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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-27584
IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware 04-3107342
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
745 Atlantic Avenue, Boston, Massachusetts 02111
(Address of principal executive offices) (Zip Code)
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617-535-4766
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Title of Each Class Name of Exchange on Which Registered
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Not applicable Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share ("Common Stock")
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 1, 1999, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $639,353,156 based on
the closing price on the Nasdaq Stock Market's National Market (the "Nasdaq
National Market") on such date.
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Number of shares of the registrant's Common Stock at March 1, 1999: 29,501,456
Number of shares of the registrant's Nonvoting Common Stock at March 1, 1999: 0
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IRON MOUNTAIN INCORPORATED
1998 FORM 10-K ANNUAL REPORT
Table of Contents
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PART I Page
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Item 1. Business .................................................................... 1
Item 2. Properties .................................................................. 17
Item 3. Legal Proceedings ........................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ......................... 19
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters .... 20
Item 6. Selected Consolidated Financial and Operating Information ................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...................................................... 23
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ................... 33
Item 8. Financial Statements and Supplementary Data ................................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ....................................................... 60
PART III
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Item 10. Directors and Executive Officers of the Registrant .......................... 61
Item 11. Executive Compensation ...................................................... 65
Item 12. Security Ownership of Certain Beneficial Owners and Management .............. 67
Item 13. Certain Relationships and Related Transactions .............................. 69
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............. 70
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CERTAIN IMPORTANT FACTORS
This Annual Report on Form 10-K contains statements which constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this Annual Report on Form 10-K and include statements regarding the
strategies, beliefs or current expectations of the Company and its management.
Readers are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, which
could cause actual results to differ materially from those in the forward
looking statements. Such factors include but are not limited to: (i) the
Company's ability or inability to complete acquisitions on satisfactory terms
and to integrate acquired companies efficiently, (ii) the cost and availability
of financing for contemplated growth, (iii) the cost and availability of
appropriate storage facilities, (iv) the possibility of a natural disaster or
other casualty disrupting operations to an extent greater than the Company is
insured for, (v) the demand and price for the Company's services, relative to
the cost of providing such services, (vi) certain risks and uncertainties
associated with the Company's readiness for the year 2000, including but not
limited to, the Company's inability to recruit and/or retain key staff
necessary for addressing year 2000 issues; failure of major third party
suppliers of products and services to adequately address their year 2000 issues
despite assurances to the contrary; delays in the conversion or upgrade of
acquired and to be acquired businesses' software systems to appropriate year
2000 compliant software systems; and actual future costs associated with the
Company's year 2000 plan being greater than currently expected, or (vii) other
trends in competitive or economic conditions affecting the Company's financial
condition or results of operations not presently contemplated. The accompanying
information contained in this Annual Report on Form 10-K, including under the
headings "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," identifies other important factors that
could cause such differences. The Company undertakes no obligation to release
publicly the result of any revision to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ii
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PART I
Item 1. Business.
(a) Development of Business.
Iron Mountain Incorporated ("Iron Mountain" or the "Company") is the
world's largest records and information management services ("RIMS") company,
as measured by its revenues. The Company is an international, full-service
provider of records and information management and related services, enabling
customers to outsource records management functions. Iron Mountain has a
diversified customer base, which includes more than half of the Fortune 500 and
numerous commercial, legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. The Company provides storage for
all major media, including paper, which is the dominant form of records
storage, magnetic media, including computer tapes, microfilm and microfiche,
master audio and video tapes, film and optical disks, X-rays and blueprints.
Iron Mountain's principal services provided to its storage customers include
courier pick-up and delivery, filing, retrieval and destruction of records,
database management, customized reporting and disaster recovery support. The
Company also sells storage materials, including cardboard boxes and magnetic
media, and provides consulting, facilities management, information technology
staffing ("IT Staffing") and other outsourcing services.
In addition to being the industry leader in business records and the
industry leader in off-site data security services, which is the management of
electronic records, the Company believes that it is the industry leader in the
management of medical records. The Company has also expanded the ancillary
services offered by the Company to include IT Staffing and enhanced its range
of facilities management services, as a result of the Company's acquisitions
completed during 1997 (the "1997 Acquisitions") and during 1998 (the "1998
Acquisitions"). As of December 31, 1998, giving effect to the acquisitions
completed by the Company through March 1, 1999 (the "1999 Acquisitions") and
the Company's pending acquisition of Data Base, Inc. ("Data Base"), the
Company's RIMS business operated 279 RIMS facilities in 65 domestic markets and
four markets in the United Kingdom, servicing over 70,000 customer accounts.
The Company's IT Staffing business managed over 500 independent contractors in
ten markets.
(b) Description of Businesses.
The Records and Information Management Services Industry
Overview
The RIMS industry stores information in a variety of media formats, which
can broadly be divided into paper and electronic records, and provides a wide
range of services related to the records stored. Paper records are defined to
include paper documents, as well as all other non-electronic media such as
microfilm and microfiche, master audio and video tapes, film, X-rays and blue
prints. Based on publicly available information, organizations in the United
States generate an estimated four trillion documents each year, many of which
must be retained and available for reference for many years. Electronic records
primarily include computer tapes and optical disks.
Paper Records
Paper records may be broadly 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 paper records are the principal focus of the RIMS
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, the Company believes that inactive
records make up approximately 80% of all paper records.
Medical records generated by healthcare providers are a large and growing
segment of the paper records market. Management believes that a substantial
portion of the medical records market is not yet vended, and that cost cutting
measures being adopted in the medical field have caused healthcare providers to
consider savings initiatives such as outsourcing medical records management.
