8 Additional Stockholders; Parties in Interest; Assignment. The parties
hereto agree that, from time to time, any and all Additional Stockholders of
the Companies may be added as parties hereto by executing a counterpart of this
Agreement or an agreement by which such stockholder agrees to join and to be
bound hereby, and without in either case further action by any party hereto or
thereto. Neither this Agreement nor any of the rights, interest or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties. Notwithstanding the foregoing, for the
purposes of Sections 3.5, the term "Acquiror" shall include any Entity
controlled by Acquiror, any successor, by operation of law or otherwise of
Acquiror, or any entity controlled by Acquiror, and any assignee of Acquiror.
Notwithstanding the foregoing, for the purposes of Sections 3.6, the term
"Acquiror" shall include any Entity controlling, controlled by or under common
control with Acquiror, any successor, by operation of law or otherwise of
Acquiror, or any entity controlling, controlled by Acquiror, and any assignee
of Acquiror.
5.9 Entire Agreement. This Agreement and the Merger Agreement and the
Collateral Documents contain the entire understanding of the parties hereto and
thereto with respect to the subject matter contained herein and therein, and
supersede and cancel all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting
such subject matter. There are no restrictions, promises, representations,
warranties, agreements or undertakings of any party hereto or to the Merger
Agreement or any of the Collateral Documents with respect to the transactions
contemplated by this Agreement and the Merger Agreement and the Collateral
Documents other than those set forth herein or therein or made hereunder or
thereunder.
5.10 Specific Performance. The parties hereto agree that the remedy at law
for any breach of this Agreement will be inadequate and that any party by whom
this Agreement is enforceable shall be entitled to specific performance in
addition to any other appropriate relief or remedy. Such party may, in its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunctive or such other relief as such court may deem just and proper in
order to enforce this Agreement or prevent any violation hereof and, to the
extent permitted by applicable law, each party waives any objection to the
imposition of such relief.
V-9
<PAGE>
5.11 Headings; References. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All references herein to
"Articles", "Sections", "Schedules" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Schedules or Exhibits hereto
unless otherwise indicated.
5.12 Obligations Several and Not Joint. The obligations of the
Stockholders under this Agreement are the several and not joint obligations of
each such Stockholder, and the Stockholders shall not by action of this
Agreement (i) be deemed to be acting in concert or as a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) or (ii) be deemed to have
formed a partnership or joint venture.
[remainder of page intentionally left blank]
V-10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto had caused this Agreement to be
duly executed and delivered as of the day and year first above written.
ACQUIROR:
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
--------------------------------------
Name: C. Richard Reese
Title: Chairman and Chief Executive
Officer
INITIAL AGI STOCKHOLDERS:
GKH INVESTMENTS, L.P.
By: GKH PARTNERS, L.P., its
General Partner
By: JAKK HOLDING CORPORATION, a
General Partner
By: /s/ Melvyn N. Klein
--------------------------------------
Name: Melvyn N. Klein
Title: President
GKH PARTNERS, L.P.
By: JAKK HOLDING CORPORATION, a
General Partner
By: /s/ Melvyn N. Klein
--------------------------------------
Name: Melvyn N. Klein
Title: President
GKH PARTNERS, L.P., as Nominee of
GKH PRIVATE LIMITED
By: JAKK HOLDING CORPORATION, a
General Partner
By: /s/ Melvyn N. Klein
--------------------------------------
Name: Melvyn N. Klein
Title: President
HUDSON RIVER CAPITAL LLC
By: /s/ Robert L. Egan
--------------------------------------
Name: Robert L. Egan
Title: President
/s/ Clarke H. Bailey
------------------------------------------
Clarke H. Bailey
V-11
<PAGE>
INITIAL UAC STOCKHOLDERS:
GKH INVESTMENTS, L.P.
By: GKH PARTNERS, L.P., its
General Partner
By: JAKK HOLDING CORPORATION, a
General Partner
By: /s/ Melvyn N. Klein
--------------------------------------
Name: Melvyn N. Klein
Title: President
GKH PARTNERS, L.P., as Nominee of
GKH PRIVATE LIMITED
By: JAKK HOLDING CORPORATION, a
General Partner
By: /s/ Melvyn N. Klein
--------------------------------------
Name: Melvyn N. Klein
Title: President
HUDSON RIVER CAPITAL LLC
By: /s/ Robert L. Egan
--------------------------------------
Name: Robert L. Egan
Title: President
ARCUS GROUP, INC.
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
INITIAL ATSI STOCKHOLDERS:
UNITED ACQUISITION COMPANY
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
V-12
<PAGE>
Schedule A-1
Ownership of AGI Stock
<TABLE>
<CAPTION>
Name/Address of Stockholder Shares of AGI Stock Owned
- ------------------------------------------------------------ --------------------------
<S> <C>
GKH Investments L.P. 6,391,736
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
GKH Partners L.P. 79,876
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
GKH Partners L.P., as Nominee of GKH Private Limited 161,757
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
Hudson River Capital LLC 1,387,845
(f/k/a "Forschner Enterprises Inc." and "Victory Capital")
677 Madison Avenue
New York, NY 10021
Clarke H. Bailey 250,000
10 Oxford Road
Larchmont, NY 10538
</TABLE>
V-13
<PAGE>
Schedule A-2
Ownership of UAC Stock and UAC Series A Preferred
<TABLE>
<CAPTION>
Shares of Shares of UAC
Name/Address of Stockholder UAC Common Owned Series A Preferred Owned
- -------------------------------------- ------------------ -------------------------
<S> <C> <C>
GKH Investments L.P. 101,866.76 11,384.49
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
GKH Partners L.P., as Nominee of GKH 3,852.98 431.94
Private Limited
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
Hudson River Capital LLC 85,470.00 9,127
(f/k/a "Forschner Enterprises Inc."
and "Victory Capital")
677 Madison Avenue
New York, NY 10021
Arcus Group, Inc. 800,000.80 0
c/o Bible, Hoy & Trachok
232 Court Street
Reno, NV 89501
</TABLE>
V-14
<PAGE>
Schedule A-3
Ownership of ATSI Common
<TABLE>
<CAPTION>
Name/Address of Stockholder Shares of ATSI Common Owned
- ------------------------------- ----------------------------
<S> <C>
United Acquisition Company 2,703,284
667 Madison Avenue, 25th Floor
New York, NY 10021-8029
</TABLE>
V-15
<PAGE>
Schedule B
Ownership of Warrants to Acquire UAC Common
<TABLE>
<CAPTION>
Number of Shares of UAC
Common that the Warrant
Name/Address of Warrant Holder Warrant No. Holder has the Right to Acquire Exercise Price
- -------------------------------------- ------------- --------------------------------- ---------------
<S> <C> <C> <C>
GKH Investments L.P. 1A, 2, 5 764,022 $13.75
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
GKH Partners L.P. 1B, 3, 6 28,873 $13.75
200 West Madison Street, Suite 2710
Chicago, IL 60606-3416
Hudson River Capital LLC 4 641,026 $13.75
(f/k/a "Forschner Enterprises Inc."
and "Victory Capital")
677 Madison Avenue
New York, NY 10021
</TABLE>
V-16
<PAGE>
ANNEX VI
ACQUIROR VOTING AGREEMENT
ACQUIROR VOTING AGREEMENT, dated as of September 26, 1997, among (i) Arcus
Group, Inc., a Delaware corporation ("AGI"), United Acquisition Company, a
Nevada corporation ("UAC"), and Arcus Technology Services, Inc., a Delaware
corporation ("ATSI" and together with AGI and UAC, the "Companies"), (ii) C.
Richard Reese, Schooner Capital Corporation, a Massachusetts corporation,
Vincent J. Ryan and B. Thomas Golisano (each a "Stockholder" and collectively,
the "Stockholders"), each of which is a stockholder of Iron Mountain
Incorporated, a Delaware corporation ("Acquiror") and (iii) Acquiror.
W I T N E S S E T H:
WHEREAS, each of the Stockholders is the beneficial and record owner of
the shares of Common Stock, $.01 par value per share (the "Acquiror Stock"), of
Acquiror, set forth opposite each such Stockholder's name on Schedule A;
WHEREAS, concurrently with the execution of this Agreement, Acquiror, AGI,
UAC and ATSI are entering into an Agreement and Plan of Merger (as such
agreement may be amended, modified, supplemented and in effect from time to
time, the "Merger Agreement") pursuant to which (i) UAC will merge with and
into AGI, with AGI continuing as the surviving corporation, (ii) ATSI will
merge with and into AGI, with AGI continuing as the surviving corporation, and
(iii) AGI will merge (the "Merger") with and into Acquiror, with Acquiror
continuing as the surviving corporation; and
WHEREAS, in order to induce the Companies and Acquiror to enter into the
Merger Agreement, the Stockholders wish to make certain representations,
warranties, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used herein but not otherwise defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement and the following terms shall have the following meanings:
"Acquiror" shall have the meaning set forth in the opening paragraph of
this Agreement.
"Acquiror Stock" shall have the meaning set forth in the first recital of
this Agreement.
"AGI" shall have the meaning set forth in the opening paragraph of this
Agreement.
"ATSI" shall have the meaning set forth in the opening paragraph of this
Agreement.
"beneficially own" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"Companies" shall have the meaning set forth in the opening paragraph of
this Agreement.
"Merger" shall have the meaning set forth in the second recital of this
Agreement.
"Merger Agreement" shall have the meaning set forth in the second recital
of this Agreement.
"Stockholder Disclosure Letter" shall have the meaning set forth in
Section 2.1(a).
"Stockholders" shall have the meaning set forth in the opening paragraph
of this Agreement.
"UAC" shall have the meaning set forth in the opening paragraph of this
Agreement.
VI-1
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
2.1 Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants, severally but not jointly, to the Companies as
follows:
(a) Ownership of Acquiror Stock. Except as disclosed in Section 2.1(a) of
the letter from the Stockholders to the Companies, dated the date hereof or the
date such Stockholder becomes party hereto (the "Stockholder Disclosure
Letter"), such Stockholder is the beneficial owner of the shares of Acquiror
Stock set forth opposite such Stockholder's name on Schedule A and, except for
this Agreement or as otherwise set forth in Section 2.1(a) of the Stockholder
Disclosure Letter, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which such Stockholder is a
party relating to the voting of any shares of the Acquiror Stock that are owned
by such Stockholder, and there are no voting trusts or voting agreements with
respect to such shares. The shares of Acquiror Stock set forth opposite such
Stockholder's name on Schedule A constitute all of the outstanding shares of
Acquiror Stock owned beneficially or of record by such Stockholder.
(b) Authority to Execute and Perform Agreements. Such Stockholder has the
full legal right and power and all authority required to enter into, execute
and deliver this Agreement and to perform fully such Stockholder's obligations
hereunder. The execution and delivery of this Agreement by such Stockholder
have been duly authorized by all requisite organizational action, if any, on
the part of such Stockholder. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of such
Stockholder enforceable against such Stockholder in accordance with its terms
(subject to the Enforceability Exceptions).
(c) No Conflicts; Consents. (i) Except as set forth in Section 2.1(c) of
the Stockholder Disclosure Letter, the execution and delivery by such
Stockholder of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of or
default (with or without notice or lapse of time, or both) under (A) any
contract, agreement or other binding arrangement to which such Stockholder is a
party or (B) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator applicable to such
Stockholder.
(ii) No Governmental Authorizations or Private Authorizations are required
to be obtained or made by such Stockholder in connection with the execution and
delivery by such Stockholder of this Agreement and the consummation of the
transactions contemplated hereby.
ARTICLE III
VOTING
3.1 Voting. Each of the Stockholders hereby agrees that, at any meetings
of the stockholders of Acquiror, however called, and at every adjournment
thereof, to vote all of the shares of Acquiror Stock then owned, beneficially
or of record, by him in favor of the adoption of the Merger Agreement as in
effect on the date hereof (as such agreement may be amended (1) as contemplated
by Section 7.3 of the Merger Agreement or (2) with the consent of such
Stockholder) and each of the other transactions contemplated thereby and any
action required in furtherance thereof; provided, however, that, if any
Stockholder is a member of the Board of Directors of Acquiror, nothing herein
shall be construed to obligate such Stockholder or representative to act in his
capacity as a director in any manner inconsistent with or which may conflict
with such Person's fiduciary duties as a director of Acquiror.
3.2 Voting Arrangements. To the extent any such action would materially
impair such Stockholder's ability to perform his obligations under Section 3.1
of this Agreement, each of the Stockholders agrees that, except pursuant to
this Agreement, he shall not grant any proxies, deposit any shares of Acquiror
Stock into a voting trust or enter into any voting agreement with respect to
any shares of Acquiror Stock now or hereafter owned, beneficially or of record,
by him.
3.3 Satisfaction of Conditions to the Merger. Each of the Stockholders
agrees that each, in his capacity as a Stockholder, shall assist and cooperate
with the parties to the Merger Agreement in doing all things necessary, proper
or advisable under Applicable Laws as promptly as practicable to consummate and
make effective the Merger
VI-2
<PAGE>
and the other Transactions and each of them shall not take any action that
would or is reasonably likely to result in any of his representations and
warranties set forth in this Agreement being untrue as of the date made or in
any of the conditions set forth in Article 6 of the Merger Agreement not being
satisfied.
ARTICLE IV
MISCELLANEOUS
4.1 Termination. This Agreement shall terminate upon the earlier to occur
of (i) the mutual consent of the Companies, Acquiror and all of the
Stockholders, or (ii) the termination of the Merger Agreement prior to the
consummation of the Merger.
4.2 Amendment. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
4.3 Notices. Notices, requests, permissions, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by
hand, deposited in the United States mail (registered or certified, return
receipt requested), properly addressed and postage prepaid, or delivered by
telecopy:
If to the Companies, to:
United Acquisition Company
667 Madison Avenue, 25th Floor
New York, NY 10021-8029
Telephone: (212) 935-5678
Telecopy: (212) 593-6127
Attention: Mr. Clarke H. Bailey
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Telephone: (212) 318-6000
Telecopy: (212) 319-4090
Attention: William F. Schwitter, Esq.
If to the Stockholders, to:
c/o Mr. C. Richard Reese
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111
Telephone: (617) 357-4455
Telecopy: (617) 350-7881
with a copy (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: William J. Curry, Esq.
VI-3
<PAGE>
If to Acquiror, to:
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111
Attention: Mr. C. Richard Reese
Telephone: (617) 357-4455
Telecopy: (617) 350-7881
with a copy (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: William J. Curry, Esq.
4.4 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all of
which shall constitute one and the same original.
4.5 Applicable Law. This Agreement shall be governed by, and construed in
accordance with the laws of the State of Delaware without reference to choice
of law principles, including all matters of construction, validity and
performance.
4.6 Severability; Enforcement. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If
it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
4.7 Further Assurances. Each party hereto shall execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
4.8 Assignment. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties.
4.9 Entire Agreement. This Agreement and the Merger Agreement contain the
entire understanding of the parties hereto and thereto with respect to the
subject matter contained herein and therein, and supersede and cancel all prior
agreements, negotiations, correspondence, undertakings and communications of
the parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or undertakings
of any party hereto or to the Merger Agreement with respect to the transactions
contemplated by this Agreement and the Merger Agreement other than those set
forth herein or therein or made hereunder or thereunder.
4.10 Specific Performance. The parties hereto agree that the remedy at law
for any breach of this Agreement will be inadequate and that any party by whom
this Agreement is enforceable shall be entitled to specific performance in
addition to any other appropriate relief or remedy. Such party may, in its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunctive or such other relief as such court may deem just and proper in
order to enforce this Agreement or prevent any violation hereof and, to the
extent permitted by applicable law, each party waives any objection to the
imposition of such relief.
4.11 Headings; References. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All references herein to
"Articles", "Sections", "Schedules" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Schedules or Exhibits hereto
unless otherwise indicated.
4.12 Several and Not Joint Obligations. The obligations of the
Stockholders under this Agreement are the several and not joint obligations of
each such Stockholder, each Stockholder has made an individual and separate
decision relating to his or its execution of this Agreement, and the
Stockholders shall not by action of this Agreement (i) be deemed to be acting
in concert or as a "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) or (ii) be deemed to have formed a partnership or joint venture.
VI-4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto had caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE COMPANIES:
ARCUS GROUP, INC.
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
UNITED ACQUISITION COMPANY
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
ARCUS TECHNOLOGY SERVICES, INC.
By: /s/ Clarke H. Bailey
--------------------------------------
Name: Clarke H. Bailey
Title: Chairman
THE STOCKHOLDERS:
/s/ C. Richard Reese
------------------------------------------
C. Richard Reese
SCHOONER CAPITAL CORPORATION
By: /s/ Vincent J. Ryan
--------------------------------------
Name: Vincent J. Ryan
Title: Chairman
/s/ Vincent J. Ryan
------------------------------------------
Vincent J. Ryan
/s/ B. Thomas Golisano
------------------------------------------
B. Thomas Golisano
ACQUIROR:
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
--------------------------------------
Name: C. Richard Reese
Title: Chairman and Chief Executive
Officer
VI-5
<PAGE>
Schedule A
Ownership of Acquiror Stock
<TABLE>
<CAPTION>
Name/Address of Stockholder Shares of Acquiror Stock Owned
- -------------------------------- -------------------------------
<S> <C>
C. Richard Reese 1,127,503(1)
c/o Iron Mountain Incorporation
745 Atlantic Avenue
Boston, MA 02111
Schooner Capital Corporation 1,909,384(2)
745 Atlantic Avenue
Boston, MA 02111
Vincent J. Ryan 3,445,750(3)
c/o Iron Mountain Incorporation
745 Atlantic Avenue
Boston, MA 02111
B. Thomas Golisano 931,704(4)
c/o Iron Mountain Incorporation
745 Atlantic Avenue
Boston, MA 02111
</TABLE>
- ------------
(1) Includes 13,450 shares of Common Stock held by trusts for the benefit of
Mr. Reese's children, as to which Mr. Reese disclaims beneficial
ownership. Also includes 668,166 shares of Common Stock as to which Mr.
Reese shares beneficial ownership with Schooner Capital Corporation
("Schooner") as a result of a 1988 deferred compensation arrangement, as
amended, between Schooner and Mr. Reese relating to Mr. Reese's former
services as President of Schooner. Pursuant to such arrangement, upon the
earlier to occur of (i) Schooner's sale or exchange of substantially all
of the shares of Common Stock held by Schooner or (ii) the cessation of
Mr. Reese's employment with Acquiror, Schooner is required to transfer
such shares of Common Stock to Mr. Reese or remit to Mr. Reese cash in an
amount equal to the then current fair market value of such shares of
Common Stock. Schooner has agreed to vote the shares of Common Stock
subject to such arrangement at the direction of Mr. Reese.
(2) Mr. Ryan is the Chairman of the Board and the principal stockholder of
Schooner and, accordingly has sole voting and investment power with
respect to the shares of Common Stock held by Schooner. Includes 668,166
shares of Common Stock as to which Schooner shares beneficial ownership
with Mr. Reese as described in footnote (1). Also includes 29,550 shares
of Common Stock as to which Schooner shares beneficial ownership with
Eugene B. Doggett, a director and an Executive Vice President of Acquiror,
as a result of a 1988 deferred compensation arrangement, as amended,
between Schooner and Mr. Doggett relating to Mr. Doggett's former services
as Chief Financial Officer of Schooner. Pursuant to such arrangement, upon
the earlier to occur of (i) Schooner's sale or exchange of substantially
all of the shares of Common Stock held by Schooner or (ii) the cessation
of Mr. Doggett's employment with Acquiror, Schooner is required to
transfer such shares of Common Stock to Mr. Doggett or remit to Mr.
Doggett cash in an amount equal to the then current fair market value of
such shares of Common Stock. Schooner has agreed to vote the shares of
Common Stock subject to such arrangements at the direction of Mr. Reese or
Mr. Doggett, as the case may be.
(3) Mr. Ryan holds 1,536,366 shares of Common Stock. The remaining shares of
Common Stock listed as being beneficially owned by Mr. Ryan are held by
Schooner, as to which Mr. Ryan has sole voting power and investment power
as the Chairman of the Board and principal stockholder of Schooner. See
footnote (2) regarding shares held by Schooner.
(4) Includes 3,618 shares that Mr. Golisano has the rights to acquire pursuant
to currently exercisable options.
VI-6
<PAGE>
ANNEX VII
September 25, 1997
Board of Directors
United Gas Holding Corporation
667 Madison Avenue, 25th Floor
New York, NY 10021
Dear Sirs:
You have requested our opinion as to the fairness from a financial point
of view to the holders of common stock, par value $.0001 per share ("Company
Common Stock"), preferred stock, par value $.01 per share (the "Company
Preferred"), and options, warrants or rights to purchase Company Common Stock
of United Gas Holding Corporation (the "Company") of the consideration to be
received by such holders (the "Equity Holders") pursuant to the terms of the
Agreement and Plan of Merger, draft as of September 24, 1997 (version11) (the
"Agreement"), by and among Iron Mountain Incorporated (the "Acquiror"), United
Acquisition Company ("UAC"), Arcus Technology Services, Inc. and the Company.
Unless otherwise defined herein, terms defined in the Agreement are used herein
as therein defined. The Merger is intended to qualify as a tax-free
reorganization under the provisions of the Section 368(a) of the Internal
Revenue Code of 1986, as amended.
Subject to the terms and conditions of the Agreement, at the effective
time of the Merger, (a) each outstanding share of Company Common Stock shall be
converted into the right to receive (ii) that number equal to the Common Stock
Conversion Number of fully paid and nonassessable shares of common stock, par
value $.01 per share (the "Acquiror Common Stock"), of the Acquiror (the "Stock
Merger Consideration") and (ii) cash in an amount equal to the Common Cash
Conversion Number (the "Cash Merger Consideration" and together with the Stock
Merger Consideration, the "Exchange Common Consideration") and (b) each
outstanding share of Company Preferred shall be converted into the right to
receive (ii) that number equal to the Preferred Stock Conversion Number of
fully paid and nonassessable shares of Acquiror Common Stock (the "Preferred
Stock Merger Consideration") and (ii) cash in amount equal to the Preferred
Cash Conversion Number (the "Preferred Cash Merger Consideration", and together
with the Preferred Stock Merger Consideration, the "Exchange Preferred
Consideration"). Subject to the terms and conditions of the Agreement, each
Option Security outstanding as of the effective time of the Merger shall be
converted into an option or warrant, as applicable, to purchase Acquiror Common
Stock. Pursuant to certain warrant purchase agreements, the Acquiror will
purchase warrants to purchase 1,467,207 shares of the common stock of UAC for
approximately $29.8 million cash (the "Warrant Consideration"). In addition,
subject to the indemnification and adjustment provisions of Article 8 of the
Agreement, a portion of the Cash Merger Consideration and the Warrant
Consideration shall be placed in escrow. The Exchange Common Consideration, the
Exchange Preferred Consideration, Warrant Consideration, and the consideration
into which the Option Securities are convertible is collectively referred to as
the "Merger Consideration".
In arriving at our opinion, we have reviewed the draft dated September 24,
1997 (version 11) of the Agreement and the exhibits thereto. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company and Iron Mountain Incorporated including
information provided during discussions with the respective managements.
Included in the information provided during discussions with the respective
managements were certain financial information and guidelines of the Company
for the period beginning 1/1/98 and ending 12/31/06 prepared by the management
of the Company and certain projections of Iron Mountain Incorporated for the
period beginning 1/1/97 and ending 12/31/98 and certain other financial
information prepared by the management of Iron Mountain Incorporated. In
addition, we have compared certain financial and securities data of the Company
and Iron Mountain Incorporated with various other companies whose securities
are traded in public markets, reviewed comparable transactions and business
combinations and such other financial studies, analyses and investigations as
we deemed appropriate for purposes of this opinion.
VII-1
<PAGE>
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and Iron
Mountain Incorporated or their respective representatives, or that was
otherwise reviewed by us. With respect to the financial projections developed
from the financial information and guidelines supplied to us, we have assumed
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company
and Iron Mountain Incorporated as to the future operating and financial
performance of the Company and Iron Mountain Incorporated, respectively. We
have not assumed any responsibility for making an independent evaluation any
assets or liabilities or for making any independent verification of any of the
information reviewed by us. In addition, for the purposes of this opinion, we
have assumed the Reorganization is effected prior to the effective time of the
Merger in accordance with the terms of the Agreement.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Acquiror common stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction. We are expressing no
opinion herein as the fairness of the terms of the Reorganization from a
financial point of view or otherwise to any of the holders of various
securities of United Acquisition Company or Arcus Technology Services, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for certain affiliates of the
Company and Iron Mountain Incorporated in the past and has been compensated for
such services. DLJ was lead manager for Iron Mountain's $165 million high yield
offering in September 1996 and was paid a fee of $2.475 million. In addition,
DLJ has been invited to participate as a co-manager for a pending high yield
offering for Iron Mountain.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the aggregate Merger Consideration to be received by
the Equity Holders pursuant to the Agreement is fair to such holders from a
financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Joel J. Cohen
--------------------------
Joel J. Cohen
Managing Director
VII-2
<PAGE>
ANNEX VIII
BEAR STEARNS BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
NEW YORK - SAN FRANCISCO
FRANKFURT - GENEVA - HONG KONG
LONDON - PARIS - TOKYO
September 26, 1997
Iron Mountain Incorporated
756 Atlantic Avenue
Boston, MA 02111
Attention: C. Richard Reese
Chairman and Chief Executive Officer
Dear Sirs:
We understand that Iron Mountain Incorporated ("Iron Mountain") is
acquiring Arcus Technology Services, Inc. ("Arcus") in a series of transactions
in which Arcus will be merged into its controlling shareholders, Arcus Group,
Inc. "(Arcus Group") and United Acquisition Company ("UAC", and together with
Arcus and Arcus Group, the "Arcus Entities"), with Arcus Group surviving such
mergers. Arcus Group will be subsequently merged with and into Iron Mountain,
with Iron Mountain continuing as the surviving corporation (collectively, the
"Transaction"). Pursuant to the Transaction, the former shareholders, option
holders and warrant holders of the Arcus Entities will receive Common Stock,
par value $.01 per share, of Iron Mountain ("Iron Mountain Common Stock") or
options to purchase Iron Mountain Common Stock (the "Stock Consideration")
valued at approximately $57.5 million (in the case of Arcus Entities' options,
valued as the difference between the exercise proceeds and the value of Iron
Mountain Common Stock subject to the options) and approximately $70.0 million
in cash (the "Cash Consideration") in exchange for their equity interests in
the Arcus Entities. In addition, it is expected that Iron Mountain will assume
approximately $32.5 million of indebtedness (not including any reduction in
debt arising from proceeds resulting from the exercise of the Arcus Entities'
options) currently owed by the Arcus Entities plus additional indebtedness, if
any, incurred by the Arcus Entities to complete certain identified, pending
acquisitions (the "Debt Assumption"). The Stock Consideration, Cash
Consideration and the Debt Assumption (collectively, the "Consideration") will
aggregate to $160.0 million. You have provided us with the Agreement and Plan
of Merger among Iron Mountain, Arcus, UAC and Arcus Group in substantially
final form (the "Merger Agreement").
