As filed with the Securities and Exchange Commission on May 13, 1997
Registration No. 333-24635
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 4226 04-3107342
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
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, Esq.
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. |_|
----------------------
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>
SAFESITE RECORDS MANAGEMENT CORPORATION
May 14, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Safesite Stockholders Meeting") of Safesite Records Management Corporation
("Safesite") to be held on June 6, 1997 at 12:00 noon, local time, at Safesite's
headquarters located at 96 High Street, North Billerica, Massachusetts.
At the Safesite Stockholders Meeting, stockholders will be asked to
approve and adopt an Agreement and Plan of Merger, as amended to date (the
"Merger Agreement"), providing for the merger (the "Merger") of Safesite with
and into a wholly owned subsidiary of Iron Mountain Incorporated ("Iron
Mountain"). At the effective time of the Merger (the "Effective Time"), all
outstanding shares of Safesite Common Stock, par value $.01 per share ("Safesite
Common 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"). Safesite stockholders have the right to dissent from the Merger and, if
the Merger is consummated, have the fair value of their shares paid to them in
cash by submitting a written notice prior to the Safesite Stockholders Meeting
and following the other procedures described in the accompanying Proxy
Statement.
In the Merger, Iron Mountain will issue to Safesite stockholders shares
of Iron Mountain Common Stock and cash. Holders of options to acquire shares of
Safesite Common Stock that are exercisable as of the Effective Time
("Exercisable Options") will receive as a result of the Merger, currently
exercisable options to acquire Iron Mountain Common Stock and, at Iron
Mountain's election (which election must be made as to all exercisable options),
cash. Assuming (i) no adjustments are made in the amount of consideration
provided in the Merger Agreement, as described in the accompanying Proxy
Statement, (ii) a Determination Price (as defined in the accompanying Proxy
Statement) of $28.50 (the mid-point in the range between the floor price of
$26.00 and the ceiling price of $31.00) and (iii) Iron Mountain elects to pay
cash to holders of Exercisable Options, the aggregate value of shares issued in
the Merger and shares underlying exercisable options issued as a result of the
Merger would be $49,910,000, representing approximately 1,751,228 shares of Iron
Mountain Common Stock, and the aggregate amount of cash would be $12,090,000.
Based upon the foregoing assumptions and on the shares of Safesite Common Stock
and Exercisable Options outstanding on May 2, 1997, each Safesite stockholder
would be entitled to receive approximately 0.1845 shares of Iron Mountain Common
Stock with a value of approximately $5.26 and approximately $1.27 in cash per
share of Safesite Common Stock based on the number of shares of Safesite Common
Stock and Exercisable Options outstanding on May 2, 1997. The Determination
Price calculated as of May 9, 1997 was $26.00 (the actual average closing price
per share for such period was $24.18).
Using the Determination Price of $26.00 (the floor in the calculation
of the Determination Price and was the Determination Price calculated as of May
9, 1997), and based on the other assumptions set forth in the immediately
preceding paragraph, each Safesite stockholder would be entitled to receive
approximately 0.2023 shares of Iron Mountain Common Stock with a value of
approximately $5.26 (assuming the Iron Mountain Common Stock had a market value
at closing equal to $26.00 per share) and approximately $1.27 in cash per share
of Safesite Common Stock based on the number of shares of Safesite Common Stock
and Exercisable Options outstanding on May 2, 1997. On May 9, 1997, the closing
sales price of the Iron Mountain Common Stock, as reported on the Nasdaq
National Market, was $25.50. Using this amount as the value of the Iron Mountain
Common Stock (rather than $26.00), each Safesite stockholder would be entitled
to receive on a per share basis Iron Mountain Common Stock having a value of
approximately $5.16. However, the Determination Price and the closing sales
price of Iron Mountain Common Stock may increase or decrease between May 9,
1997 and the Closing Date.
In order to protect the tax-free nature of the Merger, approximately
62% of the shares of Iron Mountain Common Stock received by each Safesite
stockholder may not be transferred by such stockholder for a period of one year
following the Effective Time. In order to implement such restriction, each
stockholder will receive two
<PAGE>
-2-
certificates representing shares of Iron Mountain Common Stock to be received in
the Merger, one of which will bear 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. The other certificate will not bear this legend and,
accordingly, will be transferable by the holder, subject to compliance with
applicable law. No stockholder will receive preferential transfer rights with
respect to shares subject to these transfer restrictions.
In order to indemnify Iron Mountain for certain claims under the Merger
Agreement, shares of Iron Mountain Common Stock having a value of $4,000,000
based upon the Determination Price (equal to approximately $0.44 per share of
Safesite Common Stock) will be withheld ratably from the merger consideration
payable to Safesite stockholders and held in escrow for a period of one year.
Neither Iron Mountain nor Safesite can predict the price at which
shares of Iron Mountain Common Stock will be trading at the end of the one-year
restriction period and the escrow period. The value of the shares of Iron
Mountain Common Stock issued to Safesite stockholders in the Merger would be
adversely affected if the trading price following the end of such period was
less than the trading price at the Effective Time.
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
the second quarter of 1997.
The Safesite Board of Directors has carefully considered the terms of
the proposed Merger Agreement and believes that the Merger and related
transactions are in the best interests of and fair to Safesite and its
stockholders. The Board has unanimously approved the Merger Agreement and the
related transactions and recommends that Safesite stockholders vote FOR this
proposal.
The accompanying Proxy Statement sets forth the respective voting
rights of holders of shares of Safesite stock with respect to these matters. We
hope you will be able to attend the Safesite 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 Safesite 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,
B. Thomas Golisano, James B. Wayman, Jr.,
Chairman of the Board President
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
To Be Held On June 6, 1997
TO THE STOCKHOLDERS OF SAFESITE RECORDS MANAGEMENT CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Safesite Stockholders Meeting") of Safesite Records Management Corporation
("Safesite") will be held on June 6, 1997 at 12:00 noon, local time, at
Safesite's headquarters located at 96 High Street, North Billerica,
Massachusetts, 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 February 19, 1997, as amended to date (the "Merger
Agreement"), among Iron Mountain Incorporated, a Delaware corporation
("Iron Mountain"), IM-1 Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Iron Mountain ("Sub"), and Safesite pursuant
to which Safesite will be merged with and into Sub, with Sub continuing
as the surviving corporation and a wholly owned subsidiary of Iron
Mountain (the "Merger").
(2) Such other business as may properly come before the
Safesite Stockholders Meeting or any adjournments or postponements
thereof.
The Safesite Board of Directors has fixed the close of business on May
6, 1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Safesite 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 Safesite Stockholders
Meeting. A list of Safesite stockholders entitled to vote at the Safesite
Stockholders Meeting or any adjournments or postponements thereof will be
available for examination for any purpose germane to the Safesite Stockholders
Meeting, during ordinary business hours, at the principal executive offices of
Safesite located at 96 High Street, North Billerica, Massachusetts 01862, for 10
days prior to the Safesite Stockholders Meeting.
Shares of Common Stock, par value $.01 per share, are the only
securities of Safesite whose holders are entitled to vote upon the Merger
Agreement and any other proposals to be presented at the Safesite Stockholders
Meeting.
Safesite stockholders entitled to vote at the Safesite Stockholders
Meeting have a right to dissent to the Merger and, if the Merger is consummated,
to obtain payment for their shares of Safesite stock by complying with the
provisions of Section 262 of the Delaware General Corporation Law ("Section
262"). A copy of Section 262 is attached as Annex V to the accompanying Proxy
Statement.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Safesite 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
<PAGE>
prior to its exercise. Any stockholder present at the Safesite Stockholders
Meeting or at any adjournments or postponements thereof may revoke his or her
proxy and vote personally on each matter brought before the Safesite
Stockholders Meeting.
By Order of the Board of Directors,
Mary Fay Kattman, Secretary
May 14, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT.
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
-2-
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
--------------------------------------
SAFESITE RECORDS MANAGEMENT CORPORATION
PROXY STATEMENT
For Special Meeting of Stockholders
to Be Held June 6, 1997
------------------------------------
IRON MOUNTAIN INCORPORATED
PROSPECTUS
------------------------------------
This Proxy Statement and Prospectus (this "Proxy Statement") is being
furnished to the stockholders of Safesite Records Management Corporation, a
Delaware corporation ("Safesite"), in connection with the solicitation of
proxies by the Board of Directors of Safesite (the "Safesite Board") from
holders of outstanding shares of Common Stock, par value $.01 per share (the
"Safesite Common Stock"), of Safesite for use at the Special Meeting of
Stockholders of Safesite to be held at 12:00 noon, local time, on June 6, 1997,
and at any adjournment or postponement thereof (the "Safesite Stockholders
Meeting"). This Proxy Statement and the accompanying form of proxy are first
being mailed to stockholders of Safesite on or about May 14, 1997. For an index
indicating the pages on which certain terms used in this Proxy Statement are
defined, see "Definition Cross Reference Sheet" on page vii.
Safesite stockholders will be asked at the Safesite Stockholders Meeting to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of February 19, 1997, as amended to date (the "Merger
Agreement"), among Iron Mountain Incorporated, a Delaware corporation ("Iron
Mountain," which term includes its consolidated subsidiaries unless the context
indicates otherwise), IM-1 Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Iron Mountain ("Sub"), and Safesite pursuant to which
Safesite will be merged with and into Sub, with Sub continuing as the surviving
corporation and a wholly owned subsidiary of Iron Mountain (the "Merger").
Based on a number of assumptions which are set forth in "The Merger
Agreement--Conversion of Safesite Common Stock" and on the closing sales price
of $25.50 on May 9, 1997, and subject to the indemnification provisions
described in "The Merger Agreement--Indemnification," upon consummation of the
Merger each Safesite stockholder would be entitled to receive shares of Iron
Mountain Common Stock with a value of approximately $5.16 and approximately
$1.27 in cash per share of Safesite Common Stock. See "The Merger Agreement."
However, the Determination Price and the closing sales price of Iron Mountain
Common Stock may increase or decrease between May 9, 1997 and the Closing Date.
See "Risk Factors--Risk Factors Related to the Merger."
The Safesite Board has unanimously approved the Merger Agreement, believes
that the approval and adoption of the Merger Agreement is in the best interests
of Safesite and its stockholders and unanimously recommends that Safesite's
stockholders vote FOR the approval and adoption of the Merger Agreement.
Safesite stockholders should be aware that in reaching such decision, the
Safesite Board did not receive from a financial advisor an opinion that the
merger consideration is fair from a financial point of view to Safesite
stockholders.
See "Risk Factors" beginning on page 15 for information that should be
considered by stockholders of Safesite in evaluating an investment in Iron
Mountain Common Stock.
-----------------------
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.
May 14, 1997
<PAGE>
This Proxy Statement also constitutes a Prospectus of Iron Mountain with
respect to the shares of Iron Mountain Common Stock, par value $.01 per share
(the "Iron Mountain Common Stock"), that will be issued to holders of Safesite
Common Stock at the effective time of the Merger (the "Effective Time"). In the
Merger, Iron Mountain will issue to Safesite stockholders shares of Iron
Mountain Common Stock and cash. Holders of options to acquire shares of Safesite
Common Stock that are exercisable as of the Effective Time ("Exercisable
Options") will receive as a result of the Merger, currently exercisable options
to acquire Iron Mountain Common Stock. At Iron Mountain's election (which
election, if made, must be made as to all Exercisable Options), as is more fully
set forth in "The Merger Agreement--Treatment of Options," holders of
Exercisable Options will receive a combination of cash and currently exercisable
options to acquire Iron Mountain Common Stock. Assuming (i) no adjustments are
made in the amount of consideration provided in the Merger Agreement, as
described in the accompanying Proxy Statement, (ii) a Determination Price (as
defined below) of $28.50 (the mid-point in the range between the floor price of
$26.00 and the ceiling price of $31.00) and (iii) Iron Mountain elects to pay
cash to holders of Exercisable Options (which is Iron Mountain's current
intention), the aggregate value of shares issued in the Merger and shares
underlying exercisable options issued as a result of the Merger would be
$49,910,000, representing approximately 1,751,228 shares of Iron Mountain Common
Stock, and the aggregate amount of cash would be $12,090,000. Based upon the
foregoing assumptions and on the shares of Safesite Common Stock and Exercisable
Options outstanding on May 2, 1997, each Safesite stockholder would be entitled
to receive approximately 0.1845 shares of Iron Mountain Common Stock with a
value of approximately $5.26 and approximately $1.27 in cash per share of
Safesite Common Stock based on the number of shares of Safesite Common Stock and
Exercisable Options outstanding on May 2, 1997. 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 the closing
date of the Merger (the "Closing Date"); provided, however, that if the average
closing price per share for such period is less than $26.00, the Determination
Price shall be $26.00 and if the average closing price per share for such period
is greater than $31.00, the Determination Price shall be $31.00. The
Determination Price calculated using the above-described formula for the 20
trading day period ending on May 9, 1997 was $26.00 (the actual average closing
price per share for such period was $24.18). See "The Merger Agreement--
Conversion of Safesite Common Stock."
Using the Determination Price of $26.00 (the floor in the calculation of
the Determination Price and the Determination Price calculated as of May 9,
1997), and based on the other assumptions set forth in the immediately preceding
paragraph, each Safesite stockholder would be entitled to receive approximately
0.2023 shares of Iron Mountain Common Stock with a value of approximately $5.26
(assuming the Iron Mountain Common Stock had a market value at closing equal to
$26.00 per share) and approximately $1.27 in cash per share of Safesite Common
Stock based on the number of shares of Safesite Common Stock and Exercisable
Options outstanding on May 2, 1997. On May 9, 1997, the closing sales price of
the Iron Mountain Common Stock, as reported on the Nasdaq National Market, was
$25.50. Using this amount as the value of the Iron Mountain Common Stock (rather
than $26.00), each Safesite stockholder would be entitled to receive Iron
Mountain Common Stock having a value of approximately $5.16 per share of
Safesite Common Stock. However, the Determination Price and the closing sales
price of Iron Mountain Common Stock may increase or decrease between May 9, 1997
and the Closing Date. See "The Merger Agreement--Conversion of Safesite Common
Stock."
Safesite has agreed, and by approving the Merger Agreement, Safesite's
stockholders will agree, that shares of Iron Mountain Common Stock having a
value of $4,000,000 based upon the Determination Price (equal to approximately
$0.44 per share of Safesite Common Stock) will be withheld ratably from the
merger consideration payable to Safesite stockholders (other than holders of
Dissenting Shares, as defined below) and, subject to the limitation described
below, held in escrow to indemnify Iron Mountain and hold Iron Mountain harmless
for a period of one year following the Closing Date from and against all
damages, claims, losses, expenses, costs, obligations and liabilities suffered
by Iron Mountain by reason of any breach of Safesite's representations and
warranties contained in the Merger Agreement or failure of Safesite to perform
or fulfill any of its covenants or agreements set forth in the Merger Agreement
and for certain other claims and expenses. Iron Mountain's right to
indemnification is limited to the lesser of (i) the shares of Iron Mountain
Common Stock held in escrow and (ii) $3,000,000. Accordingly, Iron Mountain may
only collect up to $3,000,000 (equal to approximately $0.33 per share of
Safesite Common Stock) in value of Iron Mountain Common
ii
<PAGE>
Stock based upon the then current market value (except that Golisano and Wayman
have agreed to indemnify Iron Mountain if the then current market value of the
shares of Iron Mountain Common Stock delivered to Iron Mountain is less than
$3,000,000 for 66% of the difference between $3,000,000 and such value; the
other Safesite stockholders will not have any responsibility with respect to
this additional indemnification obligation). Wayman, who will act as agent for
the Safesite stockholders under the Escrow Agreement, will deliver notice to
each Safesite stockholder promptly after each time, if any, that Iron Mountain
receives a payment from the escrow. The escrow will expire one year after the
Effective Time (or, if earlier, the time when Iron Mountain receives shares of
Iron Mountain Common Stock having a then current market value of $3,000,000).
Promptly after such time, the escrow agent under the escrow agreement will remit
to each Safesite stockholder such stockholder's ratable portion of 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."
The Merger Agreement must be approved and adopted by holders of a majority
of the outstanding shares of Safesite Common Stock entitled to vote at the
Safesite Stockholders Meeting. Pursuant to the terms of the Stockholders'
Agreement by and among Iron Mountain and certain stockholders of Safesite, B.
Thomas Golisano and James B. Wayman, Jr. have agreed to vote their shares of
Safesite Common Stock in favor of the Merger. As Messrs. Golisano and Wayman
possess approximately 66.0% of the voting power of Safesite stockholders,
approval of the Merger Agreement is assured. Safesite is not seeking the
approval of the Merger Agreement by holders of options to acquire Safesite
Common Stock as such approval is not required.
In order to protect the tax-free nature of the Merger, approximately 62% of
the shares of Iron Mountain Common Stock received by each Safesite stockholder
may not be transferred by such stockholder for a period of one year following
the Effective Time. In order to implement such restriction, each stockholder
will receive two certificates representing shares of Iron Mountain Common Stock
to be received in the Merger, one of which will bear a legend indicating that
the shares represented by such certificate are subject to these transfer
restrictions and may not be transferred by such stockholder for a period of one
year following the Effective Time. The other certificate will not bear this
legend and, accordingly, will be transferable by the holder, subject to
compliance with applicable law. No stockholder will receive preferential
transfer rights with respect to shares subject to these transfer restrictions.
See "The Merger Agreement--Conversion of Safesite Common Stock--Restrictions on
Transfer of Iron Mountain Common Stock."
Holders of Safesite Common Stock have the right to dissent from the Merger
and, if the Merger is consummated, have the fair value of their shares paid to
them in cash in lieu of receiving the Merger consideration by submitting a
written notice to Safesite prior to the Safesite Stockholders Meeting and
following the other procedures described under "Rights of Dissenting
Stockholders." The exercise of appraisal rights by certain holders will have no
effect on the per share merger consideration to be received by other holders of
Safesite Common Stock. Any shares of Safesite Common Stock 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 Safesite
has been furnished by Safesite. The pro forma information contained herein
relating to Iron Mountain has been prepared by Iron Mountain and includes
historical financial information regarding Safesite that was furnished to Iron
Mountain by Safesite. Iron Mountain does not have independent knowledge of the
matters set forth herein concerning Safesite. Safesite does not have independent
knowledge of the matters set forth herein concerning Iron Mountain.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
AVAILABLE INFORMATION....................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .........................................................1
SUMMARY .................................................................................................2
The Companies ......................................................................................2
The Safesite Stockholders Meeting...................................................................3
The Merger..........................................................................................3
Restrictions on Transfer of Iron Mountain Common Stock..............................................6
Indemnification.....................................................................................7
Certain Federal Income Tax Consequences.............................................................8
Accounting Treatment................................................................................8
Securities Ownership of Management; Stockholders' Agreement.........................................8
Recommendation of the Safesite Board................................................................9
Conditions to the Merger............................................................................9
Stock Exchange Listing .............................................................................9
Termination and Certain Fees........................................................................9
Corporate Governance................................................................................9
Interests of Certain Persons.......................................................................10
Rights of Dissenting Stockholders..................................................................10
Comparative Per Share Market Price Information.....................................................10
Iron Mountain Summary and Pro Forma Information....................................................12
Safesite Summary Financial Information.............................................................14
Comparative Per Share Data.........................................................................15
RISK FACTORS............................................................................................16
Risk Factors Related to the Iron Mountain Common Stock.............................................16
Risk Factors Related to the Merger.................................................................20
THE SAFESITE STOCKHOLDERS MEETING.......................................................................22
Record Date; Quorum; Required Vote.................................................................22
Solicitation and Voting of Proxies.................................................................22
Ownership of Safesite Common Stock.................................................................24
BACKGROUND OF THE MERGER............................................................................... 25
General Background of the Merger...................................................................25
Recommendation of the Safesite Board; Safesite's Reasons for the Merger............................28
Iron Mountain's Reasons for the Merger ............................................................30
THE MERGER AGREEMENT....................................................................................30
The Merger.........................................................................................30
Conversion of Safesite Common Stock................................................................30
Treatment of Options...............................................................................34
Indemnification....................................................................................35
Exchange Procedures................................................................................36
Representations and Warranties.....................................................................36
Certain Covenants..................................................................................37
Conditions to the Merger...........................................................................39
iv
<PAGE>
Termination........................................................................................41
Fees and Expenses..................................................................................42
Amendment; Waiver..................................................................................42
ANCILLARY AGREEMENTS....................................................................................43
Stockholders' Agreement............................................................................43
Escrow Agreement...................................................................................44
Registration Rights Agreement; Restrictions on Transfer under the Federal Securities Laws..........46
Real Property Purchase Agreements..................................................................46
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...............................................................47
DESCRIPTION OF IRON MOUNTAIN............................................................................50
Introduction.......................................................................................50
The Records Management Industry....................................................................50
Financial Characteristics of Iron Mountain's Business..............................................51
Recent and Pending Acquisitions....................................................................52
Growth Strategy....................................................................................53
Premium Service Strategy...........................................................................55
Low-Cost Operating Strategy........................................................................56
Technology and Development; Information Systems....................................................57
Description of Iron Mountain Records Management Services...........................................58
Potential International Investments................................................................60
Customers..........................................................................................60
Marketing and Sales................................................................................61
Properties.........................................................................................61
Employees..........................................................................................62
Competition........................................................................................62
Insurance..........................................................................................63
Environmental Matters..............................................................................63
Legal Proceedings..................................................................................64
Iron Mountain's Selected Financial and Operating Information.......................................65
Management's Discussion and Analysis of Financial Condition and Results of Operations..............67
MANAGEMENT OF IRON MOUNTAIN.............................................................................76
Directors, Executive Officers and Certain Other Officers...........................................76
Executive Compensation.............................................................................79
Compensation Committee Interlocks and Insider Participation........................................79
Director Compensation..............................................................................80
Stock Option Information...........................................................................80
Certain Transactions...............................................................................83
PRINCIPAL STOCKHOLDERS OF IRON MOUNTAIN.................................................................84
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..................................................86
MARKET PRICES AND DIVIDEND DATA.........................................................................96
DESCRIPTION OF IRON MOUNTAIN CAPITAL STOCK..............................................................97
Common Stock.......................................................................................97
Preferred Stock....................................................................................98
v
<PAGE>
DGCL and Certain Provisions of the Iron Mountain Restated Certificate and the
Iron Mountain By-Laws............................................................................98
Transfer Agent and Registrar......................................................................100
DESCRIPTION OF SAFESITE................................................................................101
History...........................................................................................101
The Safesite Approach to the Records Storage Market; Safesite Customers...........................101
Storage Revenues..................................................................................101
Safesite Services.................................................................................102
Inventory Control/Security........................................................................103
Employees.........................................................................................103
Competition.......................................................................................104
Properties........................................................................................104
Insurance.........................................................................................105
Environmental Matters.............................................................................105
Certain Transactions..............................................................................106
Legal Proceedings.................................................................................106
Safesite's Selected Financial and Operating Information...........................................107
Management's Discussion and Analysis of Financial Condition and Results of Operations.............108
COMPARISON OF RIGHTS OF STOCKHOLDERS OF IRON MOUNTAIN AND SAFESITE.....................................112
Charter Amendments................................................................................112
By-Law Amendments.................................................................................112
Voting Rights.....................................................................................113
Conversion Rights.................................................................................113
Preemptive Rights.................................................................................113
Special Meetings..................................................................................113
Corporate Action Without a Meeting................................................................113
Dividends.........................................................................................114
Liquidation.......................................................................................114
Provisions Relating to Directors and Officers.....................................................114
Stockholder Nominations to Elect Directors........................................................115
Removal...........................................................................................115
RIGHTS OF DISSENTING STOCKHOLDERS......................................................................115
LEGAL MATTERS..........................................................................................118
EXPERTS................................................................................................118
INDEX TO FINANCIAL STATEMENTS..........................................................................F-1
</TABLE>
ANNEXES:
Annex I -- Agreement and Plan of Merger
Annex II -- Article XII of Iron Mountain By-Laws
Annex III -- Stockholders' Agreement
Annex IV -- Form of Escrow Agreement
Annex V -- Section 262 of the Delaware General Corporation Law
vi
<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 Defined Term Page
<S> <C> <C> <C>
ACMs....................................................19 ISO............................................81
Agent...................................................44 Lock-up Value..................................33
Agreeing Stockholders...................................43 Merger .........................................i
Carton.................................................. 2 Merger Agreement................................i
Cash Amount..............................................4 Named Executive Officers.......................79
Cash Conversion Number.................................. 4 Nasdaq National Market..........................9
Certificate of Merger................................... 3 1997 Acquisitions..............................86
Change of Control.......................................19 1996 Acquisitions..............................86
Chrysler Notes..........................................68 Nonvoting Common Stock.........................97
Closing Date............................................ii Note Indenture.................................19
Closing Price...........................................33 Note Offering..................................13
Code.................................................... 8 Options........................................81
Commission...............................................1 Other Rights...................................81
Common Stock Amount......................................4 Other Transaction..............................38
Company Benefit Plans...................................80 Preferred Stock................................18
Credit Agreement........................................16 Proxy Statement.................................i
Delaware Court.........................................115 Purchase Agreement.............................46
Determination Price......................................4 Recent Acquisitions............................52
DGCL....................................................10 Record Date.....................................3
Director's Compensation.................................80 Registration Rights Agreement..................38
Directors Plan..........................................80 Registration Statement..........................1
Dissenting Shares......................................iii RTC............................................66
EBITDA..................................................13 Safesite........................................i
Effective Time..........................................ii Safesite Board..................................i
Eligible Director.......................................80 Safesite By-Laws..............................112
Environmental Laws......................................19 Safesite Certificates..........................36
Escrow Agent.............................................7 Safesite Certificate of Incorporation.........112
Escrow Agreement.........................................7 Safesite Common Stock...........................i
Escrow Determination Price..............................45 Safesite Option Plans..........................10
Escrow Indemnity Funds..................................44 Safesite Principal Stockholders.................3
Escrow Indemnity Period.................................45 Safesite Stockholders Meeting...................i
Exchange Act.............................................1 Schooner.......................................19
Exchange Agent..........................................36 Section 262....................................10
Exchange Merger Consideration...........................36 Securities Act..................................1
Excluded Acquisitions...................................91 Senior Subordinated Notes......................19
Exercisable Options.....................................ii Service........................................47
Exhibit Opinions........................................48 Share Price.....................................6
Expenses................................................42 Stock Conversion Number.........................4
FDIC....................................................60 Stockholders' Agreement.........................3
Fully Diluted Shares.....................................4 Sub.............................................i
Golisano.................................................3 Subject Shares.................................33
HSR Act.................................................37 Surviving Corporation...........................3
IMRM....................................................46 Termination Date...............................41
Initial Public Offering.................................67 Transfer Restrictions...........................6
Iron Mountain............................................i Transfer.......................................33
Iron Mountain Board.....................................18 USTs...........................................19
Iron Mountain By-Laws....................................6 Voting Power...................................97
Iron Mountain Common Stock..............................ii Warrant........................................68
Iron Mountain Principal Stockholders....................19 Wayman..........................................3
Iron Mountain Restated Certificate......................18 William Blair..................................10
Iron Mountain Stock Option Plan..........................6
</TABLE>
vii
<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
No information relating to Iron Mountain or Safesite is incorporated herein
by reference.
<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 in the United States. Iron Mountain is a
full-service provider of records management and related services, enabling
customers to outsource data and records management functions. As of December 31,
1996, Iron Mountain managed approximately 30.6 million Cartons1 in 109 records
centers in 33 markets nationwide. See "--Iron Mountain Summary and Pro Forma
Information" for 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. Iron Mountain has a diversified
base of over 23,000 customer accounts, which includes more than half of the
Fortune 500 and numerous legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. Iron Mountain provides storage and
related services for all major media, including paper (which is the dominant
form of records retention and which has accounted for approximately 85% of Iron
Mountain's revenues since 1992), 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 include filing, retrieval and
destruction of records, courier pick-up and delivery, database management and
customized reporting. Iron Mountain also sells storage materials and provides
consulting and other records-related services.
The principal executive offices of Iron Mountain are located at 745
Atlantic Avenue, Boston, Massachusetts 02111. Its telephone number is (617)
357-4455.
Safesite. Safesite currently conducts its records management business in 14
cities. Each branch is self-contained, with its own sales staff, data processing
and storage facilities. A branch manager directs operations. Ten of these
markets overlap with Iron Mountain operations, while four represent markets in
which Iron Mountain does not currently have facilities. Safesite has a
diversified base of over 7,000 customer accounts. Safesite's principal services
include hard copy storage, medical records storage, inter-filing of medical
records, computer media storage, pickup, delivery and destruction services and
customized reporting. Safesite was incorporated under the laws of the State of
Delaware in 1989. See "--Safesite Summary Financial Information" for summary
historical consolidated statements of operations and balance sheet data of
Safesite as of and for each of the years ended December 31, 1992, 1993, 1994,
1995 and 1996.
Safesite's principal offices are located at 96 High Street, North
Billerica, Massachusetts, and its telephone number is (508) 663-7100.
Combined Operations. After consummation of the Merger, Iron Mountain will
conduct records management operations in 37 markets. Of such markets, there are
ten in which Iron Mountain and Safesite each currently operate. In these
markets, Iron Mountain intends to integrate and consolidate the operations of
Safesite with those of Iron Mountain. In the four markets in which Safesite has
operations and Iron Mountain does not, Iron Mountain intends to continue
Safesite's operations and will seek to increase Safesite's business with its
existing customers
2
<PAGE>
and to supplement that growth with new customers and, potentially, with
appropriate fold-in acquisitions. Of the 1996 pro forma revenues of the combined
companies of $185.1 million, $166.1 million or 89.7% are derived from Iron
Mountain's operations (including from the Recent Acquisitions) and $19.0 million
or 10.3% from Safesite's operations. The $378.7 million in pro forma assets as
of December 31, 1996 of the combined companies consist of $313.3 million or
82.7% in assets of Iron Mountain (including from the Recent Acquisitions) and
$65.4 million or 17.3% in assets of Safesite (including the goodwill and other
adjustments resulting from the Merger). See "Pro Forma Condensed Consolidated
Financial Information" for additional pro forma information as of and for the
year ended December 31, 1996 relating to the consolidated operations of Iron
Mountain and Safesite.
- --------
1 The term "Carton" is defined as a measurement of volume equal to a single
standard storage carton, approximately 1.2 cubic feet. The number of Cartons
stored does not include storage volumes in Iron Mountain's vital records
services and data protection services, which are described under "Description of
Iron Mountain--Description of Iron Mountain Records Management Services."
The Safesite Stockholders Meeting
The Safesite Stockholders Meeting will be held at Safesite's headquarters
located at 96 High Street, North Billerica, Massachusetts on June 6, 1997,
beginning at 12:00 noon local time. The purpose of the Safesite Stockholders
Meeting is to consider and vote upon the Merger Agreement. See "The Safesite
Stockholders Meeting."
The record date for the Safesite Stockholders Meeting is May 6, 1997 (the
"Record Date"). Accordingly, holders of record of Safesite Common Stock as of
the Record Date will be entitled to notice of, and to vote at, the Safesite
Stockholders Meeting. The presence in person or by proxy of a majority of shares
entitled to vote as of the Record Date is required to constitute a quorum for
the transaction of business at the Safesite Stockholders Meeting. The Merger
Agreement must be approved and adopted by holders of a majority of the
outstanding shares of Safesite Common Stock entitled to vote at the Safesite
Stockholders Meeting. Pursuant to the terms of a certain Stockholders'
Agreement, dated as of February 19, 1997 (the "Stockholders' Agreement"), by and
among Iron Mountain and certain stockholders of Safesite, B. Thomas Golisano
("Golisano") and James B. Wayman, Jr. ("Wayman," and together with Golisano, the
"Safesite Principal Stockholders") have agreed to vote their shares of Safesite
Common Stock in favor of the Merger. As the Safesite Principal Stockholders
possess approximately 66.0% of the voting power of Safesite stockholders,
approval of the Merger Agreement is assured. See "Ancillary
Agreements--Stockholders' Agreement."
The Merger
General. At the Effective Time, Safesite will be merged with and into Sub,
with Sub continuing as the surviving corporation and a wholly owned subsidiary
of Iron Mountain (the "Surviving Corporation"). As a result of the Merger, the
separate corporate existence of Safesite will cease. Subject to the terms and
conditions of the Merger Agreement, the closing of the transactions contemplated
thereby will take place on the fifth business day 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 Safesite. 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.
3
<PAGE>
Conversion of Common Stock. Upon consummation of the Merger, each share of
Safesite Common Stock issued and outstanding immediately prior to the Effective
Time will be converted into the right to receive, subject to certain
indemnification provisions in the Merger Agreement, shares of Iron Mountain
Common Stock and cash in accordance with the following conversion formulas:
Formulas:
"Stock Conversion Number" equals: Common Stock Amount
-------------------
Fully Diluted Shares
"Cash Conversion Number" equals: Cash Amount
--------------------
Fully Diluted Shares
Related Definitions:
"Cash Amount" equals: the difference between (x) $12,090,000 and
(y) the amount by which Safesite indebtedness
for borrowed money exceeds $500,000. As of
May 2, 1997, the aggregate amount of such
indebtedness equaled approximately $830,000.
"Common Stock Amount" equals: $49,910,000
------------------
Determination Price
"Determination Price" equals: the average closing price per share of Iron
Mountain Common Stock for the period of 20
trading days ending three trading days prior to
the Closing Date; provided, however, that if the
average closing price per share for such period
is less than $26.00, the Determination Price
shall be $26.00 and if the average closing price
per share for such period is greater than $31.00,
the Determination Price shall be $31.00. The
Determination Price calculated using the
above-described formula for the 20 trading day
period ending on May 9, 1997 was $26.00 (the
actual average closing price per share for such
period was $24.18).
"Fully Diluted Shares" equals: the sum of (a) the number of shares of Safesite
Common Stock issued and outstanding immediately
prior to the Effective Time and (b) the number
of shares of Safesite Common Stock that may be
issued pursuant to Exercisable Options.
4
<PAGE>
The following table gives examples calculating the merger consideration at
various Determination Prices, assuming that the number of Fully Diluted Shares
equals 9,489,297 (the number as of May 2, 1997). For each Determination Price
listed, the table illustrates the Cash Amount and Cash Conversion Number when
(i) Safesite indebtedness as of the Effective Time would be at or below $500,000
and (ii) Safesite indebtedness as of the Effective Time would equal $830,000.
<TABLE>
<CAPTION>
Stock Conversion Cash
Number Conversion Cash and Shares of Iron
(shares of Iron Number Mountain Common
Mountain Common (cash per share Stock to be received by
Common Stock per share of of Safesite Hypothetical Stockholder
Determination Stock Safesite Common Common owning 1,000 shares of
Price Amount Cash Amount Stock) Stock) Safesite Common Stock
<S> <C> <C> <C> <C> <C>
No
Adjustment:
$26.00 1,919,615 $12,090,000 0.20229265 $1.27 $1,281.68 cash
(including $7.61 in lieu
of a fractional share)
202 shares
$28.50 1,751,228 $12,090,000 0.18454771 $1.27 $1,289.68 cash
(including $15.61 in lieu
of a fractional share)
184 shares
$31.00 1,610,000 $12,090,000 0.16966483 $1.27 $1,294.68 cash
(including $20.61 in lieu
of a fractional share)
169 shares
$330,000
Adjustment:
$26.00 1,919,615 $11,760,000 0.20229265 $1.24 $1,246.90 cash
(including $7.61 in lieu
of a fractional share)
202 shares
$28.50 1,751,228 $11,760,000 0.18454771 $1.24 $1,254.90 cash
(including $15.61 in lieu
of a fractional share)
184 shares
$31.00 1,610,000 $11,760,000 0.16966483 $1.24 $1,259.90 cash
(including $20.61 in lieu
of a fractional share)
169 shares
</TABLE>
Based on the foregoing assumptions, the value of the shares of Iron
Mountain Common Stock to be received by a Safesite stockholder in respect of
each share of Safesite Common Stock held by such stockholder will equal
approximately $5.26 if the market price of the Iron Mountain Common Stock at the
Effective Time is equal to the Determination Price used in calculating the
Common Stock Amount. To the extent such market price is greater or less than the
Determination Price, then the value of the shares of Iron Mountain Common Stock
to be received by the Safesite stockholders would be greater than or less than
$5.26, as the case may be. On May 9, 1997, the closing sales price per share of
the Iron Mountain Common Stock, as reported on the Nasdaq National Market, was
5
<PAGE>
$25.50 and the Determination Price calculated as of such date was approximately
$26.00 (the actual average closing price per share for such period was $24.18).
Thus, if the Merger had closed on May 9, 1997, the value of the shares of Iron
Mountain Common Stock received would have been approximately $5.16 per share of
Safesite Common Stock. See "Risk Factors--Risk Factors Related to the Merger."
On the Closing Date, shares of Iron Mountain Common Stock having a value of
$4,000,000 based upon the Determination Price will be withheld ratably from the
stock consideration payable to Safesite stockholders and held in escrow to
indemnify and hold harmless Iron Mountain from certain claims under the Merger
Agreement. Anyone holding Dissenting Shares will not contribute to the escrow
amount or be subject to the indemnification obligations.
See "The Merger Agreement--Indemnification."
For a description of the Iron Mountain Common Stock, see "Description of
Iron Mountain Capital Stock" and "Comparison of Rights of Stockholders of Iron
Mountain and Safesite."
Treatment of Options. As soon as reasonably practicable after the Effective
Time, each holder of an Exercisable Option will receive (1) a non-qualified
option to acquire shares of Iron Mountain Common Stock under Iron Mountain's
1995 Stock Incentive Plan (the "Iron Mountain Stock Option Plan"), which option
for Iron Mountain Common Stock shall (A) have an exercise price per share
determined by dividing the exercise price per share of the applicable
Exercisable Option by the Stock Conversion Number and (B) entitle the holder to
purchase that number of shares equal to the product of (x) the number of shares
subject to such option that as of the Effective Time is exercisable and (y) the
Stock Conversion Number, and (2) cash in the amount of the product of (x) the
number of shares subject to such option that as of the Effective Time is
exercisable and (y) the Cash Conversion Number. Pursuant to the terms of the
Merger Agreement, in lieu of issuing cash in respect of Exercisable Options,
Iron Mountain has reserved the right, in its sole discretion, subject to
notification to Safesite not less than ten (10) days prior to the Closing Date,
to exchange each Exercisable Option solely for an option to acquire Iron
Mountain Common Stock. Iron Mountain currently intends to issue cash in respect
of Exercisable Options.
With respect to any such option or portion thereof that is not exercisable
at the Effective Time and with respect to certain other options to acquire
17,500 shares of Safesite Common Stock recently granted to five individuals with
an exercise price equal to $6.53 per share, each holder will receive a
non-qualified option to acquire shares of Iron Mountain Common Stock under the
Iron Mountain Stock Option Plan at an exercise price and in an amount affording
the holder equivalent value for the option being exchanged, which option for
Iron Mountain Common Stock will (A) have an exercise price per share determined
by dividing (x) the exercise price per share of the applicable option by (y) the
quotient of the Share Price (as defined below) divided by the Determination
Price, and (B) entitle the holder to purchase that number of shares equal to the
product of (x) the number of shares subject to such option which as of the
Effective Time is not exercisable and (y) the quotient of the Share Price
divided by the Determination Price. The "Share Price" is the quotient of (x) the
sum of $49,910,000 and the Cash Amount divided by (y) the number of Fully
Diluted Shares. In addition, any such option to acquire Iron Mountain Common
Stock will be exercisable (subject to the terms of such option and the Iron
Mountain Stock Option Plan) on the date the applicable option would have been
exercisable and otherwise be subject to the terms and conditions of the Iron
Mountain Stock Option Plan.
Restrictions on Transfer of Iron Mountain Common Stock
In order to protect the tax-free nature of the Merger, for a period of one
year following the Effective Time, approximately 62% of the Iron Mountain Common
Stock received by each Safesite stockholder in connection with the Merger will
be subject to restrictions on transfer (the "Transfer Restrictions") 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 former Safesite
stockholder. In order to implement such restriction, each Safesite stockholder
will receive two certificates representing shares of Iron Mountain Common Stock
to be received in the Merger, one of which will bear a legend indicating that
the
6
<PAGE>
shares represented by such certificate are subject to the Transfer
Restrictions. The other certificate will not bear this legend and, accordingly,
will be transferable by the holder, subject to compliance with applicable law.
No stockholder will receive preferential transfer rights with respect to shares
subject to the Transfer Restrictions. For a full description of the Transfer
Restrictions and the formula which will be used to determine the percentage of
shares which will be subject to the Transfer Restrictions, see "The Merger
Agreement--Conversion of Safesite Common Stock--Restrictions on Transfer of Iron
Mountain Common Stock."
Indemnification
Safesite has agreed, and by approving the Merger Agreement, Safesite's
stockholders will agree, that shares of Iron Mountain Common Stock having a
value of $4,000,000 based upon the Determination Price (equal to approximately
$0.44 per share of Safesite Common Stock) will be withheld ratably from the
merger consideration payable to Safesite stockholders (other than holders of
Dissenting Shares) and, subject to the limitation described below, held in
escrow to indemnify Iron Mountain and hold Iron Mountain harmless for a period
of one year following the Closing Date from and against all damages, claims,
losses, expenses, costs, obligations and liabilities suffered by Iron Mountain
by reason of any breach of Safesite's representations and warranties contained
in the Merger Agreement or failure of Safesite to perform or fulfill any of its
covenants or agreements set forth in the Merger Agreement, any legal action or
other claim by a third party relating to Safesite to the extent such action or
claim results in a breach of a representation or warranty, or the indebtedness
for borrowed money of Safesite as of the Effective Time exceeding $500,000.
Accordingly, on the Closing Date, shares of Iron Mountain Common Stock having a
value of $4,000,000 based upon the Determination Price will be withheld on a
ratable basis from the stock portion of the Merger consideration otherwise
payable to Safesite's stockholders and held in escrow pursuant to the terms of
the escrow agreement (the "Escrow Agreement") to be executed by Iron Mountain,
Safesite, Wayman, as agent for Safesite's stockholders, and State Street Bank
and Trust Company, as escrow agent (the "Escrow Agent"). Iron Mountain's right
to indemnification is limited to the lesser of (i) the shares of Iron Mountain
Common Stock held in escrow and (ii) $3,000,000. Accordingly, Iron Mountain may
only collect up to $3,000,000 (equal to approximately $0.33 per share of
Safesite Common Stock) in value of Iron Mountain Common Stock based upon the
then current market value (except that Golisano and Wayman have agreed to
indemnify Iron Mountain if the then current market value of the shares of Iron
Mountain Common Stock delivered to Iron Mountain is less than $3,000,000 for 66%
of the difference between $3,000,000 and such value; the other Safesite
stockholders will not have any responsibility with respect to this additional
indemnification obligation). In addition, Safesite has agreed and Safesite's
stockholders, by approving the Merger Agreement, will agree, to appoint Wayman,
or such other person or persons to whom Wayman 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 and the Escrow Agreement. The shares of Iron Mountain Common
Stock to be held in escrow will be registered in the name of James B. Wayman,
Jr., as agent under the Escrow Agreement. As agent, Wayman and any delegate will
have a fiduciary duty to act in the best interests of the Safesite stockholders
with respect to the indemnification provisions of the Merger Agreement and the
Escrow Agreement. Wayman will deliver notice to each Safesite stockholder
promptly after each time, if any, that Iron Mountain receives a payment under
the Escrow Agreement. The escrow will expire one year after the Effective Time
(or, if earlier, the time when Iron Mountain receives shares of Iron Mountain
Common Stock having a then current market value of $3,000,000). Promptly after
such time, the Escrow Agent will remit to each Safesite stockholder such
stockholder's ratable portion of the escrow indemnity funds less all portions
paid to Iron Mountain and less any amounts which are the subject of unresolved
claims. Iron Mountain may only recover on a claim if all loss and expense for
all claims exceeds, in the aggregate, $150,000. See "Ancillary
Agreements--Escrow Agreement" for a description of the terms and conditions of
the Escrow Agreement.
7
<PAGE>
Certain Federal Income Tax Consequences
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
The obligation of each of Iron Mountain and Safesite to consummate the Merger is
subject to the condition that it shall have received an opinion of its counsel,
dated the Closing Date, to the effect that the Merger will be treated as such a
reorganization. Assuming the Merger is so treated, for federal income tax
purposes, the Merger will not result in the recognition of gain or loss to Iron
Mountain, Safesite, Sub or the holders of Safesite Common 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 generally be the same as the tax basis of the
Safesite Common Stock surrendered in the Merger, and the holding period of the
Iron Mountain Common Stock received will include the holding period of the
Safesite Common Stock surrendered if the Safesite Common Stock was held as a
capital asset. See "Certain Federal Income Tax Considerations."
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 will be allocated to Safesite'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 Safesite 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' Agreement
Safesite. As of May 2, 1997, Directors and executive officers of Safesite
and their respective affiliates were the record owners of 6,354,177 shares of
the outstanding Safesite Common Stock, which constitute in the aggregate
approximately 69.7% of the voting power of Safesite stockholders. It is
anticipated that each of such Directors, executive officers and their respective
affiliates will vote their shares in favor of the Merger Agreement. See "The
Safesite Stockholders Meeting--Ownership of Safesite Securities" and "Ancillary
Agreements--Stockholders' Agreement."
In connection with the execution of the Merger Agreement, Iron Mountain and
certain stockholders of Safesite entered into the Stockholders' Agreement,
pursuant to which the Safesite Principal Stockholders agreed, among other
things, to vote all of the shares of Safesite Common Stock controlled by them,
which equals approximately 66.1% of the voting power of outstanding Safesite
Common Stock (and granted to Iron Mountain their proxies to vote all such
shares) (i) in favor of the adoption of the Merger Agreement, (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 Safesite under
the Merger Agreement, and (iii) against any proposal for any merger,
consolidation, recapitalization, sale of assets, business combination, or other
material change in Safesite's corporate structure or business that 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 43.3% of the outstanding
shares of Iron Mountain Common Stock.
8
<PAGE>
Recommendation of the Safesite Board
The Safesite Board, by unanimous vote, has determined that the Merger is in
the best interests of the stockholders of Safesite and recommends that holders
of Safesite Common Stock vote in favor of the Merger Agreement. The decision of
the Safesite Board to enter into the Merger Agreement and to recommend that the
stockholders vote in favor of the Merger is based upon its evaluation of a
number of factors. See "Background of the Merger--Recommendation of the Safesite
Board; Safesite's Reasons for the Merger."
Conditions to the Merger
The obligations of Iron Mountain, Sub and Safesite to consummate the Merger
are subject to various conditions, including, among others, the adoption of the
Merger Agreement by the Safesite stockholders, the receipt of certain third
party approvals and the receipt of opinions from tax counsel for Iron Mountain
and Safesite. Any of these conditions may be waived, subject to applicable law,
other than the requisite approval of Safesite's stockholders of the Merger
Agreement. Safesite and Iron Mountain anticipate that all conditions to closing
will be satisfied and neither Safesite nor Iron Mountain anticipates that any
such condition which is not satisfied will be waived. 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 Stock Market's National
Market (the "Nasdaq National Market"). 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 Safesite. The Merger Agreement will also be subject to
termination by either Iron Mountain or Safesite under certain circumstances
described herein. If the Merger Agreement is terminated by Iron Mountain or
Safesite under certain circumstances described herein, Safesite or Iron
Mountain, as the case may be, will be obligated to pay to the other an amount
equal to $5 million. In addition, if the Merger Agreement is terminated by Iron
Mountain under certain circumstances described herein, Iron Mountain will have
the right, within six months thereafter, to commence an offer to purchase all of
the outstanding Safesite Common Stock at a per share price equal to the
consideration that would otherwise be paid pursuant to the Merger Agreement. The
Safesite Principal Stockholders have agreed pursuant to the Stockholders'
Agreement to tender all of their respective shares to Iron Mountain in response
to such an offer. See "Ancillary Agreements--Stockholders' Agreement."
Corporate Governance
Once the Merger is effected, the Directors of Sub immediately prior to the
Effective Time will be elected the Directors of the Surviving Corporation, and
the officers of Sub immediately prior to the Effective Time will be appointed
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 Golisano
will be appointed as a Class A Director of Iron Mountain following the Closing
Date. See "Management of Iron Mountain."
9
<PAGE>
Interests of Certain Persons
In considering the recommendation of the Safesite Board with respect to the
Merger, stockholders of Safesite should be aware that certain members of
Safesite's management and the Safesite Board have certain interests in the
Merger that may present them with actual or potential conflicts of interest. On
May 24, 1996, Safesite amended the Safesite 1990 Long-Term Incentive Plan and
1990 Nonstatutory Stock Option Plan for Non-Employee Directors (the "Safesite
Option Plans") to provide that in the event of a change of control of Safesite,
options under such plans that would have vested over the next two years will
vest as of the consummation of such change of control (with no effect on any
options not vesting within such two-year period). Consummation of the Merger
will result in the accelerated vesting of options under such plans to purchase
39,000 shares of Safesite Common Stock held by Wayman, a Director and executive
officer of Safesite, and 7,000 shares of Safesite Common Stock held by Mary Fay
Kattman, the Treasurer and Secretary of Safesite. Assuming a Share Price of
$6.53 per share, such accelerated options have values of approximately $114,000
and $28,000, respectively. In addition, it is a condition to closing the Merger
that Iron Mountain or its nominee acquire a parcel of real property in
Rochester, New York from Golisano for a purchase price of $2,700,000 and acquire
two parcels of real property in Billerica, Massachusetts from trusts for the
benefit of Golisano and Wayman for an aggregate purchase price of $4,600,000.
Each such property is currently leased to Safesite and is used in Safesite's
business. Safesite and Iron Mountain believe that the terms of such purchases
are no more favorable to the owners of such properties than would be negotiated
with an unrelated third party. Harvey H. Bundy III, a Director and stockholder
of Safesite, is also a principal of William Blair & Company, L.L.C. ("William
Blair"), which is receiving a fee from Iron Mountain for serving as its
financial advisor in connection with the Merger. Golisano, a Safesite Director
and the controlling stockholder of Safesite, will be appointed a Class A
Director of Iron Mountain following the Closing Date. As a Director of Iron
Mountain, Golisano will receive Directors' Compensation and will be eligible to
participate in the Iron Mountain Stock Option Plan. Pursuant to the Merger
Agreement, on or prior to the Closing Date, Iron Mountain has agreed to enter
into the Registration Rights Agreement with each of Golisano and Wayman,
pursuant to which, subject to certain limitations, such stockholders will be
entitled to two "demand" registration rights requesting the registration of Iron
Mountain Common Stock having a market price of an aggregate of at least
$10,000,000 and unlimited "piggy back" registration rights to register any
amount of Iron Mountain Common Stock received by such stockholders from Iron
Mountain in connection with the Merger. See "Risk Factors--Risk Factors Related
to the Merger--Interests of Certain Persons in the Transactions," "The Merger
Agreement--Treatment of Options" and "Ancillary Agreements--Registration Rights
Agreement; Restrictions on Transfer under the Federal Securities Laws."
Rights of Dissenting Stockholders
Pursuant to the Delaware General Corporation Law (the "DGCL"), any holder
of Safesite Common Stock (i) who files a demand for appraisal in writing prior
to the vote taken at the Safesite Stockholders Meeting, (ii) whose shares are
not voted in favor of the Merger and (iii) who follows certain other procedural
requirements, if the Merger is consummated, shall be entitled to appraisal
rights under Section 262 of the DGCL ("Section 262"). See "Rights of Dissenting
Stockholders." The Safesite Principal Stockholders, pursuant to the
Stockholders' Agreement, have waived their appraisal rights with respect to
their shares of Safesite Common Stock.
Comparative Per Share Market Price Information
On February 19, 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, was $27.125. On May 9, 1997, the closing sales
price of the Iron Mountain Common Stock, as reported on the Nasdaq National
Market, was $25.50. As of May 2, 1997, there were 9,686,732 shares of Iron
Mountain Common Stock outstanding held by 68 holders of record and 454,590
shares of Nonvoting Common Stock outstanding held by 2 holders of record. Iron
Mountain
10
<PAGE>
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 Safesite Common Stock are urged to obtain current market
quotations prior to making any decision with respect to the Merger.
No established public trading market exists for the Safesite Common
Stock, and, accordingly, no price information is available with respect thereto.
In July 1996, an affiliated investor in Safesite sold 919,117 shares of Safesite
Common Stock (equal to approximately 10% of the Safesite Common Stock) at a
price of $3.10 per share in an arm's length transaction to Messrs. Golisano,
Wayman and Bundy, all of whom are Directors of Safesite. In July 1995, Safesite
issued 1,775,000 shares of Safesite Common Stock for a purchase price of $2.00
per share. Safesite has never paid cash dividends on the Safesite Common Stock.
As of May 2, 1997, there were 9,118,297 shares of Safesite Common Stock
outstanding and 81 holders of record. See "Market Prices and Dividend Data."
11
<PAGE>
Iron Mountain Summary and Pro Forma Information
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 and
pro forma financial data set forth below should be read in conjunction with "Pro
Forma Condensed Consolidated Financial Information" and the Notes thereto, with
"Description of Iron Mountain--Iron Mountain's Selected 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 included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
Historical Pro Forma
1992 1993 1994 1995 1996 1996 (1)
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data: (Dollars in Thousands)
Revenues:
Storage.............................. $44,077 $48,892 $54,098 $64,165 $85,826 $110,502
Service and Storage Material Sales... 26,596 32,781 33,520 40,271 52,892 74,608
-------- -------- -------- --------- --------- ---------
Total Revenues................ 70,673 81,673 87,618 104,436 138,718 185,110
Operating Expenses:
Cost of Sales (Excluding
Depreciation)...................... 35,169 43,054 45,880 52,277 70,747 91,684
Selling, General and Administrative.. 17,630 19,971 20,853 26,035 34,342 45,972
Depreciation and Amortization........ 5,780 6,789 8,690 12,341 16,936 25,266
-------- --------- -------- -------- --------- --------
Total Operating Expenses...... 58,579 69,814 75,423 90,653 122,025 162,922
-------- -------- -------- -------- -------- --------
Operating Income............................ $12,094 $11,859 $12,195 $13,783 $16,693 $22,188
======= ======= ======= ======= ======= =======
Other Data:
EBITDA(2) .............................. $17,874 $18,648 $20,885 $26,124 $33,629 $47,454
EBITDA as a Percentage of Total Revenues.... 25.3% 22.8% 23.8% 25.0% 24.2% 25.6%
Capital Expenditures:
Growth(3)(4)......................... $11,226 $13,605 $15,829 $14,395 $23,334 --
Maintenance.......................... 818 1,846 1,151 858 1,112 --
-------- --------- -------- -------- --------- ----
Total Capital Expenditures (4).............. $12,044 $15,451 $16,980 $15,253 $24,446 --
Approximate Cartons in Storage at end of
Period (in millions)(5).............. 12.6 15.5 17.7 23.3 30.6 34.7
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
<S> <C>
Adjusted EBITDA and Credit Ratios:
Adjusted EBITDA(6)....................................................................................... $49,373
Ratio of Net Debt to Adjusted EBITDA (7)................................................................. 4.57
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1996
Pro
Historical Forma(8)
<S> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents.................................................................... $3,453 $3,674
Total Assets................................................................................. 281,799 378,694
Total Debt................................................................................... 184,733 229,179
Stockholders' Equity......................................................................... 52,384 101,334
</TABLE>
- -------------------
(1) Gives effect to: (i) the Recent Acquisitions; (ii) the Merger; (iii) the
consummation of Iron Mountain's Initial Public Offering and the application
of the net proceeds therefrom; (iv) the closing under the Credit Agreement;
and (v) the consummation of Iron Mountain's public offering of Iron
Mountain's Senior Subordinated Notes, which closed on October 1, 1996 (the
"Note Offering") and the application of the net proceeds therefrom, as if
each had occurred as of January 1, 1996. See "Pro Forma Condensed
Consolidated Financial Information." Does not give effect to any potential
impact of recent fires at two of Iron Mountain's facilities. See
"Description of Iron Mountain--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
(2) Earnings before interest, taxes, depreciation, amortization and
extraordinary items ("EBITDA"). 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 "Description of Iron
Mountain--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Liquidity and Capital Resources"
for discussions of other measures of performance determined in accordance
with GAAP and Iron Mountain's sources and applications of cash flow.
(3) Growth capital expenditures include investments in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. See
"Description of Iron Mountain--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Capital Investments."
(4) Includes $2,901 in 1994 related to the cost of constructing a records
management facility which was sold in a sale and leaseback transaction in
the fourth quarter of 1994.
(5) The term "Carton" is defined as a measurement of the volume equal to a
single standard storage carton, approximately 1.2 cubic feet. The number of
Cartons stored does not include storage volumes in Iron Mountain's vital
records services and data protection services which are described under
"Description of Iron Mountain--Description of Iron Mountain's Records
Management Services."
(6) Gives effect to (i) the Recent Acquisitions completed after September 30,
1996 and (ii) the Merger. Adjusted EBITDA, as defined in the Note
Indenture, equals the sum of (i) EBITDA of Iron Mountain and its restricted
subsidiaries for the most recent fiscal quarter for which internal
financial statements are available, multiplied by four, plus (ii)
Acquisition EBITDA of each business that has been acquired by Iron Mountain
since the beginning of such quarter (including any such acquisition which
is occurring on the date of the calculation), multiplied by a fraction, (a)
the numerator of which is three minus the number of months (and/or any
portion thereof) in such quarter for which the financial results of such
acquired business are included in EBITDA of Iron Mountain and its
restricted subsidiaries under clause (i) above, and (b) the denominator of
which is three. In addition, the effects of unusual or non-recurring items
occurring in any relevant period are excluded in the calculation of
Adjusted EBITDA. With respect to any such acquired business, Acquisition
EBITDA equals the sum of (i) EBITDA of such acquired business for its last
fiscal quarter for which financial statements are available, multiplied by
four (or if such quarterly statements are not available, EBITDA for the
last fiscal year for which financial statements are available), plus (ii)
projected quantifiable improvements in operating results (on an annualized
basis) due to cost reductions calculated in good faith by Iron Mountain,
without giving effect to any operating losses of the acquired business.
Such projected quantifiable savings may differ from the cost savings used
to calculate the Pro Forma Condensed Consolidated Statement of Operations
of Iron Mountain. Adjusted EBITDA is merely a calculation utilized for
purposes of debt incurrence under the Note Indenture and should not be
viewed as indicative of actual or future results.
(7) Net debt represents total debt less cash and cash equivalents and was
calculated based on the pro forma net debt as of December 31, 1996 of
$229.2 million.
(8) Gives effect to: (i) the Recent Acquisitions consummated in 1997; and (ii)
the Merger, as if each had occurred as of December 31, 1996. See "Pro Forma
Condensed Consolidated Financial Information."
13
<PAGE>
Safesite Summary Financial Information
The following summary historical statements of operations and balance sheet
data of Safesite as of and for each of the years ended December 31, 1992, 1993,
1994, 1995 and 1996 have been derived from Safesite's audited financial
statements. The summary historical financial data set forth below should be read
in conjunction with "Description of Safesite--Safesite's Selected Financial and
Operating Information" and the Notes thereto, with "--Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with
Safesite's Financial Statements and the Notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data: (Dollars in Thousands)
Revenues:
Storage................................ $3,580 $4,780 $5,886 $7,059 $8,300
Service and Storage Material Sales..... 5,474 6,107 7,350 8,955 10,709
------ -------- ------- ------- -------
Total Revenues................... 9,054 10,887 13,236 16,014 19,009
Operating Expenses:
Cost of Sales (Excluding
Depreciation)...................... 4,663 6,486 6,665 8,054 9,463
Selling, General and Administrative.... 5,818 4,642 4,975 6,444 7,587
Depreciation and Amortization.......... 582 804 622 657 800
-------- --------- -------- -------- -------
Total Operating Expenses......... 11,063 11,932 12,262 15,155 17,850
------- -------- ------- ------- ------
Operating Income (Loss)........................ $(2,009) $(1,045) $974 $859 $1,159
======== ======== ======= ======= ======
Other Data:
EBITDA(1) ................................. $(1,427) $(241) $1,596 $1,516 $1,959
EBITDA as a Percentage of Total Revenues....... (15.8)% (2.2)% 12.0% 9.5% 10.3%
Capital Expenditures........................... $1,038 $762 $733 $1,718 $1,984
Approximate Cartons in Storage at end of
Period (in millions)(2)................ -- -- 1.6 2.0 2.4
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
<S> <C>
Balance Sheet Data:
Cash and Cash Equivalents.......................................................................... $221
Total Assets....................................................................................... 7,064
Total Debt......................................................................................... 225
Stockholders' Equity............................................................................... 4,567
</TABLE>
- -------------------
(1) Earnings before interest, taxes, depreciation, amortization and
extraordinary items ("EBITDA"). See "Description of Safesite--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Liquidity and Capital Resources" for
discussions of other measures of performance determined in accordance with
GAAP and Safesite's sources and applications of cash flow.
(2) Carton information is not available for 1992 and 1993.
14
<PAGE>
Comparative Per Share Data
The following table sets forth (i) historical earnings and book value per
share for Iron Mountain, (ii) historical earnings and book value per share for
Safesite, (iii) unaudited pro forma combined earnings and book value per share
for Iron Mountain, and (iv) unaudited pro forma equivalent combined earnings and
book value per share for Safesite. Neither Iron Mountain nor Safesite has ever
declared a cash dividend on its capital stock. The unaudited pro forma combined
share data gives effect to the Merger and the Recent Acquisitions (as defined
herein) consummated in 1997. The data set forth below should be read in
conjunction with Iron Mountain's Consolidated Financial Statements and the Notes
thereto, with Safesite's Financial Statements and the Notes thereto and with
"Pro Forma Condensed Consolidated Financial Information," included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended or as of
December 31, 1996
<S> <C>
Historical:
Iron Mountain
Income before extraordinary charge per common and
common equivalent share........................................................... $.01
Book value per share................................................................ 5.17
Safesite
Earnings per common and common equivalent share..................................... $.11
Book value per share................................................................ .50
Pro forma:
Iron Mountain
Loss before extraordinary charge per common share................................... $(.29)
Book value per share................................................................ 8.58
Safesite equivalent pro forma
Earnings per common and common equivalent share..................................... $.48
Book value per share................................................................ 2.19
</TABLE>
15
<PAGE>
RISK FACTORS
Risk Factors Related to the Iron Mountain Common Stock
Safesite 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 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 entered into agreements to acquire 31 companies (of which 30 have been
completed and the Merger is pending) engaged in records management and related
businesses for purchase prices aggregating approximately $201.6 million (not
including contingent payments of up to $4.8 million based upon the achievement
of certain revenue targets during 1997 and 1998). Other than the Merger, all
such acquisitions have been for cash. See "Description of Iron Mountain--Recent
and Pending Acquisitions." Possible future acquisitions (including the Merger)
may be for purchase prices significantly larger than those paid for acquisitions
consummated since mid-1994. 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. See "Description of Iron Mountain--Growth Strategy--Growth
through Acquisitions."
Acquisitions by Iron Mountain involving in excess of $30 million in cash
individually and $75 million in cash in the aggregate per year ($100 million in
the aggregate in stock, cash or notes) require the approval of lenders holding
51% or more of the commitments under the Credit Agreement, dated as of September
30, 1996, among Iron Mountain, the lenders party thereto and The Chase Manhattan
Bank, as Administrative Agent, as amended (the "Credit Agreement"). 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 faces competition from
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
16
<PAGE>
functions they currently outsource. See "Description of Iron Mountain--The
Records Management Industry" and "--Competition."
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 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 December 31, 1996, Iron
Mountain had $184.7 million in total indebtedness and $52.4 million in
stockholders' equity and its total indebtedness represented approximately 78% of
its total capitalization. As of December 31, 1996, on a pro forma basis, after
giving effect to the Recent Acquisitions consummated in 1997 and the Merger (as
if each had occurred as of December 31, 1996), Iron Mountain would have had
approximately $229.1 million in total indebtedness and $101.3 million in
stockholders' equity and its total indebtedness would have represented
approximately 69% of its total capitalization. See "Pro Forma Condensed
Consolidated Financial Information." 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 December 31, 1996, 25
of Iron Mountain's 109 records management facilities were located in California
and Iron Mountain derived approximately 28.5% of its revenues for 1996 from its
operations
17
<PAGE>
in California. 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 addition, two of Iron Mountain's facilities suffered
extensive damage as a result of recent fires. See "Description of Iron
Mountain--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" for a description of such casualty and its
anticipated impact on Iron Mountain. 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. See "Description of Iron
Mountain--Insurance" and "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
Recent Losses; EBITDA Objective. Iron Mountain has experienced net losses
applicable to common stockholders of $0.1 million, $1.9 million and $2.0 million
during 1994, 1995 and 1996, 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 $20.9 million for 1994 to $33.6
million for 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. See "Description of Iron
Mountain--Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 the 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
Board of Directors of Iron Mountain (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's Preferred Stock, par value $.01 per share (the "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
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<PAGE>
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 $165 million in principal amount of
its 10 1/8% Senior Subordinated Notes due 2006 (the "Senior Subordinated
Notes"). Under certain circumstances relating to a change of control of Iron
Mountain (a "Change of Control") as set forth in the Indenture (the "Note
Indenture") relating to the Senior Subordinated Notes, Iron Mountain will be
required to make an offer to purchase all of the Senior Subordinated 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 Senior Subordinated 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 Senior
Subordinated 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.
Control by Principal Stockholders. Giving effect to the consummation of the
Merger at an assumed Determination Price of $28.50 and assuming all Exercisable
Options are exercised prior to the Effective Time, Schooner Capital Corporation
("Schooner"), Vincent J. Ryan, C. Richard Reese, B. Thomas Golisano, Eugene B.
Doggett and James B. Wayman, Jr. (collectively, the "Iron Mountain Principal
Stockholders") would own approximately 45.9% of the Iron Mountain Common Stock
and voting power. The voting power held by the Iron Mountain Principal
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, the Iron Mountain Principal 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. See
"Principal Stockholders of Iron Mountain" and "Description of Iron Mountain
Capital Stock."
Environmental Matters. As of December 31, 1996, Iron Mountain owned or
leased approximately 7.3 million square feet of 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. Certain of the properties formerly or currently owned or operated by Iron
Mountain were previously used for industrial or other purposes that involved the
manufacture, 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 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, Iron Mountain may be potentially liable for environmental costs such
as those discussed above and as more specifically described below. 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 the properties has not been conducted by or on
behalf of Iron Mountain.
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At Iron Mountain's Hollywood, California facilities, certain USTs and
contaminated soils have been removed. Some additional contamination of soils and
groundwater remains and may be migrating. In 1990 and 1991, Iron Mountain filed
certain reports documenting its efforts and site conditions with the appropriate
environmental agencies pursuant to various Environmental Laws. Investigations
conducted on behalf of Iron Mountain in connection with its on-site remedial
activities disclosed that regional groundwater contamination, unrelated to Iron
Mountain's property, exists. At this time, Iron Mountain has not received any
notice from any regulatory agency or third party seeking further remediation of
soil or groundwater by Iron Mountain; however, there can be no assurance that
such further action will not be sought in the future. Iron Mountain has accrued
estimated costs of $0.8 million that it believes it may reasonably be expected
to incur in connection with this site if such additional remediation were to
become necessary; however, there can be no assurance as to the adequacy of such
accrual. Iron Mountain believes the ultimate outcome of the foregoing will not
have a material adverse effect on Iron Mountain's financial condition or results
of operations. See Note 8 of Notes to Iron Mountain's Consolidated Financial
Statements.
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 other than as described under the immediately preceding
paragraph and under "Description of Iron Mountain--Environmental Matters."
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 Note Indenture from declaring or paying cash dividends
on its Common Stock. See "Market Prices and Dividend Data," "Description of Iron
Mountain Capital Stock--Common Stock--Dividends" and Note 3 of Notes to Iron
Mountain's Consolidated Financial Statements.
Risk Factors Related to 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 $26.00 and the market price of
the Iron Mountain Common Stock at the time of the Closing is less than such
floor price, then the value of the merger consideration to be received by the
Safesite stockholders could be less than $62,000,000 in the aggregate and
approximately $6.53 per share. On May 9, 1997, the closing sales price per share
of the Iron Mountain Common Stock, as reported on the Nasdaq National Market,
was $25.50 and the Determination Price calculated as of such date was
approximately $26.00 (the actual average closing price per share for such period
was $24.18). Thus, if the Merger had closed on May 9, 1997, the value of the
merger consideration would have been approximately $61.0 million in the
aggregate and approximately $6.43 per share of Safesite Common Stock (assuming
no adjustment to the Cash Amount). The converse is true if the Determination
Price equals the ceiling price of $31.00 and the market price of the Iron
Mountain Common Stock at the time of the Closing is greater than such ceiling
price. In such instance, the Merger consideration to be received by the Safesite
stockholders would exceed $62,000,000 in the aggregate and approximately $6.53
per share.