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Electronic Records
Electronic records management focuses on the storage of and related
services for computer media that is either archival in nature or a back-up copy
of recently processed data. Archival data is generally not needed for access
but is retained for legal, regulatory and compliance reasons. Back-up data
exists because of the need of many businesses to maintain back-up copies of
data in order to be able to operate in the event of a system failure, casualty
loss or other disaster. It is standard operating procedure for data processing
groups to rotate back-up tapes to off-site locations on a regular basis and to
require multiple copies of such information at multiple sites.
Growth of Market
The Company believes that the volume of stored paper and electronic
records will continue to increase for a number of reasons, including: (i) the
rapid growth of inexpensive document producing technologies such as facsimile
and desktop printing, (ii) the continued proliferation of data processing
technologies such as personal computers and networks, (iii) increased
regulatory requirements, (iv) concerns over possible future litigation and the
resulting increases in volume and holding periods of documentation, (v) the
high cost of reviewing records and deciding whether to retain or destroy them,
(vi) the failure of many entities to adopt or follow policies on records
destruction and (vii) audit requirements to keep backup copies of certain
records in off-site locations.
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. In addition, management believes that
the proliferation of digital information technologies and distributed data
networks has led to increased demand for data security services, such as the
storage and off-site rotation of back-up copies of magnetic media, and
outsourcing support services that address the needs of data center operations
and disaster recovery programs.
Highly Fragmented Industry
Most RIMS companies serve a single local market, and are often either
owner-operated or ancillary to another business, such as a moving and storage
company. According to Professional Records and Information Services Management
("PRISM"), a trade group of approximately 520 members, as of December 31, 1998,
approximately 3,300 firms offered records and information management services
in the United States. The Company believes that there are only three national
providers in the RIMS industry, including the Company, and that the rest are
regional or, in most instances, single-city operators. In contrast, due to the
specialized nature of the services provided, the provision of data security
services, medical records management and vital records protection services have
higher market concentrations. The Company has made, and intends to make,
acquisitions to increase its presence in these markets.
Industry Consolidation
Over the past several years, there has been consolidation in the RIMS
industry. The Company believes that this trend will continue because of the
industry's capital requirements for growth, opportunities for large RIMS
providers to achieve economies of scale and customer demands for more
sophisticated technology-based solutions. In particular, the RIMS 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 fills available capacity. Accordingly, larger companies with both
access to capital and the ability to quickly fill a new facility enjoy a
competitive cost advantage, which puts pressures on smaller competitors.
Management believes that the consolidation trend in the industry is also
due to, and will continue as a result of, the preference of certain large
organizations to contract with one vendor in multiple cities for multiple
services. In particular, customers increasingly demand a single, large,
sophisticated company to handle all of their important medical, electronic and
vital records needs. Large, national companies are better able to satisfy these
demands than smaller competitors.
2
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Financial Characteristics of Iron Mountain's Business
Iron Mountain's RIMS business has the following financial characteristics:
o Recurring Revenues. Iron Mountain derives a majority of its RIMS and
consolidated revenues from fixed periodic, usually monthly, fees charged
to customers based on the volume of records stored. Revenues from these
fixed periodic fees have grown for 40 consecutive quarters and have
represented approximately 60% of the Company's total RIMS revenues in
each of the last five years. Once a customer places paper records in
storage with the Company and until those records are destroyed or
permanently removed, for which the Company typically receives a service
fee, the Company receives recurring payments for storage fees without
incurring additional labor or marketing expenses or significant capital
costs. Similarly, contracts for the storage of electronic media consist
primarily of fixed monthly payments. The stable and growing storage base
also provides the foundation for increases in revenues and earnings
before interest, taxes, depreciation, amortization, extraordinary items
and other income ("EBITDA") from related service activities and sales of
storage materials.
o Historically Non-Cyclical Business. Iron Mountain has not experienced a
reduction of its RIMS business as a result of past general economic
downturns, although the Company can give no assurance that this would be
the case in the future. Management believes that the outsourcing of RIMS
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 RIMS are less
likely during economic downturns to incur the move-out costs and other
expenses associated with switching vendors or moving RIMS in-house.
o Inherent Growth from Existing Paper Records Customers. The Company's
paper records customers have on average generated additional Cartons(1)
at a faster rate than stored Cartons have been destroyed or permanently
removed. From January 1, 1994 through December 31, 1998, Net Carton
Growth From Existing Customers(2) increased at an average annual rate of
approximately 6%. The Company believes the consistent growth of its paper
storage revenues is the result of a number of factors, including: (i) the
trend toward increased records retention, (ii) customer satisfaction with
the Company's services and (iii) the costs and inconvenience of moving
storage operations in-house or to another provider of records and
information management services.
o Diversified and Stable Customer Base. As of March 1, 1999, the Company
had over 70,000 customer accounts in a variety of industries. The Company
currently provides services to more than half of the Fortune 500 and
numerous commercial, legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. No customer accounted for
more than 2% of the Company's RIMS or consolidated revenues for the year
ended December 31, 1998. From January 1, 1994 through December 31, 1998,
average annual permanent removals of Cartons represented only
approximately 4% of total Cartons stored.
o Capital Expenditures Related Primarily to Growth. The Company's RIMS
business requires limited annual capital expenditures made in order to
maintain the Company's current revenue stream. These capital expenditures
were $1.1 million, $1.2 million and $1.9 million in 1996, 1997 and 1998,
respectively. From 1994 to 1998, over 90% of the Company's aggregate
capital expenditures were growth-related investments, primarily in
racking systems, management information systems, new buildings and
improvements to existing facilities. These growth-related capital
expenditures are primarily discretionary and create additional capacity
for increases in RIMS revenues and EBITDA.