You have asked us to render our opinion as to whether the Consideration to
be paid in the Transaction is fair, from a financial point of view, to Iron
Mountain.
In the course of performing our reviews and analyses for rendering this
opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed Iron Mountain's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995 and
1996, and its Quarterly Report on Form 10-Q for the period ended June
30, 1997;
3. reviewed Arcus' audited financial statements dated December 31, 1995
and 1996, Arcus' interim unaudited financial statements dated June
30, 1997 and the Information Memorandum provided by Arcus and
Donaldson, Lufkin & Jenrette dated May 1997;
4. reviewed certain operating and financial information, including
projections, provided to us by management relating to Arcus' and Iron
Mountain's business and prospects;
5. met with certain members of Arcus' and Iron Mountain's senior
management to discuss their respective operations, historical
financial statements and future prospects;
6. reviewed the historical prices and trading volumes of Iron Mountain
Common Stock;
7. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Arcus;
VIII-1
<PAGE>
8. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to Arcus;
9. performed discounted cash flow analyses and pro forma contribution
analyses utilizing forecasts of future operating performance of Arcus
and Iron Mountain as provided by Iron Mountain management; and
10. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by Iron
Mountain and Arcus. With respect to Iron Mountain's and Arcus' projected
financial results and potential synergies that could be achieved upon
consummation of the Transaction, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Iron Mountain and of Arcus as to the expected
future performance of Iron Mountain and Arcus, respectively. We have not
assumed any responsibility for the information or projections provided to us
and we have further relied upon the assurances of the management of Iron
Mountain and of Arcus that they are unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets or liabilities of Arcus. In addition, we are not expressing any
opinion as to the price or range of prices at which Iron Mountain Common Stock
may trade prior to or subsequent to the consummation of the Transaction nor
does this opinion address Iron Mountain's underlying decision to effect the
Transaction. Moreover, our opinion is not a recommendation to the board of
directors or shareholders of Iron Mountain as to whether or not they should
vote to recommend or approve the Transaction. Our opinion is necessarily based
on economic, market and other conditions, and the information made available to
us, as of the date hereof. Based on the foregoing, it is our opinion that the
Consideration to be paid in the Transaction is fair, from a financial point of
view, to Iron Mountain.
We have acted as financial advisor to Iron Mountain in connection with the
Transaction and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Transaction. Bear
Stearns has in the past provided investment banking services to Iron Mountain
for which it has received customary compensation. It is understood that this
letter is intended solely for the benefit and use of the Board of Directors of
Iron Mountain and is not to be used for any other purpose, or reproduced,
disseminated, quoted or referred to at any time, in whole or in part, without
our prior written consent.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Richard De Rose
----------------------------------
Richard De Rose
Managing Director
VIII-2
<PAGE>
ANNEX IX
FORM OF ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is entered into as of the
day of , 1998, by and among Iron Mountain Incorporated, a Delaware
corporation ("Acquiror"), Arcus Group, Inc., a Delaware corporation (the
"Company"), Clarke H. Bailey, an individual residing at 10 Oxford Road,
Larchmont, NY 10538, as agent and attorney-in-fact (the "Stockholder
Representative") for the stockholders of the Company (the "Stockholders") and
the warrantholders of the Company (the "Warrantholders"), and The Bank of New
York, as Escrow Agent (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, Acquiror, the Company, United Acquisition Company, a Nevada
corporation ("UAC"), and Arcus Technology Services, Inc., a Delaware
corporation ("ATSI"), entered into that certain Agreement and Plan of Merger
(as amended, modified, supplemented, restated and in effect from time to time,
the "Merger Agreement"), dated as of September 26, 1997, an executed copy of
which is attached hereto as Exhibit A, pursuant to which (i) UAC is required to
merge with and into the Company, with the Company continuing as the surviving
corporation, (ii) ATSI is required to merge with and into the Company with the
Company continuing as the surviving corporation and (iii) the Company will
merge (the "Merger") with and into Acquiror, with Acquiror continuing as the
surviving corporation, and pursuant to which $ will be
withheld from the consideration payable to the Stockholders and will be
allocated to indemnify Acquiror for certain matters relating to the Merger
Agreement, all as is more fully set forth in the Merger Agreement;
WHEREAS, Acquiror, the Company and certain of the holders of warrants (the
"Warrants") to purchase shares of common stock of UAC entered into Warrant
Purchase Agreements (the "Warrant Purchase Agreements"), executed copies of
which has been provided to the Escrow Agent, pursuant to which Acquiror will
purchase the Warrants and $ will be withheld from the consideration
payable to the Warrantholders and will be allocated to indemnify Acquiror for
certain matters relating to the Merger Agreement, all as more fully set forth
in the Merger Agreement;
WHEREAS, funds will be withheld from the consideration payable to the
Stockholders and the Warrantholders in order to have funds available in the
event that the Final Indebtedness Amount set forth in the Merger Agreement is
greater than the Company Indebtedness Calculation set forth in the Merger
Agreement;
WHEREAS, this Agreement is being entered into pursuant to Article 8 of the
Merger Agreement and Article 2 of the Warrant Purchase Agreements; and
WHEREAS, in accordance with and pursuant to Article 8 of the Merger
Agreement, the Stockholder Representative has been appointed as agent and
attorney-in-fact, with full power of substitution, to take all actions called
for by Article 8 of the Merger Agreement and Article 2 of the Warrant Purchase
Agreements, including, without limitation, the execution of this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements set forth below, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1
ESCROW INDEMNITY FUNDS
1.1 Delivery. Upon consummation of the Merger, Acquiror will deposit with
the Escrow Agent the aggregate sum of Eight Million Dollars ($8,000,000) in
immediately available funds (together with all interest accrued thereon, the
"Escrow Indemnity Funds"), which funds shall be held in a segregated account
named "Iron Mountain Incorporated Escrow Indemnity Funds Account" or in an
account having such other similar designation.
IX-1
<PAGE>
1.2 Receipt. The Escrow Agent agrees to hold and disburse the Escrow
Indemnity Funds (together with all interest earned thereon) solely in
accordance with the terms and conditions of this Agreement, pursuant to the
written direction of Acquiror or as otherwise set forth herein, and for the
uses and purposes stated herein. The Escrow Agent shall, upon receipt of the
Escrow Indemnity Funds, issue a written acknowledgment to Acquiror and the
Stockholder Representative of receipt thereof.
1.3 Investment Income. The Escrow Agent shall, as soon as reasonably
practical, invest the Escrow Indemnity Funds in (i) direct obligations of, or
obligations fully guaranteed by, the United States of America or any agency
thereof, (ii) certificates of deposit issued by commercial banks having a
combined capital, surplus and undivided profits of not less than $500,000,000,
(iii) money market mutual funds authorized solely to invest in any of the
above, (iv) other investments of equal or greater security and liquidity, or
(v) such other investments as Acquiror and the Stockholder Representative may
from time to time direct in writing. The Escrow Agent shall cause the Escrow
Indemnity Funds to be invested in accordance with the preceding sentence at all
times during the term of this Agreement.
ARTICLE 1A
ESCROW HOLDBACK FUNDS
1A.1 Delivery. Upon consummation of the Merger, Acquiror will deposit, if
required, with the Escrow Agent the amount provided for in Section 8.6(c) of
the Merger Agreement, if any, in immediately available funds (together with all
interest accrued thereon, the "Combined Escrow Holdback Amount"), which funds
shall be held in a segregated account named "Iron Mountain Incorporated
Combined Escrow Holdback Amount Account" or in an account having such other
similar designation.
1A.2 Receipt. The Escrow Agent agrees to hold and disburse the Combined
Escrow Holdback Amount (together with all interest earned thereon) solely in
accordance with the terms and conditions of this Agreement, pursuant to the
written direction of Acquiror or as otherwise set forth herein, and for the
uses and purposes stated herein. The Escrow Agent shall, upon receipt of the
Combined Escrow Holdback Amount, issue a written acknowledgment to Acquiror and
the Stockholder Representative of receipt thereof.
1A.3 Investment Income. The Escrow Agent shall, as soon as reasonably
practical, invest the Combined Escrow Holdback Amount in (i) direct obligations
of, or obligations fully guaranteed by, the United States of America or any
agency thereof, (ii) certificates of deposit issued by commercial banks having
a combined capital, surplus and undivided profits of not less than
$500,000,000, (iii) money market mutual funds authorized solely to invest in
any of the above, (iv) other investments of equal or greater security and
liquidity, or (v) such other investments as Acquiror and the Stockholder
Representative may from time to time direct in writing. The Escrow Agent shall
cause the Combined Escrow Holdback Amount to be invested in accordance with the
preceding sentence at all times during the terms of this Agreement.
ARTICLE 2
PROCEDURES FOR DISBURSEMENT OF ESCROW INDEMNITY FUNDS
2.1 Purpose. The Escrow Indemnity Funds shall be held by the Escrow Agent
to secure the indemnification obligations to Acquiror under the Merger Agreement
and shall be held and released in accordance with the provisions of this
Agreement.
2.2 Disbursement.
(a) If at any time during the Escrow Indemnity Period, the Escrow Agent
receives written instructions in accordance with the terms of Section 2.4 hereof
from Acquiror to make a payment to Acquiror, then the Escrow Agent shall make
payments out of the Escrow Indemnity Funds to Acquiror, in accordance with such
instructions and with Section 2.4, unless the Escrow Indemnity Funds shall be
insufficient to comply with such instructions, in which case the Escrow Agent
shall pay the entire Escrow Indemnity Funds to Acquiror and shall advise
Acquiror
IX-2
<PAGE>
and the Stockholder Representative in writing of the amount of such payment. In
no event shall the Escrow Agent pay more than $8,000,000 to Acquiror from the
Escrow Indemnity Funds.
(b) The Escrow Agent may make any payments out of the Escrow Indemnity
Funds that may at the time be permitted to be made under the provisions of
Section 2.4 below, and shall make all such payments that at the time are
required to be made under such provisions or are jointly requested in writing
by Acquiror and the Stockholder Representative.
(c) In the event there are no Unresolved Claims (as hereinafter
defined), on the nine month anniversary of the Closing Date, or the next
business day if such date is not a business day (the "Initial Distribution
Date"), an aggregate of $3,000,000 of the Escrow Indemnity Funds shall be
distributed to the Stockholder Representative for the benefit of each former
holder of a Share Certificate and each former holder of a Warrant, whereupon
the Stockholder Representative will distribute such funds in accordance with
the terms of Section 8.3 of the Merger Agreement. In the event one or more
Unresolved Claims with respect to the Escrow Indemnity Funds, if any, shall
exist on the Initial Distribution Date, cash in the amount equal to the sum of
(i) $5,000,000, (ii) the aggregate amount of such Unresolved Claims and (iii)
the amount reasonably estimated by Acquiror to cover the fees, expenses and
other costs (including reasonable counsel fees and expenses) which will be
required to resolve such Unresolved Claims shall be retained as part of the
Escrow Indemnity Funds and the balance thereof, if any, shall be distributed to
the Stockholder Representative for the benefit of each former holder of a Share
Certificate and each former holder of a Warrant, whereupon the Stockholder
Representative will distribute such funds in accordance with the terms of
Section 8.3 of the Merger Agreement. Upon the resolution of all such Unresolved
Claims made prior to the Initial Distribution Date and the payment of all such
fees, expenses and other costs with respect thereto out of the Escrow Indemnity
Funds, the balance of the cash, if any, so retained on the Initial Distribution
Date shall be distributed to the Stockholder Representative for the benefit of
each former holder of a Share Certificate and each former holder of a Warrant,
whereupon the Stockholder Representative will distribute such funds in
accordance with the terms of Section 8.3 of the Merger Agreement.
In the event there are no Unresolved Claims on the day after the
expiration of the Escrow Indemnity Period, the Escrow Indemnity Funds then
remaining shall be distributed to the Stockholder Representative for the
benefit of each former holder of a Share Certificate and each former holder of
a Warrant, whereupon the Stockholder Representative will distribute such funds
in accordance with the terms of Section 8.3 of the Merger Agreement. In the
event one or more Unresolved Claims with respect to the Escrow Indemnity Funds,
if any, shall exist upon the expiration of the Escrow Indemnity Period, cash in
the amount equal to the sum of (i) the aggregate amount of such Unresolved
Claims and (ii) the amount reasonably estimated by Acquiror to cover the fees,
expenses and other costs (including reasonable counsel fees and expenses) which
will be required to resolve such Unresolved Claims shall be retained as part of
the Escrow Indemnity Funds and the balance thereof, if any, shall be
distributed to the Stockholder Representative for the benefit of each former
holder of a Share Certificate and each former holder of a Warrant, whereupon
the Stockholder Representative will distribute such funds in accordance with
the terms of Section 8.3 of the Merger Agreement. Upon the resolution of all
such Claims and the payment of all such fees, expenses and other costs out of
the Escrow Indemnity Funds, the balance of the cash, if any, shall be
distributed to the Stockholder Representative for the benefit of each former
holder of a Share Certificate and each former holder of a Warrant, whereupon
the Stockholder Representative will distribute such funds in accordance with
the terms of Section 8.3 of the Merger Agreement.
2.3 Unresolved Claims. The term "Unresolved Claims" shall mean any claim
or request made pursuant to the Merger Agreement against the Escrow Indemnity
Funds in accordance with the Merger Agreement and Section 2.4 below, until such
time as such claim or request has been paid in full or otherwise fully settled,
compromised or adjusted by Acquiror, the Stockholder Representative and the
Escrow Agent or by a final decision of an arbitrator or arbitration panel
appointed pursuant to Article 9 of the Merger Agreement or a final order of a
court of competent jurisdiction resolving such claim, from which no appeal is
or can be taken.
2.4 Notice of Request; Dispute Notice. If at any time during the Escrow
Indemnity Period, Acquiror believes that it is entitled to any portion of the
Escrow Indemnity Funds, then Acquiror shall furnish to the Escrow Agent (with a
simultaneous copy to the Stockholder Representative), a notice (the "Indemnity
Notice of Request") setting
IX-3
<PAGE>
forth the cash amount (the "Claimed Amount") to which Acquiror reasonably
believes it is entitled and the reasons for such belief. If the Escrow Agent
does not receive, within fifteen (15) business days after receipt of the
Indemnity Notice of Request, a notice from the Stockholder Representative (the
"Indemnity Dispute Notice") with a simultaneous copy to Acquiror that a dispute
(the "Indemnity Dispute") exists relating to Acquiror's right to that portion
of the Escrow Indemnity Funds claimed in the Indemnity Notice of Request, the
Escrow Agent shall, immediately after such fifteen business day period, release
to Acquiror the Claimed Amount.
In the event the Escrow Agent receives an Indemnity Dispute Notice that an
Indemnity Dispute exists, the Escrow Agent shall retain custody of that portion
of the Escrow Indemnity Funds which relates to the Unresolved Claim until the
first to occur of the following events:
(a) Receipt by the Escrow Agent of a notice ("Indemnity Settlement
Notice") signed by Acquiror and the Stockholder Representative that the
Indemnity Dispute has been resolved, said notice to contain instructions to
the Escrow Agent regarding delivery of that portion of the Escrow Indemnity
Funds which relates to the Unresolved Claim; or
(b) Receipt by the Escrow Agent of a final decision of an arbitrator or
arbitration panel appointed pursuant to Article 9 of the Merger Agreement
or a final order of a court of competent jurisdiction (the "Indemnity
Award") resolving the Indemnity Dispute from which no appeal is or can be
taken and directing the disposition of that portion of the Escrow Indemnity
Funds;
after which the Escrow Agent shall, within two business days, pay that portion
of the Escrow Indemnity Funds which relates to the Unresolved Claim in
accordance with the Indemnity Settlement Notice or the Indemnity Award.
2.5 Provisions of the Merger Agreement. As between Acquiror and the
Stockholder Representative, nothing in this Agreement shall derogate from, or
modify in any respect, any of the provisions of the Merger Agreement,
including, without limitation, Articles 8 and 9 of the Merger Agreement.
Nothing in this Section 2.5 shall be deemed to bind the Escrow Agent by the
terms and provisions of the Merger Agreement.
ARTICLE 2A
PROCEDURES FOR DISBURSEMENT OF COMBINED ESCROW HOLDBACK AMOUNT
2A.1 Purpose. The Combined Escrow Holdback Amount shall be held by the
Escrow Agent in order to have funds available in connection with the Merger
Agreement in the event that the Final Indebtedness Amount is greater than the
Company Indebtedness Calculation and shall be held and released in accordance
with the provisions of this Agreement.
2A.2 Disbursement. In the event that the Final Indebtedness Amount is
greater than the Company Indebtedness Calculation then on the second business
day after the Final Determination Date, (i) cash in an amount equal to the
difference between the Final Indebtedness Amount and the Company Indebtedness
Calculation shall be distributed to Acquiror out of the Combined Escrow
Holdback Amount and, if the Combined Escrow Holdback Amount are not sufficient
to provide for such payment, out of the Escrow Indemnity Funds pursuant to
Section 8.2(a)(iii) of the Merger Agreement and (ii) the balance, if any, of
the Combined Escrow Holdback Amount shall be distributed to the Stockholder
Representative for the benefit of each former holder of a Share Certificate and
each former holder of a Warrant in accordance with their proportionate
interests, calculated in accordance with the first sentence of Section 8.3(c)
of the Merger Agreement. In the event that the Final Indebtedness Amount is
equal to or less than the Company Indebtedness Calculation, then on the second
business day after the Final Determination Date the balance of the Combined
Escrow Holdback Amount shall be distributed to the Stockholder Representative
for the benefit of the Persons entitled thereto in accordance with their
proportionate interests, calculated in accordance with the first sentence of
Section 8.3(c) of the Merger Agreement.
2A.3 Notice of Request; Dispute Notice. If on or after the Final
Determination Date, Acquiror believes that it is entitled to any portion of the
Combined Escrow Holdback Amount, then Acquiror shall furnish to the Escrow
Agent (with a simultaneous copy to the Stockholder Representative), a notice
(the "Holdback Notice of Request") setting forth the cash amount (the "Holdback
Claimed Amount") to which Acquiror reasonably believes it is entitled
IX-4
<PAGE>
and the reasons for such belief. If the Escrow Agent does not receive, within
twenty-four hours after receipt of the Indemnity Notice of Request, a notice
from the Stockholder Representative (the "Holdback Dispute Notice") with a
simultaneous copy to Acquiror that a dispute (the "Holdback Dispute") exists
relating to Acquiror's right to that portion of the Combined Escrow Holdback
Amount claimed in the Holdback Notice of Request, the Escrow Agent shall,
immediately after such twenty-four hour period, release to Acquiror the
Holdback Claimed Amount.
In the event the Escrow Agent receives a Holdback Dispute Notice that a
Holdback Dispute exists, the Escrow Agent shall retain custody of that portion
of the Combined Escrow Holdback Amount which relates to the disputed amount
until the first to occur of the following events:
(a) Receipt by the Escrow Agent of a notice ("Holdback Settlement
Notice") signed by Acquiror and the Stockholder Representative that the
Holdback Dispute has been resolved, said notice to contain instructions to
the Escrow Agent regarding delivery of that portion of the Combined Escrow
Holdback Amount which relates to such disputed amount; or
(b) Receipt by the Escrow Agent of a final decision of an arbitrator or
arbitration panel appointed pursuant to Article 9 of the Merger Agreement
or a final order of a court of competent jurisdiction (the "Holdback
Award") resolving the Holdback Dispute from which no appeal is or can be
taken and directing the disposition of that portion of the Combined Escrow
Holdback Amount;
after which the Escrow Agent shall, within two business days, pay that portion
of the Combined Escrow Holdback Amount which relates to the Unresolved Claim in
accordance with the Holdback Settlement Notice or the Holdback Award.
ARTICLE 3
ESCROW AGENT
3.1 Appointment. Acquiror, the Company and the Stockholder Representative
hereby appoint the Escrow Agent to serve hereunder and the Escrow Agent hereby
accepts such appointment and agrees to perform all duties which are expressly
set forth in this Agreement.
3.2 Compensation. The Escrow Agent shall be entitled to compensation for
legal fees incurred in connection with the preparation of this Agreement and
for its services hereunder in accordance with the attached fee schedule, which
may be subject to change hereafter on an annual basis, upon notice to Acquiror
and the Stockholder Representative. Compensation of the Escrow Agent and all
reasonable expenses of the Escrow Agent (including all reasonable attorneys'
fees of those attorneys not regularly in its employ) in connection with the
performance of its services hereunder shall be borne one half by Acquiror and
one half by the Stockholder Representative, on behalf of the Stockholders and
the Warrantholders. The Escrow Agent shall be entitled to reimbursement on
demand for all reasonable out-of-pocket expenses incurred in connection with
the administration of this Agreement or the escrow created hereby which are in
excess of its compensation for normal services hereunder, including without
limitation, payment of any reasonable legal fees and expenses reasonably
incurred by the Escrow Agent in connection with the resolution of any claim of
any party hereunder.
3.3 Indemnification. Notwithstanding anything to the contrary in this
Agreement, Acquiror and the Stockholder Representative, on behalf of the
Stockholders and the Warrantholders, will at their joint and several expense
hold the Escrow Agent, its directors, officers and employees harmless and
indemnify the Escrow Agent in connection with any and all third party claims,
losses, judgments or costs, regardless of their nature, arising out of or
because of this Agreement, except such as may arise because of the Escrow
Agent's gross negligence or willful misconduct or breach of this Agreement
(including, without limitation, Articles 2 and 2A hereof). Any such expense in
the preceding sentence as between Acquiror and the Stockholder Representative
shall be borne jointly and severally by Acquiror and the Stockholder
Representative, on behalf of the Stockholders and the Warrantholders. Acquiror
and the Stockholder Representative, on behalf of the Stockholders and the
Warrantholders, also exonerate said Escrow Agent from any liability in
connection with this Agreement or with the administration of its duties
hereunder, including but not limited to reasonable legal fees and other
reasonable costs and expenses of defending
IX-5
<PAGE>
or preparing to defend against any claim or liability except such as may arise
because of the Escrow Agent's gross negligence or willful misconduct in
performing its specified duties hereunder or breach of this Agreement
(including, without limitation, Articles 2 and 2A hereof). Nothing in this
Section 3.3 shall constitute a waiver of any claim which Acquiror and the
Stockholder Representative, on behalf of the Stockholders and the
Warrantholders, may have against the other for contribution arising from their
joint obligations to hold the Escrow Agent harmless hereunder. Anything in this
Agreement to the contrary notwithstanding, in no event shall the Escrow Agent
be liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action. The Escrow Agent shall not be obligated to take any
legal or other action hereunder which might in its judgment involve any expense
or liability unless it shall have been furnished with acceptable
indemnification.
3.4 Resignation; Removal. The Escrow Agent may resign at any time upon
giving the parties hereto thirty (30) days' prior written notice. Acquiror and
the Stockholder Representative may also, at any time, mutually agree in a
writing signed by Acquiror and the Stockholder Representative to remove the
Escrow Agent upon thirty (30) days' prior written notice. In either event, the
successor Escrow Agent shall be such person, firm or corporation as shall be
mutually selected by Acquiror and the Stockholder Representative. It is
understood and agreed that such resignation or removal shall not be effective
until a successor agrees to act hereunder by signing a copy hereof; provided,
however, if no successor is appointed and acting hereunder within thirty (30)
days after such notice is given, the Escrow Agent may deposit the Escrow
Indemnity Funds and/or the Combined Escrow Holdback Amount with a court of
competent jurisdiction.
ARTICLE 4
LIABILITIES OF ESCROW AGENT
4.1 Limitations.
(a) The Escrow Agent shall be liable only to accept, hold and deliver
the Escrow Indemnity Funds and the Combined Escrow Holdback Amount in
accordance with the provisions of this Agreement and any amendments hereto or
other written instructions executed by Acquiror and the Stockholder
Representative; provided, however, that the Escrow Agent shall not incur any
liability with respect to (a) any action taken or omitted in good faith and
with due care upon the reasonable advice of its counsel, including in-house
counsel, given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement, or (b) any action
taken or omitted in reliance upon any instrument which the Escrow Agent shall
in good faith and with due care believe to be genuine (including the execution
of such instrument, the identity or authority of any person executing such
instrument, its validity and effectiveness, and the truth and accuracy of any
information contained therein), to have been signed by a proper person or
persons and to conform to the provisions of this Agreement.
(b) The Escrow Agent does not have any interest in the Escrow Indemnity
Funds or the Combined Escrow Holdback Amount deposited hereunder but is serving
as escrow holder only and having only possession thereof. The Stockholder
Representative, on behalf of the Stockholders and the Warrantholders, covenants
and agrees that he will pay or reimburse the Escrow Agent upon request for any
transfer taxes, to the extent that any exist, relating to the Escrow Indemnity
Funds or the Combined Escrow Holdback Amount incurred in connection herewith.
Any payments or income from the Escrow Indemnity Funds or the Combined Escrow
Holdback Amount shall be subject to withholding regulations then in force with
respect to United States taxes. The Stockholder Representative, on behalf of
the Stockholders and the Warrantholders, agrees to assume any and all
obligations imposed now or hereafter by any applicable tax law with respect to
the payment of Escrow Indemnity Funds or the Combined Escrow Holdback Amount
under this Agreement to the Stockholder Representative for the benefit of the
Stockholders and the Warrantholders, and to indemnify and hold the Escrow Agent
harmless from and against any taxes, additions for late payment, interest,
penalties and other expenses, that may be assessed against the Escrow Agent in
any such payment or other activities under this Agreement. Acquiror and the
Stockholder Representative undertake to instruct the Escrow Agent in writing
with respect to the Escrow Agent's responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting in connection
IX-6
<PAGE>
with its acting as Escrow Agent under this Agreement. The Stockholder
Representative, on behalf of the Stockholders and the Warrantholders, agrees to
hold the Escrow Agent harmless and the Stockholder Representative, on behalf of
the Stockholders and the Warrantholders, agrees to indemnify the Escrow Agent
for any liability on account of taxes, assessments or other governmental
charges, including without limitation the withholding or deduction or the
failure to withhold or deduct the same, and any liability for failure to obtain
proper certifications or to properly report to governmental authorities, to
which the Escrow Agent may be or become subject in connection with any payment
to the Stockholders or the Warrantholders under this Agreement, including costs
and expenses (including reasonable legal fees and expenses), interest and
penalties. The parties hereto agree that, for tax reporting purposes, all
interest or other income earned in the Escrow Indemnity Funds and the Combined
Escrow Holdback Amount shall be allocable to the Stockholder Representative for
the benefit of the Stockholders and the Warrantholders.