Restrictions on Transfer of Iron Mountain Common Stock. In order to protect
the tax-free nature of the Merger, approximately 62% of the shares of Iron
Mountain Common Stock received by each Safesite stockholder may not be
transferred by such stockholder for a period of one year following the Effective
Time. For a full
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<PAGE>
description of the Transfer Restrictions and the formula which will be used to
determine the percentage of shares which will be subject to the Transfer
Restrictions, see "The Merger Agreement--Conversion of Safesite Common
Stock--Restrictions on Transfer of Iron Mountain Common Stock." In addition,
shares of Iron Mountain Common Stock having a value of $4,000,000 based upon the
Determination Price (equal to approximately $0.44 per share of Safesite Common
Stock) will be withheld ratably from the merger consideration payable to
Safesite stockholders (other than holders of Dissenting Shares) and held in
escrow to indemnify Iron Mountain in respect of certain claims under the Merger
Agreement. The escrow will expire one year after the Effective Time (or, if
earlier, the time when Iron Mountain receives shares of Iron Mountain Common
Stock having a then current market value of $3,000,000), except it may be
extended in certain circumstances until unresolved claims are resolved. During
the escrow period, the shares subject to the escrow may not be transferred by
stockholders. See "Ancillary Agreements--Escrow Agreement." Neither Iron
Mountain nor Safesite can predict the price at which shares of Iron Mountain
Common Stock will be trading at the end of the one-year restriction period or at
the end of the escrow period. The value of the shares of Iron Mountain Common
Stock issued to Safesite stockholders in the Merger would be adversely affected
if the trading price following the end of such periods was less than the
Determination Price at the Effective Time.
Interests of Certain Persons in the Transactions. In considering the
recommendation of the Safesite Board with respect to the Merger, stockholders of
Safesite should be aware that certain members of Safesite's management and the
Safesite Board have certain interests in the Merger that may present them with
actual or potential conflicts of interest. On May 24, 1996, Safesite amended the
Safesite Option Plans to provide that in the event of a change of control of
Safesite, options under such plans that would have vested over the next two
years will vest as of the consummation of such change of control (with no effect
on any options not vesting within such two-year period). Consummation of the
Merger will result in the accelerated vesting of options to purchase 39,000
shares of Safesite Common Stock under such plans held by Wayman, a Director and
executive officer of Safesite, and 7,000 shares of Safesite Common Stock held by
Mary Fay Kattman, the Treasurer and Secretary of Safesite. Assuming a Share
Price of $6.53 per share, such accelerated options have values of approximately
$114,000 and $28,000, respectively. In addition, it is a condition to closing
the Merger that Iron Mountain or its nominee acquire a parcel of real property
in Rochester New York from Golisano for a purchase price of $2,700,000 and
acquire two parcels of real property in Billerica, Massachusetts from trusts for
the benefit of Golisano and Wayman for an aggregate purchase price of
$4,600,000. Each such property is currently leased to Safesite and is used in
Safesite's business. Safesite and Iron Mountain believe that the terms of such
purchases are no more favorable to the owners of such properties than would be
negotiated with an unrelated third party. Harvey H. Bundy III, a Director and
stockholder of Safesite, is also a principal of William Blair, which is
receiving a fee from Iron Mountain for serving as its financial advisor in
connection with the Merger. Golisano, a Director and the controlling stockholder
of Safesite will be appointed a Class A Director of Iron Mountain following the
Closing Date. As a Director of Iron Mountain, Golisano will receive Directors'
Compensation and will be eligible to participate in the Iron Mountain Stock
Option Plan. Pursuant to the Merger Agreement, on or prior to the Closing Date,
Iron Mountain has agreed to enter into the Registration Rights Agreement with
each of Golisano and Wayman, pursuant to which, subject to certain limitations,
such stockholders will be entitled to two "demand" registration rights
requesting the registration of Iron Mountain Common Stock having a market price
of an aggregate of at least $10,000,000 and unlimited "piggy back" registration
rights to register any amount of Iron Mountain Common Stock received by such
stockholders from Iron Mountain in connection with the Merger.
Lack of a Fairness Opinion. Stockholders of Safesite should be aware
that Safesite did not retain a financial advisor to assist it in its
negotiations with Iron Mountain (including, without limitation, rendering a
fairness opinion if such negotiations were successful) and its consideration of
other alternative transactions available to Safesite. In reaching its conclusion
not to retain a financial advisor, the Safesite Board considered the expertise
and experience among the Directors, which included David Bellet, a venture
capitalist, and Harvey H. Bundy III, a principal of William Blair. Mr. Wayman, a
Director, the President and a significant stockholder of Safesite, was familiar
with many recent transactions in the records management industry, and Messrs.
Golisano and Clark were the Chief Executive Officer and Chief Financial Officer,
respectively, of a large public company which had negotiated numerous business
acquisitions. As a result, the Safesite Board was confident that it possessed
the sophistication and expertise to evaluate the fairness of the Merger, and
recommend it to the stockholders consistent with its fiduciary duties to
Safesite's stockholders, without incurring the expense of retaining a financial
advisor.
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THE SAFESITE STOCKHOLDERS MEETING
At the Safesite Stockholders Meeting or any adjournments or postponements
thereof, holders of shares of Safesite Common Stock will be asked to approve and
adopt the Merger Agreement.
THE SAFESITE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, BELIEVES
THAT APPROVAL AND ADOPTION OF THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF
SAFESITE AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SAFESITE'S
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Record Date; Quorum; Required Vote
The Record Date for the determination of shares of those holders of
Safesite Common Stock entitled to notice of, and to vote at, the Safesite
Stockholders Meeting is May 6, 1997. Only holders of record of shares of
Safesite Common Stock at the close of business on the Record Date will be
entitled to notice of, and to vote at, the Safesite Stockholders Meeting or any
adjournments or postponements thereof. As of the Record Date, there were
outstanding 9,111,447 shares of Safesite Common Stock held by 80 holders of
record. The holders of Safesite Common Stock are entitled to one vote per share.
The presence in person or by proxy of a majority of shares entitled to vote as
of the Record Date is required to constitute a quorum for the transaction of
business at the Safesite Stockholders Meeting. The Merger Agreement must be
approved and adopted by holders of a majority of the outstanding shares of
Safesite Common Stock entitled to vote at the Safesite Stockholders Meeting.
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.
In connection with the execution of the Merger Agreement, certain
stockholders of Safesite and Iron Mountain entered into the Stockholders'
Agreement, pursuant to which the Safesite Principal Stockholders (who control
66.1% of the voting power of outstanding Safesite Common Stock) agreed, among
other things, to vote all of the shares of Safesite Common Stock controlled by
them (and granted to Iron Mountain their proxies to vote all such shares) (i) in
favor of the adoption of the Merger Agreement, (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 Safesite under the Merger
Agreement, and (iii) against any proposal for any merger, consolidation,
recapitalization, sale of assets, business combination, or other material charge
in Safesite's corporate structure or business that 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."
Solicitation and Voting of Proxies
Stockholders of record on the Record Date are entitled to cast their votes,
in person or by properly executed proxy, at the Safesite Stockholders Meeting.
All shares represented at the Safesite Stockholders Meeting by properly executed
proxies received prior to or at the Safesite Stockholders Meeting and not
properly revoked will be voted at the Safesite 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.
The Safesite Board does not know of any matters, other than the Merger
Agreement, that will come before the Safesite Stockholders Meeting.
If a quorum is not present at the time the Safesite Stockholders Meeting is
convened, or if for any other reason Safesite believes that additional time
should be allowed for the solicitation of proxies or for the satisfaction of
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conditions to the Merger or the transactions contemplated thereby, Safesite may
adjourn the Safesite Stockholders Meeting with a vote of the holders of a
majority of the shares of Safesite Common Stock present at such meeting. If
Safesite proposes to adjourn the Safesite 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 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 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 Safesite, at or before the
Safesite 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 Safesite at or
before the Safesite Stockholders Meeting or (iii) attending the Safesite
Stockholders Meeting and voting in person (although attendance at the Safesite
Stockholders Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be sent to Safesite, 96 High
Street, North Billerica, Massachusetts 01862, Attention: James B. Wayman, Jr.,
President.
Proxies are being solicited by and on behalf of the Safesite Board. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement (except for photocopying and mailing costs, which will be shared
with Iron Mountain), will be borne by Safesite. In addition to solicitation by
use of the mails, proxies may be solicited by Directors, officers and employees
of Safesite 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 Safesite Common Stock held of record by such persons, and Safesite may
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
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Ownership of Safesite Common Stock
The following table provides information as of May 2, 1997, with respect to
the shares of Safesite Common Stock beneficially owned by (i) each person known
by Safesite to own more than 5% of the outstanding Safesite Common Stock, (ii)
each Director of Safesite, (iii) each executive officer of Safesite and (iv) all
Directors and executive officers of Safesite as a group. 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 within 60 days of May 2, 1997
(or upon consummation of the Merger) through the exercise of an option,
conversion feature or similar right. The amount of beneficial ownership of Iron
Mountain Common Stock after the Merger assumes 1,751,228 shares will be issued
in the Merger, based on a Determination Price of $28.50 (the mid-point of the
range between the floor price of $26.00 and the ceiling price of $31.00) and all
Exercisable Options are exercised prior to the Effective Time.
<TABLE>
<CAPTION>
Amount of Beneficial
Amount of Beneficial Ownership Ownership of Iron Mountain
of Safesite Common Stock Common Stock
Before the Merger After the Merger
---------------------------------------- -------------------------------------
Percent Percent
Name(1) Shares Owned Shares Owned
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Directors and Executive Officers
B. Thomas Golisano(2)................... 5,290,185 57.9% 976,291 8.5%
James B. Wayman, Jr.(3)................. 1,262,787 13.7% 233,044 2.0%
Mary Fay Kattman(4)..................... 15,000 * 2,768 *
David F. Bellet(5)...................... 86,419 * 15,948 *
Harvey H. Bundy III(6).................. 326,441 3.6% 60,243 *
G. Thomas Clark(7)...................... 31,828 * 5,873 *
All Directors and executive
officers as a group (6 persons) (8).... 7,012,660 75.5% 1,294,167 11.3%
</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 Safesite
Common Stock shown as beneficially owned by them.
(2) Mr. Golisano is a Director and Chairman of the Board of Safesite.
Includes 15,000 shares of Safesite Common Stock that Mr. Golisano has the
right to acquire pursuant to Exercisable Options. Mr. Golisano's address
is c/o Paychex, Inc., 911 Panorama Trail South, Rochester, New York
14625.
(3) Mr. Wayman is a Director and President and Chief Executive Officer of
Safesite. Includes 69,461 shares of Safesite Common Stock controlled by
Mr. Wayman as custodian for his children, and 409,760 shares of Safesite
Common Stock owned by Roselee Wayman, his wife residing at the same
address, as to which Mr. Wayman disclaims beneficial ownership. Also
includes 106,000 shares of Safesite Common Stock that Mr. Wayman has the
right to acquire pursuant to Exercisable Options. Mr. Wayman's address is
251 Old Billerica Road, Bedford, Massachusetts 01730.
(4) Ms. Kattman is the Treasurer and Secretary of Safesite. Consists of
15,000 shares of Safesite Common Stock that Ms. Kattman has the right to
acquire pursuant to Exercisable Options. Ms. Kattman's address is 15
Elmwood Road, Marblehead, Massachusetts 01945.
(5) Mr. Bellet is a Director of Safesite. Includes 15,000 shares of Safesite
Common Stock that Mr. Bellet has the right to acquire pursuant to
Exercisable Options. Mr. Bellet's address is 125 E. 72nd Street, 11-D,
New York, New York 10021.
(6) Mr. Bundy is a Director of Safesite. Includes 77,630 shares of Safesite
Common Stock controlled by Blakely F. Bundy as trustee for the Blakely F.
Bundy 1992 Trust, 5,093 shares controlled by Blakely F. Bundy as
custodian for Reed F. Bundy, and 31,424 shares controlled by Mr. Bundy in
his capacity as trustee of trusts for his children, as to which Mr. Bundy
disclaims beneficial ownership. Also includes 15,000 shares of Safesite
Common Stock that Mr. Bundy has the right to acquire pursuant to
Exercisable Options. Mr. Bundy's address is c/o William Blair & Company,
L.L.C., 222 West Adams Street, Chicago, Illinois 60606, and Blakely Bundy
is his wife.
(7) Mr. Clark is a Director of Safesite. Mr. Clark's address is 1492 East
Avenue, Rochester, New York 14610.
(8) Includes 166,000 shares of Safesite Common Stock that Directors and
executive officers have the right to acquire pursuant to Exercisable
Options.
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BACKGROUND OF THE MERGER
General Background of the Merger
Prior Negotiations. Safesite and Iron Mountain had preliminary discussions
regarding an acquisition of Safesite by Iron Mountain in February 1996, which
were terminated when the parties were unable to agree upon the price at which to
consummate such acquisition. Safesite management did not solicit the February
1996 offer.
Negotiations of the Merger. In November 1996, Iron Mountain again
approached Safesite with an unsolicited offer to acquire Safesite's assets for
Iron Mountain stock. The Safesite Board considered the offer, and concluded that
a tax-free structure would be more acceptable. In considering the Iron Mountain
offer, the Safesite Board also considered whether to continue to operate
Safesite as an independent private company or to pursue a public offering of
Safesite Common Stock. In this regard, the Safesite Board noted that many of its
investors, including Golisano, had held shares of Safesite Common Stock for
approximately seven years and were interested in an opportunity to achieve
liquidity in respect of all or a portion of their shares. For the reasons
discussed below under "Recommendation of the Safesite Board; Safesite's Reasons
for the Merger," the Safesite Board determined that a public offering was not
practicable on favorable terms for a minimum of two or three years. In
considering whether to continue to operate as an independent, privately held
company, the Safesite Board considered the industry's capital requirements for
growth and the increasing demands of customers for more sophisticated technology
solutions, each of which might require additional capital expenditures by
Safesite, and increased price competition as a result of the consolidation
occurring in the records management industry. The consolidation in the industry,
in the Safesite Board's opinion, might increase the effect of these factors and
also presented an opportunity to consummate an attractive strategic alliance.
While the Safesite Board did not conclude at this time that it was impractical
to continue as an independent privately held company, as a result of the
foregoing factors, it authorized Golisano to negotiate the terms of a potential
acquisition by Iron Mountain. The Safesite Board considered whether to retain a
financial advisor to assist Safesite in its negotiations with Iron Mountain
(including, without limitation, rendering a fairness opinion if such
negotiations were successful) and its consideration of other alternative
transactions. Ultimately, the Safesite Board determined it was not necessary to
retain a financial advisor.
After Golisano communicated the Safesite Board's views to C. Richard Reese,
the Chairman of the Board and Chief Executive Officer of Iron Mountain, Iron
Mountain countered with an offer to acquire Safesite in an all-stock merger and
a simultaneous purchase of three parcels of real property owned by Golisano and
Wayman that were leased to Safesite for the appraised fair market value of such
properties. Messrs. Reese and Golisano had several conversations during the next
several weeks concerning a possible transaction.
Late in December 1996, the parties commenced due diligence investigations
of each other and began to negotiate the terms of a merger of Safesite and Iron
Mountain for a fixed number of shares of Iron Mountain Common Stock. The parties
determined that discussions relating to the proposed business combination had
advanced to a point by the end of December and beginning of January where the
parties should proceed to negotiate definitive documentation, although
negotiations regarding pricing terms were not final. During this period, Iron
Mountain also proposed a stockholders' agreement pursuant to which Messrs.
Golisano and Wayman would contractually agree, among other things, to vote in
favor of a merger transaction with Iron Mountain. Negotiations continued into
January 1997 and were nearly complete by the end of January.
Safesite received a second unsolicited bid from another bidder in late
January to acquire Safesite for a combination of stock and cash, which offer was
subject to a financing contingency, and commenced a due diligence review process
with such bidder. Both the fact that another bid had been received (which
was higher than the offer of Iron Mountain) and that due diligence
investigations of such party had commenced were communicated to Iron Mountain,
but not the terms of the competing bid. Several weeks later, Iron Mountain made
a formal offer, by letter dated February 12, 1997, to acquire Safesite for $62
million, a portion of which equal to 19.5% would be payable in cash and the
remaining 80.5% of which would be payable in Iron Mountain Common Stock, thus
25
<PAGE>
ensuring tax-free treatment, and to acquire the related real estate for
$7.3 million in cash. The offer stated that the amount of stock to be issued
by Iron Mountain would not be fixed but would be based on a market price
calculation, with a "collar" with a mid-point range of $28.50, or a floor of
$26.00 and a ceiling of $31.00. The Iron Mountain offer was not contingent on
further due diligence and contained a liquidated damages provision that, if the
offer were accepted but either party failed to execute a definitive agreement in
substantially the form previously negotiated, then such party would be required
to pay to the other party $5 million. The offer was open until February 14,
1997. The Iron Mountain offer was not made known to the second bidder because
the second bidder's offer was subject to a financing condition and the Safesite
Board had not received adequate assurances that such condition would be
satisfied. The Iron Mountain Board was advised by management that the due
diligence investigation of Safesite was completed and, therefore, the Directors
were comfortable that making an offer not subject to additional diligence was
consistent with their fiduciary duties to Iron Mountain's stockholders. In
addition, due to the extensive negotiations with Safesite, and Safesite's
Directors' familiarity with the records management industry and with Iron
Mountain, and considering the interests of all parties to the transaction, the
Iron Mountain Board believed that it was reasonable to leave the offer open for
only two days. Based on its understanding of the records management industry in
general and Iron Mountain and Safesite in particular, and as result of the
extensive negotiations with Iron Mountain and the lack of confidence of the
Safesite Board in the second bidder's ability to satisfy the conditions in its
offer, the Safesite Board believed that a two day period was a sufficient amount
of time for it to make an informed decision consistent with its fiduciary duties
to Safesite's stockholders.
A special meeting of the Safesite Board was convened on February 14, 1997
to consider the matter, attended by a majority of the Safesite Board, with
Messrs. Golisano, Wayman and Bellet present. Messrs. Bundy and Clark were unable
to attend but had discussed the matter extensively with Mr. Golisano. While Mr.
Golisano did not act as the proxy of Messrs. Bundy and Clark, at the request of
Messrs. Bundy and Clark, he conveyed their comments to the other Directors at
the meeting. The Safesite Board did not negotiate with Iron Mountain the ability
to terminate the Merger Agreement if the value of Iron Mountain Common Stock
decreased below $26.00 out of recognition that, if such change would have been
acceptable to Iron Mountain, Iron Mountain would have required that it have the
reciprocal right to terminate the Merger Agreement if the value of Iron Mountain
Common Stock increased above $31.00. The Determination Price calculated as of
February 14, 1997, the day of the special meeting, was $28.26. After
considerable deliberation regarding Iron Mountain's offer and the competing
offer, the Safesite Board determined that the terms of the Iron Mountain
proposed merger are fair to, and in the best interests of, Safesite and its
stockholders, approved the Iron Mountain offer, and resolved to recommend that
the Safesite stockholders vote for approval and adoption of the Merger
Agreement.
On February 18, 1997, representatives of the competing bidder submitted an
unsolicited revised offer to Safesite to acquire Safesite for approximately $65
million in cash, which offer was again subject to a financing contingency. The
Safesite Board met on February 19, 1997 to consider the competing proposal and
Safesite's obligations under the February 15, 1997 letter with Iron Mountain
(including the $5 million fee which would be payable to Iron Mountain if
Safesite failed to proceed with the Iron Mountain transaction). All Directors
were present. Numerous aspects of both proposals were considered, including
their nominal value, likelihood of closing, certainty that the indicated nominal
value would be the actual value received by stockholders, long-term prospects of
Iron Mountain and marketability of the stock of Iron Mountain. In making its
determination as to the competing offers, the Safesite Board considered and
viewed favorably the long-term prospects of Iron Mountain, believed the Iron
Mountain transaction was the more likely to be consummated and, as a result of
the termination fee, had the higher nominal value. Due to the financing
condition contained in the second bidder's offer, the Safesite Board concluded
that such offer was less certain than Iron Mountain's offer to close. Thus, the
Safesite Board rejected the competing proposal and unanimously reaffirmed its
determination that the terms of the Merger are fair to, and in the best
interests of, Safesite and its stockholders, approved the Merger, and resolved
to recommend that the Safesite stockholders vote for approval and adoption of
the Merger Agreement. In reaching such conclusion, the Safesite Board considered
the competing offers in their totality and did not find it practicable to, nor
did it attempt to, determine as to each aspect of each proposal which of the two
proposals was superior.
Accordingly, on February 19, 1997 officers of Safesite and Iron Mountain
executed the Merger Agreement, and Iron Mountain, Golisano and Wayman executed
the Stockholders' Agreement.
26
<PAGE>
First Amendment to Merger Agreement. Shortly after the Merger Agreement was
executed, Safesite requested that Iron Mountain amend the Merger Agreement to
protect the tax-free nature of the Merger by restricting the ability of Safesite
stockholders to transfer a portion of the Iron Mountain Common Stock received in
the Merger. The parties concluded that the most efficient method of achieving
such a restriction would be to amend the Iron Mountain By-Laws to include a
restriction on the ability of the Safesite stockholders to sell a specified
percentage of the Iron Mountain Common Stock received in the Merger by each
Safesite Stockholder for a period of one year following the consummation of the
Merger. See "The Merger Agreement--Conversion of Safesite Common
Stock--Restrictions on Transfer of Iron Mountain Common Stock." The Safesite
Board viewed such a restriction as desirable because if the rules regarding
continuity of interest in a tax-free reorganization were either intentionally or
inadvertently violated, then the transaction could be taxable to the Safesite
stockholders as a group. The Stockholders' Agreement already contained a
provision restricting the ability of Golisano and Wayman (and any other
stockholders becoming parties to the Stockholders' Agreement) from selling a
certain percentage of the shares of Iron Mountain Common Stock received in the
Merger if Sub, rather than Safesite, were to be the surviving corporation. This
restriction was requested by Iron Mountain to protect it from a potential tax
liability. The Safesite Board felt that it was unfair to impose this restriction
only upon Golisano, Wayman and the other parties to the Stockholders' Agreement
and believed that the potential tax benefits of the restrictions, as well as the
fact that they only extended to a portion of the shares to be received and would
only last a year, outweighed the limitation on the ability of stockholders to
sell the shares subject to the restrictions prior to the first anniversary of
the Effective Time.
On March 28, 1997, the entire Safesite Board met to consider the amendment
to the Merger Agreement, which would make a condition to the consummation of the
Merger Iron Mountain's adoption of an amendment to its ByLaws containing
restrictions prohibiting transfers, sales, assignments or other dispositions of
a specified percentage of the shares of Iron Mountain Common Stock to be
received by each former Safesite stockholder in the Merger for a period of one
year following the Effective Time. The Safesite Board concluded the amendment to
the Merger Agreement requiring Iron Mountain to impose such restrictions on
transfer was reasonable and unanimously approved it. The First Amendment to the
Merger Agreement was executed on April 1, 1997.
Second Amendment to Merger Agreement. As executed on February 19, 1997, the
Merger Agreement provided that the Escrow Indemnity Funds would be comprised of
$3,000,000 in cash to be withheld from the cash merger consideration payable to
Safesite stockholders (other than holders of Dissenting Shares, as defined
below) and holders of Exercisable Options. In April 1997, Safesite requested
that Iron Mountain further amend the Merger Agreement to provide that the escrow
would be comprised of shares of Iron Mountain Common Stock rather than cash.
This request was based upon the advice of tax counsel that the $3,000,000 cash
escrow would be taxable to Safesite stockholders at closing, even though the
stockholders were not entitled to receive the escrowed consideration until the
first anniversary of the closing, if at all. By funding the escrow with Iron
Mountain Common Stock rather than cash, the Safesite stockholders would receive
their proportionate share of the cash, net of taxes, promptly after closing.
Iron Mountain conditioned its approval of this request on placing greater than
$3,000,000 in value of Iron Mountain Common Stock in escrow to protect Iron
Mountain from a decrease in the market value of Iron Mountain Common Stock.
Ultimately, Safesite and Iron Mountain agreed that (a) shares of Iron Mountain
Common Stock having a value of $4,000,000 based upon the Determination Price
would be held in escrow, (b) notwithstanding such escrow, Iron Mountain's rights
to indemnification would be limited to $3,000,000 and (c) in the event the
shares held in escrow were insufficient at the time of payment of a claim to
remit to Iron Mountain the amount of such claim (subject to the $3,000,000
limit), Messrs. Golisano and Wayman would indemnify Iron Mountain for
approximately 66% (equal to their proportionate ownership of Safesite) of any
such shortfall. It was agreed that the other Safesite stockholders would not be
subject to this additional indemnification obligation. The Safesite Board
believed that the benefits of the amendment outweighed the burden of placing
restrictions on additional shares of Iron Mountain Common Stock to be received
in the Merger. On May 6, 1997, the Safesite Board met to consider this amendment
to the Merger Agreement (other than Mr. Bellet who was unable to attend the
meeting). The Safesite Board concluded this amendment to the Merger Agreement
fair to, and in the best interests of, all of the Safesite stockholders and all
the Directors present at the meeting approved it. The Second Amendment to the
Merger Agreement was executed on May 7, 1997.
27
<PAGE>
Recommendation of the Safesite Board; Safesite's Reasons for the Merger
The Safesite Board believes that the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, its
stockholders. The Safesite Board recommends that the stockholders of Safesite
vote FOR the approval of the Merger Agreement and the transactions contemplated
thereby. The Safesite Board, in reaching its determinations, considered the
following factors, which represent all material factors considered and all of
which were considered as a whole and not separately:
o The purchase price offered for Safesite. An integral part of the
determination by the Safesite Board that the Merger was in the best
interests of, and fair to, the Safesite stockholders was a determination
that the price that Iron Mountain was willing to pay for Safesite was fair.
Safesite management had carefully observed the consolidation occurring in
the records management industry and the prices at which acquisitions had
been previously made. Management felt, and presented to the Safesite Board
its view, that the aggregate purchase price of $62 million that Iron
Mountain offered for Safesite compared favorably to (i) the sale prices of
other companies in the records management industry (which were generally
much smaller than Safesite), (ii) the price of $3.10 per share at which an
affiliated investor in Safesite had sold 919,117 shares of Safesite Common
Stock (equal to approximately 10% of the Safesite Common Stock) in July
1996 in an arm's length transaction to Messrs. Golisano, Wayman and Bundy,
all of whom are Directors of Safesite, and (iii) the valuation estimates of
between approximately $3.60 and $4.30 per share that were presented to the
Safesite Board by investment bankers in November 1995 when the Safesite
Board and management were considering an initial public offering of equity,
as discussed below. In reviewing the information presented at the meeting,
the Safesite Board was aware that there were no recent transactions in the
records management industry involving a company the size of Safesite. The
Safesite Board believed that a comparison of sales prices of smaller
records management companies, especially in the absence of comparably sized
transactions, was relevant to an analysis of the fairness of the Merger in
that it provides relevant information concerning the multiples associated
with sales prices of records management companies. The Safesite Board
observed that the sales prices in these transactions represented a multiple
of approximately 2.5 times annual revenues. The Merger Consideration
represents approximately 3.0 times Safesite's fourth quarter revenues
annualized, which in the opinion of the Safesite Board represented an
appropriate premium given the size of Safesite. The Safesite Board
concluded that it was unlikely that another buyer would offer Safesite
stockholders 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, the Safesite Board concluded
that the Merger was fair, from a financial point of view, to the
stockholders of Safesite.
o Choice of liquidity or continued investment for Safesite stockholders. The
Safesite Board viewed as favorable the structure of the proposed merger
with Iron Mountain that afforded Safesite stockholders immediate liquidity
in the form of cash as to a portion of their Safesite holdings and a choice
of whether to seek increased liquidation after the Merger through a sale of
some, or after one year all, of their Iron Mountain Common Stock on the
open market or to continue their investment in Safesite, through Iron
Mountain, a larger, better- capitalized, well-situated company. In
evaluating the Merger, the Safesite Board 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 Safesite Board
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 Safesite Board.
o The strategic aspects of the Merger. By receiving Iron Mountain Common
Stock, the Safesite stockholders will have an investment in a larger
company, which the Safesite Board believed offered greater financial
resources and flexibility, competitive strength and business opportunities
than would be possible for Safesite alone. The Safesite Board thus
concluded that the Merger provides Safesite stockholders with better
long-term prospects and liquidity than if they continued to hold their
Safesite shares.
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<PAGE>
o The Safesite Board's review of the business, operations, financial
condition, earnings and prospects of Iron Mountain. In choosing Iron
Mountain as its merger partner, the Safesite Board considered and viewed,
and still considers and views (even though the Iron Mountain Common Stock
has recently been trading below the floor of $26.00 in the calculation of
the Determination Price), favorably the high quality and reputation of Iron
Mountain's management, 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.
As discussed above under "General Background of the Merger," the Safesite
Board carefully reviewed proposals submitted by Iron Mountain and by another
potential merger partner. The Safesite Board concluded that the Iron Mountain
proposal offered the best combination of price, certainty of closing and
long-term prospects of the potential merger partners. The Safesite Board
reviewed with its counsel and with management the provisions of the Merger
Agreement and determined that its terms permitted Safesite to achieve the
tax-free disposition of its business for marketable securities, a factor the
Safesite Board felt would be important to most of its stockholders. The Safesite
Board had also considered periodically since April 1995 and again specifically
in November 1995 an initial public offering of equity securities of Safesite.
Considering the various factors necessary to complete a successful initial
public offering (including increasing the size of Safesite and developing a
record of rapid growth in revenues and earnings), the Safesite Board concluded
that Safesite could not reasonably anticipate completing such a transaction on
favorable terms (including the per share value described above) for a minimum of
two to three years. The Safesite Board also rejected a possible public offering
due to the significant dilution which existing stockholders would have faced and
the lack of interest expressed on the part of quality underwriters the Safesite
Board would have wanted to retain. Furthermore, there could be no assurances
that the market would be amenable to a public offering by Safesite at that time
or that a more favorable price could be achieved.
The Safesite Board considered and rejected retaining a financial advisor to
assist Safesite in its negotiations with Iron Mountain (including, without
limitation, rendering a fairness opinion if such negotiations were successful)
and its consideration of other alternative transactions. In reaching such
conclusion, the Board considered the expertise and experience among the
Directors, which included David Bellet, a venture capitalist, and Harvey H.
Bundy III, a principal of William Blair. In this regard, Mr. Bundy had no
discussions relating to the transaction with any other principals or officers or
other representatives of William Blair at any point during the negotiation of
the Merger Agreement. Mr. Wayman, a Director, the President and a significant
stockholder of Safesite, was familiar with many recent transactions in the
records management industry, and Messrs. Golisano and Clark were the Chief
Executive Officer and Chief Financial Officer, respectively, of a large public
company which had negotiated numerous business acquisitions. As a result, the
Safesite Board was confident that it possessed the sophistication and expertise
to evaluate the fairness of the Merger, and recommend it to the stockholders
consistent with its fiduciary duties to Safesite's stockholders, without
incurring the expense of retaining a financial advisor.
Based upon the foregoing, the Safesite Board concluded at its February 14,
1997 meeting and again at its February 19, 1997 meeting, that the Merger
represents the best strategic alternative currently available to maximize the
return to Safesite stockholders. In view of the wide variety of factors
considered in connection with the evaluation of the Merger, the Safesite 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 SAFESITE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SAFESITE
COMMON STOCK VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
29
<PAGE>
Iron Mountain's Reasons for the Merger
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 maintaining its leadership position in the records management
industry nationwide. Safesite is an attractive merger partner to Iron Mountain
for a number of reasons. Safesite is a superior records management service
provider that shares Iron Mountain's commitment to customer service and its
decentralized, local management structure. As a result of the Merger, Iron
Mountain will benefit from Safesite's strong management group, staff and
customer base, which are evidenced by Safesite's compound annual internal growth
rate of 20% in revenues between 1993 and 1996. 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. The acquisition of Safesite will
result in four new market entries for Iron Mountain, while affording it
opportunities for consolidation in ten additional markets. Following
consummation of the Merger, Iron Mountain will operate in 144 records management
facilities in 41 markets nationwide, servicing over 30,000 customer accounts.
Iron Mountain was assisted in its negotiations with respect to the Merger
by its investment advisor, William Blair. In particular, William Blair assisted
Iron Mountain in formulating an appropriate negotiating strategy and structural
alternatives and in negotiations with Safesite. William Blair will receive a fee
of $400,000 upon the consummation of the Merger. In addition, Iron Mountain has
agreed, among other things, to reimburse William Blair for all out-of-pocket
expenses incurred in connection with the services provided by William Blair up
to $15,000, and to indemnify and hold harmless William Blair and certain related
parties to the full extent lawful from and against certain liabilities and
expenses, including certain liabilities under the federal securities laws, in
connection with its engagement. Harvey H. Bundy III, a Director and stockholder
of Safesite, is also a principal of William Blair.
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, Safesite will be merged with and into Sub, with Sub
continuing as the Surviving Corporation and a wholly owned subsidiary of Iron
Mountain. As a result of the Merger, the separate corporate existence of
Safesite will cease. Subject to the terms and conditions of the Merger
Agreement, the closing of the transactions contemplated thereby will take place
on the fifth business day 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 Safesite. 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.
Conversion of Safesite Common Stock
Form and Value of Consideration to be Received in the Merger. The
consideration to be issued by Iron Mountain in the Merger will consist of
$12,090,000 in cash (subject to adjustment as described below) and shares of
Iron Mountain Common Stock having a market value of $49,910,000 based upon the
Determination Price. The cash to be issued in the Merger will be reduced by the
amount, if any, that Safesite's indebtedness for borrowed
30
<PAGE>
money as of the Effective Time exceeds $500,000. Safesite's indebtedness for
borrowed money as of May 2, 1997 equaled approximately $830,000. On the Closing
Date, shares of Iron Mountain Common Stock having a value of $4,000,000 based
upon the Determination Price will be withheld ratably from the stock
consideration payable to Safesite stockholders and held in escrow for one year
to indemnify and hold harmless Iron Mountain from certain claims under the
Merger Agreement. Anyone holding Dissenting Shares will not contribute to the
escrow amount or be subject to the indemnification obligations. See
"--Indemnification."
Conversion of Safesite Common Stock. Upon consummation of the Merger, each
share of Safesite Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive, subject to certain
indemnification provisions in the Merger Agreement, shares of Iron Mountain
Common Stock and cash in accordance with the following conversion formulas:
<TABLE>
<S> <C>
Formulas:
"Stock Conversion Number" equals: Common Stock Amount
-------------------
Fully Diluted Shares
"Cash Conversion Number" equals: Cash Amount
--------------------
Fully Diluted Shares
Related Definitions:
"Cash Amount" equals: the difference between (x) $12,090,000 and (y) the amount by
which Safesite indebtedness for borrowed money exceeds
$500,000. As of May 2, 1997, the aggregate amount of such
indebtedness equaled approximately $830,000.
"Common Stock Amount" equals: $49,910,000
-------------------
Determination Price
"Determination Price" equals: the average closing price per share of Iron Mountain Common
Stock for the period of 20 trading days ending three trading
days prior to the Closing Date; provided, however, that if the
average closing price per share for such period is less than
$26.00, the Determination Price shall be $26.00 and if the
average closing price per share for such period is greater than
$31.00, the Determination Price shall be $31.00. The
Determination Price calculated using the above-described
formula for the 20 trading day period ending on May 9, 1997
was $26.00 (the actual average closing price per share for
such period was $24.18).
"Fully Diluted Shares" equals: the sum of (a) the number of shares of Safesite
Common Stock issued and outstanding immediately prior
to the Effective Time and (b) the number of shares
of Safesite Common Stock that may be issued pursuant to
Exercisable Options.
</TABLE>
31
<PAGE>
The following table gives examples calculating the merger consideration at
various Determination Prices, assuming that the number of Fully Diluted Shares
equals 9,489,297 (the number as of May 2, 1997). For each Determination Price
listed, the table illustrates the Cash Amount and Cash Conversion Number when
(i) Safesite indebtedness as of the Effective Time would at or be below $500,000
and (ii) Safesite indebtedness as of the Effective Time would equal $830,000.
The number of shares of Iron Mountain Common Stock to be received is subject to
certain indemnification provisions and transfer restrictions. See
"--Restrictions on Transfer Of Iron Mountain Common Stock" and "Ancillary
Agreements --Escrow Agreement."
<TABLE>
<CAPTION>
Stock Conversion Cash
Number Conversion Cash and Shares of Iron
(shares of Iron Number Mountain Common
Mountain Common (cash per share Stock to be received by
Common Stock per share of of Safesite Hypothetical Stockholder
Determination Stock Safesite Common Common owning 1,000 shares of
Price Amount Cash Amount Stock) Stock) Safesite Common Stock
<S> <C> <C> <C> <C> <C>
No
Adjustment:
$26.00 1,919,615 $12,090,000 0.20229265 $1.27 $1,281.68 cash
(including $7.61 in lieu
of a fractional share)
202 shares
$28.50 1,751,228 $12,090,000 0.18454771 $1.27 $1,289.68 cash
(including $15.61 in lieu
of a fractional share)
184 shares
$31.00 1,610,000 $12,090,000 0.16966483 $1.27 $1,294.68 cash
(including $20.61 in lieu
of a fractional share)
169 shares
$330,000
Adjustment:
$26.00 1,919,615 $11,760,000 0.20229265 $1.24 $1,246.90 cash
(including $7.61 in lieu
of a fractional share)
202 shares
$28.50 1,751,228 $11,760,000 0.18454771 $1.24 $1,254.90 cash
(including $15.61 in lieu
of a fractional share)
184 shares
$31.00 1,610,000 $11,760,000 0.16966483 $1.24 $1,259.90 cash
(including $20.61 in lieu
of a fractional share)
169 shares
</TABLE>
Based on the foregoing assumptions, the value of the shares of Iron
Mountain Common Stock to be received by a Safesite stockholder in respect of
each share of Safesite Common Stock held by such stockholder will equal
approximately $5.26 if the market price of the Iron Mountain Common Stock at the
time of the Closing is equal to the Determination Price used in calculating the
Common Stock Amount. To the extent such market price is greater or less than the
Determination Price, then the value of the shares of Iron Mountain Common Stock
to be
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<PAGE>
received by the Safesite stockholders would be greater than or less than
$5.26, as the case may be. On May 9, 1997, the closing sales price per share of
the Iron Mountain Common Stock, as reported on the Nasdaq National Market, was
$25.50 and the Determination Price calculated as of such date was approximately
$26.00 (the actual average closing price per share for such period was $24.18).
Thus, if the Merger had closed on May 9, 1997, the value of the Iron Mountain
Common Stock received would have been approximately $5.16 per share of Safesite
Common Stock. See "Risk Factors--Risk Factors Related to the Merger."
For a description of the Iron Mountain Common Stock, see "Description of
Iron Mountain Capital Stock" and "Comparison of Rights of Stockholders of Iron
Mountain and Safesite."
Restrictions on Transfer of Iron Mountain Common Stock. As more fully
described below, in order to protect the tax-free nature of the Merger,
approximately 62% of the Iron Mountain Common Stock received by each Safesite
stockholder in the Merger will be subject to the Transfer Restrictions until the
first anniversary date of the Effective Time. The Transfer Restrictions will
prohibit all "Transfers" (defined below) of such Iron Mountain Common Stock by
former Safesite stockholders. Any purported transfer of the economic, record or
beneficial ownership of the Subject Shares (as defined below) not permitted by
the Iron Mountain By-Laws will be void and have no legal effect. The following
description of the Transfer Restrictions is qualified in its entirety by
reference to the complete text of Article XII of the Iron Mountain By-Laws (in
which the Transfer Restrictions are set forth), a copy of which is attached
hereto as Annex II and incorporated herein by reference.
Pursuant to such Article, any person who receives shares of Iron Mountain
Common Stock in the Merger will not be able to Transfer, and Iron Mountain will
not be required to register the Transfer of, the number of shares, rounded
upward to the nearest whole share (the "Subject Shares"), of Iron Mountain
Common Stock equal to the product of (1) the quotient obtained by dividing (x)
the "Lock-up Value" by (y) the product of (A) the Common Stock Amount and (B)
the lesser of the Closing Price and the Determination Price multiplied by (2)
the shares of Iron Mountain Common Stock received by such person in the Merger,
until the first anniversary of the Effective Time, except as otherwise allowed
by the Iron Mountain Board in its sole discretion. The "Lock-up Value" shall
mean one half (1/2) of the sum of (x) the product of the Common Stock Amount and
the lesser of the Closing Price and the Determination Price plus (y) the Cash
Amount. The "Closing Price" shall mean the closing price per share of Iron
Mountain Common Stock for the trading day immediately prior to the Effective
Time. The closing price for such trading day shall be the last quoted sale price
or, if not so quoted, the average of the low bid and high asked prices on the
Nasdaq National Market. A "Transfer" means any indirect or direct transfer,
offer to sell, sale, assignment, grant of an option to acquire, pledge, or other
disposition. The Transfer Restrictions, by their own terms, automatically expire
on the first anniversary of the Effective Time. In order to implement such
restriction, each stockholder will receive two certificates representing shares
of Iron Mountain Common Stock to be received in the Merger, one of which will
bear a legend indicating that the shares represented by such certificate are
subject to the Transfer Restrictions. Iron Mountain's transfer agent will not
permit the transfer of the legended shares until the first anniversary of the
Effective Time. The other certificate will not bear this legend and,
accordingly, will be transferable by the holder, subject to compliance with
applicable law. No stockholder will receive preferential transfer rights with
respect to shares subject to the Transfer Restrictions.
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<PAGE>
The following table illustrates examples of the number of Subject Shares to
be received by a hypothetical Safesite stockholder who currently owns 1,000
shares of Safesite Common Stock, assuming various Determination Prices and
Closing Prices, and assuming no adjustment to the Cash Amount. If at the
Effective Time, the Cash Amount is adjusted, the number of Subject Shares would
decrease.
<TABLE>
<CAPTION>
Shares Held in Non-Subject, Non
Determination Price Closing Price Subject Shares Escrow Escrowed Shares
------------------- ------------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
$26.00 $24.50 127 16 59
$26.00 $26.00 126 16 60
$26.00 $27.50 126 16 60
$28.50 $27.00 116 15 53
$28.50 $28.50 115 15 54
$28.50 $30.00 115 15 54
$31.00 $29.50 107 14 48
$31.00 $31.00 105 14 50
$31.00 $32.50 105 14 50
</TABLE>
Treatment of Options
As soon as reasonably practicable after the Effective Time, each holder of
an Exercisable Option will receive (1) a non-qualified option to acquire shares
of Iron Mountain Common Stock under the Iron Mountain Stock Option Plan, which
option for Iron Mountain Common Stock shall (A) have an exercise price per share
determined by dividing the exercise price per share of the applicable option by
the Stock Conversion Number and (B) entitle the holder to purchase that number
of shares equal to the product of (x) the number of shares subject to such
option that as of the Effective Time is exercisable and (y) the Stock Conversion
Number, and (2) cash in the amount of the product of (x) the number of shares
subject to such option that as of the Effective Time is exercisable and (y) the
Cash Conversion Number. Pursuant to the terms of the Merger Agreement, in lieu
of issuing cash in respect of Exercisable Options, Iron Mountain has reserved
the right, in its sole discretion, subject to notification to Safesite not less
than ten (10) days prior to the Closing Date, to exchange each Exercisable
Option solely for an option to acquire Iron Mountain Common Stock. Iron Mountain
currently intends to issue cash in respect of Exercisable Options.
With respect to any such option or portion thereof that is not exercisable
at the Effective Time and with respect to certain other options to acquire
17,500 shares of Safesite Common Stock recently granted to five individuals with
an exercise price equal to $6.53 per share, each holder will receive a
non-qualified option to acquire shares of Iron Mountain Common Stock under the
Iron Mountain Stock Option Plan at an exercise price and in an amount affording
the holder equivalent value for the option being exchanged, which option for
Iron Mountain Common Stock will (A) have an exercise price per share determined
by dividing (x) the exercise price per share of the applicable option by (y) the
quotient of the Share Price divided by the Determination Price, and (B) entitle
the holder to purchase that number of shares equal to the product of (x) the
number of shares subject to such option that as of the Effective Time is not
exercisable and (y) the quotient of the Share Price divided by the Determination
Price. Share Price is the quotient of (x) the sum of $49,910,000 and the Cash
Amount divided by (y) the number of Fully Diluted Shares. In addition, any such
option to acquire Iron Mountain Common Stock will be exercisable (subject to the
terms of such option and the Iron Mountain Stock Option Plan) on the date the
applicable option would have been exercisable and otherwise be subject to the
terms and conditions of the Iron Mountain Stock Option Plan.
By accepting an option to acquire Iron Mountain Common Stock under the Iron
Mountain Stock Option Plan, Safesite option holders will be agreeing to all of
the terms and conditions of the Iron Mountain Stock Option Plan
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<PAGE>
and the option agreements entered into pursuant thereto (provided that the terms
of the Iron Mountain option agreement, as to any employee of Safesite, other
than the Safesite Principal Stockholders, who is not employed by Iron Mountain
or any of its affiliates on the first anniversary of the Closing Date, shall not
(a) make it a condition to exercise such option that such employee be in
compliance with an Iron Mountain confidentiality or non-competition agreement
and (b) require such employee to pay to Iron Mountain the excess of the fair
market value on the day of exercise over the exercise price as a result of being
employed by a competitor of Iron Mountain within two years after the exercise of
such option). In lieu of issuing any option to acquire a fractional share of
Iron Mountain Common Stock, the surrendering option holder shall receive an
option to purchase the nearest whole number of shares of Iron Mountain Common
Stock. For a description of the Iron Mountain Stock Option Plan, see "Management
of Iron Mountain--Stock Option Information."
Indemnification
Safesite has agreed, and by approving the Merger Agreement, Safesite's
stockholders will agree, that shares of Iron Mountain Common Stock having a
value of $4,000,000 based upon the Determination Price (equal to approximately
$0.44 per share of Safesite Common Stock) will be withheld ratably from the
merger consideration payable to Safesite stockholders (other than holders of
Dissenting Shares) and held in escrow to indemnify Iron Mountain and hold Iron
Mountain harmless for a period of one year following the Closing Date from and
against all damages, claims, losses, expenses, costs, obligations and
liabilities suffered by Iron Mountain by reason of any breach of Safesite's
representations and warranties contained in the Merger Agreement or failure of
Safesite to perform or fulfill any of its covenants or agreements set forth in
the Merger Agreement, any legal action or other claim by a third party relating
to Safesite to the extent such action or claim results in a breach of a
representation or warranty, or the indebtedness for borrowed money of Safesite
as of the Effective Time exceeding $500,000. Accordingly, on the Closing Date,
shares of Iron Mountain Common Stock having a value of $4,000,000 based upon the
Determination Price will be withheld on a ratable basis from the stock portion
of the Merger consideration otherwise payable to Safesite's stockholders and
held in escrow pursuant to the terms of the Escrow Agreement to be executed by
Iron Mountain, Safesite, Wayman, as agent for Safesite's stockholders, and State
Street Bank and Trust Company, as Escrow Agent. Iron Mountain's right to
indemnification under the Merger Agreement and the Escrow Agreement is limited
to the lesser of (i) the shares of Iron Mountain Common Stock held in escrow and
(ii) $3,000,000. Accordingly, Iron Mountain may only collect up to $3,000,000
(equal to approximately $0.33 per share of Safesite Common Stock) in value of
Iron Mountain Common Stock based upon the then current market value (subject to
the additional indemnification obligations of Golisano and Wayman described
under "Ancillary Agreements--Stockholders' Agreement"). In addition, Safesite
has agreed and Safesite's stockholders, by approving the Merger Agreement, will
agree, to appoint Wayman, or such other person or persons to whom Wayman
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 and the Escrow Agreement. The
shares of Iron Mountain Common Stock to be held in escrow will be registered in
the name of James B. Wayman, Jr., as agent under the Escrow Agreement. As agent,
Wayman and any delegate will have a fiduciary duty to act in the best interests
of the Safesite stockholders with respect to the indemnification provisions of
the Merger Agreement and the Escrow Agreement. Wayman will deliver notice to
each Safesite stockholder promptly after each time, if any, that Iron Mountain
receives a payment under the Escrow Agreement. The escrow will expire one year
after the Effective Time. Promptly after such time, the Escrow Agent will remit
to each Safesite stockholder such stockholder's ratable portion of the escrow
indemnity funds less all portions paid to Iron Mountain and less any amounts
which are the subject of unresolved claims. Iron Mountain may only recover on a
claim if all loss and expense for all claims exceeds, in the aggregate,
$150,000. See "Ancillary Agreements--Escrow Agreement" for a description of the
terms and conditions of the Escrow Agreement.
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<PAGE>
Exchange Procedures
As soon as reasonably practicable after the Effective Time, The First
National Bank of Boston, 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 evidenced outstanding shares of
Safesite Common Stock (other than Dissenting Shares and other than shares owned
by Safesite as treasury stock and shares owned by Iron Mountain or by any
subsidiary or Iron Mountain) ("Safesite Certificates") (i) a letter of
transmittal and (ii) instructions to effect the surrender of the Safesite
Certificates in exchange for the total consideration to be received by such
holder as a result of multiplying (x) each of the Stock Conversion Number and
the Cash Conversion Number by (y) the number of shares represented by such
holder's Safesite Certificates (such total, the "Exchange Merger
Consideration").
Upon surrender of a Safesite 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 Safesite 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"), and the Safesite Certificate so surrendered shall
forthwith be canceled. Until surrendered, each Safesite 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
Safesite Common Stock formerly represented thereby, without interest. Each
Safesite stockholder will receive separate stock certificates representing the
Subject Shares and shares of Iron Mountain Common Stock that are not subject to
the Transfer Restrictions.
HOLDERS OF SAFESITE COMMON STOCK SHOULD NOT SEND SAFESITE CERTIFICATES WITH
THE ENCLOSED PROXY CARD. SAFESITE STOCKHOLDERS SHOULD SEND SAFESITE 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 Safesite 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 a Safesite Certificate until such Safesite
Certificate is surrendered for exchange in accordance with the procedures
described above.
Representations and Warranties
The Merger Agreement contains certain customary representations and
warranties relating to, among other things: (a) each of Iron Mountain's and
Safesite's organization and similar corporate matters; (b) each of Iron
Mountain's and Safesite's capital structure; (c) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement with respect to
Iron Mountain and Safesite; (d) documents filed by Iron Mountain with the
Commission and the accuracy of the information contained therein; (e) certain
financial matters with respect to Safesite; (f) Safesite's leases; (g)
governmental and private authorizations of Safesite; (g) the absence of
undisclosed material litigation and other undisclosed liabilities relating to
Safesite; (h) the absence of material changes with respect to the business of
Safesite; (i) certain tax and employee benefit matters with respect to Safesite;
(j) the records storage business of Safesite; and (k) certain environmental
matters with respect to Safesite. Safesite's representations and warranties
survive the Closing for a period of one year.
36
<PAGE>
Certain Covenants
The Merger Agreement contains certain customary covenants and agreements,
including, without limitation, the following:
Conduct of Business. Safesite has agreed that, during the period from the
date of the most recent balance sheet forming a part of Safesite's financial
statements until the Closing Date, except as permitted by the Merger Agreement
or as otherwise consented to in writing by Iron Mountain, Safesite has operated
and will operate its business in the ordinary course of business, consistent
with prior practice. In addition, without limiting the generality of the
foregoing, Safesite has agreed that it 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 its 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 its 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; (g) create or permit to be created any lien on any of
its assets; (h) except in the ordinary course of business, consistent with prior
practice, increase the compensation payable or to become payable to any of its
Directors, officers, employees, advisers, consultants, salesmen or agents or
otherwise alter, modify or change the terms of their employment or engagement;
(i) enter into, amend or terminate any lease, governmental authorization,
private 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; (j) amend or terminate any insurance
policies and coverage; (k) amend any provision of its certificate of
incorporation, by-laws or other agreements applicable to any of its capital
stock; (l) 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 (m) enter into any other
transaction or series of related transactions which individually or in the
aggregate is material to Safesite, except in the ordinary course of business.
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 obtain any governmental authorizations
legally required for the consummation of the Merger and the transactions
contemplated thereby, (ii) to effect all necessary registrations, filings and
submissions (including without limitation filings under federal or state
securities laws or the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and
the rules and regulations thereunder (the "HSR Act") and any other submissions
requested by the Commission, the Federal Trade Commission or the Department of
Justice) and (iii) 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 Safesite'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 (including, without limitation, the Surviving Corporation after
consummation of the Merger) in connection with or as a condition to receiving
the consent or approval of any authority.
Safesite has agreed to cause its independent accountants to cooperate with
Iron Mountain and has agreed to prepare Safesite's audited financial statements
for inclusion in the Registration Statement of which this Proxy Statement forms
a part. Safesite has also agreed that it will (i) consent to the use of such
audited financial statements in any registration statement or other document
filed by Iron Mountain (or any of its subsidiaries) under the Securities Act or
the Exchange Act, and (ii) execute and deliver, and cause its officers to
execute and deliver,
37
<PAGE>
such "representation" letters as are customarily delivered in connection with
audits and as Iron Mountain's independent accountants may reasonably request
under the circumstances.
Registration Rights Agreement. Iron Mountain, Golisano and Wayman have
agreed that they will enter into a registration rights agreement (the
"Registration Rights Agreement") with respect to the shares of Iron Mountain
Common Stock to be issued to them in connection with the Merger, and have agreed
to the basic terms of such Registration Rights Agreement. See "Ancillary
Agreements--Registration Rights Agreement; Restrictions on Transfer under the
Federal Securities Laws."
No Solicitation. Safesite has agreed that it will not, nor will it permit
any of its 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 resulting in (a)
any change in control of Safesite, (b) any merger or consolidation of Safesite,
regardless of whether Safesite is the surviving entity, (c) any tender offer or
exchange offer for, or any acquisition of, any securities of Safesite, (d) any
sale or other disposition of assets of Safesite 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 Safesite (other than the issuance
of shares in accordance with the terms of outstanding option securities) (each,
an "Other Transaction"). Safesite has also agreed not to engage in any
discussions or negotiations concerning, or provide to any other person any
information or data relating to, it 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, or agree to or endorse
any Other Transaction. However, neither Safesite nor the Safesite Board is
prohibited from making any disclosure to Safesite's stockholders that, in the
reasonable judgment of the Safesite Board in accordance with, and based upon the
written advice of, outside counsel, is required under applicable law. Safesite
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. Safesite 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, Safesite 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 Safesite 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 Safesite 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 Safesite 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 Safesite's certificate of incorporation and by-laws (but only to the
extent permitted under the DGCL), 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 the DGCL, upon receipt from the person to whom
expenses are advanced of an undertaking to repay such advances to the extent
required under the DGCL. Iron Mountain has guaranteed the performance by the
Surviving Corporation of all of its obligations with respect to such
indemnification and any related payments.
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 Safesite that are
comparable to the programs provided from time to time to Iron Mountain's
employees and the employees of Iron Mountain's subsidiaries.
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<PAGE>
Certain Actions Concerning Business Combinations. Safesite has agreed that
it 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
contemplated thereby.
Conversion of Options. Safesite has agreed to take all action necessary (a)
to provide timely written notice to all persons holding option securities of
Safesite to the effect that all option securities outstanding as of the
Effective Time will be exchanged for options to acquire Iron Mountain Common
Stock and cash (in the case of Exercisable Options), and (b) to obtain any
consent or waiver from the holder of an option security which may be necessary
to give effect to such exchange.
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
Safesite 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 Safesite's stockholders, that the proposed
disposition will not affect the tax-free nature of the Merger.
Meeting of Safesite Stockholders. Safesite has agreed, as promptly as
practicable, to duly call, give notice of, convene and hold the Safesite
Stockholders Meeting. Safesite has agreed, through the Safesite Board, to
include in this Proxy Statement the conclusion and recommendation of the
Safesite Board to the effect that the Safesite Board, having determined that the
Merger Agreement, the Merger and the transactions contemplated thereby are in
the best interests of Safesite and its stockholders, has approved the Merger
Agreement, the Merger and the transactions contemplated thereby and recommends
that Safesite's stockholders vote in favor of the approval and adoption of the
Merger Agreement, the Merger and the transactions contemplated thereby, and to
use its best efforts to obtain the necessary approval and adoption of the Merger
Agreement, the Merger and the transactions contemplated thereby.
Certain Other Covenants. Safesite and Iron Mountain have also agreed, among
other things: (i) that Safesite will use its best efforts to cause to be
delivered to Iron Mountain, prior to the Closing Date, a letter from each
"affiliate" of Safesite; (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 Safesite 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; and (iv) 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 Safesite 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,
Sub and Safesite to consummate the Merger are subject to the satisfaction of the
following conditions: (a) the Merger Agreement, the Merger and the transactions
contemplated thereby shall have been approved and adopted by Safesite's
stockholders; (b) no legal action shall be pending before or threatened in
writing by any authority seeking to restrain, prohibit, make illegal or delay
materially, or seeking material damages from the party seeking to invoke such
legal action and, in case Iron Mountain is seeking to invoke such legal action,
Safesite, or to impose any adverse conditions in connection with, the
consummation of the Merger and the transactions contemplated thereby, or which
might, in the reasonable business judgment of Iron Mountain, have an adverse
effect on Iron Mountain and its subsidiaries taken as a whole assuming
consummation of the Merger; (c) other than the filing of the Certificate of
Merger in accordance with the DGCL, 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,
Sub and Safesite prior to the consummation of the Merger and the transactions
contemplated thereby shall have been obtained from, and
39
<PAGE>
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 an adverse effect on
Safesite; (d) the filing and waiting period requirements under the HSR Act
relating to the consummation of the Merger shall have been complied with; and
(e) Iron Mountain or its nominee and certain affiliates of Safesite shall have
entered into and closed purchase and sale agreements with respect to three
properties owned by such affiliates, for an aggregate purchase price of
$7,300,000, free and clear of all liens, other than certain permitted liens (see
"Ancillary Agreements--Real Property Purchase Agreements").
Conditions to Obligations of Iron Mountain. The obligations of Iron
Mountain and Sub 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)
there shall be no material breach of any representations, warranties, covenants
and agreements of Safesite contained in the Merger Agreement or otherwise made
in writing by it or on its behalf pursuant thereto, each and all of the
agreements and conditions to be performed or satisfied by Safesite or any of its
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 Safesite 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) Safesite shall
have furnished Iron Mountain and, at Iron Mountain's request, any bank or other
financial institution providing credit to Iron Mountain, with favorable opinions
dated the Closing Date of Woods, Oviatt, Gilman, Sturman & Clarke LLP, counsel
for Safesite, as to certain corporate matters; (d) no legal action or other
claim shall be pending or threatened 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, or 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 judgment of
Iron Mountain have any adverse effect on Safesite or, assuming consummation of
the Merger, Iron Mountain and its subsidiaries taken as a whole; (e) each
affiliate of Safesite shall have executed and delivered an affiliate agreement
in an agreed upon form and Iron Mountain and the Safesite Principal Stockholders
shall have entered into the Registration Rights Agreement; (f) Safesite shall
have obtained consents to the assignment and continuation of all material
agreements which, in the reasonable judgment of Iron Mountain require such
consents; (g) as of the Closing Date, there shall not have occurred and be
continuing any adverse change affecting Safesite from the condition thereof
(financial and other) reflected in its most recent financial statements; (h)
each of the officers and Directors of Safesite and each trustee under each
benefit plan shall have submitted his or her unqualified written resignation,
dated as of the Closing Date, from all such positions held with Safesite and as
a trustee for each such plan; (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 or
reorganization in accordance with the provisions of Section 368(a) of the Code
and as to the consequences thereof to Iron Mountain; and (j) Iron Mountain,
Safesite, Wayman, as agent for the Safesite stockholders, and the Escrow Agent
shall have delivered the Escrow Agreement, and the Escrow Indemnity Funds
described therein shall have been delivered to the Escrow Agent.
Conditions to Obligations of Safesite. The obligations of Safesite 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 Safesite, Golisano and Wayman 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
Safesite and its counsel; (c) there shall be no material breach of any
representations, warranties, covenants and agreements of each of Iron Mountain
and Sub contained in the Merger Agreement or otherwise made in writing by it or
on its behalf pursuant thereto, each and all of the agreements and conditions to
be performed or satisfied by each of Iron Mountain and Sub thereunder at or
prior to the Closing Date shall have been duly performed or satisfied in all
material respects, and each of Iron Mountain and Sub shall have furnished
Safesite with such certificates and other documents evidencing the truth of such
representations, warranties, covenants and agreements and the performance of
such
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agreements or conditions as Safesite shall have requested; (d) Safesite shall
have received a favorable opinion, dated the Closing Date, of Woods, Oviatt,
Gilman, Sturman & Clarke 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 Safesite's stockholders; (e) affiliates of Safesite who are
guarantors of any Safesite bank indebtedness, leases or other obligations shall
have been released from all liability under certain guarantees and all
collateral granted to them to secure those guarantees shall have been released
and returned to them; and (f) the Escrow Agreement shall have been executed and
delivered by Iron Mountain and the Escrow Agent and the Registration Rights
Agreement shall have been executed and delivered by Iron Mountain and any other
parties thereto.
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
Safesite; (b) by either Safesite 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; or (c) by Safesite in the event (i)
Safesite is not in breach of the Merger Agreement and none of its
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 by or beyond the
Termination Date (as defined below) and (ii) either (A) Iron Mountain or Sub 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. The "Termination Date" shall mean September
30, 1997 (or, under certain circumstances, December 31, 1997) or such other date
as Iron Mountain, Safesite and Sub agree.
The Merger Agreement may also be terminated by Iron Mountain: (a) if the
Merger and the transactions contemplated thereby fail to receive the approval
required by law of Safesite's stockholders; (b) in the event (i) neither Iron
Mountain nor Sub is in breach of the Merger Agreement and none of their
representations or 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 by or beyond the
Termination Date, and (ii) either (A) Safesite 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, (B) the Merger and
the transactions contemplated thereby have not been consummated prior to the
Termination Date or (C) any of Safesite's stockholders is in breach of the
Stockholders' 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; (c) if
the Safesite 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, or shall have resolved to do any of the foregoing, or (ii)
have recommended or resolved to recommend to Safesite's stockholders any Other
Transaction; or (d) Safesite shall have entered into or agreed to enter into any
Other Transaction.
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 the other and all rights and obligations of
any party thereto will cease; provided, however, that such termination will not
relieve any party thereto from liability for the breach of any of its
representations, warranties, covenants or agreements set forth in the Merger
Agreement, or impair the right of Safesite, on the one hand, and Iron Mountain
and Sub, on the other hand, to compel specific performance of the other party of
its or their obligations under the Merger Agreement.
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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 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").
Safesite has 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 (b)(ii)(B) of the second
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 Safesite of its covenants under the Merger Agreement or the failure of
the representations and warranties of Safesite to be true and correct in all
material respects), then Safesite will pay to Iron Mountain an amount equal to
$5,000,000, 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 Safesite's fulfillment of its obligations
thereunder, the costs in delayed opportunity to Iron Mountain, and the benefit
to Safesite, 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.
Iron Mountain has agreed that if the Merger Agreement is terminated by
Safesite under the circumstances described in clause (c) of the first paragraph
under "--Termination--Termination Events" (other than a termination by Safesite
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 or Sub of any of their respective covenants under the Merger Agreement
or the failure of the representations and warranties of Iron Mountain and Sub to
be true and correct in all material respects), then Iron Mountain will pay to
Safesite an amount equal to $5,000,000, which amount is in recognition of, among
other things, the out-of-pocket Expenses of Safesite related to the Merger
Agreement, the reliance of Safesite on Iron Mountain's fulfillment of its
obligations thereunder, and the costs in delayed opportunity to Safesite, 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
Safesite's stockholders, no amendment, which under applicable law may not be
made without the approval of Safesite's 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 and Sub or Safesite 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.
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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 certain stockholders of Safesite entered into the Stockholders'
Agreement. Certain other Safesite stockholders became and other Safesite
stockholders may become parties to the Stockholders' Agreement subsequent to
such time (collectively, the "Agreeing Stockholders"). Set forth below is a
summary of certain provisions of the Stockholders' Agreement, a copy of which is
attached hereto as Annex III. This summary is qualified in its entirety by
reference to the full and complete text of the Stockholders' Agreement.
Each Agreeing Stockholder 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
Safesite Common Stock owned by him or her (other than to certain permitted
assignees) prior to the Closing Date. In addition, each Agreeing Stockholder has
agreed that he or she will not, and will not permit any of his or her
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, Safesite 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 role as a member of the
Safesite Board.
Each of Golisano and Wayman has agreed to vote all of the shares of
Safesite Common Stock then owned by him or which he has the right to vote, equal
to 66.0% of the outstanding Safesite Common Stock (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, (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 Safesite 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, including, but not limited to (1) any extraordinary corporate
transaction (other than the Merger on the terms set forth in the Merger
Agreement), such as a merger, consolidation, business combination,
reorganization, recapitalization or liquidation involving Safesite, (2) a sale
or transfer of a material amount of assets of Safesite, or (3) any material
change in Safesite's corporate structure or business.
Each of Golisano and Wayman has also agreed, among other things, that he
will not grant any proxies, deposit any shares of Safesite Common Stock into a
voting trust or enter into any voting agreement with respect to his shares of
Safesite Common Stock, other than in accordance with the provisions of the
Stockholders' Agreement. Each of Golisano and Wayman 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 that each will waive his rights to
appraisal under the DGCL and will not influence other Safesite stockholders to
exercise their appraisal rights. Iron Mountain, Golisano and Wayman have agreed
to enter into or cause certain parties to enter into purchase and sale
agreements with respect to three properties owned by Safesite affiliates, and to
enter into the Registration Rights Agreement. Golisano has also agreed to
certain "standstill" and transfer restrictions with respect to Iron Mountain's
equity securities.
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Each of Golisano and Wayman has agreed that he will not, for a period of
five years from the Closing Date, disclose confidential information related to
Safesite or Iron Mountain and its subsidiaries, and will not, for a period of
five years from the Closing Date, engage in the records management business in
the jurisdictions where Iron Mountain and Safesite operate.
Pursuant to the terms of the Stockholders' Agreement, if Iron Mountain
terminates the Merger Agreement 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 (b)(ii)(B) of
the second 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 Safesite of its covenants under the Merger Agreement or the
failure of the representations and warranties of Safesite to be true and correct
in all material respects), it has the right within the six months following such
termination, with notice to Golisano within the thirty days following such
termination, to commence an offer to purchase all of the outstanding shares of
Safesite Common Stock at a per share purchase price equal to the Exchange Merger
Consideration that would have been paid in the Merger. Each of Golisano and
Wayman have agreed that they will irrevocably tender their shares of Safesite
Common Stock in the event of any such offer, free and clear of all liens.
Pursuant to the terms of the Merger Agreement, all of the representations,
warranties and covenants of Safesite contained therein will continue to be in
full force and effect for so long as Iron Mountain has the right to commence
such an offer. In addition, in the event of such an offer, the indemnification
provisions of the Merger Agreement will be applicable to such offer.
The Stockholders' Agreement will terminate upon the earliest to occur of
(i) the mutual consent of Iron Mountain and the Agreeing Stockholders, (ii) one
year after the termination of the Merger Agreement prior to the consummation of
the Merger and (iii) the tenth anniversary of the Closing Date.
In connection with the Second Amendment of the Merger Agreement, Golisano
and Wayman executed a letter agreement with Iron Mountain, whereby they each
agreed that to the extent (i) the Escrow Indemnity Funds have been exhausted,
(ii) the aggregate Escrow Determination Price for the shares of Iron Mountain
Common Stock paid over to Iron Mountain is less than $3,000,000, and (iii) Iron
Mountain has unpaid claims in respect of which it is entitled to indemnification
pursuant to the terms of the Merger Agreement, then they would indemnify Iron
Mountain for such claims in an amount equal to 66.0% of the lesser of (i) the
amount of such unindemnified claims and (ii) the difference between $3,000,000
and the aggregate Escrow Determination Price received by Iron Mountain.
Escrow Agreement
Upon consummation of the Merger, Iron Mountain, Safesite, Wayman, as agent
for Safesite's stockholders and holders of Exercisable Options (the "Agent"),
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 IV. 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 a stock certificate
registered in the name of Wayman, as agent under the Escrow Agreement,
representing the number of shares of Iron Mountain Common Stock, rounded to the
nearest whole share, equal to the quotient obtained by dividing (i) $4,000,000
by (ii) the Determination Price (the "Escrow Indemnity Funds"). The purpose of
the Escrow Indemnity Funds (equal to approximately $0.44 per share of Safesite
Common Stock) 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 Safesite's stockholders after a period of one year following the Closing
Date, only in accordance with the terms of the Escrow Agreement. Iron Mountain's
right to indemnification is limited to the lesser of (i) the shares of Iron
Mountain Common Stock held in escrow and (ii) $3,000,000. Accordingly, Iron
Mountain may only collect up to $3,000,000 in value of Iron Mountain Common
Stock based upon the then
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current market value (subject to the additional indemnification obligations of
Golisano and Wayman described above under "--Stockholders' Agreement"). The
Escrow Indemnity Funds will be subtracted on a ratable basis from the stock
consideration to be received by the Safesite stockholders (other than holders of
Dissenting Shares) promptly following the consummation of the Merger. (See the
table under "The Merger Agreement--Conversion of Safesite Common
Stock--Restrictions on Transfer of Iron Mountain Common Stock" for an
illustration of the number of shares to received by a hypothetical Safesite
stockholder which would be subject to the Escrow Agreement.)