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(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 the Company's vital records services
and data security services, which are described below.
(2) The term "Net Carton Growth From Existing Customers" is defined as the
increase in net Cartons attributable to existing customers without giving
effect to the loss of approximately 1.0 million Cartons in fires attributed to
arson in March 1997 in two of the Company's facilities in South Brunswick
Township, New Jersey. See "Item 3. Legal Proceedings."
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Growth Strategy
The Company's domestic objective is to be one of the largest RIMS
providers in each of its geographic markets and to maintain the Company's
position as the largest national RIMS provider. The Company's international
objective is to continue to capitalize on its expertise in the RIMS industry
and to make additional acquisitions and investments in international markets.
The Company seeks to expand through: (i) increased business with existing
customers, including the provision of new services, (ii) additions of new
customers and (iii) selective acquisitions in existing and new markets.
Growth from Existing Customers
Existing Iron Mountain RIMS customers storing paper records contribute to
storage and services revenues growth because on average they generate
additional Cartons at a faster rate than old Cartons are destroyed or
permanently removed. From January 1, 1994 through December 31, 1998, Net Carton
Growth From Existing Customers increased at an average rate of approximately
6%. In order to maximize growth opportunities from existing customers, the
Company seeks to maintain high levels of customer retention by providing
premium customer service through its decentralized customer service approach
complemented by its local management staff.
Through its local account management staff, the Company leverages existing
business relationships with its customers by selling complementary services and
products. Services include records tracking, indexing, customized reporting,
vital records management, RIMS consulting services and additional temporary
staffing/outsourcing services in the information technology, clerical and
medical sectors.
Additions of New Customers
The Company's sales force is dedicated to establishing new account
relationships and servicing existing customer accounts and draws on the
Company's national marketing organization and senior management. As a result of
recent acquisitions and the Company's decision to increase its sales force by
recruiting additional qualified sales professionals, from December 31, 1996
through March 1, 1999, the Company increased the size of its sales force from
21 to 115 sales professionals, six of whom focus solely on national accounts.
New customer sales efforts have resulted in the addition of over 1,200 new
customer accounts in 1996, over 1,600 new customer accounts in 1997 and over
3,800 new customer accounts in 1998.
Growth through Domestic Acquisitions
The Company's acquisition strategy includes both expanding geographically,
focusing primarily on the 75 largest U.S. markets, and increasing the Company's
presence and scale within existing markets through "fold-in" acquisitions. Iron
Mountain has a successful record of acquiring and integrating smaller RIMS
companies. In order to capitalize on industry consolidation, in mid-1994 the
Company adopted an active acquisition strategy and implemented changes in its
management, systems and financial infrastructure, to execute such strategy.
Since mid-1994, the Company has acquired or entered into agreements to acquire
61 companies, 60 of which have been completed and one of which is pending. The
Company'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 RIMS industry.
The Company has made, and intends to continue to make, acquisitions to
increase its presence in the data security services and medical records
management markets. Of the acquisitions completed since mid-1994, 15 have been
RIMS companies that focused on data security services and five have been RIMS
companies that focused on medical records management. Data Base, with which the
Company has entered into an agreement to acquire, focuses on data security
services. The Company is the industry leader in off-site data security services
and the Company believes that it is the industry leader in medical records
management services. The Company has not acquired any IT Staffing companies
other than through its acquisition of Arcus Group.
The Company 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. The Company seeks to acquire RIMS
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companies in markets where management believes there is the potential for
growth. Within such markets, the Company 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.
The Company believes that it can use its expertise and central
administrative organization to leverage an acquisition candidate's local market
presence, promoting the development of underperforming facilities and enhancing
the value of the local assets. The Company 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 the Company's storage, labor, transportation and
other operating efficiencies into new markets, (iii) increased utilization of
efficiencies available through the Company'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 the Company's capital-raising
activities.
The Company also intends to continue to make fold-in acquisitions to
augment its operations in existing markets. The Company's goal in its existing
markets is to exploit economies of scale while maintaining high quality
service. Following a new-market acquisition, the Company 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 the
Company may benefit from economies of scale.
The Company has proven its ability to successfully reduce the cost
structure of its acquired operations and believes it will realize additional
cost savings from recent acquisitions. Certain of these cost savings, including
labor reductions and certain general and administrative costs, are generally
obtained within 12 months of an acquisition. Other cost savings, including
occupancy costs, may take longer to achieve. The Company's goal is to achieve
substantially all of the targeted cost savings within 24 months of an
acquisition.
International Growth Strategy
The Company recently commenced an international expansion by acquiring a
controlling 50.1% interest in BDM, which has significant operations in the
United Kingdom. See "Completed and Pending Acquisitions." Iron Mountain intends
to continue to make acquisitions and investments in RIMS businesses outside the
United States. BDM is actively pursuing a number of acquisitions and joint
ventures in Europe and Iron Mountain is actively pursuing investment
opportunities in Latin America. In order to implement the Company's strategy of
further international expansion, Iron Mountain recently hired Christophe
Giecold as President of its international division. Mr. Giecold will be
responsible for managing the Company's new international division, focusing on
expansion opportunities within the United Kingdom and Continental Europe.