Acquiror agrees to assume any and all obligations imposed now or hereafter
by any applicable tax law with respect to the payment of Escrow Indemnity Funds
and the Combined Escrow Holdback Amount under this Agreement to Acquiror, and
to indemnify and hold the Escrow Agent harmless from and against any taxes,
additions for late payment, interest, penalties and other expenses, that may be
assessed against the Escrow Agent in any such payment or other activities under
this Agreement. Acquiror agrees to hold the Escrow Agent harmless and Acquiror
agrees to indemnify the Escrow Agent for any liability on account of taxes,
assessments or other governmental charges, including without limitation the
withholding or deduction or the failure to withhold or deduct the same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with any payment to Acquiror under this Agreement or which otherwise
arises out of this Agreement, except as provided in the preceding paragraph,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties.
The Escrow Agent shall have no more or less responsibility or liability on
account of any action or omission of any book-entry depository or subescrow
agent employed by the Escrow Agent than any such book-entry depository or
subescrow agent has to the Escrow Agent, except to the extent that such action
or omission of any book-entry depository or subescrow agent was caused by the
Escrow Agent's own gross negligence, bad faith or willful misconduct.
No distributions will be made by the Escrow Agent unless Acquiror and the
Stockholder Representative provide the Escrow Agent with an appropriate W-9
form for tax identification number certification or non-resident alien
certification prior to distribution. This Section 4.1(b) and Section 3.3 hereof
shall survive any termination of this Agreement or the resignation or removal
of the Escrow Agent.
4.2 Collateral Agreements. Other than this Agreement, which shall be
controlling in regards to the Escrow Indemnity Funds and the Combined Escrow
Holdback Amount, the Escrow Agent shall not be bound in any way by any contract
or agreement between other parties hereto, including the Merger Agreement and
the Stockholders' Agreement, whether or not it has knowledge of any such
contract or agreement or of its terms or conditions.
ARTICLE 5
TERMINATION
This Agreement shall be terminated upon the earliest to occur of (a)
disbursement or release of all of the Escrow Indemnity Funds and all of the
Combined Escrow Holdback Amount by the Escrow Agent as provided in this
Agreement, or (b) the written mutual consent signed by each of the parties
hereto. This Agreement shall not be otherwise terminated.
ARTICLE 6
OTHER PROVISIONS
6.1 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing and dispatched
to all of the following parties at the following addresses (or to such other
address as any party may request in a notice delivered in accordance with this
Section 6.1 to the other parties
IX-7
<PAGE>
hereto, provided that notices of a change of address shall be effective only
upon receipt thereof) on the same day and shall be deemed to have been duly
given and received (i) when delivered if delivered by hand or by confirmed
facsimile transmission or telex (with a copy send via a reputable courier
service or registered or certified mail, postage prepaid and return receipt
requested) and (ii) three (3) business days after mailing if mailed by
reputable courier service or registered or certified mail, postage prepaid and
return receipt requested:
If to Acquiror:
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, MA 02111
Telephone: (617) 357-4455
Telecopy: (617) 350-7881
Attention: Chief Executive Officer
With copy (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: William J. Curry, Esq.
and
If to the Stockholder Representative:
Clarke H. Bailey
10 Oxford Road
Larchmont, NY 10538
Telephone: (914) 834-4010
Telecopy: (914) 834-4778
With copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Telephone: (212) 318-6000
Telecopy: (212) 319-4090
Attention: William F. Schwitter, Esq.
If to the Escrow Agent:
The Bank of New York
101 Barclay Street, 12 East
New York, NY 10286
Telephone: (212) 815-7180
Telecopy: (212) 815-7181
Attention: Insurance Trust and Escrow Unit
Unless otherwise refused by Acquiror or the Stockholder Representative in
writing, the Escrow Agent shall assume that the receipt of any notice was
received by Acquiror and the Stockholder Representative on the same day as
received by Escrow Agent.
6.2 Benefit and Assignment. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
IX-8
<PAGE>
Except as is otherwise set forth in Section 3.4 of this Agreement, neither this
Agreement nor any rights, interests or obligations hereunder may be assigned by
the Escrow Agent without the prior written consent of the parties hereto.
6.3 Entire Agreement; Amendment. This Agreement contains all the terms
agreed upon by the parties with respect to the subject matter hereof, except
certain terms and provisions set forth in the Merger Agreement and the
Stockholders' Agreement and except that capitalized terms not otherwise used
herein shall have the meanings set forth in the Merger Agreement. This Agreement
may be amended only by a written instrument signed by the parties against which
enforcement of any waiver, change, modification, extension or discharge is
sought. A waiver of any of the terms and conditions of this Escrow Agreement on
one occasion shall not constitute a waiver of the other terms of this Agreement,
or of such terms and conditions on any other occasion.
6.4 Tax Identification Numbers. Each party hereto, except the Escrow Agent,
shall provide the Escrow Agent with their Tax Identification Number (TIN) as
assigned by the Internal Revenue Service. All interest or other income earned
under this Agreement shall be allocated and paid as provided herein and reported
by the recipient to the Internal Revenue Service as having been so allocated and
paid.
6.5 Confirmation of Transfer Instructions; Certain Account Numbers.
(a) In the event funds transfer instructions are given (other than in
writing at the time of execution of this Agreement), whether in writing, by
telecopier or otherwise, the Escrow Agent shall seek confirmation of such
instructions by telephone call-back to the person or persons designated from
time to time in writing by the respective parties hereto, and the Escrow Agent
may rely upon the confirmations of anyone purporting to be the person or
persons so designated. The persons and telephone numbers for call-backs may be
changed only in a writing actually received and acknowledged by the Escrow
Agent. The parties to this Agreement acknowledge that such security procedure
is commercially reasonable.
(b) It is understood that the Escrow Agent, in connection with any funds
transfer, may rely solely upon any account numbers or similar identifying
number provided by the parties hereto to identify (i) such party, (ii) such
party's bank, or (iii) an intermediary bank.
6.6 Headings. The headings of the sections and subsections of this
Agreement are for ease of reference only and do not evidence the intentions of
the parties.
6.7 Governing Law. This agreement shall be governed by and construed and
enforced in accordance with the law (other than the law governing conflict of
law questions) of the State of New York.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9 Dispute Resolution. It is understood and agreed that should any dispute
arise, including a dispute described in Section 2.4 or 2A.4 hereof, with respect
to the delivery, ownership, right of possession, and/or disposition of the
Escrow Indemnity Funds or the Combined Escrow Holdback Amount, or should any
claim be made upon such Escrow Indemnity Funds or the Combined Escrow Holdback
Amount by a third party, the Escrow Agent upon receipt of written notice of such
dispute or claim by the parties hereto or by a third party, is authorized and
directed to retain in its possession without liability to anyone, all or any of
said Escrow Indemnity Funds or said Combined Escrow Holdback Amount until such
dispute shall have been settled either by the mutual written agreement of the
parties involved, by final decision of an arbitrator or arbitration panel
appointed in accordance with Article 9 of the Merger Agreement or by a final
order, decree or judgment of a Court in the United States of America, the time
for perfection of an appeal of such decision, order, decree or judgment having
expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to the Escrow Indemnity
Funds or the Combined Escrow Holdback Amount.
6.10 Consent to Jurisdiction and Service. Acquiror and the Stockholder
Representative hereby absolutely and irrevocably consent and submit to the
jurisdiction of the courts in the State of New York and of any Federal court
located in said State in connection with any actions or proceedings brought
against Acquiror and the Stockholder Representative by the Escrow Agent arising
out of or relating to this Escrow Agreement. In any such action or proceeding,
Acquiror and the Stockholder Representative hereby absolutely and irrevocably
waive
IX-9
<PAGE>
personal service of any summons, complaint, declaration or other process and
hereby absolutely and irrevocably agree that the service thereof may be made by
certified or registered first-class mail directed to Acquiror and the
Stockholder Representative, as the case may be, at their respective addresses
in accordance with Section 6.1 hereof.
6.11 Force Majeure. Neither Acquiror nor the Stockholder Representative
nor the Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
6.12 Reproduction of Documents. This Agreement and all documents relating
hereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
6.13 Joint and Several Obligations. Notwithstanding anything to the
contrary in Sections 3.2, 3.3 or 4.1 hereof, the Escrow Agent, Acquiror and the
Stockholder Representative hereby agree that with respect to any
indemnification or other obligation that the Stockholder Representative and the
Stockholders owe to the Escrow Agent or the Acquiror in connection with the
Stockholder Representative's and the Stockholders' joint and several
obligations with Acquiror for indemnifications and obligations owed to the
Escrow Agent under this Agreement, the Escrow Agent and the Acquiror's sole
recourse against the Stockholder Representative for any such amounts shall be
to the Escrow Indemnity Funds and the Estimated Expense Amount. Acquiror shall
be reimbursed by the Stockholder Representative for the Stockholder
Representative's half of the aggregate amount of any such indemnification or
obligation (i) first, from the interest and income on the Escrow Indemnity
Funds when such interest or income is earned or otherwise becomes available,
(ii) second, to the extent such interest and other income is insufficient to
reimburse Acquiror at the end of the Escrow Indemnity Period, from the
Estimated Expense Amount and (iii) third, to the extent the Estimated Expense
Amount is insufficient to reimburse Acquiror at the end of the Escrow Indemnity
Period, from the Escrow Indemnity Funds, if any, remaining at the expiration of
the Escrow Indemnity Period. Acquiror shall give the Stockholder Representative
written notice of any such indemnification or obligations within a reasonable
time after such indemnification or obligations arise, and in any case before
paying any such indemnification or obligation to the Escrow Agent.
[remainder of page intentionally left blank]
IX-10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized partners or officers as of the day and
year first written above.
ACQUIROR:
IRON MOUNTAIN INCORPORATED
By:
--------------------------------------
Name:
Title:
THE COMPANY:
ARCUS GROUP, INC.
By:
--------------------------------------
Name:
Title:
STOCKHOLDER REPRESENTATIVE:
------------------------------------------
Clarke H. Bailey, as Stockholder
Representative
ESCROW AGENT:
THE BANK OF NEW YORK, as Escrow Agent
By:
--------------------------------------
Name:
Title:
IX-11
<PAGE>
Exhibit A
Merger Agreement
[SEE ANNEX I]
IX-12
<PAGE>
ANNEX X
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to [sec]228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to [sec]251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
stockholders; and further provided that no appraisal rights shall be available
for any shares of stock of the constituent corporation surviving a merger if
the merger did not require for its approval the vote of the holders of the
surviving corporation as provided in subsection (f) of [sec]251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to [sec][sec]251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depositary receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under [sec]253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the
X-1
<PAGE>
procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to [sec]228 or
[sec]253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation,
and shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all
such holders of any class or series of stock of a constituent corporation that
are entitled to appraisal rights. Such notice may, and, if given on or after
the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is give, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or
X-2
<PAGE>
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose
X-3
<PAGE>
or to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
X-4
<PAGE>
NEVADA GENERAL CORPORATION LAW RIGHTS OF DISSENTING OWNERS
92A.300 DEFINITIONS.--As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
92A.305 "BENEFICIAL STOCKHOLDER" DEFINED.--"Beneficial stockholder" means
a person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
92A.310 "CORPORATE ACTION" DEFINED.--"Corporate action" means the action
of a domestic corporation.
92A.315 "DISSENTER" DEFINED.--"Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
92A.320 "FAIR VALUE" DEFINED.--"Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of
the corporate action to which he objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
92A.325 "STOCKHOLDER" DEFINED.--"Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
92A.330 "STOCKHOLDER OF RECORD" DEFINED.--"Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
92A.335 "SUBJECT CORPORATION" DEFINED.--"Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
92A.340 COMPUTATION OF INTEREST.--Interest payable pursuant to NRS 92A.300
to 92A.500, inclusive, must be computed from the effective date of the action
until the date of payment, at the average rate currently paid by the entity on
its principal bank loans or, if it has no bank loans, at a rate that is fair
and equitable under all of the circumstances.
92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.--A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with
any merger or exchange in which the domestic limited partnership is a
constituent entity.
92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY.--The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.--
1. Except as otherwise provided in subsection 2 and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or
surviving corporations which did not occur before his resignation and is
thereby entitled to those rights, if any, which would have existed if there had
been no merger and the membership had been terminated or the member had been
expelled.
X-5
<PAGE>
2. Unless otherwise provided in its articles of incorporation or bylaws,
no member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of
NRS to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection I.
92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT FOR SHARES.--1. Except as otherwise provided in NRS 92A.370
to 92A.390, a stockholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of any of the following corporate
actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation is
a party as the corporation whose subject owner's interests will be acquired, if
he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
92A.390 LIMITATION ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.--1. There is no
right of dissent with respect to a plan of merger or exchange in favor of
stockholders of any class or series which, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting at
which the plan of merger or exchange is to be acted on, were either listed on a
national securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of merger
or exchange, were either listed on a national securities exchange, included in
the national market system by the National Association of Securities Dealers,
Inc., or held of record by at least 2,000 holders of owner's interests of
record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.--
1. A stockholder of record may assert dissenter's rights as to fewer than all
of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf
he asserts dissenter's rights. The rights of a
X-6
<PAGE>
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.--1. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, the notice of the meeting must state that stockholders
are or may be entitled to assert dissenters' rights under NRS 92A.300 to
92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.--1. If a proposed
corporate action creating dissenters' rights is submitted to a vote at a
stockholders' meeting, a stockholder who wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.--1. If a proposed corporate action creating dissenters'
rights is authorized at a stockholders' meeting, the subject corporation shall
deliver a written dissenter's notice to all stockholders who satisfied the
requirements to assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF THE STOCKHOLDER.--1. A stockholder to whom a dissenter's notice is
sent must:
(a) Demand payment;
X-7
<PAGE>
(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND
FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.--1. The subject corporation
may restrict the transfer of shares not represented by a certificate from the
date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.--1. Except as otherwise
provided in NRS 92A.470, within 30 days after receipt of a demand for payment,
the subject corporation shall pay each dissenter who complied with NRS 92A.440
the amount the subject corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the subject corporation under
this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholder's equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.--1. A subject corporation may elect to withhold payment
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenter's notice as the date of the first announcement
to the news media or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.--1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand
X-8
<PAGE>
payment of his estimate, less any payment pursuant to NRS 92A.460, or reject
the offer pursuant to NRS 92A.470 and demand payment of the fair value of his
shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.--1. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within
60 days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant
to NRS 92A.470.
92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.-- 1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the subject corporation,
the
X-9
<PAGE>
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
X-10
<PAGE>
ANNEX XI
ARCUS GROUP, INC.
UNITED ACQUISITION COMPANY
ARCUS TECHNOLOGY SERVICES, INC.
667 Madison Avenue, 25th Floor
New York, New York 10021-8029
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 5, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARDS OF DIRECTORS OF
ARCUS GROUP, INC., UNITED ACQUISITION COMPANY AND ARCUS TECHNOLOGY SERVICES,
INC.
The undersigned, revoking any proxy heretofore given, hereby constitutes
and appoints Clarke H. Bailey and Richard S. Meller and each of them, the proxy
of the undersigned, with full power of substitution, to vote all shares of
common stock, $.0001 par value per share, of Arcus Group, Inc. ("AGI"), all
shares of common stock, $.01 par value per share, of United Acquisition Company
("UAC"), all shares of Series A Preferred Stock, par value $.01 per share, of
UAC, and all shares of common stock, par value $.01 per share, of Arcus
Technology Services, Inc. ("ATSI") held of record by the undersigned at the
close of business on November 20, 1997, on behalf of the undersigned at the
Special Meetings of Stockholders of each of AGI, UAC and ATSI to be held
simultaneously on Monday, January 5, 1998 at 10:00 a.m., local time, at Sullivan
& Worcester LLP located at One Post Office Square, Boston, Massachusetts 02109,
and at any adjournments or postponements thereof, hereby granting full power
and authority to act on behalf of the undersigned at said meetings and any
adjournments thereof. In their discretion, the proxies are each authorized to
vote upon such other business as may properly come before said meetings;
however, the proxies voting against any proposal put before the AGI
Stockholders Meeting, UAC Stockholders Meeting or ATSI Stockholders Meeting, as
the case may be, may not be used by management to vote for adjournment of the
meeting of such stockholders.
When properly executed, this proxy will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR the approval and adoption of each of the Proposals set forth
below on which such stockholder is entitled to vote, as such has been
recommended by the Boards of Directors of AGI, UAC and ATSI, respectively, so
that a stockholder wishing to vote in accordance with the Boards of Directors'
recommendations need only sign and date this proxy on the reverse side and
return it in the enclosed envelope.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON AND DATE ON REVERSE SIDE AND RETURN
YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
See Reverse
Side
XI-1
<PAGE>
- - Please mark votes as in this example
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of the Special Meeting of Stockholders and Joint Proxy
Statement--Prospectus and hereby revokes any proxy or proxies heretofore given.
This proxy may be revoked at any time before it is voted on any matter
(without, however, affecting any vote taken prior to such revocation) pursuant
to the revocation methods specified in the Joint Proxy Statement--Prospectus.
This proxy pertains to such business as may properly come before the Special
Meetings of Stockholders and any adjournment thereof, including, without
limiting such general authorization, the following proposals described in the
Joint Proxy Statement--Prospectus:
Proposals for UAC Common Stockholders
(1) to approve and adopt the Agreement and Plan of Merger between UAC and
AGI (the "UAC Reorganization Agreement") pursuant to which UAC will merge with
and into AGI, with AGI continuing as the surviving corporation (the "UAC
Reorganization")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) to amend the Articles of Incorporation of UAC (the "UAC Articles") to
eliminate the prohibition in Article VI, Section 2(b) of the UAC Articles on
paying dividends to holders of any class of stock other than UAC Series A
Preferred Stock, until all dividends payable on UAC Series A Preferred Stock
have been paid with respect to the Merger of AGI with and into Iron Mountain
Incorporated pursuant to the Agreement and Plan of Merger by and among Iron
Mountain Incorporated and the Arcus Parties dated as of September 26, 1997, as
amended (the "Merger Agreement"), the UAC Reorganization, the UAC Warrant
Repurchases (defined below) and the other transactions contemplated by the
Merger Agreement (collectively, the "Transactions")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) to amend the UAC Articles of Incorporation to eliminate the
requirement that upon any involuntary or voluntary liquidation of UAC,
including a merger which does not result in all persons who hold UAC Common
Stock prior to the merger holding a majority of the voting shares of the
surviving corporation after such merger, holders of UAC Series A Preferred
Stock shall receive the liquidation preference of their shares before any amount
shall be paid to holders of any other class of shares and that distributions
payable in property other than cash be valued at their fair market value with
respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) to amend the UAC Articles of Incorporation to eliminate the
requirement that UAC obtain the approval of holders of at least 66-2/3% of UAC
Series A Preferred Stock before (a) UAC or any of its subsidiaries, including
ATSI, may merge with any other corporation, subject to certain exceptions, or
(b) any amendments to the UAC Articles of Incorporation may be made which would
adversely affect certain rights, preferences, or privileges of, or limitations
provided for the benefit of, holders of UAC Series A Preferred Stock in the UAC
Articles of Incorporation with respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) to amend the UAC Articles of Incorporation to eliminate the
prohibition against UAC, by amendment of the UAC Articles of Incorporation or
through any reorganization, merger or other specified actions, avoiding or
seeking to avoid the observance or performance of any of the terms of UAC
Series A Preferred Stock set forth therein with respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) to amend the UAC Articles of Incorporation to eliminate the
prohibition against UAC entering into any merger in which the surviving company
does not agree to be bound by the terms of UAC Series A Preferred Stock with
respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
XI-2
<PAGE>
(7) to amend the UAC Articles of Incorporation to reduce the stated
liquidation preference of the UAC Series A Preferred Stock to take account of
that portion of the expenses associated with the Transactions to be borne by
the holders of the UAC Series A Preferred Stock
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposals for UAC Series A Preferred Stockholders
(1) to approve and adopt the Agreement and Plan of Merger between UAC and
AGI (the "UAC Reorganization Agreement") pursuant to which UAC will merge with
and into AGI, with AGI continuing as the surviving corporation (the "UAC
Reorganization")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) to amend the Articles of Incorporation of UAC (the "UAC Articles") to
eliminate the prohibition in Article VI, Section 2(b) of the UAC Articles on
paying dividends to holders of any class of stock other than UAC Series A
Preferred Stock, until all dividends payable on UAC Series A Preferred Stock
have been paid with respect to the Merger of AGI with and into Iron Mountain
Incorporated pursuant to the Agreement and Plan of Merger by and among Iron
Mountain Incorporated and the Arcus Parties dated as of September 26, 1997, as
amended as of November 25, 1997 (the "Merger Agreement"), the UAC
Reorganization, the UAC Warrant Repurchases (defined below) and the other
transactions contemplated by the Merger Agreement (collectively, the
"Transactions")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) to amend the UAC Articles of Incorporation to eliminate the
requirement that upon any involuntary or voluntary liquidation of UAC,
including a merger which does not result in all persons who hold UAC Common
Stock prior to the merger holding a majority of the voting shares of the
surviving corporation after such merger, holders of UAC Series A Preferred
Stock shall receive the liquidation preference of their shares before any amount
shall be paid to holders of any other class of shares and that distributions
payable in property other than cash be valued at their fair market value with
respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) to amend the UAC Articles of Incorporation to eliminate the
requirement that UAC obtain the approval of holders of at least 66-2/3% of UAC
Series A Preferred Stock before (a) UAC or any of its subsidiaries, including
ATSI, may merge with any other corporation, subject to certain exceptions, or
(b) any amendments to the UAC Articles of Incorporation may be made which would
adversely affect certain rights, preferences, or privileges of, or limitations
provided for the benefit of, holders of UAC Series A Preferred Stock in the UAC
Articles of Incorporation with respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) to amend the UAC Articles of Incorporation to eliminate the
prohibition against UAC, by amendment of the UAC Articles of Incorporation or
through any reorganization, merger or other specified actions, avoiding or
seeking to avoid the observance or performance of any of the terms of UAC
Series A Preferred Stock set forth therein with respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) to amend the UAC Articles of Incorporation to eliminate the
prohibition against UAC entering into any merger in which the surviving company
does not agree to be bound by the terms of UAC Series A Preferred Stock with
respect to the Transactions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(7) to amend the UAC Articles of Incorporation to reduce the stated
liquidation preference of the UAC Series A Preferred Stock to take account of
that portion of the expenses associated with the Transactions to be borne by
the holders of the UAC Series A Preferred Stock
[ ] FOR [ ] AGAINST [ ] ABSTAIN
XI-3
<PAGE>
(8) to approve and adopt a series of agreements and transactions
(collectively, the "UAC Warrant Repurchases") between UAC and certain holders
of warrants to purchase UAC Common Stock ("Warrants;" holders of Warrants are
referred to as "Warrantholders") whereby UAC will repurchase certain of such
Warrants in exchange for 158,729 shares of convertible Series C Preferred Stock
in Connected Corp., a Delaware corporation currently held by UAC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(9) to approve and adopt the Agreement and Plan of Merger between ATSI
and AGI pursuant to which, after giving effect to the UAC Reorganization, and
the UAC Warrant Repurchases, ATSI will merge with and into AGI, with AGI
continuing as the surviving corporation (the "ATSI Reorganization Agreement")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal for ATSI Stockholders
(i) to approve and adopt an Agreement and Plan of Merger between ATSI and
AGI (the "ATSI Reorganization Agreement"), pursuant to which, after giving
effect to the UAC Reorganization, and the UAC Warrant Repurchases, ATSI will
merge with and into AGI, with AGI continuing as the surviving corporation (the
"ATSI Reorganization")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposals for AGI Stockholders
(1) to amend the Restated Certificate of Incorporation of AGI (the "AGI
Certificate") to create a class of preferred stock, par value $.0001 per share,
of AGI (the "AGI Preferred Stock") into which, pursuant to the UAC
Reorganization Agreement, UAC Series A Preferred Stock will be converted on a
share-for-share basis, with the same rights, preferences and privileges as UAC
Series A Preferred Stock will hold under the UAC Articles after giving effect
to the proposed UAC Charter Amendments
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) to amend the AGI Certificate to increase the number of authorized
shares of AGI Common Stock from 11,661,290 to 100,000,000
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) to amend the AGI Certificate to exempt the Transactions from the
limitations on transfer set forth in Article 11 of the AGI Certificate for
transfers of shares of AGI Common Stock or AGI Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) to approve and adopt the UAC Reorganization Agreement
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) to approve and adopt the ATSI Reorganization Agreement
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) to approve and adopt the Merger Agreement
[ ] FOR [ ] AGAINST [ ] ABSTAIN
XI-4
<PAGE>
HERE MARK HERE IF MARK
FOR ADDRESS [ ] YOU PLAN TO [ ]
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
Please date and sign exactly as name appears
hereon and return in the enclosed envelope. Where
there is more than one holder only one must sign.
When signing as an attorney, administrator,
executor, guardian or trustee, please add your
full title as such. If executed by a corporation,
the proxy should be signed by a duly authorized
person, stating his or her title or authority.
Signature: ------------------
Date ----------------
Signature: ------------------
Date ----------------
XI-5
<PAGE>
ANNEX XII
IRON MOUNTAIN INCORPORATED
745 Atlantic Avenue
Boston, MA 02111
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 5, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking any proxy heretofore given, hereby constitutes
and appoints C. Richard Reese, David S. Wendell and John F. Kenny, Jr., and
each of them, the proxy of the undersigned, with full power of substitution, to
vote all shares of common stock, $.01 par value per share, of Iron Mountain
Incorporated (the "Corporation") held of record by the undersigned at the close
of business on November 28, 1997, on behalf of the undersigned at the Special
Meeting of Stockholders of the Corporation to be held on Monday, January 5, 1998
at 10:00 a.m., local time, at the offices of Sullivan & Worcester LLP located
at One Post Office Square, Boston, Massachusetts, and at any adjournments
thereof, hereby granting full power and authority to act on behalf of the
undersigned at said meeting and any adjournments thereof. In their discretion,
the proxies are each authorized to vote upon such other business as may
properly come before said meeting; however, the proxies voting against the
proposal may not be used by management to vote for adjournment of said meeting.