If distribution of capital or stock dividend is made on or in respect of
Iron Mountain Common Stock, or any money or property is distributed with respect
to Iron Mountain Common Stock, pursuant to a recapitalization or
reclassification of the capital of Iron Mountain, or pursuant to a
reorganization or liquidation or dissolution of Iron Mountain, the money or
property to be distributed with respect to the Escrow Indemnity Funds will be
delivered to the Escrow Agent to be held by it as part of the Escrow Indemnity
Funds. Each Safesite stockholder will be entitled to receive all ordinary cash
dividends paid in respect of his shares of Iron Mountain Common Stock forming
part of the Escrow Indemnity Funds. In connection with any vote and or consents
in respect of such shares, Wayman, as agent, shall vote such shares in
accordance with the directions of each Safesite stockholder. Wayman, as agent,
will tabulate all such votes and consents and report vote them accordingly (such
aggregate number to be rounded down to the nearest whole number in each case).
Upon written instructions to the Escrow Agent and notice to Wayman from
Iron Mountain, the Escrow Agent will make payments out of the Escrow Indemnity
Funds to Iron Mountain, in accordance with such instructions, unless Wayman
objects to such payment. If at any time when Iron Mountain gives instructions to
the Escrow Agent and notice to Wayman of a claim, the Escrow Agent receives a
notice from Wayman 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 Wayman that the dispute has been resolved; or (ii)
receipt by Escrow Agent of 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 promptly pay that
portion of the Escrow Indemnity Funds which relates to such unresolved claim in
accordance with such notice or order. Payments made from the Escrow Indemnity
Funds shall be made by transferring shares of Iron Mountain Common Stock
representing a number of shares of Iron Mountain Common Stock equal to the
quotient obtained by dividing (a) the amount of such claim by (b) the average
closing price per share of Iron Mountain Common Stock for the period of 20
trading days ending three trading days prior to the date of such payment (the
"Escrow Determination Price"). Any payment which would result in the
disbursement of a fractional share of Iron Mountain Common Stock will be rounded
to the nearest whole share. In the event that any payment is made pursuant to
the Escrow Agreement, Iron Mountain will deliver to the Escrow Agent a new
Certificate registered in the name of Wayman, as agent, representing the number
of shares in the original certificate delivered to the Escrow Agent less such
shares disbursed in the payment and all previous payments.
On the date which is ten days after the expiration of one year from the
date of the closing of the Merger Agreement (the "Escrow Indemnity Period"), the
Escrow Agent will mail to each Safesite stockholder a certificate for shares of
Iron Mountain Common Stock which will be each such stockholder's ratable portion
of 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
persons entitled thereto. In each case, in lieu of issuing fractional shares, a
former Safesite stockholder shall receive the highest whole number of shares or
Iron Mountain Common Stock forming part of the Escrow Indemnity Funds to which
he is entitled 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
Escrow Determination Price.
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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 by the Escrow Agent as
provided in the Escrow Agreement, (b) the written mutual consent signed by each
of the parties thereto or (c) the payment to Iron Mountain of shares of Iron
Mountain Common Stock having an aggregate Escrow Determination Price equal to
$3,000,000.
Registration Rights Agreement; Restrictions on Transfer under the Federal
Securities Laws
Pursuant to the Merger Agreement, on or prior to the Closing Date, Iron
Mountain has agreed to enter into the Registration Rights Agreement with each of
the Safesite Principal Stockholders, pursuant to which, subject to certain
limitations, such stockholders will be entitled to two "demand" registration
rights requesting the registration of Iron Mountain Common Stock having a market
price of an aggregate of at least $10,000,000 and unlimited "piggy back"
registration rights to register any amount of Iron Mountain Common Stock
received by such stockholders from Iron Mountain in connection with the Merger.
All shares of Iron Mountain Common Stock received by Safesite stockholders
in the Merger will be freely transferable (other than the Subject Shares as
described under "The Merger Agreement--Conversion of Safesite Common
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 Safesite
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 Safesite are generally defined as individuals or entities that
control, are controlled by, or are under common control with, Safesite and
include certain executive officers and Directors, as well as principal
stockholders, of Safesite. 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. Golisano and Wayman are the only
affiliates of Safesite receiving enough shares of Iron Mountain Common Stock in
the Merger to exceed these volume limitations. For this reason Iron Mountain
agreed to give them registration rights.
Real Property Purchase Agreements
It is a condition to closing the Merger that Iron Mountain or its nominee
acquire a parcel of real property in Rochester, New York from one of the
Safesite Principal Stockholders for a purchase price of $2,700,000 and acquire
two parcels of real property in Billerica, Massachusetts from affiliates of the
Safesite Principal Stockholders for an aggregate purchase price of $4,600,000.
Each such property is currently leased to Safesite and is used in Safesite's
business.
In this regard, on March 12, 1997, Iron Mountain Records Management, Inc.,
a wholly owned subsidiary of Iron Mountain ("IMRM"), entered into a Purchase
Agreement and Escrow Instructions (each a "Purchase Agreement") to purchase each
property "as-is, where-is, with all faults" from Golisano, in the case of the
Rochester property, and from Golisano and Wayman, in their capacities as
trustees of the trusts owning such properties, with respect to each of the
Billerica properties. In accordance with the terms of the Purchase Agreements
relating to one Billerica property and the Rochester property, IMRM intends to
assign its rights and obligations under each such Purchase Agreement and has
reached an agreement in principle with an unaffiliated third party pursuant to
which
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the third party will assume Iron Mountain's obligations under such Purchase
Agreements. Iron Mountain is actively seeking an unaffiliated third party to
assume its rights and obligations under the remaining Purchase Agreement. If
Iron Mountain is unable to locate a buyer for such property prior to closing,
Iron Mountain will acquire this property with the intent to sell it as soon as
possible.
Each Purchase Agreement requires the seller to deliver to the buyer all
surveys related to the particular property, and the buyer will have 30 days to
object to such surveys. The seller may cure any such objections or, if the
seller elects not to so cure, either the seller or buyer may terminate the
Purchase Agreement. Each Purchase Agreement is required to close on or before
the Closing Date of the Merger. The closing of each Purchase Agreement is
conditioned upon certain deliveries by the seller of such property, including
the deed, certain title documents, a closing statement, a FIRPTA certificate,
mortgage releases (on the Billerica properties) and evidence of the seller's
good standing, authority and existence, and certain deliveries by the buyer,
including the purchase funds, evidence of the buyer's good standing, authority
and existence, a closing statement and an assumption of assigned obligations.
All such deliveries will be made to an escrow agent who will deliver such
documents at the closings to the appropriate parties and record the appropriate
deed.
Each Purchase Agreement contains representations and warranties by the
seller as to environmental compliance, the status and authority of the seller,
the lack of options with respect to the purchase of the property, the lack of
default by Safesite under its existing lease of the property and the lack of
litigation and condemnation proceedings with respect to such property. In
addition, each closing is subject to certain conditions precedent, including the
closing of the Merger Agreement, the performance by the seller of the
undertakings and the accuracy of the seller's representations and warranties in
all material respects contained in the Purchase Agreement, the seller not being
involved in bankruptcy or dissolution proceedings or the like, the lack of any
action, suit or other proceeding threatened against the seller or the property,
the disclosure of good and marketable title in the title insurance
commitment, the lack of any environmental notices with respect to the property
and the delivery of closing certificates as to the lack of default under the
Purchase Agreement and the accuracy of the seller's representations and
warranties in all material respects. Each Purchase Agreement contains certain
indemnification provisions with respect to each buyer and seller, most of which
provisions terminate with the closing of the Purchase Agreement. Each Purchase
Agreement automatically terminates if the Merger Agreement is terminated.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
consequences of the Merger, including certain consequences to holders of
Safesite Common Stock 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 holder of Safesite Common
Stock 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 Safesite 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 holders of Safesite Common Stock.
It is the policy of the Internal Revenue Service (the "Service") not to
rule directly on the tax status of transactions such as the Merger, and no such
ruling will be sought. The obligations of Iron Mountain and Safesite to effect
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. Such
opinions are collectively substantially to the effect that for federal income
tax purposes the Merger constitutes a reorganization within the meaning of
Section 368 of the Code, that no gain or loss will be recognized by Iron
Mountain, Sub, or Safesite as a result of the Merger and that no gain or loss
will be recognized by the holders of Safesite Common Stock as a result of the
Merger, except that gain will be recognized to the extent of
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cash received as part of the Exchange Merger Consideration, and that gain or
loss will be recognized in respect of cash received in lieu of a fractional
share of Iron Mountain Common Stock or in the case of cash received by
dissenting stockholders, if any. In rendering their opinions, counsel will rely
upon, and assume the factual accuracy of, representations of Iron Mountain,
Safesite, and certain holders of Safesite Common Stock, including a
representation that there is no plan or intent on the part of the holders of
Safesite Common Stock receiving Iron Mountain Common Stock to engage in a sale
or other disposition of such stock that would result in the reduction of the
ownership of shares of Iron Mountain Common Stock received by the holders of
Safesite Common Stock in the Merger to a number of shares having a value as of
the Effective Time of less than 50% of the aggregate fair market value of all
the outstanding shares of Safesite Common Stock. 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 under the Code.
Tax opinions of Sullivan & Worcester LLP and Woods, Oviatt, Gilman, Sturman
& Clarke LLP 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 Safesite to consummate the Merger that Iron Mountain and Safesite
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, Safesite, and
certain holders of Safesite Common 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.
HOLDERS OF SAFESITE COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
No gain or loss will be recognized for federal income tax purposes by Iron
Mountain, Safesite or Sub as a consequence of the Merger.
A holder of Safesite Common Stock who receives a combination of Iron
Mountain Common Stock and cash in exchange for Safesite Common 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 Safesite Common 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
long term capital gain if (i) the Safesite Common Stock surrendered in the
Merger has been held as a capital asset for more than one year 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). Any such loss will not be
recognized.
The tax basis of the Iron Mountain Common Stock received by a holder of
Safesite Common Stock will be the same as the aggregate tax basis of the
Safesite Common 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 Safesite
Common Stock surrendered therefor, if the Safesite Common Stock was held as a
capital asset.
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For purposes of determining whether the cash received has the effect of a
distribution of a dividend, a holder of Safesite Common Stock should be treated
as if he first exchanged all of his Safesite Common 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 have not have the effect
of the distribution of a dividend. For purposes of this determination, the
holder's deemed voting 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 Safesite Common 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 Safesite Common 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 Safesite Common 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 Safesite Common Stock had
been held for more than one year at the Effective Time.
Under the Code, a holder of Safesite Common 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.
A redemption of a holder's shares of Iron Mountain Common Stock pursuant to
the Escrow Agreement will be a taxable event. Such redemption will be treated as
a distribution equal to the amount of the claim satisfied and will be a taxable
dividend to the extent of Iron Mountain's available current or accumulated
earnings and profits, unless such redemption (i) results in a "complete
termination" of the holder's stock interest in Iron Mountain under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code, or (iii) is "not essentially
equivalent to a dividend" with respect to the holder under Section 302(b)(1) of
the Code. A redemption is "not essentially equivalent to a dividend" or is
"substantially disproportionate" under criteria similar to those discussed above
with respect to cash received in the Merger. A redemption that is not treated as
a distribution taxable as a dividend will result in gain or loss equal to the
difference between the amount of the claim satisfied by such redemption and the
holder's tax basis in the Iron Mountain Common Stock redeemed. Provided the
redeemed Iron Mountain Common Stock was held as a capital asset, such gain or
loss would be capital gain or loss and would be long-term capital gain or loss
if the holding period for the redeemed stock exceeded one year.
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DESCRIPTION OF IRON MOUNTAIN
Introduction
Iron Mountain is America's largest records management company, as measured
by its revenues in the United States. Iron Mountain is a full-service provider
of records management and related services, enabling customers to outsource data
and records management functions. As of December 31, 1996, Iron Mountain managed
approximately 30.6 million Cartons in 109 records centers in 33 markets
nationwide. Iron Mountain has a diversified base of over 23,000 customer
accounts, which includes more than half of the Fortune 500 and numerous legal,
banking, healthcare, accounting, insurance, entertainment and government
organizations. Iron Mountain provides storage and related services for all major
media, including paper (which is the dominant form of records retention and
which has accounted for approximately 85% of Iron Mountain's revenues since
1992), 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 include filing, retrieval and destruction of records, courier
pick-up and delivery, database management and customized reporting. Iron
Mountain also sells storage materials and provides consulting and other
records-related services.
Iron Mountain's operations date to 1951, when a corporate predecessor
commenced storage operations. The current Iron Mountain was incorporated in
Delaware in 1990.
The Records Management Industry
Overview
Based on publicly available information, organizations in the United States
generate an estimated four trillion documents each year. Many of these documents
must be retained and available for reference for many years. These records may
be generally divided into two categories: active and inactive. Active records
relate to ongoing and recently completed activities or contain information that
is frequently referenced. Active records are usually stored and managed on-site
by the organization which originated them to ensure ready availability.
Inactive records are the principal focus of the records management
industry. Inactive records consist of those records which are not needed for
immediate access but which must be retained for legal reasons or regulatory
compliance or for occasional reference in support of ongoing business
operations. Based on industry studies, Iron Mountain believes that inactive
records make up approximately 80% of all records.
Growth of Market; Outsourcing
Iron Mountain believes that the volume of inactive records is increasing
for a number of reasons, including: (i) the rapid growth of inexpensive
document-producing technologies such as facsimile, desktop printing and computer
networking; (ii) increased regulatory requirements; (iii) concerns over possible
future litigation and the resulting increases in volume and holding periods of
documentation; (iv) the high cost of reviewing records and deciding whether to
retain or destroy them; and (v) the failure of many entities to adopt or follow
policies on records destruction. Despite the growth of new "paperless"
technologies, such as the Internet and e-mail, management believes that stored
information remains predominantly paper-based and that such technologies have
promoted the creation of hard copies of such electronic information.
Iron Mountain believes that the records management industry will gain a
growing share of this increased volume as more large organizations make the
strategic decision to outsource their records management as part of a growing
trend to outsource a wide variety of functions that can be performed more
cost-effectively by third parties, though there can be no assurance in this
regard. Records management companies can offer occupancy and labor cost
reductions while at the same time providing greater levels of service than are
typically available in-house.
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Highly Fragmented Industry
Most records management companies serve a single local market, and are
often either owner-operated or ancillary to another business, such as a moving
company. According to PRISM International, a trade group with approximately 525
members (formerly known as the Association of Commercial Records Centers), as of
January 1994 (the latest date for which such information is available),
approximately 2,600 firms offered records storage and management services in the
United States. Iron Mountain believes that there are only a few national
providers in the industry (including Iron Mountain and Safesite) and that the
rest are regional or, in most instances, single-city operators.
Increasing Industry Consolidation
Iron Mountain believes that there is a trend towards consolidation in the
records management industry and that it will continue because of the industry's
capital requirements for growth, customer demands for more sophisticated
technology solutions, a trend for certain large customers to contract with one
vendor in multiple cities and opportunities to achieve economies of scale.
The records management business requires significant up-front capital
investment for real estate, racking systems and management information
technology. Economies of scale available in these areas can reward larger
initial capital investments by reducing per unit storage costs. However, such
economies of scale are only realized once a facility begins storage operations
and fills available capacity. Thus, larger companies with both access to capital
and the ability to quickly fill a new facility enjoy a competitive cost
advantage, thereby putting pressures on smaller competitors.
Financial Characteristics of Iron Mountain's Business
Iron Mountain's records management business has the following financial
characteristics:
o Recurring Revenues. Iron Mountain derives a majority of its revenues
from fixed periodic (usually monthly) fees charged to customers for
storage of records. Storage revenues have grown for 32 consecutive
quarters and have represented approximately 60% of Iron Mountain's
total revenues in each of the last five years. Once a customer places
a record in storage with Iron Mountain and until that record is
destroyed or permanently removed (for which Iron Mountain typically
receives a service fee), Iron Mountain receives recurring payments of
fixed periodic fees without incurring additional labor or marketing
expenses or significant capital costs. The stable and growing storage
base also provides the foundation for increases in revenues and EBITDA
from service activities and sales of storage materials.
o Historically Non-Cyclical Business. Iron Mountain has not experienced
a reduction of its business as a result of past general economic
downturns, although there can be no assurances that this would be the
case in the future. Management believes that the outsourcing of
records management may accelerate during economic downturns as
companies focus on reducing costs through outsourcing non-core
operating functions. In addition, management believes that companies
that have outsourced records management are less likely during
economic downturns to incur the move-out costs and other expenses
associated with switching vendors or moving records management
in-house.
o Inherent Growth from Existing Customers. Iron Mountain's customers
have on average generated additional Cartons at a faster rate than
stored Cartons have been destroyed or permanently removed. From
January 1, 1992 through December 31, 1996, net Cartons from existing
customers grew at an average annual rate of 6.5%. Iron Mountain
believes the consistent growth of its storage revenues is the result
of a number of additional factors, including: (i) the trend toward
increased records retention; (ii) customer satisfaction with Iron
Mountain's services; and (iii) the costs and inconvenience of moving
storage operations in-house or to another provider of records
management services.
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o Diversified and Stable Customer Base. Iron Mountain has over 23,000
customer accounts in a variety of industries. Iron Mountain currently
provides services to more than half of the Fortune 500 and numerous
legal, banking, healthcare, accounting, insurance, entertainment and
government organizations. Only one of Iron Mountain's customers
accounted for more than 3% of revenues in each of the years from 1993
through 1996. From January 1, 1992 through December 31, 1996, average
annual permanent removals of Cartons represented only approximately 4%
of total Cartons stored.
o Capital Expenditures Related Primarily to Growth. Iron Mountain's
business requires limited annual maintenance capital expenditures.
Maintenance capital expenditures were $1.2 million, $0.9 million and
$1.1 million in 1994, 1995 and 1996, respectively. From 1992 to 1996,
over 90% of Iron Mountain's aggregate capital expenditures were
growth-related investments, primarily in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. These
growth-related capital expenditures are primarily discretionary and
create additional capacity for increases in revenues and EBITDA.
Recent and Pending Acquisitions
As part of its growth strategy, since mid-1994, Iron Mountain has acquired
30 records management businesses, 23 of these acquisitions have been consummated
since January 1, 1996 (the "Recent Acquisitions"), and has entered the Merger
Agreement.
The total purchase price of the Recent Acquisitions was approximately
$104.2 million (not including contingent payments of up to $4.8 million based
upon the achievement of certain revenue targets during 1997 and 1998), and the
purchase price for Safesite is approximately $62.0 million. The Recent
Acquisitions represent in the aggregate total annual revenues of approximately
$43.8 million, and Safesite has total annual revenues of approximately $19.0
million (calculated in each case by reference to the revenues of each such
acquired business during the year ended December 31, 1996, which calculation
includes an estimate of total revenues for the portion of 1996, if any, during
which any such acquired business was included in Iron Mountain's results of
operations).
Giving effect to the Recent Acquisitions consummated after December 31,
1996 and the Merger, as of December 31, 1996, Iron Mountain operated 147 record
centers in 41 markets nationwide, servicing over 30,000 customer accounts.
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The following table presents certain information for each acquisition
completed since mid-1994.
<TABLE>
<CAPTION>
Principal
State(s) of Completion
Acquisitions Operation Date
- ------------ --------- ----
<S> <C> <C>
1994 Acquisitions
Data protection service business of Media Management Group, Inc............... Connecticut June 1994
Data protection service business of Digital Equipment Corporation............. Massachusetts July 1994
Storage and Retrieval Concepts, Inc........................................... Ohio October 1994
1995 Acquisitions
National Business Archives, Inc............................................... Maryland March 1995
DataFile Services, Inc........................................................ Texas October 1995
Brooks Records Center, Inc.................................................... Delaware December 1995
Data Management Business Records Storage, Inc................................. Georgia December 1995
1996 Acquisitions
Nashville Vault Company, Ltd.................................................. Tennessee January 1996
Florida Data Bank, Inc........................................................ Florida January 1996
DataVault Corporation......................................................... Massachusetts February 1996
Data Storage Systems, Inc..................................................... California March 1996
Brambles CRC, Inc............................................................. Ohio and April 1996
Kentucky
Records management business of Output Technologies
Central Region, Inc....................................................... Missouri May 1996
Records management business of The Fortress Corporation....................... Massachusetts July 1996
and Florida
Data Archive Services, Inc. and Data Archive Services of Miami, Inc........... Florida August 1996
DKA Industries, Inc. (d/b/a/ Systems Record Storage).......................... Florida August 1996
International Record Storage and Retrieval Service, Inc....................... New Jersey September 1996
Security Archives Corporation................................................. California September 1996
Data Storage Company, Inc. (d/b/a DataSafe)................................... Tennessee October 1996
Dial-A-File Storage, Inc...................................................... Florida October 1996
Mohawk Business Record Storage, Inc........................................... Minnesota November 1996
Magnetic Archives, Inc........................................................ Colorado November 1996
Deliverex of Broward.......................................................... Florida November 1996
1997 Acquisitions
Security Archives II, Inc. and Security Archives of MSP, Inc.................. Minnesota January 1997
Records management business of Wellington Financial Services, Inc.
(d/b/a Michigan Data Storage)............................................... Michigan February 1997
Data Recovery Services, Inc................................................... Florida February 1997
CBD Security Archives, Inc.................................................... Louisiana and March 1997
Texas
Chicago Data Destruction Corporation (d/b/a Chicago Data Storage
Systems).................................................................... Illinois April 1997
Critical Files Security, Inc.................................................. Florida April 1997
Business Records Center, Inc. ................................................ Wisconsin May 1997
</TABLE>
Growth Strategy
Iron Mountain's growth strategy is to expand aggressively in existing and
new markets through increased business from existing customers, additions of new
customers and acquisitions. Iron Mountain's goal is to be one
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of the largest records management companies in each of its markets. In
addition, through its growth strategy, Iron Mountain seeks to attain increasing
economies of scale in order to provide high-quality service at competitive
prices.
The following table sets forth Iron Mountain's approximate growth in
Cartons stored by existing customers, new customers and as a result of
acquisitions for the three years ended December 31, 1994, 1995 and 1996.
Cartons Added to Storage (1)
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cartons at Beginning of Period............................. 15.5 17.7 23.3
==== ==== ====
Additions from Existing Customers
Gross Cartons Added...................................... 2.6 2.5 3.3
Cartons Deleted:
Destructions......................................... (0.9) (1.0) (1.1)
Permanent Removals................................... (0.6) (0.6) (0.9)
----- ----- -----
Net Carton Growth from Existing Customers.................. 1.1 0.9 1.3
Additions from New Customers............................... 1.0 1.4 1.4
Additions from Acquisitions................................ 0.1 3.3 4.6
--- --- ---
Total Carton Additions..................................... 2.2 5.6 7.3
=== === ===
Percentage Increase........................................ 14% 32% 31%
</TABLE>
- ------------------
(1) Excludes storage volumes attributable to Iron Mountain's vital records
services and data protection services.
Growth from Existing Customers
Existing Iron Mountain customers have contributed to storage and services
revenue growth because they have on average generated additional Cartons at a
faster rate than old Cartons are destroyed or permanently removed. In order to
maximize growth opportunities from existing customers, Iron Mountain seeks to
maintain high levels of customer retention by providing premium customer service
through its decentralized customer support staff.
The local customer support staff, working in conjunction with the
corporate staff, is also responsible for marketing additional services to
existing customers, including records tracking, indexing, customized reporting,
vital records management and records management consulting services.
Additions of New Customers
Iron Mountain's direct sales force is dedicated solely to establishing new
account relationships and draws on Iron Mountain's national marketing
organization and senior management. New customer sales efforts have resulted in
the addition of more than 900 new customer accounts in each of the years 1993
through 1995 and over 1,200 new customer accounts in 1996.
Iron Mountain segments its market into large volume accounts (typically
over 10,000 Cartons) and standard accounts. As of December 31, 1996, large
volume accounts represented more than half of the total Cartons stored. The two
segments differ in complexity of service and technology needs, purchasing
behavior and purchasing leverage. Iron Mountain employs different database
marketing techniques, program design features and pricing structures to meet the
needs of each segment. In recent years Iron Mountain's large volume account
segment has grown rapidly, driven by strategic outsourcing initiatives and Iron
Mountain's marketing efforts. In 1994, 1995 and 1996, large volume accounts
represented 70%, 76% and 66% respectively, of the additions of Cartons from new
customers.
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Growth through Acquisitions
Iron Mountain has had a successful record of acquiring and integrating
smaller records management companies. From 1990 through 1994, Iron Mountain
completed five acquisitions. In order to capitalize on industry consolidation,
Iron Mountain in mid-1994 adopted a more active acquisition strategy and
implemented changes in its management, systems and financial infrastructure,
including the consummation of a public offering of its Common Stock in January
1996 to execute such strategy. Since June 1994, Iron Mountain has acquired 29
companies and has entered into the Merger Agreement.
Iron Mountain currently operates in 37 markets nationwide and intends to
continue to make fold-in acquisitions in existing markets and to make strategic
acquisitions in new geographic markets, with an emphasis on the 50 largest
markets in the United States. Iron Mountain's corporate development staff is
engaged in an ongoing review of acquisition candidates. Management believes that
Iron Mountain is well-positioned to participate in the further consolidation of
the records management industry.
Iron Mountain seeks to expand its national presence, size and customer base
through new-market acquisitions. Management believes that the high start-up
costs of commencing operations make acquisitions an attractive means of entering
new markets. Iron Mountain seeks to acquire records management companies in
markets where management believes there is the potential for growth. Within such
markets, Iron Mountain uses a variety of criteria to evaluate acquisition
candidates, including the capacity and condition of existing storage facilities,
past and current operating performance and revenues and the experience and depth
of existing management.
Iron Mountain believes that it can use its expertise and central
administrative organization to leverage the acquisition candidate's local market
presence, promoting the development of underperforming facilities and enhancing
the value of the local assets. Iron Mountain believes that its new-market
acquisition strategy could have a number of benefits, including: (i) continued
growth in revenues and EBITDA and diversification across a greater number of
markets; (ii) introduction of Iron Mountain's efficient storage, labor,
transportation and other operating efficiencies into new markets; (iii) the
increased utilization of efficiencies available through Iron Mountain's central
administrative and management information functions; (iv) increased market
awareness of Iron Mountain's national scope and presence; and (v) increased
overall scale, which should broaden the range of and facilitate Iron Mountain's
capital-raising activities.
Iron Mountain also intends to continue to make fold-in acquisitions to
augment its operations in existing markets. Iron Mountain's goal in its existing
markets is to exploit economies of scale while maintaining high quality service.
Following a new-market acquisition, Iron Mountain seeks to increase its business
with the acquired customer base and to supplement that growth with new customers
and, potentially, with appropriate fold-in acquisitions so that Iron Mountain
may benefit from economies of scale.
Premium Service Strategy
Organizations selecting a provider of records management services consider
a number of factors in addition to price. Management believes that Iron Mountain
is a "premium" brand in the marketplace based upon its reputation for
reliability, customer-oriented organization, investment in technology and
national operating presence. Iron Mountain seeks to exploit its strengths in
each of these areas to maintain customer relationships and to attract new
customers.
Reputation for Reliability
Iron Mountain believes it has a reputation for reliability based on its
more than 45 years of operations, the continuity and depth of its management,
its successful historical growth, the quality and diversity of its customer base
which includes more than half the Fortune 500, its technological capabilities
and its size and financial resources.
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Customer-Oriented Organization and Locally Responsive Management
Iron Mountain has developed a decentralized, local management structure
that brings significant management experience and stability to local markets and
allows Iron Mountain to respond directly, effectively and flexibly to customers.
Broad operating authority is delegated to regional Vice Presidents and local
managers. In pursuing its acquisition strategy, Iron Mountain seeks to
capitalize upon the experience and strengths of existing management.
In addition, all full-time union and non-union employees participate in
incentive-based compensation programs that provide payments based on profits or
attainment of specified objectives for the unit in which they work. Iron
Mountain believes that the experience, stability and commitment of its regional
and local management is integral to its ability to provide superior customer
service and maximize growth potential.
Investment in Technology
Iron Mountain has invested $16.3 million in technology since 1992 in order
to provide faster and more flexible solutions for its customers and to enhance
the quality and lower the costs of its own operations. Iron Mountain believes
that its technological capabilities, especially its Safekeeper system, are a
significant tool in attracting new customers. Iron Mountain plans to continue to
invest in its proprietary technologies in the future. See "Technology and
Development; Information Systems."
National Operating Presence
Iron Mountain believes it is one of only a few records management companies
with a national operating presence (including Safesite). Traditionally, the
purchase decision for large multi-site customers has been made at the local
level. Recently, however, Iron Mountain has found that certain large
organizations have sought to obtain operating and economic efficiencies by
outsourcing a significant portion of their records management functions with a
single records management company. Iron Mountain seeks to use its national
operating presence to compete for such large multi-site customer accounts.
Low-Cost Operating Strategy
Iron Mountain pursues a low-cost operating strategy based primarily on
achieving economies of scale in the areas of storage, labor and transportation,
general and administrative functions and management information systems. Iron
Mountain believes that it is one of the few records management companies with
the size and resources to realize significant economies of scale in these areas.
Storage Costs
Because occupancy costs are a major component of Iron Mountain's cost of
sales, reducing per Carton storage costs is a primary strategic goal of Iron
Mountain and its real estate management staff. Iron Mountain seeks to minimize
per Carton storage costs by: (i) designing racking systems and operating space
to maximize facility storage efficiency; (ii) negotiating favorable facility
leases and having facilities built to its custom specifications; and (iii)
leasing larger facilities, which, when filled, are less expensive per Carton to
operate. Since 1991, Iron Mountain has acquired or leased 11 custom-designed
records management facilities. The average Carton density (the ratio of standard
Carton storage capacity to total square feet of floor space) of these facilities
is approximately twice that of Iron Mountain's overall average Carton density.
Labor and Transportation Efficiency
Iron Mountain has made significant investments in computer technologies for
its service operations, resulting in greater efficiencies. In addition, by
increasing its operations and customer base in a local market area, Iron
Mountain seeks to maximize its courier delivery fleet usage and to increase
delivery and routing efficiencies.
Iron Mountain's incentive structure has also contributed to labor
efficiency. Each of Iron Mountain's full-time employees participates in
incentive compensation programs based upon achievement of specific operating
targets
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<PAGE>
designed to integrate the objectives and performance of records management
facility employees and managers. For the year ended December 31, 1996, Iron
Mountain's employees earned incentive compensation in an amount equal to
approximately 12.0% of the base wages paid by Iron Mountain.
General & Administrative and Management Information Systems Efficiencies
Iron Mountain's corporate staff provides support to local management in the
areas of acquisitions, marketing, facility acquisition and leasing, racking
system purchasing, finance and accounting and human resource management. In
addition, Iron Mountain's corporate staff is responsible for the design and
support of all records management technology. Iron Mountain believes that
central support in these areas provides local managers with competitive
advantages over smaller, local competitors and results in significant economies
of scale.
Technology and Development; Information Systems
Iron Mountain pioneered the application of advanced information technology
to the records management industry. Iron Mountain's proprietary Safekeeper
system provides advanced inventory control and information access, enabling Iron
Mountain to provide faster, higher quality and more flexible solutions to its
customers and to lower the costs of its operations. Iron Mountain's Safekeeper
system exploits bar-code technology to provide inventory integrity and a
comprehensive, standardized approach to tracking, accessing and retrieving
records. Safekeeper offers state-of-the-art records management capabilities and
ease of access to customers while featuring security functions to protect
customer information from unauthorized access. The system coordinates inventory
control, order entry, billing, material sales, service activity, accounts
receivable and management reporting, and features system-driven quality
assurance and error-prevention. Since 1992, Iron Mountain has invested $16.3
million to develop and refine its management information systems, including
Safekeeper.
Safekeeper is built on an open systems architecture which is fully portable
and can be implemented in small processing environments with several users and
in large processing environments with hundreds of users. This allows Iron
Mountain a substantial measure of flexibility and vendor independence, and
reduces the risk of technological obsolescence.
Safekeeper has improved Iron Mountain's customer support and operating
efficiency in the following ways:
o Acquisition System Integration. Safekeeper has been designed to easily
and effectively integrate newly acquired records management companies
and offer improved levels of customer service and records management
capabilities to customers acquired through acquisitions. The critical
components of integrating acquisition systems are the abilities to
match the acquired company's carton identifiers, location identifiers,
records descriptive data, and billing data. Safekeeper is designed
with flexible, comprehensive capabilities in each of these areas.
Consequently, an acquired company's inventory can be converted to
Safekeeper without having to relabel cartons or reset and relabel
inventory locations. The customers of the acquired company retain
their records data and receive similar billing rate structures. In
addition, acquisition customers experience minimal disruption during
integration and, after conversion, gain access to advanced records
management and information access capabilities. Safekeeper utilizes a
suite of conversion routines to automate the conversion process and
effectively translate customer and inventory information.
o Storage Efficiency. Safekeeper enables Iron Mountain to maximize the
efficient use of storage space at its facilities. When cartons are
added or returned to storage, Safekeeper identifies available space
and the location of the customer's other records at the facility.
Because there is a continual flow of cartons into and out of Iron
Mountain's facilities, Safekeeper also permits facility operators to
utilize space that becomes available as soon as cartons are removed.
Safekeeper can pinpoint the location of any carton, enabling facility
operators to quickly determine the optimal location for new or
returning cartons.
o Inventory Integrity. Bar-coding and scanning are used to track a
carton or a record throughout its life cycle at Iron Mountain.
Safekeeper identifies inventory discrepancies during the order
processing cycle and forces their resolution before they affect the
customer. This forced discrepancy resolution means that
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<PAGE>
errors must be resolved before an order can be closed; until the order
is closed, billing cannot be processed. Management believes that this
system-driven quality assurance is a significant advantage over the
"best efforts" approach used by most of its competitors.
o Customer Information Access. Customers can access their records
management data through a variety of formats, including direct access
via Safekeeper Online, access on their own PCs via Safekeeper Desktop,
integration of their internal system with Safekeeper via automated
file transfers and paper reports. Safekeeper Online enables a customer
to place orders directly via online access, resulting in efficiencies
for Iron Mountain order processing. It features robust querying and
searching tools to enable customers to identify records with only
partial information. Safekeeper Desktop is a PC application, run from
customers' desktop or network PCs; it provides customers with an
entire set of records management data along with user-friendly tools
for querying, reporting, and editing. Safekeeper's suite of file
transfers enable customers to automatically transfer records data and
service requests from their internal system to Safekeeper. The paper
reports include inventory detail and summary, service activity
analysis, quality assurance, and management review.
o Records Management Flexibility. Safekeeper offers full life-cycle
records management, from file creation to destruction, enabling each
customer to establish schedules for records retention and destruction
as dictated by the customer's specific needs. Safekeeper can flexibly
accommodate large or small amounts of records management data in
accordance with customer requirements. A series of customer-specific
features and options allows Iron Mountain to tailor the records
management functionality and reporting to the customer's needs.
o Security. Safekeeper incorporates strict security protocols and
procedures for all customers to prevent unauthorized access to a
client's records information. Advanced security features that can
automatically restrict access by departmental identification and/or
type of service request are available to customers that are internally
set up to provide this information.
In addition to Safekeeper, Iron Mountain's data protection services
facilities utilize Iron Mountain's Media Link(TM) software, a state-of-the-art
media management system which provides integrated bar-code tracking and
electronic data interface between customer and Iron Mountain facilities, as well
as audit trail and remote inventory query functionality. Iron Mountain plans to
continue to invest in its proprietary technologies in the future in order to
enhance its customer service as well as to increase its own operating
efficiency.
Description of Iron Mountain Records Management Services
Iron Mountain's records management services consist primarily of the
storage operations for the management of hard copy documents. These and related
services and products sold have, since 1992, accounted for approximately 85% of
Iron Mountain's revenues. The balance of Iron Mountain's revenues come from the
storage and service of vital records and data protection, consulting and other
services.
Storage Operations
Storage revenues accounted for approximately 60% of revenues in each of
Iron Mountain's last five fiscal years. Storage charges are generally billed
monthly on a per storage unit basis (usually either per unit or per cubic foot
of records) and include the provision of space, racking, computerized inventory
and activity tracking, physical security, environmental and climate control and
fire protection.
The storage of a carton begins by issuing Safekeeper bar-coded labels to
the customer. The customer packs records in cartons and affixes the bar-coded
label to each carton. Customer personnel and the Iron Mountain driver conduct a
physical count of the cartons and the driver signs for the cartons, which are
then transported to the records management facility. Upon delivery to the
facility, the cartons are subjected to a second physical count. The cartons are
delivered to available space identified by Safekeeper and the bar-coded
information is scanned into the computer together with a bar-coded location
identifier. At the same time, a computer operator enters the
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<PAGE>
customer's data describing the stored material into the computer and the system
confirms that the cartons sent match the data entered in the computer. Under
Iron Mountain's computer control system, the order can only be closed out when
all requisite steps and checks have been completed and counts and locations have
been reconciled.
Service and Courier Operations
Principal services include adding cartons to storage, temporary removal of
files or cartons from storage, refiling of removed records, permanent
withdrawals from storage and destruction of records. Service charges are
generally assessed for each procedure on a per unit basis. The Safekeeper system
controls the service processes from order entry through transportation and
invoicing.
Courier operations consist primarily of the pickup and delivery of records
upon customer request. Courier delivery schedules can be tailored to fit
customers' needs, but generally customer orders received by 4:00 p.m. on a
business day are delivered the following business day. Iron Mountain also
provides same-day and immediate delivery during business hours and emergency
delivery at night and on weekends and holidays. Charges for courier services are
based on urgency of delivery, volume and location and are billed monthly as
incurred. Iron Mountain currently utilizes a fleet of approximately 300 owned or
leased delivery vehicles.
Vital Records Services
Vital records contain critical or irreplaceable data such as master audio
and video recordings, film, software source code and other highly proprietary
information. Vital records may require special facilities or services, either
because of the data they contain or the media on which they are recorded. Iron
Mountain's charges for providing enhanced security and special
climate-controlled environments for vital records are higher than for typical
storage functions. Iron Mountain provides the same ancillary services for vital
records as it provides for its other storage operations.
Data Protection Services
Data protection services consist of the storage, backup and archiving of
computer media as part of corporate disaster and business recovery plans.
Computer tapes, cartridges and disk packs are transported off-site by Iron
Mountain's courier operations on a scheduled basis to secure, climate-controlled
facilities, where they are available to customers 24 hours a day, 365 days a
year, to facilitate data recovery in the event of a disaster. This process is
managed by Iron Mountain's Media Link software, a state-of-the-art media
management system which provides integrated bar-code tracking, electronic data
interface between the customer and Iron Mountain's facilities as well as audit
trail and remote inventory query functionality. Iron Mountain also manages tape
library relocation and supports disaster recovery testing and execution.
Additional Services and Products
Iron Mountain offers a variety of additional services, which customers may
request or contract for on an individual basis. These services include
performing records inventories, packing records into cartons or other
containers, computerized indexing of files and individual documents, developing
schedules for the retention and destruction of records and records management
consulting services. Iron Mountain also sells a full line of specially designed
corrugated cardboard, metal and plastic storage containers.
Iron Mountain provides professional consulting services to large customers,
enabling them to develop and implement comprehensive records management
programs. Iron Mountain's consulting business draws on Iron Mountain's
experience in records management to analyze the practices of such companies and
assist them in creating more effective programs of records management. Iron
Mountain's consultants work with such customers to develop policies for document
review, analysis and evaluation and for scheduling of document retention and
destruction.
In addition to its historical focus on the management of inactive records,
Iron Mountain has recently begun to provide services for the management of
active records. Iron Mountain can provide these services, which generally
include document and file processing and storage, both off-site at its own
facilities and by supplying its own
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<PAGE>
personnel to perform management functions on-site at the customer's premises.
Iron Mountain sees active records management as a potential source of future
revenue growth for Iron Mountain, although there can be no assurance in this
regard.
Potential International Investments
Iron Mountain may consider capitalizing upon its expertise in the records
management industry by making investments in records management businesses
outside the United States. From time to time, Iron Mountain has had discussions
concerning such investments. Such investments, if consummated, would be subject
to risks and uncertainties relating to the indigenous political, social,
regulatory, tax and economic structures of countries in those areas, as well as
fluctuations in currency valuation, exchange controls, expropriation and
governmental policies limiting returns to foreign investors. At this time, there
can be no assurance as to whether any such investment will be made or, if made,
will be successful in achieving its objectives.
Customers
Iron Mountain's customer base is diversified in terms of revenue and
industry concentration. Iron Mountain currently has over 23,000 customer
accounts. Iron Mountain tracks customer accounts, which are based on invoices.
Accordingly, depending on how invoices have been arranged at the request of a
customer, one organization may represent multiple customer accounts. The chart
below shows, as of June 1994, the relative amounts of revenue attributable to
certain business sectors.
[Graphic omitted: Graphic contains a pie chart showing the relative amounts of
revenue by percentage attributable to certain business sectors as of June 1994.
Such percentages are as follows:
Other 19%
Legal Services 16%
Depository Institutions 14%
Heath Care 10%
Other Financial Institutions 10%
Professional Services 7%
Government 6%
Insurance Companies 8%
Manufacturing 4%
Retail 4%
Entertainment 2%]
Iron Mountain services accounts of all sizes, from small businesses and
professional groups to over half of the Fortune 500. Other than the Resolution
Trust Corporation (the "RTC") or its successor, the Federal Deposit Insurance
Corporation (the "FDIC"), which accounted for 6.3%, 4.8% and 3.5% of Iron
Mountain's revenues for the years ended December 31, 1994, 1995 and 1996,
respectively, no account or related set of accounts generated more than 3% of
Iron Mountain's revenues during any such period.
Iron Mountain's contract with the FDIC, as successor under the contract to
the RTC, was renewed effective July 27, 1996 for a one-year term, with three
further annual renewal options at the election of the FDIC. Although the
substantial costs of removing its records from Iron Mountain's facilities may
act as a disincentive to the FDIC
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<PAGE>
to select another vendor, there can be no assurance that the contract will be
further renewed or that the terms of such renewal will be as favorable to Iron
Mountain as the terms of the current contract. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
Marketing and Sales
Iron Mountain uses database marketing and a dedicated sales force to focus
exclusively on new business development. A corporate marketing organization
provides sales support, training, marketing communications and product
management as support functions. The program has successfully produced over 900
new customer accounts in each of the years 1993 through 1995, and over 1,200 new
customer accounts in 1996. The selling effort is bolstered by regional and
senior managers focused on key account selling.
Properties
As of December 31, 1996, Iron Mountain conducted operations through 94
leased and 15 owned facilities containing a total of approximately 7.3 million
square feet of space. The leased facilities typically have initial lease terms
of 10 years or longer with options to renew for an additional 10 years. The
weighted average remaining term of the leases on these facilities is
approximately 7.5 years. In addition, many of the leases contain either a
purchase option or a right of first refusal upon the sale of the property. The
leases include one property leased from affiliates of Iron Mountain. See Note 9
of Notes to Iron Mountain's Consolidated Financial Statements.
As of December 31, 1996, Iron Mountain owned or leased (directly or through
its subsidiaries) the following records management facilities in the geographic
locations indicated below.
Records
Management
State Facilities
- ----- ----------
Arizona 2
California 25
Colorado 4
Connecticut 2
Delaware 1
Florida 13
Georgia 8
Illinois 3
Kansas 1
Kentucky 1
Maryland 3
Massachusetts 9
Minnesota 4
Missouri 2
New Hampshire 1
New Jersey 5
New York 5
Ohio 4
Pennsylvania 2
Rhode Island 1
Tennessee 2
Texas 8
Virginia 3
----
Total 109
====
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Iron Mountain or its principal subsidiary is a guarantor of a
substantial portion of the leases to which other subsidiaries are party. See
Note 8 of Notes to Iron Mountain's Consolidated Financial Statements for
information regarding the minimum annual rental commitments of Iron Mountain.
Employees
A key feature of Iron Mountain's operating strategy is its decentralized
management structure and reliance on local management operating in local
business environments. Iron Mountain's current operations are divided into four
areas, each headed by a senior executive, comprising twelve local management
regions to maximize marketing and operating effectiveness and to minimize
supervisory costs. The management regions, each of which is managed by a Vice
President, are currently further divided into a total of 37 markets, each
managed by a General Manager. The Vice Presidents and General Managers have
broad operating authority. Iron Mountain's headquarters staff performs a variety
of central administrative and support functions in order to maximize the time
and resources that local personnel can devote to customer service and client
development.
Iron Mountain had approximately 1,456 full-time employees as of December
31, 1996, of whom approximately 90% are employed at the district level, 8% at
the corporate level and the balance at the area and regional levels.
Approximately 11% of Iron Mountain's employees are represented by various
Teamsters Union locals under four different agreements. Two of these agreements,
representing approximately 150 employees, have expired and are currently under
negotiation. Based on its prior experience with the six union locals involved in
these negotiations, Iron Mountain expects that it will enter into new agreements
on satisfactory terms. The remaining two contracts expire in 1999. In addition,
in two of Iron Mountain's facilities, an election, subject to National Labor
Relations Board regulations, was held on June 20, 1996. A majority of the
approximately 40 employees voted for representation by a Teamsters Union local.
Iron Mountain is currently in negotiations with the union local.
All non-union employees are eligible to participate in Iron Mountain's
benefit programs, which include medical, dental, life, short and long-term
disability and accidental death and dismemberment plans. Unionized employees
receive these types of benefits through their unions. In addition to base
compensation and other usual benefits, all full-time union and non-union
employees participate in some form of incentive-based compensation program that
provides payments based on profits, collections, or attainment of specified
objectives for the unit in which they work. Management believes that Iron
Mountain has good relationships with its employees and unions.
Competition
Iron Mountain competes with a few other national companies, one of which is
Safesite, as well as a large number of local and regional concerns. 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.
Management believes that, except for Pierce Leahy Corp., all of these
competitors have records management revenues significantly lower than those of
Iron Mountain. To accommodate growth, a records management vendor must invest in
incremental storage capacity, which requires added warehouses, racking systems,
and related equipment including computer systems capable of tracking
increasingly large inventories. The amount of such investment is significant
relative to the immediate return that can be realized, and the faster a vendor
grows, the more capital is required. As a result, the industry trend toward
consolidation will, in management's opinion, continue. 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. Iron Mountain also faces competition for acquisition candidates.
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
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less space than paper. Such technologies include computer media, microforms,
audio/video tape, film, CD-ROM 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 significantly reduce
or supplant the use of paper as a preferred medium, which could in turn
adversely affect Iron Mountain's business.
Insurance
Iron Mountain carries a comprehensive property insurance policy with
insurers that it believes to be reputable and in amounts that it believes to be
appropriate, covering replacement cost of real and personal property, including
improvements. Subject to sub-limits, the policy also covers extraordinary
expenses associated with business interruption and damage or loss from fire,
flood or earthquake, subject to certain deductibles. Separate policies for
California earthquake insurance carry other deductibles that may be significant.
Iron Mountain also maintains general liability and excess liability insurance
covering bodily injury, property damage and personal injury. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" for disclosure concerning recent fires at two of Iron
Mountain's facilities.
Iron Mountain's standard form of contract sets forth an agreed maximum
value (usually nominal) for each carton or other storage unit held by Iron
Mountain as a limitation on liability for loss or damage, as permitted under the
Uniform Commercial Code. Iron Mountain believes that in typical circumstances
its liability would be limited to the value set forth in such contracts in the
event of loss or damage relating to the value of information stored on media
held by Iron Mountain. However, certain of Iron Mountain's agreements with
certain large volume accounts contain no such limits or contain higher limits or
supplemental insurance arrangements.
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. Iron Mountain is
aware of the presence of ACMs at some of Iron Mountain's facilities, but
believes that such materials are in acceptable condition at this time. Iron
Mountain believes that future costs related to any remediation of ACMs at these
facilities will not be material, either on an annual basis or in the aggregate,
although there can be no assurance with respect thereto.
Certain of the properties formerly or currently owned or operated by Iron
Mountain were previously used for industrial or other purposes that involved the
manufacture, 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. 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, Iron Mountain
may be potentially liable for environmental costs such as those discussed above,
and as more specifically described below.
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At Iron Mountain's Hollywood, California facilities, certain USTs and
contaminated soils have been removed. Some additional contamination of soils and
groundwater remains and may be migrating. In 1990 and 1991, Iron Mountain filed
certain reports documenting its efforts and site conditions with the appropriate
environmental agencies pursuant to various Environmental Laws. Investigations
conducted on behalf of Iron Mountain in connection with its on-site remedial
activities disclosed that regional groundwater contamination, unrelated to Iron
Mountain's property, exists. At this time, Iron Mountain has not received any
notice from any regulatory agency or third party seeking further remediation of
soil or groundwater by Iron Mountain; however, there can be no
assurance that such further action will not be sought in the future. Iron
Mountain has accrued estimated costs of $0.8 million that it believes it may
reasonably be expected to incur in connection with this site if such additional
remediation were to become necessary; however, there can be no assurance as to
the adequacy of such accrual. Iron Mountain believes the ultimate outcome of the
foregoing will not have a material adverse effect on Iron Mountain's financial
condition or results of operations. See Note 8 of Notes to Iron Mountain's
Consolidated Financial Statements.
Iron Mountain has also from time to time conducted certain environmental
investigations and remedial activities at certain of its other former and
current facilities, but an in-depth environmental review of the properties has
not been conducted by or on behalf of Iron Mountain. Iron Mountain believes that
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
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 other than as
described above. However, no assurance can be given that there are 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.
Legal Proceedings
Iron Mountain is involved in litigation from time to time in the ordinary
course of business. In the opinion of management, no material legal proceedings
are pending to which Iron Mountain, or any of its properties, is subject.
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Iron Mountain's Selected Financial and Operating Information
The following tables present selected consolidated financial and operating
information relating to the financial condition and results of operations of
Iron Mountain over the past five years, and should be read in conjunction 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 included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data: (In thousands, except per share amounts and Carton data)
Revenues:
Storage.............................................. $44,077 $48,892 $54,098 $64,165 $85,826
Service and Storage Material Sales................... 26,596 32,781 33,520 40,271 52,892
-------- ------- ------- ------- --------
Total Revenues................................. 70,673 81,673 87,618 104,436 138,718
Operating Expenses:
Cost of Sales (Excluding Depreciation)............... 35,169 43,054 45,880 52,277 70,747
Selling, General and Administrative.................. 17,630 19,971 20,853 26,035 34,342
Depreciation and Amortization........................ 5,780 6,789 8,690 12,341 16,936
------ ------ ------ ------ -------
Total Operating Expenses....................... 58,579 69,814 75,423 90,653 122,025
------ ------ ------ ------ -------
Operating Income............................................. 12,094 11,859 12,195 13,783 16,693
Interest Expense............................................. 8,412 8,203 8,954 11,838 14,901
------- ------- ------- ------ -------
Income Before Provision for Income Taxes..................... 3,682 3,656 3,241 1,945 1,792
Provision for Income Taxes................................... 2,095 2,088 1,957 1,697 1,435
------- ------- ------- ------- --------
Income Before Extraordinary Charge........................... 1,587 1,568 1,284 248 357
Extraordinary Charge, Net of Tax Benefit(1).................. -- -- -- -- 2,126
------- ------- ------- ------- --------
Net Income (Loss)............................................ 1,587 1,568 1,284 248 (1,769)
Accretion of Redeemable Put Warrant.......................... 626 940 1,412 2,107 280
------- -------- -------- -------- ---------
Net Income (Loss) Applicable to
Common Stockholders.................................. $961 $628 $(128) $(1,859) $(2,049)
======= ======= ======= ======== ========
Income (Loss) Before Extraordinary Item per
Common and Common Equivalent Share................... $0.12 $0.08 $(0.02) $(0.24) $0.01
Net Income (Loss) per Common and
Common Equivalent Share...................................... $0.12 $0.08 $(0.02) $(0.24) $(0.20)
Weighted Average Common and Common
Equivalent Shares Outstanding................................ 8,052 8,067 7,984 7,784 10,137
Other Data:
EBITDA(2).................................................... $17,874 $18,648 $20,885 $26,124 $33,629
EBITDA as a Percentage of Total Revenues..................... 25.3% 22.8% 23.8% 25.0% 24.2%
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Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other Data (continued):
Capital Expenditures:
Growth (3)(4)........................................ $11,226 $13,605 $15,829 $14,395 $23,334
Maintenance.......................................... 818 1,846 1,151 858 1,112
-------- ------- -------- -------- -------
Total Capital Expenditures(4)................................ $12,044 $15,451 $16,980 $15,253 $24,446
Additions to Customer Acquisition Costs...................... $1,268 $922 $1,366 $1,379 $1,642
Approximate Cartons in Storage at end of
Period (in millions) (5)............................. 12.6 15.5 17.7 23.3 30.6
As of December 31,
------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and Cash Equivalents.................................... $498 $591 $1,303 $1,585 $3,453
Total Assets................................................. 115,429 125,288 136,859 186,881 281,799
Total Debt................................................... 73,304 78,460 86,258 121,874 184,733
Stockholders' Equity......................................... 23,419 24,047 22,869 21,011 52,384
</TABLE>
- -------------------
(1) The extraordinary charge for 1996 relates to a loss, net of the related tax
benefit of $1,413, on the retirement of certain indebtedness which was
repaid with a portion of the net proceeds from the Note Offering.
(2) Earnings before interest, taxes, depreciation, amortization and
extraordinary items ("EBITDA"). 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 the 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" for
discussions of other measures of performance determined in accordance with
GAAP and the Iron Mountain's sources and applications of cash flow.
(3) Growth capital expenditures include investments in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. See
"--Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Capital Investments."
(4) Includes $2,901 in 1994 related to the cost of constructing a records
management facility which was sold in a sale-leaseback transaction in the
fourth quarter of 1994.
(5) The term "Carton" is defined as a measurement of volume equal to a single
standard storage carton, approximately 1.2 cubic feet. The number of
Cartons stored does not include storage volumes in the Iron Mountain's
vital records services and data protection services which are described
under "--Description of Iron Mountain's Records Management Business."
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with Iron Mountain's
Selected Consolidated Financial and Operating Information and Iron Mountain's
Consolidated Financial Statements and the Notes thereto and the other financial
and operating information included elsewhere in this filing.
Overview
The primary financial objective of Iron Mountain 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. Iron Mountain has
benefited from growth in EBITDA, which has increased from $17.9 million for 1992
to $33.6 million for 1996 (a compound annual growth rate of 17.1%), but other
measures of Iron Mountain's financial performance, such as net income and net
income applicable to common stockholders, have been negatively affected by this
objective. In 1994, 1995 and 1996, Iron Mountain experienced net losses
applicable to common stockholders. Such net losses are attributable in part to
significant increases in charges associated with Iron Mountain's pursuit of its
growth strategy, namely, (i) increases in depreciation and amortization expenses
associated with expansion of Iron Mountain's storage capacity and (ii) increases
in 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 (the "Initial Public Offering"). See Note 5
of Notes to Iron Mountain's Consolidated Financial Statements.
Iron Mountain's revenues consist of storage revenues and service and
storage material sales revenues. Storage revenues are derived from charges for
storing records (either on a per unit or a per cubic foot of records basis), and
have accounted for approximately 60% of total revenues in each of the last five
years. Service and storage material sales revenues are derived primarily from
Iron Mountain's courier operations (consisting primarily of the pickup and
delivery of records upon customer request), additions of new Cartons, temporary
removal of records from storage, refiling of removed records, destructions of
records, permanent withdrawals from storage and sales of specially designed
storage containers and related supplies. Customers are generally billed on a
monthly basis on contractually agreed-upon terms.
While Iron Mountain's total revenues have increased from $70.7 million for
1992 to $104.4 million for 1995, average revenue on a per Carton basis declined
over such period. The year-over-year declines in average revenue per Carton for
1993, 1994 and 1995 were approximately 8%, 7% and 2%, respectively. For 1996,
total revenues increased to $138.7 million, and there was no decline in average
revenue per Carton. Such declines had been attributable to: (i) increases in
sales to large volume accounts, which typically generate lower revenue per
Carton (in particular the RTC account, which incorporated substantial volume
discounts, although such discounts were offset by revenues from special service
projects during 1994); (ii) a facilities management arrangement with a large
volume account under which, prior to July 1996, Iron Mountain managed the
customer's records management facility and, therefore, the charges to the
customer prior to July 1996 did not include a rent component; and (iii)
industry-wide pricing pressures. Despite the decline, Iron Mountain has been
able to maintain its EBITDA margins through increased overall operating
efficiencies and economies of scale as well as specific efficiencies realized in
the servicing of large volume accounts. For 1993, 1994, 1995 and 1996, EBITDA
margins were 22.8%, 23.8%, 25.0% and 24.2%, respectively.
Cost of sales (excluding depreciation) consists primarily of wages and
benefits, facility occupancy costs, vehicle and other equipment costs and
supplies. Of these, the most significant are wages and benefits and facility
occupancy costs. Over the past several years, Iron Mountain has been able to
reduce per Carton storage costs by: (i) designing racking systems and operating
space to maximize facility storage efficiency; (ii) negotiating favorable
facility leases and having facilities built to its custom specifications; and
(iii) leasing larger facilities, which, when filled, are less expensive per
Carton to operate.
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Selling, general and administrative expenses consist primarily of
management, administrative, sales and marketing wages and benefits, as well as
travel, communications, professional fees, bad debts, training, office equipment
and supplies expenses.
Iron Mountain's depreciation and amortization charges result primarily from
the capital-intensive nature of the records management industry and the
acquisitions Iron Mountain has completed. The principal components of
depreciation relate to racking systems and related equipment, new buildings and
leasehold improvements, equipment for new facilities and computer system
software and hardware. Amortization primarily relates to goodwill and
noncompetition agreements arising from acquisitions and customer acquisition
costs. Iron Mountain has accounted for all of its acquisitions under the
purchase method. Since the purchase price for records management companies is
usually substantially in excess of the fair value of their net assets, these
purchases have given rise to significant goodwill and, accordingly, significant
levels of amortization. Although amortization is a non-cash charge, it does
decrease reported net income.
In October 1996, Iron Mountain completed the sale of $165.0 million of the
Senior Subordinated Notes. The net proceeds to Iron Mountain were $160.1 million
after underwriting discounts and commissions. The net proceeds of the sale of
the Senior Subordinated Notes, after payment of related expenses, were used to
repay outstanding bank debt under the existing credit agreement, its 13.42%
Senior Subordinated Notes due December 14, 2000 (the "Chrysler Notes") and
certain other indebtedness, to fund the purchase price of an acquisition and for
general corporate purposes. In connection with the prepayment of such
indebtedness, Iron Mountain incurred an extraordinary charge of $3.5 million,
not including the related tax benefit of $1.4 million, during the fourth quarter
of 1996. The charge consists of a prepayment penalty, the write-off of deferred
financing costs, an original issue discount and loss on termination of interest
rate protection agreements. This charge did not impact Iron Mountain's EBITDA.
In February 1996, Iron Mountain received net proceeds of $33.3 million from
its Initial Public Offering. Iron Mountain used $6.6 million of such net
proceeds to repurchase a warrant to acquire 444,385 shares of Iron Mountain
Common Stock (the "Warrant"). For financial reporting purposes, Iron Mountain
recorded a charge (based on the estimated redemption value calculated using the
effective interest rate method), resulting in substantial charges to net income
applicable to common stockholders over the period the Warrant was outstanding.
See Note 5 of Notes to Iron Mountain's Consolidated Financial Statements. The
remaining net proceeds were used by Iron Mountain to fund acquisitions, to repay
indebtedness used to fund acquisitions and for working capital.
In December 1995, Iron Mountain decided to consolidate its corporate
accounting activities by transferring to Boston, Massachusetts those accounting
activities previously performed in Los Angeles, California. As a result of such
transfer, Iron Mountain recorded a charge of $0.5 million in the fourth quarter
of 1995 and a charge of $0.5 million for the year ended December 31, 1996.
In March 1997, Iron Mountain experienced three fires that resulted in
extensive damage to two of its record management facilities in South Brunswick,
New Jersey. Approximately 1.0 million of the 1.2 million Cartons stored at these
facilities were destroyed. The fires are believed to be caused by arson and are
under investigation by local, state and federal authorities. The affected
facilities account for only two of Iron Mountain's 117 facilities nationwide (as
of March 21, 1997), and represented less than three percent of revenues and less
than two percent of EBITDA for 1996. Management believes that insurance will
cover substantially all of Iron Mountain's property and business interruption
losses relating to the fires. However, Iron Mountain may incur costs as a result
of the fires which will not be covered by insurance. Management is unable to
estimate at this time the magnitude of such costs. The claims process is lengthy
and its outcome cannot be predicted with certainty. Based on its present
assessment of the situation, management does not believe that the fires will
have a material adverse effect on Iron Mountain's financial condition or results
of operations, although there can be no assurance in this regard.
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<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, information
derived from Iron Mountain's consolidated statements of operations, expressed as
a percentage of revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Storage 61.7% 61.4% 61.9%
Service and Storage Material Sales 38.3 38.6 38.1
------- ------- -------
Total Revenues 100.0 100.0 100.0
------- ------- -------
Operating Expenses:
Cost of Sales (Excluding Depreciation) 52.4 50.1 51.0
Selling, General and Administrative 23.8 24.9 24.8
Depreciation and Amortization 9.9 11.8 12.2
------- -------- -------
Total Operating Expenses 86.1 86.8 88.0
------- ------- -------
Operating Income 13.9 13.2 12.0
Interest Expense 10.2 11.3 10.7
------- ------- -------
Income before Provision for Income Taxes 3.7 1.9 1.3
Provision for Income Taxes 2.2 1.7 1.0
------- ------- -------
Income Before Extraordinary Charge 1.5 0.2 0.3
Extraordinary Charge, Net of Tax Benefit -- -- 1.6
-------- ------- -------
Net Income (Loss) 1.5 0.2 (1.3)
Accretion of Redeemable Put Warrant 1.6 2.0 0.2
------- ------- -------
Net Loss Applicable to Common Stockholders (0.1)% (1.8)% (1.5)%
======= ======= =======
EBITDA 23.8% 25.0% 24.2%
======= ======= =======
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Storage revenues increased from $64.2 million for the year ended December
31, 1995 to $85.8 million for the year ended December 31, 1996, an increase of
$21.6 million or 33.8%. Twenty acquisitions completed by Iron Mountain in 1995
and 1996 accounted for $15.0 million or 69.1% of such increase. The balance of
the storage revenues growth resulted primarily from net increases in Cartons
stored by existing customers and from sales to new customers.
Service and storage material sales revenues increased from $40.3 million
for the year ended December 31, 1995 to $52.9 million for the year ended
December 31, 1996, an increase of $12.6 million or 31.3%. Acquisitions accounted
for $9.2 million or 72.7% of the increase. The balance of the increase resulted
from increases in service and storage material sales to existing customers and
the addition of new customer accounts.
For the reasons discussed above, total revenues increased from $104.4
million for the year ended December 31, 1995 to $138.7 million for the year
ended December 31, 1996, an increase of $34.3 million or 32.8%. Of this
increase, $24.1 million, or 70.4%, was attributable to acquisitions completed by
Iron Mountain in 1995 and 1996. The monthly average Cartons stored increased
approximately 33% for 1996 as compared to 1995, from approximately 20.4 million
Cartons to approximately 27.1 million Cartons.
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Cost of sales (excluding depreciation) increased from $52.3 million for the
year ended December 31, 1995 to $70.7 million for the year ended December 31,
1996, an increase of $18.4 million or 35.3%, and increased as a percentage of
revenues from 50.1% for the year ended December 31, 1995 to 51.0% for the year
ended December 31, 1996. The $18.4 million increase was primarily attributable
to the increase in Cartons stored, increased expenses related to the severe
winter weather on the Atlantic coast during the first quarter of 1996 and
expenses related to certain facility relocations. The increase as a percentage
of revenue was primarily attributable to recent acquisitions, which initially
have lower gross margins than Iron Mountain.
Selling, general and administrative expenses increased from $26.0 million
for the year ended December 31, 1995 to $34.3 million for the year ended
December 31, 1996, an increase of $8.3 million or 31.9%, and decreased as a
percentage of revenues from 24.9% for the year ended December 31, 1995 to 24.8%
for the year ended December 31, 1996. The $8.3 million increase was primarily
attributable to the costs associated with accelerated acquisition activity,
including certain redundant transitional expenses as new acquisitions were
integrated into Iron Mountain, with the addition of personnel needed to support
Iron Mountain's growth and with becoming a public company. Additionally, the
selling, general and administrative expenses of acquired companies tend to be
higher than Iron Mountain's, and cost reductions and other possible synergies
are not realized immediately.
Depreciation and amortization expense increased from $12.3 million for
the year ended December 31, 1995 to $16.9 million for the year ended December
31, 1996, an increase of $4.6 million or 37.2%, and increased as a percentage of
revenues from 11.8% for the year ended December 31, 1995 to 12.2% for the year
ended December 31, 1996. The $4.6 million increase was primarily attributable to
the additional depreciation and amortization expense related to the
aforementioned acquisitions, capital expenditures, including racking systems,
information systems and improvements to existing facilities, and additions to
customer acquisition costs.
As a result of the foregoing factors, operating income increased from $13.8
million for the year ended December 31, 1995 to $16.7 million for the year ended
December 31, 1996, an increase of $2.9 million or 21.1%. As a percentage of
revenues, operating income decreased from 13.2% for the year ended December 31,
1995 to 12.0% for the year ended December 31, 1996.
Interest expense increased from $11.8 million for the year ended December
31, 1995 to $14.9 million for the year ended December 31, 1996, an increase of
$3.1 million or 25.9%. The $3.1 million increase was primarily attributable to
increased indebtedness to finance acquisitions and capital expenditures. This
increase was partially offset by a decrease in Iron Mountain's effective
borrowing rates.
As a result of the foregoing factors, income before provision for income
taxes decreased from $1.9 million (1.9% of revenues) for the year ended December
31, 1995 to $1.8 million (1.3% of revenues) for the year ended December 31,
1996, a decrease of $0.1 million or 7.9%. Provision for income taxes decreased
from $1.7 million (1.7% of revenues) for the year ended December 31, 1995 to
$1.4 million (1.0% of revenues) for the year ended December 31, 1996. Iron
Mountain's effective tax rate is higher than statutory rates primarily due to
the amortization of the nondeductible portion of goodwill associated with
acquisitions made prior to the change in tax laws which now generally permit
deduction of such expenses for asset purchases. Since Iron Mountain will acquire
all of the outstanding capital stock of Safesite in the Merger, goodwill
associated with the Merger will be nondeductible.
In October 1996, Iron Mountain recorded an extraordinary charge of $3.5
million, not including the related tax benefit of $1.4 million, related to the
early retirement of certain indebtedness. The charge consists of a prepayment
penalty, the write-off of deferred financing costs, an original issue discount
and loss on termination of interest rate protection agreements.
Net income (loss) was income of $0.2 million (0.2% of revenues) for the
year ended December 31, 1995 compared to a loss of $1.8 million (1.3% of
revenues) for the year ended December 31, 1996. Net loss applicable to common
stockholders was $1.9 million (1.8% of revenues), after accretion of $2.1
million related to the Warrant, for the year ended December 31, 1995 compared to
$2.0 million (1.5% of revenues), after accretion of $0.3 million related to the
Warrant, for the year ended December 31, 1996. The Warrant was redeemed in full
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<PAGE>
in February 1996, with a portion of the proceeds from the Initial Public
Offering. As a result of such redemption, there will be no future charges for
such accretion.
As a result of the foregoing factors, EBITDA increased from $26.1 million
for the year ended December 31, 1995 to $33.6 million for the year ended
December 31, 1996, an increase of $7.5 million, or 28.7%. As a percentage of
revenues, EBITDA decreased from 25.0% for the year ended December 31, 1995 to
24.2% for the year ended December 31, 1996.
Iron Mountain acquired sixteen records management businesses in 1996
compared to four records management businesses in 1995. Primarily as a result of
Iron Mountain's acquisition activity, EBITDA margins were lower for the year
ended December 31, 1996 compared to the prior year. The decrease was primarily
attributable to the fact that the acquired businesses are initially less
operationally efficient than Iron Mountain and the anticipated margin increases
are generally not realized immediately.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Storage revenues increased from $54.1 million for 1994 to $64.2 million for
1995, an increase of $10.1 million or 18.6%. Seven acquisitions completed
between June 1994 and December 1995 accounted for $5.7 million or 56.7% of such
increase. The balance of the storage revenues growth resulted primarily from net
increases in Cartons stored by existing customers and from sales to new
customers.