In many respects the Company's approach to international investments and
acquisitions will be similar to its approach to domestic acquisitions. The
Company will seek to acquire or invest in RIMS companies in countries, and,
more specifically, markets within such countries, where it believes there is
the potential for growth. These transactions may take the form of acquisitions
of the entire business or controlling or minority investments, with a long-term
goal towards eventual full ownership. In addition to criteria the Company uses
to evaluate domestic acquisition candidates, Iron Mountain will also evaluate
the presence in the potential market of existing Iron Mountain clients as well
as the risks uniquely associated with an international investment, including
those risks described below.
The experience, depth and strength of local management will be
particularly important in Iron Mountain's international acquisition strategy.
In this regard, the most significant departure from the Company's domestic
acquisition strategy will be that Iron Mountain frequently may seek to form
joint ventures with, or acquire significant interests from, target businesses.
This is the structure of Iron Mountain's investment in BDM. Iron Mountain
believes this strategy, rather than an outright acquisition, may, in certain
markets, better position the Company to expand the existing business, though
the Company's long-term goal is to eventually acquire full ownership of each
such business. The local partner will benefit from Iron Mountain's expertise in
the RIMS industry and, in certain cases, Iron Mountain's
5
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technology, and Iron Mountain will benefit from its local partner's
relationships with customers and its presence in the community.
The Company also intends to make fold-in acquisitions to augment its
operations in international markets. The Company expects that fold-in
acquisitions will be done directly by Iron Mountain or through the local joint
venture, depending in part on whether Iron Mountain's initial investment was an
acquisition or a joint venture. As with domestic acquisitions, the Company
believes that with appropriate fold-in acquisitions it can benefit from
economies of scale.
The investment in BDM and any additional international investments, if
completed, may be subject to risks and uncertainties relating to the indigenous
political, social, regulatory, tax and economic structures of other countries,
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 the BDM investment or any additional
international investment will be successful in achieving its objectives.
For the amount of revenues from external customers and long-lived assets
(other than financial instruments) attributable to the Company's operations in
the United Kingdom for 1998 (prior to the acquisition of BDM), see Note 10 to
Notes to Consolidated Financial Statements contained herein.
Completed and Pending Acquisitions
As part of its growth strategy, from January 1, 1996 through December 31,
1998, Iron Mountain acquired 49 RIMS businesses. In addition, Iron Mountain has
entered into definitive agreements to acquire Data Base and related real estate
(the "Data Base Acquisition"). The following table presents certain information
with respect to the Company's acquisitions completed between January 1, 1996
and December 31, 1998. All dollar amounts presented are in millions.
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Components of Purchase Price Consideration
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Total Aggregate Cash Fair Value of Total
Revenues and Debt Common Stock Purchase
Number Represented(1) Assumed and Options Issued Price
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1996 Acquisitions ......... 16 $ 33 $ 73 $-- $ 73
1997 Acquisitions ......... 18 96 199 89 288
1998 Acquisitions ......... 15 152 191(2) 67 258
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(1) Total annual aggregate revenues were calculated in each case by reference
to the revenues of each of the acquired businesses during the year in
which they were acquired. This calculation includes an estimate of total
revenues for the portion of the year of acquisition during which any such
acquired business was included in Iron Mountain's results of operations.
(2) Includes approximately $3 million attributable to assets that the Company
exchanged as part of the consideration in connection with one acquisition.
1999 Acquisitions:
On January 4, 1999, the Company, through a wholly owned subsidiary,
purchased a controlling 50.1% interest in Britannia Data Management Limited
("BDM"), a corporation formed under the laws of England and Wales, from
Mentmore Abbey plc. The Company paid total consideration of $49.8 million
comprised of cash and the capital stock of Arcus Data Security Limited, the
Company's existing data security business in London. BDM has provided RIMS
services for over 30 years, and the Company believes that it is the second
largest provider of these services in the United Kingdom. As of December 31,
1998, BDM operated 16 data storage facilities in the United Kingdom and had
over 1,500 customer accounts. BDM had revenues of $30.3 million for the fiscal
year ended October 31, 1998, based on an average exchange rate of $1.6622 per
British pound for such period. In connection with Iron Mountain's strategy of
further international expansion, BDM is actively pursuing a number of
acquisitions and joint ventures in Europe.
The Company has acquired three additional RIMS companies in 1999 for total
consideration of approximately $5.6 million. These companies had total revenues
of approximately $3.5 million for the fiscal year ended December 31, 1998. In
connection with the acquisition of one of these companies, the Company also
acquired real estate for approximately $2.3 million.
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Pending Data Base Acquisition:
On February 28, 1999, the Company entered into a Stock Purchase Agreement
with Data Base and the stockholders of Data Base and a Real Estate Purchase and
Sale Agreement with Data Base Real Estate Holdings LLC ("DBR"), as a result of
which the Company will acquire all of the outstanding capital stock of Data
Base and related real estate. The Company will pay aggregate consideration
equal to approximately $115 million in connection with the Data Base
Acquisition. This amount consists of the assumption of indebtedness and
payments to Data Base's stockholders and DBR in the form of cash and 1,476,577
shares of Common Stock. The goodwill created as a result of the Data Base
Acquisition will be deductible by the Company for federal income tax purposes.
The closing of the Data Base Acquisition is subject to regulatory approval and
other customary conditions and is expected to close in the second quarter of
1999, although no assurance can be given that the Data Base Acquisition will be
completed.
Management believes that Data Base is a premier service provider in the
data security services industry serving over 3,000 customers. Data Base's
services are comprised primarily of off-site data security services, including
secure transport, handling and storage of electronic media, and disaster
recovery support services which facilitate the restoration of corporate data at
a recovery site. As of March 1, 1999, Data Base, headquartered in Bellevue,
Washington, operated in 12 markets in the United States. After the Data Base
Acquisition, the Company's data security services business will operate in
eight new markets and increase its presence in four other markets. Data Base
had revenues of $26.6 million for the year ended December 31, 1998.