When properly executed, this proxy will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR the approval and adoption of the Agreement and Plan of
Merger, dated as of September 26, 1997, as amended, by and among the
Corporation, Arcus Group, Inc., United Acquisition Company and Arcus Technology
Services, Inc., and each of the transactions contemplated thereby, FOR the
approval of the amendment to the Corporation's Amended and Restated Certificate
of Incorporation to increase the number of shares of the Corporation's Common
Stock, par value $.01 per share, from 20,000,000 to 100,000,000, and FOR the
approval of the amendment to the Corporation's Amended and Restated Certificate
of Incorporation to increase the number of shares of the Corporation's
Preferred Stock, par value $.01 per share, from 2,000,000 to 10,000,000, as
such proposals have been recommended by the Board of Directors, so that a
stockholder wishing to vote in accordance with the Board of Directors'
recommendation need only sign and date this proxy on the reverse side and
return it in the enclosed envelope.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON AND DATE ON REVERSE SIDE AND RETURN
YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
See Reverse
Side
XII-1
<PAGE>
- - Please mark votes as in this example
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of the Special Meeting of Stockholders and Joint Proxy
Statement--Prospectus and hereby revokes any proxy or proxies heretofore given.
This proxy may be revoked at any time before it is voted on any matter
(without, however, affecting any vote taken prior to such revocation) pursuant
to the revocation methods specified in the Joint Proxy Statement--Prospectus.
This proxy pertains to such business as may properly come before the Special
Meeting of Stockholders of the Corporation and any adjournment thereof
including, without limiting such general authorization, the following proposals
described in the Joint Proxy Statement--Prospectus:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
September 26, 1997, as amended, by and among Iron Mountain
Incorporated, Arcus Group, Inc., United Acquisition Company and Arcus
Technology Services, Inc., and each of the transactions contemplated
thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of an amendment to the Corporation's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Iron Mountain Common Stock from 20,000,000 to 100,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to the Corporation's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Iron Mountain Preferred Stock from 2,000,000 to 10,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE MARK HERE IF
FOR ADDRESS [ ] YOU PLAN TO [ ]
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
Please date and sign exactly as name appears
hereon and return in the enclosed envelope. Where
there is more than one holder only one must sign.
When signing as an attorney, administrator,
executor, guardian or trustee, please add your
full title as such. If executed by a corporation,
the proxy should be signed by a duly authorized
person, stating his or her title or authority.
Signature: ------------------
Date ----------------
Signature: ------------------
Date ----------------
XII-2
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact
that he is or was a Director, officer, employee or agent of Iron Mountain may
and, in certain cases, must be indemnified by Iron Mountain against, in the
case of a non-derivative action, judgments, fines, amounts paid in settlement
and reasonable expenses (including attorney's fees) incurred by him as a result
of such action, and in the case of a derivative action, against expenses
(including attorney's fees), if in either type of action he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of Iron Mountain. This indemnification does not apply, in a
derivative action, to matters as to which it is adjudged that the Director,
officer, employee or agent is liable to Iron Mountain, unless upon court order
it is determined that, despite such adjudication of liability, but in view of
all the circumstances of the case, he is fairly and reasonably entitled to
indemnity for expenses, and, in a non-derivative action, to any criminal
proceeding in which such person had reasonable cause to believe his conduct was
unlawful.
Article Sixth of Iron Mountain's Restated Certificate of Incorporation
provides that Iron Mountain shall indemnify each person who is or was an
officer or Director of Iron Mountain to the fullest extent permitted by Section
145 of the DGCL.
Article Seventh of Iron Mountain's Restated Certificate of Incorporation
states that no Director of Iron Mountain shall be liable to Iron Mountain or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except to the extent that exculpation from liability is not permitted
under the DGCL as in effect when such breach occurred.
Item 21. Exhibits and Financial Statement Schedules.
Exhibits indicated below are incorporated by reference to documents of
Iron Mountain on file with the Securities and Exchange Commission. Exhibit
numbers in parentheses refer to the exhibit numbers in the applicable filing.
All other exhibits are filed herewith.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ------------- ---------------------------------------------------------------------- ------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of September 26, 1997, by and (2.2)7
among Iron Mountain, Arcus Group, Inc., United Acquisition
Company and Arcus Technology Services, Inc. (collectively, the
"Arcus Parties")
2.1A Amendment No. 1 to Agreement and Plan of Merger, dated as of Filed herewith as
November 25, 1997, by and among Iron Mountain and each of the Exhibit 2.1A
Arcus Parties
2.2 Agreement and Plan of Merger, dated as of February 19, 1997, by and (2)3
among Iron Mountain, IM-1 Acquisition Corp. and Safesite Records
Management Corporation
2.3 Amendment No. 1 to Agreement and Plan of Merger, dated as of April (2A)5
1, 1997, by and among Iron Mountain, IM-1 Acquisition Corp. and
Safesite Records Management Corporation
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ------------- ------------------------------------------------------------------------ ------------------
<S> <C> <C>
2.4 Amendment No. 2 to Agreement and Plan of Merger, dated as of May (2B)5
7, 1997, by and among Iron Mountain, IM-1 Acquisition Corp. and
Safesite Records Management Corporation
2.5 Agreement and Plan of Merger, dated as of August 25,1997, by and (2.3)7
among Iron Mountain, DSI Acquisition Corporation and Data
Securities International, Inc.
2.6 Agreement and Plan of Merger, dated as of September 17,1997, by and (2.2)8
among Iron Mountain, IM-3 Acquisition Corp. and HIMSCORP, Inc.
3.1 Amended and Restated Certificate of Incorporation of Iron Mountain, as (3.1)4
amended
3.2 By-Laws of Iron Mountain, as amended (3.2)4
5 Opinion of Sullivan & Worcester LLP Filed herewith as
Exhibit 5
8.1 Opinion of Sullivan & Worcester LLP regarding certain federal income Filed herewith as
tax matters Exhibit 8.1
8.2 Opinion of Neal, Gerber & Eisenberg regarding certain federal income Filed herewith as
tax matters Exhibit 8.2
10.1 Second Amended and Restated Credit Agreement, dated as of September (10.1)7
26, 1997, among Iron Mountain, the lenders party thereto and The
Chase Manhattan Bank, as Administrative Agent
10.2 Indenture for 10-1/8% Senior Subordinated Notes due 2006 by and among (10.3) 3
Iron Mountain, certain of its subsidiaries and First National
Association, as trustee, dated October 1,1996
10.3 Indenture for 8-3/4% Senior Subordinated Notes due 2009 by and among (4.1) 6
Iron Mountain, certain of its subsidiaries and The Bank of New York,
as trustee, dated October 24, 1997
10.4 Iron Mountain Incorporated 1995 Stock Incentive Plan, as amended (10.1)4
10.5 Asset Purchase and Sale Agreement, dated November 22,1995 among (10.17)1
Iron Mountain Records Management, Inc. ("IMRM"), Data
Management Business Records Storage,Inc. and Outdoor West, Inc.
10.6 Record Center Storage Services Agreement between IMRM and (10.18)1
Resolution Trust Corporation, dated July 31, 1992, as renewed by
letter agreement effective July 26, 1996 between Iron Mountain and
the Federal Deposit Insurance Corporation
10.7 Lease between IMRM and IM Houston (CR) Limited Partnership, dated (10.19)1
January 1, 1991
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ------------- ------------------------------------------------------------------------- ------------------
<S> <C> <C>
10.8 Asset Purchase and Sale Agreement, dated July 11, 1996, among (10.20)2
IMRM, The Fortress Corporation and certain subsidiaries
10.9 Stock Purchase and Sale Agreement, dated as of August 9,1996, among (10.21)2
IMRM and the shareholders of Data Archive Services of Miami, Inc.
and Data Archives Services, Inc.
10.10 Asset Purchase Agreement, dated as of September 6, 1996, among (10.23)2
IMRM, Mohawk Business Record Storage, Inc., Michael M. Rabin,
Richard K. Rabin, Herman Ladin and Sidney Ladin
10.11 Amended and Restated Registration Rights Agreement between Iron (10.2)4
Mountain and certain Stockholders, dated as of June 12, 1997
10.12 Joinder to Registration Rights Agreement, dated as of October 31, 1997, Filed herewith as
by and between Iron Mountain and Kent P. Dauten Exhibit 10.12
10.13 Stockholders' Agreement, dated as of February 19, 1997 by and among (10.20)3
Iron Mountain and certain stockholders of Safesite Records
Management Corporation
10.14 Asset Purchase and Sale Agreement, dated March 12,1997, by and (10.22)5
among IMRM, Chicago Data Destruction Corporation, and John
Mengel and John S. Mengel
10.15 Asset Purchase and Sale Agreement, dated as of August 20,1997, by and (10.2)7
between IMRM and Records Retention/FileSafe, L.P.
10.16 Stockholders' Agreement, dated as of September 26, 1997, by and Filed herewith as
among Iron Mountain and certain stockholders of the Arcus Parties Annex V
10.17 Acquiror Voting Agreement, dated as of September 26,1997, by and Filed herewith as
among Iron Mountain, the Arcus Parties and certain stockholders of Annex VI
Iron Mountain
10.18 Exchange and Registration Rights Agreement, dated as of October 21, Filed herewith as
1997, among Iron Mountain, certain subsidiaries of Iron Mountain Exhibit 10.18
and Bear, Stearns & Co. Inc. on behalf of itself and the other Initial
Purchasers of Iron Mountain's 8-3/4% Senior Subordinated Notes
due 2009
11 Statement re: computation of per share earnings (11)7
21 Subsidiaries of Iron Mountain Filed herewith as
Exhibit 21
23.1 Consent of Ernst & Young LLP (Arcus Group, Inc., Arcus Technology Filed herewith as
Services, Inc. and United Acquisition Company) Exhibit 23.1
23.2 Consent of Arthur Andersen LLP (Arcus Group, Inc. and United Filed herewith as
Acquisition Company) Exhibit 23.2
23.3 Consent of Ernst & Young LLP (HIMSCORP, Inc. and Subsidiaries Filed herewith as
Exhibit 23.3
23.4 Consent of Stout, Causey & Horning, P.A. (Allegiance Business Filed herewith as
Archives, Ltd.) Exhibit 23.4
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ------------- ------------------------------------------------------------------------- ------------------
<S> <C> <C>
23.5 Consent of Abbott, Stringham & Lynch (Records Retention/FileSafe) Filed herewith as
Exhibit 23.5
23.6 Consent of Arthur Andersen LLP (Security Archives of Minnesota, Filed herewith as
Wellington Financial Services, Inc. and Data Securities International, Exhibit 23.6
Inc.)
23.7 Consent of Fisher, Schacht & Oliver, LLP (Concorde Group, Inc. and Filed herewith as
Neil Tucker Trust) Exhibit 23.7
23.8 Consent of Arthur Andersen LLP (Safesite Records Management Filed herewith as
Corporation and Mohawk Business Record Storage, Inc.) Exhibit 23.8
23.9 Consent of Geo. S. Olive & Co. LLC (Nashville Vault Company, Ltd.) Filed herewith as
Exhibit 23.9
23.10 Consent of Rothstein, Kass & Company, P.C. (International Record Filed herewith as
Storage and Retrieval Service, Inc.) Exhibit 23.10
23.11 Consent of Arthur Andersen LLP (Iron Mountain Incorporated) Filed herewith as
Exhibit 23.11
23.12 Consent of Sullivan & Worcester LLP Contained in
Exhibit 5 and
Exhibit 8.1 filed
herewith
23.13 Consent of Neal, Gerber & Eisenberg Contained in
Exhibit 8.2 filed
herewith
23.14 Consent of Donaldson, Lufkin & Jenrette Securities Corporation Filed herewith as
Exhibit 23.14
23.15 Consent of Bear, Stearns & Co. Inc. Filed herewith as
Exhibit 23.15
24 Powers of Attorney Contained in
Page II-7 of the
Registration
Statement
27 Financial Data Schedule (27)7
99.1 Consent of Clarke H. Bailey to use of his name as a director nominee of Filed herewith as
Iron Mountain Exhibit 99.1
</TABLE>
- ----------
1 Filed as an Exhibit to Iron Mountain's Registration Statement No. 33-99950
filed with the Securities and Exchange Commission on December 1, 1995.
2 Filed as an Exhibit to Iron Mountain's Registration Statement No. 333-10359
filed with the Securities and Exchange Commission on August 16, 1996.
3 Filed as an Exhibit to Iron Mountain's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Securities and Exchange
Commission, File No. 0-27584.
4 Filed as an Exhibit to Iron Mountain's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Securities and Exchange
Commission, File No. 0-27584.
5 Filed as an Exhibit to Iron Mountain's Registration Statement No. 333-24635
filed with the Securities and Exchange Commission on April 4, 1997, as
amended on May 7, 1997 and May 13, 1997.
6 Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K dated
October 30, 1997, filed with the Securities and Exchange Commission, File
No. 0-27584.
II-4
<PAGE>
7 Filed as an Exhibit to Iron Mountain's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, filed with the Securities and Exchange
Commission, File No. 0-27584.
8 Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K/A dated
November 10, 1997, filed with the Securities and Exchange Commission, File
No. 0-27584.
(b) Financial Statement Schedules
None.
Item 22. Undertakings
Iron Mountain hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Act of 1934, as amended (the "Exchange Act") that are incorporated
by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering;
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated
II-5
<PAGE>
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form;
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of this Registration Statement through the date of responding to the
request;
(8) To supply by means of a post-effective amendment, all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it
became effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers and controlling persons of Iron
Mountain, Iron Mountain has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Iron Mountain in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, Iron Mountain will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Iron Mountain
Incorporated has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on November 26, 1997.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
------------------------------
Name: C. Richard Reese
Title: Chairman of the Board
of Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-4 relating to Common Stock has been signed below on
November 26, 1997 by the following persons in the capacities and on the dates
indicated; and each of the undersigned officers and Directors of Iron Mountain
Incorporated hereby severally constitutes and appoints C. Richard Reese, David
S. Wendell and John F. Kenny, Jr., and each of them, to sign for him, and in
his name in the capacity indicated below, such Registration Statement for the
purpose of registering such securities under the Securities Act, and any and
all amendments thereto, including without limitation any registration statement
or post-effective amendment thereof filed under and meeting the requirements of
Rule 462(b) under the Securities Act, hereby ratifying and confirming our
signatures as they may be signed by our attorneys to such Registration
Statement and any and all amendments thereto.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ C. Richard Reese Chairman of the Board of Directors
- ------------------------- and Chief Executive Officer November 26, 1997
C. Richard Reese
/s/ David S. Wendell President, Chief Operating Officer November 26, 1997
- ------------------------- and Director
David S. Wendell
/s/ John F. Kenny, Jr. Executive Vice President and Chief
- ------------------------- Financial Officer November 26, 1997
John F. Kenny, Jr.
/s/ Eugene B. Doggett Executive Vice President
- ------------------------- and Director November 26, 1997
Eugene B. Doggett
/s/ Constantin R. Boden Director November 26, 1997
- -------------------------
Constantin R. Boden
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Arthur D. Little
- -------------------------
Arthur D. Little Director November 26, 1997
/s/ Vincent J. Ryan
- -------------------------
Vincent J. Ryan Director November 26, 1997
/s/ B. Thomas Golisano
- -------------------------
B. Thomas Golisano Director November 26, 1997
/s/ Kent P. Dauten
- -------------------------
Kent P. Dauten Director November 26, 1997
/s/ Jean A. Bua
- ------------------------- Vice President and
Jean A. Bua Corporate Controller November 26, 1997
</TABLE>
II-8
EXHIBIT 2.1A
AMENDMENT NO. 1
to
AGREEMENT AND PLAN OF MERGER
By and Among
IRON MOUNTAIN INCORPORATED,
ARCUS GROUP, INC.,
UNITED ACQUISITION COMPANY
and
ARCUS TECHNOLOGY SERVICES, INC.
dated as of
November 25, 1997
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of November 25,
1997, by and among Iron Mountain Incorporated, a Delaware corporation
("Acquiror"), Arcus Group, Inc., a Delaware corporation (the "Company"), United
Acquisition Company, a Nevada corporation ("UAC"), and Arcus Technology
Services, Inc., a Delaware corporation ("ATSI").
W I T N E S S E T H:
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger,
dated as of September 26, 1997 (the "Merger Agreement"); and
WHEREAS, the parties hereto wish to amend certain of the terms and
conditions of the Merger Agreement; and
WHEREAS, capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Amendment No. 1, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1.
AMENDMENTS
Section 1.1. Section 2.1 (c) of the Merger Agreement shall be deleted in
its entirety and replaced with the following:
"Each Share, each Preferred Share and each warrant to acquire shares
of Company Stock (each, a "Company Stock Warrant" and collectively, the
"Company Stock Warrants") outstanding as of the Effective Time and owned of
record by Acquiror shall automatically be canceled and extinguished without
any exercise or conversion thereof and no exchange or payment shall be made
with respect thereto."
Section 1.2. The last clause of Section 3.16(a)(v) of the Merger Agreement
shall be deleted in its entirety and replaced with the following:
", and commitments under Leases existing on that date or incurred
since that date in the ordinary course of business and regularly scheduled
payments under contracts relating to long-term indebtedness or the current
portion thereof in accordance with the applicable payment schedule."
Section 1.3. Section 6.1(g) of the Merger Agreement shall be deleted in its
entirety and replaced with the following:
-1-
<PAGE>
"(g) The holders of all Warrants that have accepted Acquiror's offer
to purchase Warrants and executed a Warrant Purchase Agreement as of the
date hereof shall have sold, and Acquiror shall have purchased, all such
Warrants for a cash purchase price equal to the aggregate Warrant Purchase
Price."
Section 1.4. Section 6.2 shall be amended by deleting "and" at the end of
subsection (i), inserting "and;" in place of the period at the end of subsection
(j) and inserting a new subsection (k) which reads as follows:
"(k) The Arcus Parties shall have furnished Acquiror with such
certificates, at or prior to the Closing Date, evidencing the payment by
the Arcus Parties of substantially all Expenses incurred by each of the
Arcus Parties in connection with or related to this Agreement, the Merger
and the Transactions, using (i) funds drawn under the Credit Facility or
(ii) cash."
Section 1.5. The first sentence of Section 8.3(c) of the Merger
Agreement shall be deleted in its entirety and replaced with following:
"(c) In the event there are no Unresolved Claims (as defined in the
Escrow Agreement), on the nine month anniversary of the Closing Date, or
the next business day if such date is not a business day (the "Initial
Distribution Date"), an aggregate of $3,000,000 of the Escrow Indemnity
Funds less any amounts previously paid to Acquiror from the Escrow
Indemnity Funds (the "Initial Disbursement Amount") shall be distributed to
the Stockholder Representative for the benefit of each former holder of a
Share Certificate and each former holder of a Warrant sold pursuant to a
Warrant Purchase Agreement as follows: (i) to each former holder of a Share
Certificate (or his, her or its nominee or transferee, as set forth in the
Transmittal Documents in respect of the Cash Merger Consideration) an
amount equal to the Initial Disbursement Amount times a fraction, the
numerator of which shall equal the value (calculated based on the
Determination Price) of such former holder's Exchange Common Consideration
and the denominator of which shall equal the Total Primary Equity Base, and
(ii) to each former holder of a Warrant sold pursuant to a Warrant Purchase
Agreement an amount equal to the Initial Disbursement Amount times a
fraction, the numerator of which shall equal the sum of the Warrant
Purchase Price paid to such holder pursuant to a Warrant Purchase Agreement
and the value (calculated based on the Determination Price) of such
holder's Exchange Preferred Consideration and the denominator of which
shall equal the Total Primary Equity Base, as more specifically set forth
in the Warrant Purchase Agreement."
Section 1.6. Article 11 of the Merger Agreement shall be amended by
replacing clauses (ii) and (iii) of the definition of "Fully Diluted Common
Equity Value" with the following clauses:
", (ii) the aggregate exercise price of all Option Securities (whether
vested or unvested and excluding Company Stock Warrants) as of the Effective
Time, and (iii) the aggregate exercise
-2-
<PAGE>
price of all Company Stock Warrants which are outstanding as of the
Effective Time (without giving effect to Section 2.1(c))."
Section 1.7. Article 11 of the Merger Agreement shall be amended by
replacing clause (ii) of the definition of "Fully Diluted Common Shares" with
the following clause:
"(ii) the number of Shares of Company Stock which would have been
issued or remained outstanding as a result of the Reorganization had
holders of UAC Common Stock, ATSI Common Stock or Company Stock not
exercised dissenters or appraisal rights in connection with the UAC Merger
or the ATSI Merger, as the case may be,"
Section 1.8. Article 11 of the Merger Agreement shall be amended by
replacing clause (iv) of the definition of "Fully Diluted Common Shares" with
the following clause:
"(iv) the maximum number of Shares of Company Stock which may be
issued pursuant to the Company Stock Warrants which are outstanding as of
the Effective Time (without giving effect to Section 2.1(c))."
Section 1.9. Article 11 of the Merger Agreement shall be amended by
replacing the definition of "Warrant Purchase Price"with the following
definition:
""Warrant Purchase Price" shall mean the dollar amount equal to the
product of (i) the number of shares of UAC Common Stock underlying a
Warrant that will be purchased by Acquiror pursuant to the terms of the
Warrant Purchase Agreement and (ii) the difference between the UAC Equity
Value Per Share and the exercise price per share of UAC Common Stock
applicable to such Warrant."
Section 1.10. Article 11 of the Merger Agreement shall be amended by
replacing the definition of "Warrants" with the following definition:
""Warrants" shall mean the warrants to acquire shares of UAC Common
Stock."
Section 1.11. Article 11 of the Merger Agreement shall be amended by
inserting the following new defined terms in the appropriate alphabetical order:
""Company Stock Warrant" shall have the meaning given to it in Section
2.1(c)."
""Connected Stock" shall mean 158,729 shares of Convertible Series C
Preferred Stock in Connected Corp., a Delaware corporation, held by UAC."
-3-
<PAGE>
""Determination Time" shall mean the Closing Date immediately prior to
the purchase of any Warrants by Acquiror pursuant to any agreement."
""Initial Disbursement Amount" shall mean the meaning given to it in
Section 8.3(c)."
""Total ATSI Equity Value" shall mean the total common equity value of
ATSI at the Determination Time as determined in good faith by ATSI based on
the (i) Total Consideration to be paid by Acquiror in the Merger, and (ii)
the Net Indebtedness (excluding cash and cash equivalents held by the
Company and UAC, but assuming the deemed exercise of all outstanding
warrants and options to acquire ATSI Common Stock) at the Determination
Time."
""Total UAC Common Equity Value" equals the total common equity value
of UAC at the Determination Time as determined in good faith by UAC based
on (i) the Total ATSI Equity Value, (ii) the number of fully diluted shares
of ATSI Common Stock outstanding as of the Determination Time (assuming the
exercise of all warrants and options to acquire shares of ATSI Common
Stock) and the number of such shares held by UAC, (iii) cash and cash
equivalents held by UAC (assuming the deemed exercise of all outstanding
options to acquire shares of UAC Common Stock and Warrants), (iv) the value
of the Connected Stock as of the Determination Time, and (v) the UAC
Preferred Equity Value as of the Determination Time."
""UAC Equity Value Per Share" equals the quotient obtained by dividing
(a) the Total UAC Common Equity Value by (b) the sum of (i) the total
number of shares of UAC Common Stock issued and outstanding at the
Determination Time, plus (ii) the total number of shares of UAC Common
Stock which, at the Determination Time, may be issued pursuant to options
to purchase or otherwise acquire shares of UAC Common Stock, whether or not
such options are immediately exercisable, plus (iii) the total number of
shares of UAC Common Stock which, at the Determination Time, may be issued
pursuant to Warrants, whether or not such Warrants are immediately
exercisable."
""UAC Preferred Equity Value" shall mean, as of any time of
determination, the aggregate liquidation preference of the preferred stock
of UAC, calculated in accordance with the Articles of Incorporation of UAC,
at such time."
-4-
<PAGE>
Section 1.12. The Merger Agreement shall be amended by replacing Schedules
A, B and C attached thereto with Schedules A, B and C attached hereto.
ARTICLE 2.
GENERAL PROVISIONS
Section 2.1. Severability. If any term or provision of this Amendment No. 1
shall be held or deemed to be, or shall in fact be, invalid, inoperative,
illegal or unenforceable as applied to any particular case in any jurisdiction
or jurisdictions, or in all jurisdictions or in all cases, because of the
conflicting of any provision with any constitution or statute or rule of public
policy or for any other reason, such circumstance shall not have the effect of
rendering the provision or provisions in question invalid, inoperative, illegal
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative, illegal or unenforceable to the extent that such other provisions
are not themselves actually in conflict with such constitution, statute or rule
of public policy, but this Amendment No. 1 shall be reformed and construed in
any such jurisdiction or case as if such invalid, inoperative, illegal or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case. Notwithstanding the
foregoing, in the event of any such determination the effect of which is to
Affect Materially and Adversely any Party, the Parties shall negotiate in good
faith to modify this Amendment No. 1 as to effect the original intent of the
Parties as closely as possible to the fullest extent permitted by Applicable Law
in an acceptable manner to the end that the Transactions are fulfilled and
consummated to the maximum extent possible.
Section 2.2. Entire Agreement. This Amendment No. 1 (together with the
Merger Agreement, the Confidentiality Agreement, the Disclosure Schedule, the
Acquiror Disclosure Schedule and the other Collateral Documents delivered in
connection therewith) constitutes the entire agreement of the Parties and
supersedes all prior agreements and undertakings, both written and oral (other
than the Merger Agreement, the Confidentiality Agreement, the Disclosure
Schedule, the Acquiror Disclosure Schedule and the other Collateral Documents
delivered in connection therewith), between the Parties, or any of them, with
respect to the subject matter hereof. The Merger Agreement is hereby ratified
and confirmed in all respects and shall continue in full force and effect.
Section 2.3. Governing Law. The validity, interpretation, construction and
performance of this Amendment No. 1 shall be governed by, and construed in
accordance with, the applicable laws of the United States of America and the
laws of the State of New York applicable to contracts made and performed in such
State and, in any event, without giving effect to any choice or conflict of laws
provision or rule that would cause the application of domestic substantive laws
of any other jurisdiction, except to the extent that the provisions of the DGCL
apply to the Merger.
Section 2.4. Counterparts. This Amendment No. 1 may be executed in one or
more counterparts,
-5-
<PAGE>
and by the different Parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
Section 2.5. Mutual Drafting. This Amendment No. 1 is the result of the
joint efforts of Acquiror and the Company, and each provision hereof has been
subject to the mutual consultation, negotiation and agreement of the parties and
there shall be no construction against any Party based on any presumption of
that Party's involvement in the drafting thereof.
Section 2.6. Authority. Each of Acquiror, the Company, UAC and ATSI
represents and warrants that all requisite corporate action necessary for the
valid execution and delivery of this Amendment No. 1 has been duly and
effectively taken.
-6-
<PAGE>
IN WITNESS WHEREOF, Acquiror, the Company, UAC and ATSI have caused this
Amendment No. 1 to be executed as of the date first written above by their
respective officers thereunto duly authorized.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
_________________________________________
Name: C. Richard Reese
Title: Chairman and Chief Executive Officer
ARCUS GROUP, INC.