Service and storage material sales revenues increased from $33.5 million
for 1994 to $40.3 million for 1995, an increase of $6.8 million or 20.1%. This
increase was accomplished despite a decrease of approximately $0.8 million in
such revenues received from the RTC, which decrease was primarily due to a
reduction in revenues from special service projects. Acquisitions accounted for
$4.3 million or approximately 63.5% of such increase. The balance of such
increase resulted from increases in service and storage material sales to
existing customers and the addition of new customer accounts.
For the reasons discussed above, total revenues increased from $87.6
million for 1994 to $104.4 million for 1995, an increase of $16.8 million or
19.2%. Of such increase, $10.0 million or 59.4% was attributable to acquisitions
made by Iron Mountain between June 1994 and December 1995. The monthly average
Cartons stored increased approximately 22% in 1995 as compared to 1994, from
approximately 16.7 million Cartons to approximately 20.4 million Cartons. The
percentage increase was greater than that of total revenues primarily for the
reasons described in the third paragraph under "Overview" above.
Cost of sales (excluding depreciation) increased from $45.9 million for
1994 to $52.3 million for 1995, an increase of $6.4 million or 13.9%, and
decreased as a percentage of revenues from 52.4% for 1994 to 50.1% for 1995. The
$6.4 million increase resulted primarily from an increase in Cartons stored. The
decrease as a percentage of revenues was due primarily to increased storage
efficiencies resulting from relocations to, or additions of, newer, higher
density facilities as well as increased utilization of storage capacity.
Selling, general and administrative expenses increased from $20.9 million
for 1994 to $26.0 million for 1995, an increase of $5.1 million or 24.9%, and
increased as a percentage of revenues from 23.8% for 1994 to 24.9% for 1995. The
$5.1 million increase was due primarily to increases in field management and
administrative staffing, including increases due to acquisitions. Of the 1.1%
increase as a percentage of revenues, $0.6 million (0.6% of revenues) resulted
from a provision for a judgment in a lawsuit relating to a 1992 incident and a
$0.5 million (0.5% of revenues) charge for the relocation of the corporate
accounting function from Los Angeles to Boston.
Depreciation and amortization expenses increased from $8.7 million for 1994
to $12.3 million for 1995, an increase of $3.6 million or 42.0%, and increased
as a percentage of revenues from 9.9% for 1994 to 11.8% for 1995. Depreciation
and amortization expenses, both in absolute dollars and as a percentage of
revenues, continued to increase, primarily as a result of Iron Mountain's
acquisitions and growth-related capital investments for racking systems,
improvements to records management facilities, information systems and customer
acquisition costs. Amortization during 1995 included a one-time charge of $0.9
million (0.9% of revenues) in connection with the write-down of the goodwill
of a subsidiary due to Iron Mountain's decision to sell such subsidiary at
an estimated
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<PAGE>
price which is $0.9 million less than such subsidiary's book value and related
goodwill. Iron Mountain subsequently decided not to sell such subsidiary.
As a result of the foregoing factors, operating income increased from $12.2
million for 1994 to $13.8 million for 1995, an increase of $1.6 million or
13.0%, and decreased as a percentage of revenues from 13.9% to 13.2%.
Interest expense increased from $9.0 million for 1994 to $11.8 million for
1995. This increase was due primarily to increased levels of indebtedness
primarily to finance acquisitions, as well as higher interest rates and higher
deferred financing charges.
As a result of the foregoing factors, income before provision for income
taxes decreased from $3.2 million (3.7% of revenues) for 1994 to $1.9 million
(1.9% of revenues) for 1995, a decrease of $1.3 million or 40.0%. Provision for
income taxes decreased from $2.0 million (2.2% of revenues) to $1.7 million
(1.7% of revenues). Iron Mountain's effective tax rates for 1994 and 1995 were
higher than statutory rates primarily due to $1.5 million and $2.5 million,
respectively, of amortization of nondeductible goodwill.
Net income decreased $1.1 million from $1.3 million (1.5% of revenues) for
1994 to $0.2 million (0.2% of revenues) for 1995 as a result of the factors
outlined above.
As a result of the foregoing factors, EBITDA increased from $20.9 million
for 1994 to $26.1 million for 1995, an increase of $5.2 million or 25.1%, and
increased as a percentage of revenues from 23.8% to 25.0%. These increases
reflect continuing economies of scale and increased operating efficiencies,
which were partially offset by the $0.6 million (0.6% of revenues) reserve
relating to the judgment in the lawsuit referred to above and by the $0.5
million (0.5% of revenues) charge for the relocation of the corporate accounting
function from Los Angeles to Boston.
Liquidity and Capital Resources
In February 1996, Iron Mountain raised $33.3 million, net of underwriters'
discounts and commissions and associated costs, in the Initial Public Offering.
The net proceeds from the Initial Public Offering were used to retire the
Warrant, to fund acquisitions, to repay debt that had been incurred to make
acquisitions and for working capital.
On October 1, 1996, Iron Mountain completed the sale of $165.0 million of
the Senior Subordinated Notes. The net proceeds to Iron Mountain were $160.1
million after underwriting discounts and commissions. The net proceeds of the
sale of the Senior Subordinated Notes, after payment of related expenses, were
used to repay outstanding bank debt under the existing credit agreement, the
Chrysler Notes and certain other indebtedness, to fund the purchase price of an
acquisition and for general corporate purposes. In connection with the
prepayment of the outstanding bank debt, the Chrysler Notes and certain other
indebtedness, Iron Mountain incurred an extraordinary charge of $3.5 million,
not including the related tax benefit of $1.4 million, during the fourth quarter
of 1996. The charge consists of a prepayment penalty, the write-off of deferred
financing costs an original issue discount and loss on termination of interest
rate protection agreements. This charge did not impact Iron Mountain's EBITDA.
In connection with the sale of the Senior Subordinated Notes, Iron Mountain
entered into the Credit Agreement, which provided for $100 million of revolving
credit availability. On March 3, 1997 the Company entered into an Amendment and
Restatement of the Credit Agreement, which increased credit availability under
the facility to $150 million.
As Iron Mountain has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of acquisitions; growth-related
capital expenditures, including racking systems, information systems and
improvements to existing facilities; and customer acquisition costs. These
investments have been primarily funded through a portion of the net proceeds of
the Initial Public Offering and the sale of the Senior Subordinated Notes, cash
flows from operations and borrowings under Iron Mountain's credit agreements.
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<PAGE>
Capital Investments
For 1994, 1995 and 1996, Iron Mountain's growth-related capital
expenditures were $15.8 million, $14.4 million and $23.3 million, respectively.
Included in capital expenditures for 1994 is $2.9 million for the construction
of a records management facility which was sold in a sale and leaseback
transaction. Growth-related capital expenditures consist primarily of investment
in racking systems, new building and leasehold improvements, equipment for new
facilities, management information systems and facilities restructuring. For
1994, 1995 and 1996, Iron Mountain's maintenance capital expenditures were $1.2
million, $0.9 million and $1.1 million, respectively.
In addition, Iron Mountain incurs costs (net of revenues received for the
initial transfer of records) related to the acquisition of large volume accounts
(typically over 10,000 Cartons). For 1994, 1995 and 1996, Iron Mountain's
additions to customer acquisition costs were $1.4 million, $1.4 million and $1.6
million, respectively.
Recent and Pending Acquisitions
Iron Mountain's liquidity and capital resources have been significantly
impacted by acquisitions and, given Iron Mountain's acquisition strategy, may be
significantly impacted for the foreseeable future. In order to capitalize on
industry consolidation, Iron Mountain, in mid-1994, adopted a more active
acquisition strategy. Since mid-1994, Iron Mountain has acquired or entered into
agreements to acquire 31 records management businesses (including the Merger
Agreement), 30 of these acquisitions have been completed, for a total purchase
price of approximately $201.6 million (not including contingent payments of up
to $4.8 million based upon the achievement of certain revenue targets during
1997 and 1998). Iron Mountain has historically financed its acquisitions with
borrowings under its credit agreements in conjunction with cash flows provided
by operations and, more recently, from a portion of the proceeds of the Initial
Public Offering and the sale of the Senior Subordinated Notes. Under the terms
of the Merger Agreement, however, approximately $50 million of the $62 million
purchase price for Safesite will be in the form of shares of Iron Mountain
Common Stock or immediately exercisable options to acquire shares of Iron
Mountain Common Stock. Iron Mountain's future interest expense may increase
significantly as a result of the additional indebtedness Iron Mountain may incur
to finance possible future acquisitions. To the extent that future acquisitions
are financed by additional borrowings under the Credit Agreement or other credit
facilities, the resulting increase in debt and interest expense could have a
negative effect on such measures of liquidity, debt to equity, EBITDA to debt
and EBITDA to interest expense.
In connection with the acquisitions completed in 1996, Iron Mountain has
undertaken certain restructurings of the acquired businesses. Formalized
restructuring plans for acquisitions will be completed within one year of the
date of acquisition. The restructuring activities include certain reductions in
staffing levels, elimination of duplicate facilities and other costs associated
with exiting certain activities of the acquired businesses. In connection with
these restructuring activities, Iron Mountain established reserves of $1.9
million. During 1996, Iron Mountain expended $0.6 million for restructuring
costs. These expenditures consisted primarily of severance costs, move costs
and costs relating to exited facilities. As of December 31, 1996, Iron
Mountain had a total of $1.3 million accrued for restructuring costs on all of
its acquisitions.
Sources of Funds
During 1996, Iron Mountain generated $15.9 million in net cash from
operations compared to $15.7 million for the same period in 1995. The slight
increase in net cash provided by operations resulted from an increase in EBITDA,
which was partially offset by an increase in accounts receivable related to
increased revenues and decreases in accounts payable, accrued expenses and other
asset and liability accounts. During the year ended December 31, 1994, Iron
Mountain generated net cash from operations of $11.6 million.
At December 31, 1996, Iron Mountain had estimated net operating loss
carryforwards of approximately $11.5 million for federal income tax purposes. As
a result of such loss carryforwards, cash paid for income taxes has historically
been substantially lower than the provision for income taxes.
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<PAGE>
Net cash provided by financing activities was $6.7 million and $34.1
million for 1994 and 1995, respectively, substantially all of which was provided
under a then existing credit agreement, and $80.6 million for the year ended
December 31, 1996, consisting primarily of the net proceeds of $160.1 million
from the sale of the Senior Subordinated Notes and of $33.3 million from the
Initial Public Offering, offset by $102.1 million of increased indebtedness and
by $6.6 million due to the retirement of the Warrant.
Credit Arrangements of Iron Mountain
The Credit Agreement, as amended, is a $150 million revolving credit
facility. The Credit Agreement will terminate on September 30, 2001, at which
time all outstanding revolving credit loans and other amounts payable
thereunder will become due. Borrowings under the Credit Agreement may be used to
finance possible future acquisitions, as well as for working capital and general
corporate purposes. Iron Mountain's obligations under the Credit Agreement are
guaranteed by substantially all of Iron Mountain's subsidiaries and are secured
by the pledge of the stock of such subsidiaries. Prepayments of outstanding
borrowings under the Credit Agreement are required in certain circumstances out
of the proceeds of certain insurance payments, condemnations, issuances of
indebtedness and asset dispositions.
The Credit Agreement permits Iron Mountain to elect interest rates from
time to time, as to all or a portion of the borrowings made thereunder, at
interest rates based upon the applicable reference rate and a margin or spread
over such reference rate (which spread varies based upon the ratio of Iron
Mountain's indebtedness to EBITDA). The reference rate, at Iron Mountain's
option, may be based upon (i) the agent's prime rate, (ii) a certificates of
deposit rate, (iii) an overnight federal funds rate or (iv) for periods of up to
12 months, the interest rates prevailing on the date of determination in the
London interbank markets.
The Credit Agreement and the Note Indenture contain covenants restricting
the ability of Iron Mountain and its subsidiaries to, among other things: (i)
declare dividends or redeem or repurchase capital stock; (ii) make optional
payments and modifications of subordinated and other debt instruments; (iii)
incur liens and engage in sale and leaseback transactions; (iv) make loans and
investments; (v) incur indebtedness and contingent obligations; (vi) make
capital expenditures; (vii) engage in mergers, acquisitions and asset sales;
(viii) enter into transactions with affiliates; and (ix) make changes in their
lines of business. Iron Mountain will also be required to comply with financial
covenants with respect to: (i) a maximum leverage ratio; (ii) a minimum interest
coverage ratio; and (iii) a minimum fixed charge coverage ratio. Iron Mountain
has also made certain customary affirmative covenants. The Credit Agreement and
the Note Indenture also contain customary events of default.
The annual maturities of Iron Mountain's indebtedness for 1997, 1998, 1999,
2000 and 2001 are $0.4 million, $0.4 million, $0.4 million, $7.8 million and
$9.3 million respectively. Subsequent to December 31, 1996, Iron Mountain
borrowed $29.3 million under the Credit Agreement to finance acquisitions. As of
May 2, 1997, Iron Mountain had $227.1 million in total indebtedness and $98.6
million available under the Credit Agreement.
Under the Credit Agreement, Iron Mountain is required to use interest rate
protection products to reduce its exposure to increases in interest rates. As of
December 31, 1996, Iron Mountain had $184.7 million of total debt, of which
$175.7 million had fixed interest rates and $9.0 million had variable interest
rates. Consistent with the Credit Agreement, the Company has in place interest
rate cap agreements covering a notional amount of $30.0 million. See Note 3 of
Notes to Iron Mountain's Consolidated Financial Statements.
Future Capital Needs
Iron Mountain's ability to generate cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
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 or that the terms available for any future
financing, if required, would be favorable to Iron Mountain.
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<PAGE>
At the 1997 Annual Meeting of Stockholders, the stockholders of Iron
Mountain will be asked to approve an amendment to the Iron Mountain Restated
Certificate to increase the number of shares of Iron Mountain Common Stock that
Iron Mountain is authorized to issue from 13,000,000 to 20,000,000 shares. Such
additional shares would provide Iron Mountain with additional flexibility to
issue shares in connection with business acquisitions or for cash through sales
of stock to public and private investors. There can be no assurance that such
approval will be received.
Seasonality
Historically, Iron Mountain's business has not been subject to seasonality
in any material respect.
Inflation
Certain of Iron Mountain's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although Iron Mountain to date has been able to offset inflationary
cost increases through increased operating efficiencies, there can be no
assurance that Iron Mountain will be able to offset any future inflationary cost
increases through similar efficiencies or increased storage or service charges.
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<PAGE>
MANAGEMENT OF IRON MOUNTAIN
Directors, Executive Officers and Certain Other Officers
The Directors, executive officers and certain other officers of Iron
Mountain are as follows:
<TABLE>
<CAPTION>
Names of Directors and Executive Officers Age Position
- ----------------------------------------- --- --------
<S> <C> <C>
C. Richard Reese(1) 51 Chairman of the Board of Directors and Chief
Executive Officer
David S. Wendell 43 President and Chief Operating Officer,
Director
Eugene B. Doggett(1)(2) 60 Executive Vice President and Chief Financial
Officer, Director
Robert G. Miller 40 Executive Vice President
Kenneth F. Radtke, Jr. 51 Executive Vice President
Robert P. Swift 55 Executive Vice President
Constantin R. Boden(3)(4) 60 Director
Arthur D. Little(3)(4) 53 Director
Vincent J. Ryan(1)(4) 61 Director
B. Thomas Golisano(5) 55 Director
Names of Certain Other Officers Age Position
- ------------------------------- --- --------
Jean A. Bua 38 Vice President and Corporate Controller
James R. Jandl 42 Vice President of Human Resources
John F. Kenny, Jr.(2) 39 Vice President of Corporate Development
Joseph J. Larizza 55 Vice President and Chief Information Officer
John P. Lawrence 45 Vice President and Treasurer
Kenneth A. Rubin 35 Vice President of Marketing
T. Anthony Ryan 56 Vice President of Real Estate
- -------------
</TABLE>
(1) Member of the Executive Committee; Mr. Ryan is the Chairman of the
Executive Committee.
(2) Mr. Doggett has announced his intention to retire as Chief Financial
Officer effective as of May 29, 1997. Mr. Kenny will be Mr. Doggett's
successor in such capacity.
(3) Member of the Audit Committee; Mr. Boden is the Chairman of the Audit
Committee.
(4) Member of the Compensation Committee; Mr. Little is the Chairman of the
Compensation Committee.
(5) In accordance with the terms of the Merger Agreement, upon the consummation
of the Merger, Mr. Golisano will be appointed to serve as a Class A
Director.
The Iron Mountain Board currently consists of six directors. There are
three classes of directors who serve for three-year terms and are elected on a
staggered basis, one class of two directors standing for election each year. The
term of the Class B Directors, C. Richard Reese and Arthur D. Little, will
expire at the 1997 Annual Meeting of Stockholders, the term of the Class C
Directors, Eugene B. Doggett and Constantin R. Boden, will expire at the 1998
Annual Meeting of Stockholders and the term of the Class A Directors, David S.
Wendell and Vincent J. Ryan, will expire at the 1999 Annual Meeting. In
accordance with the terms of the Merger Agreement, upon the consummation of the
Merger, Mr. Golisano will be appointed to serve as a Class A Director. Directors
of each class will thereafter hold office until the third annual meeting of the
stockholders of Iron Mountain following their election or until their successors
are elected and qualified.
The executive officers and other officers were elected by the Iron Mountain
Board on June 14, 1996, with the exception of Mr. Radtke, who was elected in
late June 1996, and Mr. Miller, who was elected in December 1996. All executive
officers and other officers hold office at the discretion of the Iron Mountain
Board until the first
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<PAGE>
meeting of the Iron Mountain Board following the next annual meeting of
stockholders and until their successors are chosen and qualified.
Directors and Executive Officers
C. Richard Reese is the Chairman of the Iron Mountain Board, a position he
has held since November 1995, and the Chief Executive Officer, a position he has
held since December 1981. Prior to November 1995, Mr. Reese was the President of
Iron Mountain, a position he had held since 1981. Mr. Reese is also a Director
of Schooner. Prior to joining Iron Mountain, he lectured at Harvard Business
School in "Entrepreneurship" and provided consulting services to small and
medium-sized emerging enterprises. Mr. Reese has also served as president and a
Director of PRISM International. He holds a Master of Business Administration
degree from Harvard Business School.
David S. Wendell is the President and Chief Operating Officer of Iron
Mountain, a position he has held since November 1995. After practicing law with
Brown & Wood, Mr. Wendell joined Iron Mountain in 1984, where he has served in a
variety of positions. Prior to November 1995, he was Executive Vice President,
Atlantic Area and prior to 1991, he was Vice President, New England Region. He
holds a Master of Business Administration degree from Harvard Business School
and a Juris Doctor degree from the University of Virginia.
Eugene B. Doggett is the Executive Vice President and Chief Financial
Officer of Iron Mountain, a position he has held since 1987. Mr. Doggett is also
a Director of Schooner. Prior to joining Iron Mountain, he had extensive
experience in commercial and investment banking, as well as financial and
general management experience at senior levels. He holds a Master of Business
Administration degree from Harvard Business School. Mr. Doggett has announced
his intention to retire as Chief Financial Officer effective as of May 29, 1997.
Mr. Doggett will continue with Iron Mountain as an Executive Vice President,
focusing on strategic issues and special projects, and as a Director. Mr. Kenny
will succeed Mr. Doggett as Chief Financial Officer.
Robert G. Miller is an Executive Vice President of Iron Mountain, a
position that he has held since December 1996. Mr. Miller joined Iron Mountain
in 1988 and held the positions of district manager from 1988 through 1991 and
regional vice president from 1991 through 1996. Prior to 1988, Mr. Miller was
employed as a district manager at Bell & Howell Records Management Company.
Kenneth F. Radtke, Jr. is an Executive Vice President of Iron Mountain, a
position that he has held since June 1996. Prior to June 1996, Mr. Radtke was
Northeast Regional Vice President and prior to 1995 was Sales Manager, New York
Region. Mr. Radtke has worked in the records and information industry since 1988
as President and Chief Executive Officer, Dataport Company, Inc. and Senior Vice
President, Arcus, Inc. He holds a graduate degree from the University of
Wisconsin, Graduate School of Banking.
Robert P. Swift is an Executive Vice President of Iron Mountain, a position
he has held since November 1995. Prior to November 1995, Mr. Swift was the
Executive Vice President, Western Area of Iron Mountain and prior to 1988, Mr.
Swift was employed in various positions at Bell & Howell Records Management
Company.
Constantin R. Boden is a Director of Iron Mountain, a position he has held
since December 1990. Mr. Boden is on the advisory board of Boston Capital
Ventures, a risk capital concern. For 33 years, until January 1995, Mr. Boden
was employed by Bank of Boston, most recently as Executive Vice President,
International Banking. He holds a Master of Business Administration degree from
Harvard Business School.
Arthur D. Little is a Director of Iron Mountain, a position he has held
since November 1995. Mr. Little is a principal of The Little Investment Company,
which he founded in 1992. Prior to that, he was Managing Director of and also a
partner in Narragansett Capital, Inc., a private investment firm. He holds a
Bachelor of Arts degree in history from Stanford University.
Vincent J. Ryan is a Director of Iron Mountain. Mr. Ryan is the founder of
Schooner and has served as Chairman and Chief Executive Officer of Schooner
since 1971. Prior to November 1995, Mr. Ryan served as
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Chairman of the Board of Directors of Iron Mountain. He holds a Bachelors of
Arts degree in English from Boston University.
B. Thomas Golisano will be appointed to serve as a Director of Iron
Mountain following the Closing Date. He 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.
Certain Other Officers
Jean A. Bua is Vice President and Corporate Controller. Ms. Bua joined Iron
Mountain in such capacity in March 1996. From 1993 to 1996, Ms. Bua was the
Corporate Controller for Duracraft Corp., a consumer products manufacturer.
Prior to that, Ms. Bua was the accounting manager for a high-tech manufacturer
and was a management consultant for Ernst & Young. She holds a Master of
Business Administration degree from the University of Rhode Island. Ms. Bua is a
certified public accountant.
James R. Jandl is Vice President of Human Resources. Mr. Jandl joined Iron
Mountain in 1989. For the preceding nine years he was involved in human
resources management in the hospitality industry with focus on operational
start-up and turn-around situations. He holds a masters degree in psychology
from West Georgia College.
John F. Kenny, Jr. is Vice President of Corporate Development, with primary
responsibility for implementing Iron Mountain's acquisition strategy. He will
become the Chief Financial Officer of Iron Mountain upon the retirement of Mr.
Doggett from such position on May 29, 1997. Mr. Kenny joined Iron Mountain in
1991, and held operating responsibility as Regional Vice President of New
England and later Northeast operations before assuming the position of Vice
President of Corporate Development in 1995. Prior to 1991, he was a Vice
President of CS First Boston Merchant Bank, New York, with responsibility for
risk capital investments. He holds a Master of Business Administration degree
from Harvard Business School.
Joseph J. Larizza is Vice President and Chief Information Officer, with
responsibility for management information systems, including oversight of the
development of Iron Mountain's Safekeeper system. Prior to joining Iron Mountain
in 1996, Mr. Larizza was the chief information officer at Service America, a
large food service corporation and, prior to that, chief information officer at
the Advertising Checking Bureau, with responsibility for information systems and
development of client-server products. He holds a Bachelors degree in management
from Post College.
John P. Lawrence is Vice President and Treasurer, with responsibility for
acquisition integration, internal audit, risk management and purchasing and
contracting. Mr. Lawrence has been associated with Iron Mountain since 1988.
Prior to 1988, he worked for Hewlett Packard for nine years in various
management positions in finance, control, marketing and manufacturing. He holds
a Master of Business Administration degree from Harvard Business School.
Kenneth A. Rubin is Vice President of Marketing. Mr. Rubin joined Iron
Mountain in 1989. Prior to 1989, he was Director of both Sales and Marketing for
Leahy/Instar, a records management company. He was also a founding director of
Software Escrow Security. He holds a Bachelors degree in political science from
Drew University.
T. Anthony Ryan is Vice President of Real Estate. Mr. Ryan manages the real
estate department of Iron Mountain and is responsible for identifying and
evaluating new facility opportunities and negotiating long-term leases. He has
been involved in real estate development for 22 years. His work experience
includes positions as Director of Development for Gilbane Property, Vice
President of CRJ Investments and, more recently, Vice President and Partner at
the Linpro Company. He holds a Bachelors degree in history from The George
Washington University.
Biographical information of the Directors, executive officers and other
officers is as of May 2, 1997.
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<PAGE>
Executive Compensation
The following table provides certain information concerning compensation
earned by 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 (collectively, the "Named Executive Officers") for the
years ended December 31, 1994, December 31, 1995 and December 31, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Number of Shares
Name and Underlying All Other
Principal Position Year Salary Bonus Options Compensation (1)
------------------ ---- ------ ----- ------- ----------------
<S> <C> <C> <C> <C> <C>
C. Richard Reese.......................... 1996 $268,958 $165,000 0 $2,250
Chairman of the Board and Chief 1995 $261,765 $200,000 0 $1,790
Executive Officer 1994 $255,400 $125,000 0 $1,623
David S. Wendell.......................... 1996 $203,550 $125,000 40,000 $2,250
President and Chief Operating Officer 1995 $136,627 $ 62,731 35,469 (2) $1,573
1994 $129,800 $ 50,000 0 $1,352
Eugene B. Doggett......................... 1996 $194,639 $100,000 0 $2,250
Executive Vice President and Chief 1995 $192,274 $165,000 0 $1,790
Financial Officer 1994 $187,500 $ 93,750 0 $1,623
Robert P. Swift........................... 1996 $133,600 $50,800 15,000 $1,905
Executive Vice President 1995 $131,119 $24,397 8,096 (2) $1,243
1994 $126,600 $16,740 0 $865
Kenneth F. Radtke, Jr...................... 1996 $119,800 $33,759 20,000 $1,350
Executive Vice President
- -------------
</TABLE>
(1) Reflects Iron Mountain's matching contribution to the Iron Mountain Profit
Sharing Retirement Plan for each individual. The amounts shown for 1996 are
estimated maximum contributions; the actual contributions have not yet been
calculated.
(2) These options were granted in 1995 contingent upon Iron Mountain's
completion of its Initial Public Offering, which was consummated in 1996.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Mr. Little, who is the Chairman of
the Committee, and Messrs. Boden and Ryan. Messrs. Reese and Doggett are
executive officers of Iron Mountain and are directors of Schooner. Mr. Ryan is
the Chairman of the Board and principal stockholder of Schooner.
In each of 1994 and 1995, Iron Mountain paid fees of $111,048 to Schooner
for consulting services rendered by Mr. Ryan. These services and fees terminated
as of December 31, 1995.
IMRM is the tenant under a lease dated January 1, 1991 for a 31,500
square-foot building in Houston, Texas. The owner of the building is IM Houston
(CR) Limited Partnership, a Texas limited partnership, of which Mountain Realty,
Inc., a Massachusetts corporation whose sole stockholder is Vincent J. Ryan, is
the sole general partner, and the limited partners of which are C. Richard Reese
and Eugene B. Doggett. The term of the lease expires December 31, 2000, with two
five-year extension options exercisable by IMRM. IMRM currently pays annual rent
in the amount of approximately $99,000, subject to adjustment in 1999 (and in
the option periods if the term is extended) based upon percentage changes in the
consumer price index, with a floor of 3% and a ceiling of 5%, compounded
annually. As tenant, IMRM is responsible for taxes, insurance and maintenance.
The space is used by IMRM as a records management facility. During 1994, 1995
and 1996, IMRM paid rent in the annual amount
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of $88,000, $93,000 and $93,625 respectively, under the lease. The lease is, in
the opinion of management, on commercially reasonable terms, no less favorable
to IMRM than could have been obtained from an unaffiliated party at the time of
the transaction.
Iron Mountain paid compensation of $144,000, $154,000 and $155,720 for
1994, 1995 and 1996, respectively, to Mr. T. Anthony Ryan. Mr. Ryan is Vice
President, Real Estate, of Iron Mountain and is the brother of Mr. Vincent J.
Ryan, a Director and the former Chairman of the Board of Iron Mountain. Iron
Mountain believes that the terms of Mr. Ryan's employment are no less favorable
to it than would be negotiable with an unrelated third party.
Iron Mountain was indebted to Schooner in the principal amount of $382,500
under a junior subordinated note, which was incurred by Iron Mountain in 1990 in
connection with an acquisition. Schooner subsequently acquired the note from the
holder as an investment. Iron Mountain prepaid such indebtedness in its entirety
with a portion of the net proceeds from the Note Offering.
Schooner leases space from Iron Mountain at Iron Mountain's corporate
headquarters. Such lease is a tenancy- at-will and may be terminated by either
Iron Mountain or Schooner at any time. As consideration for such lease, Schooner
pays rent to Iron Mountain based on its pro rata share of all expenses related
to the use and occupancy of the premises. The rent paid by Schooner to Iron
Mountain under such lease was approximately $58,000, $49,000 and $68,000 in
1994, 1995 and 1996, respectively.
Employees of Schooner were eligible to participate in the Iron Mountain
Profit Sharing Retirement Plan, a Section 401(k) plan, as well as Iron
Mountain's group medical, dental, life, disability and accidental death and
dismemberment arrangements (the "Company Benefit Plans"). Schooner reimbursed
Iron Mountain for costs incurred as a result of the participation of Schooner
employees in Company Benefit Plans. Participation by Schooner employees in Iron
Mountain Benefit Plans terminated shortly after the consummation of the Initial
Public Offering.
Director Compensation
Directors who are employees of Iron Mountain do not receive additional
compensation for serving as directors. Each director who is not an employee of
Iron Mountain (each an "Eligible Director") receives an annual retainer fee of
$10,000 as compensation for his or her services as a member of the Iron Mountain
Board and is also paid $2,500 per quarter (to a maximum of $10,000 per year) for
attendance at meetings (the "Director's Compensation"). All directors of Iron
Mountain are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Iron Mountain Board or committees thereof, and for other
expenses incurred in their capacities as directors of Iron Mountain. Pursuant to
the Iron Mountain Incorporated 1995 Stock Plan for Non-Employee Directors (the
"Directors Plan"), Eligible Directors may elect to receive all or a portion of
their Director Compensation in the form of Iron Mountain Common Stock. An
Eligible Director electing to receive Iron Mountain Common Stock under the
Directors Plan will, as an incentive, receive in lieu of cash an amount of Iron
Mountain Common Stock equivalent to 110% of the Director Compensation otherwise
due to be paid in cash. Iron Mountain has reserved 15,000 shares of Iron
Mountain Common Stock for issuance under the Directors Plan. The Iron Mountain
Board has approved the termination of the Directors Plan, effective June 30,
1997. Thereafter, Directors may be granted options, either in lieu of or in
addition to the Director's Compensation, under the Iron Mountain Stock Option
Plan.
Stock Option Information
Effective November 30, 1995, Iron Mountain instituted the Iron Mountain
Stock Option Plan, which is administered by the Stock Incentive Plan
Subcommittee of the Compensation Committee, as a restatement of Iron Mountain's
then-existing stock option plan. The Iron Mountain Stock Option Plan was amended
by the Iron Mountain Board on March 3, 1997. The purpose of the Iron Mountain
Stock Option Plan is to encourage key employees, directors, and consultants of
Iron Mountain and its subsidiaries who render services of special importance to,
and who have contributed or may be expected to contribute materially to the
success of, Iron
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Mountain or a subsidiary to continue their association with Iron Mountain and
its subsidiaries by providing favorable opportunities for them to participate in
the ownership of Iron Mountain and in its future growth through the granting of
restricted shares, options to acquire Iron Mountain Common Stock ("Options"),
stock appreciation rights and other rights to compensation in amounts determined
by the value of the Iron Mountain Common Stock. Restricted shares, stock
appreciation rights and other rights are referred to collectively as "Other
Rights."
The total number of shares of Iron Mountain Common Stock that may be
subject to Options and Other Rights under the Iron Mountain Stock Option Plan
may not exceed 1,000,000 and grants to any single employee may not exceed in the
aggregate 250,000 shares. The Iron Mountain Board has approved an increase in
the number of shares of Iron Mountain Common Stock reserved under the Iron
Mountain Stock Option Plan to 1,400,000; such increase is subject to Iron
Mountain stockholder approval. As of January 1, 1997, Options to acquire 762,861
shares of Iron Mountain Common Stock were outstanding under the Iron Mountain
Stock Option Plan and 185,355 shares of Iron Mountain Common Stock were
available for grants of Options and/or Other Rights under the Iron Mountain
Stock Option Plan. In no event will any Option intended to qualify as an
incentive stock option (an "ISO") within the meaning of Section 422 of the Code,
be exercisable after the expiration of ten years after the date of grant or have
an exercise price that is less than the fair market value of Iron Mountain
Common Stock on the date the ISO is granted.
Awards of Options and Other Rights under the Iron Mountain Stock Option
Plan are made by the Stock Incentive Plan Subcommittee of the Compensation
Committee, consisting of Messrs. Little and Boden, which selects the persons to
whom Options and Other Rights are to be granted and determines the number or
value and the terms and conditions of Options or Other Rights granted, including
the exercise price, the term and the vesting of such Option or Other Right. Each
Option is evidenced by an option agreement setting forth the terms of such
Option. In the case of any employee who owns (or is considered under Section
424(d) of the Code as owning) stock possessing more than 10% of the total
combined voting power of all classes of stock of Iron Mountain or any of its
subsidiaries, no ISO shall be exercisable after the expiration of five years
from its date of grant and the exercise price of such ISO shall be at least 110%
of the fair market value of Iron Mountain Common Stock on the date such ISO is
granted.
The exercise price in respect of any Option may be paid in cash, in shares
of Iron Mountain Common Stock owned by the optionee, by delivery of a recourse
promissory note secured by the Iron Mountain Common Stock acquired upon exercise
of the Option or by means of a "cashless exercise" procedure in which a broker
transmits to Iron Mountain the exercise price in cash, either as a margin loan
or against the optionee's notice of exercise and confirmation by Iron Mountain
that it will issue and deliver to the broker stock certificates for that number
of shares of Iron Mountain Common Stock having an aggregate fair market value
equal to the exercise price or agrees to pay the Option price to Iron Mountain
in cash upon its receipt of stock certificates. In its discretion, the Stock
Incentive Plan Subcommittee of the Compensation Committee may grant a new option
to purchase the number of shares of Iron Mountain Common Stock delivered to Iron
Mountain in full or partial payment of the option price, upon the exercise of
any Option, or in full or partial payment of the tax withholding obligations
resulting from the exercise of any Option.
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<PAGE>
The following table sets forth certain information concerning the grant of
Options to purchase Iron Mountain Common Stock to the Named Executive Officers
in the year ended December 31, 1996.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Appreciation for
Underlying Employees Exercise Option Terms (1)
Options in Fiscal Price Per Expiration
Name Granted Year 1996 (Share) Date 5%($) 10%($)
- ---- ------- --------- ------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
David S. Wendell 40,000 10.3% $15.375 4/8/2006 $386,600 $980,200
President and Chief
Operating Officer
Robert P. Swift 15,000 3.9% $15.375 4/8/2006 $144,975 $367,575
Executive Vice
President
Kenneth F. Radtke, Jr. 20,000 5.1% $15.375 4/8/2006 $193,300 $490,100
Executive Vice
President
- --------------
</TABLE>
(1) Potential Realizable Value is based on the assumed growth rates for an
assumed ten-year option term. 5% annual growth results in an Iron Mountain
Common Stock price per share of $25.04 and 10% results in an Iron Mountain
Common Stock price per share of $39.88 respectively, for such term. The
actual value, if any, an executive officer may realize will depend on the
excess of the market price of the Iron Mountain Common Stock over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized by an executive will be at or near the amounts
reflected in this table.
The following table sets forth certain information with respect to the
unexercised Options to purchase Iron Mountain Common Stock to the Named
Executive Officers. None of such individuals exercised any Options during the
year ended December 31, 1996.
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money-Options at
Options at December 31, 1996 December 31, 1996 (1)
---------------------------- -----------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David S. Wendell ......................... 79,960 84,383 $1,900,329 $1,307,850
President and Chief Operating Officer
Robert P. Swift........................... 15,420 26,952 $ 366,472 $ 429,122
Executive Vice President
Kenneth F. Radtke, Jr...................... 795 25,110 $ 14,048 $ 380,966
Executive Vice President
- ----------
</TABLE>
(1) Based on a year end value of $30.25 per share, less the exercise price.
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<PAGE>
Certain Transactions
In 1993, in connection with the employment of David S. Wendell, Iron
Mountain made demand loans to Mr. Wendell in an aggregate principal amount of
$70,000 in connection with Mr. Wendell's purchase of a home. The loans bore
interest at a rate equal to Iron Mountain's cost to borrow such funds and were
secured by a second mortgage on the home. The final payments on these loans were
made in March 1997.
See "--Executive Compensation--Compensation Committee Interlocks and
Insider Participation" for a discussion of: (i) certain payments to Vincent J.
Ryan and Schooner for consulting services; (ii) a lease between a partnership
affiliated with Messrs. Doggett, Reese and Ryan and a subsidiary of Iron
Mountain; (iii) the familial relationship between Vincent J. Ryan, an Iron
Mountain Director, and T. Anthony Ryan, an Iron Mountain officer; (iv) a lease
between Schooner and Iron Mountain; (v) certain indebtedness of Iron Mountain to
Schooner which was repaid with a portion of the proceeds of the Note Offering;
and (vi) Schooner's prior participation in Iron Mountain's 401(k) plan and
certain other employee benefit plans.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF IRON MOUNTAIN
The following table sets forth certain information known to Iron Mountain
with respect to beneficial ownership of the 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) each Named Executive Officer and (iv) all
executive officers and Directors of Iron Mountain as a group. Such information
is presented as of May 2, 1997. The number of shares assumed to be issued in the
Merger is 1,751,228, based on a Determination Price of $28.50 (the mid-point of
the range between the floor price of $26.00 and the ceiling price of $31.00) and
assuming all Exercisable Options are exercised prior to the Effective Time.
<TABLE>
<CAPTION>
Amount of Beneficial
Amount of Beneficial Ownership Ownership
Before the Merger After the Merger
------------------------------------------------------------------------------
Percent Percent
Name(1) Shares Owned Shares Owned
- ---- ------ ----- ------ -------
<S> <C> <C> <C> <C>
Directors and Executive Officers
C. Richard Reese(2)..................... 1,127,503 11.6% 1,127,503 9.9%
David S. Wendell(3).................... 99,822 1.0% 99,822 *
Eugene B. Doggett(4)................... 169,745 1.8% 169,745 1.5%
Kenneth F. Radtke, Jr.(5)............... 1,180 * 1,180 *
Robert P. Swift(6)..................... 20,895 * 20,895 *
Constantin R. Boden(7)................. 20,510 * 20,510 *
Arthur D. Little(8).................... 49,860 * 49,860 *
Vincent J. Ryan(9)..................... 3,445,750 35.6% 3,445,750 30.4%
B. Thomas Golisano(10).................. 0 * 976,291 8.5%
All Directors and executive
officers as a group (9 persons) (11)... 4,243,509 43.3% 5,219,800 45.2%
Five Percent Stockholders:
Schooner Capital Corporation(12)........ 1,909,384 19.7% 1,909,384 16.8%
William Blair & Company, L.L.C.......... 823,899 8.5% 823,899 7.3%
John Hancock Advisers, Inc.............. 500,000 5.2% 500,000 4.4%
- ----------------------
</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 95,967 shares that Mr. Wendell has the right to acquire
pursuant to currently exercisable options. See "Management of Iron
Mountain--Executive Compensation." 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 and Chief Financial
Officer of Iron Mountain. Mr. Doggett has announced his intention to retire
as Chief Financial Officer as of May 29, 1997. See "Management of Iron
Mountain--Directors, Executive Officers and Certain Other
Officers--Directors and Executive Officers." Includes 29,550 shares of Iron
Mountain Common Stock as to which Mr. Doggett
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<PAGE>
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 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. See "Management of Iron Mountain--Executive
Compensation." 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. See "Management of Iron Mountain--Executive
Compensation." 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 48,965 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 (12) regarding shares held by Schooner.
(10) Mr. Golisano is the Chairman of the Board and a principal stockholder of
Safesite. In accordance with the terms of the Merger Agreement, upon the
consummation of the Merger, Mr. Golisano will be appointed to serve as a
Class A Director of Iron Mountain. Assumes that Mr. Golisano exercised all
of his Exercisable Options prior to the Closing Date (and received 2,768
shares of Iron Mountain Common Stock therefor upon the consummation of the
Merger).
(11) Includes 124,002 shares that directors and executive officers have the
right to acquire pursuant to currently exercisable options and, with
respect to the amount of beneficial ownership after the Merger, assumes Mr.
Golisano, who will be appointed to serve as a Class A Director of Iron
Mountain following the Merger, exercised all of his Exercisable Options
prior to the Closing Date.
(12) 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.
(13) Includes 518,400 shares of Iron Mountain Common Stock over which William
Blair has sole investment power, but over which customers of William Blair
have sole voting power.
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Condensed Consolidated Balance
Sheet has been prepared based upon the historical consolidated balance sheet of
Iron Mountain as of December 31, 1996 and the balance sheets as of December 31,
1996 of the Recent Acquisitions consummated in 1997 (the "1997 Acquisitions")
and Safesite, and gives effect to the 1997 Acquisitions and the Merger, as if
each had occurred as of December 31, 1996. The accompanying unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 31,
1996 gives effect to each of the above transactions and to (i) the Recent
Acquisitions consummated in 1996 (the "1996 Acquisitions"), (ii) the February
1996 Initial Public Offering, (iii) the October 1996 Note Offering and (iv) the
closing of the Credit Agreement, as if each had occurred as of January 1, 1996.
Pro forma adjustments are described in the accompanying notes.
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations is 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 "Description of Iron Mountain - Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with Iron
Mountain's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
86
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma (1) Safesite As Adjusted
Iron Mountain Historical Adjustments Iron Mountain
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Current Assets . . . . . . . . . . . . . . . . . . . $ 35,850 $2,828 $ - $ 38,678
Property, Plant and Equipment, net . . . . . . . . . 129,426 3,971 2,400 (A) 135,797
Goodwill, net . . . . . . . . . . . . . . . . . . . 126,279 - 55,962 (A) 182,241
Other Long-term Assets . . . . . . . . . . . . . . . 21,774 265 (61) (A) 21,978
---------- --------- --------- ----------
Total Assets . . . . . . . . . . . . . . . . . . $313,329 $7,064 $58,301 $ 378,694
========== ========= ========= ==========
Liabilities and Stockholders' Equity
Current Liabilities . . . . . . . . . . . . . . . . . $ 27,145 $2,034 $ (200) (B) $ 28,979
Long-term Debt, net of current portion . . . . . . . 215,552 - 13,231 (B) 228,783
Other Long-term Liabilities . . . . . . . . . . . . . 6,576 - - 6,576
Deferred Rent . . . . . . . . . . . . . . . . . . . . 7,651 463 (463) (B) 7,651
Deferred Income Taxes . . . . . . . . . . . . . . . . 4,021 - 1,350 (B) 5,371
Stockholders' Equity . . . . . . . . . . . . . . . . 52,384 4,567 44,383 (B) 101,334
---------- --------- --------- ----------
Total Liabilities and Stockholders' Equity . . . . $313,329 $7,064 $58,301 $378,694
========== ========= ========= ==========
</TABLE>
(1) See Schedule A for detail of the pro forma effect of the 1997 Acquisitions.
The accompanying notes are an integral part of these pro forma
financial statements.
87
<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)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma (1) Safesite As Adjusted
Iron Mountain Historical Adjustments Iron Mountain
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Storage . . . . . . . . . . . . . . . . . $ 102,202 $ 8,300 $ - $ 110,502
Service and Storage Material Sales . . . 63,899 10,709 - 74,608
----------- --------- ----------- ------------
Total Revenues . . . . . . . . . . . 166,101 19,009 - 185,110
----------- --------- ----------- ------------
Operating Expenses:
Cost of Sales (Excluding Depreciation) . . 82,980 9,464 (760) (C) 91,684
Selling, General and Administrative 39,284 7,587 (899) (D) 45,972
Depreciation and Amortization . . . . . 22,577 799 1,890 (E) 25,266
----------- --------- ----------- ------------
Total Operating Expenses . . . . . . 144,841 17,850 231 162,922
----------- --------- ----------- ------------
Operating Income . . . . . . . . . . . . . 21,260 1,159 (231) 22,188
Interest Expense . . . . . . . . . . . . . 23,359 34 1,089 (F) 24,482
----------- --------- ----------- ------------
Income (Loss) Before Provision for
Income Taxes . . . . . . . . . . . . . . (2,099) 1,125 (1,320) (2,294)
Provision for Income Taxes . . . . . . . . 291 125 693 (G) 1,109
----------- --------- ----------- ------------
Income (Loss) Before Extraordinary Charge $ (2,390) $ 1,000 $ (2,013) $ (3,403)
=========== ========= =========== ============
Loss Before Extraordinary Charge per
Common Share . . . . . . . . . . . . . . $ (0.24) $ (0.29)
Weighted Average Common and Common
Equivalent Shares . . . . . . . . . . . 10,129 1,680 (H) 11,809
Other Data:
EBITDA . . . . . . . . . . . . . . . . . $ 43,837 $ 1,958 $ 1,659 $ 47,454
</TABLE>
(1) See Schedule B for detail of the pro forma effect of the Recent
Acquisitions, the Initial Public Offering, the Note Offering and closing of the
Credit Agreement.
The accompanying notes are an integral part of these pro forma
financial statements.
88
<PAGE>
SCHEDULE A
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Iron
Mountain 1997 Pro Forma
Historical Acquisitions Adjustments Iron Mountain
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Assets
Current Assets . . . . . . . . . . . . . . . . $ 34,788 $ 2,236 $ (1,174) (A) $ 35,850
Property, Plant and Equipment, net . . . . . . 118,349 6,427 4,650 (A) 129,426
Goodwill, net . . . . . . . . . . . . . . . . 109,363 328 16,588 (A) 126,279
Other Long-term Assets . . . . . . . . . . . . . 19,299 111 2,364 (A) 21,774
------------ ---------- ----------- ----------
Total Assets . . . . . . . . . . . . . . . . $ 281,799 $ 9,102 $ 22,428 $ 313,329
============ ========== =========== ==========
Liabilities and Stockholders' Equity
Current Liabilities . . . . . . . . . . . . . . $ 26,830 $ 1,621 $ (1,306) (B) $ 27,145
Long-term Debt, net of current portion . . . . 184,337 3,895 27,320 (B) 215,552
Other Long-term Liabilities . . . . . . . . . . 6,576 - - 6,576
Deferred Rent . . . . . . . . . . . . . . . . . 7,651 - - 7,651
Deferred Income Taxes . . . . . . . . . . . . . 4,021 - - 4,021
Stockholders' Equity . . . . . . . . . . . . . 52,384 3,586 (3,586) (B) 52,384
------------ ---------- ----------- ----------
Total Liabilities and Stockholders' Equity . . $ 281,799 $ 9,102 $ 22,428 $313,329
============ ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma
financial statements.
89
<PAGE>
SCHEDULE B
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Iron
Mountain Recent Pro Forma
Historical Acquisitions Adjustments Iron Mountain
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Storage . . . . . . . . . . . . . . . . . $ 85,826 $ 16,376 $ - $ 102,202
Service and Storage Material Sales . . . . 52,892 11,007 - 63,899
----------- ------------ ----------- -------------
Total Revenues . . . . . . . . . . . 138,718 27,383 - 166,101
----------- ------------ ----------- -------------
Operating Expenses:
Cost of Sales (Excluding Depreciation) . . 70,747 13,033 (800) (C) 82,980
Selling, General and Administrative . . . 34,342 9,555 (4,613) (D) 39,284
Depreciation and Amortization . . . . . . 16,936 1,953 3,688 (E) 22,577
----------- ------------ ----------- -------------
Total Operating Expenses . . . . . . . 122,025 24,541 (1,725) 144,841
----------- ------------ ----------- -------------
Operating Income . . . . . . . . . . . . . 16,693 2,842 1,725 21,260
Interest Expense . . . . . . . . . . . . . 14,901 889 7,569 (F) 23,359
----------- ------------ ----------- -------------
Income (Loss) Before Provision (Benefit)
for Income Taxes . . . . . . . . . . . . 1,792 1,953 (5,844) (2,099)
Provision for Income Taxes . . . . . . . . 1,435 162 (1,306) (G) 291
----------- ------------ ----------- -------------
Income (Loss) Before Extraordinary Charge. . $ 357 $ 1,791 $ (4,538) $ (2,390)
=========== ============ =========== =============
Income (Loss) Before Extraordinary Charge per
Common and Common Equivalent Share . . . $ 0.01 (1) $ (0.24)
Weighted Average Common and Common
Equivalent Shares Outstanding . . . . . . 10,137 (8) (H) 10,129
Other Data:
EBITDA . . . . . . . . . . . . . . . . . $ 33,629 $ 4,795 $ 5,413 $ 43,837
</TABLE>
(1) After accretion related to the Warrant of $0.03 per share.
The accompanying notes are an integral part of these pro forma
financial statements.
90
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Overview
In January 1996, Iron Mountain acquired Nashville Vault Company, Ltd.
("Nashville Vault") 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., Magnetic Archives, Inc. and Deliverex of Broward. The aggregate
purchase price of the 1996 Acquisitions was $68.5 million (not including
contingent payments of up to $4.0 million based upon the achievement of certain
revenue 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. In April 1997, Iron Mountain
acquired Chicago Data Destruction Corporation and Critical Files Security, Inc.
In May 1997, Iron Mountain acquired Business Records Center, Inc. The aggregate
purchase price of the 1997 Acquisitions was $35.3 million (not including
contingent payments of up to $0.8 million based upon the achievement of certain
revenue targets during 1997 and 1998).
The pro forma financial statements do not include adjustments related
to the 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 Business Records Center, Inc. (the "Excluded
Acquisitions") as the impact of such acquisitions would not be material to the
accompanying pro forma financial statements. The Excluded Acquisitions, in the
aggregate, represent annual revenues of approximately $4.4 million.
In February 1997, Iron Mountain entered into an agreement to purchase
the stock of Safesite for approximately $62 million. The purchase price consists
of Iron Mountain Common Stock and options to acquire shares of Common Stock
valued at approximately $50 million, and approximately $12 million in cash. The
number of shares of Common Stock will be based on the average market price for
the 20 trading days ending three trading days before the closing, subject to a
floor of $26.00 and a ceiling of $31.00. If such average price is less than
$26.00 or greater than $31.00, the number of shares of Common Stock and options
to acquire Common Stock will be based on a price of $26.00 or $31.00, as the
case may be. In such case, the number of shares of Iron Mountain Common Stock
and exercisable stock options issued as a result of the Merger would equal
1,919,615 or 1,610,000. The impact of a $0.25 change, above or below the collar,
will result in a $0.5 million increase and a $0.4 million decrease,
respectively, in the purchase price. The amortization of goodwill associated
with the Merger will be nondeductible for income tax purposes.
The Merger Agreement requires Iron Mountain or its nominee to purchase
certain real property from the Safesite Principal Stockholders and their
affiliates for an aggregate purchase price of $7.3 million. Iron Mountain is
actively seeking buyers for such properties and has reached an agreement in
principle with an unaffiliated third party to acquire two of the three
properties for an aggregate purchase rice of $5.1 million. Iron Mountain
intends to lease the two Safesite properties for which agreements in principle
have been reached at market rents and intends to vacate the third property upon
consummation of the Merger. Pro forma adjustments have been made to adjust rent
expense for the two properties to market rents and to eliminate rent expense for
the third property. If Iron Mountain is unable to locate a buyer for the third
property prior to the Effective Time, Iron Mountain will acquire such property
with the intent to sell the property as soon as possible. While there can be no
assurance in this regard, Management believes that the timing of such sale will
not have a material impact on the pro forma condensed consolidated financial
statements. Accordingly, pro forma adjustments have not been made to
depreciation, interest or rent expense to account for the acquisition of such
property for the period of time the property is being marketed.
91
<PAGE>
The consummation of the Merger is subject to various conditions, and no
assurance can be given that the Merger will be completed. All of the Recent
Acquisitions have been, and the Merger, if consummated, will be, accounted for
as purchases.
The accompanying unaudited pro forma condensed consolidated financial
statements reflects the following as though each had occurred on January 1,
1996: (i) the Initial Public Offering; (ii) the Note Offering; (iii) the closing
of the Credit Agreement; (iv) the Recent Acquisitions; and (v) the Merger
(collectively, "the Transactions").
Balance Sheet
The aggregate consideration paid or to be paid for the Recent
Acquisitions and the Merger is approximately $113 million in cash and $50
million in stock (not including up to $4.8 million of contingent payments based
upon the achievement of certain revenue 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.
The allocations of the purchase price as illustrated below may change upon final
appraisal of the fair value of the net assets acquired.
<TABLE>
<CAPTION>
1996 Acquisitions: (In millions)
<S> <C> <C>
Book value of net assets acquired ........................................ $ 4.9
Allocation of purchase price in excess of acquired assets:
Property, Plant and Equipment (Fair Value Adjustment) .................. 12.0
Other Long-term Assets (Covenants not to Compete) ...................... 1.5
Current Liabilities (Relocation and Other Reserves) .................... (5.5)
Deferred Rent (Unfavorable Lease Liability) ............................ (0.2)
Goodwill ............................................................... 55.8
------
Purchase Price of 1996 Acquisitions $ 68.5
1997 Acquisitions and the Merger:
Book value of net assets acquired .......................................... $ 8.2
Allocation of purchase price in excess of acquired assets:
Current Assets (Not Purchased) .......................................... (1.2)
Property, Plant and Equipment (Fair Value Adjustment) .................. 7.1
Other Long-term Assets (Covenants not to Compete) ...................... 2.3
Current Liabilities (Liabilities not Assumed and Retirement of
Short-Term Debt) ..................................................... 1.5
Long-Term Liabilities (Not Assumed) ..................................... 4.1
Deferred Income Taxes ................................................... (1.4)
Other ................................................................... 1.3
Goodwill ............................................................... 72.6
------
Purchase Price of 1997 Acquisitions and the Merger ........................ 94.5
--------
Total Purchase Price of the Recent Acquisitions and the Merger ............ $ 163.0
========
</TABLE>
The 1996 Acquisitions were financed with long-term debt and proceeds
from the Initial Public Offering and the Note Offering. The 1997 Acquisitions
were financed under the Credit Agreement. The Merger will be funded with Iron
Mountain Common Stock and options to purchase Common Stock and borrowings under
the Credit Agreement. See "Description of Iron Mountain - Recent and Pending
Acquisitions" and "--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
92
<PAGE>
The accompanying pro forma condensed consolidated balance sheet as of
December 31, 1996 has been prepared as if the Transactions (except for the
Excluded Acquisitions) had all been completed as of December 31, 1996 and
reflects the following adjustments:
(A) The pro forma adjustments to Assets consist of the following (in
millions):
<TABLE>
<CAPTION>
Property Other
Current Plant and Long-term
Assets Equipment Goodwill Assets
<S> <C> <C> <C> <C>
1997 Acquisition Entries:
Reverse assets of acquired companies not purchased ........... $ (1.3) $ - $ (0.3) $ -
Record estimated fair value of assets of acquired companies .. 0.1 4.7 - -
Record increase in intangible assets equal to the excess of
purchase price over fair value of net assets acquired ..... - - 16.9 2.4
---------- ---------- ---------- -------
Total Acquisition Entries ............................. $ (1.2) $ 4.7 $ 16.6 $ 2.4
========== ========== ========== =======
Safesite Entries:
Record estimated fair value of assets ........................ $ - $ 2.4 $ - $ (0.1)
Record increase in intangible assets equal to the excess of
purchase price over fair value of net assets acquired ..... - - 56.0 -
--------- ---------- ---------- -------
Total Safesite Entries ................................ $ - $ 2.4 $ 56.0 $ (0.1)
========= ========== ========== ========
</TABLE>
(B) The pro forma adjustments to Liabilities and Stockholders' Equity consist of
the following (in millions):
<TABLE>
<CAPTION>
Deferred
Current Long-term Deferred Income Stockholders'
Liabilities Debt Rent Taxes Equity
<S> <C> <C> <C> <C>
1997 Acquisition Entries:
Reverse liabilities and equity not assumed .................. $ (1.3) $ (3.6) $ - $ - $ (3.6)
Record debt to finance 1997 Acquisitions .................... - 30.9 - - -
---------- --------- --------- -------- --------
Total Acquisition Entries ............................ $ (1.3) $ 27.3 $ - $ - $ (3.6)
========== ========= ========= ======== =========
Safesite Entries:
Record estimated fair value of liabilities .................. $ - $ - $ (0.5) $ - $ -
Reverse Safesite equity ..................................... - - - - (4.6)
Record retirement of short-term debt ........................ (0.2) - - - -
Record deferred income taxes ................................. - - - 1.4 -
Record debt to finance the Merger ........................... - 13.2 - - -
Record equity to finance the Merger, net of expenses ....... - - - - 49.0
---------- --------- --------- --------- --------
Total Safesite Merger Entries ........................ $ (0.2) $ 13.2 $ (0.5) $ 1.4 $ 44.4
========== ========= ========= ========= ========
</TABLE>
93
<PAGE>
Statements of Operations
Safesite and all of the Recent Acquisitions, except FDB, CRC, DAS and
CBD, have a December 31 fiscal year end. CRC's and CBD's fiscal year end is June
30, DAS's fiscal year end is May 31 and FDB's fiscal year end is August 31.
Accordingly, CRC's, DAS's, FDB's and CBD's results of operations were
calendarized to the twelve months ended December 31, 1996.
The accompanying pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 has been prepared as if the
Transactions had occurred on January 1, 1996 and reflect the following
adjustments:
(C) Pro forma adjustments have been made 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 warehouse rent expense related to
facilities Iron Mountain will vacate upon completion of certain acquisitions,
and (iii) to adjust rent expense to reflect new or amended leases for certain
facilities of acquisitions.
(D) Pro forma adjustments have been made to reduce selling, general
and administrative expenses 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 and (ii) the elimination
of related party expenses and management fees in excess of amounts that would
have been incurred by Iron Mountain for the services rendered. Additional cost
savings that Iron Mountain expects to realize through integration of the
acquisitions into Iron Mountain's operations have not been reflected herein.
(E) Pro forma adjustments have been made to reflect additional
depreciation and amortization expense on the fair value of the assets acquired
and goodwill. Property and equipment are depreciated over three to 50 years,
goodwill is amortized over 25 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 market value of the net
assets acquired.
94
<PAGE>
(F) The pro forma adjustments to Interest Expense consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
(In millions)
<S> <C>
Recent Acquisition Entries:
Reverse interest expense on debt not assumed ................................ $ (0.9)
Record interest expense due to assumption of unfavorable lease liability in
connection with the certain acquisitions ................................. 0.1
Use of Proceeds Entries:
Reverse interest expense on debt of Iron Mountain retired with proceeds of
the Initial Public Offering, Note Offering and the closing of the Credit
Agreement ................................................................ (13.5)
Record interest expense related to the Senior Subordinated Notes,
including amortization of deferred financing costs ....................... 17.3
Record interest expense related to borrowings under the Credit Agreement,
including amortization of deferred financing cost ........................ 4.6
------
Total Acquisition and Proceeds Adjustments ........................... $ 7.6
======
Safesite Entries:
Reverse interest expense on debt retired .................................... $ (0.0)
Record interest expense on additional debt incurred to finance the Merger 1.1
------
Total Safesite Adjustments $ 1.1
======
</TABLE>
The impact of a one-eighth of one percentage point change in the
interest rate on pro forma borrowings under the Credit Agreement for 1996 is
$0.1 million.
(G) Pro forma adjustments have been made to adjust the provision for
income taxes to a 40% rate on pro forma income before nondeductible goodwill
amortization and other nondeductible expenses.
(H) Pro forma adjustments have been made to adjust the pro forma
weighted average common and common equivalent shares outstanding as if the
Initial Public Offering and the Merger had occurred on January 1, 1996. For pro
forma purposes, the calculation of the number of shares and options to be issued
in the Merger is based on a Determination Price of $28.50 (the mid-point of the
collar).
95
<PAGE>
MARKET PRICES AND DIVIDEND DATA
Iron Mountain first issued its Common Stock to the public in February
1996. The following table sets forth the high and low sales prices on the Nasdaq
National Market.
High Low
---- ---
Sale Prices
-----------
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 (through May 9, 1997) ......... 25.50 23.25
On February 19, 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 was $27.125. On May 9, 1997 the closing sales
price of the Iron Mountain Common Stock, as reported on the Nasdaq National
Market, was $25.50. As of May 2, 1997, there were 9,686,732 shares of Iron
Mountain Common Stock outstanding held by 68 holders of record and 454,590
shares of Nonvoting Common Stock outstanding held by 2 holders of record. 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
Indenture from declaring or paying cash dividends on its Common Stock. See
"Description of Iron Mountain Capital Stock."
No established public trading market exists for the Safesite Common Stock
and, accordingly, no market price information is available with respect thereto.
Safesite has never paid cash dividends on the Safesite Common Stock. As of
May 2, 1997, there were 9,118,297 shares of Safesite Common Stock outstanding
and 81 holders of record.
96
<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 13,000,000 shares of
Iron Mountain Common Stock, 1,000,000 shares of Nonvoting Common Stock, $.01 par
value per share (the "Nonvoting Common Stock"), and 2,000,000 shares of
Preferred Stock. No shares of Preferred Stock have been issued. There were
9,686,732 shares of Iron Mountain Common Stock and 454,590 shares of Nonvoting
Common Stock issued and outstanding, held by 68 and 2 holders of record,
respectively, as of May 2, 1997. The Iron Mountain Board has voted to
recommend that the Iron Mountain stockholders approve an amendment to the Iron
Mountain Restated Certificate to increase the number of authorized shares of
Iron Mountain Common Stock from 13,000,000 to 20,000,000.
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 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 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 (the "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 establishing a classified Board of Directors. The
vote of holders of at least 662/3% of the 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 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 662/3% 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.
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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 Preferred Stock then outstanding of any amount required
to be paid under the terms of such Preferred Stock.
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 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 Preferred Stock 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 Preferred Stock, the issuance of
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 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, are 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.
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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. See "Management of Iron
Mountain--Directors, Executive Officers and Certain Other Officers." 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 3 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 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 662/3% 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 662/3% 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
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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 662/3% 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 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 The
First National Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021
(telephone number (617) 575-2000).
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DESCRIPTION OF SAFESITE
History
Safesite was founded by Golisano in June 1986 when he purchased a small
records retention business in Rochester, New York. Several months later he
joined with Wayman to establish a Boston-area branch and pursue expansion.
During the following thirty months, branches were established in seven
additional markets. In most cases, a separate corporation was formed in which
the local manager became a stockholder along with Wayman or Golisano. In 1989,
fourteen stockholders of eight corporations determined that consolidation into a
single company would enhance opportunities for growth and, on December 18, 1989,
Safesite was incorporated and all eight constituent corporations were merged
into it.
Safesite currently conducts a records management business in 14 cities.
Each branch is self-contained, with its own sales staff, data processing and
storage facilities. A branch manager directs operations. Ten of these markets
overlap with Iron Mountain operations, while four represent new markets.
Safesite has a diversified base of over 7,000 customer accounts. Safesite's
principal services include hard copy storage, medical records storage, inter-
filing of medical records, computer, media storage, pickup, delivery and
destruction services and customized reporting. Safesite also sells storage
materials and provides consulting and other records-related services.
Corporate headquarters, located in Billerica, Massachusetts, provides
central purchasing, financial controls, training and coordination to the
branches.
The Safesite Approach to the Records Storage Market; Safesite Customers
Safesite approaches the market for records management and storage with a
full range of services. Safesite offers a free in-depth analysis of a company's
records management costs and practices. This analysis frequently results in
sales by revealing hidden costs involved in traditional records management and
highlighting economies and efficiencies in the Safesite approach.
Safesite's customer base is diversified in terms of revenue and industry
concentration. Safesite has over 7,000 customer accounts. Safesite tracks
customer accounts, which are based on invoices. Accordingly, depending on how
invoices had been arranged at the request of a customer, one organization may
represent multiple customer accounts. Safesite targets smaller volume accounts
(typically less than 2,500 Cartons). Safesite also has a concentration in
medical records storage customers.
Safesite services accounts of all sizes, from small businesses and
professional groups to Fortune 500 companies. No account or related set of
accounts currently generates more than seven percent of Safesite's revenues. In
certain branches one or a few customers may account for a substantial portion of
the revenue. These generally tend to be hospital or hospital related accounts,
the loss of which could adversely impact Safesite's financial condition and
results of operations.
Storage Revenues
Safesite derives a substantial portion of its revenues from fixed periodic
(usually monthly) fees charged to customers for storage of hard copy records.
Storage revenues have grown every quarter since inception and have represented
approximately 44% of Safesite's total revenues in each of the last three years.
Once a customer places a record in storage with Safesite and until that record
is destroyed or permanently removed (for which Safesite typically receives a
service fee), Safesite receives recurring payments of fixed periodic fees
without incurring additional labor or marketing expenses or significant capital
costs. The stable and growing storage base also provides the foundation for
increases in EBITDA from service activities and sales of storage materials.
Safesite has not experienced a reduction of its business as a result of
past general economic downturns, although there can be no assurance that this
would be the case in the future.
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Safesite's customers have on average generated additional Cartons at a
faster rate than stored Cartons have been destroyed or permanently removed.
Safesite believes the consistent growth of its storage revenues is the result of
a number of additional factors, including: (i) the trend toward increased
records retention; (ii) customer satisfaction with Safesite's services; and
(iii) the costs and inconvenience of moving storage operations in-house or to
another provider of records management services.
Safesite Services
Safesite's records management business is composed of many services, each
of which is designed to meet a customer's requirement and is marketed and priced
as a distinct product or enhancement. The more active the storage for a customer
(i.e., the more services used), the higher the revenue from such customer.
Prices vary by location, based on competitive factors.
"Hard Copy Storage" is the storage of paper business records. In order to
have efficient handling and storage on shelving in Safesite's facility,
customers generally use standard-sized, corrugated cardboard cartons. Hard copy
paper records are picked up, indexed and stored on shelving within Safesite's
facilities. Records can be retrieved and delivered to the customer within two
hours and are available around the clock every day.
"Medical Records Storage" is the storage of hospital patient records in
open shelving in color-coded, terminal digit order, the same indexing system
used at the hospital. It reflects a more active records management and hence is
not required to be boxed. Because state regulations require hospitals to retain
patient records for periods ranging from 7 to 30 years, such storage imposes
large physical space requirements and concomitant labor expenses upon hospitals.
Many hospitals find it easier and more cost effective to store such records (at
least those more than two or three years old) off-site. Safesite, in essence,
becomes the hospital's remote records room, providing, in addition to storage
and retrieval, Inter-filing and Integrity Checking Service (described below),
each for an additional fee.
"Inter-filing" is the service whereby additions to patients' records are
placed in the appropriate file by Safesite. "Integrity Checking Service" assures
the customer that the documents which are supposed to be in a particular file
are in fact there.
"Computer Media Storage" is the storage and management of electronic media
storage devices in all forms in a specially designed vault within the Safesite
storage area. Typically of concrete and steel construction, these rooms are
humidity and temperature controlled and protected against fire by a Halon 1001
System. Access is controlled and monitored by special locks, infrared and motion
detection sensors, video cameras and alarms. Electronic media come in many forms
which are constantly changing with changes in technology. Standard containers
are required of customers in order to handle their media devices efficiently and
safely. The most common containers protect 10-1/2 inch reel tape, removable hard
disks, 3480 cartridges, floppy diskettes, optical disks, video and audio tape,
microfilm and microfiche.
The stored computer media range from very active to totally inactive, and
most customers have some of both. The active media are those for which a
customer requests daily, weekly or monthly rotation for back-up purposes. Thus,
Safesite will retrieve a particular disk, deliver it to a customer anywhere in
the country, pickup a new back-up disk and return it to the vault for indexing
and storage until the next rotation back to such customer. Customers may also
subscribe to Safesite's "Electronic TeleVaulting Service" which performs backup
of a customer's PC network over the telephone at night after the customer's
business is closed. The vault is also used for storage of valuable or historical
documents.
"Pickup and Delivery Services" are provided to customers with Safesite's
unmarked vans. The charges for these services vary, based on regular or special
service delivery options.
"Destruction Services" are provided when a customer's paper documents
exceed the customer's requirement for retention (the legal or personal standards
which are determined solely by the customer). Utilizing its computerized
inventory control system, Safesite notifies each customer sixty days prior to
destruction of the identity of stored files which are eligible for destruction
in accordance with such customer's standards. The customer can
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then advise Safesite whether any of the files are to be retained for a further
period. Actual removal, shredding and destruction are provided through a third
party contractor. If requested by the customer, a Safesite employee will view
the destruction and certify the fact to the customer for an additional charge.
"Labor, Packing, Indexing and Other Services" relieve a customer of various
aspects of the record maintenance and storage tasks and are performed by
experienced, trained records specialists. Proper filing and indexing assures the
customer that its records are packed correctly and are easily accessed through
Safesite's computer system.