The following table presents certain information for the 1998
Acquisitions, the 1999 Acquisitions and the Data Base Acquisition, all of
which, other than the IT Staffing business acquired as a part of the
acquisition (the "Arcus Merger") of Arcus Group, Inc. and its subsidiaries
("Arcus Group"), were or will be in the RIMS business.
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Principal State(s)/Country
Acquisition of Operation Completion Date
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1998 Acquisitions:
Bekins Records Management
(a division of Bekins Van & Storage, Inc.) ........... Nebraska January 1998
Midwest Records Management (a division of I-GO
Van & Storage Co.) ................................... Nebraska January 1998
Arcus Group, Inc. ..................................... Various (1) January 1998
Records Venture One, Inc. (d/b/a Information
Management Consultants of Arizona) ................... Arizona January 1998
Sloan Vaults, Inc. (d/b/a The Vault) .................. California February 1998
InterMation, Inc. ..................................... Oregon and Washington April 1998
RIMS business of Bekins Moving & Storage Co. .......... Oregon and Washington June 1998
National Underground Storage, Inc. .................... Pennsylvania July 1998
Hart Information Services, Inc. ....................... Texas July 1998
Rockford Business Interiors, Inc. ..................... Texas July 1998
Albuquerque Archives, Inc. ............................ New Mexico August 1998
Records and Filing Consultants, Inc. .................. Ohio August 1998
Commercial Archives, Inc. ............................. New York October 1998
Leonard Archives Acquisition Corp. .................... Michigan and Ohio October 1998
Datavault Corporation ................................. Maryland and Virginia November 1998
1999 Acquisitions (through March 1, 1999):
Britannia Data Management Limited (50.1% interest)..... United Kingdom January 1999
Secure Accessible Files Environment, Inc. ............. Connecticut February 1999
Confidential Records Center, Inc. ..................... Maine March 1999
Information Storage Service Center, Inc. .............. New Mexico March 1999
Pending Acquisition:
Data Base, Inc. ....................................... Various (2) Pending
</TABLE>
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(1) Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois,
Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma,
Pennsylvania, Texas and Washington and the United Kingdom.
(2) Illinois, Maryland, North Carolina, Ohio, Pennsylvania, Texas, Virginia,
Washington and Wisconsin.
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Premium Service Strategy
Organizations selecting a RIMS provider consider a number of factors in
addition to price. Management believes that the Company is a "premium" brand in
the marketplace based upon its reputation for reliability, customer-oriented
organization, full service approach, investment in technology and national
operating presence. The Company seeks to exploit its strengths in each of these
areas to maintain customer relationships and to attract new customers.
Management believes that the Arcus Group and Record Masters (acquired by the
Company when it acquired HIMCORP, Inc. (doing business under the name "Record
Masters")) brand names which continue to be utilized by the Company are
similarly viewed as premium brands in their specific markets.
Reputation for Reliability
The Company believes it has a reputation for reliability based on its more
than 48 years of operations, the continuity and depth of its management, its
successful historical growth, the quality and diversity of its customer base,
its technological capabilities and its size and financial resources.
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 the Company to respond directly, effectively and flexibly to
customers. Broad operating authority is delegated to vice presidents and to
local managers. In pursuing its acquisition strategy, Iron Mountain seeks to
capitalize upon the experience and strengths of existing management in the case
of new market acquisitions. 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.
Full Service Approach
Iron Mountain offers a full range of records and information management
services. The Company provides storage for all major media, including paper,
which is the dominant form of records storage, magnetic media, including
computer tapes, microfilm and microfiche, master audio and video tapes, film
and optical disks, X-rays and blueprints. Iron Mountain's principal services
provided to its storage customers include courier pick-up and delivery, filing,
retrieval and destruction of records, database management, customized reporting
and disaster recovery support. The Company also sells storage materials,
including cardboard boxes and magnetic media, and provides consulting,
facilities management and other outsourcing services, including IT Staffing.
The Company believes that its ability to provide all of these services provides
numerous competitive advantages, including: (i) cross marketing opportunities
from marketing additional services to existing customers, (ii) leverage of its
general, administrative, software development and real estate expenses and
(iii) the selling advantage provided by offering one-stop shopping to certain
customers who prefer to use one vendor for all of their records and information
management services.
Investment in Technology
The Company has made significant investments in management information
systems and computer technology 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. The Company believes that its technological capabilities,
especially its Safekeeper(TM) and MediaLink(TM) systems used in the Company's
RIMS business, are a significant tool in attracting new customers. The Company
plans to continue to invest in its proprietary technologies in the future. See
"--Technology and Development; Management Information Systems."
National Operating Presence
The Company believes it is one of only three RIMS companies with a
national operating presence. Traditionally, the purchase decision for large
multi-site customers has been made at the local level. Recently, however, the
Company has found that certain large organizations have sought to obtain
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operating and economic efficiencies by outsourcing a significant portion of
their records and information management functions with a single RIMS company.
The Company seeks to use its national operating presence to compete for such
large multi-site customer accounts. In addition, certain customers prefer to
use large, sophisticated RIMS companies for the storage of vital records and
the support of disaster recovery programs.