By: /s/ Clarke H. Bailey
_________________________________________
Name: Clarke H. Bailey
Title: Chairman
UNITED ACQUISITION COMPANY
By: /s/ Clarke H. Bailey
_________________________________________
Name: Clarke H. Bailey
Title: Chairman
ARCUS TECHNOLOGY SERVICES, INC.
By: /s/ Clarke H. Bailey
_________________________________________
Name: Clarke H. Bailey
Title: Chairman
-7-
<PAGE>
Schedule A
AGREEMENT AND PLAN OF MERGER
OF UAC AND AGI
THIS AGREEMENT AND PLAN OF MERGER (this "UAC Merger Agreement") is made
and entered into this day of , 1997, by and between United
Acquisition Company, a Nevada corporation whose address is 232 Court Street,
Reno, Nevada 89501 ("UAC"), and Arcus Group, Inc., a Delaware corporation whose
address is 901 Main Street, Suite 6100, Dallas, Texas 75202 ("AGI") (UAC and
AGI are individually referred to as a "Constituent Corporation" and together
referred to as "Constituent Corporations"). All capitalized terms used herein
shall have the meanings ascribed to them in the IM Merger Agreement, as
hereafter defined, as amended, unless otherwise specified herein.
W I T N E S S E T H:
WHEREAS, UAC is a corporation duly organized and existing under the laws of
the State of Nevada;
WHEREAS, AGI is a corporation duly organized and existing under the laws of
the State of Delaware;
WHEREAS, on the date of this UAC Merger Agreement (except as specified
below), UAC has the authority to issue (i) Three Million (3,000,000) shares of
Common Stock, par value $0.01 per share (the "UAC Common"), One Million One
(1,000,001) shares of which are issued and outstanding; (ii) Two Hundred
Thousand (200,000) shares of undesignated Preferred Stock, no shares of which
are issued and outstanding, and (iii) Fifty Thousand (50,000) shares of Series A
Preferred Stock, par value $0.01 per share (the "UAC Preferred"), 27,396 shares
of which are issued and outstanding after giving effect to the payment of
payment-in-kind dividends through November 20, 1997, as if such payments had
occurred;
WHEREAS, on the date of this UAC Merger Agreement (before giving effect to
the amendments to the Certificate of Incorporation of AGI, discussed below), AGI
has the authority to issue Eleven Million, Six Hundred Sixty-One Thousand, Two
Hundred Ninety (11,661,290) shares of Common Stock, par value $0.0001 per share
(the "AGI Common"), Eleven Million, Four Hundred Twenty-Six Thousand, Five
Hundred Twenty-Five (11,426,525) shares of which are issued and outstanding;
WHEREAS, following the merger of UAC into AGI, AGI will merge with and into
Iron Mountain Incorporated, a Delaware corporation ("IM"), pursuant to the
Agreement and Plan of Merger (the "IM Merger Agreement") by and among IM, AGI,
UAC and Arcus Technology Services, Inc., dated as of September 26, 1997, as
amended pursuant to Amendment No. 1 dated as of November 25, 1997, a true and
correct copy of which agreement and amendment is attached hereto as Appendix A
(the "IM Merger");
WHEREAS, the Board of Directors of each Constituent Corporation has
determined that it is advisable and to the advantage of such Constituent
Corporation and its stockholders that UAC merge with and into AGI, upon the
terms and conditions herein provided; and
WHEREAS, the Board of Directors of each Constituent Corporation has adopted
this UAC Merger Agreement and has directed that this UAC Merger Agreement be
submitted to a vote of such Constituent Corporation's stockholders;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, UAC and AGI hereby agree to merge as follows:
1. Merger UAC shall be merged with and into AGI, and AGI shall survive the
merger ("UAC Merger"), effective upon the date when this UAC Merger Agreement is
made effective in accordance with applicable law (the "UAC Effective Time").
2. Directors and Officers and Governing Documents. The directors and
officers of AGI shall be the same at the UAC Effective Time as they are
immediately prior thereto. The Certificate of Incorporation of AGI, as amended
and restated and in effect at the UAC Effective Time, shall continue to be the
Certificate of Incorporation
-1-
<PAGE>
of AGI as the surviving corporation, as amended in accordance with Section 3
hereto, until further amended in accordance with the provisions thereof and
applicable laws. The bylaws of AGI, as amended and in effect at the UAC
Effective Time, shall continue to be the bylaws of AGI as the surviving
corporation without change or amendment until further amended in accordance
with the provisions thereof and applicable laws.
3. Changes in the Certificate of Incorporation To Be Effected By the
Merger. Prior to the UAC Effective Time AGI will amend its Certificate of
Incorporation (i) to create a class of Preferred Shares of which 50,000 shares
shall be authorized for issuance by the Board of Directors, with identical
rights, preferences and privileges applicable to the UAC Preferred, after
giving effect to the amendment to the Articles of Incorporation of UAC on the
Closing Date prior to the UAC Effective Time as contemplated by the IM Merger
Agreement ("UAC Charter Amendments"), (ii) to increase the number of authorized
shares of common stock from 11,661,290 to 100,000,000, and (iii) to exempt the
Merger from the limitations on transfers of shares of AGI, stock set forth in
Article XI of the AGI Certificate (collectively, the "AGI Charter Amendments.")
4. Effect of Merger. From and after the UAC Effective Time, AGI as the
surviving corporation shall possess all rights, privileges, powers and
franchises and be subject to all restrictions, disabilities and duties of UAC
and AGI, including without limitation, any duties to stockholders who exercise
appraisal rights in connection with the UAC Merger, and the UAC Merger shall
have all other effects, as provided under Section 259 of the DGCL. Pursuant to
NRS [sec][sec].92A.250(e) and (f), all ownership rights in UAC shares prior to
the UAC Merger will cease to exist at the UAC Effective Time and the former
holders of UAC shares will be entitled only to the rights provided in this UAC
Merger Agreement or created pursuant to NRS [sec][sec].92A.300 to 92A.500.
5. Stock Transfer Books. At the UAC Effective Time, the stock transfer
books of UAC shall be closed, and there shall be no further registrations or
transfers of UAC Common or UAC Preferred thereafter on the records of UAC other
than to AGI.
6. Further Assurances. From time to time, as and when required by AGI or
by its successors and assigns, there shall be executed and delivered on behalf
of UAC such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in AGI
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of UAC and otherwise
to carry out the purposes of this UAC Merger Agreement, and the officers and
directors of AGI are fully authorized in the name and on behalf of UAC or
otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
7. Merger Consideration. At the UAC Effective Time, by virtue of the UAC
Merger and without any action on the part of the stockholder thereof, (i) each
share of the AGI Common outstanding immediately prior to the UAC Effective Time
(other than Dissenting Shares) shall continue to remain outstanding, (ii)
except as otherwise set forth in clause (iv) below, each share of the UAC
Common outstanding immediately prior to the UAC Effective Time (other than
Dissenting Shares) shall be changed and converted into that number ("UAC Common
Conversion Number") of fully paid and nonassessable shares of AGI Common that
is equal to the quotient of the UAC Equity Value Per Share, as hereafter
defined, divided by the AGI Equity Value Per Share, as hereafter defined, (iii)
each share of the UAC Preferred outstanding immediately prior to the UAC
Effective Time (other than Dissenting Shares), together with any accrued and
unpaid dividends thereon, shall be changed and converted into one (1) fully
paid and nonassessable share of AGI Preferred with the same rights, preferences
and privileges as applicable to the UAC Preferred after giving effect to the
UAC Charter Amendments and the AGI Charter Amendments with an equal amount of
accrued and unpaid dividends thereon and (iv) each share of the UAC Common
outstanding immediately prior to the UAC Effective Time and owned of record by
AGI shall be cancelled.
7.1 UAC Equity Value Per Share. The UAC Equity Value Per Share shall mean
the UAC Equity Value Per Share at the Determination Time under the IM Merger
Agreement, as amended, immediately prior to the purchase of Warrants by IM
pursuant to the Warrant Purchase Agreements (the "Determination Time").
7.2 AGI Equity Value Per Share. The AGI Equity Value Per Share shall mean
(a) the total common equity value of AGI as of the Determination Time as
determined in good faith by AGI based on (i) the Total UAC Common
-2-
<PAGE>
Equity Value, (ii) the number of fully diluted shares of UAC Common as of the
Determination Time (assuming the exercise of the Warrants and outstanding
options to acquire UAC Common) and the number of such shares held by AGI, (iii)
the cash and cash equivalents of AGI and (iv) the value of the 57% limited
partnership interest of AGI in Damson East Texas Partners, L.P., valued by AGI
at its fair value, as of the Determination Time, divided by (b) the total
number of shares of AGI Common issued and outstanding as of the Determination
Time.
8. Stock Certificates. At the UAC Effective Time, all of the outstanding
certificates which prior to that time represented shares of UAC Common shall
for all purposes evidence ownership of and represent the shares of AGI Common
into which the shares of UAC Common represented by such certificates have been
converted as herein provided.
9. Warrants. At the UAC Effective Time, each outstanding Warrant (if any)
to purchase shares of UAC Common shall be converted into and become a warrant
to purchase the UAC Warrant Conversion Number of shares of AGI Common as
hereafter defined, at the UAC Warrant Conversion Price, as hereafter defined,
and otherwise upon the same terms and subject to the same conditions as set
forth in the award and agreement pursuant to which the warrant in question was
issued. A sufficient number of shares of AGI Common shall be reserved for
purposes of any outstanding warrants as of the UAC Effective Time. As of the
UAC Effective Time, AGI hereby assumes all obligations of UAC under the awards
and agreements pursuant to which any outstanding UAC warrants were issued.
9.1 UAC Warrant Conversion Number. The UAC Warrant Conversion Number shall
mean (a) the UAC Equity Value Per Share multiplied by the total number of
shares for which the warrant in question may be exercised (whether or not such
warrant is immediately exercisable), divided by (b) the AGI Equity Value Per
Share.
9.2 UAC Warrant Conversion Price. The UAC Warrant Conversion Price shall
mean (a) the per share price for which the warrant in question may be exercised
(whether or not such warrant is immediately exercisable) multiplied by the AGI
Equity Value Per Share at the UAC Effective Time, divided by (b) the UAC Equity
Value Per Share.
10. Stock Options. At the UAC Effective Time, each option ("Plan Option"
or "Options") to purchase shares of UAC Common granted under the UAC 1995 Stock
Option Plan (the "UAC Stock Option Plan") that is outstanding at the
Determination Time shall automatically be converted into and become an option
to purchase the UAC Option Conversion Number, as hereafter defined, of shares
of AGI Common at the UAC Option Conversion Price, as hereafter defined, and
otherwise upon the same terms and subject to the same conditions as set forth
in the UAC Stock Option Plan. A sufficient number of shares of AGI Common shall
be reserved for purposes of the UAC Stock Option Plan as of the UAC Effective
Time. As of the UAC Effective Time, AGI hereby assumes all obligations of UAC
under the UAC Stock Option Plan, the outstanding Plan Options or portions
thereof granted pursuant to the UAC Stock Option Plan. The UAC Option
Conversion Number shall be (a) the UAC Equity Value Per Share multiplied by the
total number of shares for which the option in question may be exercised as of
the UAC Effective Time (whether or not such option is immediately exercisable),
divided by (b) the AGI Equity Value Per Share. The UAC Option Conversion Price
shall mean (a) the per share price for which the option in question may be
exercised at the UAC Effective Time (whether or not such option is immediately
exercisable) multiplied by the AGI Equity Value Per Share, divided by (b) the
UAC Equity Value Per Share.
11. Other Employee Benefit Plans. As of the UAC Effective Time, AGI hereby
assumes all obligations of UAC under and undertakes sponsorship of any and all
employee benefit plans in effect as of said date or with respect to which
employee rights or accrued benefits are outstanding as of said date.
12. Termination. Subject to the terms and conditions of the IM Merger
Agreement, as amended, this UAC Merger Agreement may be terminated and
abandoned whether before or after approval of this Agreement by the
stockholders of UAC or AGI, or both, by mutual consent of the Boards of
Directors of both Constituent Corporations at any time prior to the UAC
Effective Time.
13. Amendment. Subject to the terms and conditions of the IM Merger
Agreement, this UAC Merger Agreement may be amended by the Boards of Directors
of both Constituent Corporations at any time prior to the UAC Effective Time;
provided, however, that after approval of this Agreement by the stockholders of
UAC and
-3-
<PAGE>
AGI, no amendment which, under Nevada or Delaware law, would have required
approval of the UAC stockholders or AGI stockholders, respectively, if made
before approval, may be made after approval without the approval of the UAC
stockholders or AGI stockholders, respectively. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
14. Counterparts. This UAC Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, this UAC Merger Agreement, having first been duly
approved by resolution of the boards of directors of UAC and AGI is hereby
executed on behalf of each said two corporations by their respective officers
thereunto duly authorized.
UNITED ACQUISITION COMPANY,
a Nevada corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
ARCUS GROUP, INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
-4-
<PAGE>
Schedule B
AGREEMENT AND PLAN OF MERGER
OF ATSI AND AGI
THIS AGREEMENT AND PLAN OF MERGER (this "ATSI Merger Agreement") is made
and entered into this day of , 1997, by and between Arcus
Technology Services, Inc., a Delaware corporation, ("ATSI"), and Arcus Group,
Inc., a Delaware corporation ("AGI") (ATSI and AGI are individually referred to
as a "Constituent Corporation" and together referred to as "Constituent
Corporations"). All capitalized terms used herein shall have the meanings
ascribed to them in the IM Merger Agreement, as hereafter defined, as amended,
unless otherwise specified herein.
W I T N E S S E T H:
WHEREAS, ATSI is a corporation duly organized and existing under the laws
of the State of Delaware;
WHEREAS, AGI is a corporation duly organized and existing under the laws
of the State of Delaware;
WHEREAS, on the date of this ATSI Merger Agreement, ATSI has the authority
to issue Five Million (5,000,000) shares of Common Stock, par value $0.01 per
share (the "ATSI Common"), Three Million, Three Hundred Twenty-Five Thousand,
Two Hundred Twenty-Nine (3,325,229) shares of which are issued and outstanding;
WHEREAS, as of the date of this ATSI Merger Agreement, AGI has the
authority to issue Eleven Million, Six Hundred Sixty-One Thousand, Two Hundred
Ninety (11,661,290) shares of Common Stock, par value $0.0001 per share (the
"AGI Common"), 11,426,525 shares of which are issued and outstanding;
WHEREAS, as of the ATSI Effective Time, as defined below, AGI will have
amended its Certificate of Incorporation to increase the authorized number of
shares of AGI Common from Eleven Million Six Hundred Sixty-One Thousand, Two
Hundred Ninety (11,661,290) to One Hundred Million (100,000,000) and create a
class of preferred shares of which there will be authorized Fifty Thousand
(50,000) shares, par value $0.0001 per share (the "AGI Preferred") with the
same rights, preferences and privileges applicable to shares to Series A
Preferred Stock of UAC, after giving effect to the amendments to the Articles
of incorporation of UAC as contemplated by the IM Merger Agreement, as amended,
(including Schedule C thereto);
WHEREAS, following the merger of ATSI with and into AGI, AGI will merge
with and into Iron Mountain Incorporated, a Delaware corporation ("IM"),
pursuant to the Agreement and Plan of Merger (the "IM Merger Agreement") by and
among IM, AGI, United Acquisition Company, a Delaware corporation ("UAC") and
ATSI, dated as of September 26, 1997, as amended pursuant to Amendment No. 1
dated as of November 25, 1997, a true and correct copy of which agreement and
amendment is attached hereto as Appendix A (the "IM Merger");
WHEREAS, the Board of Directors of each Constituent Corporation has
determined that it is advisable and to the advantage of such Constituent
Corporation and its stockholders that ATSI merge with and into AGI, upon the
terms and conditions herein provided; and
WHEREAS, the Board of Directors of each Constituent Corporation has
adopted this ATSI Merger Agreement and has directed that this ATSI Merger
Agreement be submitted to a vote of such Constituent Corporation's
stockholders;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, ATSI and AGI hereby agree to merge as follows:
1. Merger. ATSI shall be merged with and into AGI, and AGI shall survive
the merger ("ATSI Merger"), effective on the date and at the time when this
ATSI Merger Agreement is made effective in accordance with applicable law (the
"ATSI Effective Time").
2. Directors and Officers and Governing Documents. The directors and
officers of AGI shall be the same at the ATSI Effective Time as they are
immediately prior thereto. The Certificate of Incorporation of AGI, as
-1-
<PAGE>
amended and restated and in effect at the ATSI Effective Time, shall continue
to be the Certificate of Incorporation of AGI as the surviving corporation,
until further amended in accordance with the provisions thereof and applicable
laws. The bylaws of AGI, as amended and in effect at the ATSI Effective Time,
shall continue to be the bylaws of AGI as the surviving corporation without
change or amendment until further amended in accordance with the provisions
thereof and applicable laws.
3. Effect of Merger. From and after the ATSI Effective Time, AGI as the
surviving corporation shall possess all rights, privileges, powers and
franchises and be subject to all restrictions, disabilities and duties of ATSI
and AGI, including without limitation, any duties to stockholders who exercise
appraisal rights in connection with the ATSI Merger, and the ATSI Merger shall
have all other effects, as provided under Section 259 of the DGCL. All
ownership rights in ATSI shares prior to the ATSI Merger will cease to exist at
the ATSI Effective Time except as provided by law.
4. Stock Transfer Books. At the ATSI Effective Time, the stock transfer
books of ATSI shall be closed, and there shall be no further registrations or
transfers of ATSI Common thereafter on the records of ATSI other than to AGI.
5. Further Assurances. From time to time, as and when required by AGI or
by its successors and assigns, there shall be executed and delivered on behalf
of ATSI such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in AGI
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of ATSI and otherwise
to carry out the purposes of this ATSI Merger Agreement, and the officers and
directors of AGI are fully authorized in the name and on behalf of ATSI or
otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
6. Merger Consideration. At the ATSI Effective Time, by virtue of the ATSI
Merger and without any action on the part of any stockholder thereof, (i) each
share of the AGI Common and AGI Preferred outstanding immediately prior to the
ATSI Effective Time (other than, as to shares of AGI Common outstanding on the
record date for determining shares entitled to vote on the Merger of UAC with
and into AGI, Dissenting Shares) shall continue to remain outstanding, (ii)
except as set forth in clause (iii) below, each share of the ATSI Common
outstanding immediately prior to the ATSI Effective Time (other than Dissenting
Shares) shall be changed and converted into that number ("ATSI Common
Conversion Number") of fully paid and nonassessable shares of AGI Common that
is equal to the quotient of the ATSI Equity Value Per Share, as hereafter
defined, divided by the AGI Equity Value Per Share, as hereafter defined and
(iii) each share of the ATSI Common outstanding immediately prior to the ATSI
Effective Time and owned of record by AGI shall be cancelled.
6.1 ATSI Equity Value Per Share. The ATSI Equity Value Per Share shall
mean (a) the Total Equity Value of ATSI as of the time of the Closing Date
under the IM Merger Agreement, as amended, immediately prior to the purchase of
Warrants by IM pursuant to the Warrant Purchase Agreements (the "Determination
Time") divided by (b) the sum of (i) the total number of shares of ATSI Common
issued and outstanding as of the Determination Time, plus (ii) the number of
shares of ATSI Common which, as of the Determination Time, may be issued
pursuant to options to purchase or otherwise acquire shares of ATSI Common
whether or not such options are vested or immediately exercisable, plus (iii)
the number of shares of ATSI Common which, as of the Determination Time, may be
issued pursuant to any warrants to purchase or otherwise acquire shares of ATSI
Common whether or not such warrant is immediately exercisable.
6.2 AGI Equity Value Per Share. The AGI Equity Value Per Share shall mean
(a) the total common equity value of AGI as of the Determination Time as
determined in good faith by AGI based on (i) the Total UAC Common Equity Value,
(ii) the number of fully diluted shares of UAC Common as of the Determination
Time (assuming the exercise of the Warrants and outstanding options to acquire
UAC Common) and the number of such shares held by AGI, (iii) the cash and cash
equivalents of AGI and (iv) the value of the 57% limited partnership interest
of AGI in Damson East Texas Partners, L.P., valued by AGI at its fair value, as
of the Determination Time divided by (b) the total number of shares of AGI
Common issued and outstanding as of the Determination Time.
7. Stock Certificates. At the ATSI Effective Time, all of the outstanding
certificates which prior to that time represented shares of ATSI Common shall
for all purposes evidence ownership of and represent the shares of AGI
-2-
<PAGE>
Common into which the shares of ATSI Common represented by such certificates
have been converted as herein provided.
8. Warrants. At the ATSI Effective Time, each outstanding warrant (if any)
to purchase shares of ATSI Common shall be converted into and become a warrant
to purchase the AGI Warrant Conversion Number, as hereafter defined, of shares
of AGI Common at the AGI Warrant Conversion Price, as hereafter defined, and
otherwise upon the same terms and subject to the same conditions as set forth
in the award and agreement pursuant to which the warrant in question was
issued. A sufficient number of shares of AGI Common shall be reserved for
purposes of any outstanding warrants as of the ATSI Effective Time. As of the
ATSI Effective Time, AGI hereby assumes all obligations of ATSI under the
awards and agreements pursuant to which any outstanding ATSI warrants were
issued. The ATSI Warrant Conversion Number shall mean the (a) the ATSI Equity
Value Per Share less the exercise price of such warrant, multiplied by (b) the
total number of shares for which the warrant in question may be exercised
(whether or not such warrant is immediately exercisable), divided by (c) the
AGI Equity Value Per Share. The ATSI Warrant Conversion Price shall be one
hundreth of one cent ($0.0001) per underlying share.
9. Stock Options. At the ATSI Effective Time, each outstanding option
("Plan Option" or "Options") to purchase shares of ATSI Common granted under
the UAC Holdings Corporation 1995 Stock Option Plan (the "ATSI Stock Option
Plan") shall be converted into and become an option to purchase the ATSI Option
Conversion Number of shares of AGI Common at the ATSI Option Conversion Price
and otherwise upon the same terms and subject to the same conditions as set
forth in the ATSI Stock Option Plan. A sufficient number of shares of AGI
Common shall be reserved for purposes of the ATSI Stock Option Plan as of the
ATSI Effective Time. As of the ATSI Effective Time, AGI hereby assumes all
obligations of ATSI under the ATSI Stock Option Plan, the outstanding Plan
Options or portions thereof granted pursuant to the ATSI Stock Option Plan. The
ATSI Option Conversion Number shall mean (a) the ATSI Equity Value Per Share
multiplied by the total number of shares for which the option in question may
be exercised as of the Determination Time (whether or not such option is vested
and whether or not such option is immediately exercisable), divided by (b) the
AGI Equity Value Per Share. The ATSI Option Conversion Price shall mean (i) the
per share price for which the option in question may be exercised as of the
Determination Time (whether or not such option is vested and whether or not
such option is immediately exercisable) multiplied by the AGI Equity Value Per
Share, divided by (ii) the ATSI Equity Value Per Share.
10. Other Employee Benefit Plans. As of the ATSI Effective Time, AGI
hereby assumes all obligations of UAC under and undertakes sponsorship of any
and all employee benefit plans in effect as of said date or with respect to
which employee rights or accrued benefits are outstanding as of said date.
11. Termination. Subject to the terms and conditions of the IM Merger
Agreement, as amended, this ATSI Merger Agreement may be terminated and
abandoned whether before or after approval of this Agreement by the
stockholders of ATSI or AGI, or both, by mutual consent of the Boards of
Directors of both Constituent Corporations at any time prior to the ATSI
Effective Time.
12. Amendment. Subject to the terms and conditions of the IM Merger
Agreement, this ATSI Merger Agreement may be amended by the Boards of Directors
of both Constituent Corporations at any time prior to the ATSI Effective Time;
provided, however, that after approval of this Agreement by the stockholders of
ATSI and AGI, no amendment which, under Delaware law, would have required
approval of the ATSI stockholders or AGI stockholders, if made before approval,
may be made after approval without the approval of the ATSI stockholders or AGI
stockholders, respectively. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
13. Counterparts. This ATSI Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original.
-3-
<PAGE>
IN WITNESS WHEREOF, this ATSI Merger Agreement, having first been duly
approved by resolution of the boards of directors of ATSI and AGI is hereby
executed on behalf of each said two corporations by their respective officers
thereunto duly authorized.
ARCUS TECHNOLOGY SERVICES,
INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Julien H. Meyer, III
Secretary
ARCUS GROUP, INC.,
a Delaware corporation
By: --------------------------
Clarke H. Bailey
President and Chief
Executive Officer
By: --------------------------
Richard S. Meller
Secretary
-4-
<PAGE>
Schedule C
DESCRIPTION OF REORGANIZATION
Step 1: Acquiror Purchases Warrants to Purchase
Approximately 1,467,207 Shares of UAC Common
for Cash in the Amount of Approximately $29,842,000.
1. Acquiror Board authorizes purchase of warrants and adoption of Warrant
Purchase Agreement pursuant to Board Resolutions. (Satisfied as of September
26, 1997, which date is hereafter referred to as the "Execution Date".)
2. Acquiror and selling Warrant Holders enter into Warrant Purchase
Agreement. Pursuant to Section 4.05 of Warrant Agreements. UAC gives prior
written consent to transfer of warrants.
3. Selling Warrant Holders execute forms of Assignment of Warrant,
attached to Warrant Agreements. (Consent requirement satisfied as of Execution
Date)
4. All UAC shareholders who are parties to UAC Shareholders Agreement
waive rights of first refusal, inclusion, notice of transfer and right to
require sale of not less than all "Stock" under Article III of UAC Shareholders
Agreement and consent to sale of warrants to Acquiror. (Satisfied as of the
Execution Date.)
Step 2: UAC Repurchases Warrants to Purchase Approximately 32,793
Shares of UAC Common In Exchange for Connected Stock
1. UAC Board waives notice of special meeting. Satisfied as of the
Execution Date.
2. By unanimous vote of all UAC directors (in light of waiver of prior
notice of meeting and UAC Shareholders Agreement [sec]2.5) , UAC Board
takes following actions (each of which satisfied as of the Execution Date):
A. Determines that repurchase (i.e., distribution) is authorized under
Nevada law in that after giving effect to the distribution, UAC will be
able to pay its debts as they become due in the usual course of business.
(NRS 78.191).
B. Approves, subject to Series A Preferred Shareholder approval by vote of
66-2/3%, Warrant Repurchase.
C. Approves, subject to Series A Preferred Shareholder approval by vote of
66-2/3%, amendment to UAC articles of incorporation to provide that
prohibition under Article VI, Section 2(b) of UAC Articles of Incorporation
on payment of distributions or dividends or redemption of shares of any
other class or series of UAC stock until all accrued and unpaid dividends
on Series A Preferred shares have been fully paid and until all PIK shares
have been redeemed shall not apply to transactions in connection with
merger of AGI into UAC, including each aspect of this Schedule C.