Safesite will also provide customers with microfilm or microfiche service
and tape or disk restoration through third party contractors at competitive
prices. Document restoration (through freeze drying soaked records) is also
provided.
In addition to offering its customers records management consulting,
Safesite offers contingency planning assistance and disaster recovery services.
A special service offered by Safesite is relocation of media libraries
where, on a test or permanent basis, a customers's entire media library is moved
by secure, temperature controlled vans to a new site. When distance and time are
important, Safesite's "Silver Bullet Service" provides jet aircraft for the
relocation of media libraries.
Safesite also offers escrow services for customers who need a secure third
party location for source codes and similar information related to acquired
software licenses.
Safesite offers its customers a variety of supplies related to their
storage needs. Archival supplies are principally boxes of various dimensions to
hold customer paper records. Vault supplies consist principally of containers
for the various computer media devices stored. Safesite also offers customers
shelving for on-site storage.
Inventory Control/Security
Safesite uses a comprehensive computerized inventory, activity and invoice
reporting system, all based on a PC computer at each branch. Each carton or
media container is indexed and, if requested by the customer, each file within
the carton or tape within the container is also indexed. The customer is
provided monthly a complete computer report (customized to the customer's
requirements) of all activity or services concerning each file. The customer's
monthly invoice is generated from this report.
The software system developed by Safesite, SafeFax, is proprietary to it.
Customers can have on-line access to Safesite's data concerning a customer's
stored records or media.
All Safesite branches use bar coding. Thus, in addition to numeric
indexing, a carton or media container is labeled with a bar code which can be
read by a portable scanner. The scanner is used to record each time a carton is
removed from storage, put on a van, delivered to the customer, picked up and
return to storage. Use of the bar code and scanner eliminates the need to write
down the information at each step and avoids errors.
Security is a deliberately planned and continuing part of Safesite's
operations. In addition to 24 hour fire and electronic security monitoring
systems, it includes training each employee in Safesite's security procedures as
well as using unmarked vans for transportation of files and leaving the Safesite
name off all buildings or storage facilities.
Employees
As of December 31, 1996, Safesite had a total of 371 employees, 264
full-time, 12 part-time and 95 temporary. The corporate headquarters was staffed
by 18 persons and the branches were staffed by the remaining employees.
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Safesite branch managers are responsible for additional sales to existing
accounts. Salespersons pursue other potential accounts under the supervision of
district sales managers. Both the branch managers and the district sales
managers report to regional managers. As of December 31, 1996, Safesite had 14
branch managers, 3 district sales managers and 3 regional managers.
Safesite has never had a work stoppage and none of its employees is
represented by a labor organization. Safesite believes that it provides working
conditions, wages and benefits that are competitive with other employers of
persons with similar skills and considers its employee relations to be good.
Safesite has adopted a compensation plan for its regional managers,
district managers, branch managers and salespersons which provides substantial
incentives to increase sales while maintaining service.
Competition
Safesite competes with a few other national companies, one of which is Iron
Mountain, as well as a large number of local and regional concerns. Absent
national considerations, Safesite's management believes that the most
significant limiting factor on the market for any branch is the distance from
the branch to the customer's office and that the maximum feasible distance is
approximately fifty miles or a two-hour drive. Within that area, Safesite's
management believes that the most significant factor in competition is price.
The largest number of potential competitors for off-site storage are
storage lockers and mini-storage facilities in each area in which Safesite
branches are located. Such facilities usually lack the features and services
available at Safesite. Competition also comes from the numerous local moving and
storage companies that offer some degree of records storage. Located in each of
the markets where Safesite does business, these companies have ample storage
facilities but frequently fail to offer the full range of services such as
management reporting, 24-hour accessability and special vaults for media
protection.
Offering somewhat higher levels of services (and higher prices) are
regional records management companies. Several of such companies have offices in
the cities in which Safesite branches are located. Within regional groups are
some firms that specialize in media storage only or in medical records storage
only. Further, Safesite faces competition from the internal document handling
capability of its current and potential customers.
The substantial portion of Safesite'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 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 significantly reduce or supplant the use of paper as a preferred medium,
which could in turn adversely affect Safesite's business.
Properties
As of December 31, 1996, Safesite leased 26 records management facilities,
for a total of 760,000 square feet of space, of which 10,000 square feet were
used for the corporate office. Leases expire at various times through 2008. The
leased facilities generally have initial lease terms of 10 years, some with
options to renew for one or two additional 5-year periods. The weighted average
remaining term of the leases on these facilities is approximately 6.7 years. In
addition, some of the leases contain either a purchase option or a right of
first refusal upon the sale of the property. The leases include three properties
leased from affiliates of Safesite. See Note 5 of Notes to Safesite's Financial
Statements.
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As of December 31, 1996, Safesite leased the following records management
facilities in the geographic locations indicated below.
Records
Management
State Facilities
- ----- ----------
Arizona 2
California 2
Colorado 1
Georgia 3
Illinois 2
Massachusetts 2
Michigan 3
New York 4
North Carolina 1
Ohio 3
Virginia 2
Washington 1
--
Total 26
When hard copy storage at a facility reaches 80% of capacity, Safesite will
seek additional space, generally from 30,000 to 40,000 square feet. If such
space is not readily available in the same building, Safesite will seek it
within the market area. Some archival type (non-active) records stored at the
first site will be relocated to the second, as will new records of that type.
The second site will generally have no office or vault.
Insurance
Safesite carries comprehensive property insurance with insurers that it
believes to be reputable and in amounts that it believes to be appropriate,
covering replacement cost of real and personal property, including improvements.
Subject to sub-limits, the policy also covers extraordinary expenses associated
with business interruption, subject to certain deductibles. Safesite also
maintains general liability and excess liability insurance covering bodily
injury, property damage and personal injury.
Safesite's standard form of contract sets forth an agreed maximum value for
each carton or other storage unit held by Safesite as a limitation on liability
for loss or damage, as permitted under the Uniform Commercial Code. In contracts
containing such limits, such values are nominal, and Safesite believes that in
typical circumstances its liability would be so limited in the event of loss or
damage relating to the value of information stored on media held by Safesite.
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.
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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. Safesite is aware
of the presence of ACMs at some of Safesite's facilities, but believes that such
materials are in acceptable condition at this time. Safesite believes that
future costs related to any remediation of ACMs at these 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 Safesite 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. 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, Safesite may be
potentially liable for environmental costs such as those discussed above.
Safesite believes that it is in substantial compliance with all applicable
material Environmental Laws. Safesite 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. However, no assurance can be given that there are no environmental
conditions for which Safesite might be liable in the future or that future
regulatory action, as well as compliance with future Environmental Laws, will
not require Safesite to incur costs for or at its properties that could have a
material adverse effect on Safesite's financial condition and results of
operations.
Certain Transactions
Golisano will be appointed a Class A Director of Iron Mountain following
the Closing Date. Golisano is founder and Chairman of Safesite. Golisano has
received no compensation from Safesite. However, he (and the other non-employee
Directors of Safesite) received options under Safesite's 1990 Non-Qualified
Stock Option Plan for Non-Employee Directors to purchase an aggregate of 15,000
shares of Safesite Common Stock at exercise prices of $2.40, $3.00 and $3.29 per
share.
Between May and December, 1993, Golisano loaned Safesite $3,000,000 at an
interest rate equal to prime plus 2%. Golisano also joined with Wayman in May
1993 to guaranty a bank loan of $425,000 to Safesite. The bank loan and
approximately $493,220 of Golisano's loan were repaid in July 1995 from a
portion of the net proceeds of a sale of Safesite Common Stock. All Safesite
stockholders were offered an opportunity to participate in such offering. The
remaining principal amount of such loans was converted in July 1995 into shares
of Safesite Common Stock as part of such offering at a price equal to $2.00 per
share (the same price paid by Safesite stockholders in the offering).
Safesite leases three facilities from Golisano or affiliates of Golisano
and Wayman, one in Rochester, New York and two in Billerica, Massachusetts.
During 1994, 1995 and 1996, Safesite paid rent in the amount of approximately
$567,000, $597,000 and $633,000, respectively, under such leases. Each such
lease is, in the opinion of Safesite's management, on commercially reasonable
terms, no less favorable to Safesite than could have been obtained from an
unaffiliated party at the time of the transaction. In connection with the
Merger, Golisano and such affiliates have agreed to sell the properties for an
aggregate of $7.3 million. Closing the sales of such properties is a condition
to closing the Merger.
Legal Proceedings
Safesite is involved in litigation from time to time in the ordinary course
of business. In the opinion of management, no material legal proceedings are
pending to which Safesite, or any of its properties, is subject.
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<PAGE>
Safesite's Selected Financial and Operating Information
The following tables present selected financial and operating information
relating to the financial condition and results of operations of Safesite over
the past five years, and should be read in conjunction with "--Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with Safesite's Financial Statements and the Notes thereto included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data: (In thousands, except per share and Carton data)
Revenues:
Storage................................... $3,580 $4,780 $5,886 $7,059 $8,300
Service and Storage Material Sales........ 5,474 6,107 7,350 8,955 10,709
------- ------- -------- ------- --------
Total Revenues...................... 9,054 10,887 13,236 16,014 19,009
Operating Expenses:
Cost of Sales (Excluding
Depreciation)......................... 4,663 6,486 6,665 8,054 9,463
Selling, General and Administrative....... 5,818 4,642 4,975 6,444 7,587
Depreciation and Amortization............. 582 804 622 657 800
-------- -------- -------- -------- ------
Total Operating Expenses............ 11,063 11,932 12,262 15,155 17,850
------- ------ -------- -------- ------
Operating Income (Loss) (2,009) (1,045) 974 859 1,159
Interest Expense.................................. 20 183 311 209 34
-------- -------- -------- -------- -------
Income (Loss) before Provision for Income
Taxes.......................................... (2,029) (1,228) 663 650 1,125
--------- --------- -------- -------- ------
Provision for Income Taxes........................ - 15 49 64 125
--------- -------- -------- -------- ------
Net Income (Loss) before Extraordinary Item....... (2,029) (1,243) 614 586 1,000
Extraordinary Gain on Retirement of Debt.......... - 335 - - -
--------- ------- -------- -------- ------
Net Income (Loss)................................. $ (2,029) $(908) $614 $586 $1,000
========= ======= ======== ======== ======
Net Income (Loss) Before Extraordinary Item
per Common and Common Equivalent
Share.......................................... $(0.28) $(0.17) $0.08 $0.07 $0.11
Net Income (Loss) per Common and Common
Equivalent Share............................... $(0.28) $(0.12) $0.08 $0.07 $0.11
Weighted Average Common and Common
Equivalent Shares Outstanding.................. 7,332 7,332 7,382 8,292 9,171
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<PAGE>
Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA(1) .................................... $(1,427) $(241) $1,596 $1,516 $1,959
EBITDA as a Percentage of Total Revenues.......... (15.8)% (2.2)% 12.0% 9.5% 10.3%
Capital Expenditures.............................. $1,038 $ 762 $ 733 $1,718 $1,984
Approximate Cartons in Storage at end of
Period (in millions)(2)...................... -- -- 1.6 2.0 2.4
Year Ended December 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents......................... $ - $ 299 $ 545 $ 297 $ 221
Total Assets...................................... 3,500 3,639 4,552 5,467 7,064
Total Debt........................................ 350 3,550 3,550 200 225
Stockholders' Equity (Deficit).................... (257) (1,165) (551) 3,566 4,567
- -------------------
</TABLE>
(1) Earnings before interest, taxes, depreciation, amortization and
extraordinary items ("EBITDA"). See "--Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview" and
"--Liquidity and Capital Resources" for discussions of other measures of
performance determined in accordance with GAAP and Safesite's sources and
applications of cash flow.
(2) Carton information is not available for 1992 and 1993.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Safesite's
Selected Financial and Operating Information and Safesite's Financial Statements
and the Notes thereto and the other financial and operating information included
elsewhere in this Proxy Statement. All dollar amounts are expressed in
thousands.
Overview
Safesite's primary financial objective is to increase its net income.
Safesite has benefited from growth in net income, which has increased from a net
loss of $908 for 1993 to net income of $1,000 for 1996. Net income for 1996
increased 70.8% over 1995 net income, which was $586.
Safesite's revenues consist of storage revenues and service and storage
material sales revenues. Storage revenues are derived from charges for storing
records (either on a per unit or a per cubic foot of records basis), and have
accounted for approximately 44% of total revenues in each of the last three
years. Service and storage material sales revenues are derived primarily from
Safesite's courier operations (consisting primarily of the pickup and delivery
of records upon customer request), additions of new records, temporary removal
of records from storage, refiling of removed records, destruction of records,
permanent withdrawals from storage and sales of specially designed storage
containers and related supplies. Customers are generally billed on a monthly
basis on contractually agreed-upon terms.
Safesite's total revenues have increased from $10,887 for 1993 to $19,009
for 1996. The compound annual growth rate of 20% in revenues was generated from
increased sales to existing customers as well as sales to new customers, as
Safesite has never acquired a records management company. While the larger
companies in the industry have focused on large volume accounts, Safesite has
continued to focus on the smaller customer accounts
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<PAGE>
where pricing and margins tend to be more attractive. Safesite has however,
experienced the pricing pressures felt throughout the industry.
Cost of sales (excluding depreciation) consists primarily of wages,
facility occupancy costs, vehicle and other equipment costs and supplies. Of
these, the most significant are wages and facility occupancy costs. Over the
past several years, Safesite has been able to reduce per Carton storage costs
by: (i) designing racking systems and operating space to maximize facility
storage efficiency; (ii) negotiating favorable facility leases; and (iii)
leasing larger facilities, which, when filled, are less expensive per Carton to
operate.
Selling, general and administrative expenses consist primarily of
management, administrative, sales and marketing wages and benefits, and also
include travel, communications, professional fees, bad debts, training, office
equipment and supplies expenses.
Safesite's depreciation and amortization charges result primarily from the
capital-intensive nature of the records management industry. The principal
components of depreciation relate to racking systems and related equipment,
leasehold improvements, equipment for new facilities and computer systems.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from Safesite's statements of operations, expressed as a percentage of
revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Storage 44.5% 44.1% 43.7%
Service and Storage Material Sales 55.5 55.9 56.3
-------- -------- -------
Total Revenues 100.0 100.0 100.0
-------- -------- -------
Operating Expenses:
Cost of Sales (Excluding Depreciation) 50.4 50.3 49.8
Selling, General and Administrative 37.6 40.2 39.9
Depreciation and Amortization 4.6 4.1 4.2
-------- -------- -------
Total Operating Expenses 92.6 94.6 93.9
-------- -------- -------
Operating Income 7.4 5.4 6.1
Interest Expense 2.4 1.3 0.2
-------- -------- --------
Income before Provision for Income Taxes 5.0 4.1 5.9
Provision for Income Taxes 0.4 0.4 0.6
-------- -------- --------
Net Income 4.6% 3.7% 5.3%
======== ======== ========
EBITDA 12.0% 9.5% 10.3%
======== ======== ========
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Storage revenues increased from $7,059 for 1995 to $8,300 for 1996, an
increase of $1,241 million or 17.6%. The storage revenues growth resulted
primarily from net increases in Cartons stored by existing customers and from
sales to new customers.
Service and storage material sales revenues increased from $8,955 for 1995
to $10,709 for 1996, an increase of $1,754 or 19.6%. The increase resulted from
increases in service and storage material sales to existing customers and the
addition of new customer accounts.
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<PAGE>
For the reasons discussed above, total revenues increased from $16,014 for
1995 to $19,009 for 1996, an increase of $2,995 or 18.7%.
Cost of sales (excluding depreciation) increased from $8,054 for 1995 to
$9,463 for 1996, an increase of $1,409 million or 17.5%, and decreased as a
percentage of revenues from 50.3% for 1995 to 49.8% for 1996. The $1,409
increase resulted primarily from an increase in Cartons stored and labor related
to services provided. The decrease as a percentage of revenues was due primarily
to increased storage efficiencies resulting from relocations to, or additions
of, newer, higher density facilities as well as increased utilization of storage
capacity.
Selling, general and administrative expenses increased from $6,444 for 1995
to $7,587 for 1996, an increase of $1,143 or 17.7%, and decreased as a
percentage of revenues from 40.2% for 1995 to 39.9% for 1996. The $1,143
increase was due primarily to increases in the sales force, administrative
staffing, and the start up of three new branches during 1996.
Depreciation and amortization expenses increased from $657 for 1995 to $800
for 1996, an increase of $143 or 21.6%, and increased as a percentage of
revenues from 4.1% for 1995 to 4.2% for 1996. Depreciation and amortization
expenses, both in absolute dollars and as a percentage of revenues, continued to
increase, primarily as a result of Safesite's growth-related capital investments
for racking systems and improvements to records management facilities.
As a result of the foregoing factors, operating income increased from $859
for 1995 to $1,159 for 1996, an increase of $300 or 35.0%, and increased as a
percentage of revenues from 5.4% to 6.1%.
Interest expense decreased from $209 for 1995 to $34 for 1996. This
decrease was due to the repayment in July 1995 of $3,550 in debt owed to three
stockholders.
As a result of the foregoing factors, income before provision for income
taxes increased from $650 (4.1% of revenues) for 1995 to $1,125 (5.9% of
revenues) for 1996, an increase of $475 or 73.2%. Provision for income taxes
increased from $64 (0.4% of revenues) to $125 (0.6% of revenues). Safesite's
effective tax rates for 1995 and 1996 were lower than statutory rates due to
substantial tax loss carryforwards from prior years.
Net income increased $414 from $586 (3.7% of revenues) for 1995 to $1,000
(5.3% of revenues) for 1996 as a result of the factors outlined above.
As a result of the foregoing factors, EBITDA increased from $1,516 in 1995
to $1,959 in 1996, an increase of $443 or 29.2%, and increased as a percentage
of revenues from 9.5% to 10.3%. These increases reflect continuing economies of
scale and increased operating efficiencies.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Storage revenues increased from $5,886 for 1994 to $7,059 million for 1995,
an increase of $1,173 or 19.9%. Storage revenues growth resulted from sales to
new customers and increases in Cartons stored from existing customers.
Service and storage material sales revenues increased from $7,350 for 1994
to $8,955 for 1995, an increase of $1,605 or 21.8%. This increase was due to an
increase in services provided to existing and new customers.
For the reasons discussed above, total revenues increased from $13,236 in
1994 to $16,014 for 1995, an increase of $2,778 or 21.0%.
Cost of sales (excluding depreciation) increased from $6,665 for 1994 to
$8,054 for 1995, an increase of $1,389 or 20.8%, and decreased as a percentage
of revenues from 50.4% for 1994 to 50.3% for 1995. The $1,389 increase was due
primarily to increases in storage capacity and labor. The decrease as a
percentage of revenues was due primarily to increased storage efficiencies.
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<PAGE>
Selling, general and administrative expenses increased from $4,975 for 1994
to $6,444 for 1995, an increase of $1,469 or 29.5%, and increased as a
percentage of revenues from 37.6% for 1994 to 40.2% for 1995. The increase in
such expenses, both in absolute amounts and as a percentage of revenues, was due
primarily to a significant increase in the sales force as well as the
establishment of a sales management group.
Depreciation and amortization expenses increased from $622 for 1994 to $657
for 1995, an increase of $35 or 5.6%, and decreased as a percentage of revenues
from 4.6% for 1994 to 4.1% for 1995. This increase in dollar amounts was due
primarily to an increase in depreciation charges resulting from capital
expenditures for racking systems and improvements to records management
facilities and information systems.
As a result of the foregoing factors, operating income decreased from $974
for 1994 to $859 for 1995, a decrease of $115, and decreased from 7.4% of
revenues to 5.4% of revenues.
Interest expense decreased from $311 for 1994 to $209 for 1995, a decrease
of $102, due to the repayment in July 1995 of $3,550 of indebtedness owed to
three stockholders.
As a result of the foregoing factors, income before provision for income
taxes decreased from $663 for 1994 (5.0% of revenues) to $650 for 1995 (4.1% of
revenues), a decrease of $13. Provision for income taxes increased from $49 for
1994 (0.4% of revenues) to $64 for 1995 (0.4% of revenues). Safesite's effective
tax rates for 1994 and 1995 were lower than statutory rates due to substantial
tax loss carryforwards from prior years.
Net income decreased from $614 (4.6% of revenues) for 1994 to $586 (3.7% of
revenues) for 1995 as a result of the factors outlined above.
As a result of the foregoing factors, EBITDA decreased from $1,596 for 1994
to $1,516 for 1995, a decrease of $80, and decreased as a percentage of revenues
from 12.0% to 9.5%. The decrease in both dollars and percentage of revenue is a
result of the increases in selling, general and administrative expenses as
outlined above.
Liquidity and Capital Resources
Safesite's primary sources of capital have been cash flows from operations
and borrowings under a revolving line of credit. Historically, Safesite's uses
of capital have been capital expenditures and costs associated with starting
branches in new cities.
Capital Investments
For 1994, 1995 and 1996, capital expenditures were $733, $1,718 and $1,984,
respectively, and represented 5.5%, 10.7% and 10.4% of revenues, respectively.
Safesite currently expects that its capital expenditures for 1997 will be
approximately $2,000.
Sources of Funds
During the years ended December 31, 1994, 1995 and 1996, Safesite generated
cash flows from operations of $1,002, $1,380 and $1,872, respectively. At
December 31, 1996, Safesite had estimated net operating loss carryforwards of
approximately $800 for federal tax purposes. As a result of such loss
carryforwards, cash paid for income taxes has historically been substantially
lower than statutory rates.
Credit Arrangements of Safesite
Safesite currently has a line of credit which provides for total borrowings
not to exceed the lesser of $2,000 or the borrowing base. The interest rate on
the line of credit is calculated at 0.5% over the bank's prime rate. The line of
credit is secured by substantially all of the assets of Safesite and requires
Safesite to meet certain financial covenants and ratios. As of December 31,
1996, Safesite had $1,525 available under this line of credit (based upon the
borrowing base of approximately $1,750 as of December 31, 1996). Safesite was in
compliance with all such covenants at December 31, 1996.
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<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF IRON MOUNTAIN AND SAFESITE
At the Effective Time, stockholders of Safesite will become stockholders of
Iron Mountain. Set forth below is a comparison of the terms of the Safesite
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 Safesite
Common Stock and the rights of holders of Iron Mountain Common Stock. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Certificate of Incorporation of Safesite ("Safesite Certificate
of Incorporation"), Safesite's Bylaws (the "Safesite By-Laws"), the Iron
Mountain Restated Certificate, the Iron Mountain By-Laws and the more detailed
description of the Iron Mountain Common Stock contained herein. See "Description
of Iron Mountain Capital Stock." Both Iron Mountain and Safesite are
incorporated in the State of Delaware.
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.
Safesite. The Safesite Certificate of Incorporation provides that the
affirmative vote of holders of 662/3% of the shares of each class or series
thereof of the issued and outstanding stock entitled to vote is required to
amend the provisions in the Safesite Certificate of Incorporation pertaining to
notice of nomination of Directors and meeting requirements for stockholder
action. All other amendments to the Safesite Certificate of Incorporation
require the vote of a majority of the stock present or represented at any
meeting.
Iron Mountain. The vote of holders of at least 662/3 or 80% of the Voting
Power 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."
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 DGCL similarly permits the Board of Directors of a corporation
to amend a corporation's by-laws if so provided. 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.
Safesite. The Safesite By-Laws generally provide that a vote of a majority
of the stockholders or the Safesite Board may alter, amend, or repeal the
Safesite By-Laws, or adopt new by-laws, at any regular meeting of the
stockholders or of the Safesite Board or at any special meeting of the
stockholders or of the Safesite Board if notice of such alteration, amendment,
repeal or adoption of new by-laws is contained in the notice of such special
meeting. However, any Safesite By-Law adopted by the Safesite Board may be
amended or repealed by vote of the holders of shares entitled at the time to
vote for the election of Directors.
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
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<PAGE>
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 and Safesite Common Stock are
entitled to one vote per share.
Conversion Rights
Safesite. Neither the Safesite Certificate of Incorporation nor the
Safesite By-Laws contains a provision relating to 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 Rights
None of the Safesite Certificate of Incorporation, the Safesite 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.
Safesite. The Safesite By-Laws provide that special meetings of the
stockholders may be called for any purpose, unless otherwise prohibited by law,
by the President or the Board of Directors and shall be called by the President
or the Secretary at the request of a majority of the Directors.
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."
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.
Safesite. The Safesite Certificate of Incorporation provides that whenever
the number of stockholders of Safesite exceeds 100, any action of the
stockholders may be taken only at a meeting duly called. Otherwise, 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.
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<PAGE>
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.
Safesite. The Safesite By-Laws provide that dividends upon the outstanding
capital stock may be declared by the Safesite 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 the DGCL, 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.
Safesite. Neither the Safesite Certificate of Incorporation nor the
Safesite By-Laws provide for any 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 and Officers
General Law. Under the DGCL, 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.
Safesite. The Safesite By-Laws provide that the Safesite Board may fix the
number of Directors. Currently, the Safesite Board consists of five members. Any
vacancies on the Safesite Board, however caused, may be filled solely by a
majority vote of the Directors then in office, even if less than a quorum. The
Safesite Certificate of Incorporation does not provide for cumulative voting or
class voting for election of Directors. All executive officers are elected by
the Safesite Board and hold office for such term as may be prescribed by the
Safesite Board. Any such officer elected or appointed by the Safesite Board may
be removed with or without cause at any time by the Safesite 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
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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
Safesite. The Safesite By-Laws provide that written notice of any
nomination for election of Directors must be provided to the chief executive
officer at least 30 days prior to the scheduled date of the annual meeting.
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, any Director or the entire Board of Directors
of a corporation may be removed, with or without cause, by the holders of a
majority of the shares then entitled to elect Directors. In the case of a
corporation whose Board of Directors is classified, stockholders may effect such
removal only for cause unless the charter provides otherwise.
Safesite. Neither the Safesite Certificate of Incorporation nor the
Safesite 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 Iron
Mountain By-Laws--Classified Board of Directors" and "--Removal of Directors;
Filling Vacancies on the Iron Mountain Board."
RIGHTS OF DISSENTING STOCKHOLDERS
Each holder of Safesite Common Stock has the right to dissent from the
Merger and demand and perfect appraisal rights in accordance with the conditions
established by Section 262. The Safesite Principal Stockholders have waived
their appraisal rights with respect to their shares of Safesite Common Stock.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX V TO THIS PROXY
STATEMENT. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
ANNEX V. THIS DISCUSSION AND ANNEX V SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER
WHO WISHES TO EXERCISE STATUTORY 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 APPRAISAL RIGHTS.
A holder of record of Safesite Common Stock as of the 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 Merger 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 to a "stockholder" is to the record holder or holders of shares of
Safesite Common Stock.
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<PAGE>
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Safesite 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
Safesite Common Stock.
Holders of Safesite Common Stock who desire to exercise their appraisal
rights must not vote in favor of the Merger Agreement or the Merger and must
deliver a separate written demand for appraisal to Safesite prior to the vote by
the stockholders of Safesite on 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 Safesite Common Stock be voted against the
Merger Agreement, or that an abstention be registered with respect to his or her
shares of Safesite Common Stock in connection with the proposal, will
effectively have thereby waived his or her appraisal rights as to those shares
of Safesite Common Stock because, in the absence of express contrary
instructions, such shares of Safesite Common Stock will be voted in favor of the
Merger Agreement. See "The Safesite Stockholders Meeting--Solicitation and
Voting of Proxies." Accordingly, a stockholder who desires to perfect appraisal
rights with respect to any of his or her shares of Safesite Common Stock 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 Merger 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 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 Safesite of
the identity of the stockholder of record and that such record stockholder
intends thereby to demand appraisal of the Safesite Common Stock. A person
having a beneficial interest in shares of Safesite Common Stock 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 Safesite Common Stock 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 Safesite Common Stock 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 Safesite Common Stock 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 Safesite Common Stock 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: Safesite Records Management
Corporation, 96 High Street, North Billerica, Massachusetts 01863, Attention:
President.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Safesite Common Stock owned, and that
the stockholder is thereby demanding appraisal of his or her shares. A proxy or
vote against 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, Safesite stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods
116
<PAGE>
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 Safesite Common Stock not voting in favor of the Merger Agreement and
with respect to which demands for appraisal were received by Safesite 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 Safesite Common Stock 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 Merger, 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 Safesite, 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 Safesite Common Stock 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 Merger, 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.
117
<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, including the tax-free nature of the Merger,
relating to the Merger will be passed upon by Woods, Oviatt, Gilman,
Sturman & Clarke LLP.
EXPERTS
The consolidated financial statements and schedule of Iron Mountain
Incorporated and its subsidiaries for each of the three years ended December 31,
1996, included in this Prospectus and elsewhere in the Registration Statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Nashville Vault Company, Ltd. for the year
ended December 31, 1995, included in this Prospectus and in the Registration
Statement, have been audited by Geo. S. Olive & Co. LLC, independent public
accountants, as indicated 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 financial statements of International Record Storage and Retrieval
Service, Inc. for the year ended December 31, 1995, included in this Prospectus
and in the Registration Statement, have been audited by Rothstein, Kass &
Company, P.C., independent public accountants, as indicated 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 financial statements of Mohawk Business Record Storage, Inc. for the
year ended December 31, 1995, included in this Prospectus and in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated 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 financial statements and schedule of Safesite Records Management
Corporation, for each of the three years ended December 31, 1996, included in
this Prospectus and elsewhere in the Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
------
Financial Statements of Iron Mountain Incorporated .................. F-2
Financial Statements of Recent Acquisitions:
Nashville Vault Company, Ltd. .................................... F-22
International Record Storage and Retrieval Service, Inc. ......... F-28
Mohawk Business Record Storage, Inc. .............................. F-36
Financial Statements of Safesite Records Management Corporation ...... F-44
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheets of Iron
Mountain Incorporated (a Delaware corporation) and its subsidiaries, as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Iron Mountain Incorporated
and its subsidiaries as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 4, 1997 (except for
Note 11.a. and e. for which
the date is March 19, 1997)
F-2
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
(Amounts in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents..................................................... $ 1,585 $ 3,453
Accounts Receivable (Less Allowances of $651 and $1,061
as of 1995 and 1996, Respectively)......................................... 16,936 24,136
Inventories................................................................... 682 767
Deferred Income Taxes......................................................... 1,943 3,378
Prepaid Expenses and Other.................................................... 1,862 3,054
------------ ------------
Total Current Assets.................................................. 23,008 34,788
Property, Plant and Equipment:
Property, Plant and Equipment................................................. 125,240 163,495
Less -- Accumulated Depreciation.............................................. (32,564) (45,146)
------------ ------------
Net Property, Plant and Equipment..................................... 92,676 118,349
Other Assets:
Goodwill, net................................................................. 59,253 109,363
Customer Acquisition Costs, net............................................... 5,210 6,334
Deferred Financing Costs, net................................................. 2,638 7,358
Other......................................................................... 4,096 5,607
------------ ------------
Total Other Assets.................................................... 71,197 128,662
------------ ------------
Total Assets.................................................................... $ 186,881 $ 281,799
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt............................................. $ 2,578 $ 396
Accounts Payable.............................................................. 4,797 3,750
Accrued Expenses.............................................................. 10,917 17,275
Deferred Income............................................................... 3,108 4,995
Other Current Liabilities..................................................... 469 414
------------ ------------
Total Current Liabilities............................................. 21,869 26,830
Long-term Debt, Net of Current Portion.......................................... 119,296 184,337
Other Long-term Liabilities..................................................... 6,769 6,576
Deferred Rent................................................................... 7,983 7,651
Deferred Income Taxes........................................................... 3,621 4,021
Commitments and Contingencies (see Note 8)
Redeemable Put Warrant.......................................................... 6,332 --
Stockholders' Equity:
Preferred Stock............................................................... 5 --
Common Stock.................................................................. 0 101
Additional Paid-in Capital.................................................... 28,809 62,135
Accumulated Deficit........................................................... (7,803) (9,852)
------------ ------------
Total Stockholders' Equity............................................ 21,011 52,384
------------ ------------
Total Liabilities and Stockholders' Equity...................................... $ 186,881 $ 281,799
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Storage............................................................... $ 54,098 $ 64,165 $ 85,826
Service and Storage Material Sales.................................... 33,520 40,271 52,892
------------ ------------- -------------
Total Revenues................................................. 87,618 104,436 138,718
Operating Expenses:
Cost of Sales (Excluding Depreciation)................................ 45,880 52,277 70,747
Selling, General and Administrative................................... 20,853 26,035 34,342
Depreciation and Amortization......................................... 8,690 12,341 16,936
------------ ------------- -------------
Total Operating Expenses....................................... 75,423 90,653 122,025
------------ ------------- -------------
Operating Income........................................................ 12,195 13,783 16,693
Interest Expense........................................................ 8,954 11,838 14,901
------------ ------------- -------------
Income Before Provision for Income Taxes....................... 3,241 1,945 1,792
Provision for Income Taxes.............................................. 1,957 1,697 1,435
------------ ------------- -------------
Income Before Extraordinary Charge............................. 1,284 248 357
Extraordinary Charge from Early Retirement of
Debt (Net of Tax Benefit of $1,413)........................... -- -- 2,126
------------ ------------- -------------
Net Income (Loss) ............................................. 1,284 248 (1,769)
Accretion of Redeemable Put Warrant..................................... 1,412 2,107 280
------------ ------------- -------------
Net Loss Applicable to Common Stockholders..................... $ (128) $ (1,859) $ (2,049)
============ ============= =============
Net Income (Loss) per Common and Common Equivalent Share:
Income Before Extraordinary Charge and
Accretion of Put Warrant.................................. $ 0.16 $ 0.03 $ 0.04
Accretion of Put Warrant....................................... (0.18) (0.27) (0.03)
------------ ------------- -------------
Income (Loss) Before Extraordinary Charge ..................... (0.02) (0.24) 0.01
Extraordinary Charge (Net of Tax Benefit) ..................... -- -- (0.21)
------------ ------------- -------------
Net Loss Per Common and Common Equivalent Share......................... $ (0.02) $ (0.24) $ (0.20)
============ ============= =============
Weighted Average Common and Common
Equivalent Shares Outstanding.................................. 7,984 7,784 10,137
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1994, 1995 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Series A1 Preferred Stock:
Balance, Beginning of Period........................................ $ 2 $ 1 $ 0
Conversion of 100,000 Shares of Series A1
Preferred Stock to Series A2 Preferred Stock..................... (1) -- --
Conversion of 43,500 Shares of Series A1
Preferred Stock to Series A3 Preferred Stock...................... -- (1) --
Conversion of 6,500 Shares of Series A1
Preferred Stock to Common Stock - Voting......................... -- -- (0)
------------ ----------- ------------
Balance, End of Period; (50,000, 6,500 and
0 Shares Outstanding as of December 31,
1994, 1995 and 1996, Respectively)............................... 1 0 --
------------ ----------- ------------
Series A2 Preferred Stock:
Balance, Beginning of Period........................................ -- 1 1
Conversion of 100,000 Shares of Series A1
Preferred Stock to Series A2 Preferred Stock..................... 1 -- --
Repurchase of 2,000 Shares of Series A2 Preferred Stock............. -- 0 --
Conversion of 25,321 Shares of Series A2
Preferred Stock to Common Stock - Non-Voting..................... -- -- (0)
Conversion of 72,679 Shares of Series A2
Preferred Stock to Common Stock - Voting......................... -- -- (1)
------------ ----------- ------------
Balance, End of Period; (100,000, 98,000 and
0 Shares Outstanding as of December 31,
1994, 1995 and 1996, Respectively)............................... 1 1 --
------------ ----------- ------------
Series A3 Preferred Stock:
Balance, Beginning of Period........................................ -- -- 1
Conversion of 43,500 Shares of Series A1
Preferred Stock to Series A3 Preferred Stock..................... -- 1 --
Conversion of 43,500 Shares of Series A3
Preferred Stock to Common Stock - Voting......................... -- -- (1)
------------ ----------- -----------
Balance, End of Period (None Outstanding as of December
31, 1994; 43,500 and 0 Shares Outstanding as of
December 31, 1995 and 1996, Respectively)......................... -- 1 --
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Series C Preferred Stock:
Balance, Beginning of Period........................................ 3 3 3
Conversion of 351,395 Shares of Series C
Preferred Stock to Common Stock - Voting......................... -- -- (3)
------------ ----------- -----------
Balance, End of Period; (351,395, 351,395 and
0 Shares Outstanding as of December 31, 1994,
1995 and 1996, Respectively)..................................... 3 3 --
------------ ----------- -----------
Total Preferred Stock............................................ 5 5 --
------------ ----------- -----------
Class A Common Stock:
Balance, Beginning of Period........................................ 0 0 0
Exercise of 15,976 Stock Options in 1995............................ -- 0 --
Conversion of 44,888 Shares of Class A
Common Stock to Common Stock - Voting............................ -- -- (0)
------------ ------------ ------------
Balance, End of Period; (28,912, 44,888 and 0 Shares
Outstanding as of December 31, 1994, 1995 and
1996, Respectively).............................................. 0 0 --
------------ ------------ ------------
Class C Common Stock:
Balance, Beginning of Period........................................ 0 -- --
Repurchase of 17,289 Shares of Class C Common Stock................. (0) -- --
------------ ------------ ------------
Balance, End of Period; (None Outstanding as of
December 31, 1994, 1995 and 1996, Respectively).................. -- -- --
------------ ------------ ------------
Common Stock - Voting:
Balance, Beginning of Period........................................ -- -- --
Conversion of 474,074 Shares of Preferred Stock
and 44,888 Shares of Class A Common Stock to
Common Stock - Voting............................................ -- -- 73
Issuance of 2,350,000 Shares in Initial Public Offering ............ -- -- 23
Exercise of 6,896 Stock Options .................................... -- -- 0
Issuance of 915 Shares for Services ................................ -- -- 0
Conversion of 22,705 Shares of Common
Stock - Non-Voting to Common Stock - Voting...................... -- -- 0
------------ ------------ ------------
Balance, End of Period; (None Outstanding as of
December 31, 1994 and 1995; 9,657,657 Outstanding
as of December 31, 1996)......................................... -- -- 96
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1994 1995 1996
----------- ---------- ---------
<S> <C> <C> <C>
Common Stock - Non-Voting:
Balance, Beginning of Period.......................................... -- -- --
Conversion of 25,321 Shares of Series A2 Preferred Stock
to 500,000 Shares of Common Stock - Non-Voting .................... -- -- 5
Conversion of 22,705 Shares of Common
Stock - Non-Voting to Common Stock - Voting........................ -- -- (0)
----------- ---------- ---------
Balance, End of Period; (None Outstanding as of
December 31, 1994 and 1995; 477,295 Outstanding
as of December 31, 1996)........................................... -- -- 5
----------- ---------- ---------
Total Common Stock................................................. -- -- 101
----------- ---------- ---------
Additional Paid-in Capital:
Balance, Beginning of Period.......................................... $ 29,858 $ 28,808 $ 28,809
Repurchase of 17,289 Shares of Class C Common Stock................... (1,050) -- --
Repurchase of 2,000 Shares of Series A2 Preferred Stock............... -- (199) --
Issuance of 15,976 Shares of Class A Common
Stock Pursuant to Option Exercises ................................ -- 200 --
Conversion of Preferred Stock and Class A Common
Stock to Common Stock - Voting and Common
Stock - Non-Voting................................................ -- -- (73)
Issuance of 2,350,000 Shares of Common Stock - Voting
Pursuant to the Company's Initial Public Offering of
Common Stock....................................................... -- -- 33,262
Issuance of 6,896 Shares of Common
Stock - Voting Pursuant to Option Exercises ....................... -- -- 66
Issuance of 915 Shares of Common
Stock - Voting for Services ....................................... -- -- 19
Tax Benefit of Option Exercises....................................... -- -- 52
----------- ---------- ----------
Balance, End of Period................................................ 28,808 28,809 62,135
----------- ---------- ----------
Accumulated Deficit:
Balance, Beginning of Period.......................................... (5,816) (5,944) (7,803)
Net Income (Loss)..................................................... 1,284 248 (1,769)
Accretion of Redeemable Put Warrant................................... (1,412) (2,107) (280)
----------- ---------- ----------
Balance, End of Period................................................ (5,944) (7,803) (9,852)
----------- ---------- ----------
Total Stockholders' Equity.............................................. $ 22,869 $ 21,011 $ 52,384
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 1994, 1995 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)................................................... $ 1,284 $ 248 $ (1,769)
Adjustments to Reconcile Net Income (Loss) to Cash
Flows Provided by Operations:
Depreciation and Amortization.................................... 8,690 12,341 16,936
Amortization of Financing Costs.................................. 1,046 1,135 857
Provision For Doubtful Accounts.................................. 356 630 639
Extraordinary Loss on Early Retirement of Debt................... -- -- 3,539
Loss on Sale of Fixed Assets..................................... 278 400 --
Other Long-term Liabilities...................................... (394) (527) (193)
Changes in Assets and Liabilities (Exclusive of
Acquisitions):
Accounts Receivable.............................................. (2,163) (3,171) (4,395)
Inventory, Prepaid Expenses and Other Assets..................... (556) (739) (878)
Deferred Income Taxes............................................ 1,714 1,179 (973)
Accounts Payable................................................. 83 265 (1,278)
Accrued Expenses................................................. 1,191 4,252 3,642
Deferred Rent.................................................... 441 (110) (332)
Deferred Income.................................................. (26) (301) 161
Other Liabilities................................................ (369) 125 (56)
--------- --------- ---------
Cash Flows Provided by Operations................................ 11,575 15,727 15,900
--------- --------- ---------
Cash Flows from Investing Activities:
Capital Expenditures................................................ (16,980) (15,253) (24,446)
Additions to Customer Acquisition Costs............................. (1,366) (1,379) (1,642)
Cash Paid for Acquisitions.......................................... (2,846) (33,048) (68,496)
Proceeds from Sale of Assets........................................ 2,973 73 --
Other, Net.......................................................... 705 71 (25)
--------- --------- ---------
Cash Flows Used in Investing Activities.......................... (17,514) (49,536) (94,609)
--------- --------- ---------
Cash Flows From Financing Activities:
Repayment of Debt................................................... (13,642) (812) (171,730)
Net Proceeds from Borrowings........................................ 21,350 36,350 69,570
Net Proceeds from Sale of Senior Subordinated Notes................. -- -- 160,050
Net Proceeds from Initial Public Offering........................... -- -- 33,285
Retirement of Redeemable Put Warrant................................ -- -- (6,612)
Prepayment Penalties on Early Retirement of Debt.................... -- -- (1,785)
Cash From Exercise of Stock Options................................. -- 200 66
Repurchase of Stock................................................. (1,050) (199) --
Financing Costs..................................................... (7) (1,448) (2,267)
--------- --------- ---------
Cash Flows Provided by Financing Activities...................... 6,651 34,091 80,577
--------- --------- ---------
Increase in Cash...................................................... 712 282 1,868
Cash and Cash Equivalents, Beginning of Year.......................... 591 1,303 1,585
--------- --------- ---------
Cash and Cash Equivalents, End of Year................................ $ 1,303 $ 1,585 $ 3,453
========= ========= =========
Supplemental Information:
Cash Paid for Interest................................................ $ 7,741 $ 9,111 $ 11,590
========= ========= =========
Cash Paid for Income Taxes............................................ $ 339 $ 1,177 $ 197
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Amounts in thousands except share data)
1. Nature of Business
The accompanying financial statements represent the consolidated accounts
of Iron Mountain Incorporated and its subsidiaries (collectively "Iron Mountain"
or the "Company"). Iron Mountain is a full service records management company
providing storage and related services for all media in various locations
throughout the United States to Fortune 500 Companies and numerous legal,
banking, health care, accounting, insurance, entertainment and government
organizations.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The financial statements reflect the financial position and results of
operations of Iron Mountain on a consolidated basis. All significant
intercompany account balances have been eliminated.
b. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method with the following useful lives:
<TABLE>
<S> <C>
Buildings........................................ 40 to 50 years
Leasehold improvements........................... 8 to 10 years or the life of the lease,
whichever is shorter
Racking.......................................... 10 to 20 years
Warehouse equipment/vehicles..................... 5 to 10 years
Office equipment................................. 3 to 5 years
Computer hardware and software................... 3 to 5 years
</TABLE>
Property, plant and equipment consist of the following:
December 31,
--------------------------
1995 1996
-------- --------
Real property............................. $ 34,162 $ 38,552
Leasehold improvements.................... 11,206 14,918
Racking................................... 53,348 72,854
Warehouse equipment/vehicles.............. 5,810 7,730
Furniture and fixtures.................... 2,754 3,839
Computer hardware and software............ 13,729 19,786
Construction in progress.................. 4,231 5,816
-------- --------
$125,240 $163,495
======== ========
The Company develops various software applications for internal use.
Payroll and related costs for employees who are directly associated with and who
devote time to the internal-use computer software project (to the extent of the
time spent directly on the project) are capitalized and amortized over the
useful life of the software. Capitalization begins when the design stage of the
application has been completed, it is probable that the project will be
completed and the application will be used to perform the function intended.
Amortization begins when the software is placed in service.
Minor maintenance costs are expensed as incurred. Major improvements to the
leased buildings are capitalized as leasehold improvements and depreciated as
described above.
F-9
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
c. Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to the
customer. Amounts related to future storage for customers where storage fees are
billed in advance are accounted for as deferred income and amortized over the
applicable period.
d. Goodwill
Goodwill reflects the cost in excess of fair value of the net assets of
companies acquired in purchase transactions. Goodwill is amortized using the
straight-line method from the date of acquisition over the expected period to be
benefited, currently estimated at 25 years. The Company assesses the
recoverability of goodwill, as well as other long lived assets based upon
expectations of future undiscounted cash flows in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of." Accumulated
amortization of goodwill was $15,074 and $18,858 as of December 31, 1995 and
1996, respectively. In 1995, the Company recorded a $900 impairment of goodwill
related to one of its subsidiaries.
e. Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt
using the effective interest rate method. If debt is retired early, unamortized
deferred financing costs are written off as an extraordinary charge in the
period the debt is retired. As of December 31, 1995 and 1996, deferred financing
costs were $4,688, and $7,998, respectively, and accumulated amortization of
those costs were $2,050, and $640, respectively.
f. Customer Acquisition Costs
Costs, net of revenues received for the initial transfer of the records,
related to the acquisition of large volume accounts (accounts consisting of
10,000 or more cartons) are capitalized and amortized for an appropriate period
not exceeding 12 years, unless the customer terminates its relationship with the
Company, at which time the unamortized cost is charged to expense. However, in
the event of such termination, the Company collects and records as income
permanent removal fees that generally equal or exceed the amount of unamortized
customer acquisition costs. As of December 31, 1995 and 1996 those costs were
$6,492 and $8,134, respectively, and accumulated amortization of those costs
were $1,282 and $1,800, respectively.
g. Deferred Rent
The Company has entered into various leases for buildings used in the
storage of records. Certain leases have fixed escalation clauses or other
features which require normalization of the rental expense over the life of the
lease resulting in deferred rent being reflected in the accompanying balance
sheets. In addition, the Company has assumed various unfavorable leases in
connection with certain of its acquisitions. The discounted present value of
these lease obligations in excess of market rate at the date of the acquisition
was recorded as a deferred rent liability and is being amortized over the
remaining lives of the respective leases.
h. Inventories
Inventories are carried at the lower of cost using the first-in, first-out
basis or market and are comprised primarily of cartons.
F-10
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
i. Accrued Expenses
Accrued expenses consist of the following:
December 31,
----------------------------------
1995 1996
----------------- ----------------
Incentive compensation........... $ 1,701 $ 2,287
Interest......................... 1,737 4,247
Workers' compensation............ 2,415 2,949
Payroll ......................... 920 1,448
Other............................ 4,144 6,344
------- -------
$10,917 $17,275
======= =======
j. Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based on the weighted
average number of common and common stock equivalent shares outstanding during
each period. Common stock equivalents consist of preferred stock that is
convertible into common stock and employee options to purchase common stock.
Pursuant to certain SEC regulations, the calculation of weighted average shares
outstanding assumes the conversion of preferred stock for all periods presented.
The stock options have not been included in the calculation of common stock
equivalents for 1994 and 1995 because their dilutive effect was immaterial.
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". The new standard must be applied beginning in 1998
and at that time will require restatement of previously reported earnings per
share. The new statement cannot be applied early. The Company believes that the
effect of applying the new standard will not be material.
k. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
l. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand and
cash invested in short-term securities which have original maturities of less
than 90 days. Cash and cash equivalents are carried at cost which approximates
fair market value.
m. Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options at intrinsic value with disclosure of the
effects of fair value accounting on net income and earnings per share on a pro
forma basis.
n. Interest Rate Caps
Premiums paid for interest rate cap agreements are amortized to interest
expense over the terms of the cap. Unamortized premiums are included in other
assets in the Consolidated Balance Sheets. Amounts receivable, if any, under cap
agreements are accounted for as a reduction of interest expense.
F-11
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996
-------------- ---------------
<S> <C> <C>
10-1/8% Senior Subordinated Notes Due 2006 ........... $ -- $165,000
$100,000 New Credit Facility ......................... -- 9,000
Old Credit Agreement.................................. 95,725 --
Chrysler Notes........................................ 14,772 --
Real estate mortgages................................. 10,797 10,733
Other................................................. 580 --
-------- --------
Long-term debt.................................... 121,874 184,733
Less -- current portion........................... (2,578) (396)
-------- --------
Long-term debt, net of current portion............ $119,296 $184,337
======== ========
</TABLE>
At December 31, 1995, the Company had two term loans, an acquisition credit
facility and a working capital facility (collectively, the "Old Credit
Agreement") of $125,000. The outstanding indebtedness under the Old Credit
Agreement was paid in full on October 1, 1996 with a portion of the net proceeds
from the sale of $165,000 of 10-1/8% Senior Subordinated Notes due 2006 (the
"Notes"). Interest on the facility was based, at the Company's option, on a
choice of base rates plus a margin. The margin varied depending on the base rate
selected.
The Chrysler Notes were issued in 1990 with an original maturity date of
2000. A warrant was issued in connection with the Chrysler Notes to which
management assigned an initial value of $750 for financial reporting purposes
(see Note 5). The value of the warrant was being accounted for as an original
issue discount of the Chrysler Notes and was amortized as interest expense over
the life of the loan using the effective interest rate method. The Chrysler
Notes were paid in full with a portion of the net proceeds from the Notes.
On September 30, 1996, Iron Mountain entered into a new $100 million
revolving credit facility (the "New Credit Facility"). The New Credit Facility
is a five year revolving credit facility maturing on September 30, 2001. At
December 31, 1996, the weighted average interest rate on outstanding borrowings
under the New Credit Facility was 8.0%.
The New Credit Facility specifies certain minimum or maximum relationships
between operating cash flows (earnings before interest, taxes, depreciation,
amortization and extraordinary charges) and interest, total debt and fixed
charges. There are restrictions on dividends declared by the Company, sales or
pledging of assets, capital expenditures and changes in business and ownership;
cash dividends are effectively prohibited. As of December 31, 1996, the Company
was in compliance with all of its debt covenants. Loans under the New Credit
Facility are secured by the capital stock of all of the Company's subsidiaries.
The interest rate on loans under the New Credit Facility varies, at the
Company's option, on a choice of base rates plus an applicable margin. The
applicable margin varies depending on the base rate selected and certain debt
ratios. The timing of interest payments also varies with the base rate selected.
Under the New Credit Facility, the Company is required to maintain an
interest rate protection program. Pursuant to this requirement, the Company has
only limited involvement with derivative financial instruments and does not use
them for trading purposes.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating rate long-term debt. At December 31,
1995 and 1996, the Company was a party to three interest rate cap agreements,
each covering a notional amount of $10,000. One agreement expires on August 12,
1997 and the other two agreements expire on March 24, 1998. The agreements
entitle the Company to receive from counterparties, on a quarterly basis,
certain payments, if the three month LIBOR rate exceeds 7.5%.
F-12
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate cap agreements but has no off balance
sheet risk of accounting loss.
On October 1, 1996, the Company issued $165 million of 10-1/8% Senior
Subordinated Notes due 2006. Interest on the Notes is payable semi-annually on
April 1 and October 1 commencing on April 1, 1997. The net proceeds were $160.1
million after underwriting discounts and commissions. The proceeds were used to
repay outstanding bank debt under the Old Credit Agreement, the Chrysler Notes
and certain other indebtedness, to fund the purchase price of an acquisition and
for general corporate purposes. In connection with the prepayment of such
indebtedness, the Company incurred an extraordinary charge of $3,539 not
including related tax benefit of $1,413, during the fourth quarter of 1996. The
charge consists of a prepayment penalty, the write-off of deferred financing
costs, original issue discount and loss on termination of interest rate
protection agreements.
The Notes contain covenants and restrictions similar to, or less
restrictive than, the New Credit Facility. After September 30, 2001, and subject
to certain restrictions, the Company may, at its option, redeem any or all of
the Notes at face value, plus a premium ranging from approximately 2% to 9%
through September 30, 2004. Thereafter, the Notes may be redeemed at face value.
Additionally, under certain circumstances, including a change of control or
following certain asset sales, the holders of the Notes may require the Company
to repurchase the Notes.
The Notes are fully and unconditionally guaranteed, on a joint and several
basis, on a senior subordinated basis, by all of the Company's direct and
indirect subsidiaries (the "Subsidiary Guarantors"). The Company is a holding
company, substantially all of the assets of which are the stock of the
Subsidiary Guarantors, and substantially all of the operations of which are
conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. Management of the Company believes that separate financial
statements of, and other disclosures with respect to, the Subsidiary Guarantors
are not meaningful or material to investors.
The real estate mortgages consist of an $8,037, 10 year, 11% mortgage based
on 30 year amortization with a $7,495 balloon payment due October, 2000 and a
$3,000, 8% note that is payable in various installments commencing in 1997 and
maturing in November, 2006.
Maturities of long-term debt are as follows:
Year Amount
----------------------------- ------------
1997......................... $ 396
1998......................... 379
1999......................... 389
2000......................... 7,794
2001......................... 9,300
Thereafter................... 166,475
---------
$184,733
=========
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the Company has estimated the
following fair values for its long-term debt as of December 31, 1996:
Carrying Fair
Amount Value
--------- ---------
New Credit Facility..................... $ (9,000) $ (9,000)
Real estate mortgages................... (10,733) (10,137)
10-1/8% Senior Subordinated Notes ...... (165,000) (156,398)
F-13
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Acquisitions
During 1994, the Company purchased substantially all of the assets, and
assumed certain liabilities, of three separate records management businesses.
During 1995, the Company purchased substantially all of the assets, and assumed
certain liabilities, of four additional records management businesses and during
1996, the Company purchased substantially all of the assets, and assumed certain
liabilities, of another sixteen records management businesses. Each of these
acquisitions was accounted for using the purchase method of accounting and
accordingly, the results of operations for each acquisition have been included
in the consolidated results of the Company from the respective acquisition
dates. The excess of the purchase price over the underlying fair value of the
assets and liabilities of each acquisition has been assigned to goodwill
($2,484, $26,054 and $53,894 in 1994, 1995 and 1996, respectively) and is being
amortized over the estimated benefit period of 25 years. Funds used to make the
various acquisitions were provided through the Company's credit facilities and a
portion of the net proceeds from the Offering and the sale of the Notes. A
summary of the cash consideration (not including contingent payments of
approximately $4,000 based on the achievement of certain revenue targets in 1997
and 1998) and allocation of the purchase price as of the acquisition dates are
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Fair value of assets acquired.............. $ 3,223 $ 41,286 $ 73,370
Liabilities assumed........................ (377) (8,238) (4,874)
-------- -------- ---------
Cash paid.................................. $ 2,846 $ 33,048 $ 68,496
======== ======== =========
</TABLE>
The following unaudited pro forma combined information shows the results of
the Company's operations for the years ended December 31, 1995 and 1996 as
though each of the completed acquisitions had occurred as of the beginning of
the period reported:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Revenues ......................................................... $ 140,900 $ 154,076
Loss before extraordinary charge ................................. (1,989) (243)
Net loss applicable to common stockholders ....................... (4,096) (2,649)
Loss per common and common equivalent share before
extraordinary charge and accretion of put warrant ............ (0.26) (0.02)
Net loss per common and common equivalent share .................. (0.53) (0.27)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place as of the beginning of the period reported or the
results that may occur in the future. Furthermore, the pro forma results do not
give effect to all cost savings or incremental costs which may occur as a result
of the integration and consolidation of the companies. Certain acquisitions
completed in the fourth quarter of 1996 are not included in the pro forma
results as their effect was immaterial.
In connection with the acquisitions completed in 1996, the Company has
undertaken certain restructurings of the acquired businesses. Formalized
restructuring plans for acquisitions will be completed within one year from the
date of acquisition. The restructuring activities include certain reductions in
staffing levels, elimination of duplicate facilities and other costs associated
with exiting certain activities of the acquired businesses. In connection with
these restructuring activities, the Company established reserves of $1,883.
These amounts were recorded as costs of the acquisitions and were provided in
accordance with Emerging Issues Task Force Issue No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination". During 1996,
the Company expended $602 for restructuring costs. These expenditures consisted
primarily of severance costs, move costs and costs relating to exited
facilities. As of December 31, 1996, the Company had a total of $1,340 accrued
for restructuring costs on all of its acquisitions.
F-14
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Capital Stock, Redeemable Put Warrant and Stock Options
a. Capital Stock
On February 6, 1996, the Company completed an initial public offering of
its Common Stock (the "Offering"). Pursuant to the Offering, the Company issued
2,350,000 shares of Common Stock - Voting.
In connection with the Offering, the Board of Directors approved, and the
shareholders ratified, a recapitalization and the designation of three new
classes of stock as follows:
Authorized
Class Shares
------------------------------------------------ --------------------
Preferred stock, $.01 par value................. 2,000,000
Common stock - voting, $.01 par value........... 13,000,000
Common stock - non-voting, $.01 par value....... 1,000,000
Upon consummation of the Offering, all shares of capital stock were
automatically converted into shares of Common Stock - Voting and, in the case of
one stockholder, Common Stock - Non-Voting. The number of common shares received
upon conversion were as follows:
<TABLE>
<CAPTION>
Common
------------------------------------
Preferred Voting Non-Voting
----------------- ------------------ -----------------
<S> <C> <C> <C>
Series A1 and Series A3................... 50,000 987,314 --
Series A2................................. 98,000 1,435,146 500,000
Series C.................................. 351,395 4,809,793 --
</TABLE>
The following table summarizes the number of shares authorized, issued and
outstanding for each issue of the Company's capital stock as of December 31:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------
Authorized Issued and Outstanding
-------------------------------- -------------------------------
Equity Type Par Value 1995 1996 1995 1996
- -------------------------------------- --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Series A1 preferred stock ........... $.01 6,500 -- 6,500 --
Series A2 preferred stock ........... $.01 98,000 -- 98,000 --
Series A3 preferred stock ........... $.01 43,500 -- 43,500 --
Series B preferred stock ............ $.01 148,000 -- -- --
Series C preferred stock ............ $.01 351,395 -- 351,395 --
Preferred stock ..................... $.01 -- 2,000,000 -- --
Class A common stock ................ $.01 13,000,000 -- 44,888 --
Class B common stock ................ $.01 10,300,000 -- -- --
Class C common stock ................ $.01 1 -- -- --
Common stock-voting ................. $.01 -- 13,000,000 -- 9,657,657
Common stock-non-voting.............. $.01 -- 1,000,000 -- 477,295
</TABLE>
In 1995, the Company declared a 15.4215-for-1 stock split of the Class A
and Class B Common Stock in the form of a stock dividend. All weighted average
common share and stock related data in the consolidated financial statements
have been retroactively restated to reflect the stock split.
b. Redeemable Put Warrant
In connection with the issuance of the Chrysler Notes, the Company also
issued a put warrant, dated December 14, 1990 (the "Warrant"), exercisable for
444,385 shares of common stock for nominal consideration upon the occurrence of
certain specified events. On February 7, 1996, in connection with the Offering,
the Warrant was
F-15
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
redeemed for $6,612. This Warrant has been accreted each year using the
effective interest rate method based on the Warrant's estimated redemption value
at its estimated redemption date of February 15, 1996 and is reflected as a
redeemable put warrant in the accompanying balance sheets.
c. Stock Options
In September, 1991 the Company created a non-qualified stock option plan
pursuant to which up to 444,385 shares of Class A common stock of the Company
could be issued at the discretion of the Stock Option Committee to key
employees, consultants and directors.
Effective November 30, 1995, the Board of Directors approved the adoption
of the 1995 Stock Incentive Plan (the "Stock Option Plan"), which replaced the
previous stock option plan. A total of 1,000,000 shares of Common Stock are
available for grant as options and other rights under the Stock Option Plan,
including the options issued under the 1991 plan.
Effective December 21, 1995, the Board of Directors approved the 1995 Stock
Option Plan for Non-Employee Directors that permits non-employee Directors to
elect to receive all or a portion of their compensation in the form of Common
Stock. Directors electing to receive Common Stock will, as an incentive, receive
an amount of stock equivalent to 110% of the directors compensation otherwise
due to be paid in cash. During 1996, the Company issued 915 shares under the
plan. At December 31, 1996, there were 14,085 shares reserved for issuance under
the plan.
The following is a summary of stock option transactions during the
applicable periods:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
----------------- ------------------------
<S> <C> <C>
Options outstanding, December 31, 1993..... 286,618 $ 6.85
Canceled................................. (25,134) 6.48
-------
Options outstanding, December 31, 1994..... 261,484 6.89
Granted.................................. 97,018 12.58
Exercised................................ (15,976) 12.58
Canceled................................. (8,219) 11.21
-------
Options outstanding, December 31, 1995..... 334,307 8.16
Granted.................................. 453,854 16.49
Exercised................................ (6,896) 9.58
Canceled................................. (18,404) 11.76
------
Options outstanding, December 31, 1996..... 762,861 13.02
=======
</TABLE>
The stock options were granted with exercise prices equal to or greater
than the fair market value at the date of grant. The majority of options become
exercisable ratably over a period of five years unless the holder terminates
employment. As of December 31, 1996, 220,129 of the options outstanding were
exercisable at a weighted average exercise price of $7.06 per share. The number
of options available for grant at December 31, 1996 was 185,355.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options at intrinsic value with disclosure of fair
value accounting on net income (loss) and earnings (loss) per share on a pro
forma basis. Had the Company elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123,
net income (loss) and earnings (loss) per common and common equivalent share
would have been reduced to the pro forma amounts indicated in the table below:
F-16
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net loss applicable to common stockholders -- as reported ... $ (1,859) $ (2,049)
Net loss applicable to common stockholders -- pro forma ..... (2,058) (2,991)
Net loss per common and common equivalent
share -- as reported .................................... (0.24) (0.20)
Net loss per common and common equivalent
share -- pro forma ...................................... (0.26) (0.30)
</TABLE>
Consistent with SFAS No. 123, pro forma net income (loss) and earnings
(loss) per share have not been calculated for options granted prior to January
1, 1995. Accordingly, pro forma compensation cost may not be representative of
that to be expected in future years.
The weighted average fair value of options granted in 1995 and 1996 was
$5.22 and $7.38 per share, respectively. The values were estimated on the date
of grant using the Black-Scholes option pricing model. The following table
summarizes the weighted average assumptions used for grants in the year ended
December 31:
Assumption 1995 1996
------------------------------------ --------------- --------------
Expected volatility ................ 24.2% 24.2%
Risk free interest rate ............ 7.51 6.34
Expected dividend yield ............ N/A N/A
Expected life of the option ....... 6.3 yrs 7.5 yrs
At December 31, 1996, the options outstanding were exercisable at prices
ranging from $6.48 to $30.38 per share and had a weighted average remaining
contractual life of 7.8 years.
6. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109 which
requires the recognition of deferred tax assets and liabilities for the expected
tax consequences of temporary differences between the tax and financial
reporting bases of assets and liabilities.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1996
---------- -----------
<S> <C> <C>
Accrued liabilities........................................ $ 1,585 $ 1,757
Accrued rent............................................... 3,462 3,056
Net operating loss carryforwards........................... 2,522 4,751
AMT credit................................................. 628 587
Deferred income............................................ 360 --
Other...................................................... 1,150 1,719
---------- -----------
Gross deferred tax assets............................ 9,707 11,870
---------- -----------
Other assets principally due to differences in
amortization............................................ (2,051) (2,150)
Plant and equipment, principally due to
differences in depreciation............................. (7,201) (7,039)
Customer acquisition costs................................. (1,716) (2,337)
Other...................................................... (417) --
----------- -----------
Gross deferred tax liabilities....................... (11,385) (11,526)
---------- -----------
Net deferred tax asset (liability)........... $ (1,678) $ 344
========== ===========
</TABLE>
At December 31, 1996, a non-current deferred tax asset of $987 is included
in Other Assets in the accompanying Balance Sheets.
F-17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company and its subsidiaries file a consolidated Federal income tax
return. The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal -- current.................. $ 68 $ 422 $ 958
Federal -- deferred................. 1,416 837 57
State -- current.................... 175 96 1,450
State -- deferred................... 298 342 (1,030)
--------- --------- ---------
$ 1,957 $ 1,697 $ 1,435
========= ========= =========
</TABLE>
A reconciliation of total income tax expense and the amount computed by
applying the US Federal income tax rate of 34% to income before income taxes is
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax provision................... $ 1,102 $ 661 $ 609
Increase in income taxes resulting from:
State taxes (net of federal tax benefit).......... 312 289 278
Non-deductible goodwill
amortization................................... 521 843 602
Other............................................. 22 (96) (54)
-------- -------- --------
$ 1,957 $ 1,697 $ 1,435
======== ======== ========
</TABLE>
The Company has estimated Federal net operating loss carryforwards of
$11,510 at December 31, 1996 to reduce future Federal income taxes, if any,
which begin to expire in 2005. The Company also has estimated state net
operating loss carryforwards of approximately $3,610 to reduce future state
income taxes, if any. Additionally, the Company has alternative minimum tax
credit carryforwards of $587 which have no expiration date and are available to
reduce future income taxes, if any.
F-18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Revenues ....................................... $ 24,338 $ 25,886 $ 26,570 $ 27,642
Gross profit ................................... 12,114 12,998 13,682 13,365
Net loss applicable to common
stockholders - (1) ......................... (274) (259) (4) (822) (5) (504) (6)
Net loss per share applicable to
common stockholders ........................ (0.04) (0.03) (0.11) (0.06)
- -------------------------------------------------------------------------------------------------------------------------------
1996
Revenues........................................ $ 31,028 $ 32,922 $ 36,019 $ 38,749
Gross profit ................................... 15,360 16,207 17,311 19,093
Income (loss) before extraordinary
charge ..................................... 286 411 -- (340)
Net income (loss) applicable to
common stockholders ........................ 6 (2) 411 (7) -- (2,466) (3)
Income (loss) per share before
extraordinary charge applicable to
common stockholders ........................ 0.00 0.04 0.00 (0.03)
Net income (loss) per share applicable
to common stockholders ..................... 0.00 0.04 0.00 (0.23)
</TABLE>
- ----------------------------
(1) Includes charges of $452, $501, $554 and $600 respectively, related to the
accretion of the put warrant.
(2) Includes a charge of $280, related to the accretion of the put warrant.
(3) Includes an extraordinary charge of $2,126, net of tax benefit, related to
the prepayment of certain indebtedness.
(4) Includes a $360 after tax charge for litigation.
(5) Includes a $900 write-down of the goodwill of a subsidiary.
(6) Includes a $300 after tax charge related to the relocation of the corporate
accounting function from Los Angeles to Boston.
(7) Includes a $193 after tax charge related to the relocation of the corporate
accounting function from Los Angeles to Boston.
8. Commitments and Contingencies
a. Leases
Iron Mountain leases most of its facilities under various operating leases.
A majority of these leases have renewal options of five to ten years and have
either fixed or Consumer Price Index escalation clauses. The Company also leases
equipment under operating leases, primarily computers which have an average
lease life of three years. Trucks and office equipment are also leased and have
remaining lease lives ranging from one to seven years. Rent expense was $13,555,
$15,661, and $21,114 for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Minimum future lease payments are as follows:
Year Operating
------------------------------------- ---------
1997................................. $ 20,210
1998................................. 17,397
1999................................. 17,106
2000................................. 16,896
2001................................. 16,242
Thereafter........................... 80,332
---------
Total minimum lease payments......... $ 168,183
=========
b. Litigation
Iron Mountain is presently involved as a defendant in various litigation
which has occurred in the normal course of business. Management believes it has
meritorious defenses in all such actions, and in any event, the amount of
damages, if such matters were decided adversely, would not have a material
adverse effect on Iron Mountain's financial condition or results of operations.
c. Other
The Company may be responsible for environmental clean-up costs at certain
of its facilities. Estimated costs of approximately $800 to perform the
necessary remediation work are included in other liabilities in the accompanying
balance sheets. Management believes the ultimate outcome of the above issue will
not have a material adverse effect on Iron Mountain's financial condition or
results of operations.