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. The
Company believes that it is one of the few RIMS 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 the Company's cost of
sales, reducing per unit storage costs is a primary strategic goal of the
Company's RIMS business and its real estate management staff. The Company seeks
to minimize per unit 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 storage unit to operate. Since December 31, 1994, the
Company has acquired or leased 16 RIMS facilities constructed per the Company's
specifications. The average Carton density, which is the ratio of standard
Carton storage capacity to total square feet of floor space, of these
facilities is approximately twice that of the Company's overall average Carton
density. As a result of these practices, average Carton density in the
Company's facilities increased approximately 25% from December 31, 1993 to
December 31, 1998. Because medical records are inherently more active, the
Company stores these records in specialized shelving systems that provide easy
access to individual files, but generally have lower storage densities than
carton shelving. These lower densities are generally offset by higher total
revenues per unit. Management believes its expertise in designing storage
facilities and racking systems will lead to improved densities and cost
reductions in the storage of its medical records.
Labor and Transportation Efficiency
The Company has made significant investments in computer technologies for
its service operations, resulting in greater operating and logistics
efficiencies. In addition, by increasing the scale of its operations and
customer base in a local market area, the Company seeks to maximize its courier
delivery fleet usage and to increase delivery and routing efficiencies.
The Company's incentive structure has also contributed to labor
efficiency. Each of the Company's full-time employees participates in incentive
compensation programs based upon achievement of specific operating targets
designed to integrate the objectives and performance of RIMS facility employees
and managers. For the year ended December 31, 1998, the Company's employees
earned incentive compensation in an amount equal to approximately 10% of the
base wages paid by the Company.
G&A and MIS Efficiencies
The Company's corporate staff provides support to local management in the
areas of acquisitions, marketing, facility acquisition and leasing, racking
system purchasing, finance, accounting and human resource management. In
addition, the Company's corporate staff is responsible for the design and
support of all RIMS technology. The Company 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; Management Information Systems
The Company pioneered the application of advanced information technology
to the RIMS industry. Iron Mountain's proprietary Safekeeper system, which is
Year 2000 compliant, provides advanced inventory control and information
access, enabling the Company to provide faster, higher quality and
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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
RIMS 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. The Company has made significant
investments to develop and refine its management information systems and
computer technology, 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 the Company a substantial measure of
flexibility and vendor independence and reduces the risk of technological
obsolescence.
During 1999, the Company introduced an Internet access application of
Safekeeper. This new technology will allow customers to reduce the processing
time associated with their records management and maintain increased control
and access to their records. By using the internet capability of Safekeeper,
customers can perform numerous RIMS tasks on-line such as adding and editing
inventory, reviewing national or local inventory levels, ordering pick-ups or
retrievals and viewing the transaction history of their inventory.
The Company's data security operations utilize the Company's MediaLink
software, which provides integrated bar-code tracking and an electronic data
interface between a customer's data center and an Iron Mountain facility, as
well as audit trail and remote inventory query capabilities. MediaLink assists
customers in meeting their disaster recovery standards. MediaLink's interactive
VoiceLink(TM) allows access to off-site inventory directly from a touch-tone
telephone.
Safekeeper has improved the Company's customer support and operating
efficiency in the following ways:
Acquisition System Integration
Safekeeper has been designed to integrate newly acquired RIMS companies
and offer improved levels of customer service and RIMS 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 RIMS access capabilities. Safekeeper utilizes a suite of
conversion routines to automate the conversion process and effectively
translate customer and inventory information.
Storage Efficiency
Safekeeper enables the Company 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 the Company'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.
Inventory Integrity
The Company uses bar-coding and scanning 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
errors must be resolved before an order can be closed; until the order is
closed, the Company cannot
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process billing. Management believes that this system-driven quality assurance
is a significant advantage over the "best efforts" approach used by many of its
competitors.
Customer Information Access
Customers can access their RIMS data through a variety of formats,
including access on their own PCs via Safekeeper Desktop(TM), integration of
their internal system with Safekeeper via automated file transfers and paper
reports. Safekeeper Desktop is a PC application, run from customers' desktop or
network PCs; it provides customers with an entire set of RIMS 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 and quality
assurance.
Records Management Flexibility
Safekeeper offers full life-cycle RIMS, 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 RIMS data in accordance with
customer requirements. A series of customer-specific features and options
allows Iron Mountain to tailor the RIMS functionality and reporting to the
customer's needs.
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.
Description of Iron Mountain's RIMS Business
Through its RIMS business, Iron Mountain provides storage for all major
media, including paper, which is the dominant form of records storage, magnetic
media, including computer tapes, microfilm and microfiche, master audio and
video tapes, film and optical disks, X-rays and blueprints. Iron Mountain's
principal services provided to its RIMS customers include courier pick-up and
delivery, filing, retrieval and destruction of records, database management,
customized reporting and disaster recovery support. Iron Mountain also sells
storage materials and provides consulting, outsourcing and other services.
Paper Storage Operations
Storage revenues accounted for approximately 60% of the Company's RIMS
revenues in each of the Company'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 and physical security.
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 RIMS 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 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 the Company'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.
Data Security Services
Data security services consist of the storage and rotation of back-up and
archival computer media as part of corporate disaster and business recovery
plans. Computer tapes, cartridges and disk packs are transported off-site by
the Company'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
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data recovery in the event of a disaster. Iron Mountain's MediaLink software
manages this process. Iron Mountain also manages tape library relocation and
supports disaster recovery testing and execution.
Medical Records Services
Medical records management services principally include the handling,
storage, filing, processing and retrieval of medical records used by hospitals,
private practitioners and other medical institutions. Medical records tend to
be more active in nature and are typically stored on specialized shelving
systems that provide access to individual files. Medical records management
services also include recurring project work and ancillary services. Recurring
project work involves the on-site removal of aged patient files and related
computerized file indexing. Ancillary medical records management services
include release of information, temporary staffing, contract coding, facilities
management and imaging.