D. Calls special meeting of UAC Series A Preferred Shareholders for purpose
of approving warrant repurchase and distribution pursuant to Repurchase
Agreement and voting on amendment.
E. Sets record date for Series A Preferred Shareholders entitled to notice
and vote.
3. UAC sends Notice of Special Meeting of Holders of Series A Preferred
shares which sets forth place, date, hour, and specific purpose of special
meeting.
4. All UAC shareholders who are parties to UAC Shareholders Agreement
waive, in writing, rights of first refusal, inclusion, notice of transfer and
right to require sale of not less than all "Stock" under Article III of UAC
Shareholders Agreement and consent to sale of warrants to UAC. (Satisfied as of
the Execution Date)
5. Warrant Holders receive, in writing, prior notice of warrant repurchase.
6. Series A Preferred Shareholders vote to approve Warrant repurchase and
amend UAC Articles of Incorporation, in accordance with commitment to vote
Series A Preferred shares pursuant to Stockholders Agreement among IM and
certain stockholders of UAC and AGI.
-1-
<PAGE>
7. Series A Preferred Shareholders approve warrant repurchase by 66-2/3%
vote.
8. Under Section 4.1(c) of Connected Stock Purchase Agreement, UAC notifies
Connected Corp. of proposed disposition of Connected Stock and provides
statement of surrounding circumstances. If reasonably requested by Connected
Corp., UAC must furnish Connected Corp. with legal opinion that disposition will
not require registration and appropriate action necessary for compliance with
all applicable securities laws has been taken.
9. Selling Warrant Holders agree to be bound by terms and conditions of
Connected Rights Agreement in order to be assignees of registration rights
thereunder, pursuant to Section 1.11 of Connected Rights Agreement. (Satisfied
as of the Execution Date)
10. UAC assigns to selling Warrant Holders all assignable rights under
Connected Co-Sale Agreement.
Step 2a: Thomas Seefurth Transfers Single share of Arcus Data Security Ltd.
(U.K.) to Arcus Data Security, Inc. or IM's designee, whichever IM Directs.
UAC Assigns ATI Stock Purchase Agreement to Wholly Owned Subsidiary of UAC.
ATSI Assigns ATI Environmental Agreement to IM.
Step 3: UAC Merges into AGI. UAC Shareholders Receive AGI Stock at the
Exchange Ratio Set Forth in Schedule A to the Merger Agreement. UAC Option
Holders receive Similar Options in AGI on Tax Free Basis. Holders of UAC
Preferred Receive Similar Preferred Stock in AGI (after giving effect to
AGI Charter Amendment). UAC Warrant Holders Receive AGI Warrants. UAC
Shares Held by AGI are canceled.
Actions by AGI
1. AGI Board waives in writing notice of special meeting. (Satisfied as of
the Execution Date)
2. By unanimous vote of all AGI directors, AGI Board takes following
actions at special meeting: (Satisfied as of the Execution Date)
A. Adopts, subject to shareholder approval, an amendment to articles of
incorporation (i) to authorize a class of 50,000 shares of Preferred Stock,
(ii) to increase the number of shares of common stock from 11,661,290 to
100,000,000 and (iii) to remove restriction of Section 11.01 on transfer by
operation of merger that would otherwise preclude IM Merger. (DGCL 242)
B. Adopts, subject to shareholder approval, agreement and plan of merger of
UAC into AGI.
C. Reserves AGI stock for all holders of former UAC options and holders of
outstanding former UAC warrants.
D. Calls special meeting of AGI Shareholders for purpose of approving
amendments to articles of incorporation and agreement and plan of merger of
UAC into AGI.
E. Sets record date for Shareholders entitled to notice and vote.
3. AGI gives Notice of Special Meeting to AGI Shareholders at address on
AGI's records, which sets forth place, date and hour of special meeting and
specific purpose of meeting.
4. AGI gives AGI Shareholders notice of appraisal rights under DGCL 262,
together with a copy of Section 262, together with the notice of Special
Meeting.
5. AGI shareholders approve amendments to articles of incorporation and
merger of UAC into AGI by vote of holders of majority of shares.
6. AGI files certificate of amendment with Delaware Secretary of State.
7. AGI files certificate of merger with Delaware Secretary of State.
8. AGI assumes in writing the obligation to deliver to each Warrant Holder
such shares of stock, securities or other property (including cash) as the
Warrant Holders may be entitled to receive upon exercise of the warrants.
(Satisfied as of the Execution Date)
-2-
<PAGE>
9. Each UAC Warrant Holder receives, in writing, notice of the "Capital
Change."
10. AGI shareholders who do not vote for merger may have appraisal rights
under Delaware law.
Actions by UAC
1. UAC Board waives in writing notice of special meeting. (UAC Bylaws,
[sec]2.4.4) (Satisfied as of the Execution Date).
2. By unanimous vote of all UAC directors (see UAC Shareholders Agreement,
[sec]2.5), UAC Board takes following actions at special meeting (satisfied as of
the Execution Date) or as to the second clause of paragraph A, November 1997:
A. Adopts, subject to approval of holders of 66-2/3% of Series A Preferred
Shares and majority of Common Shares, amendment to articles of
incorporation to clarify that merger of UAC into controlling shareholder
shall not be treated as liquidation if the surviving corporation is
controlled by shareholders who, immediately prior to the merger,
controlled, directly or indirectly, all of the voting shares of UAC. (See
UAC Articles, IV.3(a), (b)), and to reduce the liquidation preference of
shares of UAC Series A Preferred Stock in connection with the Transactions
from $1,000 per share, plus all accrued but unpaid dividends thereon
(whether or not such dividends have been declared) to the Closing of the
Merger by an amount (not to exceed $50.00) determined by the Board of
Directors equal to the quotient of (i) the product of (A) $1,000 per share,
plus all accrued but unpaid dividends thereon (whether or not such
dividends have been declared) to the Closing of the Merger and (B) the
Expenses to be paid at or prior to the Closing by the Arcus Parties (such
amount is anticipated to be approximately $3.1 million) divided by (ii) the
Total Equity Consideration (before giving effect to the Expenses discussed
in clause (i)(B) above).
B. Adopts, subject to approval of holders of 66-2/3% of Series A Preferred
Shares and majority of Common Shares, agreement and plan of merger of UAC
into AGI.
C. Adopts resolution providing for assumption by AGI, of UAC options and
authorizes any amendments to option award agreements, providing that there
shall be no acceleration of options except as required or contemplated by
the merger transactions.
D. Calls special meeting of UAC Series A Preferred Stockholders and Common
Stockholders for purpose of approving amendment to articles and agreement
and plan of merger of UAC and AGI.
E. Sets record date for Series A Preferred Stockholders and Common
Stockholders entitled to notice and vote.
3. UAC gives Notice of Special Meeting to all holders of Series A Preferred
Stock and Common Stock, which sets forth place, date and hour of special meeting
and specific purpose of meeting.
4. UAC gives holders of Series A Preferred Shares at least ten days prior
notice of (i) effective date of UAC merger, and (ii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock or Series A
Preferred shall be entitled to exchange their shares. (UAC Articles IV.8).
5. All UAC shareholders who are parties to the UAC Shareholders Agreement
waive rights of first refusal, inclusion, notice of transfer and right to
require sale of not less than all "Stock" under Article III of UAC Shareholders
Agreement. (Satisfied as of Execution Date)
6. Actions to be taken at special meeting of Series A Preferred
Stockholders and Common Stockholders or by proxy:
A. Holders of Series A Preferred Shares approve amendment to articles and
merger by 66-2/3% vote.
B. Holders of Common Stock approve amendment to articles and agreement and
plan of merger of UAC into AGI by majority vote.
7. UAC files certificates of amendment of articles with Nevada Secretary of
State.
8. UAC files articles of merger with Nevada Secretary of State.
9. UAC Series A Preferred Shareholders and Common Stockholders who do not
approve merger (and who had right to vote thereon) may have dissenters rights
under Nevada law.
-3-
<PAGE>
10. Merger of UAC into AGI triggers right of Zurich Depository Corporation
(or its assignee) to exercise its warrant.
Step 4: ATSI Merges into AGI. ATSI Options are Converted into AGI Options.
Minority ATSI Shareholders Receive AGI Common Stock at the Exchange Ratio
Set Forth in Schedule B to the Merger Agreement. ATSI Shares Held by AGI
are Canceled.
Actions by AGI
1. AGI Board waives in writing notice of special meeting. (Satisfied as of
the Execution Date)
2. By unanimous vote of all AGI directors, AGI Board takes following
actions at special meeting (which actions are taken as of the Execution Date):
A. Adopts, subject to shareholder approval, agreement and plan of merger of
ATSI into AGI.
B. Reserves AGI stock for holders of former ATSI options.
C. Authorizes officers to require exercise of former ATSI options that are
vested and UAC options that are non-qualified.
D. Calls special meeting of holders of AGI Preferred and Common Shares for
purpose of approving agreement and plan of merger of ATSI into AGI.
E. Sets record date for Shareholders entitled to notice and vote.
3. AGI gives Notice of Special Meeting to AGI Common Stockholders at
address on AGI's records, which sets forth place, date and hour of special
meeting and specific purpose of meeting.
4. AGI gives all shareholders notice of appraisal rights under DGCL 262
together with a copy of Section 262.
5. AGI shareholders approve amendments to articles of incorporation and
merger of ATSI into AGI by vote of holders of majority of Common Shares.
6. AGI files certificate of merger with Delaware Secretary of State.
7. AGI holders of Common Stock who do not vote for merger may have
appraisal rights under Delaware law.
Actions by ATSI
1. ATSI Board waives in writing notice of special meeting. (Satisfied as of
Execution Date).
2. ATSI Board takes following actions:
A. Adopts, subject to shareholder approval, agreement and plan of merger of
ATSI into AGI.
B. Adopts resolution providing for assumption of ATSI options by AGI and
providing that there shall be no acceleration of vesting unless Board,
acting through the Committee or as provided in the IM Merger Agreement
provides otherwise.
C. Calls special meeting of ATSI shareholders for purpose of approving
agreement and plan of merger of ATSI into AGI.
D. Sets record date for shareholders entitled to notice and vote.
3. ATSI gives Notice of Special Meeting to ATSI Stockholders.
4. ATSI gives shareholders notice of appraisal rights under DGCL 262
together with a copy of Section 262 not less than 20 days before the meeting.
5. ATSI shareholders approve merger of ATSI into AGI by majority vote.
6. ATSI files certificate of merger with Delaware Secretary of State.
-4-
<PAGE>
7. ATSI shareholders who do not vote for merger may have appraisal rights
under Delaware law.
8. Holders of UAC Series A Preferred Shares approve, by 66-2/3% vote,
merger of ATSI into AGI.
Step 5: AGI may Distribute Damson Interest to Holders of AGI Preferred
Shares.
1. AGI Board waives notice of special meeting. (Satisfied as of the
Execution Date).
2. By unanimous vote of all AGI Directors, AGI Board takes following
actions (satisfied as of the Execution Date):
A. Determines distribution in partial redemption of shares of Preferred
Stock mis authorized under Delaware law in that following the distribution,
AGI will be able to pay its debts as they become due.
B. Sets record date for Preferred Shareholders entitled to distribution
not more than 60 days prior to the distribution.
3. AGI obtains waiver of right of first refusal and a consent to transfer
of more than 50% of Damson Interest from other Damson partners, including
General Partner.
4. AGI executes assignment of Damson Interest to each Preferred
Shareholder, or the Damson Interest is disposed of through other means.
-5-
EXHIBIT 5
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
IN WASHINGTON, D.C. (617) 338-2800 IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. FAX NO. 617-338-2880 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
November 26, 1997
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
Ladies and Gentlemen:
In connection with the registration by Iron Mountain
Incorporated, a Delaware corporation ("Iron Mountain"), of shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common
Stock"), for issuance in connection with the merger (the "Merger") of
Arcus Group, Inc., a Delaware corporation ("Arcus"), with and into Iron
Mountain Incorporated, a Delaware corporation ("Iron Mountain"),
pursuant to the terms of an Agreement and Plan of Merger, dated as of
September 26, 1997, as amended, among Iron Mountain, Arcus, United
Acquisition Company and Arcus Technology Services, Inc. (the "Merger
Agreement"), this opinion is furnished to you to be filed as Exhibit 5
to the Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act")
filed with the Securities and Exchange Commission (the "Commission").
We have acted as counsel to Iron Mountain in connection with
the preparation of the Registration Statement, and we have examined
originals or copies, certified or otherwise identified to our
satisfaction, of the Registration Statement, the Merger Agreement, the
Amended and Restated Certificate of Incorporation of Iron Mountain, as
amended to date, corporate records, certificates and statements of
officers of Iron Mountain and of public officials, and such other
documents as we have considered necessary in order to furnish the
opinion hereinafter set forth. We express no opinion herein as to any
laws other than the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion
that the Shares have been duly and validly authorized for issuance by
the Board of Directors of Iron Mountain and, when the Merger has been
duly approved by the stockholders of Arcus and Iron Mountain and a
Certificate of Merger, reflecting the terms of the Merger Agreement,
has been duly filed with the Secretary of State of the State of
Delaware, upon issuance and delivery of certificates for the Shares
against tender of certificates evidencing shares of Common Stock, par
value $.0001 per share, and Preferred Stock, par value $.0001 per
share, of Arcus outstanding at the Effective Time of the Merger (as
established pursuant to the Merger Agreement), in accordance with the
procedure established in the Merger Agreement, the Shares will be
validly issued, fully paid and nonassessable by Iron Mountain.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to our firm made
therein under the caption "Legal Matters." In giving such consent, we
do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act or the Rules
and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
Exhibit 8.1
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
November 25, 1997
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
In accordance with the Securities Act of 1933, as amended (the "Securities
Act"), Iron Mountain Incorporated, a corporation organized under the laws of
Delaware ("Iron Mountain"), will register common stock, and in connection
therewith, has filed a registration statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission"). This
opinion is furnished to you to be filed as Exhibit 8.1 to the Registration
Statement. Terms used herein without definition shall have the meanings assigned
thereto in the Registration Statement.
We have acted as special counsel to Iron Mountain in connection with the
preparation of the Registration Statement, and we have participated in the
preparation of the Registration Statement, and we have examined certificates and
statements of officers of Iron Mountain and of public officials, and such other
documents as we have considered necessary in order to furnish the opinion
hereinafter set forth. We have, with your approval, assumed that the
transactions described in the Registration Statement will be carried out as
described therein.
Based on the foregoing, we are of the opinion that the section of the
prospectus that is part of the Registration Statement entitled "Certain Federal
Income Tax Considerations" accurately summarizes the material tax consequences
of acquiring, owning and selling such common stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm made therein under the
caption "Legal Matters." In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act or the Rules and Regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
EXHIBIT 8.2
November 24, 1997
Arcus Group, Inc.
25th Floor
667 Madison Avenue
New York, New York 10021
Re: Registration Statement on Form S-4
Gentlemen:
In accordance with the Securities Act of 1933, as amended (the "Securities
Act"), Iron Mountain Incorporated, a Delaware corporation, will register common
shares, and in connection therewith, has filed a registration statement on Form
S-4 (the "Registration Statement") with the Securities and Exchange Commission
(the "Commission"). This opinion is furnished to Arcus Group, Inc., a Delaware
corporation ("AGI") to be filed as Exhibit 8.2 to the Registration Statement.
Terms used herein without definition shall have the meanings assigned thereto
in the Registration Statement.
We have acted as special tax counsel to AGI in connection with the
preparation of the Registration Statement, and we have participated in the
preparation of the Registration Statement, as well as the Merger Agreement, and
we have examined such documents as we have considered necessary in order to
furnish the opinion hereinafter set forth. We have, with your approval, assumed
that the transactions described in the Registration Statement will be carried
out as described therein.
We express no opinion herein as to the laws of any jurisdiction other than
the United States of America.
Based on the foregoing, we are of the opinion that the section of the
prospectus that is part of the Registration Statement entitled "Certain Federal
Income Tax Considerations", insofar as it relates to the United States Federal
income tax matters currently applicable to the U.S. Holders described therein,
accurately summarizes the material federal tax consequences of acquiring,
owning and selling the common shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm made therein under the
caption "Legal Matters." In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act or the Rules and Regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ Neal, Gerber & Eisenberg
NEAL, GERBER & EISENBERG
EXHIBIT 10.12
JOINDER TO REGISTRATION RIGHTS AGREEMENT
This Joinder to Registration Rights Agreement (this "Agreement') is
made and entered into as of October 31, 1997 by and among Iron Mountain
Incorporated, a Delaware corporation (the "Company"), and Kent P. Dauten, an
individual with a business address at Keystone Capital, Inc., 520 Lake Cook
Road, Suite 450, Deerfield, IL 60015 ("Dauten").
WHEREAS, the Company and certain of its Stockholders are parties to
that certain Amended and Restated Registration Rights Agreement dated as of June
12, 1997, as heretofore supplemented (the "Registration Rights Agreement"); and
WHEREAS, in accordance with the terms of the Registration Rights
Agreement, the Company and Dauten desire to admit Dauten as a Stockholder (this
and other capitalized terms used herein without definition are used with the
meanings given to such terms in the Registration Rights Agreement) under the
Registration Rights Agreement.
NOW, THEREFORE, in consideration of the recitals, the mutual covenants
and agreements herein contained, and other valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby covenant and agree as follows:
1. The Agreement and Plan of Merger, dated as of September 17, 1997,
among the Company, IM-3 Acquisition Corp., a Delaware corporation, and HIMSCORP,
Inc. ("HIMSCORP"), shall be an "Equity Agreement" for purposes of the
Registration Rights Agreement. Notwithstanding the foregoing, only the shares of
Common Stock to be issued to Dauten thereunder shall be "Registrable Securities"
for purposes of the Registration Rights Agreement.
2. Dauten hereby (i) joins in and becomes party to the Registration
Rights Agreement as a Stockholder, (ii) agrees to be bound by and to perform all
obligations of a Stockholder under the Registration Rights Agreement, and (iii)
agrees that he shall not assign his rights under the Registration Rights
Agreement other than as expressly permitted by Section 9(a) thereof. For the
avoidance of doubt, Dauten shall be considered a "Significant Stockholder" for
purposes of the Registration Rights Agreement.
3. Pursuant to Section 1(b) of the Registration Rights Agreement,
Dauten, as a Significant Stockholder, and his permitted assigns shall have the
right to demand that the Company effect registration of all or part of the
Registrable Securities held by such Persons pursuant to said Section 1(b) on two
occasions; provided, however, that (i) in connection with the second such demand
(and, in the event of a third demand as a result of clause (ii) of this Section
3, in connection with the third such demand), the Company shall not be
responsible for the fees and disbursements of counsel to Dauten or any such
assigns and Dauten, or any such assigns, as the case may be, shall reimburse the
Company promptly upon request therefor for the registration filing fees paid by
the Company to the Commission in respect of the shares of Registrable Securities
registered on behalf of Dauten and all such assigns and for all reasonable
out-of-pocket Registration Expenses incurred in satisfying any such registration
(other than Registration Expenses (a) in respect of any services that would
ordinarily be provided to the Company by its law or accounting firms whether
such demand had been made or not, (b) which are attributable to other
Stockholders or the Company participating in such registration and not related
to the registration on behalf of Dauten or any such assigns, and (c) set forth
in paragraph (j) of the definition thereof); and (ii) if, on the second of such
demands, the aggregate number of Registrable Securities held by Dauten and his
permitted assigns that are included in such registration is less than 75% of the
aggregate number of Registrable Securities requested by such Persons to be
included in such registration as a result of the limitations on the number of
Registrable Securities to be included in such registration pursuant to Section
1(a)(iii) of the Registration Rights Agreement or the last paragraph of Section
1(b) thereof, upon the payment by Dauten or any such assigns, as the case may
be, of any Registration Expenses owed by such Persons to the Company pursuant to
clause (i) of this Section, then Dauten and his permitted assigns shall be
entitled to demand that the Company effect registration of all or part of the
Registrable Securities held by Dauten and any such assigns pursuant to said
Section 1(b) on one more occasion. For the avoidance of doubt, Dauten and the
Company hereby agree that Dauten and his permitted assigns may withdraw the
second or, if applicable, third demand made by him or them under Section 1(b) of
the Registration Rights
<PAGE>
Agreement if he or they reasonably believe that his or their ability to sell his
or their Registrable Securities under such offering will be limited due to the
participation of other Stockholders in such offering; provided, however, that
Dauten or any such assigns, as the case may be, shall reimburse the Company for
all Registration Expenses in respect of which Dauten and any such assigns would
have been responsible in accordance with this Section 3 that are incurred
through the date that Dauten or such assigns give the Company written notice of
the withdrawal of such demand.
4. Pursuant to Section 5(b) of the Registration Rights Agreement, the
rights of Dauten, as a Significant Stockholder, under Section 1(b) of the
Registration Rights Agreement will terminate on the sixth anniversary of the
date hereof.
5. Except to the extent specifically supplemented hereby, the
provisions of the Registration Rights Agreement shall remain unmodified. The
Registration Rights Agreement, as supplemented hereby, is confirmed as being in
full force and effect. This Agreement may be executed in any number of
counterparts, which together shall constitute one instrument, shall be governed
by and construed in accordance with the laws (other than the conflict of laws
rules) of the Commonwealth of Massachusetts and shall bind and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
IRON MOUNTAIN INCORPORATED
By: /s/ Eugene B. Doggett
-------------------------------
Name: Eugene B. Doggett
Title: Executive Vice President
/s/ Kent P. Dauten
------------------------------------
Kent P. Dauten
-2-
EXHIBIT 10.18
Exchange and Registration Rights Agreement
This Exchange and Registration Rights Agreement (this "Agreement")
dated as of October 21, 1997 among Iron Mountain Incorporated (the "Company"), a
Delaware corporation, the Company's subsidiaries a party hereto (the
"Guarantors") and Bear, Stearns & Co. Inc. (the "Representative") on behalf of
itself and the other Initial Purchasers (the "Initial Purchasers") signatories
hereto, which Initial Purchasers have agreed to purchase from the Company an
aggregate of U.S. $250,000,000 aggregate principal amount of the Company's 8
3/4% Senior Subordinated Notes due 2009 (the "Notes") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
October 21, 1997 (the "Purchase Agreement"), among the Company, the Guarantors,
the Representative and each of the other Initial Purchasers. The Notes will be
issued pursuant to an Indenture (the "Indenture") to be dated as of October 24,
1997 between the Company and The Bank of New York, as trustee (the "Trustee").
As an inducement to the Initial Purchasers to enter into the Purchase Agreement,
the Company agrees with the Initial Purchasers, for the benefit of the holders
of the Notes and the Registered Notes (as herein defined), as follows:
Section 1. Certain Defined Terms.
(a) As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Broker-Dealer" means any broker or dealer registered under
the Exchange Act.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which the banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Commission" means the United States Securities and Exchange
Commission.
"Consummate" means, with respect to a Registered Exchange
Offer, (i) the filing and declaration of effectiveness under the
Securities Act of the Exchange Offer Registration Statement relating to
the Registered Notes to be issued in the Registered Exchange Offer,
(ii) maintaining the continuous effectiveness of such Exchange Offer
Registration Statement and keeping the Registered Exchange Offer open
for a period of not less than 20 Business Days after the date of the
mailing of the Prospectus pursuant to Section 2(d)(i) hereof and (iii)
the delivery by the Company to the Registrar under the Indenture of the
Registered Notes in the same aggregate principal amount as the
aggregate principal amount of the Notes that were duly tendered by
Holders thereof pursuant to the Registered Exchange Offer, and
"Consummated" or "Consummation" shall have a correlative meaning.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder.
"Exchange Offer Registration Statement" means a registration
statement (together with the Prospectus included therein, all
amendments and supplements thereto (including post-effective
amendments) and all exhibits and materials incorporated by reference
therein) with respect to the Registered Exchange Offer.
"Holder" means any Person who is the registered or beneficial
owner of the Notes or the Registered Notes, as the case may be.
<PAGE>
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means an individual, partnership, corporation, joint
stock company, joint venture, trust, unincorporated organization or a
government, agency or political subdivision thereof, firm or other
entity.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented, including, without limitation,
by any post-effective amendments thereto, and all material incorporated
by reference into such prospectus.
"Registration Statement" means the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the context requires.
"Securities Act" means the United States Securities Act of
1933, as amended.
"Shelf Registration Statement" means a registration statement
filed for a delayed or continuous period pursuant to Rule 415 or any
similar rule that may be adopted by the Commission under the Securities
Act (together with the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all
exhibits and materials incorporated by reference therein) with respect
to a Shelf Registration.
"TIA" means the United States Trust Indenture Act of 1939, as
amended and in effect on the date of the Indenture.
"Transfer Restricted Securities" means each Note and each
Registered Note, the Holder of which is subject to prospectus delivery
requirements of the Securities Act in order to sell such Note or
Registered Note, until the occurrence of any of the following events:
(i) the first date on which such Note may be
exchanged for a Registered Note in the Registered Exchange
Offer, if following such exchange such Holder would be
entitled to resell such Registered Note to the public without
complying with the prospectus delivery requirements of the
Securities Act;
(ii) the date on which such Note has been registered
pursuant to an effective Shelf Registration Statement under
the Securities Act and disposed of in accordance with the
"Plan of Distribution" section of the Prospectus contained in
such Shelf Registration Statement;
(iii) the date on which such Note is sold to the
public pursuant to Rule 144 under the Securities Act or by a
Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein); or
(iv) such Note or Registered Note, as the case may
be, shall have ceased to be outstanding.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
---- -------
Agent 10(h)
2
<PAGE>
Agreement Preamble
Company Preamble
Indemnified Holder 7(a)
Indenture Preamble
Initial Purchasers Preamble
Interest Rate Increase 8
Issue Date 2(a)(i)
Losses 7(a)
Notes Preamble
Participating Broker-Dealer 4(a)
Purchase Agreement Preamble
Registered Exchange Offer 2(a)
Registered Notes 2(a)
Registration Default 8
Representative Preamble
Shelf Registration 3(a)
Trustee Preamble
Section 2. Registered Exchange Offer.