9. Related Party Transactions
Iron Mountain leases space to an affiliated company, Schooner Capital
Corporation (Schooner) for its corporate headquarters located in Boston,
Massachusetts. For the years ended December 31, 1994, 1995 and 1996, Schooner
paid Iron Mountain rent totaling $58, $49 and $68, respectively. Iron Mountain
leases one facility from a landlord which is a related party. Total rental
payments for the years ended December 31, 1994, 1995 and 1996 for this facility
totaled $88, $93 and $94, respectively. In the opinion of management, both of
these leases were entered into at market prices and terms.
10. Profit Sharing Retirement Plan
The Company has a defined contribution plan which covers all non-union
employees meeting certain service requirements. Eligible employees may elect to
defer from 1 to 15% of compensation per pay period up to the amount allowed by
the Internal Revenue Code. The Company makes matching contributions based on the
amount of the employee contribution and years of credited service, according to
a schedule as described in the Plan documents. The Company has expensed $168,
$276 and $419 for the years ended December 31, 1994, 1995 and 1996,
respectively.
11. Subsequent Events
a. Acquisitions
Subsequent to December 31, 1996, the Company agreed to acquire
substantially all of the assets and assume certain liabilities of five records
management businesses for approximately $31,600 (not including contingent
payments of up to approximately $800 based on the achievement of certain revenue
targets in 1997 and 1998), in transactions accounted for under the purchase
method. As of March 12, 1997, four of these transactions had been consummated.
The fifth acquisition is expected to close during the second quarter of 1997.
F-20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
b. Agreement to Merge with Safesite Records Management Corporation
In addition to the acquisitions described above, in February 1997, the
Company announced that it had reached a definitive agreement to merge with
Safesite Records Management Corporation ("Safesite"), a privately held company
based in the Boston, Massachusetts area.
Safesite stockholders and holders of exercisable options will receive Iron
Mountain common stock valued at approximately $50 million, plus approximately
$12 million in cash. The number of shares of Iron Mountain common stock will be
determined based on its market price, using a "collar" with a floor of $26.00
and a ceiling of $31.00. The transaction is subject to regulatory approval and
the approval of Safesite's stockholders. The merger is expected to be completed
during the second quarter of 1997.
c. Amendment and Restatement of the New Credit Facility
On March 3, 1997, the Company amended the New Credit Facility, increasing
the facility from $100 million to $150 million. In addition, certain other terms
of the New Credit Facility, including interest rates, commitment fees and
financial covenants were amended and restated.
d. Actions of the Board of Directors
On March 3, 1997, the Board of Directors:
(1) Voted, subject to stockholder approval, to increase the number of
authorized shares of Common Stock-Voting from 13,000,000 shares to
20,000,000 shares.
(2) Increased, subject to stockholder approval, the number of shares
available for grant as options under the 1995 Stock Incentive Plan by
400,000.
(3) Amended the 1995 Stock Incentive Plan to, among other things,
incorporate the provisions of the 1995 Non-Employee Directors' Plan.
(4) Granted 22,900 options to various employees to purchase common stock at
fair market value at the date of grant.
(5) Voted to terminate the 1995 Non-Employee Directors' Plan as of June 30,
1997.
e. Facility Fire
In March 1997, Iron Mountain experienced three fires that resulted in
extensive damage to two of its records management facilities in South Brunswick,
New Jersey. The affected facilities represented less than three percent of
revenues and less than two percent of EBITDA for 1996. Management believes that
insurance will cover substantially all of Iron Mountain's property and business
interruption losses relating to the fires. However, Iron Mountain may incur
costs as a result of the fires which will not be covered by insurance.
Management is unable to estimate at this time the magnitude of such costs. The
claims process is lengthy and its outcome cannot be predicted with certainty.
Based on its present assessment of the situation, management does not believe
that the fires will have a material adverse effect on Iron Mountain's financial
condition or results of operations, although there can be no assurance in this
regard.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners Nashville Vault Company, Ltd.:
We have audited the accompanying balance sheet of Nashville Vault Company,
Ltd. (a Tennessee limited partnership) as of December 31, 1995, and the
related statements of income, partners' capital and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 financial position of Nashville Vault Company,
Ltd. at December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 16, 1996
F-22
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
BALANCE SHEET
December 31,
1995
------------
ASSETS
Current assets:
Cash and cash equivalents ............... $ 275,806
Accounts receivable--trade .............. 180,609
Prepaid expenses ........................ 60
----------
Total current assets .................. 456,475
Property and equipment:
Building and improvements ............... 1,148,652
Furniture and equipment ................. 269,798
Vehicles ................................ 88,386
----------
1,506,836
Accumulated depreciation and amortization (833,520)
----------
673,316
----------
$1,129,791
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses ... $ 104,662
Deferred revenue ........................ 43,253
Convertible notes payable ............... 325,000
----------
Total current liabilities ............. 472,915
PARTNERS' CAPITAL ....................... 656,876
----------
$1,129,791
==========
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENT OF INCOME
Year Ended
December 31,
1995
----------------
Revenue:
Storage ........................................... $ 636,302
Service and storage material sales ................ 738,338
--------------
Total revenue .................................. 1,374,640
Operating expenses:
Cost of sales (excluding depreciation) ............ 499,389
Selling, general and administrative expenses ...... 326,674
Depreciation and amortization ..................... 122,021
--------------
Total operating expenses ....................... 948,084
--------------
Operating income .................................... 426,556
Other income (expense):
Interest income ................................... 18,994
Interest expense .................................. (80,022)
--------------
(61,028)
--------------
Net income .......................................... $ 365,528
==============
STATEMENT OF PARTNERS' CAPITAL
Balance, Beginning of Year .......................... $ 306,499
Net income ........................................ 365,528
Cash distributions ................................ (15,151)
--------------
Balance, End of Year ................................ $ 656,876
==============
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
Year Ended
December 31,
1995
----------------
Operating Activities:
Net income ............................................... $ 365,528
Items not affecting net cash provided by operating
activities:
Depreciation and amortization ......................... 122,021
Gain on disposal of property and equipment ............ (141)
Changes in other items:
Accounts receivable--trade ......................... (333)
Prepaid expenses ................................... 16,761
Accounts payable and accrued expenses .............. 41,230
Deferred revenue ................................... (2,012)
--------------
Net cash provided by operating activities .......... 543,054
Investing Activities:
Purchase of property and equipment ....................... (30,908)
Proceeds from sale of property and equipment ............. 2,300
Proceeds from sale of investments ........................ 310,000
Purchase of investments .................................. (210,000)
--------------
Net cash provided by investing activities .......... 71,392
Financing Activities:
Payments on debt ......................................... (489,969)
Cash distribution to partners ............................ (15,151)
--------------
Net cash used by financing activities .............. (505,120)
--------------
Net increase in Cash and Cash Equivalents .................. 109,326
Cash and Cash Equivalents, Beginning of Year ............... 166,480
--------------
Cash and Cash Equivalents, End of Year ..................... $ 275,806
==============
Supplemental Cash Flows Information:
Cash paid during the year for interest ................... $ 80,022
Equipment acquired with installment note ................. 48,854
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Nashville Vault Company, Ltd. (the "Partnership") is a limited partnership
formed pursuant to the Uniform Limited Partnership Act of Tennessee on
February 21, 1985 to renovate, own and operate a maximum security facility
containing safe deposit boxes and secured storage vaults in Nashville.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Partnership considers all liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 1995, cash
equivalents consisted of savings accounts. From time to time during the year,
the Partnership's cash accounts exceeded federally insured limits.
Property and Equipment
Property and equipment are carried at cost, and such cost is being
recovered using straight-line and accelerated methods of depreciation, with
useful lives of 15 to 31.5 years for building and improvements, 5 to 7 years
for furniture and equipment, and 5 years for vehicles.
Revenue Recognition
Revenue is recognized when earned. Revenue billed in advance is shown as
deferred revenue.
Advertising Costs
The Partnership expenses advertising costs as incurred. Advertising costs
were $6,787 in 1995.
Income Tax Status
Since the entity is a partnership, it is not subject to federal and state
income taxes and, accordingly, no provision for federal and state taxes on
income is required. The partners include their allocable share of the net
income or loss in their respective income tax returns.
3. Convertible Notes Payable
The 12% convertible notes, payable to certain limited partners, are
convertible into limited partnership units at a conversion price of $12,500
for one limited partnership unit. On January 1, 1996, all convertible notes
were converted into 26 limited partnership units.
4. Employee Benefits
On January 1, 1994, the Partnership established a 401(k) defined
contribution plan for the benefit of substantially all of its employees,
which allows for both employee and Partnership contributions. The Partnership
contribution consists of a matching contribution of 25 percent of employee
contributions, up to 3.75 percent of eligible employee compensation. The
Partnership contribution to the plan was $3,924 for 1995. This plan was
terminated on December 31, 1995.
F-26
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
Notes to the Financial Statements--(continued)
5. Partnership Agreement
The Agreement of Limited Partnership (as amended) specifies the allocation
of profits, losses, and distributions to be allocated 1% to the General
Partner and 99% to the Investor Limited Partners.
Under the agreement, the limited partners are not liable for any debts of
the Partnership nor are they required to make any additional capital
contributions.
6. Related Party Transactions
The Partnership leases the ground on which its building is located from
family members of stockholders of the General Partner and pays real estate
taxes and other related expenses under the lease which expires November 30,
2000. On January 1, 1996, the Partnership exercised an option to purchase the
land for $250,000. Rent expense in 1995 was $29,000.
The General Partner, USA Vault Corporation, is guaranteed a monthly
management fee for the operation of the Partnership. The fee begins at $1,000
per month increasing to $2,000 and $3,000 monthly when annual gross revenue
exceeds $200,000 and $300,000, respectively. The Partnership incurred
management fees to the General Partner of $32,000 in 1995.
The Partnership pays fees to a company owned by the president of USA Vault
Corporation for accounting and bookkeeping services. Fees paid totaled
$12,000 for 1995.
7. Major Customer
Sales from a major customer approximated 10% of sales and 19% of accounts
receivable at December 31, 1995.
8. Subsequent Event
On January 4, 1996, the Partnership sold, effective January 1, 1996,
substantially all of its operating assets for approximately $3,450,000 to
Iron Mountain Record Management, Inc.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of International Record
Storage and Retrieval Service, Inc. as of December 31, 1995 and the related
statements of operations, stockholders' deficit, and cash flows for the year
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 audit.
We conducted our audit 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 financial position of International Record Storage
and Retrieval Service, Inc. as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
July 19, 1996
F-28
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December
31, June 30,
1995 1996
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................... $ 134,340 $ 66,151
Accounts receivable, less allowance for doubtful
accounts of $16,000 in 1995 and 1996 ................. 255,276 264,020
Inventories ............................................ 13,505 12,997
Prepaid expenses and other ............................. 24,690 33,576
-------- ----------
Total current assets ................................. 427,811 376,744
Equipment and improvements, less accumulated depreciation
of $244,831 in 1995 and $277,428 in 1996 ............... 437,522 452,340
Deferred income taxes .................................... 171,000 160,000
Other assets ............................................. 21,667 21,667
-------- ----------
$ 1,058,000 $ 1,010,751
======== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt ...................... $ 13,474 $ 14,459
Accounts payable ....................................... 5,449 31,757
Accrued expenses ....................................... 62,558 69,714
Due affiliates ......................................... 617,173 513,261
Deferred income ........................................ 86,096 89,529
Deferred compensation, current portion ................. 40,401 41,940
-------- ----------
Total current liabilities ............................ 825,151 760,660
-------- ----------
Notes payable, net of current portion .................... 7,572 --
Deferred compensation, net of current portion ............ 772,518 751,156
Deferred rent ............................................ 236,035 233,254
Commitments and contingency
Stockholders' deficiency:
Common stock, no par value, authorized, issued and
outstanding 100 shares ............................... 100 100
Additional paid-in capital ............................. 970,792 970,792
Accumulated deficit .................................... (1,754,168) (1,705,211)
-------- ----------
Total stockholders' deficiency ....................... (783,276) (734,319)
-------- ----------
$ 1,058,000 $ 1,010,751
======== ==========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-29
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year
Ended Six Months Ended
December June 30,
31, ---------------------------
1995 1995 1996
----------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues:
Storage ............................... $ 962,463 $ 462,275 $ 528,604
Service and storage material sales .... 620,428 322,215 312,739
--------- --------- ----------
Total revenues ...................... 1,582,891 784,490 841,343
--------- --------- ----------
Operating expenses:
Costs of sales (excluding depreciation) 790,127 380,347 430,969
Selling, general and administrative ... 427,748 212,704 247,085
Depreciation and amortization ......... 72,723 36,065 34,741
--------- --------- ----------
Total operating expenses ............ 1,290,598 629,116 712,795
--------- --------- ----------
Operating income ....................... 292,293 155,374 128,548
Interest expense ....................... 66,681 34,536 32,591
--------- --------- ----------
Income before provision for income taxes 225,612 120,838 95,957
Provision for income taxes ............. 21,000 13,000 11,000
--------- --------- ----------
Net income ............................. 204,612 107,838 84,957
Accumulated deficit:
Beginning of period .................... (1,908,780) (1,908,780) (1,754,168)
Dividends .............................. (50,000) -- (36,000)
--------- --------- ----------
End of period .......................... $(1,754,168) $(1,800,942) $(1,705,211)
========= ========= ==========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-30
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year
Ended Six Months Ended
December June 30,
31, ----------------------
1995 1995 1996
---------- -------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................... $ 204,612 $107,838 $ 84,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts .................... 8,000 8,000 --
Depreciation ....................................... 72,723 36,065 34,741
Provision for deferred income taxes ................ 21,000 13,000 11,000
Gain on disposal of property and equipment ......... (7,468) (7,468) --
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable ............................... (102,421) (82,045) (8,744)
Inventories ....................................... 1,825 (4,824) 508
Prepaid expenses and other ........................ (22,921) (33,881) (8,886)
Accounts payable .................................. (8,110) 40,228 26,308
Accrued expenses .................................. 42,810 27,031 7,156
Deferred income ................................... 13,016 8,074 3,433
Deferred compensation and other liabilities ....... (50,195) (31,099) (19,823)
Deferred rent ..................................... 20,452 5,281 (2,781)
-------- ------ --------
Net Cash Provided by Operating Activities ............ 193,323 86,200 127,869
-------- ------ --------
Cash Flows from Investing Activities:
Proceeds from the sale of property and equipment .... 17,565 17,565 --
Acquisitions of property and equipment .............. (67,810) (67,027) (49,559)
-------- ------ --------
Net Cash used in Investing Activities ................ (50,245) (49,462) (49,559)
-------- ------ --------
Cash Flow from Financing Activities:
Repayment of notes payable .......................... (59,089) (42,814) (6,587)
Advances from (repayments to) affiliates ............ 81,310 61,673 (103,912)
Dividends paid ...................................... (50,000) -- (36,000)
-------- ------ --------
Net Cash Provided by (used in) Financing Activities .. (27,779) 18,859 (146,499)
-------- ------ --------
Increase (Decrease) in Cash .......................... 115,299 55,597 (68,189)
Cash, beginning of period ............................ 19,041 19,041 134,340
-------- ------ --------
Cash, end of period .................................. $ 134,340 $ 74,638 $ 66,151
======== ====== ========
Supplemental Disclosure of Cash Flow Information, cash $
paid during the period for interest ................ $ 66,681 34,536 $ 32,591
======== ====== ========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-31
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS:
The Company is engaged principally in the storage of records for customers
in the New Jersey-New York area and providing ancillary services in
conjunction with such records.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to
the customer. The Company invoices storage charges to its customers in
advance and these advanced billings are recorded as accounts receivable and
the related revenues are included as deferred income in the accompanying
financial statements.
Inventories
Inventories are carried at the lower of cost or market using the first-in
first-out basis and are comprised primarily of cartons.
Income Taxes
The Company has elected to be treated as an "S" Corporation under the
applicable sections of the Internal Revenue Code. Under these sections,
corporate income or loss is allocated to the stockholders for inclusion in
their personal income tax returns. Accordingly, there is no provision for
federal income tax in the accompanying financial statements. State income
taxes are recorded in accordance with Statement of Financial Accounting
Standards
No. 109.
Equipment and Improvements
Equipment and improvements are stated at cost and depreciated using the
straight-line method with the following useful lives:
Office Equipment .................................... 5 years
Transportation equipment ............................ 5 to 10 years
Shelving and warehouse improvements ................. 10 to 15 years
Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of the carrying
amounts of long-lived assets, including intangible assets. A loss is
recognized when expected undiscounted future cash flows are less than the
carrying amount of the asset. The impairment loss is the difference by which
the carrying amount of the asset exceeds its fair value.
Deferred Rent
The Company's lease for its building used in the storage of records has
fixed escalation clauses which require the normalization of rental expense
over the life of the lease, resulting in deferred rent being reflected in the
accompanying balance sheets.
F-32
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards (SFAS)
No. 107, "Disclosures about Fair Value of Financial Instruments", approximates
the carrying amounts presented in the balance sheets.
Unaudited Financial Statements
The unaudited financial statements included herein have been prepared in
accordance with generally accepted accounting principles. In the opinion of
management, the unaudited financial statements include all adjustments of a
normal and recurring nature which are necessary for a fair presentation. The
results of operations for the six months ended June 30, 1995 and 1996 are not
necessarily indicative of the results expected for the full year.
NOTE 3--EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consist of the following:
December
31, June 30,
1995 1996
---------- ----------
(Unaudited)
Office equipment ........................... $ 97,919 $ 106,427
Transportation equipment ................... 108,217 108,217
Shelving and warehouse improvements ........ 476,217 515,124
-------- --------
682,353 729,768
Less accumulated depreciation .............. (244,831) (277,428)
-------- --------
$ 437,522 $ 452,340
======== ========
NOTE 4--NOTES PAYABLE:
Long-term debt consists of various loans payable in monthly installments
of approximately $1,200 including interest at rates ranging between 8.4% and
10.2% with the final payment June 1997. The loans are collateralized by
certain equipment.
Aggregate principal payment requirements in each of the years subsequent
to December 31, 1995 are as follows:
1996 ................................................ $13,474
1997 ................................................ 7,572
NOTE 5--RELATED PARTY TRANSACTIONS:
The Company is affiliated, through common ownership, with a real estate
management company, International Management Services, Inc. (IMS). IMS
provides certain administrative services to the Company under agreements
designed to reimburse IMS for the approximate cost of providing such
services. Amounts due affiliates are non-interest bearing and have no
specific repayment terms.
The Company incurred charges for management fees to IMS of approximately
$90,000 for the year ended December 31, 1995 and $44,000 and $50,000 for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited),
respectively.
F-33
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 6--DEFERRED COMPENSATION:
The Company is obligated under an Income Continuation agreement dated
October 1, 1994 with a former employee providing for a payment of $100,000
annually for the life of the employee. In 1994, the Company recorded an
expense of $864,297 representing the present value of the benefits for the
employee's life expectancy discounted at the rate of 7.5% per annum. Payments
commenced in September 1994 and amounted to $100,000 for the year ended
December 31, 1995 and $50,000 for each of the six month periods ended June
30, 1995 (unaudited) and 1996 (unaudited).
NOTE 7--INCOME TAXES:
The provision for income taxes in the accompanying statements of
operations consists of the following:
Year
Ended Six Months Ended
December June 30,
31, ----------------------
1995 1995 1996
---------- -------- ----------
(Unaudited) (Unaudited)
State income taxes deferred ... $21,000 $13,000 $11,000
======== ====== ========
A reconciliation of total income tax expense and the amount computed by
applying the state income tax rate of 9% to income before income taxes is as
follows:
Year
Ended Six Months Ended
December June 30,
31, ----------------------
1995 1995 1996
---------- -------- ----------
(Unaudited) (Unaudited)
Computed "expected" tax
provision .................. $20,000 $11,000 $ 9,000
Other ....................... 1,000 2,000 2,000
-------- ------ --------
$21,000 $13,000 $11,000
======== ====== ========
The Company has approximately $1,000,000 of net operating loss
carryforwards for state income tax purposes at December 31, 1995. These
carryforwards, which management expects will be fully utilized, expire
through the year 2000.
The components of the Company's deferred tax assets and liabilities are as
follows:
Year Six
Ended Months
December Ended
31, June 30,
1995 1996
---------- ----------
(Unaudited)
Deferred Tax Assets:
Tax benefit attributable to:
Net operating loss carryforwards ......... $ 89,000 $ 80,000
Deferred rent ............................ 21,000 21,000
Deferred compensation .................... 73,000 71,000
Other .................................... 2,000 2,000
Deferred tax liability, tax depreciation in
excess of book depreciation .............. (14,000) (14,000)
-------- --------
Net Deferred Tax Asset .................... $171,000 $160,000
======== ========
F-34
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 8--RETIREMENT PLANS:
The Company maintains a 401(k) plan for the benefit of its employees. The
Company contributes to the plan annually, at their discretion, up to 4% of
each participant's compensation. The expense amounted to $4,311 for the year
ended December 31, 1995 and $1,960 and $1,839 for the six months ended June
30, 1995 (unaudited) and 1996 (unaudited), respectively.
NOTE 9--LEASE COMMITMENTS:
The Company occupies general office and warehouse facilities under an
operating lease expiring December 31, 2002, providing for minimum annual
rentals as follows:
Year ending
December 31,
1996 ................................................ $ 318,000
1997 ................................................ 318,000
1998 ................................................ 318,000
1999 ................................................ 318,000
2000 ................................................ 350,000
Thereafter .......................................... 700,000
--------
$2,322,000
========
Rent expense for facilities charged to operations was $273,791 for the
year ended December 31, 1995 and $113,556 and $158,506 for the six months
ended June 30, 1995 (unaudited) and 1996 (unaudited), respectively.
NOTE 10--CONTINGENCY:
The Company is a defendant in a legal proceeding with the lessor of its
office and warehouse facilities relating to alleged damages suffered in
connection with the cancellation of a proposed sale of the property to a
third party. The claim does not specify an amount of damages and the Company
has responded to the complaint and made a counter claim. It is management's
opinion that the outcome of this litigation will not have a material effect
on the Company's financial position or results of operations.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of Mohawk Business Record
Storage, Inc. (a Minnesota corporation) as of December 31, 1995, and the related
statements of operations and retained earnings and cash flows for the year 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 audit.
We conducted our audit 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 financial position of Mohawk Business Record Storage,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
September 6, 1996
F-36
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .......................................... $ 223,478 $ 95,947
Accounts receivable (less allowance for doubtful accounts of $5,000
and $13,500 in 1995 and 1996, respectively) ........................ 1,186,858 1,163,478
Notes receivable, stockholder .................................... 100,000 --
Inventories ...................................................... 31,548 26,586
Prepaid expenses and other ....................................... 51,110 65,590
Current portion of note receivable, related company ............... 15,996 12,996
---------- ----------
Total current assets .......................................... 1,608,990 1,364,597
---------- ----------
Property and Equipment ............................................. 9,049,148 9,318,493
Less -- Accumulated depreciation ................................. 5,013,510 5,536,537
---------- ----------
Net property and equipment .................................... 4,035,638 3,781,956
---------- ----------
Other Assets:
Other ............................................................ 15,000 15,000
Long-term note receivable, related company ........................ 222,004 216,004
---------- ----------
237,004 231,004
---------- ----------
$5,881,632 $5,377,557
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................... $ 47,887 $ 38,990
Notes payable--
Bank ............................................................ 1,625,000 900,000
Related parties ................................................ 333,200 1,899,100
Accrued expenses ................................................... 507,450 407,925
Deferred revenue ................................................... 551,947 441,815
---------- ----------
Total current liabilities ....................................... 3,065,484 3,687,830
---------- ----------
Long-term Notes Payable, stockholders .............................. 1,400,000 --
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Common stock, 25,000 shares, $1 par, 4,000 shares issued and
outstanding ...................................................... 4,000 4,000
Paid-in capital ................................................... 46,000 46,000
Retained earnings ................................................ 1,366,148 1,639,727
---------- ----------
Total stockholders' equity .................................... 1,416,148 1,689,727
---------- ----------
$5,881,632 $5,377,557
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended September 30,
December 31, -------------------------------
1995 1995 1996
--------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Storage .................................... $4,705,253 $3,476,550 $3,985,686
Service and storage material sales ......... 4,094,977 3,047,750 3,092,347
----------- ----------- -----------
Total revenues ........................... 8,800,230 6,524,300 7,078,033
----------- ----------- -----------
Operating Expenses:
Cost of sales (excluding depreciation) ...... 4,644,836 3,527,125 3,550,591
Selling, general and administrative ......... 2,833,687 2,146,345 2,381,855
Depreciation and amortization ............... 657,586 456,178 546,756
----------- ----------- -----------
Total operating expenses .................. 8,136,109 6,129,648 6,479,202
----------- ----------- -----------
Operating Income .............................. 664,121 394,652 598,831
Interest Expense .............................. 297,868 218,956 195,590
Interest Income .............................. 28,382 25,163 14,834
----------- ----------- -----------
Net Income .................................... 394,635 200,859 418,075
Retained Earnings, beginning of period ...... 1,262,433 1,262,433 1,366,148
Dividend Distributions ........................ 290,920 290,920 144,496
----------- ----------- -----------
Retained Earnings, end of period ............ $1,366,148 $1,172,372 $1,639,727
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended September 30,
December 31, --------------------------------
1995 1995 1996
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Operating Activities:
Net income .................................... $ 394,635 $ 200,859 $ 418,075
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization ............ 657,586 456,178 546,756
Gain (Loss) on sale of assets ............ (6,662) 10,838 (4,710)
Changes in assets and liabilities:
Accounts receivable ........................ (38,848) 149,604 23,380
Inventories ................................. (2,299) (7,936) 4,962
Prepaid expenses and other .................. (29,817) (46,324) (14,480)
Deferred revenue ........................... 69,238 (82,484) (110,132)
Accounts payable and accrued expenses ...... 233,202 242,069 (108,422)
----------- ----------- ---------
Net cash provided by operating activities 1,277,035 922,804 755,429
----------- ----------- ---------
Investing Activities:
Purchases of property and equipment ......... (1,869,325) (1,745,084) (288,364)
Notes receivable .............................. 12,000 250 109,000
Proceeds from sale of assets .................. 31,143 29,000 --
Other ....................................... (15,000) (15,000) --
----------- ----------- ---------
Net cash used for investing activities ... (1,841,182) (1,730,834) (179,364)
----------- ----------- ---------
Financing Activities:
Proceeds from notes payable .................. 1,659,482 1,558,200 343,880
Principal payments on notes payable ......... (744,582) (316,100) (902,980)
Dividend distributions ........................ (290,920) (290,920) (144,496)
----------- ----------- ---------
Net cash provided by (used for) financing
activities ................................. 623,980 951,180 (703,596)
----------- ----------- ---------
Net Increase (Decrease) in Cash ............... 59,833 143,150 (127,531)
Cash and Cash Equivalents, beginning of period 163,645 163,645 223,478
----------- ----------- ---------
Cash and Cash Equivalents, end of period ...... $ 223,478 $ 306,795 $ 95,947
=========== =========== =========
Supplemental Disclosure:
Interest paid ................................. $ 301,018 $ 224,614 $ 181,435
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization of Business and Significant Accounting Policies
Mohawk Business Record Storage, Inc. (the Company), a Minnesota
corporation, is a full-service records management company providing storage and
related services for all media. The Company serves numerous legal, banking,
healthcare, accounting, insurance, entertainment and retail organizations in the
Minneapolis and Saint Paul, Minnesota metropolitan areas.
Property and Equipment
Depreciation and amortization of property and equipment are recorded using
the straight-line and accelerated methods. Property and equipment consist of the
following:
<TABLE>
<CAPTION>
December 31,
Useful Lives 1995
----------------- ------------
<S> <C> <C>
Warehouse and disintegration equipment ...... 7 to 10 years $5,585,597
Leasehold improvements ..................... 10 to 39 years 1,441,291
Transportation equipment ..................... 5 to 10 years 723,603
Office equipment ........................... 5 to 10 years 1,298,657
----------
$9,049,148
==========
</TABLE>
Minor maintenance costs are expensed as incurred. Major improvements to the
leased buildings are capitalized as leasehold improvements and depreciated as
described above.
Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to the
customer. Amounts related to future storage for customers where storage fees are
billed in advance are accounted for as deferred revenue and amortized over the
applicable period. These amounts are included in deferred revenue in the
accompanying balance sheet. The Company has one customer which accounted for 13%
of revenues for the year ended December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are carried at the lower of cost (first-in, first-out basis) or
market and are comprised primarily of cartons.
Accrued Expenses
Accrued expenses consisted of the following:
December 31,
1995
--------------
Accrued incentive compensation ...... $307,621
Accrued profit sharing ............... 160,000
Other .............................. 39,829
---------
Accrued expenses .................. $507,450
=========
F-40
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Income Taxes
The Company has elected to be taxed as an S corporation under the
applicable Internal Revenue Code sections. The net income of the Company is
included in the individual income tax returns of the stockholders. Accordingly,
there is no provision for federal income taxes in the accompanying financial
statements.
Financial Instruments
Unless otherwise noted, financial instruments are stated at cost, which
approximates fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates relate primarily to the realizability of
accounts receivable and the adequacy of certain accrued expenses. Actual results
could differ from those estimates.
Concentrations of Credit Risk
Credit risk with respect to accounts receivable is generally spread across
a large number of customers with dispersion across different businesses. As of
December 31, 1995, one customer accounted for 17% of outstanding accounts
receivable.
Unaudited Financial Information
The financial information as of September 30, 1996 and for the nine-month
periods ended September 30, 1995 and 1996 is unaudited and has been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, such information reflects all normal recurring
adjustments necessary for a fair presentation. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
2. Debt
Notes Payable
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995
-------------
<S> <C>
Unsecured notes payable to stockholders, principal due February 1997, interest payable
monthly at the prime rate (8.5% at December 31, 1995) ................................. $1,400,000
Unsecured notes payable to related parties, due on demand, interest payable monthly at the
prime rate (8.5% at December 31, 1995) ................................................ 333,200
----------
Total notes payable .................................................................. 1,733,200
Less -- Current maturities ............................................................... (333,200)
----------
Notes payable, net of current maturities ................................................ $1,400,000
==========
</TABLE>
F-41
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Line of Credit
The Company has a $2,000,000 revolving credit agreement with a bank which
is payable on demand. Borrowings bear interest at the prime rate and are
collateralized by property and equipment, certain intangible assets and the
personal guarantees of the Company's stockholders.
The line-of-credit agreement contains various covenants which require the
Company to maintain certain specified financial ratios. The Company was in
compliance with these covenants as of December 31, 1995.
Additional information relating to the line of credit is as follows:
1995
-----------
Borrowings outstanding at year-end .................. $1,625,000
Available borrowings at year-end ..................... 375,000
Average borrowings outstanding during the year ...... 1,436,000
Range of interest rates during the year ............ 8.5%-9.0%
3. Notes Receivable
Stockholder
The Company loaned $452,300 to one of its stockholders on May 12, 1992.
Interest is being paid monthly to the Company at the prime rate. Principal is
payable upon demand. The balance due to the Company under this agreement as of
December 31, 1995 was $100,000 and was repaid during the six-month period ended
June 30, 1996.
Related Company
The Company loaned $400,000 to a related partnership certain of whose
partners are also stockholders of the Company. The proceeds of this loan were
used to purchase a building that the Company is renting from this partnership
(see Note 4). Interest is payable monthly by the partnership at the prime rate.
Monthly principal payments are $1,333. Principal outstanding at December 31,
1995 was $238,000.
4. Commitments and Contingencies
Operating Leases -- Related Parties
The Company has lease agreements for warehouse and office space with a
partnership whose partners are also stockholders of the Company. The leases are
operating leases with varying terms expiring between May 1998 and November 2009.
The Company pays all maintenance, insurance and utilities. Rent expense under
these leases was $509,000 for 1995.
The Company has another lease agreement for additional warehouse space with
a partnership, certain of whose partners are also stockholders of the Company.
The lease is an operating lease with a term of 10 years through July 2000. The
Company pays all taxes, maintenance, insurance and utilities. Rent expense under
this lease was $472,000 for 1995.
F-42
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Future minimum lease payments on these operating leases for each of the
next five years and thereafter are as follows:
1996 ..................... $ 980,000
1997 ..................... 980,000
1998 ..................... 857,000
1999 ..................... 769,000
2000 and thereafter ...... 3,226,000
---------
$6,812,000
=========
Purchase Order Commitment
In June 1996, the Company committed to purchase approximately $450,000 in
additional warehouse storage racking.
5. Employee Benefits
Profit-Sharing Plan
The Company has a profit-sharing plan covering substantially all of its
full-time employees. Contributions are determined annually by the board of
directors. Benefits are provided upon retirement, disability or death on the
basis of funds added to the trust accounts and earnings during periods of
participation. The total contribution to this plan was $160,000 for the year
ended December 31, 1995.
Employee Benefit Plan
The Company has adopted a salary deduction benefit plan which provides
child care, medical and dental premiums, and other unreimbursed medical
expenses. All regular employees who complete more than 25 hours per week of
service are eligible to participate on a voluntary basis. The Company does not
match employee contributions.
Bonus Plans
The Company has agreed to pay bonuses to each of two of its stockholders
equal to 20% of the net profits of the Company, as defined. Two other
stockholders and a member of senior management each are entitled to receive
bonuses equal to 5% of the net profits of the Company. In addition, the vice
president of one of the Company's divisions receives a bonus equal to 10% of
that division's net profits, as defined. Bonus expense for the year ended
December 31, 1995 was $703,000.
6. Sale of Operating Assets
On September 6, 1996, the Company entered into an agreement to sell
substantially all of its operating assets to Iron Mountain Records Management,
Inc.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Safesite Records Management Corporation:
We have audited the accompanying balance sheets of Safesite Records Management
Corporation (a Delaware corporation) as of December 31, 1995 and 1996, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safesite Records Management
Corporation as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 14, 1997
F-44
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ...................................................... $ 297,076 $ 221,207
Accounts receivable (less reserve for doubtful accounts of
$95,000 in 1995 and $95,200 in 1996) ................... 1,922,241 2,414,417
Inventories ............................................. 56,860 60,521
Prepaid expenses and other .............................. 138,920 132,255
----------- -----------
Total current assets .................................... 2,415,097 2,828,400
----------- -----------
Property and Equipment: ....................................
Property and equipment .................................... 5,975,726 7,942,630
Less--Accumulated depreciation and amortization ......... (3,223,333) (3,971,394)
----------- -----------
Net property and equipment .............................. 2,752,393 3,971,236
----------- -----------
Deposits and Other .......................................... 299,176 264,784
----------- -----------
Total assets .......................................... $ 5,466,666 $ 7,064,420
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: .......................................
Revolving line of credit ................................. $ 200,000 $ 225,000
Accounts payable .......................................... 743,309 856,571
Accrued payroll and related taxes ........................ 237,391 393,289
Other accrued expenses .................................... 310,263 558,853
----------- -----------
Total current liabilities .............................. 1,490,963 2,033,713
----------- -----------
Deferred Rent ............................................. 409,806 463,328
----------- -----------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--none ............................. -- --
Common stock, $.01 par value-
Authorized--15,000,000 shares
Issued and outstanding--9,107,347 shares in 1995 and
9,107,847 shares in 1996 ................................. 91,073 91,078
Additional paid-in capital .............................. 12,940,041 12,941,236
Accumulated deficit ....................................... (9,465,217) (8,464,935)
----------- -----------
Total stockholders' equity .............................. 3,565,897 4,567,379
----------- -----------
Total liabilities and stockholders' equity ............ $ 5,466,666 $ 7,064,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Storage ............................................. $5,885,609 $7,059,068 $8,300,236
Service and storage material sales .................. 7,349,753 8,955,461 10,708,748
----------- ----------- -----------
Total revenues .................................... 13,235,362 16,014,529 19,008,984
Operating Expenses: .................................
Cost of sales (excluding depreciation and
amortization) ..................................... 6,664,958 8,054,043 9,463,585
Selling, general and administrative ............... 4,974,358 6,444,171 7,586,602
Depreciation and amortization ..................... 622,470 657,514 799,549
----------- ----------- -----------
Total operating expenses ........................ 12,261,786 15,155,728 17,849,736
----------- ----------- -----------
Operating income ................................. 973,576 858,801 1,159,248
Interest Expense, net ................................. 310,569 209,101 33,966
----------- ----------- -----------
Income before provision for income taxes ......... 663,007 649,700 1,125,282
Provision for Income Taxes ........................... 49,011 64,000 125,000
----------- ----------- -----------
Net income ....................................... $ 613,996 $ 585,700 $1,000,282
=========== =========== ===========
Earnings per Common and Common Equivalent Share ...... $ 0.08 $ 0.07 $ 0.11
=========== =========== ===========
Weighted Average Common and Common Stock
Equivalent Shares Outstanding ........................ 7,382,487 8,291,969 9,170,648
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
Number $.01 Paid-in Accumulated Equity
of Shares Par Value Capital Deficit (Deficit)
------------ ------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ............ 7,332,347 $73,323 $9,426,580 $ (10,664,913) $ (1,165,010)
Net income ........................... -- -- -- 613,996 613,996
----------- -------- ----------- ------------- ------------
Balance, December 31, 1994 ............ 7,332,347 73,323 9,426,580 (10,050,917) (551,014)
Net income ........................... -- -- -- 585,700 585,700
Issuance of common stock (Note 6) ...... 1,775,000 17,750 3,513,461 -- 3,531,211
----------- -------- ----------- ------------- ------------
Balance, December 31, 1995 ............ 9,107,347 91,073 12,940,041 (9,465,217) 3,565,897
Net income ........................... -- -- -- 1,000,282 1,000,282
Exercise of stock options ............ 500 5 1,195 -- 1,200
----------- -------- ----------- ------------- ------------
Balance, December 31, 1996 ............ 9,107,847 $91,078 $12,941,236 $ (8,464,935) $ 4,567,379
=========== ======== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ --------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................... $ 613,996 $ 585,700 $ 1,000,282
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization ..................... 622,470 657,514 799,549
Loss (gain) on disposition of fixed assets ......... (1,909) 3,105 (9,929)
Changes in deferred rent ........................... 41,351 50,218 53,522
Changes in assets and liabilities-- ...............
Accounts receivable .............................. (427,082) (50,794) (492,176)
Inventories ....................................... (27,177) 9,024 (3,661)
Prepaid expenses and other ........................ (77,114) 27,528 6,665
Accounts payable ................................. 205,462 131,898 113,262
Accrued expenses ................................. 51,665 (34,118) 404,488
--------- ----------- -----------
Net cash provided by operating activities ......... 1,001,662 1,380,075 1,872,002
--------- ----------- -----------
Cash Flows from Investing Activities: ..................
Purchase of fixed assets .............................. (733,100) (1,718,005) (1,984,226)
Proceeds from the sale of fixed assets ............... 8,000 1,000 18,829
Increase in other assets .............................. (30,394) (92,068) (8,674)
--------- ----------- -----------
Net cash used in investing activities ............ (755,494) (1,809,073) (1,974,071)
--------- ----------- -----------
Cash Flows from Financing Activities:
Net proceeds from revolving line of credit ............ -- 200,000 25,000
Net proceeds from issuance of common stock ............ -- 1,024,429 --
Proceeds from the exercise of stock options ......... -- -- 1,200
Repayment of notes payable to stockholders ............ -- (1,043,218) --
--------- ----------- -----------
Net cash provided by financing activities ......... -- 181,211 26,200
--------- ----------- -----------
Net Increase (Decrease) in Cash ........................ 246,168 (247,787) (75,869)
Cash, beginning of year ................................. 298,695 544,863 297,076
--------- ----------- -----------
Cash, end of year ....................................... $ 544,863 $ 297,076 $ 221,207
========= =========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the year ........................ $ 336,500 $ 242,532 $ 28,700
========= =========== ===========
Income taxes paid during the year ..................... $ 21,011 $ 64,700 $ 89,630
========= =========== ===========
Supplemental Disclosure of Noncash Financing Activities:
Conversion of notes payable to stockholders into
common stock ....................................... $ -- $ 2,506,782 $ --
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Operations
Safesite Records Management Corporation (the Company) provides off-site
records management services for storing and retrieving paper, records and data
processing media.
2. Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of certain
accounting policies as described in this note and elsewhere in the accompanying
financial statements and notes.
a. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
b. Revenue Recognition
Revenue is recognized under storage and service agreements as the related
services are performed.
c. Inventories
Inventories are carried at the lower of cost using the first-in, first-out
basis or market and are comprised primarily of cartons.
d. Depreciation and Amortization
The Company provides for depreciation using the straight-line method by
charges to operations in amounts that allocate the cost of the assets over their
estimated useful lives as follows:
Estimated
Asset Classification Useful Life
- ------------------------------------------------- ---------------
Warehouse fixtures and equipment ............... 7 Years
Office furniture, fixtures and equipment ...... 5-7 Years
Automobiles .................................... 2-3 Years
Leasehold improvements ........................ Life of Lease
Equipment under capital leases ............... Life of Lease
Property and equipment consist of the following:
December 31,
---------------------------
1995 1996
-------- ---------
Warehouse fixtures and equipment ............... $4,422,840 $5,890,185
Office furniture, fixtures and equipment ...... 734,929 921,410
Automobiles .................................... 83,123 88,509
Leasehold improvements ........................ 696,985 1,004,677
Equipment under capital leases ............... 37,849 37,849
----------- -----------
$5,975,726 $7,942,630
=========== ===========
F-49
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
e. Income Taxes
The Company accounts for income taxes under the liability method of
accounting for income taxes. Under this method, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
tax liability or asset for the estimated future tax effects of temporary
differences between the tax and financial reporting bases of assets and
liabilities and tax loss carryforwards to the extent they are realizable.
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, assets and liabilities are adjusted through the provision for
income taxes.
f. Deferred Rent
The Company has entered into various leases for buildings used in the
storage of records. Certain leases have fixed escalation clauses or other
features that require normalization of the rental expense over the life of the
lease resulting in deferred rent being reflected in the accompanying balance
sheets.
g. Disclosure About Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial
Instruments, which requires that the Company disclose estimated fair values for
certain of its financial instruments. Financial instruments include such items
as cash, lines of credit and other instruments as defined in the standard. The
carrying amounts of these financial instruments approximate their estimated fair
values.
h. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share is computed based on the
weighted average number of common and common stock equivalent shares outstanding
during each period. Common stock equivalents consist of employee and nonemployee
directors options to purchase common stock.
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. The new standard must be applied beginning in 1998 and
at that time will require restatement of previously reported earnings per share.
The new statement cannot be applied early. The Company believes that the effect
of applying the new standard will not be material.
3. Revolving Line of Credit
In December 1996, the Company amended its revolving line of credit
agreement (the Agreement) with Fleet Bank of Massachusetts, N.A. by increasing
the line from $1 million to $2 million. Loans under the Agreement are limited to
the lesser of $2 million or the borrowing base (approximately $1,750,000 at
December 31, 1996), as defined in the agreement, are due on June 30, 1998 and
bear interest at prime plus 0.5% per annum (8.75% at December 31, 1996). Under
the terms of the Agreement, the Company is required to pay an unused line fee
equal to one-quarter of one percent per annum on the unused portion of the line,
as defined in the Agreement. In addition, the Company is required to, among
other things, comply with certain financial covenants, as defined in the
Agreement. The line of credit has been classified as a current liability as of
December 31, 1996, because the line is expected to be repaid at the effective
time of the merger (see Note 10). At December 31, 1996, the Company was in
compliance with the various covenants of the Agreement. Loans under the
revolving line of credit are secured by all assets and property of the Company.
4. Income Taxes
At December 31, 1996, the Company had approximately $781,000 of federal net
operating loss carryforwards that expire in the years 2007 and 2008. These net
operating loss carryforwards are available to reduce future taxable income and
are subject to review and possible adjustment by the Internal Revenue Service.
In addition, the Internal Revenue Code contains provisions that may limit the
net operating loss carryforwards available in any given year in the event of
significant changes in ownership interest.
F-50
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
The provision for income taxes consists of the following components:
1994 1995 1996
----------- ---------- -----------
Federal-
Current ...... $ 11,500 $ 7,400 $ 79,300
Deferred ...... (11,500) (7,400) (43,156)
State .......... 49,011 64,000 88,856
-------- ------- --------
$ 49,011 $64,000 $125,000
======== ======= ========
The Company has recorded a 100% valuation allowance against the deferred
tax asset related to the net operating loss carryforwards, as the realization of
the asset is uncertain. The components of the deferred tax asset at December 31,
1995 and 1996 are as follows:
1995 1996
------------ ------------
Tax effect of net operating loss carryforwards ...... $ 560,176 $ 265,573
--------- ---------
Tax effect of temporary differences-
Deferred rent .................................... 137,484 157,532
Accrued medical .................................... 16,064 57,126
Reserve for bad debts .............................. 32,300 32,368
Deferred start-up costs ........................... -- 8,786
Depreciation ....................................... 13,825 (135,598)
--------- ---------
199,673 120,214
--------- ---------
759,849 385,787
Valuation allowance ................................. (759,849) (385,787)
--------- ---------
Deferred tax asset .............................. $ -- $ --
========= =========
A reconciliation of total income tax expense and the amount computed by
applying the U.S. Federal income tax rate of 34% to income before income taxes
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax provision ..................... $ 225,422 $ 220,898 $ 382,596
Increase (decrease) in income taxes resulting from--
Utilization of net operating loss carryforwards ...... (216,049) (210,945) (336,094)
Disallowance for meals and entertainment expense ...... 7,291 11,807 17,101
Other ................................................ -- -- 2,752
Effect of certain state income taxes .................. 32,347 42,240 58,645
--------- --------- ---------
$ 49,011 $ 64,000 $ 125,000
========= ========= =========
</TABLE>
5. Commitments and Contingencies
a. Lease Commitments
The Company rents certain equipment, offices and warehouse space under
operating leases. Future minimum payments under these leases at December 31,
1996 are as follows:
F-51
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Operating Leases
----------------------------
Vehicle and
Year Real Estate Equipment
- -----
1997 ................................. $3,120,000 $330,000
1998 ................................. 3,215,000 274,000
1999 ................................. 3,026,000 166,000
2000 ................................. 3,050,000 35,000
2001 ................................. 2,887,000 28,000
Thereafter ........................... 8,235,000 2,000
----------- ---------
Total minimum lease payments ...... $23,533,000 $835,000
=========== =========
Certain of the above office and warehouse leases are with two stockholders.
Total rental expense charged to operations in 1994, 1995 and 1996 was
approximately $2,229,000, $2,475,000 and $2,815,000, respectively, of which
approximately $567,000, $597,000 and $633,000, respectively, was related to
operating leases with these stockholders. The Company believes that the rent
paid to the stockholders approximates fair value.
b. Legal Matters
The Company has been named as a defendant in certain lawsuits relating to
personnel matters. In the opinion of management, based on discussions with legal
counsel, the ultimate liability to the Company as a result of these matters will
not have a material impact on the results of operations or financial position of
the Company.
6. Issuance of Common Stock
In July 1995, the Company sold 521,609 shares of common stock to existing
stockholders at a price of $2.00 per share in order to repay a portion of the
notes payable to certain stockholders. After issuance costs of $18,789, the net
proceeds from the offering were $1,024,429. The remaining $2,506,782 of the
notes payable to certain stockholders was converted directly into 1,253,391
shares of common stock.
7. Preferred Stock
The Company has 5,000,000 shares of authorized, unissued and undesignated
$.01 par value preferred stock. The Board of Directors is authorized to issue
the shares for such consideration and on such terms as the directors may deem.
The powers, designation, preferences and other rights or restrictions of the
preferred shares will be determined by the Board of Directors.
8. Stock Incentive Plan
The Company has established the Safesite Records Management Corporation
1990 Long-Term Incentive Plan (Incentive Plan) and the Safesite Records
Management Corporation 1990 Nonstatutory Stock Option Plan (collectively, the
Plans). Under the Plans, the Board of Directors may grant options to purchase up
to an aggregate of 900,049 shares of common stock to officers, other key
employees and nonemployee directors. The Plans allow the Company to grant both
incentive stock options (Incentive Plan only) and nonqualified stock options;
currently, all options granted under the Plans are nonqualified. The exercise
price of options granted will not be less than the fair market value of the
shares, as determined by the Board of Directors, on the date of grant. The
options vest over five years with accelerated vesting in the event of a change
in control or sale of the Company. Option activity under the Plans in 1994, 1995
and 1996 is as follows:
F-52
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Weighted
Number of Average
Options Exercise Price
------------ ---------------
Outstanding, December 31, 1993 ...... 175,750 $2.04
Granted ........................... 65,500 2.40
Terminated ........................... (2,000) 2.40
-------- ------
Outstanding, December 31, 1994 ...... 239,250 2.14
Granted ........................... 90,000 3.00
Terminated ........................ (8,500) 2.57
-------- ------
Outstanding, December 31, 1995 ...... 320,750 2.37
Granted ........................... 150,500 3.29
Terminated ........................ (3,500) 3.29
Exercised ........................... (500) 2.40
-------- ------
Outstanding, December 31, 1996 ...... 467,250 $2.66
======== ======
Exercisable, December 31, 1996 ...... 187,450 $2.20
======== ======
At December 31, 1996, the weighted average remaining contractual life of
outstanding options was approximately 6.6 years. Additionally, at December 31,
1996, the range of exercise prices for outstanding options was $1.60 to $3.29
and the range of exercise prices for shares currently exercisable was $1.60 to
$3.00.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, Accounting for Stock-Based Compensation. The Company has elected to
continue to account for stock options at intrinsic value with disclosure of fair
value accounting on net income and earnings per share on a pro forma basis. Had
the Company elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by SFAS No. 123, net income and
earnings per common and common equivalent share would have been reduced to the
pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1996
----------- ------------
<S> <C> <C>
Net income applicable to common stockholders--as reported ...... $585,700 $1,000,282
Net income applicable to common stockholders--pro forma ......... 467,432 829,342
Net income per common and common equivalent share--as
reported ...................................................... 0.07 0.11
Net income per common and common equivalent share--pro
forma ......................................................... 0.06 0.09
</TABLE>
Consistent with SFAS No. 123, pro forma net income has not been calculated
for options granted prior to January 1, 1995. Accordingly, pro forma
compensation cost may not be representative of that to be expected in future
years.
The weighted average fair value of options granted in 1995 and 1996 was
$1.55 and $1.33 per share, respectively. The values were estimated on the date
of grant using the Black-Scholes option pricing model. The following table
summarizes the weighted average assumptions used for grants in the year ended
December 31:
Assumption 1995 1996
- ------------------------------------- ---------- ---------
Expected volatility ............... N/A N/A
Risk-free interest rate ......... 7.76% 5.38%
Expected dividend yield ......... N/A N/A
Expected life of the option ...... 9.2 yrs 9.5 yrs
F-53
<PAGE>
SAFESITE RECORDS MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Profit Sharing Plan and Trust
Effective January 1, 1995, the Company adopted the Safesite 401(k) Profit
Sharing Plan and Trust (the Plan), which covers substantially all employees.
Under the Plan, employees may contribute a portion of their earnings to the Plan
to be invested in various savings alternatives. The Company makes matching
contributions to the Plan at a rate of 20% of an employee's contribution, not to
exceed 2% of such employee's salary. The matching contributions vest ratably
over five years. The Company contributed $39,786 and $53,640 to the Plan for the
years ended December 31, 1995 and 1996, respectively.
10. Subsequent Event
In February 1997, the Company signed a definitive agreement to merge with
Iron Mountain Incorporated (Iron Mountain), a publicly held company based in
Boston, Massachusetts.
The Company's stockholders and holders of exercisable options will receive
Iron Mountain common stock valued at approximately $50 million, plus
approximately $12 million in cash. The number of shares of Iron Mountain common
stock will be determined based on its market price, using a "collar" with a
floor of $26.00 and a ceiling of $31.00. The transaction is subject to
regulatory approval and the approval of the Company's stockholders. The merger
is expected to be completed during the second quarter of 1997.
F-54
<PAGE>
ANNEX I
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
By and Among
IRON MOUNTAIN INCORPORATED,
IM-1 ACQUISITION CORP.
and
SAFESITE RECORDS MANAGEMENT CORPORATION
dated as of
February 19, 1997,
as amended as of April 1, 1997
and as further amended as of May 7, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE 1.
THE MERGER.............................................................................................I-2
Section 1.1. The Merger..................................................................I-2
Section 1.2. Action by Stockholders......................................................I-2
Section 1.3. Closing.....................................................................I-2
Section 1.4. Effective Time..............................................................I-2
Section 1.5. Effect of the Merger........................................................I-3
Section 1.6. Certificate of Incorporation................................................I-3
Section 1.7. Bylaws......................................................................I-3
Section 1.8. Directors and Officers......................................................I-3
ARTICLE 2.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.....................................................I-3
Section 2.1. Conversion of Securities....................................................I-3
Section 2.2. Exchange of Certificates; Exchange Agent and
Exchange Procedures.........................................................I-4
Section 2.3. Stock Transfer Books........................................................I-6
Section 2.4. Option Securities...........................................................I-6
Section 2.5. Dissenting Shares...........................................................I-8
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................I-9
Section 3.1. Organization and Business; Power and Authority;
Effect of Transaction.......................................................I-9
Section 3.2. Financial and Other Information............................................I-10
Section 3.3. Changes in Condition.......................................................I-11
Section 3.4. Liabilities................................................................I-11
Section 3.5. Title to Properties; Leases................................................I-12
Section 3.6. Compliance with Private Authorizations.....................................I-12
Section 3.7. Compliance with Governmental Authorizations and
Applicable Law.............................................................I-13
Section 3.8. Intangible Assets..........................................................I-14
Section 3.9. Related Transactions.......................................................I-14
Section 3.10. Insurance..........................................................I-14
Section 3.11. Tax Matters........................................................I-15
Section 3.12. ERISA..............................................................I-16
Section 3.13. Authorized and Outstanding Capital Stock...........................I-17
Section 3.14. Employment Arrangements............................................I-19
Section 3.15. Material Agreements................................................I-19
Section 3.16. Ordinary Course of Business........................................I-19
Section 3.17. Bank Accounts, Etc.................................................I-21
Section 3.18. Adverse Restrictions...............................................I-21
I-i
<PAGE>
Section 3.19. Broker or Finder...................................................I-21
Section 3.20. Environmental Matters..............................................I-22
Section 3.21. Operational Matters................................................I-23
Section 3.22. Materiality........................................................I-23
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR MERGER SUBSIDIARY........................................................................I-23
Section 4.1. Organization and Qualification; Power and Authority;
Effect of Transaction......................................................I-23
Section 4.2. Capitalization of Acquiror and Acquiror Merger Subsidiary..................I-24
Section 4.3. SEC Filings; Financial Statements..........................................I-25
Section 4.4. Registration Statement.....................................................I-26
Section 4.5. Brokers....................................................................I-26
ARTICLE 5.
ADDITIONAL COVENANTS..................................................................................I-26
Section 5.1. Access to Information; Confidentiality.....................................I-26
Section 5.2. Agreement to Cooperate.....................................................I-27
Section 5.3. Affiliate Agreements; Registration Rights Agreement........................I-29
Section 5.4. No Solicitation............................................................I-29
Section 5.5. Directors' and Officers' Indemnification and Insurance.....................I-30
Section 5.6. Notification of Certain Matters............................................I-30
Section 5.7. Public Announcements.......................................................I-30
Section 5.8. Obligations of Acquiror....................................................I-31
Section 5.9. Employee Benefits; Severance Policy........................................I-31
Section 5.10. Certain Actions Concerning Business Combinations...................I-31
Section 5.11. Conversion of Option Securities....................................I-31
Section 5.12. Tax Treatment......................................................I-31
Section 5.13. Preparation of the Registration Statement..........................I-32
ARTICLE 6.
CLOSING CONDITIONS....................................................................................I-33
Section 6.1. Conditions to Obligations of Each Party to Effect the Merger...............I-33
Section 6.2. Conditions to Obligations of Acquiror and Acquiror Merger Subsidiary.......I-34
Section 6.3. Conditions to Obligations of the Company...................................I-35
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER.....................................................................I-36
Section 7.1. Termination................................................................I-36
Section 7.2. Effect of Termination......................................................I-37
I-ii
<PAGE>
Section 7.3. Amendment..................................................................I-38
Section 7.4. Waiver.....................................................................I-38
Section 7.5. Fees, Expenses and Other Payments..........................................I-38
Section 7.6. Effect of Investigation....................................................I-39
ARTICLE 8.
INDEMNIFICATION.......................................................................................I-39
Section 8.1. Survival...................................................................I-39
Section 8.2. Escrow; Indemnification....................................................I-39
Section 8.3. Limitation of Liability; Disposition of Escrow Indemnity Funds.............I-40
Section 8.4. Notice of Claims...........................................................I-41
Section 8.5. Defense of Third Party Claims..............................................I-41
Section 8.6. Balance Sheet Adjustment...................................................I-42
Section 8.7. Exclusive Remedy...........................................................I-42
ARTICLE 9.
GENERAL PROVISIONS....................................................................................I-42
Section 9.1. Notices....................................................................I-42
Section 9.2. Headings...................................................................I-43
Section 9.3. Severability...............................................................I-43
Section 9.4. Entire Agreement...........................................................I-43
Section 9.5. Assignment.................................................................I-44
Section 9.6. Parties in Interest........................................................I-44
Section 9.7. Governing Law..............................................................I-44
Section 9.8. Enforcement of the Agreement...............................................I-44
Section 9.9. Counterparts...............................................................I-44
Section 9.10. Mutual Drafting............................................................I-45
Section 9.11. Continuation of Covenants..................................................I-45
ARTICLE 10.
DEFINITIONS...........................................................................................I-45
EXHIBITS
5.3 Form of Affiliate Agreement
6.2(c) Form of Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP
6.3(a) Form of Opinion of Sullivan & Worcester LLP
8.3 Form of Escrow Agreement
SCHEDULES
Disclosure Schedule
Acquiror Disclosure Schedule
</TABLE>
I-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 19, 1997, among Iron
Mountain Incorporated, a Delaware corporation ("Acquiror"), IM-1 Acquisition
Corp., a Delaware corporation and a wholly owned Subsidiary of Acquiror
("Acquiror Merger Subsidiary"), and Safesite Records Management Corporation, a
Delaware corporation (the "Company").
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 Section 10
below or in another Section of this Agreement and, in such case, Article 10
includes a reference to such Section), in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), the Company and Acquiror
Merger Subsidiary will carry out a business combination transaction pursuant to
which Acquiror Merger Subsidiary will merge with and into the Company (the
"Merger") and the stockholders of the Company (the "Stockholders") will convert
their holdings into a combination of cash and shares of the Voting Common Stock,
par value $.01 per share, of Acquiror ("Acquiror Stock");
WHEREAS, the Board of Directors of the Company has unanimously
determined that the Merger is fair to, and in the best interests of, the Company
and the Stockholders and has approved and adopted 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 and has recommended approval and adoption of this
Agreement, the Merger and the Transactions by the Stockholders; and
WHEREAS, the Board of Directors of Acquiror has unanimously approved
and adopted this Agreement, the Merger and the Transactions, and Acquiror has
approved and adopted this Agreement, the Merger and the Transactions as the sole
stockholder of Acquiror Merger Subsidiary;
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-1
<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 Merger Subsidiary. As a
result of the Merger, the separate existence of the Company shall cease and
Acquiror Merger Subsidiary shall continue as the surviving corporation of the
Merger (the "Surviving Corporation").
Section 1.2. Action by Stockholders.
(a) The Company, 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 for the purpose of adopting and approving this Agreement, the
Merger and the Transactions (the "Special Meeting"); include in any proxy
statement related to the Special Meeting the conclusion and recommendation of
the Board of Directors to the effect that the Board of Directors, having
determined that this Agreement, the Merger and the Transactions are in the best
interests of the Company and the Stockholders, has approved this Agreement, the
Merger and the Transactions and recommends that the Stockholders vote in favor
of the approval and adoption of this Agreement, the Merger and the Transactions;
and use its best efforts to obtain the necessary approval and adoption of this
Agreement, the Merger and the Transactions by the Stockholders.
(b) Acquiror hereby represents that Acquiror, as sole stockholder of
Acquiror Merger Subsidiary, has approved and adopted this Agreement, the Merger
and the Transactions. Acquiror shall take all additional actions as sole
stockholder of Acquiror Merger Subsidiary necessary to adopt and approve and
effectuate the provisions of this Agreement, the Merger and the Transactions.
Section 1.3. Closing. Unless this Agreement shall have been terminated
pursuant to Section 7.1 hereof and the Merger and the Transactions shall have
been abandoned, the closing of the Merger (the "Closing") will take place at
10:00 A.M., local time, on the fifth business day (the "Closing Date") after the
date on which the last of the conditions set forth in Article 6 is satisfied or
waived (other than conditions requiring deliveries at the Closing), at the
offices of Sullivan & Worcester LLP, One Post Office Square, Boston,
Massachusetts, unless another date, time or place is agreed to in writing by the
Company and Acquiror.
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 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").
I-2
<PAGE>
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 of the restrictions, disabilities and duties of
the Company and Acquiror Merger Subsidiary, and the Merger shall otherwise have
the effects, all as provided under the DGCL.
Section 1.6. Certificate of Incorporation. From and after the Effective
Time, the Certificate of Incorporation of Acquiror Merger Subsidiary 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, and the name of the Surviving Corporation shall be such name as
Acquiror may elect.
Section 1.7. Bylaws. From and after the Effective Time, the bylaws of
Acquiror Merger Subsidiary as in effect immediately prior to the Effective Time
shall be the bylaws 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 Merger Subsidiary at the Effective Time shall be the directors of the
Surviving Corporation and the officers of Acquiror Merger Subsidiary at the
Effective Time shall be the officers of the Surviving Corporation. B. Thomas
Golisano shall be appointed or elected as a 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. At the Effective Time, by virtue
of the Merger and without any action on the part of Acquiror Merger Subsidiary,
the Company or the holders of any of the following securities:
(a) Each share of Common Stock, par value $.01 per share, of the
Company (the "Company Stock") issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Stock to be cancelled pursuant
to Section 2.1(b) and any Dissenting Shares), shall be converted into the right
to receive, subject to the indemnification provisions of Article 8 hereof, (i)
that number equal to the 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 Cash Conversion Number (the "Cash Merger Consideration", and
together with the Stock Merger Consideration, the "Merger Consideration"). At
the Effective Time, all shares of Company Stock (the "Shares") shall no longer
be outstanding and shall automatically be cancelled and retired and shall cease
to exist, and certificates previously evidencing any such Shares (each, a
"Certificate") shall thereafter represent the right to receive, upon the
surrender of such Certificate in accordance with the provisions of Section 2.2,
but subject to the indemnification provisions of Article 8 hereof, the Stock
Merger Consideration and Cash Merger Consideration multiplied by the number of
Shares represented by such Certificate, and a holder of more than one
Certificate shall have the right to receive the Stock Merger Consideration and
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Cash Merger Consideration multiplied by the number of Shares represented by all
such Certificates (the "Exchange Merger Consideration"). The holders of such
Certificates previously evidencing such Shares outstanding immediately prior to
the Effective Time shall 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 Stock Merger Consideration to be received
by any Stockholder prior to the termination of the Escrow Indemnity Period shall
be adjusted to give full effect to the indemnification provisions in Article 8
hereof.
(b) Each Share held in the treasury of the Company and each Share owned
by Acquiror or any direct or indirect Subsidiary of Acquiror immediately prior
to the Effective Time shall automatically be cancelled and extinguished without
any conversion thereof and no payment shall be made with respect thereto.
(c) Each share of common stock of Acquiror Merger Subsidiary
outstanding immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall constitute
the only outstanding shares of capital stock of the Surviving Corporation.
(d) 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 Section 2.1(e) into a right to receive the highest whole number of shares of
Acquiror Stock constituting the non-cash portion of the Exchange Merger
Consideration to be received plus cash equal to the fraction of a share of
Acquiror Stock to which the holder would otherwise be entitled (in each case
after giving effect to Section 1.2(e) hereof) multiplied by the Determination
Price, and the Exchange Merger Consideration to which a holder is so entitled
shall be deemed to be such number of shares of Acquiror Stock plus such cash in
lieu of fractional shares plus the cash portion of the Exchange Merger
Consideration. In addition, upon distribution to Stockholders of any portion of
the Escrow Indemnity Funds, Acquiror shall deliver to such Stockholder the
highest whole number of shares of Acquiror Stock to which such Stockholder is
entitled plus cash equal to the fraction of a share of Acquiror Stock to which
the holder would otherwise be entitled multiplied by the Market Price. For
purposes of carrying out the intent of this Section 2.1(d), Acquiror may
aggregate Certificates so that fractional shares of Acquiror Stock due in
exchange for multiple Certificates may be combined to yield a number of whole
shares thereof plus a single fraction.
(e) In order to implement the indemnification provisions of Section 8
hereof, the Stock Merger Consideration payable to each Stockholder pursuant to
Section 2.2 prior to the termination of the Escrow Indemnity Period hereof shall
be equal to the product of (i) the Closing Stock Conversion Number and (ii) the
number of Shares represented by Certificates held by such Stockholder. The
remainder of such Stockholder's Stock Merger Consideration shall be held as part
of the Escrow Indemnity Funds and shall be payable to such Stockholder after the
Escrow Indemnity Period in accordance with Section 8 hereof and the Escrow
Agreement.
Section 2.2. Exchange of Certificates; Exchange Agent and Exchange
Procedures.
(a) As soon as reasonably practicable after the Effective Time,
Acquiror shall deposit or cause to be deposited with a bank or trust company
designated by Acquiror (the "Exchange
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Agent"), for the benefit of the holders of Shares (other than Dissenting
Shares), for exchange in accordance with this Article, through the Exchange
Agent, (i) 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 issued and
outstanding immediately prior to the Effective Time (other than Shares to be
cancelled pursuant to Section 2.1(b) and any Dissenting Shares) (said number of
Shares less said Shares to be cancelled and less said Dissenting Shares
hereafter to be referred to as the "Net Shares"), and (ii) the Stock Merger
Consideration multiplied by the Net Shares, plus cash in an amount sufficient to
make payment for fractional shares, in exchange for all of the outstanding
Shares, less the number of shares of Acquiror Stock constituting the Escrow
Indemnity Funds (collectively, the "Exchange Fund"). Subject to Article 8
hereof, the Exchange Agent shall, pursuant to irrevocable instructions from
Acquiror, deliver the Exchange Merger Consideration to be issued pursuant to
Section 2.1(a) out of the Exchange Fund to holders of Shares upon transmittal of
Certificates for exchange as provided therein and in Section 2.2(b). The
Exchange Fund shall not be used for any other purpose. Any interest, dividends
or other income earned by the Exchange Fund shall be for the account of
Acquiror.
(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 and the Exchange
Agent, and otherwise by mail to the most recent address of such holder as shown
on the Company's books and records) to such holder of a Certificate or
Certificates which immediately prior to the Effective Time evidenced outstanding
Shares (other than Shares to be cancelled pursuant to Section 2.1(b) and any
Dissenting Shares), a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the 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 the Certificates
in exchange for the Exchange Merger Consideration. Upon surrender of a
Certificate 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
Exchange Merger Consideration which such holder has the right to receive,
subject to Article 8 hereof, pursuant to Sections 2.1(a) and 2.1(d) hereof, and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company, the Exchange Merger Consideration may be issued and paid in
accordance with this Article to a transferee if the Certificate evidencing such
Shares 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 Exchange Merger
Consideration will be delivered by the Exchange Agent promptly following
surrender of a Certificate and the related Transmittal Documents, and cash
payments for fractional shares and the cash portion of the Exchange Merger
Consideration may be made by check (or, pursuant to instructions reasonably
satisfactory to the Exchange Agent, by wire transfer). No interest will be
payable on the Exchange Merger Consideration regardless of any delay in making
payments. Until surrendered as contemplated by this Section, each Certificate
shall be deemed at any time after the Effective Time to evidence only the right
to receive, upon such surrender, the Exchange Merger Consideration, without
interest.
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(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and subject to such other
conditions as Acquiror reasonably may impose, the Surviving Corporation shall
issue in exchange for such lost, stolen or destroyed Certificate the Exchange
Merger Consideration deliverable in respect thereof as determined in accordance
with Sections 2.1(a) and 2.1(d), subject to Article 8 hereof. 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 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 to which
they are entitled pursuant to this Article.
(e) None of Acquiror, Acquiror Merger Subsidiary, the Company or the
Surviving Corporation shall be liable to any holder of 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, the Surviving Corporation 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 such amounts as
Acquiror, the Surviving Corporation 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, the Surviving Corporation 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 in respect of which such
deduction and withholding was made by Acquiror, the Surviving Corporation 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 thereafter on the records 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 Merger Consideration.