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. The
Company's charges for providing enhanced security and special
climate-controlled environments for vital records are higher than for typical
storage functions. The Company provides the same ancillary services for vital
records as it provides for its other storage operations.
Service and Courier Operations
Services operations include adding records to storage, temporary removal
of records 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. The Company 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. As of December 31, 1998, the Company currently utilizes a fleet of
approximately 1,100 owned or leased delivery vehicles.
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
inventorying records, packing records into cartons or other containers, and
creating computerized indexes of files and individual documents. The Company
also provides services for the management of active records programs. The
Company 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 personnel to perform management functions on-site at the customer's
premises.
In addition, the Company provides professional consulting services to
large customers, enabling them to develop and implement comprehensive records
and information management programs. Iron Mountain's consulting business draws
on the Company's experience in records and information management services to
analyze the practices of such companies and assist them in creating more
effective programs of records and information management. The Company's
consultants work with these customers to develop policies for document review,
analysis and evaluation and for scheduling of document retention and
destruction.
The Company also sells a full line of specially designed corrugated
cardboard, metal and plastic storage containers and magnetic media products.
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Customers
The Company's customer base is diversified in terms of revenues and
industry concentration. Iron Mountain tracks customer accounts, which are based
on invoices. Accordingly, depending upon how many invoices have been arranged
at the request of a customer, one organization may represent multiple customer
accounts. As of March 1, 1999, the Company had over 70,000 customer accounts in
a variety of industries. The Company currently provides services to more than
half of the Fortune 500 and numerous commercial, legal, banking, healthcare,
accounting, insurance, entertainment and government organizations. No customer
accounted for more than 2% of the Company's RIMS or consolidated revenues for
the year ended December 31, 1998.
Marketing and Sales
The Company's RIMS selling organization, which includes 115 sales
professionals, consists of telemarketing, direct sales and account management,
all supported by a corporate marketing group. Telemarketing sales people use
advanced database telemarketing techniques to identify and source account
leads. Leads are pursued by the direct sales force which is comprised of local
sales representatives and regional and national account managers. Once an
account is established, it is assigned to an account manager, who focuses on
serving the needs of new and existing customers and selling additional services
to this customer base. The corporate marketing organization provides training
and marketing communications as sales support functions.
Competition
The Company's RIMS business competes with two other national RIMS
companies as well as a large number of local and regional concerns. The Company
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
United States based revenues significantly lower than those of the Company. In
addition, the Company faces competition from the internal RIMS handling
capability of its current and potential customers. There can be no assurance
that these organizations will outsource more of their RIMS needs or that they
will not bring in-house some or all of the functions they currently outsource.
The Company also faces competition for acquisition candidates. To
accommodate growth, a RIMS 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.
The substantial majority of the Company's RIMS and consolidated 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, the Company can
provide no assurance against the possibility that one or more non-paper-based
technologies, whether now existing or developed in the future, may in the
future significantly reduce or supplant the use of paper as a preferred medium,
which could in turn adversely affect the Company's business.
IT Staffing Services
The Company acquired Arcus Group, whose principle business was off-site
data security services, in January 1998. As part of this acquisition, the
Company also acquired Arcus Group's IT Staffing business and now provides
staffing services to a diverse group of corporate clients. IT Staffing services
include temporary or project staffing and permanent placements for data center
operations and MIS functions, including supplying data center clerks, tape
librarians, systems operators and software programmers. Management believes
that IT Staffing is a high growth segment of the temporary staffing
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market, complements the Company's existing services and offers opportunities to
leverage its large customer base. The Company's information technology
professionals, placed with its corporate clients on either a contract,
temporary or permanent basis by the Company's recruiters, have expertise on a
significant number of hardware platforms and software applications and can
provide a wide variety of services covering the systems application development
lifecycle, including planning, design, building and programming,
implementation, maintenance and ongoing management. The Company's IT Staffing
business serves its clients through 11 offices located in seven states.
In recent years, businesses have become increasingly dependent on the use
of information technology to manage operations more efficiently and remain
competitive. Important internal functions, ranging from financial reporting to
production and inventory management, have become automated through the use of
applications software. As information systems have become less expensive, more
powerful and easier to use, the number and level of employees who use and
depend on these systems have increased significantly. Faced with the challenge
of implementing and operating more complex information systems, businesses are
increasingly using IT Staffing companies to supplement their information
technology operations. Using outside technical professionals (i) allows a
company's management to focus on core business operations, (ii) affords greater
staffing flexibility in information technology departments, (iii) increases a
company's ability to adapt to, and keep pace with, rapidly changing
technologies and (iv) avoids the expense of developing and maintaining in-house
expertise in information technology.
The Company's account managers target corporate clients based upon client
size, use of contract staffing and relationships with account managers of the
Company's RIMS segment. The Company's recruiters are responsible for sourcing,
qualifying and matching their candidates to meet a corporate client's needs.
The Company ensures the quality of client service by assigning at least two
recruiters of the Company to each client so as to ensure an uninterrupted
relationship with that client. The recruiters then share all resumes received
from candidate professionals so as to optimize the placement process.
The Company's IT Staffing offices share a common database that permits a
nationwide matching of candidates with a corporate client. This system allows
all relevant details of a candidate's skill and experience to be identified,
stored and readily retrieved so that an appropriate candidate can be matched to
a corporate client's needs.