(a) The Company and the Guarantors shall:
(i) prepare and, not later than 60 calendar days
after the Issue Date (as defined in the Indenture), use their
best efforts to file with the Commission an Exchange Offer
Registration Statement on an appropriate form under the
Securities Act with respect to a proposed offer to exchange
(the "Registered Exchange Offer") any and all of the
outstanding Notes (including, if permitted by the then
prevailing interpretations of the staff of the Commission, any
Notes held by any of the Initial Purchasers having the status
of an unsold allotment in the initial distribution) for a like
aggregate principal amount of the Company's 8-3/4% Senior
Subordinated Notes due 2009 guaranteed by the Guarantors (the
"Registered Notes");
(ii) unless it would be a violation of applicable law
or Commission staff interpretation, use their best efforts to
cause the Exchange Offer Registration Statement to become
effective under the Securities Act as soon as practicable
thereafter, but in no event later than 120 calendar days after
the Issue Date, and to keep the Exchange Offer Registration
Statement effective for a period of 180 calendar days after
the Consummation of the Registered Exchange Offer;
(iii) in connection with the foregoing, to file (A)
all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause
such Exchange Offer Registration Statement to become effective
and (B) cause all necessary filings, if any, in connection
with the registration and qualification of the Registered
Notes to be made under the "blue sky" laws of such
jurisdictions as are necessary to permit Consummation of the
Registered Exchange Offer except that in no event shall the
Company or the Guarantors be obligated in connection therewith
to qualify as a foreign corporation or to execute a general
consent to service of process or to take any other action that
would subject it or them to service of process in suits in any
jurisdiction other than those arising out of the offering or
sale of the Notes in such jurisdiction pursuant to such
Exchange Offer Registration Statement; and
3
<PAGE>
(iv) upon the effectiveness of the Exchange Offer
Registration Statement, promptly commence the Registered
Exchange Offer to enable each Holder of the Notes (other than
Holders who are affiliates of the Company (within the meaning
of the Securities Act) or underwriters (as defined in the
Securities Act) with respect to the Registered Notes) to
exchange the Notes for Registered Notes.
The Company and the Guarantors shall cause the Exchange Offer
Registration Statement and the related Prospectus, as of the effective
date of such Exchange Offer Registration Statement, (i) to comply with
the applicable requirements of the Securities Act and the rules and
regulations of the Commission and (ii) not to contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading.
(b) The Company and the Guarantors shall cause the Registered
Exchange Offer to be consummated in compliance with the Securities Act,
the Exchange Act and all other applicable laws and regulations. No
securities other than the Registered Notes shall be included in the
Exchange Offer Registration Statement. The Company and the Guarantors
shall use their best efforts to cause the Registered Exchange Offer to
be Consummated no later than 45 calendar days after the effective date
of the Exchange Offer Registration Statement. The Registered Exchange
Offer shall be on an appropriate form under the Securities Act as to
permit resales of Registered Notes by delivering the Prospectus
contained in the Exchange Offer Registration Statement.
(c) The Company and the Guarantors shall use their best
efforts to keep the Exchange Offer Registration Statement continuously
effective and to amend and supplement the Prospectus contained therein
in order to permit such Prospectus to be lawfully delivered by all
persons subject to the prospectus delivery requirements of the
Securities Act for a period of up to 180 calendar days after the
Consummation of the Registered Exchange Offer (or such longer period if
extended pursuant to Section 4(c)(ix)).
(d) In connection with the Registered Exchange Offer, the
Company and the Guarantors shall:
(i) mail, or cause to be mailed, to each Holder of
the Notes a copy of the Prospectus forming a part of the
Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for a
period of not less than 20 Business Days after the date notice
thereof is mailed to the Holders of the Notes (or longer if
required by applicable law);
(iii) utilize the services of a depositary for the
Registered Exchange Offer with an address in the Borough of
Manhattan, The City of New York; and
(iv) permit Holders of the Notes to withdraw tendered
Notes at any time prior to the close of business, New York
time, on the last Business Day on which the Registered
Exchange Offer shall remain open (the "Exchange Date").
(e) As soon as practicable after the Exchange Date, the
Company and the Guarantors shall:
(i)accept for exchange all Notes duly tendered
and not validly withdrawn pursuant to the Registered Exchange
Offer;
4
<PAGE>
(ii) deliver or cause to be delivered to the Trustee
for cancellation all Notes or portions thereof so accepted for
exchange by the Company;
(iii) execute and deliver to, or cause to be
delivered to, the Trustee for authentication and delivery,
Registered Notes in an aggregate principal amount equal to the
aggregate principal amount of the Notes so accepted for
exchange; and
(iv) cause the Trustee to authenticate and deliver
promptly to each Holder of the Notes accepted for exchange,
Registered Notes having an aggregate principal amount at
maturity equal to the aggregate principal amount at maturity
of the Notes surrendered by such Holder and accepted for
exchange.
Section 3. Shelf Registration.
(a) If:
(i) because of any change in law or in then
prevailing interpretations of the staff of the Commission, the
Company is not permitted to effect a Registered Exchange Offer
as contemplated by Section 2 hereof or Holders of the Notes
(other than Holders who would not be permitted to participate
in the Registered Exchange Offer) would not receive freely
tradeable Registered Notes upon the Consummation of the
Registered Exchange Offer,
(ii) the Registered Exchange Offer is not Consummated
within the earlier of 210 calendar days after the Issue Date
and 45 calender days after the date the Exchange Offer
Registration Statement is declared effective by the
Commission, or
(iii) the Representative so requests with respect to
Notes acquired and held by the Initial Purchasers as part of
their initial distribution,
the Company and the Guarantors shall take the following actions:
(A) After the occurrence of one of the events
described in 3(a)(i), (ii) or (iii), the Company and the
Guarantors shall use their best efforts to prepare and file
with the Commission as promptly as practicable a Shelf
Registration Statement on an appropriate form under the
Securities Act relating to the offer and sale by the Holders
of the Notes in accordance with the methods of distribution
set forth in the Shelf Registration Statement and Rule 415
under the Securities Act (a "Shelf Registration") and use
their best efforts to cause such Shelf Registration Statement
to be declared effective as promptly as practicable after such
filing but in no event later than 60 calendar days after the
occurrence of one of the events described in 3(a)(i), (ii) or
(iii); provided that, with respect to Notes acquired and held
by the Initial Purchasers as part of an unsold allotment in
the initial distribution, the Company and the Guarantors, at
their option, may, if permitted by then-current
interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration
Statement containing the information required by Regulation
S-K Items 507 and/or 508, as applicable, in satisfaction of
its obligations under Section 3(a)(iii) with respect thereto;
and
(B) The Company and the Guarantors shall keep the
Shelf Registration Statement continuously effective, and
agrees to amend or supplement the prospectus contained therein
(and use their best efforts to cause any such amendment to
become and remain effective) in order to permit the prospectus
included therein to be available for resales of, and lawfully
delivered by the
5
<PAGE>
Holders of, the Notes covered thereby, until the earlier of
(x) the second anniversary of the Issue Date (or for such
longer period if extended pursuant to Section 4(i)(ix)), (y)
such time as all the Notes covered by such Shelf Registration
Statement have been sold pursuant thereto or (z) the date on
which all persons that are not affiliates may resell the Notes
pursuant to Rule 144(k) under the Securities Act or the date
on which the Notes otherwise cease to be Transfer Restricted
Securities.
(b) The Company and the Guarantors shall cause any Shelf
Registration Statement and the related prospectus and any amendment or
supplement thereto, as of the effective date of such Shelf Registration
Statement, amendment or supplement, (i) to comply with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made not misleading.
Section 4. Registration Procedures.
(a) Registered Exchange Offer. In connection with the
Registered Exchange Offer:
(i) the Company and the Guarantors shall comply with
all of the provisions of Section 4(c) (other than those that
are not applicable);
(ii) prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall make the following
representations (in substantially the form set forth below) to
the staff of the Commission:
(A) that the Company is registering the
Registered Notes and the Registered Exchange Offer in
reliance on the position of the staff of the
Commission enunciated in "Exxon Capital Holdings
Corporation" SEC No-Action Letter (the "Exxon Capital
Letter") (available May 13, 1988), "Morgan Stanley
and Co., Inc." SEC No-Action Letter (available June
5, 1991), and "Shearman & Sterling" SEC No-Action
Letter (available July 2, 1993); and
(B) that the Company has not entered into
any arrangement or understanding with any person to
distribute the Registered Notes to be received in the
Registered Exchange Offer and that, to the best of
the Company's information and belief, each Person
participating in the Registered Exchange Offer is
acquiring the Registered Notes in its ordinary course
of business and has no arrangement or understanding
with any person to participate in the distribution of
the Registered Notes to be received in the Registered
Exchange Offer. In this regard, the Company will make
each person participating in the Registered Exchange
Offer aware (through the Prospectus included in the
Exchange Offer Registration Statement or otherwise)
that, if the Registered Notes and the Registered
Exchange Offer are being registered for the purpose
of secondary resales of the Registered Notes, any
Holder using the Registered Exchange Offer to
participate in a distribution of the Registered Notes
(1) could not rely on the staff position enunciated
in the Exxon Capital Letter or similar letters and
(2) must comply with registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale transaction of
the Registered Notes. The Company acknowledges that
such a secondary resale transaction should be covered
by an effective registration statement containing the
selling security holder information required by Item
507 of Regulation S-K;
6
<PAGE>
(iii) the Company will require each Holder that is a
Broker-Dealer and that is the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of Notes acquired for its
own account as a result of market-making activities or other
trading activities (a "Participating Broker-Dealer"), to
include a representation in such Participating Broker-Dealer's
letter of transmittal with respect to the Registered Exchange
Offer that such Participating Broker-Dealer has not entered
into any arrangement or understanding with the Company or any
affiliate of the Company to distribute the Registered Notes;
and
(iv) the Company (1) will make each Person
participating in the Registered Exchange Offer aware (through
the prospectus included in the Exchange Offer Registration
Statement or otherwise) that any Broker-Dealer who holds Notes
acquired for its own account as a result of market-making
activities or other trading activities, and who receives
Registered Notes in exchange for such Notes pursuant to the
Registered Exchange Offer, may be a statutory underwriter and
in connection with any resale of such Registered Notes must
deliver a Prospectus meeting the requirements of the
Securities Act and describing the methods by which
Participating Broker-Dealers may resell such Registered Notes,
and (2) will include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order
to participate in the Registered Exchange Offer the following
additional provision:
"If the undersigned is a
broker-dealer holding Notes acquired
for its own account as a result of
market-making activities or other
trading activities, the undersigned
hereby acknowledges that it will
deliver a prospectus meeting the
requirements of the Securities Act
in connection with any resale of
Registered Notes received in respect
of such Notes pursuant to the
Registered Exchange Offer"
and the transmittal letter or similar documentation may also
include a statement to the effect that by so acknowledging and
by delivering a prospectus, a Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the
Securities Act;
(v) as a condition to its participation in the
Registered Exchange Offer pursuant to the terms of this
Agreement, each Holder of the Notes who tenders such Notes
pursuant to the Registered Exchange Offer shall furnish, a
written representation to the Company (which may be contained
in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that by accepting
the Registered Exchange Offer, such Holder represents to the
Company that:
(A) it is not an affiliate of the Company
(within the meaning of the Securities Act);
(B) it is not engaged in and does not intend
to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of
the Registered Notes to be issued in the Registered
Exchange Offer;
(C) it is acquiring the Registered Notes in
its ordinary course of business; and
(D) if it is a Participating Broker-Dealer
holding Notes acquired for its own account as a
result of market-making activities or other trading
activities, it acknowledges
7
<PAGE>
that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resale of Registered Notes received in respect of
such Notes pursuant to the Registered Exchange Offer;
and the transmittal letter or similar documentation may also
include a statement to the effect that by so acknowledging and
by delivering a prospectus, a Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the
Securities Act; and
(vi) the Company shall include within the Prospectus
contained in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," in form and substance
reasonably acceptable to the Representative, which shall
contain:
(A) a statement substantially to the effect
that any Broker-Dealer and any Holder using the
Registered Exchange Offer to participate in a
distribution of the Registered Notes to be acquired
in the Registered Exchange Offer:
(I) could not under Commission
policy as in effect on the date of this
Agreement rely on the position of the
Commission enunciated in Morgan Stanley and
Co. Inc. (available June 5, 1991) and Exxon
Capital Holdings Corporation (available May
13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling
(available July 2, 1993), and similar
no-action letters, and
(II) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction of the Registered Notes and that
such a secondary resale transaction should
be covered by an effective registration
statement containing the selling security
holder information required by Item 507 or
508, as applicable, of Regulation S-K; and
(B) a summary statement of the positions
taken or policies made by the Staff of the Commission
with respect to the potential "underwriter" status of
any Participating Broker-Dealer.
Such "Plan of Distribution" section shall also allow the use of the
Prospectus by Participating Broker-Dealers for a period of 180 calendar days
from the Consummation of the Exchange Offer, or such shorter period as will
terminate when all the Notes acquired by Participating Broker-Dealers have been
exchanged for the Registered Notes and resold by such broker-dealers, and
include a statement to the effect that any Broker-Dealer who holds Notes
acquired for its own account as a result of market-making activities or other
trading activities, and who receives Registered Notes in exchange for such Notes
pursuant to the Registered Exchange Offer, may be a statutory underwriter and
must deliver a Prospectus meeting the requirements of the Securities Act in
connection with any resale of such Registered Notes and that any profit or
commissions received by such Broker-Dealer may be deemed to be underwriting
compensation under the Securities Act, and describing the means by which
Participating Broker-Dealers may resell the Registered Notes. The "Plan of
Distribution" section in the Prospectus contained in the Exchange Offer
Registration Statement shall not name any such Participating Broker-Dealer or
disclose the amount of Notes held by any such Participating Broker-Dealer except
to the extent required by Commission policy.
(b) Shelf Registration Statement. In connection with any Shelf
Registration Statement, the Company and the Guarantors shall comply
with all the provisions of Section 4(c) (other than those that are
8
<PAGE>
not applicable) and shall effect such registration to permit the resale
of Notes being sold in accordance with the intended method or methods
of distribution set forth in the Shelf Registration Statement.
(c) Registration Procedures. In connection with any
Registration Statement and any Prospectus required by this Agreement,
the Company and the Guarantors shall:
(i) prepare and file with the Commission a
Registration Statement on the appropriate form under the
Securities Act, which form (x) shall be selected by the
Company and (y) shall, in the case of a Shelf Registration
Statement, be available for the sale of Notes by the selling
Holders thereof and (z) shall comply as to form with the
requirements of the Securities Act and the rules and
regulations thereunder, and include all financial statements
required by the Commission to be filed therewith, and to cause
such Registration Statement to become effective and to keep
such Registration Statement continuously effective for the
period provided for in Section 2, in the case of an Exchange
Offer Registration Statement, and for the period provided for
in Section 3, in the case of a Shelf Registration Statement;
(ii) (A) prepare and file with the Commission such
amendments and post-effective amendments to such Registration
Statement as may be necessary to keep such Registration
Statement effective for the applicable period set forth in
Section 2 or Section 3, as the case may be; and (B) cause each
Prospectus to be supplemented by any required prospectus
supplement, and, as so supplemented, cause the Prospectus to
be filed pursuant to Rule 424 under the Securities Act and to
comply in all material respects with the applicable provisions
of Rules 424 and 430A under the Securities Act in a timely
manner;
(iii) advise the Initial Purchasers, each Holder of
the Notes included in the Shelf Registration Statement and,
with respect to the Exchange Offer Registration Statement, any
Participating Broker-Dealer from whom the Company has received
prior written notice that it will be a Participating
Broker-Dealer in the Registered Exchange Offer:
(A) when each Registration Statement or any
amendment thereto has been filed with the Commission
and when each such Registration Statement or any
post-effective amendment thereto has been declared
effective;
(B) of any request by the Commission for
amendments or supplements to a Registration Statement
or the Prospectus included therein or for additional
information;
(C) of the issuance by the Commission of any
stop order suspending the effectiveness of a
Registration Statement or the initiation or
threatening of any proceedings for that purpose;
(D) of the receipt by either of the Company
or its legal counsel of any notification with respect
to the suspension of the qualification of the Notes
or the Registered Notes for sale in any jurisdiction
or the initiation or threatening of any proceeding
for such purpose;
(E) when the prospectus contained in any
Registration Statement may not be used for offers or
sales of the Registered Notes because (x) of the
existence of any fact or the happening of any event
(including any material non-public information) that
makes untrue any statement of a material fact made in
the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document
incorporated by
9
<PAGE>
reference therein, or that requires the making of any
additions to or changes in the Registration Statement
or the Prospectus in order to make the statements
therein not misleading or (y) such prospectus shall
not contain the current information required by the
Securities Act and the rules and regulations of the
Commission; it being understood that any notice
delivered pursuant to this subparagraph need not
specifically recite the reasons for its delivery,
provided that the Company consults with the
Representative prior to such notice's delivery as to
the reasons underlying such notice need;
(iv) use their best efforts to prevent the issuance
of any order of the Commission suspending the effectiveness of
a Registration Statement; and if at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Notes or
the Registered Notes under state securities or "blue sky"
laws, the Company and the Guarantors shall use their best
efforts to obtain the withdrawal of such order at the earliest
possible time, and provide prompt notice of the withdrawal of
any such order to each Holder of any Notes included in the
Shelf Registration Statement, and, with respect to the
Exchange Offer Registration Statement, to any Participating
Broker-Dealer participating in the Registered Exchange Offer;
(v) furnish to the Initial Purchasers, upon request,
and, in the case of a Shelf Registration, to each Holder of
any Notes included in the Shelf Registration Statement, and
counsel to the Initial Purchasers referred to in Section 5, a
reasonable time prior to filing with the Commission, copies of
any Registration Statement or any Prospectus included therein
and any amendments or supplements thereto (including all
documents incorporated by reference prior to the effectiveness
of such Registration Statement), which documents, other than
documents incorporated by reference, will be subject to the
review of such Initial Purchasers for a period of at least
five Business Days, and the Company shall use its best efforts
to reflect in each such document when so filed with the
Commission, such comments as the Representative or such
Holders reasonably may propose within five Business Days after
the receipt thereof;
(vi) promptly prior to the filing of any document
that is to be incorporated by reference into a Registration
Statement or Prospectus subsequent to the effectiveness
thereof (A) if requested, provide copies of such document to
any Holder of any Notes included in such Registration
Statement, to the Initial Purchasers and (B) make
representatives of the Company available for discussion of
such document and other customary due diligence matters, and
(C) use its best efforts to include such information in such
document prior to the filing thereof as Holders or the Initial
Purchasers may reasonably request;
(vii) (A) make available at reasonable times for
inspection by the Initial Purchasers and, in the case of a
Shelf Registration, Holders of any Notes included in such
Registration Statement, and any attorney or accountant
retained by such Holder or the Initial Purchasers, or any
underwriter participating in any disposition pursuant to a
Shelf Registration Statement, all relevant financial and other
records, pertinent corporate documents and properties of the
Company and the Guarantors and (B) cause the officers,
directors and employees of the Company to supply all
information reasonably requested by any such Holder, Initial
Purchaser, attorney, accountant or underwriter in connection
with such Registration Statement subsequent to the filing
thereof and prior to its effectiveness, in each case, as is
customary for similar due diligence examinations; provided,
however, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be
coordinated by and on behalf of such Holders, Initial
Purchasers and other parties and be limited to a reasonable
number of inspections in any 12-month period; it being
10
<PAGE>
recognized that any such inspections undertaken in connection
with the release of quarterly or annual financial information
of the Company or other material event shall be deemed
reasonable;
(viii) if requested by the Holders of a majority of
the principal amount of the Notes included in a Shelf
Registration Statement or the Initial Purchasers, (A) promptly
incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders or the Initial
Purchasers may reasonably request, and to which the Company
does not reasonably object, to have included therein,
including, without limitation, information relating to the
"Plan of Distribution" of the Notes, the purchase price being
paid therefor and any other terms of the offering of the Notes
to be sold in such offering, and (B) make all required filings
of any such Prospectus supplement or post-effective amendment
as promptly as practicable after the Company is notified of
the matters to be incorporated in such Prospectus supplement
or post-effective amendment;
(ix) upon the occurrence of any event of the kind
described in Section 4(c)(iii)(E) or any other event that
would cause such Registration Statement or the Prospectus
contained therein not to be effective and usable for resales
of Notes or Registered Notes during the period required by
this Agreement, promptly (except as contemplated by Section
2(c) or 3(a)(iii)(B) hereof) prepare a post-effective
amendment to the applicable Registration Statement or a
supplement to the related Prospectus and use their best
efforts to cause such amendment to be declared effective, or
file any other required document so that the Registration
Statement and the Prospectus, as thereafter delivered to
Holders of the Transfer Restricted Securities or the
purchasers of Transfer Restricted Securities, (A) will not
contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading and (B) will contain all current
information required by the Securities Act. If the Initial
Purchasers, the Holders of any Notes or Registered Notes
covered by a Registration Statement or any known Participating
Broker-Dealer is required by the terms of this Agreement to
suspend the use of a Prospectus until the requisite changes to
such Prospectus have been made, then the period of
effectiveness of the applicable Shelf Registration Statement
provided for in Section 3 and the Exchange Offer Registration
Statement provided for in Section 2 shall each be extended by
the number of days during the period from and including the
date such notice is required to be given under this Agreement
to and including the date when the Initial Purchasers, each
selling Holder covered by such Registration Statement, and any
known Participating Broker-Dealer shall have received an
amended or supplemented Prospectus contemplated by this clause
(ix) or shall have received Advice (as defined below) from the
Company;
(x) in the case of a Registered Exchange Offer,
deliver (A) to the Representative one manually signed copy of
the Exchange Offer Registration Statement and (B) to each of
the other Initial Purchasers at least one copy of the Exchange
Offer Registration Statement, in each case without charge and
with and any post-effective amendment thereto, including
financial statements and schedules, and, if the recipient
requests, all exhibits (including those, if any, incorporated
by reference);
(xi) in the case of a Registered Exchange Offer,
deliver to the Initial Purchasers, any Participating
Broker-Dealer and such other persons required to deliver a
Prospectus in connection with the offering and sale of the
Registered Notes following the Registered Exchange Offer,
without charge, as many copies of the final Prospectus
included in the Exchange Offer Registration Statement and any
amendment or supplement thereto as such persons may reasonably
request, and, in connection therewith, the Company and each of
the Guarantors hereby consents,
11
<PAGE>
subject to any notice by the Company in accordance with this
Section 4(c) of the existence of any fact or event of the kind
described in Section 4(c)(iii)(E), to the use of the
Prospectus or any amendment or supplement thereto by the
Initial Purchasers, if necessary, any Participating
Broker-Dealer and such other persons as are required to
deliver a Prospectus following the Registered Exchange Offer
in connection with the offering and sale of the Registered
Notes covered by the Prospectus, or any amendment or
supplement thereto, included in such Exchange Offer
Registration Statement;
(xii) in the case of a Shelf Registration, furnish to
the Representative, without charge, one manually signed copy
of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and
schedules, and, if the recipient Holder so requests, all
exhibits (including those, if any, incorporated by reference);
(xiii) in the case of a Shelf Registration, deliver,
without charge, to the Initial Purchasers and each Holder of
the Notes included within the coverage of a Shelf Registration
Statement which was declared effective by the Commission as
many copies of the Prospectus (including each preliminary
prospectus) included in such Shelf Registration Statement and
any amendment or supplement thereto as such person may
reasonably request, and, in connection therewith, the Company
and each of the Guarantors hereby consents, subject to any
notice by the Company in accordance with this Section 4(c) of
the existence of any fact or event of the kind described in
Section 4(c)(iii)(E), to the use of the Prospectus or any
amendment or supplement thereto by each of the selling Holders
of the Notes in connection with the offering and sale of the
Notes covered by the Prospectus, or any amendment or
supplement thereto, included in such Shelf Registration
Statement,
(xiv) in the case of a Shelf Registration, (A) enter
into such customary agreements and take all such other actions
in connection therewith in order to expedite or facilitate the
offering or disposition of the Notes included in the Shelf
Registration Statement, including, but not limited to,
furnishing to each Initial Purchaser and each Holder of any
Notes included in the Shelf Registration Statement, in such
substance and scope as they may request and as are customarily
made by issuers to underwriters in primary underwritten
offerings, upon the date of the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Shelf Registration
Statement, signed by (x) the president or
chief executive officer of the Company and
(y) the chief financial officer or the
principal financial or accounting officer of
the Company, confirming, as of the date
thereof, that the Shelf Registration
Statement and the related Prospectus do 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 not
misleading and as to such other matters as
such parties may reasonably request;
(2) opinions, dated the date of
effectiveness of the Shelf Registration
Statement, of outside counsel for the
Company, covering such matters as are
customarily included in opinions to
underwriters in primary underwritten
offerings and as are reasonably requested by
such parties; and
(3) a customary comfort letter,
dated as of the date of effectiveness of the
Shelf Registration Statement, from the
independent certified public accountants of
the Company, in customary form and covering
matters of the
12
<PAGE>
type customarily covered in comfort letters by
underwriters in connection with primary underwritten
offerings, and addressing, to the extent relevant,
the matters set forth in the comfort letters
delivered pursuant to Section 6(h) of the Purchase
Agreement;
(B) in the case of an underwriting agreement
entered into in connection with a Shelf Registration,
set forth in full indemnification provisions and
procedures substantially in the form of those set
forth in Section 7 hereof with respect to all parties
required to be indemnified pursuant to such Section
7; and
(C) deliver such other documents and
certificates as may be reasonably requested by such
parties to evidence compliance with clause (A) above.
The Company shall be required to make an underwritten
offering only upon the request of Holders of at least 20% of
the aggregate principal amount of the Registered Notes
outstanding at the time such request is delivered to the
Company.
(xv) prior to any public offering of any Notes
pursuant to a Shelf Registration Statement, (A) cooperate with
the selling Holders participating in a Shelf Registration, and
their respective counsel, in connection with the registration
and qualification of the Notes under the securities or "blue
sky" laws of such jurisdictions as the selling Holders may
request, and (B) do any and all other acts or things necessary
or advisable to enable the offering or disposition in such
jurisdictions of the Notes, as the case may be, covered by the
Shelf Registration Statement; except that in no event shall
Company or any Guarantor be obligated in connection therewith
to qualify as a foreign corporation or to execute a general
consent to service of process or to take any other action that
would subject it to service of process in suits in any
jurisdiction other than those arising out of the offering or
sale of Notes in such jurisdiction pursuant to such
Registration Statement;
(xvi) to the extent that any Notes are held in
certificated form and are not represented by global
certificates, cooperate with the holders of such Notes, in
connection with the Registered Exchange Offer, to include an
aggregate principal amount of such Notes in a global
certificate representing the Registered Notes, and, to the
extent that any Notes or Registered Notes are not eligible to
be held in book-entry form, prepare and deliver Notes or
Registered Notes in certificated form as the Holders may
request; provided, in either case, that the Company and the
Guarantors will cooperate with participating Broker Dealers
(in the case of a Registered Exchange Offer) and any Holders
selling Notes pursuant to a Shelf Registration Statement, to
facilitate the timely delivery of such certificates (whether
in book-entry or certificated form as provided above)
representing such Registered Notes or Notes, as the case may
be, to be sold which do not bear any restrictive legends
(other than any customary legend required by the applicable
depository or any legend that would be required by a Note or
Registered Note held by an affiliate of the Company);
(xvii) use their best efforts to cause the Notes or
Registered Notes covered by the Registration Statement to be
registered with or approved by such other governmental
agencies or authorities (except as may be required solely as
consequence of a Holder's business) as may be necessary to
enable the Consummation of the Registered Exchange Offer or,
in the case of a Shelf Registration, as may be applicable to
the Company with respect to filing and having declared
effective the Shelf Registration Statement;
13
<PAGE>
(xviii) obtain appropriate CUSIP numbers for each
series of Registered Notes not later than the effective date
of the Registration Statement and provide the Trustee with
printed certificates for the Notes or Registered Notes, as the
case may be, in a form eligible for deposit with The
Depository Trust Company, or with Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear") and Cedel Bank, Societe Anonyme
("CEDEL");
(xix) otherwise use their best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders, no later
than 45 days after the end of any fiscal quarter (or 90 days
after the end of any fiscal year), a consolidated earnings
statement (which need not be audited) satisfying the
requirements of Section 11(a) of the Securities Act
(including, at the option of the Company, Rule 158 under the
Securities Act) for a period of at least twelve months
beginning after the effective date of a Registration
Statement; and
(xx) cause the Indenture to be qualified under the
TIA not later than the effective date of the first
Registration Statement required to be filed by this Agreement,
and, in connection therewith: (A) cooperate with the Trustee
and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and (B)
execute, and use all reasonable efforts to cause the Trustee
to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so
qualified in a timely manner.