Section 2.4. Option Securities
(a) As soon as reasonably practicable after the Effective Time, each
holder of an Option Security who elects to shall receive (i) subject to clause
(ii) below, in respect of any such Option Security or portion thereof which is
exercisable at the Effective Time (including those which will become exercisable
by virtue of the consummation of the Merger) (1) a non-qualified option to
acquire shares of Acquiror Stock under Acquiror's 1995 Stock Incentive Plan,
which
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option for Acquiror Stock shall (A) have an exercise price per share determined
by dividing the exercise price per share of the applicable Option Security by
the Stock Conversion Number and (B) entitle the holder to purchase that number
of shares equal to the product of (x) the number of shares subject to such
Option Security which as of the Effective Time is exercisable and (y) the Stock
Conversion Number, and (2) cash in the amount of the product of (x) the number
of shares subject to such Option Security which as of the Effective Time is
exercisable and (y) the Cash Conversion Number, and (ii) in respect of any such
Option Security or portion thereof which is not exercisable at the Effective
Time and in respect of those Option Securities to acquire 17,500 shares of
Company Stock recently granted to the five individuals identified in Section
3.13(b) of the Disclosure Schedule, a non-qualified option to acquire shares of
Acquiror Stock under Acquiror's 1995 Stock Incentive Plan at an exercise price
and in an amount affording the holder equivalent value for the Option Security
being exchanged, which option for Acquiror Stock shall (1) have an exercise
price per share determined by dividing (x) the exercise price per share of the
applicable Option Security by (y) the quotient of the Share Price divided by the
Determination Price, and (2) entitle the holder to purchase that number of
shares as equals the product of (x) the number of shares subject to such Option
Security which as of the Effective Time is not exercisable and (y) the quotient
of the Share Price divided by the Determination Price. In addition, each option
to acquire Acquiror Stock issued in accordance with this Section 2.4 shall be
exercisable (subject to the terms of such Option Security and Acquiror's 1995
Stock Incentive Plan) on the date the applicable Option Security would have been
exercisable and otherwise be subject to the terms and conditions of the Acquiror
1995 Stock Incentive Plan (it being understood that the terms of the Acquiror
option agreement, as to any employee, other than the Principal Stockholders, of
the Company who is not employed by Acquiror or any of its Affiliates on the
first anniversary of the Closing Date, shall not (a) make it a condition to
exercise such option that such employee be in compliance with an Acquiror
confidentiality or non-competition agreement and (b) require such employee to
pay to Acquiror the excess of the fair market value on the day of exercise over
the exercise price as a result of being employed by a competitor of Acquiror
within two years after the exercise of such option).
(b) 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 Exercisable Option).
(c) Notwithstanding the foregoing, in lieu of issuing cash in respect
of exercisable Option Securities, Acquiror reserves the right, in its sole
discretion, subject to notification to the Company not less than ten (10) days
prior to the Closing Date, to exchange each vested and exercisable Option
Security solely for an option to acquire Acquiror Stock, the terms and
conditions (including, without limitation, the amount and exercise price per
share) of which will be determined in accordance with clause (a)(ii) above.
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Section 2.5. Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to the
contrary, Shares that are outstanding immediately prior to the Effective Time
and which 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 or otherwise have
forfeited appraisal rights (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
Stockholders shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of the DGCL, except that
all Dissenting Shares held by Stockholders who shall have failed to perfect or
who effectively shall have withdrawn, forfeited or lost their rights to
appraisal of such 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 Merger
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, withdrawals of such demands, and any other instruments
served pursuant to the DGCL and received by the Company and relating thereto.
The Company and Acquiror shall jointly direct all negotiations and proceedings
with respect to demands for appraisal under Applicable Law. The Company shall
not, 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.
Section 2.6 Standstill.
(a) Until the first anniversary of the Effective Time, except as
permitted by Acquiror's Restated By-Laws, any Person who receives or is entitled
to receive at the Effective Time any shares of Acquiror Stock pursuant to
Section 2.1 shall not Transfer (as such term is defined in Exhibit 2.6 hereto),
and Acquiror shall not be required to register the Transfer of, the number of
shares, rounded upward to the nearest whole share (the "Subject Shares"), of
Acquiror Stock equal to the product of (1) the quotient obtained by dividing (x)
the "Lock-up Value" by (y) the product of (A) the Common Stock Amount and (B)
the lesser of the Closing Price and the Determination Price multiplied by (2)
the Stock Merger Consideration received by such Person in connection with the
Merger. The "Lock-up Value" shall mean one half (1/2) of the sum of (x) the
product of the Common Stock Amount and the lesser of the Closing Price and the
Determination Price plus (y) the Cash Amount. The "Closing Price" shall mean the
closing price per share of Acquiror Stock for the trading day immediately prior
to the Effective Time. The closing price for such trading day shall be the last
quoted sale price or, if not so quoted, the average of the low bid and high
asked prices on the Nasdaq National Market System.
(b) Each certificate representing Subject Shares issued pursuant to the
Merger shall bear the following legend:
"The shares represented by this certificate may not be
transferred prior to [first anniversary date of the Effective Time to
be inserted] except as otherwise permitted by
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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."
The Subject Shares shall not form a part of the shares of Acquiror Stock to be
held in escrow as part of the Escrow Indemnity Funds.
(c) In order to implement the provisions of this Section 2.6, 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 2.6 hereto."
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and for Section 3.16
represents, warrants and covenants to, and agrees with, Acquiror and Acquiror
Merger Subsidiary as follows:
Section 3.1. Organization and Business; 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,
(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
Company's knowledge, except as set forth in Section 3.1(a)(ii) to 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) is, to the Company's knowledge, 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) 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 would not have
an Adverse Effect.
(b) The Company 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
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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). This Agreement has been
duly executed and delivered by the Company and, subject to the affirmative vote
of the Stockholders 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 the Company or
an Affiliate of the Company will constitute, legal, valid and binding
obligations of the Company 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"). The
affirmative vote or action by written consent of the holders of a majority of
the outstanding Shares is the only vote of the holders of any class or series of
the capital stock of the Company necessary to approve this Agreement, the Merger
and the Transactions under Applicable Law and the Company's Organic Documents.
The provisions of Section 203 of the DGCL will not apply to this Agreement, the
Merger or the Transactions.
(c) Except as set forth in Section 3.1(c) 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 the Company or any of the other parties hereto
or thereto which is Affiliated with the Company:
(i) will conflict with, or result in a breach or violation of,
or constitute a default under, any Applicable Law on the part of the
Company 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 the Company,
(ii) will result in or permit the creation or imposition of
any Lien upon any property now owned or leased by the Company or any
such other party, 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 except pursuant to the HSR
Act.
(d) The Company does not have any Subsidiaries.
Section 3.2. Financial and Other Information.
(a) The Company has heretofore furnished to Acquiror copies of the
financial statements of the Company 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
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thereby, except as otherwise noted therein or in Section 3.2(a) of the
Disclosure Schedule, are true, correct and complete, 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, subject to normal year-end audit adjustments which
adjustments, in the aggregate, shall not be material, and fairly present the
financial condition and results of operations of the Company, on the bases
therein stated, as of the respective dates thereof, and for the respective
periods covered thereby subject, in the case of unaudited financial statements
to normal nonmaterial year-end audit adjustments and accruals.
(b) To the Company's knowledge, neither the Disclosure Schedule, the
Financial Statements, this Agreement nor any Collateral Document furnished or to
be furnished by or on behalf of the Company or any of the Stockholders pursuant
to this Agreement or any Collateral Document executed or required to be executed
by or on behalf of the Company or the Stockholders pursuant hereto or thereto or
to consummate the Merger and the Transactions, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact required to be stated in such document by its terms or necessary in order
to make the statements contained herein or therein not misleading and, to the
Company's knowledge, all such Collateral Documents are and will be true, correct
and complete.
(c) The Company does not own any capital stock or equity or other
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.
Section 3.3. Changes in Condition. Since the date of the most recent
financial statements forming part of the Financial Statements, except to the
extent specifically described in Section 3.3 of the Disclosure Schedule, there
has been no Adverse Change in the Company. To the Company's knowledge, there is
no Event known to the Company which Adversely Affects, or in the future might
(so far as the Company can now reasonably foresee) Adversely Affect, the Company
or the ability of the Company to perform any of the obligations set forth in
this Agreement or any Collateral Document executed or required to be executed
pursuant hereto or thereto except for changes in general economic conditions or
the industry in general and to the extent set forth in Section 3.3 of the
Disclosure Schedule.
Section 3.4. Liabilities. At the date of the most recent balance sheet
forming part of the Financial Statements, the Company 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 the Company 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 the Company, which do not
and, to the Company's knowledge, will not, in the aggregate, Adversely Affect
the Company, except to the extent set forth in Section 3.4 of the Disclosure
Schedule. The Company has not Guaranteed and is not otherwise primarily or
secondarily liable in respect of any obligation or liability of any other
Person, 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.
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Section 3.5. Title to Properties; Leases.
(a) The Company does not own any real property. To the Company's
knowledge, the Company has good leasehold title with respect to all real
property it leases. The Company has good indefeasible and merchantable title to
all other assets, tangible and intangible, reflected on the most recent balance
sheet forming part of the Financial Statements, or (excluding leased real
estate) held by the Company for use in its business if not so reflected, or
purported to have been acquired by the Company 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 Company, free and clear of all Liens, except (i) Liens
reflected in the Financial Statements, (ii) Liens for current taxes not yet due
and payable, (iii) Liens set forth on Section 3.5(a) of the Disclosure Schedule,
(iv) Liens that will be released prior to the Closing Date (and which are listed
on Section 3.5(a) of the Company Disclosure Schedule), and (v) such
imperfections of title, easements, encumbrances and mortgages or other Liens, if
any, as are not, individually or in the aggregate, substantial in character,
amount or extent and do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby, or otherwise materially impair business operations. Each Lease or other
occupancy or other agreement under which the Company holds real or personal
property has been duly authorized, executed and delivered by the Company and, to
the Company's knowledge, by each of the other parties thereto; each such Lease
is a legal, valid and binding obligation of the Company and, to the Company's
knowledge, of each other party thereto, enforceable in accordance with its terms
(subject to the Enforceability Exceptions). To the Company's knowledge, the
Company 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, to the Company's knowledge, contains
any provision which would impair the Company's ability to use such property as
it is currently used by the Company, except as described in Section 3.5(a) of
the Disclosure Schedule. To the Company's knowledge, (i) all of such Leases are
valid and subsisting and in full force and effect and (ii) except as set forth
in Section 3.5(a) of the Disclosure Schedule, neither the Company nor 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 leased by the Company.
(c) To the Company's knowledge, except as set forth in Section 3.5(c)
of the Disclosure Schedule, all real property leased by the Company conforms to
and complies with, except as in the aggregate would not result in an Adverse
Effect on the Company, all applicable title covenants, conditions, restrictions
and reservations and all Environmental Laws and all applicable zoning, wetlands,
land use and other Applicable Laws.
Section 3.6. Compliance with Private Authorizations. Section 3.6 of the
Disclosure Schedule sets forth, to the Company's knowledge, a true, correct and
complete list and description of each Private Authorization which individually
is material to the Company, all of which are in full force and effect, except as
set forth in Section 3.6 of the Disclosure Schedule. To the Company's knowledge,
the Company has obtained all Private Authorizations which are
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necessary for the ownership by the Company of its properties and the conduct of
its business as now conducted or as presently proposed to be conducted or which,
if not obtained and maintained, could, singly or in the aggregate, Adversely
Affect the Company. To the Company's knowledge, except as set forth in Section
3.6 of the Disclosure Schedule, (i) the Company is not in breach or violation
of, or is in default in the performance, observance or fulfillment of, any
Private Authorization, and (ii) 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
Contractual or Private Authorization, except for such defaults, breaches or
violations as do not and, to the Company's knowledge, will not in the aggregate
have any Adverse Effect on the Company or the ability of the Company to perform
any of the obligations set forth in this Agreement or any Collateral Document
executed or required to be executed pursuant hereto or thereto or to consummate
the Merger and the Transactions. No material Private Authorization is the
subject of any pending or, to the Company's knowledge, threatened attack,
revocation or termination.
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 the Company
is engaged, or which involve the business, operations or properties of
the Company or, to the Company's knowledge, which are threatened or
contemplated against, the Company or any of its business, operations or
properties, which in the case of such threatened or contemplated Legal
Actions, individually or in the aggregate, if determined against the
Company would reasonably be expected to have an Adverse Effect on the
Company; and
(ii) to the Company's knowledge, each Governmental
Authorization to which the Company is subject and which relates to the
business, operations, properties, prospects, condition (financial or
other), or results of operations of the Company, all of which are in
full force and effect, except as set forth in Section 3.7(a)(ii) of the
Disclosure Schedule.
(b) To the Company's knowledge, the Company 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 Company or which, if not obtained and
maintained, could singly or in the aggregate, have any Adverse Effect on the
Company. No material Governmental Authorization is the subject of any pending
or, to the Company's knowledge, threatened attack, revocation or termination. To
the Company's knowledge, (i) the Company is not in material breach or violation
of, or in default in the performance, observance or fulfillment of, any
Governmental Authorization or any Applicable Law, and (ii) 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, to the Company's knowledge,
will not have in the aggregate any Adverse Effect on the Company.
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(c) The matters, if any, referred to in Sections 3.7(a) or 3.7(b) of
the Disclosure Schedule, if adversely determined against the Company, will not
Adversely Affect the Company, except to the extent set forth in the Disclosure
Schedule, or the ability of the Company to perform its obligations under this
Agreement or any Collateral Documents executed or required to be executed
pursuant hereto or thereto or to consummate the Merger and the Transactions.
Section 3.8. Intangible Assets. Section 3.8 of the Disclosure Schedule
sets forth a true, accurate and complete description of all Intangible Assets
held or used by the Company, including without limitation the nature of the
Company's interest in each and the extent to which the same have been duly
registered in the offices as indicated therein. To the Company's knowledge, the
Company 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 would not,
insofar as can reasonably be foreseen, individually or in the aggregate, have an
Adverse Effect on the Company. To the Company's knowledge, except as set forth
in Section 3.8 of the Disclosure Schedule, no authorizations or intangible
assets (except the Intangible Assets so set forth) are required for the Company
to conduct its business as currently conducted or proposed to be conducted on or
prior to the Closing Date. Except as set forth in Section 3.8 of the Disclosure
Schedule, the Company possesses all proprietary rights in and to the principal
software used in operating and conducting its business and 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 Company 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 Company's business), 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 Company and includes the insurers' names, policy
numbers, expiration dates, risks insured against, amounts of coverage, the
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
Company or imposed upon the Company by any such insurers, as well as any
self-insurance program that is in effect.
(b) To the Company's knowledge, the Company is not 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.
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Section 3.11. Tax Matters.
(a) The Company 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 the Company have been prepared in
accordance with all Applicable Laws and generally accepted principles applicable
to taxation consistently applied. All Taxes which the Company 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. The Company has not 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 the
Company for the fiscal years prior to and including the most recent fiscal year.
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 Company there are no transactions or matters or any basis
which might or could result in additional Taxes of any nature to the Company for
which an adequate reserve has not been provided on such balance sheet. The
Company is not a "consenting corporation" within the meaning of Section 341(f)
of the Code. The Company 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. The Company has never been a member of any consolidated
group (other than exclusively with the Company and its former Subsidiaries) for
Tax purposes, except as set forth in Section 3.11(a) of the Disclosure Schedule.
(b) The Company 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, the
Company has not 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 the
Company (true, correct and complete copies of which have been furnished by the
Company to Acquiror) is true, correct and complete and fairly and accurately
reflects the information purported to be shown. Federal and state income Tax
Returns of the Company have been examined by the IRS or applicable state
Authority through the taxable periods set forth in Section 3.11(d) of the
Disclosure Schedule, and the Company has not been notified regarding any pending
examination, except as shown in Section 3.11(d) of the Disclosure Schedule.
(e) The Company is not a party to any tax sharing agreement or
arrangement.
(f) The Company is not, and within five years of the date hereof has
not been, a "United States real property holding corporation" as defined in
Section 897 of the Code.
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Section 3.12. ERISA.
(a) The Company (which for purposes of this Section 3.12 shall include
any ERISA Affiliate with respect to any Plan subject to Title IV of ERISA) does
not contribute to any Plan or sponsor any Plan or Benefit Arrangement and has
not contributed to or sponsored any Plan or Benefit Arrangement, except as set
forth in Section 3.12(a) of the Disclosure Schedule. 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) to the Company's knowledge, 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 Company has
not received any outstanding notice from any Authority questioning or
challenging such compliance;
(ii) to the Company's knowledge, all such Plans maintained or
previously maintained by the Company that are or were intended to
comply with Section 401 of the Code comply and complied in form and in
operation with all applicable requirements of such Section, 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) there are no "prohibited transactions" (as described in
Section 406 of ERISA or Section 4975 of the Code) with respect to any
such Plan and the Company has not otherwise engaged in any prohibited
transaction;
(v) to the Company's knowledge, there have been no acts or
omissions by the Company 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 Company may be liable;
(vi) there are no Claims (other than routine claims for
benefits) pending or, to the Company's 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 sheet
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;
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(ix) to the Company's knowledge, neither the Company nor any
of its directors, officers, employees or any other fiduciary has
committed any breach of fiduciary responsibility imposed by ERISA that
would subject the Company or any of its 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;
(xi) no material liability to the PBGC has been or is expected
by the Company to be incurred by the Company 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 Company does not maintain any Plan that provides benefits
described in Section 3(1) of ERISA to any former employees or retirees
of the Company or any of its former Subsidiaries;
(xiii) the Company has 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 most recent
actuarial valuation reports for each Plan, if any, that is subject to
Title IV of ERISA), and all information provided by the Company 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 Company has delivered to Acquiror correct and
complete copies of all Plans and Benefit Arrangements 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 Company is not and has never has been a party to any
Multiemployer Plan or made contributions to any such plan.
Section 3.13. Authorized and Outstanding Capital Stock.
(a) The authorized and outstanding capital stock, Option Securities and
Convertible Securities of the Company is as set forth in Section 3.13(a) of the
Disclosure Schedule. All of such outstanding capital stock has been duly
authorized and validly issued, is fully paid and
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nonassessable and is not subject to any preemptive or similar rights. Except as
set forth in Section 3.13(a) of the Disclosure Schedule, (i) there is neither
outstanding nor has the Company agreed to grant or issue any shares of its
capital stock or any Option Security or Convertible Security, and (ii) the
Company is not a party to and is not 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, the Company will not issue, sell or purchase or
agree to issue, sell or purchase any capital stock or any Option Security or
Convertible Security of the Company, except to the extent required pursuant to
the terms hereof. All of the issued and outstanding Shares were issued and sold,
and all Option Securities were granted, in compliance with the Securities Act,
the Exchange Act and applicable state securities laws.
(b) As of the date hereof, except as set forth in Section 3.13(b) of
the Disclosure Schedule,: (i) Option Securities to acquire 424,750 Shares are
outstanding under the Company's 1990 Long-Term Incentive Plan (the "Company
Option Plan"), including in such number Option Securities which are currently
exercisable to acquire 216,950 shares of Company Stock; (ii) Option Securities
to acquire 45,000 Shares are outstanding under the Company's 1990 Nonstatutory
Stock Option Plan for Non-Employee Directors (the "Directors Plan" and, together
with the Company Option Plan, the "Option Plans"), including in such number
Option Securities which are currently exercisable to acquire 45,000 shares of
Company Stock; and (iii) 514,599 Shares are reserved for future issuance
pursuant to Option Securities which may be granted under the Option Plans. In
accordance with the vesting schedules and acceleration provisions contained in
the Option Plans and the related option agreements and assuming all option
agreements remain outstanding, as of June 1, 1997, Option Securities would be
exercisable to acquire 385,450 Shares. The Option Plans constitute the only
plans or arrangements pursuant to which Option Securities are currently
outstanding. Other than as set forth in Section 3.13(b) of the Disclosure
Schedule, 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. The
Company has duly complied in all material respects with all of the terms and
conditions of each Option Plan and no amendment, modification or other revision
to either Option Plan or any related option 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 subject to issuance
under an Option Security will, upon issuance on the terms and conditions
specified in such Option Security, will be validly issued, fully paid and
nonassessable.
(c) All of the outstanding capital stock of the Company is owned by the
Stockholders as set forth in Section 3.13(c) of the Disclosure Schedule and all
of the outstanding Option Securities and Convertible Securities are owned by the
Persons as set forth in Section 3.13(c) of the Disclosure Schedule, and are in
each case, to the Company's knowledge, free and clear of all Liens, except as
set forth in Section 3.13(c) of the Disclosure Schedule, and, to the Company's
knowledge, except as set forth in Section 3.13(c) of the Disclosure Schedule,
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.
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Section 3.14. Employment Arrangements.
(a) The Company does not have 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. None of the employees of the
Company is now, or, to the Company's knowledge, during the past five (5) years
has been, represented by any labor union or other employee collective bargaining
organization, or are now, or, to the Company's knowledge, during the past five
(5) years have been, parties to any labor or other collective bargaining
agreement. The Company has performed all obligations required to be performed
under all Employment Arrangements and is 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 will accrue or receive or is entitled to accrue or receive
additional benefits, service or accelerated rights to payments of benefits under
any Employment Arrangement, 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 direct result of this
Agreement, the Merger or the Transactions.
Section 3.15. Material Agreements. To the Company's knowledge, listed
on Section 3.15 of the Disclosure Schedule are all Material Agreements relating
to the ownership or operation of the business and property of the Company
presently held or used by the Company or to which the Company is a party or to
which it or any of its property is subject or bound. True, complete and correct
copies of each of the Material Agreements have been made available to or
furnished by the Company 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). To the Company's knowledge, (i) all of the
Material Agreements are valid, binding and legally enforceable obligations of
the Company and of each other party thereto (subject to the Enforceability
Exceptions), and (ii) the Company is validly and lawfully operating its business
and owning its property under each of the Material Agreements. To the Company's
knowledge, the Company has duly complied in all material respects with all of
the terms and conditions of each Material Agreement and has not done or
performed, or failed to do or perform (and there is no pending or, to the
knowledge of the Company, threatened Claim that the Company 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 Company, under any
of the Material Agreements.
Section 3.16. Ordinary Course of Business.
(a) The Company, from the date of the most recent balance sheet forming
part of the Financial Statements 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, (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:
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(i) has operated, and will continue to operate, its business
in the normal, usual and customary manner in the ordinary course of
business, consistent with prior practice;
(ii) has 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 its 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) has not incurred and will not incur any obligations
or liabilities (fixed, contingent or other);
(B) has not entered and will not enter into any
commitments; and
(C) has not cancelled and will not cancel any debts or
claims;
(iv) has not made or committed to make, and will not make or
commit to make, any additions to its property or any purchases of
machinery or equipment, except in the ordinary course of business,
consistent with past practice;
(v) has not discharged or satisfied, and will not discharge or
satisfy, any Lien and has 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 or repaying or prepaying
long-term indebtedness or the current portion thereof;
(vi) has not created or permitted to be created, and will not
create or permit to be created any Lien on any of its tangible
property;
(vii) except in the ordinary course of business, has 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, has not increased and will not increase the
compensation payable or to become payable to any of its directors,
officers, employees, advisers, consultants, salesmen or agents or
otherwise alter, modify or change the terms of their employment or
engagement;
(ix) has 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) has not waived, and will not waive, any rights of material
value without fair and adequate consideration;
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(xi) has not entered into, amended or terminated and will not
enter into, amend or terminate any Lease, Governmental Authorization,
Private 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) has not amended or terminated and will not amend or
terminate, and has 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) has not amended and will not amend any provision of its
Organic Documents;
(xiv) has 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(b) of the Disclosure Schedule) or
any Option Securities or Convertible Securities and has not entered,
and will not enter into any agreement to do the same; and
(xv) has 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 Company, except in the ordinary course
of business.
(b) From the end of its most recent fiscal year to the date hereof, the
Company has not, or on or prior to the Closing Date will not have, declared,
made or paid, or agreed to declare, make or pay, any Distribution.
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 Company has 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 Company and a summary statement as to the terms thereof.
Section 3.18. Adverse Restrictions. To the Company's knowledge, it is
not a party to or subject to, nor is any of its 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 Company's ability to conduct its
business as it is currently being conducted or which could, to the Company's
knowledge, have any Adverse Effect on the Company, except as set forth in
Section 3.18 of the Disclosure Schedule.
Section 3.19. Broker or Finder. Except as set forth in Section 3.19 of
the Disclosure Schedule, 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
Company or any Principal Stockholder.
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Section 3.20. Environmental Matters.
(a) Except as set forth in Section 3.20(a) of the Disclosure Schedule:
(i) to the Company's knowledge, it is, and at all times since
its organization has been, in compliance in all material respects with
all Environmental Laws and has not been notified that it is potentially
liable, has not received any request for information or other
correspondence concerning any site or facility, and, to the knowledge
of the Company, is not 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) the Company has not entered into or received any consent
decree, compliance order, or administrative order relating to
Environmental Law;
(iii) the Company is not a party in interest or in default
under any judgment, order, writ, injunction or decree of any final
order relating to Environmental Law;
(iv) to the Company's knowledge, (1) it has obtained all
material Governmental Authorizations and Private Authorizations
(including without limitation all Environmental Permits) and made all
Governmental Filings which are required to be filed by the Company for
the ownership of its property, facilities and assets and the operation
of its businesses under all Environmental Laws, (2) it is, and at all
times since its organization has been, in material compliance with the
terms and conditions of all such required Governmental and Private
Authorizations, and (3) it is not the subject of or threatened with any
Legal Action involving a demand for damages or other potential
liability with respect to violations or breaches of any Environmental
Requirement; and
(v) has not assumed or agreed to any obligation under any of
its leases of real property to clean up any Hazardous Materials which
exists on such property other than as a result of the Company's
operating and occupying such property.
(b) Except as set forth in Section 3.20(b) of the Disclosure Schedule:
(i) the Company has not disposed, released, buried or placed
Hazardous Materials on, and, to the Company's knowledge, no other
disposal, release, burial or placement of Hazardous Materials has
occurred on, any property or facility leased, operated or occupied by
the Company during the period that such facilities and properties were
leased, operated or occupied by it or, to the knowledge of the Company,
at any other time;
(ii) to the knowledge of the Company, there has been no
disposal, release, burial or placement of Hazardous Materials on any
property which could reasonably be expected to result or has resulted
in contamination of or beneath any properties or facilities leased,
operated or occupied by the Company; and
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(iii) no notice has been received by the Company and to the
Company's knowledge no Lien has arisen on its properties or facilities
under Environmental Law.
(c) The Company has not installed, used or otherwise operated any
above-ground or underground fuel storage tanks on property leased, operated or
occupied by it and, to the Company's knowledge, no above-ground or underground
fuel storage tanks exist on property 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 Company as to environmental matters at any property leased,
operated or occupied by the Company.
Section 3.21. Operational Matters. With respect to the Company:
(a) customers are invoiced for special projects, such as purges,
special destructions, de-boxing and re-filing programs, only with respect to
completed work;
(b) substantially all of its customers is party to a customer contract
which limits the Company'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; and
(c) the monthly information set forth in Section 3.21 of the Disclosure
Schedule has been prepared consistent with past practice and is true and correct
in all material respects.
Section 3.22. 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 the
Company.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR MERGER SUBSIDIARY
Acquiror and Acquiror Merger Subsidiary, jointly and severally,
represent, warrant and covenant to, and agree with, the Company as follows:
Section 4.1. Organization and Qualification; Power and Authority;
Effect of Transaction.
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(a) Each of Acquiror and Acquiror Merger Subsidiary is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware. Each of Acquiror and Acquiror Merger Subsidiary 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 would
not have an Adverse Effect.
(b) Each of Acquiror and Acquiror Merger Subsidiary 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 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. This Agreement has been duly
executed and delivered by each of Acquiror and Acquiror Merger Subsidiary and
constitutes, and each Collateral Document executed or required to be executed
pursuant hereto or thereto when executed and delivered by it will constitute,
legal, valid and binding obligations of Acquiror and Acquiror Merger Subsidiary,
respectively, enforceable in accordance with their respective terms (subject to
the Enforceability Exceptions).
(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 each of Acquiror and
Acquiror Merger Subsidiary:
(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 Acquiror Merger Subsidiary 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 or Acquiror Merger Subsidiary, or
(ii) 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. Capitalization of Acquiror and Acquiror Merger Subsidiary.
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(a) The authorized and outstanding capital stock of each of Acquiror
and Acquiror Merger Subsidiary is as set forth in Section 4.2 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. Between the date hereof and the
Closing, except as contemplated by this Agreement, Acquiror Merger Subsidiary
will not issue or sell or purchase or agree to issue or sell or purchase any
capital stock or any Option Security or Convertible Security. All shares of
common stock of Acquiror Merger Subsidiary held by Acquiror have been duly
authorized and validly issued to Acquiror and are fully paid and non-assessable
and are not subject to any preemptive or similar rights. As of the date hereof,
except for this Agreement, Acquiror Merger Subsidiary does not have any
outstanding or authorized Convertible Securities. 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.
(b) Acquiror's 1995 Stock Incentive Plan was duly approved by
Acquiror's stockholders and directors and a sufficient number of shares is
reserved under Acquiror's 1995 Stock Incentive Plan to satisfy Acquiror's
obligations under Section 2.4 hereof.
Section 4.3. SEC Filings; Financial Statements.
(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 Special Financial Report on Form 10- K for the fiscal year
ended December 31, 1995, (ii) its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, (iii) its
proxy statement relating to its 1996 meeting of stockholders, and (iv) all other
forms, reports and registration statements filed by it with the SEC since
January 30, 1996 (the forms, reports and other documents referred to in clauses
(i), (ii), (iii) and (iv) above being referred to herein collectively as the
"Acquiror SEC Reports"). The Acquiror SEC Reports and any forms, reports and
other documents filed by the Acquiror with the SEC after the date of this
Agreement, (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 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, 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, are true, correct and complete, 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 financial
condition and results of operations of Acquiror and its Subsidiaries, on the
bases therein stated, as of the respective
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dates thereof, and for the respective periods covered thereby subject, in the
case of unaudited financial statements to normal nonmaterial year-end audit
adjustments and accruals.
(c) Since the date of Acquiror's most recent report to the SEC (Form
10-Q for the quarter ended September 30, 1996), there has been no Adverse Change
in Acquiror. To Acquiror's knowledge, there is no Event known to Acquiror which
Adversely Affects, or in the future might (so far as Acquiror can now reasonably
foresee) Adversely Affect, Acquiror or the ability of Acquiror to perform any of
the obligations set forth in this Agreement, or any Collateral Document executed
or required to be executed pursuant hereto or thereto, except for changes in
general economic conditions or the industry in general.
Section 4.4. Registration Statement. As of the Closing Date, the
Registration Statement (if any) 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 issue date thereof 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 4.3(a) and this Section 4.4
shall not apply to statements or omissions in the Registration Statement or the
Prospectus based on information relating to the Company or any of the
Stockholders furnished to Acquiror by the Company or any of the Stockholders.
Neither the Acquiror Disclosure Schedule, this Agreement nor any Collateral
Document, data, information or statement 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, contains or will
contain any untrue statement of a material fact or omits or will omit 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, data, information or statements are and will be true,
accurate and complete.
Section 4.5. 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 or Acquiror Merger Subsidiary (other than William
Blair & Company, whose fees and expenses will be paid by Acquiror).
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ARTICLE 5.
ADDITIONAL COVENANTS
Section 5.1. Access to Information; Confidentiality.
(a) The Company shall afford to Acquiror and its Representatives full
access during normal business hours throughout the period prior to the Effective
Time to all of the Company'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 provi ded for pursuant
to the preceding clause, all financial records, ledgers, workpapers and other
sources of financial information possessed or controlled by the Company or its
accountants deemed by Acquiror or its Representatives necessary or useful for
the purpose of performing an audit of the Company and certifying financial
statements and financial information, and (ii) such other information concerning
any of the foregoing as Acquiror 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 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. The Company and Acquiror acknowledge that
they have heretofore executed a confidentiality agreement, dated December 27,
1996 (the "Confidentiality Agreement"), which separately and as incorporated
herein shall remain in full force and effect after and notwithstanding the
execution and delivery of this Agreement, and that information obtained from the
Company by Acquiror or its Representatives or by the Company or its
Representatives from Acquiror, pursuant to Section 5.1(a), the Confidentiality
Agreement or otherwise, shall be subject to the provisions of the
Confidentiality Agreement.
(b) Subject to the terms and conditions the Confidentiality Agreement,
Acquiror and the Company may disclose such information as may be necessary in
connection with seeking all Governmental 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 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.
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(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(d); (ii) to
obtain all necessary or appropriate waivers, consents and approvals, (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. 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. Each agrees that, to the extent
required by Applicable Law to consummate the Merger, it will file with the
Antitrust Division of the Department of Justice and the Federal Trade Commission
a Notification and Report Form in a manner so as to constitute substantial
compliance with the notification requirements of HSR. Each covenants and agrees
to use its best efforts to achieve the prompt termination or expiration of any
waiting period or any extension thereof under the HSR Act. 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).
(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 Company will use its best efforts on or prior to the Closing
Date to obtain the satisfaction of the conditions specified in Sections 6.1 and
6.2. Each of Acquiror and Acquiror Merger Subsidiary 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 Company 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 in favor of Fleet Bank of
Massachusetts, N.A., but only to the extent that Acquiror elects to repay or
prepay the Indebtedness corresponding to such Liens from its own funds.
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(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 Company shall cause its independent accountants to cooperate
with Acquiror and shall prepare audited financial statements for the Company for
inclusion in the Registration Statement. Without limiting the generality of the
foregoing, the Company agrees that it will (i) consent to the use of such
audited financial statements in any registration statement or other document
filed by Acquiror (or any of its Subsidiaries) under the Securities Act or the
Exchange Act, and (ii) execute and deliver, and cause its officers to execute
and deliver, such "representation" letters as are customarily delivered in
connection with audits and as Acquiror's independent accountants may reasonably
request under the circumstances.
(g) Without intending to limit the generality of the covenants set
forth in Section 3.17, the Company agrees that it 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 employee whose annual compensation exceeds
$50,000. In addition, the Company shall confer on a regular and frequent basis
with Acquiror with respect to operational matters of the Company.
Section 5.3. Affiliate Agreements; Registration Rights Agreement.
(a) Prior to the Closing Date, the Company shall deliver to Acquiror a
letter identifying all Persons who are, at the time this Agreement is submitted
to the Stockholders, "affiliates" of the Company for purposes of Rule 145 under
the Securities Act. Each of Acquiror and the Company shall use its 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.
(b) Acquiror agrees that it will enter into a registration rights
agreement (the "Registration Rights Agreement") with the Principal Stockholders
and such other stockholders of Acquiror as Acquiror deems necessary or
appropriate, with respect to shares of Acquiror Stock to be issued to the
Principal Stockholders pursuant to Section 2.1(a) hereof (and any shares of such
other stockholders), for the benefit of the Principal Stockholders reasonably
satisfactory in form and substance to Acquiror and the Principal Stockholders,
which Registration Rights Agreement shall include, without limitation, the
following terms: (i) the Principal Stockholders shall have demand registration
rights upon the written request of the Principal Stockholders, or upon the
written request by either of them, requesting the registration of shares of
Acquiror Stock having a market price of an aggregate of at least $10,000,000 on
no more than two
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occasions (subject to customary proration or "cut-back" provisions); (ii) the
Principal Stockholders shall have an unlimited number of piggyback registration
rights in conjunction with public offerings of Acquiror Stock (other than any
such offerings in connection with acquisitions and subject to customary
proration or "cut-back" provisions); (iii) Acquiror and the Principal
Stockholders shall indemnify each other in the event of any losses resulting
from any misrepresentations, acts or omissions of the other party in connection
with any such registration or any document related thereto; (iv) Acquiror shall
have the right, in its discretion, subject to the consent of the Principal
Stockholders, which consent shall not be unreasonably withheld, to choose the
underwriter(s) in any underwritten public offering of Acquiror Stock; (v) each
Principal Stockholder will agree to customary lock-up provisions in connection
with any registration; and (vi) the Principal Stockholders shall be solely
responsible for all of their own expenses (including, without limitation,
underwriting discounts and selling commissions and the fees of their counsel)
and all registration filing fees of Acquiror in connection with any registration
and, with respect to demand registration only, shall reimburse Acquiror for all
reasonable out-of-pocket expenses incurred in satisfying any such demand
registration, including, without limitation, fees and expenses of complying with
securities and blue sky laws, printing expenses, fees and expenses of Acquiror's
counsel and accountants.
Section 5.4. No Solicitation. The Company shall not, nor shall it
permit any of the Company's 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, it 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, or agree to or endorse any Other
Transaction; provided, however, that nothing contained in this Section shall
prohibit the Company or its Board of Directors from making any disclosure to
Stockholders that, in the reasonable judgment of its Board of Directors in
accordance with, and based upon the written advice of, outside counsel, is
required under Applicable Law. The Company 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 Company 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, the Company 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 Company under this Agreement.
Section 5.5. Directors' and Officers' Indemnification and Insurance.
From and after the Effective Time, the Surviving Corporation shall indemnify,
defend and hold harmless the present and former officers and directors of the
Company 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
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is or was a director or officer of the Company and arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the Merger and the Transactions), in each case to the fullest extent
currently provided under the Company's Organic Documents (but only to the extent
permitted under the DGCL), and shall 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 the DGCL, upon receipt from the Person to whom expenses
are advanced of an undertaking to repay such advances to the extent required
under the DGCL. Acquiror hereby guarantees the performance by the Surviving
Corporation of all of its obligations in this Section 5.5 and the payment of all
sums which would be due hereunder from the Surviving Corporation.
Section 5.6. Notification of Certain Matters. Each party shall give
prompt notice to the other 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 Company or Acquiror, as the case may be, to comply with
or satisfy, 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 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.
Section 5.7. Public Announcements. Until the Closing, or in the event
of termination of this Agreement, each party 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, the Company acknowledges and agrees that Acquiror
may, without the prior consent of the Company, issue such press releases or make
such public statements as may be required by Applicable Law, in which case, to
the extent practicable, Acquiror will consult with, and exercise in good faith,
all reasonable business efforts to agree with the Company regarding the nature,
extent and form of such press release or public statement, and, in any event,
with prior notice to the Company.
Section 5.8. Obligations of Acquiror. Acquiror agrees to take all
action necessary to cause Acquiror Merger Subsidiary and the Surviving
Corporation to perform their respective obligations under this Agreement.
Acquiror shall be liable as provided herein for any breach of any
representation, warranty, covenant or agreement of Acquiror Merger Subsidiary
and for any breach of this covenant.
Section 5.9. Employee Benefits; Severance Policy. Provided that it
complies in all material respects with Applicable Law, the Surviving Corporation
may, in its sole discretion, substitute employee compensation, benefit and
severance programs for those of the Company
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as are comparable with the programs provided from time to time to Acquiror's
employees and the employees of Acquiror's Subsidiaries.
Section 5.10. Certain Actions Concerning Business Combinations. The
Company 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.
Section 5.11. Conversion of Option Securities. The Company will take
all action necessary (a) to provide timely written notice to all persons holding
Option Securities to the effect that all Option Securities outstanding as of the
Effective Time will be exchanged for options to acquire Acquiror Stock, and
cash, in the case of vested and exercisable Option Securities, upon such
exchange, in accordance with Section 2.4 hereof, and (b) to obtain any consent
or waiver from the holder of an Option Security which may be necessary to give
effect to actions contemplated by Section 2.4. Without the prior written consent
of Acquiror, except as set forth in Section 3.13(b) of the Disclosure Schedule,
(i) such notice will not cause an acceleration of the exercise, conversion or
vesting schedule of any Option Security, and (ii) the Company will not otherwise
accelerate, or cause an acceleration of, the exercise, exchange or vesting
schedule of any Option Security.
Section 5.12. Tax Treatment. Each of Acquiror, Acquiror Merger
Subsidiary and the Company 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(j) and 6.3(d). Without limiting the foregoing, Acquiror covenants that 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.
Section 5.13. 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 Company
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. The Company shall use its reasonable best efforts to cause
the Prospectus to be mailed to the Stockholders 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
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Company shall furnish all information concerning the Company and the holders of
the Company Stock as may be requested in connection with any such action.
(b) The Company 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 Company promptly of the
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 Company 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 Company
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 Company or Acquiror or any of its Subsidiaries, as the
case may be, or with respect to other information supplied by the Company 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 Company 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 Company, 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 the Company
or any Stockholder 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 Stockholders in connection with the Special Meeting
will, at the date it is first mailed to the Stockholders or at the time of the
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The 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 Company with
respect to statements made or incorporated by
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reference in the Registration Statement other than with respect to information
which is supplied by the Company or any Stockholder specifically for inclusion
or incorporation by reference in the Registration Statement.
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) This Agreement, the Merger and the Transactions shall have been
approved and adopted in accordance with the DGCL by the affirmative vote, or to
the extent permitted by Applicable Law, by written consent, of the Stockholders
holding at least the minimum number of shares of the Company Stock then issued
and outstanding as are required by Applicable Law and the Company's Organic
Documents for such approval and adoption;
(b) As of the Closing Date, no Legal Action shall be pending before or
threatened in writing by any Authority seeking to restrain, prohibit, make
illegal or delay materially, or seeking material damages from the Party seeking
to invoke this Section 6.1(b) and, in case Acquiror is seeking to invoke this
Section 6.1(b), the Company, or to impose any Adverse conditions in connection
with, the consummation of the Merger and the Transactions, or which might, in
the reasonable business judgment of Acquiror, have an Adverse Effect on Acquiror
and its Subsidiaries taken as a whole assuming consummation of the Merger;
(c) Other than the filing of the certificate of merger in accordance
with the DGCL, 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 or Acquiror Merger Subsidiary and
the Company 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
Company;
(d) The filing and waiting period requirements under the HSR Act
relating to the consummation of the Merger shall have been complied with; and
(e) Acquiror or its nominee and the owner of each Property shall have
entered into and closed a purchase and sale agreement for each such Property for
the price of $2,200,000 for the Property located at 5 Fortune Drive, Billerica,
Massachusetts, $2,400,000 for the Property located at 96 High Street, N.
Billerica, Massachusetts, and $2,700,000 for the Property
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located at 520 Metro Park West, Rochester, New York; provided, however, that it
shall not be a condition to the Company's obligation to effect the Merger if the
reason for Acquiror's or such nominee's failure to acquire a Property is due to
the inability of the owner of such Property to convey to Acquiror or such
nominee good and marketable title to the Property free and clear of all Liens
other than Permitted Liens.
Section 6.2. Conditions to Obligations of Acquiror and Acquiror Merger
Subsidiary. The obligations of Acquiror and Acquiror Merger Subsidiary 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) 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
Company 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 the Company or any
Stockholders 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 Company 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 agreements or conditions as
Acquiror shall have reasonably requested;
(c) The Company 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 Woods, Oviatt, Gilman, Sturman
& Clarke, LLP, counsel for the Company, in the form attached hereto as Exhibit
6.2(c);
(d) No Legal Action or other Claim shall be pending or threatened 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, or 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 have any
Adverse Effect on the Company or, assuming consummation of the Merger, Acquiror
and its Subsidiaries taken as a whole;
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(e) Each Affiliate of the Company shall have executed and delivered an
Affiliate Agreement in the form of Exhibit 5.3 hereto and Acquiror and the
Principal Stockholders shall have entered into the Registration Rights
Agreement;
(f) The Company shall have obtained consents to the assignment and
continuation of all Material Agreements which, in the reasonable judgment of
Acquiror require such consents, and the Company shall have obtained satisfaction
and discharge of all Liens set forth in Section 3.5(a) of the Disclosure
Schedule in favor of Fleet Bank of Massachusetts, N.A., but only to the extent
that Acquiror elects to repay or prepay the Indebtedness corresponding to such
Liens from its own funds;
(g) As of the Closing Date, there shall not have occurred and be
continuing any Adverse Change affecting the Company from the condition thereof
(financial and other) reflected in the Financial Statements;
(h) Each of the officers and directors of the Company and each trustee
under each Plan shall have submitted his or her unqualified written resignation,
dated as of the Closing Date, from all such positions held with the Company and
as a trustee for each such Plan;
(i) Except for such Contractual Obligations as to which Acquiror has
notified the Company that it wants to retain, which notice shall be delivered
not less than twenty (20) days prior to Closing and which Contractual
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;
(j) Acquiror shall have received a favorable opinion, dated the Closing
Date, of Sullivan & Worcester LLP, its special tax counsel, 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; and
(k) Acquiror, the Company, the Agent and the Escrow Agent shall have
executed and delivered the Escrow Agreement and the Escrow Indemnity Funds
described therein shall have been delivered to the Escrow Agent.
Section 6.3. Conditions to Obligations of the Company. The obligations
of the Company 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) Acquiror shall have furnished the Company and the Principal
Stockholders with the favorable opinion, dated the Closing Date, of Sullivan &
Worcester LLP, counsel to Acquiror, in the form attached hereto as Exhibit
6.3(a);
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(b) All agreements, certificates, opinions and other documents shall be
reasonably satisfactory in form, scope and substance to the Company and its
counsel, and the Company 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;
(c) The representations, warranties, covenants and agreements of each
of Acquiror and Acquiror Merger Subsidiary contained in this Agreement or
otherwise made in writing by it or on its behalf pursuant hereto or otherwise
made in connection with 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 each of Acquiror and Acquiror Merger Subsidiary hereunder at or prior to the
Closing Date shall have been duly performed or satisfied in all material
respects; and each of Acquiror and Acquiror Merger Subsidiary shall have
furnished the Company 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 Company shall have
requested; and
(d) The Company shall have received a favorable opinion, dated the
Closing Date, of Woods, Oviatt, Gilman, Sturman & Clarke, LLP, its special tax
counsel, 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;
(e) Affiliates of the Company who are guarantors of any Company bank
Indebtedness, leases or other obligations shall have been released from all
liability under the guarantees listed on Section 6.3(e) of the Disclosure
Schedule and all collateral granted by them to secure those guarantees shall
have been released and returned to them (it being understood that if any Person
who is benefited by any guaranty does not agree to release such guaranty or
collateral without the receipt of consideration, the condition to Closing shall
be deemed to be satisfied if, at Acquiror's option, Acquiror indemnifies such
Affiliate for any payment made in respect of such guaranty); and
(f) The Escrow Agreement shall have been executed and delivered by
Acquiror and the escrow agent and the Registration Rights Agreement shall have
been executed and delivered by Acquiror and such other parties thereto (other
than the Principal Stockholders).
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
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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:
(a) by mutual consent of Acquiror and the Company;
(b) by either Acquiror or the Company 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 Company in the event (i) the Company is not in breach of
this Agreement and none of its 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 by or beyond the Termination Date, and (ii) either (A) Acquiror or
Acquiror Merger Subsidiary 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 by and will not prevent or delay consummation of the Merger by or
beyond the Termination Date, or (B) the Merger and the Transaction have not been
consummated by the Termination Date;
(d) by Acquiror:
(i) if the Merger and the Transactions fail to receive the
approval required by Applicable Law, by vote (or to the extent
permitted by Applicable Law, by consent) of the Stockholders;
(ii) in the event (A) neither Acquiror nor Acquiror Merger
Subsidiary is in breach of this Agreement and none of their
representations or 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 by or beyond the Termination Date, and (B) either (I) the
Company 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 by and will not prevent or delay consummation of the Merger
by or beyond the Termination Date, (II) the Merger and the Transactions
have not been consummated prior to the Termination Date, or (III) any
of the Stockholders is in breach of the Stockholders' 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; or
(iii) if (A) the Board of Directors of the Company shall (I)
withdraw, modify or change its recommendation so that it is not in
favor of this Agreement, the Merger or the Transactions, or shall have
resolved to do any of the foregoing, or (II) have
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recommended or resolved to recommend to the Stockholders any Other
Transaction, or (B) the Company shall have entered into or agreed to
enter into any Other Transaction.
Section 7.2. Effect of Termination. Except as provided in Sections 5.1,
5.7, 7.2, 7.5 and 9.11 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 the other and all rights and obligations of any
Party shall cease; provided, however, that such termination shall not relieve
any Party from liability for the breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement, or impair the
right of the Company, on the one hand, and Acquiror and Acquiror Merger
Subsidiary, on the other hand, to compel specific performance of the other party
of its or their obligations under this Agreement.
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, no amendment, which under
Applicable Law may not be made without the approval of the 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 and Acquiror Merger
Subsidiary or the Company 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) 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 Company agrees that if this Agreement shall be terminated by
Acquiror pursuant to Section 7.1(d) (other than a termination by Acquiror
pursuant to Section 7.1(d)(ii)(B)(II) unless the reason for the failure to
consummate the Merger prior to the Termination Date is due to any breach by the
Company of its covenants herein or the failure of the representations and
warranties of the Company to be true and correct in all material respects), then
the Company will pay to Acquiror an amount equal to $5,000,000, which amount
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is in recognition of, among other things, the out-of-pocket Expenses of Acquiror
related to this Agreement, the reliance of Acquiror on the Company's fulfillment
of its obligations hereunder, the costs in delayed opportunity to Acquiror, and
the benefit to the Company, 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. 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 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.
(c) Acquiror agrees that if this Agreement shall be terminated by the
Company pursuant to Section 7.1(c) (other than a termination by the Company
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 or Acquiror Merger Subsidiary of any of their respective covenants
herein or the failure of the representations and warranties of Acquiror and
Acquiror Merger Subsidiary to be true and correct in all material respects),
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 Company related to this Agreement, the reliance of the Company on Acquiror's
fulfillment of its obligations hereunder, the costs in delayed opportunity to
the Company, 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 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 Company 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 one (1) year 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.
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Section 8.2. Escrow; Indemnification. The Parties hereto agree, and by
adopting and approving this Agreement and the Merger, the Stockholders shall
agree, that the Escrow Indemnity Funds will be withheld from the Exchange Merger
Consideration and held in escrow 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:
(a) any breach of representation or warranty made by the Company
pursuant to this Agreement or any Collateral Document or any failure by the
Company to perform or fulfill any of its covenants or agreements set forth in
this Agreement or any Collateral Document;
(b) any Legal Action or other Claim by any third party relating to the
Company to the extent such Legal Action or other Claim has resulted in a breach
of representation or warranty by the Company pursuant to this Agreement or any
Collateral Document; or
(c) the Indebtedness of the Company and its Subsidiaries as of the
Effective Time exceeding $500,000 (unless any adjustment has been made to the
Cash Amount in accordance with Section 8.6).
The Company hereby appoints, and by adopting and approving this
Agreement and the Merger, the Stockholders shall appoint, James B. Wayman, Jr.
(the "Agent", with full and unqualified power to delegate 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 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.
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 if the Loss and Expense for all Claims exceeds, in the
aggregate, $150,000 and (ii) in no event shall the aggregate amount to be paid
to Acquiror exceed the lesser of (i) the Escrow Indemnity Funds and (ii) shares
of Acquiror Stock having an aggregate Market Value of Three Million Dollars
($3,000,000).
(b) Anything in this Agreement, including without limitation the
provisions of Sections 8.2 or 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
shall be the Escrow Indemnity Funds. On or before the Closing Date, Acquiror,
the Company and the Agent shall execute and deliver an escrow agreement
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substantially in the form attached hereto as Exhibit 8.3 (the "Escrow
Agreement"). Any Claims of Acquiror for indemnification to be satisfied out of
the Escrow Indemnity Fund shall be made in accordance with the terms of the
Escrow Agreement (it being hereby understood that for purposes of determining
the number of shares of Acquiror Stock necessary to satisfy such Claim, the
Market Price of the Acquiror Stock calculated in accordance with the terms of
the Escrow Agreement shall be used). At the Effective Time, a certificate
registered in the name of James B. Wayman, Jr., as Agent, representing the
Escrow Indemnity Funds shall be withheld from the Merger Consideration hereunder
and shall be deposited with the Escrow Agent. In accordance with the terms of
the Escrow Agreement, each Stockholder shall be entitled to receive all ordinary
cash dividends paid in respect of his or her Proportionate Share of Acquiror
Stock that would otherwise be registered in his or her name but for such shares
being a part of the Escrow Indemnity Funds and to vote and to give consents,
waivers and ratifications in respect of his or her Proportionate Share of
Acquiror Stock which is part of the Escrow Indemnity Funds. In connection with
any such vote or consent, the Agent and Acquiror, at Acquiror's expense, shall
cause to be delivered to such Stockholder such information (including, without
limitation, any proxy statement and cards). The Agent shall vote the shares of
Acquiror Stock forming part of the Escrow Indemnity Funds in accordance with the
directions of the Stockholders. In order to take such vote, the Agent shall
tabulate the votes it receives from the Stockholders and inform Acquiror in
writing of the aggregate percent of all votes received for, against and in
abstention with respect to each matter voted upon. Acquiror shall then convert
such percent to number based on the then-existing Escrow Indemnity Funds,
rounded in each case down to the nearest whole number.
(c) In the event there are no Unresolved Claims (as defined in the
Escrow Agreement), on the date which is ten (10) days 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 Stockholders (or their nominee or transferee, as set forth in the
Transmittal Documents in respect of the Exchange Merger Consideration) entitled
thereto in accordance with the proportions with their ownership of Shares
immediately prior to the Effective Time (provided that cash in lieu of
fractional shares will be distributed in accordance with Section 2.1(d) hereof).
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,
shares of Acquiror Stock, rounded to the nearest shares, having a Market Price
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, expense 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 Persons
entitled thereto. 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 shares of Acquiror Stock, if any, shall be distributed to the Persons
entitled thereto.
Section 8.4. Notice of Claims. If Acquiror believes that it has
suffered or incurred any Loss and Expense, it shall notify the Agent promptly in
writing, and in any event within the applicable time period specified in Section
8.2, describing such Loss and Expense, all with
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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 to claim any liability or expense as Loss and Expense under this
Article, Acquiror shall promptly notify the Agent of such Legal Action, but the
failure to so notify the Agent shall not relieve the Stockholders of their
obligations under this Article, except to the extent such failure to notify
prejudices its ability to defend against such Claim.
Section 8.5. Defense of Third Party Claims. The Agent 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 Acquiror may, at its election, participate in
the defense thereof at its sole cost and expense; provided, however, that if the
Agent 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 Stockholders at least fifteen (15) days'
notice of the terms of the proposed settlement thereof and permits the
Stockholders 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 Agent 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. Five business days prior to the
Closing Date, the Company shall prepare and deliver to Acquiror a schedule
showing the Company's best estimate of its Indebtedness as of the Effective Time
(the "Company Indebtedness Calculation"). 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 discussions. In addition, at the Closing, the
Company shall deliver to Acquiror a letter from Fleet Bank of Massachusetts,
N.A. certifying to Acquiror the entire unpaid balance (principal and interest)
of the Company's Indebtedness to Fleet Bank of Massachusetts, N.A., such that
the payment thereof at that time would terminate that Indebtedness. If the
Company Indebtedness Calculation indicates that the Indebtedness of the Company
is greater than $500,000, the Cash Amount shall be adjusted in accordance with
the definition thereof; if the Company Indebtedness Calculation indicates that
Indebtedness of the Company is less than $500,000, there shall be no such
adjustment.
Section 8.7. Exclusive Remedy. Except as otherwise provided in this
Article and Section 9.8 of the Merger Agreement and Section 5.1 of the
Stockholders' Agreement, the indemnification provided in this Article shall be
the sole and exclusive post-Closing remedy available to Acquiror against the
Stockholders for any Claim under this Agreement.
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ARTICLE 9.
GENERAL PROVISIONS
Section 9.1. 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 or Acquiror Merger Subsidiary:
Iron Mountain Incorporated
745 Atlantic Avenue, 10th Floor
Boston, MA 02110
Attention: Chief Executive Officer
Telecopier No.: (617) 357-9031
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: William J. Curry, Esq.
Telecopier No.: (617) 338-2880
(b) If to the Company or the Agent:
c/o B. Thomas Golisano
911 Panorama Trail South
Rochester, NY 14625
Telecopier No.: (716) 383-3428
with a copy to:
Woods, Oviatt, Gilman, Sturman & Clarke LLP
44 Exchange Street
Rochester, NY 14614
Attention: Harry P. Messina, Jr.
Telecopier No.: (716) 454-3968
Section 9.2. 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.
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Section 9.3. 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 either party, the parties shall negotiate in good faith to modify this
Agreement so 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 9.4. 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 9.5. Assignment. This Agreement shall not be assigned by
operation of law or otherwise and any purported assignment shall be null and
void, provided that Acquiror may cause a wholly owned Subsidiary of Acquiror to
be substituted for Acquiror Merger Subsidiary as the party to the Merger and
may, in addition, assign the other rights, but not its obligations, including,
without limitation, its obligation to pay the Merger Consideration, under this
Agreement to such Subsidiary.
Section 9.6. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any Person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.7. Governing Law. 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 Commonwealth of Massachusetts 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
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substantive laws of any other jurisdiction, except to the extent that
the provisions of the DGCL apply to the Merger. Anything in this Agreement to
the contrary notwithstanding, including without limitation the provisions of
Article 8, in the event of any dispute between the parties which results in a
Legal Action, the prevailing party shall be entitled to receive from the
non-prevailing party reimbursement for reasonable legal fees and expenses
incurred by such prevailing party in such Legal Action.
Section 9.8. Enforcement of the 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. 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 9.9. 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 9.10. 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.
Section 9.11. Continuation of Covenants. Notwithstanding any
termination by Acquiror of this Agreement, the Company agrees that all of the
representations, warranties and covenants of the Company contained in this
Agreement shall continue and be in full force and effect for so long as Acquiror
has the right to commence an offer to purchase the Company Stock of the
Principal Stockholders pursuant to the terms and provisions of the Stockholders'
Agreement and, in the event Acquiror commences such an offer, until such time as
such offer is consummated.
ARTICLE 10.
DEFINITIONS
As used herein, unless the context otherwise requires, the following
terms (or any variant in the form thereof) 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
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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 Company.
Acquiror Merger Subsidiary shall have the meaning given to it in the
Preamble.
Acquiror SEC Reports shall have the meaning given to it in Section
4.3(a).
Acquiror Stock shall have the meaning given to it in the Preamble.
Adverse, Adversely, when used alone or in conjunction with other terms
(including without limitation "Affect,""Change" and"Effect") shall mean, with
respect to the Company 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, management, properties or the condition, (financial or other), or
results of operation (including without limitation, earnings before interest,
taxes, depreciation and amortization) of the Company or Acquiror, 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 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 Acquiror 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(a).
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Agent shall have the meaning given to it in Section 8.2(c).
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.
Alternative Transaction shall have the meaning given to it in Section
1.9.
Applicable Law shall mean any Law of any Authority, whether domestic or
foreign, including without limitation the DGCL, 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.
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, arbitrator, authority, board, body, branch, bureau,
central bank or comparable agency or Entity, commission, corporation, court,
department, instrumentality, master, mediator, panel, referee, system or other
political unit or subdivision or other Entity of any of the foregoing, whether
domestic or foreign.
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, salary continuation for disability,
or other leave of absence, supplemental unemployment benefits, lay-off,
reduction in force or similar benefits, (v) any 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 Amount shall mean the difference between (a) $12,090,000 and (b)
in the event the Company Indebtedness Calculation exceeds $500,000, an amount
equal to such amount above $500,000.
Cash Conversion Number shall mean the quotient obtained by dividing (i)
the Cash Amount by (ii) the sum of (a) the number of shares of Company Stock
issued and outstanding immediately prior to the Merger (except shares subject to
Section 2.1(b)) and (b) the number of shares of Company Stock which may be
issued pursuant to Option Securities which are exercisable as of the Effective
Time (including those which will become exercisable by virtue of the
consummation of the Merger).
Cash Merger Consideration shall have the meaning given to it in Section
2.1(a).
Certificate shall have the meaning given to it in Section 2.1(a).
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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.
Closing Stock Conversion Number shall mean the quotient obtained by
dividing (i) the difference between (a) the Common Stock Amount and (b) the
Escrow Indemnity Funds by (ii) the sum of (a) the number of shares of Company
Stock issued and outstanding immediately prior to the Merger (except shares
subject to Section 2.1(b)) and (b) the number of shares of Company Stock which
may be issued pursuant to Option Securities which are exercisable as of the
Effective Time (including those which will become exercisable by virtue of the
consummation of the Merger).
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.
Common Stock Amount shall mean the quotient obtained by dividing (a)
$49,910,000 by (b) the Determination Price.
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.
the Company's knowledge (including the term "to the knowledge of the
Company") means the knowledge, information or belief of any Company director,
executive officer or any Principal Stockholder; and that such director,
executive officer or Principal Stockholder, after reasonable investigation
(which shall include, without limitation, interrogation of John Cercone, Kristen
Gardner, Michael Karp and Michael Young 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.
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Company Option Plan shall have the meaning given to it in Section
3.13(b).
Company Stock shall have the meaning given to it in Section 2.1(a).
Confidentiality Agreement shall have the meaning given to it in Section
5.1(a).
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.
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 or understanding, or as trustee or executor, by contract or credit
arrangement 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, 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.
Determination Price shall mean the average closing price per share of
Acquiror Stock for the period of 20 trading days ending three trading days prior
to the Closing Date; provided however, that if the average closing price per
share of Acquiror Stock for such period is less than $26.00, then the
Determination Price shall be $26.00, and provided further that if the average
closing price per share of Acquiror Stock for such period is greater than
$31.00, then the Determination Price shall be $31.00. The closing price for each
such trading day shall be the last quoted sale price or, if not so quoted, the
average of the low bid and high asked prices on the Nasdaq National Market
System.
DGCL shall have the meaning given to it in the Preamble.
Directors Plan shall have the meaning given to it in Section 3.13(b).
Disclosure Schedule shall mean the disclosure schedule dated as of the
date of this Agreement delivered by the Company to Acquiror.
Dissenting Shares shall have the meaning given to it in Section 2.5(a).
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Distribution shall mean, with respect to the Company: (a) the
declaration or payment of any dividend (except dividends payable in Company
Stock) on or in respect of any shares of any class of capital stock of the
Company owned by a Person other than the Company, (b) the purchase, redemption
or other retirement of any shares of any class of capital stock of the Company
owned by a Person other than the Company, and (c) any other distribution on or
in respect of any shares of any class of capital stock of the Company owned by a
Person other than the Company.
Effective Time shall have the meaning given to it in Section 1.4.
Employment Arrangement shall mean, with respect to any Person, any
employment, consulting, retainer, severance or similar 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 Company's 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.
Encumber shall mean to suffer, accept, agree to or permit the
imposition of any Lien.
Enforceability Exceptions shall have the meaning set forth in Section
3.1(b).
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, odors or
industrial, toxic or hazardous substances, materials or wastes, whether as
matter or energy, 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.
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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 Company under Sections 414(b), (c), (m) or (o) of
the Code or Section 4001(b)(1) of ERISA.
Escrow Agreement shall have the meaning given to it in Section 8.3(b).
Escrow Indemnity Funds shall mean shares of Acquiror Common Stock in an
amount equal to quotient obtained by dividing (i) Four Million Dollars
($4,000,000) by (ii) the Determination Price.
Escrow Indemnity Period shall have the meaning given to it in Section
8.1.
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 Commission 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).
Exchange Fund shall have the meaning given to it in Section 2.2(a).
Exchange Merger Consideration shall have the meaning given to it in
Section 2.1(a).
Expenses shall have the meaning set forth in Section 7.5(a).
Financial Statements shall have the meaning given to it in Section
3.2(a).
GAAP shall mean generally accepted accounting principles as in effect
from time to time in the United States of America.
Governmental Authorizations shall mean all approvals, concessions,
consents, franchises, licenses, permits, plans, registrations and other
authorizations of all Authorities.
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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 the Company 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, pollutive, contaminating, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is regulated by any
Authority; (d) that contains or consists of petroleum or petroleum products,
PCBs, 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 Company, all obligations,
contingent or otherwise, which in accordance with GAAP should be classified upon
the Company's consolidated balance sheet as liabilities in respect of borrowed
money and all guarantees, endorsements and other contingent obligations in
respect of Indebtedness of others (it being understood that obligations of the
Company in respect of trade payables and capitalized leases incurred in the
ordinary course of business shall not be included in the definition of
Indebtedness).
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 any (a) 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 or
any Authority, domestic or foreign; (b) the common law, or other legal or
quasi-legal precedent; or (c) arbitrator's, mediator's or referee's award,
decision, finding or
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recommendation; including, in each such case or instance, any interpretation,
directive, guideline or request, 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); 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.
Market Price shall have the meaning set forth in the Escrow Agreement.
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 Company, any Contractual Obligation (a) which (i) involves the purchase,
sale or lease of goods or materials or performance of services aggregating more
than Twenty-five Thousand Dollars ($25,000), (ii) extends for more than three
(3) months, or (iii) is not terminable on thirty (30) days or less notice
without penalty or other payment, (b) which involves indebtedness for money
borrowed in excess of One Hundred Thousand Dollars ($100,000) or (c) which is or
otherwise constitutes a written agency, dealer, license, distributorship, sales
representative or similar written agreement.
Merger shall have the meaning given to it in the Preamble.
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Merger Consideration shall have the meaning given to it in Section
2.1(a).
Multiemployer Plan shall mean a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA.
Net Shares shall have the meaning given to it in Section 2.2(a).
Option Plans shall have the meaning given to it in Section 3.13(b).
Option Securities shall mean all rights, options and warrants, and
calls or commitments evidencing the right, to subscribe for, purchase or
otherwise acquire Shares 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.
Organic Document shall mean the Company's 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) resulting in (a) any change in control of
the Company, (b) any merger or consolidation of the Company, regardless of
whether the Company is the surviving Entity, (c) any tender offer or exchange
offer for, or any acquisition of, any securities of the Company, (d) any sale or
other disposition of assets of the Company not otherwise permitted under Section
3.17 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 the Company (other than 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.
Permitted Liens shall mean any of the following Liens: (i) building and
zoning ordinances and by-laws of any applicable Authority applicable to the
Property; (ii) taxes assessed or to be assessed on the Property for the then
current year to the extent the same are not yet due
or payable; and (iii) rights, easements and restrictions of record, provided the
same do not materially interfere with the current occupancy and use of the
Property by the Company.
Person shall mean any natural individual or any Entity.
Plan shall mean, with respect to the Company and at a particular time,
any employee benefit plan which is covered by ERISA and in respect of which the
Company, or, in the case
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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.
Principal Stockholders shall mean B. Thomas Golisano and James B.
Wayman, Jr.
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.
Property shall mean each of the premises located at 5 Fortune Drive,
Billerica, Massachusetts, 96 High Street, Billerica, Massachusetts and 520 Metro
Park West, Rochester, New York, including all buildings and other improvements
and fixtures thereon (but only to the extent such improvements and fixtures are
owned by the owner of such Property and not the Company).
Proportionate Share shall have the meaning set forth in the Escrow
Agreement.
Prospectus shall mean the form of prospectus to form part of the
Registration Statement.
Registered Stock shall mean that portion of the Stock Merger
Consideration consisting of shares of Acquiror Stock to be registered pursuant
to the Securities Act.
Registration Rights Agreement shall have the meaning given to it in
Section 5.3(b).
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.
Representatives of a Party shall mean the officers, directors,
employees, accountants, counsel, financial advisors, consultants and other
representatives of such Party.
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 Commission 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.
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Share Price shall mean the quotient obtained by dividing (i) the
difference between $62,000,000 and, in the event the Company Indebtedness
Calculation exceeds $500,000, an amount equal to such amount above $500,000, by
(ii) the sum of (a) the number of shares of Company Stock issued and outstanding
immediately prior to the Merger (except shares subject to Section 2.1(b)) and
(b) the number of shares of Company Stock which may be issued pursuant to Option
Securities which are exercisable as of the Effective Time (including those which
will become exercisable by virtue of the consummation of the Merger).
Shares shall have the meaning given to it in Section 2.1(a).
Special Meeting shall have the meaning given to it in Section 1.2(a).
Stock Conversion Number shall mean the quotient obtained by dividing
(i) the Common Stock Amount by (ii) the sum of (a) the number of shares of
Company Stock issued and outstanding immediately prior to the Merger (except
shares subject to Section 2.1(b)) and (b) the number of shares of Company Stock
which may be issued pursuant to Option Securities which are exercisable as of
the Effective Time (including those which will become exercisable by virtue of
the consummation of the Merger).
Stockholders shall mean the Principal Stockholders and all other
Persons entitled to Merger Consideration (or who would be entitled thereto but
for their dissent from the Merger) pursuant to Sections 2.1(a) or (to the extent
Persons holding Option Securities or Convertible Securities exercise their
rights to acquire Shares prior to the Effective Time, from and after the time
they acquire such Shares) 2.4.
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, with
respect to the Company, (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 Company,
payroll,
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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 the Company with any other Person for the payment of any
amounts of the type described in (a), and (c) any liability of the Company 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 Claim shall mean any Claim which relates to Taxes, including
without limitation the representations and warranties set forth in Section 3.11.
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 Date shall mean September 30, 1997 or such other date as
the Parties may, from time to time, mutually agree; provided, however, that in
the event that any waiting periods or requests under the HSR Act have not
expired or been satisfied by September 30, 1997, the Termination Date shall mean
December 31, 1997.
Transactions shall mean the other transactions contemplated by this
Agreement or the Merger or by any Collateral Document executed or required to be
executed in connection herewith or therewith.
Transmittal Documents shall have the meaning given to it in Section
2.2(b).
[Signatures appear on following page.]
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IN WITNESS WHEREOF, Acquiror, Acquiror Merger Subsidiary and the
Company 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/ David S. Wendell
---------------------------------------------
Name: David S. Wendell
Title: President and Chief Operating Officer
IM-1 ACQUISITION CORP.
By: /s/ John P. Lawrence
---------------------------------------------
Name: John P. Lawrence
Title: Treasurer
SAFESITE RECORDS MANAGEMENT CORPORATION
By: /s/ B. Thomas Golisano
---------------------------------------------
Name: B. Thomas Golisano
Title: Chairman
By: /s/ James B. Wayman, Jr.
---------------------------------------------
Name: James B. Wayman, Jr.
Title: President
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ANNEX II
AMENDMENT TO ACQUIROR'S RESTATED BY-LAWS
ARTICLE XII
RESTRICTIONS ON TRANSFER OF CERTAIN SHARES OF CAPITAL STOCK OF THE CORPORATION
Section 1. Restrictions on Transfer. Any Person who receives any shares
of Common Stock of the Corporation (the "Merger Securities") issued pursuant to
the Agreement and Plan of Merger, dated as of February 19, 1997, by and among
the Corporation, IM-1 Acquisition Corp. and Safesite Records Management
Corporation, as amended (the "Merger Agreement"), shall not Transfer (as defined
herein), and the Corporation shall not be required to register the Transfer of,
the number of shares, rounded upward to the nearest whole share (the "Subject
Shares"), of the Merger Securities equal to the product of (1) the quotient
obtained by dividing (x) the "Lock-up Value" by (y) the product of (A) the
Common Stock Amount and (B) the lesser of the Closing Price and the
Determination Price multiplied by (2) the Stock Merger Consideration received by
such Person in connection with the Merger, until the first anniversary date of
the effective date of the Merger Agreement (the "Effective Time"), except as
otherwise allowed by the Board of Directors of the Corporation in its sole
discretion. The "Lock-up Value" shall mean one half (1/2) of the sum of (x) the
product of the Common Stock Amount and the lesser of the Closing Price and the
Determination Price plus (y) the Cash Amount. The "Closing Price" shall mean the
closing price per share of Acquiror Stock for the trading day immediately prior
to the Effective Time. The closing price for such trading day shall be the last
quoted sale price or, if not so quoted, the average of the low bid and high
asked prices on the Nasdaq National Market System. Capitalized terms used herein
and not otherwise defined shall have the meanings prescribed therefor in the
Merger Agreement. The term "Transfer" means any indirect or direct transfer,
offer to sell, sale, assignment, grant of an option to acquire, pledge, or other
disposition.
Section 2. Legend on Stock Certificates. The Corporation shall note on
the certificates for the Subject Shares of Merger Securities issued upon
transfer that the shares represented by such certificates are subject to the
restrictions on transfer and registration of transfer imposed in this Article
XII.
Section 3. Termination of Restrictions on Transfers. The provisions of
this Article XII shall terminate in their entirety on the first anniversary of
the Effective Time.
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ANNEX III
STOCKHOLDERS' AGREEMENT
AGREEMENT, dated as of February 19, 1997, among Iron Mountain
Incorporated, a Delaware corporation ("Acquiror"), those stockholders of
Safesite Records Management Corporation, a Delaware corporation (the "Company")
signatory hereto (the "Initial Stockholders"), including, without limitation, B.
Thomas Golisano, an individual residing at 911 Panorama Trail South, Rochester,
NY 14625 ("Golisano"), and James B. Wayman, Jr., an individual residing at 251
Old Billerica Road, Bedford, MA 01730 ("Wayman"), in his individual capacity and
as custodian for Alexander B. Wayman and Catherine Lia Wayman and those other
stockholders of the Company 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 Stockholders is the beneficial
and record owner of the shares of Common Stock, $.01 par value per share (the
"Company Stock") of the Company, set forth opposite each such Initial
Stockholder's name on Schedule A-1;
WHEREAS, concurrently with the execution of this Agreement,
Acquiror and the Company are entering into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which a wholly owned subsidiary of Acquiror will
be merged with and into the Company (the "Merger"), with the Company 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:
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.
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"beneficially own" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
"Equity Securities" shall have the meaning set forth in Rule
405 under the Securities Act.
"Golisano" 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.
"Intention" shall have the meaning set forth in Section
2.1(f).
"Merger Agreement" shall have the meaning set forth in the
second recital of this Agreement.
"Offer" and "Offer Consideration" shall have the meanings set
forth in Section 3.7(a).
"Permitted Assignee" shall mean with respect to each
Stockholder, (x) such Stockholder's lineal descendants, siblings and lineal
descendants of siblings, (y) a trust for the benefit of, the estate of,
executors, personal representatives, administrators, guardians or conservators
of, any of the individuals referred to in the foregoing clause (x) (but only in
their capacity as such) and (z) charitable trusts and charitable foundations
formed by such Stockholder.
"Proportionate Share" shall mean, as to each Stockholder, a
fraction the numerator of which is the Offer Consideration such Stockholder
receives pursuant to the Offer and the denominator of which is the Offer
Consideration all Stockholders receive pursuant to the Offer.
"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.
"Sale" shall have the meaning set forth in Section 2.1(f).
"Stockholder Disclosure Letter" shall have the meaning set
forth in Section 2.1(a).
"Third Party" shall mean a party or parties unaffiliated with
either the Company or Acquiror.
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"Transfer" shall have the meaning set forth in Section 3.8.
"Voting Securities" shall have the meaning set forth in Rule
405 under the Securities Act.
"Wayman" shall have the meaning set forth in the opening
paragraph of this Agreement.
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 Company Shares. 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
Company Stock set forth opposite such Stockholder's name on Schedule A-1, free
and clear of all Liens and, except for this Agreement and the Merger Agreement,
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 Company Stock that are
owned by such Stockholder, and there are no voting trusts or voting agreements
with respect to such shares. The shares of Company Stock set forth opposite such
Stockholder's name on Schedule A-1 constitute all of the outstanding shares of
capital stock of the Company 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 Company or any security
exercisable or exchangeable for, or convertible into, shares of capital stock of
the Company other than as set forth on Schedule A-1.
(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)
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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 Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
thereon or necessary to make the statements therein not misleading and (ii) the
proxy statement to be delivered to all stockholders of the Company (the "Proxy
Statement") will, at the date the Proxy Statement is first mailed to the
Company's Stockholders and at the time of the special meeting of Company
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 Company and its directors and executive officers
necessary in order for such Stockholder to make an informed decision to enter
into this Agreement.
(f) Intent to Transfer Shares. Such Stockholder has, and as of
the Closing Date, will have, no present plan or intention (an "Intention") to
sell, transfer, exchange, pledge (other than in a pre-existing bona fide margin
account) or otherwise dispose of, including a distribution by a partnership to
its partners, or a corporation to its shareholders, or any other transaction
which results in a reduction of ownership (any of the foregoing, a "Sale") of
any of the shares of Acquiror Stock issued to such Stockholder in the Merger, or
any securities that may be paid as a dividend otherwise distributed thereon or
with respect thereto, or issued or delivered in exchange or substitution
therefor or upon exercise of options held by such Stockholder. For purposes of
the preceding sentence, shares of Acquiror Stock (or the portion thereof) with
respect to which a Sale will occur prior to the Merger shall be considered to be
shares of Company Stock that are exchanged for Acquiror Stock in the Merger and
then disposed of pursuant to an Intention. A Sale of Acquiror Stock shall be
considered to have occurred pursuant to an Intention if, among other things,
such Sale occurs in a related transaction. Subject to Section 3.8, each
Stockholder (i) reserves the rights at any time after the Closing Date to
evaluate his or her investment portfolio, including shares of Acquiror Stock and
any other
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securities issued by Acquiror, in light of new, material developments, and to
make such investment decision with respect to such securities as such
Stockholder and his or her investment advisors, if any, shall deem to be in his
or her best interests, and (ii) specifically disavows any undertaking to hold
any securities issued by Acquiror for any specific period.
ARTICLE III
COVENANTS
3.1 No Disposition or Acquisition of Shares. Each Initial
Stockholder agrees that, except as set forth in Section 3.1 of the Stockholder
Disclosure Letter, such Initial Stockholder shall not 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 Company Stock set forth opposite his or her
name on Schedule A-1; provided, however, that each Initial Stockholder shall
have the right to transfer such shares to a Permitted Assignee if such Permitted
Assignee becomes a party to this Agreement and agrees to be bound by the terms
hereof. Each Initial Stockholder agrees that the certificates representing the
shares of Company 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 Golisano and Wayman agrees
that, except pursuant to this Agreement, he shall not grant any proxies, deposit
any shares of Company Stock into a voting trust or enter into any voting
agreement with respect to any shares of Company Stock now or hereafter owned,
beneficially or of record, by him, other than proxies to vote such shares at any
annual or special meeting of Stockholders of the Company on matters unrelated to
the matters set forth in Section 4.1 hereof.
3.3 Satisfaction of Conditions to the Merger. Each of Golisano
and Wayman 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 and the other Transactions 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. In addition, (i) Acquiror, Golisano
and Wayman agree that they will enter into, or, in the case of Acquiror, cause
its nominee to enter into, and, in the case of Golisano and Wayman, cause their
Affiliate which owns any Property to enter into, a purchase and sale agreement
relating to each Property reasonably satisfactory in form and substance to
Acquiror, Golisano and Wayman, for the price of $2,200,000 for the Property
located at 5 Fortune Drive, Billerica, Massachusetts, $2,400,000 for the
Property located at 96 High Street, Billerica, Massachusetts, and $2,700,000 for
the Property located at 520 Metro Park West, Rochester,
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New York, and (ii) Acquiror, Golisano and Wayman agree that they will enter into
the Registration Rights Agreement.
3.4 No Solicitation. Each Stockholder agrees that he shall
not, nor shall he 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, 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 Board of Directors of the Company, from making any
disclosure, in his or her capacity as a director of the Company, to other
Stockholders of the Company that, in the reasonable judgment of the Company's
Board of Directors in accordance with, and based upon the written advice of,
outside counsel, is required under Applicable Law. 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 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. Golisano agrees that, (i) from the date hereof
until the Closing Date and (ii) from and after the Closing Date for so long as
he shall be a Restricted Stockholder, he shall not, and shall use his best
efforts to cause his Affiliates not to, without the prior written consent of the
board of directors 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 him in the Merger), (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
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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 or (H) take any action which might require Acquiror to make a
public announcement regarding the possibility of a transaction between Golisano
and Acquiror (including any of their respective Affiliates).
3.6 Non-Competition.
(a) Except with the prior written consent of Acquiror, for a
period of five years from the Closing Date or the date of the closing of the
Offer, each of Golisano and Wayman shall not disclose to others or use for his
or others' benefit confidential information related to the Company or Acquiror
and its Subsidiaries, including the names of customers, the contact persons at
customers, pricing, the software programs utilized by the Company or Acquiror
and its Subsidiaries in the operation of its business and all other information
material to the operation, management, marketing or financing of the Company,
Acquiror and its Subsidiaries which is not known or generally available to the
public or competitors in the records management or records storage industries.
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 Golisano and Wayman agrees that he shall not,
for a period of five years from the Closing Date or from the date of the closing
of the Offer, directly or indirectly own, manage, engage in, participate in,
provide advice to, be employed by or have a financial interest in, any
enterprise which provides records management or records storage services to
business facilities located in any jurisdiction in which Acquiror or the Company
operates.
This Section 3.6(b) shall not prohibit either Golisano or Wayman from
acquiring up to five percent (5%) of any class of securities registered pursuant
to the Exchange Act of any corporation which may engage in the records
management storage service business in direct competition with the business of
Acquiror within the geographical areas set forth in this Section 3.6.
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(c) Each of Golisano and Wayman acknowledges that 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 Company;
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.
(d) Each of Golisano and Wayman acknowledges that confidential
information in his possession related to the Company 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
Golisano and Wayman agrees that any breach of paragraphs (a) and (b) 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.
(e) The restrictions contained in this Section 3.6 shall be
broadly construed by any court having jurisdiction of the matter in order to
protect Acquiror to the maximum degree possible.
3.7 Tender Offer; Commitment to Sell.
(a) If Acquiror terminates the Merger Agreement pursuant to
Section 7.1(d) thereof (other than a termination by Acquiror pursuant to Section
7.1(d)(ii)(B)(II) unless the reason for the failure to consummate the Merger
prior to the Termination Date is due to any breach by the Company of its
covenants therein or the failure of the representations and warranties of the
Company to be true and correct in all material respects), it shall have the
right, but not the obligation, to commence an offer (the "Offer") to purchase
all of the outstanding Shares at a per share purchase price (the "Offer
Consideration") equal to the Merger Consideration (assuming for such purposes
that the commencement of the Offer would constitute a Change of Control under
the Option Plans and, as a consequence thereof, there would be an acceleration
of the Option Securities as of the date of commencement of the Offer, as set
forth in Section 3.13(b) of the Disclosure Schedule). Shares tendered in the
Offer shall be free and clear of all Liens. The Offer shall comply in all
material respects with Applicable Law.
(b) Each of Golisano and Wayman hereby agrees that they will
irrevocably tender their shares of Company Stock identified on Schedule A-1
hereto in any such Offer commenced by Acquiror and, in connection therewith,
transfer to Acquiror all of the right, title and interest of each of Golisano
and Wayman in and to such shares, free and clear of all Liens.
III-8
<PAGE>
(c) All of the representations, warranties and covenants made
by the Company in the Merger Agreement shall be deemed made in connection with
the Offer by each Stockholder who tenders shares in the Offer, which
representations, warranties and covenants shall survive for a period of one year
after the closing of the Offer. Any claim for indemnification in respect of
breaches of such representations, warranties and covenants shall be conducted in
accordance with the provisions of Article 8 of the Merger Agreement and Article
5 of this Agreement (except that there will be no Escrow Indemnity Fund).
(d) The closing of the Offer shall take place in accordance
with the instructions set forth in the Offer. At such closing, (A) Acquiror
shall make payment of the Offer Consideration to each Stockholder who tenders
their shares in the Offer in shares of Acquiror Stock, which shares shall be
duly authorized, validly issued, fully paid and nonassessable, and the cash
portion of the Exchange Merger Consideration and cash in lieu of fractional
shares, (B) each of Golisano and Wayman shall deliver to Buyer evidence
reasonably satisfactory to Buyer and its counsel that all necessary
authorizations, consents, orders, waivers and approvals have been obtained to
vest in Buyer all of the right, title and interest of the Shares being
transferred to Buyer by them, and (C) each Stockholder who tenders Shares in the
Offer shall deliver to Acquiror the Certificates representing such Shares duly
endorsed for transfer to Acquiror or with stock powers duly executed by such
Stockholder and otherwise in a form and at the time which complies with the
terms of the Offer.
(e) It is the understanding of Acquiror, and each of Golisano
and Wayman hereby represents, that, in the event of an acquisition of shares of
Acquiror Stock in the Offer, each of Golisano and/or Wayman will be acquiring
the shares of Acquiror Stock to be acquired by him through the Offer for his own
account for investment with no intention of presently distributing or reselling
the same, subject, nevertheless, to his right to dispose of such Shares, or any
part of any thereof held by him, if at some future time in his sole discretion
he deems it advisable so to do. Each of Golisano and Wayman hereby agrees that
he will not sell, transfer or otherwise dispose of any such shares of Acquiror
Stock in violation of the Securities Act, and that such shares of Acquiror Stock
may contain a legend, reasonably satisfactory to Acquiror, referring to the
provisions of this Section. Each of Golisano and Wayman understands that the
Company is not and will not be required to file a registration statement under
the Securities Act in connection with any sale, transfer or other disposition of
shares of Acquiror Stock which may be acquired by either Golisano or Wayman
pursuant to the Offer.
(f) The undertakings in this Section 3.7 shall terminate upon
the earlier of (i) the Effective Time, (ii) the termination of the Merger
Agreement in accordance with Section 7.1 thereof (other than a termination which
results in Acquiror having the right to make the Offer in accordance with this
Section 3.7) or (iii) six months after a termination which results in Acquiror
having the right to make the Offer in accordance with this Section 3.7 (provided
that on or before thirty days after such termination Acquiror shall have
provided notice to Golisano of its intention to commence the Offer).
III-9
<PAGE>
3.8 Post-Closing Transfer Restrictions. In the event the
Merger is consummated as an Alternative Transaction, each of the Stockholders
agrees that, from and after the Closing Date until the one-year anniversary
thereof, such Stockholder shall not sell, transfer, pledge, encumber or
otherwise dispose of, including through any "short sale" or derivative
transactions (collectively "Transfer"), any shares of Acquiror Stock received by
such Stockholder as a result of the Merger if, after giving effect to such
Transfer, the aggregate number of shares of Acquiror Stock received in the
Merger by all Stockholders and not Transferred would be less than a number of
shares of Acquiror Stock having a value, as of the date of the Merger, of less
than fifty percent (50%) of the value of all of the formerly outstanding Company
Stock as of the same date. For purposes of the preceding computation, shares of
Company Stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Acquiror Stock will be treated as outstanding Company Stock
on the date of the Merger that has subsequently been Transferred, and all shares
of Company Stock and all shares of Acquiror Stock held by the Stockholders and
Transferred prior or subsequent to the Merger will be included in the
computation.
3.9 [Intentionally Omitted.]
ARTICLE IV
PROXY; CONVERSION;
ELECTIONS; WAIVER OF RIGHTS
4.1 Proxy. Each of Golisano and Wayman hereby agrees that, at
any meeting of the stockholders of the Company, however called, and at every
adjournment thereof, and in any action by written consent of the stockholders of
the Company, to (a) vote all of the shares of Company 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, (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 Company
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
III-10
<PAGE>
the Merger on the terms set forth in the Merger Agreement), such as a merger,
consolidation, business combination, reorganization recapitalization or
liquidation involving the Company, (ii) a sale or transfer of a material amount
of assets of the Company, or (iii) any material change in the Company's
corporate structure or business; provided, however, that, if either Golisano or
Wayman is a member of the Board of Directors of the Company, nothing herein
shall be construed to obligate such Stockholder or representative to act in his
capacity as a director in any manner which may conflict with such Person's
fiduciary duties as a director of the Company.
In furtherance of the foregoing, (i) each of Golisano and
Wayman 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 shares of Company Capital Stock at any meeting, general or special, of the
Stockholders of the Company, 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 Company, 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 Golisano and
Wayman. Each of Golisano and Wayman 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.
4.2 Appraisal Rights. Each of Golisano and Wayman hereby
waives his rights to appraisal under Section 262 of the DGCL with respect to any
shares of Company Stock owned by him in connection with the transactions
contemplated by the Merger Agreement. Each of Golisano and Wayman hereby agrees
that he will not in any way attempt to influence, encourage or persuade any
Person who beneficially owns any Company Stock to exercise any rights to
appraisal such Person may have pursuant to Section 262 of the DGCL in connection
with said transactions.
4.3 Waiver of Certain Rights. Each Initial Stockholder hereby
waives and agrees not to assert any claims or rights it may have against any
officer or director of the Company relating to or arising out of actions or
omissions occurring at or prior to the Effective Time or the closing of the
Offer, as the case may be, including, without limitation, in respect of approval
or adoption of the Merger Agreement or the consummation of the Merger or the
other transactions contemplated thereby.
III-11
<PAGE>
ARTICLE V
INDEMNIFICATION
5.1 Indemnification in the Event of the Offer. Each
Stockholder agrees that the indemnification provisions set forth in Article 8 of
the Merger Agreement shall be applicable in the event Acquiror consummates the
Offer pursuant to Section 3.7 hereof; provided, however, that only Stockholders
who tender Shares in the Offer shall be responsible for such indemnification and
each such Stockholder shall only be responsible for such Stockholder's
Proportionate Share of any claim. In addition, (i) the Escrow Indemnity Period
shall terminate on the first anniversary of the closing of the Offer and the
Closing Date shall be deemed to be the closing of the Offer, (ii) the amount of
Acquiror Stock received by each Stockholder who tenders Shares in the Offer
shall be adjusted to reflect the escrow to be established, and (iii) each
Stockholder will agree to execute the Escrow Agreement with such changes
therein, if any, as are necessary to reflect the differences between the Merger
and the Offer.
5.2 Exclusive Remedy. Except as otherwise provided in Article
8 and Section 9.8 of the Merger Agreement, the indemnification provided in this
Article shall be the sole and exclusive post-Closing remedy available to
Acquiror against the Stockholders for any Claim under this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement shall terminate upon the
earlier to occur of (i) the mutual consent of Acquiror and all of the
Stockholders, (ii) one year after the termination of the Merger Agreement prior
to the consummation of the Merger and (iii) the tenth anniversary of the Closing
Date.
6.2 Amendment. This Agreement may be amended only by a written
instrument executed by the parties or their respective successors or assigns.
6.3 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:
III-12
<PAGE>
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 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 B. Thomas Golisano
911 Panorama Trail South
Rochester, NY 14625
Telephone: (716) 385-6666
Telecopy: (716) 383-3428
with a copy to:
Woods, Oviatt, Gilman, Sturman & Clarke LLP
44 Exchange Street
Rochester, NY 14614
Telephone: (716) 987-2821
Telecopy: (716) 454-3968
Attention: Harry P. Messina, Jr., Esq.
6.4 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.
6.5 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.
III-13
<PAGE>
6.6 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.
6.7 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.
6.8 Additional Stockholders; Parties in Interest; Assignment.
The parties hereto agree that, from time to time, any and all Additional
Stockholders of the Company may be added as parties hereto by (i) approving a
resolution or taking such other action at the Special Meeting as Acquiror and
the Company may agree upon or (ii) 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 and 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 or
under common control with Acquiror, and any assignee of Acquiror.
6.9 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.
6.10 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
III-14
<PAGE>
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.
6.11 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 "Sections" or "Exhibits" shall be deemed to be references to Articles
or Sections hereof or Exhibits hereto unless otherwise indicated.
[Signatures appear on following page.]
III-15
<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.
IRON MOUNTAIN INCORPORATED
By: /s/ David S. Wendell
----------------------------------------------
Name: David S. Wendell
Title: President and Chief Operating Officer
/s/ B. Thomas Golisano
----------------------------------------------
B. Thomas Golisano
/s/ James B. Wayman, Jr.
----------------------------------------------
James B. Wayman, in his individual
capacity and as custodian for
Alexander B. Wayman and Catherine
Lia Wayman
[Additional signature pages follow.]
III-16
<PAGE>
-----------------------------------------------
Roselee Wayman
-----------------------------------------------
John Glynn
/s/ Harvey H. Bundy III
----------------------------------------------
Harvey H. Bundy III, in his capacities as Trustee for each
of the Clark H. Bundy 1992 Trust, Elizabeth Lowell Bundy
1996 Trust, H. Hollister Bundy III 1990 Trust and Harvey
H. Bundy III 1992 Trust
/s/ Blakely F. Bundy
----------------------------------------------
Blakely F. Bundy , in her capacities as Trustee for the
Blakely F. Bundy 1992 Trust and as Custodian for Reed F.
Bundy
/s/ David F. Bellet
----------------------------------------------
David F. Bellet
/s/ Hugh J. Rundle
----------------------------------------------
Hugh J. Rundle
-----------------------------------------------
Paul R. Altavena
/s/ Charles T. Graham
----------------------------------------------
Charles T. Graham
III-17
<PAGE>
ANNEX IV
FORM OF ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is entered into as of the
_____ day of ________, 1997, by and among Iron Mountain Incorporated, a Delaware
corporation ("Acquiror"), Safesite Records Management Corporation, a Delaware
corporation (the "Company"), James B. Wayman, Jr., an individual residing at 251
Old Billerica Road, Bedford, MA 01730 (in his capacity as agent for the
Stockholders, the "Agent"), as agent for the stockholders of the Company (the
"Stockholders"), and State Street Bank and Trust Company, as Escrow Agent (the
"Escrow Agent").
W I T N E S S E T H :
WHEREAS, Acquiror and the Company entered into that certain Agreement
and Plan of Merger dated as of February 19, 1997, as amended (the "Merger
Agreement"), an executed copy of which has been provided to the Escrow Agent,
pursuant to which the Company will merge with and into a wholly owned subsidiary
of Acquiror (the "Merger"), and pursuant to which ____________ shares of Common
Stock, par value $.01 per share of Acquiror ("Acquiror Stock") were withheld
from the consideration payable to the Stockholders and were allocated to
indemnify Acquiror for certain matters relating to the Merger Agreement, all as
is more fully set forth in the Merger Agreement;
WHEREAS, this Agreement is being entered into pursuant to Article 8 of
the Merger Agreement; and
WHEREAS, in accordance with and pursuant to Article 8 of the Merger
Agreement, the Agent 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, 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 deliver to
the Escrow Agent a certificate registered in the name of James B. Wayman, Jr.,
as Agent, representing ___________ shares of Acquiror Stock (the "Escrow
Indemnity Funds"). The
IV-1
<PAGE>
shares of Acquiror Stock represented by the Escrow Indemnity Funds shall not be
subject to the restrictions set forth in Article XII of Acquiror's By-Laws.
1.2 Receipt. The Escrow Agent agrees to hold and disburse the Escrow
Indemnity Funds (together with interest earned thereon) solely in accordance
with the terms and conditions of this Agreement, pursuant to the written
direction of Acquiror, and for the uses and purposes stated herein. The Escrow
Agent shall, upon receipt of the Escrow Indemnity Funds, issue written
acknowledgment to Acquiror and the Agent of receipt thereof.
1.3 Rights of Stockholders.
(a) In the case any distribution of capital or stock dividend
shall be made on or in respect of Acquiror Stock, or any money or property shall
be distributed with respect to Acquiror Stock, pursuant to a recapitalization or
reclassification of the capital of Acquiror, or pursuant to a reorganization or
liquidation or dissolution of Acquiror, any such money or property to be
distributed with respect to the Escrow Indemnity Funds shall be delivered to the
Escrow Agent to be held by it as part of the Escrow Indemnity Funds. Acquiror
shall forthwith deliver to the Escrow Agent an additional certificate registered
in the name of James B. Wayman, Jr., as Agent, representing any such additional
Acquiror Stock or such money and the Escrow Agent shall hold such additional
Acquiror Stock or money pursuant to the terms of this Agreement.
(b) Each Stockholder shall be entitled to receive all ordinary
cash dividends paid in respect of his or her Proportionate Share (as defined
below) of Acquiror Stock that would otherwise be registered in his or her name
but for such shares being a part of the Escrow Indemnity Funds and to vote and
to give consents, waivers and ratifications in respect of his or her
Proportionate Share of Acquiror Stock which is part of the Escrow Indemnity
Funds. The Agent shall pay over to each Stockholder, forthwith upon receipt, his
or her Proportionate Share of all ordinary cash dividends paid on the Escrow
Indemnity Funds, and, at the cost of Acquiror, shall execute and deliver to each
Stockholder such proxies or other documents in writing as may be necessary to
enable each Stockholder to exercise the foregoing rights. In connection with any
vote or consent by the Stockholders with respect to shares of Acquiror Stock
which are part of the Escrow Indemnity Funds, the Agent shall vote the shares of
Acquiror Stock forming part of the Escrow Indemnity Funds in accordance with the
directions of the Stockholders to the Agent. In order to take such vote, the
Agent shall tabulate the votes it receives from the Stockholders and inform
Acquiror in writing of the aggregate percent of all votes received for, against
and in abstention with respect to each matter voted upon. Acquiror shall then
convert such percent to a number based on the then-existing Escrow Indemnity
Funds, rounded in each case down to the nearest whole number. The term
"Proportionate Share", as to each Stockholder, shall mean such Stockholder's
proportionate share of the total number of shares of Aquiror Stock to be issued
in connection with the Merger.
IV-2
<PAGE>
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. The Escrow Agent agrees to hold, disburse and invest the Escrow
Indemnity Funds solely in accordance with the terms and conditions of this
Agreement and for the uses and purposes stated herein.
2.2 Disbursement.
(a) If at any time after the Closing Date and prior to the
termination of this Agreement, 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 and the Agent in
writing of the amount of such payment. The number of shares of the Escrow
Indemnity Funds to be delivered to Acquiror in connection with each payment
hereunder shall be calculated by Acquiror and shall be equal to the quotient
obtained by dividing (i) the Claimed Amount (as defined in Section 2.4) by (ii)
the average closing price per share of Acquiror Stock for the period of 20
trading days ending three trading days prior to the date of such payment (the
"Market Price"). The closing price for each such trading day shall be the last
quoted sale price or, if not so quoted, the average of the low bid and high
asked prices on the Nasdaq National Market System.
(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 Agent. Any payment which would result in the
disbursement of a fractional share of Acquiror Stock shall be rounded to the
nearest whole share. In the event that any payment is made pursuant to this
Agreement, Acquiror shall deliver to the Escrow Agent a new certificate
registered in the name of James B. Wayman, Jr., as Agent, representing the
Escrow Indemnity Funds less such shares disbursed in the payment and all
previous payments.
(c) In the event there are no Unresolved Claims (as
hereinafter defined), on the date which is ten (10) days after the expiration of
the Escrow Indemnity Period, or the next business day if such date is not a
business day, Acquiror shall deliver or cause to be delivered to the Escrow
Agent cash in lieu of fractional shares calculated in accordance with the second
to last sentence of this paragraph (c) and separate certificates registered in
each Stockholder's name (or, in the event of a transfer of ownership of Acquiror
Stock which is not registered in the transfer records of the Company, in the
name of a transferee who has presented documents reasonably required to evidence
and effect such transfer and evidence that any applicable stock transfer taxes
have been paid), representing such Stockholder's Proportionate Share of the
IV-3
<PAGE>
Escrow Indemnity Funds, less such Stockholder's Proportionate Share of all
portions thereof, if any,
(i) paid to Acquiror pursuant to subparagraphs (a) and (b)
above, and
(ii) which are the subject of Unresolved Claims (as
hereinafter defined).
The Escrow Agent shall retain the portion of the Escrow Indemnity Funds which
relates to all Unresolved Claims until resolution of such Unresolved Claims in
accordance with the terms hereof. 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, shares of Acquiror Stock with a
Market Price measured as of the date of such expiration (such number to be
determined by Acquiror) 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, expense 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 Stockholders entitled thereto. 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 Acquiror Stock, if
any, shall be distributed to the Stockholders entitled thereto in accordance
with the terms hereof. In lieu of issuing fractional shares pursuant to this
paragraph (c), each Stockholder shall receive the highest whole number of shares
of Acquiror Stock to which he or she is entitled plus cash equal to the fraction
of a share of Acquiror Stock to which the Stockholder would otherwise be
entitled multiplied by the Market Price of the Acquiror Stock determined by
Acquiror as of the date three days prior to the distribution of such shares.
Promptly after such receipt, the Escrow Agent will deliver such certificates
together with any cash in lieu of fractional shares to each respective
Stockholder (or transferee) at the addresses to be supplied by Acquiror in
accordance with Acquiror's written instructions. Acquiror shall make all
calculations relating to shares of Acquiror Stock or cash in lieu of fractional
shares, and the Escrow Agent shall not be responsible for determining the
accuracy of any such calculation.
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 Agent and the Escrow
Agent or by 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 term
of this Agreement, 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 Agent), a notice (the "Indemnity Notice of Request")
setting forth the cash amount (the "Claimed Amount") to which Acquiror 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 Agent (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
IV-4
<PAGE>
of Request, the Escrow Agent shall, immediately after such fifteen business day
period, release to Acquiror the certificate then held by the Escrow Agent
pursuant to the terms of this Agreement in exchange for a new certificate
registered in the name of James B. Wayman, Jr., as Agent, representing a number
of shares of Acquiror Stock equal to the quotient obtained by dividing (a) the
difference between, if positive, the Market Price of the shares of Acquiror
Stock represented by the certificate being released calculated as of the date
three trading days prior to such exchange and the Claimed Amount by (b) such
Market Price, and the Escrow Agent shall
hold such replacement certificate for Acquiror Stock or money pursuant to the
terms of this Agreement.
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 Agent that the Indemnity
Dispute has been resolved, said notice to contain instructions to
Escrow Agent regarding delivery of that portion of the Escrow Indemnity
Funds which relates to the Unresolved Claim; or
(b) Receipt by Escrow Agent of a final order of a court of
competent jurisdiction (the "Indemnity Award") resolving the Indemnity
Dispute and directing the disposition of that portion of the Escrow
Indemnity Funds;
after which Escrow Agent shall promptly pay that portion of the Escrow Indemnity
Funds which relates to the Indemnity Unresolved Claim in accordance with the
Indemnity Settlement Notice or the Indemnity Award.
2.5 Maximum Distributions. Notwithstanding anything in this Agreement
to the contrary, in no event shall Acquiror be entitled to received shares of
Acquiror Stock having an aggregate value of greater than $3,000,000 (calculated,
in each case, based on the shares of Acquiror Stock being disbursed multiplied
by the Market Price employed in connection with such disbursement). At such time
as the aggregate amount paid to Acquiror (calculated in accordance with the
foregoing sentence) equals $3,000,000, any remaining Escrow Indemnity Funds
shall be disbursed to the Stockholders and this Agreement shall terminate, all
in accordance with the other provisions of this Agreement.
ARTICLE 3
ESCROW AGENT
3.1 Appointment. Acquiror, the Company and the Agent 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
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annual basis, upon notice to Acquiror and the Agent. 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 Agent. 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 in any party hereunder.
3.3 Indemnification. Notwithstanding anything to the contrary in the
foregoing, Acquiror and the Agent 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, Article 2 hereof). Any such expense in the preceding sentence as
between Acquiror and the Agent shall be borne jointly and severally by Acquiror
and the Agent. Acquiror and the Agent 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 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, Article 2 hereof).
Nothing in this Section 3.3 shall constitute a waiver of any claim which
Acquiror and the Agent 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 30 days' prior written notice. Acquiror and the Agent
may also, at any time, mutually agree in a writing signed by Acquiror and the
Agent to remove the Escrow Agent upon 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 Agent. 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 pay and deliver the Escrow Indemnity Funds
into a court of competent jurisdiction.
ARTICLE 4
LIABILITIES OF ESCROW AGENT
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4.1 Limitations.
(a) The Escrow Agent shall be liable only to accept, hold and
deliver the Escrow Indemnity Funds in accordance with the provisions of this
Agreement and any amendments hereto or other written instructions executed by
Acquiror and the Agent; 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 deposited hereunder but is serving as escrow holder only and
having only possession thereof. The Agent, on behalf of the Stockholders,
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 incurred in connection herewith. Any payments or income from the
Escrow Indemnity Funds shall be subject to withholding regulations then in force
with respect to United States taxes. The Agent, on behalf of the Stockholders,
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 under
this Agreement to the Stockholders, 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
Agent 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 with its acting as Escrow Agent under this Agreement. The Agent
agrees to hold the Escrow Agent harmless and the Agent 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 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 shall be allocable to the
Stockholders.
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 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
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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 unless Acquiror and the Agent 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, 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 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
by the same means to all of the foregoing 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 and (ii) three business days after
mailing if mailed by reputable courier service or registered or certified mail,
postage prepaid and return receipt requested, to the parties at the following
addresses (or to such other address as any party may request in a notice
delivered in accordance with this
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Section 6.1 to the other parties hereto, provided that notices of a change of
address shall be effective only upon receipt thereof):
(a) 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 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 Agent:
c/o James B. Wayman
251 Old Billerica Road
Bedford, MA 01730
Telephone: (508) ___-____
Telecopy: (508) ___-____
With copies to:
Woods, Oviatt, Gilman, Sturman & Clarke LLP
44 Exchange Street
Rochester, NY 14614
Telephone: (716) 987-2821
Telecopy: (716) 454-3968
Attention: Harry P. Messina, Jr., Esq.
If to the Escrow Agent:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
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Telephone: (617) 664-5776
Telecopy: (617) 664-5365
Attention: Corporate Trust Department
Iron Mountain Incorporated-Escrow
Indemnity Funds
Unless otherwise refused by Acquiror or the Agent in writing, the Escrow Agent
shall assume that the receipt of any notice was received by Acquiror and the
Agent 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 the parties hereto and their respective successors and
assigns.
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 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.
6.6 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 Commonwealth of Massachusetts.
6.7 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.
6.8 Dispute Resolution. It is understood and agreed that should any
dispute arise, including a dispute described in Section 2.4 hereof, with respect
to the delivery, ownership, right of possession, and/or disposition of the
Escrow Indemnity Funds, or should any claim be made upon such Escrow Indemnity
Funds 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
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<PAGE>
directed to retain in its possession without liability to anyone, all or any of
said Escrow Indemnity Funds until such dispute shall have been settled either by
the mutual written agreement of the parties involved 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 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.
6.9 Consent to Jurisdiction and Service. Acquiror and the Agent hereby
absolutely and irrevocably consent and submit to the jurisdiction of the courts
in the Commonwealth of Massachusetts and of any Federal court located in said
Commonwealth in connection with any actions or proceedings brought against
Acquiror and the Agent by the Escrow Agent arising out of or relating to this
Escrow Agreement. In any such action or proceeding, Acquiror and the Agent
hereby absolutely and irrevocably waive 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 Agent, as the case may be, at
their respective addresses in accordance with Section 6.1 hereof.
6.10 Force Majeure. Neither Acquiror nor the Agent 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.
6.11 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.
[Signatures appear on following page.]
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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.
THE COMPANY:
SAFESITE RECORDS MANAGEMENT CORPORATION
By:______________________________________
Name:
Title:
THE AGENT:
________________________________________
James B. Wayman, Jr., as Agent
ACQUIROR:
IRON MOUNTAIN INCORPORATED
By:______________________________________
Name:
Title:
ESCROW AGENT:
STATE STREET BANK AND TRUST COMPANY, as
Escrow Agent
By:_____________________________________
Name:
Title:
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ANNEX V
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 ss.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 ss.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 ss.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 ss.ss.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 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 ss.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 procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
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(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 ss.228 or
ss.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 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
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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 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.
V-3
<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 reasonable 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.
Each exhibit marked by an asterisk (*) was previously filed as an exhibit to the
Registration Statement filed on April 4, 1997. Each exhibit marked by a double
asterisk (**) was previously filed as an exhibit to Amendment No. 1 to the
Registration Statement filed on May 7, 1997. All other exhibits are filed
herewith.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
----------- ---- -------
<S> <C> <C>
2 Agreement and Plan of Merger, dated as of February 19, (2)5
1997, by and among Iron Mountain, IM-1 Acquisition
Corp., and Safesite Records Management Corporation
2A Amendment No. 1 to Agreement and Plan of Merger, dated Filed herewith as Exhibit 2A*
as of April 1, 1997, by and among Iron Mountain, IM-1
Acquisition Corp., and Safesite Records Management
Corporation
2B Amendment No. 2 to Agreement and Plan of Merger, dated Filed herewith as Exhibit 2B**
as of May 7, 1997, by and among Iron Mountain, IM-1
Acquisition Corp., and Safesite Records Management
Corporation
II-1
<PAGE>
3.1 Amended and Restated Certificate of Incorporation of Iron (3.1)1
Mountain, as amended
3.2 By-Laws of Iron Mountain, as amended (3.2)3
5 Opinion of Sullivan & Worcester LLP Filed herewith as Exhibit 5*
8.1 Opinion of Sullivan & Worcester LLP regarding certain Filed herewith as Exhibit 8.1
federal income tax matters
8.2 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP Filed herewith as Exhibit 8.2
regarding certain federal income tax matters
10.1 Credit Agreement, dated as of September 30, 1996, among (10)4
Iron Mountain, the lenders party thereto and The Chase
Manhattan Bank, as Administrative Agent
10.2A Amendment No. 1 to the Credit Agreement, dated as of (10.2A)5
January 15, 1997, among Iron Mountain, the lenders party
thereto and The Chase Manhattan Bank, as Administrative
Agent
10.2B Amendment and Restatement to Credit Agreement, dated as
(10.2B)5 of March 3, 1997, among Iron Mountain, the
lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent
10.3 Indenture for 101/8% Senior Subordinated Notes due 2006 (10.3) 5
by and among Iron Mountain, certain of its subsidiaries and
First National Association, as trustee, dated October 1,
1996
10.4 Iron Mountain Incorporated 1995 Stock Incentive Plan, as Filed herewith as Exhibit 10.4*
amended
10.5 Form of Iron Mountain Incorporated 1995 Stock Option (10.7)1
Plan for Non-Employee Directors
10.6 Asset Purchase Agreement, dated July 19, 1995, among (10.11)1
Iron Mountain Records Management, Inc. ("IMRM"),
DataFile Services, Inc. and Cynthia and Lee Macklin
10.7 Asset Purchase and Sale Agreement, dated as of October 5, (10.12)1
1995, among IMRM, Brooks Records Center, Inc. and
Forty Acres, Ltd.
10.8 Asset Purchase and Sale Agreement, dated as of November (10.13)1
1, 1995, among IMRM, Nashville Vault Company, Ltd.
and USA Vault Corporation
10.9 Asset Purchase and Sale Agreement, dated November 14, (10.14)1
1995, among IMRM, Data Vault Corporation and Ralph
Stoddard III
II-2
<PAGE>
10.10 Merger Agreement, dated as of November 17, 1995, (10.15)1
among IMRM, Temp DSSI, Inc. and Data Storage
Systems, Inc.
10.11 Asset Purchase and Sale Agreement, dated November 17, (10.16)1
1995, among IMRM, Florida Data Bank, Inc., Carl J.
Strang III, Carl J. Strang II and 6/10 Corporation
10.12 Asset Purchase and Sale Agreement, dated November 22, (10.17)1
1995 among IMRM, Data Management Business Records
Storage, Inc. and Outdoor West, Inc.
10.13 Record Center Storage Services Agreement between IMRM (10.18)1
and 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
10.14 Lease between IMRM and IM Houston (CR) Limited (10.19)1
Partnership, dated January 1, 1991
10.15 Asset Purchase and Sale Agreement, dated July 11, 1996, (10.20)2
among IMRM, The Fortress Corporation and certain
subsidiaries
10.16 Stock Purchase and Sale Agreement, dated as of August 9, (10.21)2
1996, among IMRM and the shareholders of Data Archive
Services of Miami, Inc. and Data Archives Services, Inc.
10.17 Asset Purchase and Sale Agreement, dated August 13, (10.22)2
1996, among IMRM, International Record Storage and
Retrieval Service, Inc. and Laurance Winnerman, Sanford
Winnerman and Penny Novak
10.18 Asset Purchase Agreement, dated as of September 6, 1996, (10.23)2
among IMRM, Mohawk Business Record Storage, Inc.,
Michael M. Rabin, Richard K. Rabin, Herman Ladin and
Sidney Ladin
10.19 Registration Rights Agreement between Iron Mountain and (4.1)1
certain Stockholders, dated as of December 14, 1990
10.20 Stockholders' Agreement, dated as of February 19, 1997 (10.20)5
by and among Iron Mountain and certain stockholders of
Safesite Records Management Corporation
10.20A Letter Agreement, dated as of May 7, 1997, by and among Filed herewith as Exhibit 10.20A**
B. Thomas Golisano, James B. Wayman, Jr. and Iron
Mountain relating to certain indemnification matters
10.21 Form of Escrow Agreement, by and among Iron Mountain, Filed herewith as Annex IV
Safesite Records Management Corporation, B. Thomas
Golisano, as Agent for the Stockholders, and State Street
Bank and Trust Company, as Escrow Agent
II-3
<PAGE>
10.22 Asset Purchase and Sale Agreement, dated March 12, Filed herewith as Exhibit 10.22*
1997, by and among IMRM, Chicago Data Destruction
Corporation, and John Mengel and John S. Mengel
11 Statement re: computation of per share earnings (11)5
12 Schedule of computation of ratio of earnings to fixed (12)5
charges
21 Subsidiaries of Iron Mountain Filed herewith as Exhibit 21**
23.1 Consent of Sullivan & Worcester LLP Contained in Exhibit 5 and Exhibit 8.1 filed
herewith
23.2 Consent of Arthur Andersen LLP Filed herewith as Exhibit 23.2**
23.3 Consent of Geo. S. Olive & Co. LLC Filed herewith as Exhibit 23.3**
23.4 Consent of Rothstein, Kass & Company, P.C. Filed herewith as Exhibit 23.4**
Consent of Woods, Oviatt, Gilman, Sturman & Clarke LLP Contained in Exhibit 8.2 filed herewith
24 Powers of Attorney Previously filed on Page II-5 of
the Registration Statement
27 Financial Data Schedule (27)5
99 Consent of B. Thomas Golisano to use of his name as Filed herewith as Exhibit 99
a director nominee of Iron Mountain
</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 Quarterly Report on Form 10-Q
for the quarter ended June 30, 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 September 30, 1996, filed with the Securities and
Exchange Commission, File No. 0-27584.
5 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.
(b) Financial Statement Schedules
The following Financial Statement Schedules are filed herewith:
Iron Mountain Incorporated:
Schedule II - Valuation and Qualifying Accounts*
Safesite Records Management Corporation:
Schedule II - Valuation and Qualifying Accounts*
Item 22. Undertakings
Iron Mountain hereby undertakes:
II-4
<PAGE>
(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;
(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;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(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 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 issuer 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;
(5) That every prospectus: (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the 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 of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Iron Mountain hereby undertakes that it will provide 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 of 1933 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 of 1933 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 of 1933 and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Iron Mountain Incorporated has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on May 13,
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 of 1933, as amended,
this amendment to the Registrant's Registration Statement on Form S-4 relating
to Common Stock has been signed below on May 13, 1997 by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ C. Richard Reese Chairman of the Board of Directors May 13, 1997
- ------------------------------ and Chief Executive Officer ------------------
C. Richard Reese
David S. Wendell* President, Chief Operating Officer May 13, 1997
- ------------------------------ and Director ------------------
David S. Wendell
Eugene B. Doggett* Executive Vice President, Chief May 13, 1997
- ------------------------------ Financial Officer and Director ------------------
Eugene B. Doggett
Constantin R. Boden* Director May 13, 1997
- ------------------------------ ------------------
Constantin R. Boden
Arthur D. Little* Director May 13, 1997
- ------------------------------ -----------------
Arthur D. Little
Vincent J. Ryan* Director May 13, 1997
- ------------------------------ -----------------
Vincent J. Ryan
Jean A. Bua* Vice President and Corporate May 13, 1997
- ------------------------------ Controller -----------------
Jean A. Bua
*By: /s/ C. Richard Reese
------------------------
C. Richard Reese
Attorney-in-fact
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Iron Mountain Incorporated for each of
the three years in the period ended December 31, 1996 and have issued our report
thereon dated March 4, 1997. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The supplemental schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations under the Securities Exchange Act of 1934 and
is not a required part of the basic financial statements. The supplemental
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 4, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
Schedule II
IRON MOUNTAIN INCORPORATED
Valuation and Qualifying Accounts
(Amounts in Thousands)
Balance at
Beginning of the Balance at End of
Year Ended December 31, Year Charged to Expense Deductions the Year
- -------------------------------------------- --------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1994 .................................. $ 502 $ 356 $ (327) $ 531
1995 .................................. 531 630 (510) 651
1996 .................................. 651 639 (229) 1,061
</TABLE>
S-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Safesite Records Management Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Safesite Records Management Corporation for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated March 14, 1997. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The supplemental schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations under the Securities Exchange Act of 1934 and
is not a required part of the basic financial statements. The supplemental
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 14, 1997
S-3
<PAGE>
Schedule II
SAFESITE RECORDS MANAGEMENT CORPORATION
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at
Beginning of the Balance at End of
Year Ended December 31, Year Charged to Expense Deductions the Year
- ---------------------------------- ------------------- --------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1994 ........................... $95,000 $49,055 $49,055 $95,000
1995 ........................... 95,000 30,529 30,529 95,000
1996 ........................... 95,000 7,286 7,086 95,200
</TABLE>
S-4
EXHIBIT 8.1
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. 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
May 13, 1997
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
Attn: C. Richard Reese,
Chairman and Chief Executive Officer
Ladies and Gentlemen:
In connection with the registration by Iron Mountain Incorporated, a
Delaware corporation ("Iron Mountain"), of shares of Iron Mountain Common Stock,
par value $0.01 per share, for issuance in connection with the Agreement and
Plan of Merger, dated as of February 19, 1997, by and among Iron Mountain, IM-1
Acquisition Corp., a wholly owned Delaware subsidiary of Iron Mountain
("Acquisition Corporation"), and Safesite Records Management Corporation, a
Delaware corporation ("Safesite"), which agreement, as amended, and all other
agreements contemplated thereby, are collectively referred to herein as the
"Merger Agreement", this opinion is furnished to you to be filed as Exhibit 8.1
to the Registration Statement on Form S-4 (Registration No. 333-24635) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") filed with the Securities and Exchange Commission. Except as
otherwise defined herein, capitalized terms used herein shall have the same
meaning they have in the Registration Statement or in the Merger Agreement, as
the context may require. "Code" shall mean the Internal Revenue Code of 1986, as
amended, and "control" shall mean the ownership of stock possessing at least
eighty percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of shares
of all other classes (and each other class) of stock of a corporation.
Facts. Pursuant to the Merger Agreement, Safesite will be merged with
and into Acquisition Corporation (the "Merger"), and the Safesite stockholders
will in the Merger receive cash and Iron Mountain Common Stock in exchange for
their Safesite Common Stock surrendered. In the aggregate, the Safesite
stockholders will receive consideration in the Merger whose composition is at
least 50% Iron Mountain Common Stock, and the balance
<PAGE>
Iron Mountain Incorporated
May 13, 1997
Page 2
cash. For federal income tax purposes, the Merger is intended to qualify as a
tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
Assumptions. In rendering our opinions, we have with your permission
assumed the accuracy of the following assumptions as of the Effective Time, and
we have assumed that the Merger will be consummated pursuant to the terms of and
in accordance with the Merger Agreement.
A. The fair market value of the Iron Mountain Common Stock and other
consideration received by each Safesite stockholder in the Merger will be
approximately equal to the fair market value of the Safesite stock surrendered
in exchange therefor.
B. There is no plan or intention by the stockholders of Safesite who
own, directly or indirectly, a one percent (1%) or greater interest (by value)
in Safesite, and to the best of the knowledge of the management of Safesite
there is no plan or intention on the part of the remaining Safesite
stockholders, to sell, exchange or otherwise dispose of a number of shares of
Iron Mountain stock received in the Merger that would reduce the Safesite
stockholders' ownership of Iron Mountain stock to a number of shares having a
value, as of the date of the Merger, which is less than fifty percent (50%) of
the value of all of the formerly outstanding stock of Safesite as of the same
date. For purposes of this assumption, shares of Safesite stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional shares of Iron Mountain stock will be treated as outstanding
Safesite stock on the date of the Merger. Moreover, shares of Safesite stock and
shares of Iron Mountain stock held by Safesite stockholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger have been considered
in making this assumption.
C. Following the Merger, Acquisition Corporation will hold at least
ninety percent (90%) of the fair market value of the net assets of Safesite and
at least seventy percent (70%) of the fair market value of the gross assets of
Safesite held immediately prior to the Effective Time. For purposes of this
assumption, amounts paid by Safesite to dissenters, amounts paid by Safesite to
stockholders who receive cash or other property, amounts used by Safesite to pay
reorganization expenses, and all redemptions and distributions made by Safesite
immediately preceding the Merger (except for regular, normal dividends) are
included as assets of Safesite immediately prior to the Effective Time.
Moreover, liabilities of Safesite to pay reorganization expenses are excluded
from the computation of the fair market value of its net assets immediately
prior to the Effective Time.
D. Iron Mountain is in control of Acquisition Corporation.
E. Acquisition Corporation has no plan or intention to issue additional
shares of stock that would result in Iron Mountain losing control of Acquisition
Corporation.
F. Acquisition Corporation has no plan or intention to issue any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could
<PAGE>
Iron Mountain Incorporated
May 13, 1997
Page 3
acquire stock in Acquisition Corporation that, if exercised or converted, would
result in Iron Mountain losing control of Acquisition Corporation.
G. Iron Mountain has no plan or intention to liquidate Acquisition
Corporation, to merge Acquisition Corporation with or into another corporation
(except for the Merger), or to sell or otherwise dispose of any of the stock of
Acquisition Corporation, except as permitted by Section 368(a)(2)(C) of the
Code.
H. No stock of Acquisition Corporation will be issued in the Merger.
I. Neither Iron Mountain nor Acquisition Corporation has any plan or
intention to reacquire, either directly or indirectly through an affiliate, any
of the Iron Mountain Common Stock issued in the Merger, and Iron Mountain has no
plan or intention to make any extraordinary distribution with respect to such
stock.
J. No share of Safesite stock has been redeemed in anticipation of the
Merger, and Safesite has not made any extraordinary distribution with respect to
its stock in anticipation of the Merger.
K. Acquisition Corporation has no plan or intention to sell or
otherwise dispose of any of the assets of Safesite acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers
permitted by Section 368(a)(2)(C) of the Code.
L. The liabilities of Safesite assumed by Acquisition Corporation in
the Merger, and the liabilities to which the assets of Safesite transferred in
the Merger are subject, were incurred by Safesite in the ordinary course of its
business.
M. Following the Merger, Acquisition Corporation will continue the
historic business of Safesite or use a significant portion of Safesite's
historic business assets in a business.
N. Each of Iron Mountain, Acquisition Corporation, Safesite and the
Safesite stockholders will pay its respective expenses, if any, incurred in
connection with the Merger, and each will not pay another's expenses incurred in
connection with the Merger.
O. There is no intercorporate indebtedness existing between or among
any of Iron Mountain, Acquisition Corporation or Safesite that was issued,
acquired, or will be settled at a discount.
P. None of Iron Mountain, Acquisition Corporation, or Safesite is an
"investment company" as defined in Sections 368(a)(2)(F)(iii) and (iv) of the
Code.
Q. None of Iron Mountain, Acquisition Corporation, or Safesite is under
the jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
<PAGE>
Iron Mountain Incorporated
May 13, 1997
Page 4
R. The fair market value of the assets of Safesite transferred to
Acquisition Corporation in the Merger will equal or exceed the sum of the
liabilities assumed by Acquisition Corporation plus the amount of liabilities,
if any, to which the transferred assets are subject.
S. The payment of cash in lieu of fractional shares of Iron Mountain
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Iron Mountain of issuing fractional shares and does not represent separately
bargained for consideration. The total cash consideration that will be paid in
the Merger to the Safesite stockholders, instead of issuing fractional shares of
Iron Mountain Common Stock, will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the Safesite stockholders in
exchange for their shares of Safesite stock. The fractional share interests of
each Safesite stockholder will be aggregated, and no Safesite stockholder will
receive cash in an amount equal to or greater than the value of one full share
of Iron Mountain Common Stock.
T. No consideration for the Merger has been or will be provided by Iron
Mountain or the Acquisition Corporation to Safesite or the Safesite stockholders
other than as expressly provided for in the Merger Agreement.
U. None of the compensation received by any stockholder-employees of
Safesite will be separate consideration for, or allocable to, any of their
shares of Safesite stock; none of the shares of Iron Mountain stock received by
any stockholder-employees of Safesite will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
stockholder-employees of Safesite will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
Opinions. Based on the foregoing facts and assumptions and assuming the
accuracy thereof, we are of the opinion that for federal income tax purposes:
1. The Merger will qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
2. Iron Mountain, the Acquisition Corporation, and Safesite will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code.
3. No gain or loss will be recognized by Safesite upon the transfer of
its assets to the Acquisition Corporation in the Merger. Sections 357 and 361 of
the Code.
4. No gain or loss will be recognized by either Iron Mountain or the
Acquisition Corporation upon the Acquisition Corporation's receipt of Safesite's
assets in the Merger. Section 1032 of the Code and Treasury Regulation Section
1.1032-2.
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Iron Mountain Incorporated
May 13, 1997
Page 5
5. The basis of Safesite's assets in the hands of Acquisition
Corporation immediately after the Merger will be the same as the basis of such
assets in the hands of Safesite immediately prior to the Merger. Code Section
362.
6. No gain or loss will be recognized by an Iron Mountain stockholder
as a result of the Merger, and such stockholder's tax basis and holding period
in its Iron Mountain stock will be the same following the Merger as they were
preceding.
No opinion is expressed concerning the consequences to any party of any matter
other than those specifically addressed above. In particular, we express no
opinion with respect to the state or local tax treatment of the Merger.
Miscellaneous. The foregoing opinions are based on the Code as in
effect on the date hereof and administrative and judicial interpretations of it.
No assurance can be given that the Code will not change or that such
interpretations will not be revised or amended adversely, possibly with
retroactive effect.
This opinion is not intended to satisfy the opinion required by Section
6.2(j) of the Merger Agreement, which opinion will be delivered at the Effective
Time and be based upon executed representations made by Iron Mountain, Safesite,
and certain Safesite stockholders.
This opinion is intended solely for the benefit and use of Iron
Mountain and its stockholders, and is not to be used, released, quoted, or
relied upon by anyone else for any purpose (other than as required by law)
without our prior written consent. 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" and "Certain Federal Income
Tax Considerations". 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 Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
EXHIBIT 8.2
Woods, Oviatt, Gilman, Sturman & Clarke LLP
44 Exchange Place
Rochester, New York 14614
May 13, 1997
Safesite Records Management Corporation
96 High Street
North Billerica, MA 01862
Attn: B. Thomas Golisano, Chairman
Ladies and Gentlemen:
In connection with the registration by Iron Mountain Incorporated, a
Delaware corporation ("Iron Mountain"), of shares of Iron Mountain Common Stock,
par value $0.01 per share, for issuance in connection with the Agreement and
Plan of Merger, dated as of February 19, 1997, by and among Iron Mountain, IM-1
Acquisition Corp., a wholly owned Delaware subsidiary of Iron Mountain
("Acquisition Corporation"), and Safesite Records Management Corporation, a
Delaware corporation ("Safesite"), which agreement, as amended, and all other
agreements contemplated thereby, are collectively referred to herein as the
"Merger Agreement", this opinion is furnished to you to be filed as Exhibit 8.2
to the Registration Statement on Form S-4 (Registration No. 333-24635) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") filed with the Securities and Exchange Commission. Except as
otherwise defined herein, capitalized terms used herein shall have the same
meaning they have in the Registration Statement or in the Merger Agreement, as
the context may require. "Code" shall mean the Internal Revenue Code of 1986, as
amended, and "control" shall mean the ownership of stock possessing at least
eighty percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of shares
of all other classes (and each other class) of stock of a corporation.
Facts. Pursuant to the Merger Agreement, Safesite will be merged with
and into Acquisition Corporation (the "Merger"), and the Safesite stockholders
will in the Merger receive cash and Iron Mountain Common Stock in exchange for
their Safesite Common Stock surrendered. In the aggregate, the Safesite
stockholders will receive consideration in the Merger whose composition is at
least 50% Iron Mountain Common Stock, and the balance cash. For federal income
tax purposes, the Merger is intended to qualify as a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
Assumptions. In rendering our opinions, we have with your permission
assumed the accuracy of the following assumptions as of the Effective Time, and
we have assumed that
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Safesite Records Management Corporation
May 13, 1997
Page 2
the Merger will be consummated pursuant to the terms of and in accordance with
the Merger Agreement.
A. The fair market value of the Iron Mountain Common Stock and other
consideration received by each Safesite stockholder in the Merger will be
approximately equal to the fair market value of the Safesite stock surrendered
in exchange therefor.
B. There is no plan or intention by the stockholders of Safesite who
own, directly or indirectly, a one percent (1%) or greater interest (by value)
in Safesite, and to the best of the knowledge of the management of Safesite
there is no plan or intention on the part of the remaining Safesite
stockholders, to sell, exchange or otherwise dispose of a number of shares of
Iron Mountain stock received in the Merger that would reduce the Safesite
stockholders' ownership of Iron Mountain stock to a number of shares having a
value, as of the date of the Merger, which is less than fifty percent (50%) of
the value of all of the formerly outstanding stock of Safesite as of the same
date. For purposes of this assumption, shares of Safesite stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional shares of Iron Mountain stock will be treated as outstanding
Safesite stock on the date of the Merger. Moreover, shares of Safesite stock and
shares of Iron Mountain stock held by Safesite stockholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger have been considered
in making this assumption.
C. Following the Merger, Acquisition Corporation will hold at least
ninety percent (90%) of the fair market value of the net assets of Safesite and
at least seventy percent (70%) of the fair market value of the gross assets of
Safesite held immediately prior to the Effective Time. For purposes of this
assumption, amounts paid by Safesite to dissenters, amounts paid by Safesite to
stockholders who receive cash or other property, amounts used by Safesite to pay
reorganization expenses, and all redemptions and distributions made by Safesite
immediately preceding the Merger (except for regular, normal dividends) are
included as assets of Safesite immediately prior to the Effective Time.
Moreover, liabilities of Safesite to pay reorganization expenses are excluded
from the computation of the fair market value of its net assets immediately
prior to the Effective Time.
D. Iron Mountain is in control of Acquisition Corporation.
E. Acquisition Corporation has no plan or intention to issue additional
shares of stock that would result in Iron Mountain losing control of Acquisition
Corporation.
F. Acquisition Corporation has no plan or intention to issue any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Acquisition Corporation that, if
exercised or converted, would result in Iron Mountain losing control of
Acquisition Corporation.
G. Iron Mountain has no plan or intention to liquidate Acquisition
Corporation, to merge Acquisition Corporation with or into another corporation
(except for the Merger), or
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Safesite Records Management Corporation
May 13, 1997
Page 3
to sell or otherwise dispose of any of the stock of Acquisition Corporation,
except as permitted by Section 368(a)(2)(C) of the Code.
H. No stock of Acquisition Corporation will be issued in the Merger.
I. Neither Iron Mountain nor Acquisition Corporation has any plan or
intention to reacquire, either directly or indirectly through an affiliate, any
of the Iron Mountain Common Stock issued in the Merger, and Iron Mountain has no
plan or intention to make any extraordinary distribution with respect to such
stock.
J. No share of Safesite stock has been redeemed in anticipation of the
Merger, and Safesite has not made any extraordinary distribution with respect to
its stock in anticipation of the Merger.
K. Acquisition Corporation has no plan or intention to sell or
otherwise dispose of any of the assets of Safesite acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers
permitted by Section 368(a)(2)(C) of the Code.
L. The liabilities of Safesite assumed by Acquisition Corporation in
the Merger, and the liabilities to which the assets of Safesite transferred in
the Merger are subject, were incurred by Safesite in the ordinary course of its
business.
M. Following the Merger, Acquisition Corporation will continue the
historic business of Safesite or use a significant portion of Safesite's
historic business assets in a business.
N. Each of Iron Mountain, Acquisition Corporation, Safesite and the
Safesite stockholders will pay its respective expenses, if any, incurred in
connection with the Merger, and each will not pay another's expenses incurred in
connection with the Merger.
O. There is no intercorporate indebtedness existing between or among
any of Iron Mountain, Acquisition Corporation or Safesite that was issued,
acquired, or will be settled at a discount.
P. None of Iron Mountain, Acquisition Corporation, or Safesite is an
"investment company" as defined in Sections 368(a)(2)(F)(iii) and (iv) of the
Code.
Q. None of Iron Mountain, Acquisition Corporation, or Safesite is under
the jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
R. The fair market value of the assets of Safesite transferred to
Acquisition Corporation in the Merger will equal or exceed the sum of the
liabilities assumed by Acquisition Corporation plus the amount of liabilities,
if any, to which the transferred assets are subject.
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Safesite Records Management Corporation
May 13, 1997
Page 4
S. The payment of cash in lieu of fractional shares of Iron Mountain
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Iron Mountain of issuing fractional shares and does not represent separately
bargained for consideration. The total cash consideration that will be paid in
the Merger to the Safesite stockholders, instead of issuing fractional shares of
Iron Mountain Common Stock, will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the Safesite stockholders in
exchange for their shares of Safesite stock. The fractional share interests of
each Safesite stockholder will be aggregated, and no Safesite stockholder will
receive cash in an amount equal to or greater than the value of one full share
of Iron Mountain Common Stock.
T. No consideration for the Merger has been or will be provided by Iron
Mountain or the Acquisition Corporation to Safesite or the Safesite stockholders
other than as expressly provided for in the Merger Agreement.
U. None of the compensation received by any stockholder-employees of
Safesite will be separate consideration for, or allocable to, any of their
shares of Safesite stock; none of the shares of Iron Mountain stock received by
any stockholder-employees of Safesite will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
stockholder-employees of Safesite will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
Opinions. Based on the foregoing facts and representations, and
assuming the accuracy thereof, we are of the opinion that, for federal income
tax purposes:
1. The Merger will qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
2. Iron Mountain, the Acquisition Corporation, and Safesite will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code.
3. No gain or loss will be recognized by Safesite upon the transfer of
its assets to the Acquisition Corporation in the Merger. Sections 357 and 361 of
the Code.
4. No gain or loss will be recognized by a Safesite stockholder as a
result of the Merger, except (x) with respect to cash received by such
stockholder in lieu of fractional shares of Iron Mountain Common Stock (as
discussed below) and (y) if a stockholder of Safesite receives cash in the
Merger other than in lieu of a fractional share, then gain, if any, realized by
such stockholder will be recognized only to the extent of such cash received. If
a Safesite stockholder's receipt of cash (other than cash in lieu of fractional
shares) has the effect of a dividend distribution, then the amount of gain
recognized that is not in excess of such stockholder's ratable share of
Safesite's undistributed earnings and profits will be treated as a dividend.
Section 356 of the Code. The determination of whether a stockholder's exchange
has the effect of a dividend distribution will be made on a
stockholder-by-stockholder basis, in accordance with the principles of Clark v.
Commissioner, 489 U.S. 726 (1989). No loss will be recognized by the Safesite
stockholders. Section 356 of the Code.
<PAGE>
Safesite Records Management Corporation
May 13, 1997
Page 5
5. A Safesite stockholder who receives cash in the Merger in lieu of a
fractional share interest in Iron Mountain Common Stock will be treated as if
the fractional share interest was actually received by such stockholder as part
of the Merger and then redeemed by Iron Mountain, resulting in the cash that the
stockholder receives in lieu of a fractional share interest being treated as
having been received in full payment in a taxable sale of the stock redeemed as
provided in Section 302(a) of the Code.
6. The aggregate basis in the Iron Mountain Common Stock received in
the Merger by a Safesite stockholder will equal such stockholder's basis in the
Safesite stock surrendered in exchange therefor, increased by any income or gain
recognized in the Merger by such holder, and decreased by the cash received in
the Merger by such holder (including cash received in lieu of fractional
shares). Section 358 of the Code.
7. The holding period of Iron Mountain Common Stock to be received in
the Merger by a Safesite stockholder will include his holding period of the
Safesite stock surrendered in exchange therefor, provided that the Safesite
stock surrendered was held as a capital asset on the date of the Merger. Section
1223(1) of the Code.
8. After the Merger, a former Safesite stockholder's redemption of Iron
Mountain Common Stock pursuant to the Escrow Agreement will be treated as a
distribution equal to the amount of the claim satisfied by such redemption and
will be a taxable dividend to the extent of Iron Mountain's available current or
accumulated earnings and profits, except that such redemption will be treated as
a taxable exchange in which gain or loss is recognized if it (i) results in a
"complete termination" of the stockholder's stock interest in Iron Mountain
under Section 302(b)(3) of the Code, (ii) is "substantially disproportionate"
with respect to the stockholder under Section 302(b)(2) of the Code, or (iii) is
"not essentially equivalent to a dividend" with respect to the stockholder under
Section 302(b)(1) of the Code.
No opinion is expressed concerning the consequences to any party of any matter
other than those specifically addressed above. In particular, we express no
opinion with respect to the state or local tax treatment of the Merger.
Miscellaneous. The foregoing opinions are based on the Code as in
effect on the date hereof and administrative and judicial interpretations of it.
No assurance can be given that the Code will not change or that such
interpretations will not be revised or amended adversely, possibly with
retroactive effect.
This opinion is not intended to satisfy the opinion required by Section
6.3(d) of the Merger Agreement, which opinion will be delivered at the Effective
Time and be based upon executed representations made by Iron Mountain, Safesite,
and certain Safesite stockholders.
<PAGE>
Safesite Records Management Corporation
May 13, 1997
Page 6
This opinion is intended solely for the benefit and use of Safesite and
its stockholders, and is not to be used, released, quoted, or relied upon by
anyone else for any purpose (other than as required by law) without our prior
written consent. 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" and "Certain Federal Income Tax
Considerations". 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 Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Woods, Oviatt, Gilman, Sturman &
Clarke LLP
WOODS, OVIATT, GILMAN,
STURMAN & CLARKE LLP
Exhibit 99
----------
CONFORMED COPY
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the use in the "Management of Iron Mountain" section of
the Prospectus constituting part of the Registration Statement on Form S-4 of
Iron Mountain Incorporated (File No. 333-24635), as amended, 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/ B. Thomas Golisano
- ------------------------
B. Thomas Golisano
May 6, 1997