Each Initial Purchaser, each Holder of Notes included in a
Shelf Registration Statement and each Participating Broker-Dealer using the
prospectus included in the Exchange Offer Registration Statement for the resale
of Registered Notes, by its acquisition of a Note or a Registered Note, agrees
that, upon receipt of any notice from the Company of the existence of any fact
or event of the kind described in Section 4(c)(iii)(E), such Initial Purchaser,
Holder or Participating Broker-Dealer will forthwith discontinue disposition of
the Notes or the Registered Notes, as applicable, and suspend the use of the
Prospectus until such Initial Purchaser, Holder or Participating Broker-Dealer
has received copies of a supplemented or amended Prospectus as contemplated by
Section 4(c)(ix), or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each such Initial Purchaser, each
such selling Holder of Notes or each such Participating Broker-Dealer, as the
case may be, will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in such Holder's, Initial
Purchaser's or Participating Broker-Dealer's possession, of the Prospectus
covering such Notes or Registered Notes, as applicable, that was current at the
time of receipt of such notice.
Section 5. Hold-Back Agreements
The Company agrees, without the prior written consent of the
Representative, not to effect any public or private sale or distribution
(including a sale pursuant to Regulation D under the Securities Act) of any
securities the same as or similar to those covered by a Registration Statement
filed pursuant to Section 2 or 3 hereof, or any securities convertible into or
exchangeable or exercisable for such securities, from the date of this Agreement
through the earlier of (i) 45 calendar days after the Consummation of the
Registered Exchange Offer or (ii) 210 calendar days after the Issue Date.
Section 6. Registration Expenses.
14
<PAGE>
All expenses incident to the Company's performance of or
compliance with its obligations under Sections 2, 3 and 4 of this Agreement will
be borne by the Company regardless of whether a Registration Statement becomes
effective, and, in the case of a Shelf Registration Statement, the Company will
reimburse the Holders covered thereby for the reasonable fees and disbursements
of one counsel designated by the Holders of a majority of the principal amount
of the Notes or Registered Notes included in any such Registration Statement to
act as counsel for the Holders in connection therewith.
Section 7. Indemnification and Contribution.
(a) In connection with any Registration Statement, the Company
and each of the Guarantors, jointly and severally, agrees to indemnify
and hold harmless (i) each Initial Purchaser, each Participating
Broker-Dealer and each Holder of Notes to be included in such
Registration Statement, (ii) each person, if any, who controls (within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) any such Initial Purchaser, Participating Broker-Dealer
or Holder (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives
and agents of any such Initial Purchaser, Participating Broker-Dealer
or Holder or controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified
Holder") from and against any and all losses, liabilities, claims,
damages and expenses whatsoever as incurred (including, but not limited
to, reasonable attorneys fees and any and all reasonable expenses
whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and,
subject to Section 6(c), any and all amounts paid in settlement of any
claim or litigation), joint or several, to which any such Indemnified
Holder may become subject under the Securities Act, the Exchange Act or
otherwise (collectively, "Losses"), insofar as such Losses (or actions
or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus, or any amendment
or supplement thereto, or 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 light of the circumstances under
which they were made, not misleading; provided, however, that the
Company and the Guarantors shall not be liable in any such case to the
extent, but only to the extent, that any such Loss (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged
omission from the Registration Statement or Prospectus contained
therein made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such
Indemnified Holder expressly for use therein. This indemnity obligation
will be in addition to any liability which the Company and the
Guarantors may otherwise have to such Indemnified Holder, including
under this Agreement.
(b) The Company hereby also agrees that in connection with any
underwritten offering of Transfer Restricted Securities pursuant to
Section 3, the Company and each of the Guarantors, jointly and
severally, will also indemnify any underwriters, selling brokers,
dealers and similar securities industry professionals participating in
the distribution, their officers, directors, employees, agents,
advisors and representatives, and each controlling person thereof,
substantially to the same extent as provided in Section 6(a) with
respect to the indemnification of each Initial Purchaser and Holder of
Transfer Restricted Securities (and such Persons will indemnify the
Company and the Guarantors and each controlling person thereof to the
same extent as provided in Section 6(c)).
(c) Each Indemnified Holder will, severally and not jointly,
indemnify and hold harmless the Company and the Guarantors and any
person controlling the Company and the Guarantors (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act),
each Initial Purchaser and the other selling Holders, and their
respective officers, directors, partners, employees, representatives
and agents, and any controlling person thereof, against any Losses to
which the Company, any Guarantor any
15
<PAGE>
Initial Purchaser or other selling Holder, or any such officer,
director, partner, employee, representative, agent or controlling
persons thereof, may become subject under the Securities Act, the
Exchange Act or otherwise, from and against any Losses insofar as such
Losses (or actions or proceedings in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus
contained therein or any amendment or supplement thereto or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder specifically for use
therein, and shall reimburse the Company and the Guarantors for any
legal or other expenses reasonably incurred by the Company and the
Guarantors in connection with investigating or preparing to defend or
defending against or appearing as third party witness in connection
with any such Loss as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a) or (c) of this Section 7 of notice of the commencement
of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such
subsection, notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability
which it may have under this Section 6). In case any such action is
brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in the defense of
such action, and to the extent such indemnifying party may elect by
written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party to assume
the defense thereof with counsel satisfactory to such indemnified
party. Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party or parties unless (a) the employment of such
counsel shall have been authorized in writing by one of the
indemnifying parties in connection with the defense of such action, (b)
the indemnifying parties shall not have employed counsel to have charge
of the defense of such action within a reasonable time after notice of
commencement of the action, or (c) such indemnified party or parties
shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to
one or all of the indemnifying parties (in which case the indemnifying
parties shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties (it
being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel and one
additional local counsel for each relevant jurisdiction). Anything in
this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its written consent (which consent may not be unreasonably
withheld).
(e) If the foregoing indemnification is unavailable or
insufficient to an indemnified party for any reason in respect to any
Losses or reimbursable expenses referred to therein, then in lieu of
indemnification, each indemnifying party shall contribute to the amount
paid or payable, including expenses, by such indemnified party in such
proportion as is appropriate to reflect the relative benefits received
(or anticipated to be received) by the indemnifying party or parties on
the one hand and the indemnified party on the other from the offering
of the Notes or Registered Notes, as the case may be, or, if such
allocation is not permitted by applicable law, then in such proportion
as is appropriate to reflect not only the relative benefits received
(or anticipated to be received) but also the relative fault of each of
the parties in connection with the statements or omissions or alleged
statements or omissions that resulted in such Losses, as well as any
other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, (i)
whether any losses, claims, damages or liabilities
16
<PAGE>
relate to information supplied by the Company or such Holder of Notes
or such other indemnified person, as the case may be, (ii) the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and (iii) any other
equitable considerations appropriate in the circumstances. The Company,
the Guarantors and each indemnified party agrees that it would not be
just and equitable if the amount of such contribution were determined
by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
first sentence of this paragraph (e). Notwithstanding any other
provision of this paragraph (e), the Holders of the Notes shall not be
obligated to make contributions hereunder in any amount in excess of
the amount by which the net proceeds received by such Holders from the
sale of the Notes exceeds the amount of damages which such Holders have
otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The obligations of
the Holders to contribute pursuant to this Section 7(e) are several in
proportion to the respective principal amount of Notes held by each of
the Holders hereunder and not joint. For purposes of this Section 7(e),
each director, officer, employee and agent of any indemnified party and
each person, if any, who controls such indemnified party (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) shall have the same rights to contribution as such
indemnified party and each director and officer of the Company, and
each person, if any, who controls the Company (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act)
shall have the same rights to contribution as the Company.
(f) The foregoing provisions are in addition to any rights
that an indemnified party may have at common law or otherwise. The
agreements contained in this Section 7 shall survive the sale of the
Notes or the Registered Notes pursuant to a Registration Statement and
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on
behalf of any indemnified party.
Section 8. Liquidated Damages.
The Company, the Guarantors and the Initial Purchasers agree
that the Holders of Transfer Restricted Securities will suffer damages if the
Company and the Guarantors fail to fulfill their obligations under this
Agreement and that it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, in the event that, for any reason
whatsoever, (i) the Company has not filed the Exchange Offer Registration
Statement with the Commission on or prior to the 60th calendar day following the
Issue Date, (ii) such Exchange Offer Registration Statement has not been
declared effective by the Commission on or prior to the 120th calendar day
following the Issue Date, (iii) the Registered Exchange Offer has not been
Consummated on or prior to the 45th calender day following the date on which the
Exchange Offer Registration Statement is declared effective by the Commission or
(iv) any Registration Statement required by the terms of this Agreement is filed
and declared effective but shall thereafter cease to be effective (except as
specifically permitted herein) without being succeeded immediately by an
additional Registration Statement filed and declared effective (any such event
referred to in clauses (i) through (iv), a "Registration Default"), then the per
annum interest rate borne by the Notes (and, if applicable, the Registered
Notes) will increase with respect to the first 90-day period immediately
following the occurrence of such Registration Default by 0.25% per annum over
the rate stated on the face of the Notes (and, if applicable, the Registered
Notes), as liquidated damages and not as a penalty, commencing on the date of
the occurrence of a Registration Default, and will increase by an additional
0.25% per annum, as liquidated damages and not as a penalty, with respect to
each subsequent 90-day period until all Registration Defaults have been cured
(the aggregate of such interest rate increases being the "Interest Rate
Increase"). Notwithstanding the foregoing, at no time shall the maximum interest
rate borne by the Notes exceed 10-3/4%, which rate is two percentage points
greater than the per annum interest rate borne by the Notes on the Issue Date.
At such time as no Registration Default is continuing, the interest rate borne
by the Notes (and, if applicable, the Registered Notes) shall be reduced
17
<PAGE>
by the amount of the Interest Rate Increase and such additional interest will
cease to accrue. In the event of any Interest Rate Increase, the Company will
provide notice to the Trustee of such Interest Rate Increase, and will cause the
Trustee to provide appropriate notice thereof to the Holders of the Notes (or,
if applicable, the Registered Notes).
Section 9. Rule 144.
The Company agrees that to the extent it shall be required to
do so under the Exchange Act, the Company shall timely file the reports required
to be filed by it under the Exchange Act or the Securities Act (including, but
not limited to, the reports under Section 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 under the Securities Act), and
shall take such further action as any Holder of Transfer Restricted Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Transfer Restricted Securities without registration under
the Securities Act within the limitations of the exemptions provided by Rule
144, as such Rule may be amended from time to time, or any similar or successor
rule or regulation hereafter adopted by the Commission. Upon the request of any
Holder of Transfer Restricted Securities in connection with the Holder's sale
pursuant to Rule 144, the Company shall deliver to such Holder a written
statement as to whether it has complied with such requirements.
Section 10. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in
aggregate principal amount of Transfer Restricted Securities; provided
that the provisions of Section 7 of this Agreement may not be amended,
modified or supplemented, and waivers or consents to departures from
the provisions thereof may not be given, unless the Company has
obtained the written consent of each Indemnified Holder adversely
affected thereby.
(b) No Inconsistent Agreements. The Company will not, on or
after the date of this Agreement, enter into any agreement with respect
to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder are not
inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested),
or courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to
the Registrar under the Indenture; and
(ii) if to the Representative, the Company or any of
the Guarantors, at their respective addresses set forth in the
Purchase Agreement.
All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if
personally delivered; three Business Days after being
deposited in the mail, postage prepaid, if mailed; and on the
day delivered, if sent by overnight air courier guaranteeing
next day delivery.
18
<PAGE>
Copies of all such notices. demands or other
communications shall be concurrently delivered by the Person
giving the same to the Trustee at the address specified in the
Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without limitation and without the need for an
express assignment, subsequent Holders of Transfer Restricted
Securities.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK FOR
CONTRACTS MADE AND TO BE FULLY PERFORMED IN SUCH STATE AND WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(h) Agent for Service; Submission to Jurisdiction. (i) Each of
the Company and the Guarantors:
(x) irrevocably submits to the jurisdiction of any
New York State or federal court sitting in New York City and
any appellate court from any thereof in any action or
proceeding arising out of or relating to this Agreement or any
other document delivered hereunder;
(y) irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in
such New York State court or in such federal court; and
(z) irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding and irrevocably
consents, to the fullest extent permitted by law, to service
of process of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Company
or any of the Guarantors at its address as provided in Section
10(c) of this Agreement, such service to become effective five
days after such mailing;
(ii) Nothing in this Section shall affect the right
of any person to serve legal process in any other manner permitted by
law or affect the right of any person to bring any action or proceeding
against the Company or any Guarantor or their properties in the courts
of other jurisdictions.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other
respect and the remaining provisions contained herein shall not, to the
fullest extent permitted by law, be affected or impaired thereby.
(j) Third Party Beneficiaries. Holders of the Notes and
Registered Notes and each Indemnified Holder are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by
such persons.
19
<PAGE>
(k) Entire Agreement. This Agreement, together with the other
Transaction Documents (as defined in the Purchase Agreement), is
intended by the parties as a final expression of their agreement and is
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises. warranties or
undertakings, other than those set forth or referred to herein, with
respect to the registration rights granted by the Company with respect
to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to
such subject matter.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Very truly yours,
IRON MOUNTAIN INCORPORATED
By:/s/ C. Richard Reese
----------------------------------
Name: C. Richard Reese
Title: Chairman and CEO
Iron Mountain Records Management, Inc., Metro
Business Archives, Inc., Criterion Atlantic
Property, Inc., Criterion Property, Inc.,
Hollywood Property, Inc., IM San Diego, Inc.,
Iron Mountain Consulting Services, Inc., Iron
Mountain Data Protection Services, Inc., Iron
Mountain Records Management of Maryland,
Inc., Iron Mountain Records Management of
Ohio, Inc., Iron Mountain Wilmington, Inc.,
Iron Mountain Records Management of Missouri
LLC, Iron Mountain Records Management of
Boston, Inc., Iron Mountain Records
Management of Minnesota, Inc., Iron Mountain
Records Management of Michigan, Inc., Iron
Mountain Records Management of Wisconsin,
Inc., Iron Mountain Records Management of San
Antonio, Inc., Iron Mountain Records
Management of San Antonio-FP, Inc., Iron
Mountain Records Management of the Northwest,
Inc., Iron Mountain/Critical Files, Inc.,
Iron Mountain/Safesite, Inc., IM-AEI
Acquisition Corp., Archives Express,
Incorporated, IM Billerica, Inc., IM Earhart,
Inc., Iron Mountain Records Management of
Florida, Inc., Data Securities International,
Inc., IM-3 Acquisition Corp., and Allegiance
Business Archives, Ltd.
By:/s/ C. Richard Reese
----------------------------------
Name: C. Richard Reese
Title: Chairman and CEO
BEAR, STEARNS & CO. INC.
By:/s/ J. Andrew Bugas
- --------------------------------------
Name: J. Andrew Bugas
Title: Senior Managing Director
CHASE SECURITIES INC.
By:/s/ David P. Fass
- --------------------------------------
Name: David P. Fass
Title: Vice President
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:/s/ Tyler J. Wolfram
- --------------------------------------
Name: Tyler J. Wolfram
Title: Vice President
WILLIAM BLAIR & COMPANY, L.L.C.
By:/s/ James D. McKinney
- --------------------------------------
Name: James D. McKinney
Title: Principal
PRUDENTIAL SECURITIES INCORPORATED
By:/s/ John E. Stuart
- --------------------------------------
Name: John E. Stuart
Title: Director
EXHIBIT 21
IRON MOUNTAIN SUBSIDIARIES
--------------------------
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
1. Iron Mountain Records Management, Inc. Delaware
2. Iron Mountain/Safesite, Inc. Delaware
3. Data Securities International, Inc. Delaware
4. IM-3 Acquisition Corp. Delaware
5. Metro Business Archives, Inc. New York
6. Criterion Atlantic Property, Inc. Delaware
7. Criterion Property, Inc. Delaware
8. Iron Mountain / Critical Files, Inc. Delaware
9. Hollywood Property, Inc. California
10. IM San Diego, Inc. Delaware
11. Iron Mountain Consulting Services, Inc. Delaware
12. Iron Mountain Data Protection Services, Inc. Massachusetts
13. Iron Mountain Records Management of Maryland, Inc. Delaware
14. Iron Mountain Records Management of Ohio, Inc. Delaware
15. Iron Mountain Wilmington, Inc. Delaware
16. Iron Mountain Records Management of Missouri, LLC Delaware
17. Iron Mountain Records Management of Boston, Inc. Massachusetts
18. Iron Mountain Records Management of Florida, Inc. Delaware
19. Iron Mountain Records Management of Minnesota, Inc. Delaware
20. Iron Mountain Records Management of Michigan, Inc. Delaware
21. Iron Mountain Records Management of Wisconsin, Inc. Delaware
22. Iron Mountain Records Management of the Northwest, Inc. Delaware
23. IM Earhart, Inc. Delaware
24. IM Billerica, Inc. Massachusetts
25. Iron Mountain Records Management of San Antonio, Inc. Delaware
26. Iron Mountain Records Management of San Antonio - FP, Inc. Delaware
27. IM-AEI Acquisition Corp. Delaware
28. Allegiance Business Archives, Ltd. Delaware
29. Archives Express, Inc. Utah
30. HIMSCORP of Philadelphia, Inc. Delaware
31. RecordKeepers, Inc. Maryland
32. HIMSCORP of Pittsburgh, Inc. Delaware
33. HIMSCORP of Cleveland, Inc. Delaware
34. HIMSCORP of New Orleans, Inc. Delaware
35. HIMSCORP of Portland, Inc. Delaware
36. HIMSCORP of San Diego, Inc. Delaware
37. HIMSCORP of Detroit, Inc. Delaware
38. HIMSCORP of Los Angeles, Inc. Delaware
39. HIMSCORP of Houston, Inc. Delaware
40. HIMSCORP of St. Louis, Inc. Delaware
41. Copyright, Inc. Delaware
42. HIMSCORP of Milwaukee, Inc. Delaware
43. Record Masters Network Corp. Nevada
EXHIBIT 23.1
Consent of Independent Public Accountants
We consent to the reference to our firm under the caption "Experts", and to the
use of our reports dated April 11, 1997 (except for Note 15, as to which the
date is September 26, 1997), February 28, 1997 (except for Note 12, as to which
the date is September 26, 1997), and April 30, 1997 (except for Note 15, as to
which the date is September 26, 1997) with respect to the financial statements
of United Acquisition Company, Arcus Technology Services, Inc. and Arcus Group,
Inc., respectively, included in this Joint Proxy Statement of Iron Mountain
Incorporated, Arcus Group, Inc., United Acquisition Company and Arcus
Technology Services, Inc., that is made a part of the Registration Statement
(Form S-4) and Prospectus of Iron Mountain Incorporated to be filed on or about
November 25, 1997.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
November 24, 1997
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated April 4, 1995 for Arcus Group, Inc. and United Acquisition
Company and to all references to our Firm included in this Form S-4 and into
Iron Mountain Inc.'s previously filed Registration Statements on Form S-8 File
No. 333-24803 and No. 333-33191.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
November 24, 1997
EXHIBIT 23.3
Consent of Independent Public Accountants
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-24803 and No. 333-33191) of Iron Mountain Incorporated of our
report dated February 21, 1997, with respect to the consolidated financial
statements of HIMSCORP, Inc. and Subsidiaries included in the Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 25, 1997
and incorporated by reference in the Registration Statement on Form S-4 dated
November 26, 1997 filed by Iron Mountain Incorporated with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
November 24, 1997
EXHIBIT 23.4
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated March 4, 1997 (except for Note 11, as to which the date is
October 1, 1997) for Allegiance Business Archives, Ltd. included in the Current
Report on Form 8-K filed with the Securities and Exchange Commission on
November 25, 1997, and to all references to our Firm incorporated by reference
in this Form S-4 and into Iron Mountain Inc.'s previously filed Registration
Statements on Form S-8 File No. 333-24803 and No. 333-33191.
/s/ Stout, Causey & Horning, P.A.
Stout, Causey & Horning, P.A.
Cockeysville, Maryland
November 24, 1997
EXHIBIT 23.5
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated August 7, 1997 for Records Retention/FileSafe included in the
Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 25, 1997, and to all references to our Firm incorporated by reference
in this Form S-4 and into Iron Mountain Inc.'s previously filed Registration
Statements on Form S-8 File No. 333-24803 and No. 333-33191.
/s/ Abbott, Stringham & Lynch
Abbott, Stringham & Lynch
Campbell, California
November 24, 1997
EXHIBIT 23.6
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated August 15, 1997, April 25, 1997 and September 12, 1997 for
Security Archives of Minnesota, Wellington Financial Services, Inc. and Data
Securities International, Inc., respectively, included in the Current Report on
Form 8-K filed with the Securities and Exchange Commission on October 30, 1997,
and to all references to our Firm incorporated by reference in this Form S-4
and into Iron Mountain Inc.'s previously filed Registration Statements on Form
S-8 File No. 333-24803 and No. 333-33191.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Minneapolis, Minnesota
Detroit, Michigan
San Jose, California
November 24, 1997
EXHIBIT 23.7
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated August 8, 1997 for Concorde Group, Inc. and Neil Tucker Trust
included in the Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 30, 1997, and to all references to our Firm
incorporated by reference in this Form S-4 and into Iron Mountain Inc.'s
previously filed Registration Statements on Form S-8 File No. 333-24803 and No.
333-33191.
/s/ Fisher, Schacht & Oliver, LLP
Fisher, Schacht & Oliver, LLP
Rochester, New York
November 24, 1997
EXHIBIT 23.8
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated March 14, 1997 and September 6, 1996 for Safesite Records
Management Corporation and Mohawk Business Record Storage, Inc. included in the
Registration Statement on Form S-4/A filed with the Securities and Exchange
Commission on May 13, 1997, and to all references to our Firm incorporated by
reference in this Form S-4 and into the Company's previously filed Registration
Statements on Form S-8 File No. 333-24803 and No. 333-33191.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
Minneapolis, Minnesota
November 24, 1997
EXHIBIT 23.9
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 16, 1996 for Nashville Vault Company, Ltd. included in the
Registration Statement on Form S-4/A filed with the Securities and Exchange
Commission on May 13, 1997, and to all references to our Firm incorporated by
reference in this Form S-4 and into Iron Mountain Inc.'s previously filed
Registration Statements on Form S-8 File No. 333-24803 and No. 333-33191.
/s/ Geo. S. Olive & Co. LLC
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
November 24, 1997
EXHIBIT 23.10
Consent of Independent Public Accountants
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of our report dated July 19, 1996 except as to Note 11 which is as of
September 1, 1996, on our audit of the financial statements of International
Record Storage and Retrieval Service, Inc. as of and for the year ended December
31, 1995 included in the Registration Statement on Form S-4/A filed with the
Securities Exchange Commission on May 13, 1997. We also consent to the reference
to our firm under the caption "Experts".
/s/ Rothstein, Kass & Company, P.C.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
November 24, 1997
EXHIBIT 23.11
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated March 4, 1997 (except for Note 11.a. and e. for which the
date is March 19, 1997) for Iron Mountain Incorporated included in the Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
28, 1997, and to all references to our Firm incorporated by reference in this
Form S-4 and into the Company's previously filed Registration Statements on
Form S-8 File No. 333-24803 and No. 333-33191.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
November 24, 1997
EXHIBIT 23.14
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
September 25, 1997, to the Board of Directors of United Gas Holdings Corporation
(the "Company") as Annex VII to the Joint Proxy Statement/Prospectus of the
Company relating to the proposed acquisition by merger of the Company by Iron
Mountain Incorporated and (ii) all references to DLJ in the sections captioned
"Summary," "General Background of the Merger and the Other Arcus Proposals,"
"Recommendation of the Arcus Boards; the Arcus Parties' Reasons for the Merger,"
and "Opinion of the Financial Advisor to AGI," of the Joint Proxy
Statement/Prospectus of Arcus Group, Inc., United Acquisition Company, Arcus
Technology Services, Inc., and Iron Mountain Incorporated which forms a part of
this Registration Statement on Form S-4. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under, and
we do not admit that we are "experts" for purposes of, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Marsha Plotnitsky
------------------------
Marsha Plotnitsky
Managing Director
New York, New York
November 25, 1997
EXHIBIT 23.15
CONSENT OF BEAR, STEARNS & CO. INC.
We hereby consent to the inclusion in the Joint Proxy Statement/Prospectus
forming part of this Registration Statement on Form S-4 of Iron Mountain
Incorporated of our opinion letter dated September 26, 1997 to the Board of
Directors of Iron Mountain Incorporated attached as Annex VIII thereto and to
the reference to such opinion and to our firm therein. We also confirm the
accuracy in all material respects of the description and summary of such
fairness opinion and the description summary of our analyses, observations,
beliefs and conclusions relating thereto, set forth under the heading
"Background of the Merger and the Other Arcus Proposals--Opinion of Financial
Advisor to Iron Mountain" therein. In giving such consent, we do not admit that
we come within the category of persons whose consent is required under Section
7 of, nor do we admit that we are "experts" for purposes of, the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission issued thereunder.
BEAR, STEARNS & CO. INC.
By: /s/ Richard De Rose
-------------------
Richard De Rose
Managing Director
November 26, 1997
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Iron Mountain Incorporated of my name as a
nominee to be a director of Iron Mountain Incorporated effective upon the
closing of the Merger described in such Prospectus.
/s/ Clarke H. Bailey
- --------------------------------
Clarke H. Bailey
November 25, 1997