The IT Staffing industry is highly fragmented and consists of both large,
national firms as well as local, owner-operated businesses, with no single
company holding a dominant position within the industry. The Company believes
that its future success in the IT Staffing industry will depend in part upon
its continued ability to attract and retain highly skilled information
technology professionals and managerial, technical, sales and support
personnel. The Company considers its compensation and benefits plans, which are
offered to all full time IT Staffing employees, to be market competitive.
Management believes that the Company has good relationships with its IT
Staffing employees.
For the amounts of revenues from external customers, EBITDA, total assets
and capital expenditures attributable to each industry segment of the Company
(RIMS and IT Staffing), see Note 10 to Notes to Consolidated Financial
Statements contained herein.
Employees
A key feature of the Company's operating strategy is its decentralized
management structure and empowerment of local management operating in local
business environments. The Company is divided into two operational business
units, each of which has a president in charge of such unit: RIMS and IT
Staffing. Each operational unit is divided into geographic Areas, Regions and
Districts. Generally, Areas are managed by Executive Vice Presidents, Regions
are managed by Vice Presidents and Districts are managed by General Managers.
The Company's international operations are managed by Christophe Giecold, who
is President of the Company's international division. Management believes this
structure offers responsive and superior customer service and positions the
Company to sell ancillary services and products. The Company's headquarters
staff performs a variety of central administrative and support
14
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functions in order to maximize the time and resources that local personnel can
devote to customer service and client development.
As of March 1, 1999, the Company's RIMS business domestically employed
over 4,500 full time employees, of whom approximately 96% were employed at the
field level and 4% at the Company's headquarters in Boston, Massachusetts.
Through Iron Mountain's international joint venture, BDM, as of March 1, 1999,
the Company's RIMS business employed over 330 full time employees in the United
Kingdom.
Various Teamster Union locals under four different agreements represent
approximately 4% of the Company's employees. One of these agreements, covering
approximately 16 employees, has expired, and the Company is involved in
negotiations with the union locals involved in such agreement. In addition, the
three other agreements, covering a total of approximately 180 employees, are
scheduled to expire in May 1999, December 1999 and March 2000. Based on its
experience with the union locals, the Company expects that it will enter into
new agreements on satisfactory terms, although the Company cannot make any
assurances at this time that such satisfactory terms will be achieved. In
addition, ten employees of BDM are members of a union under an agreement
scheduled to expire later in 1999.
All non-union employees, other than BDM employees, are eligible to
participate in the Company'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, other than BDM 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 the Company has good
relationships with its employees and unions. BDM employees participate in
separate benefit and incentive-based compensation programs.
Insurance
The Company carries a comprehensive property insurance policy with
insurers that it believes to be reputable and in amounts that it believes to be
appropriate, covering the replacement cost of real and personal property,
including improvements. Subject to sub-limits, the policy also covers
extraordinary expenses associated with business interruption and damage or loss
from 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.
The Company's standard form of contract sets forth an agreed maximum value
for each carton or other storage unit held by the Company 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 the Company
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 the Company. However, some of the Company's agreements with large
volume accounts and some of the contracts assumed in the Company's acquisitions
contain no such limits or contain higher limits or supplemental insurance
arrangements. See "Item 3. Legal Proceedings" for a description of claims by
particular customers seeking to rescind their contracts, including limitations
on liability, as a result of the fires experienced in the Company's South
Brunswick Township, New Jersey facilities.
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. Some of such laws impose
cleanup responsibility and liability without regard to whether the owner or
operator of the real estate or operations thereon 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 affected
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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Additional environmental laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("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. The Company is aware of the presence of ACMs at
some of its facilities, but believes that such materials are in acceptable
condition at this time. The Company believes that future costs related to any
removal and disposal 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 the Company were previously used for industrial or other purposes
that involved the use or storage of hazardous substances or petroleum products
or the generation and disposal of hazardous wastes and, in some instances,
included the operation of underground storage tanks. In addition, some of these
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, the Company may be potentially liable for environmental
costs such as those discussed above.
The Company has from time to time conducted environmental investigations
and remedial activities at certain of its former and current facilities, but
the Company has not conducted an in-depth environmental review of all of its
properties. The Company believes that it is in substantial compliance with all
applicable material environmental laws. The Company 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 Company 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 the Company might be liable in the future or
that future regulatory action, as well as compliance with future environmental
laws, will not require the Company to incur costs for or at its properties that
could have a material adverse effect on the Company's financial condition and
results of operations.
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Item 2. Properties.
As of March 1, 1999, Iron Mountain conducted operations through 222 leased
and 45 owned facilities containing a total of 16.4 million square feet of
space. The leased facilities typically have initial lease terms of 10 years
with options to renew for an additional ten years. The weighted average
remaining term of the leases on these facilities is approximately seven 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 following table sets forth the RIMS facilities the Company either owns
or leases (directly or through its subsidiaries) in the geographic locations
indicated below as of March 1, 1999:
Location Number of Facilities
- -------- --------------------
Alabama ......................... 1
Arizona ......................... 9
California ...................... 42
Colorado ........................ 6
Connecticut ..................... 4
Delaware ........................ 1
Florida ......................... 16
Georgia ......................... 9
Illinois ........................ 9
Indiana ......................... 1
Kansas .......................... 1
Louisiana ....................... 5
Maine ........................... 1
Maryland ........................ 7
Massachusetts ................... 10
Michigan ........................ 15
Minnesota ....................... 6
Missouri ........................ 4
Nebraska ........................ 5
Nevada .......................... 1
New Hampshire ................... 1
New Jersey ...................... 12
New Mexico ...................... 3
New York ........................ 17
North Carolina .................. 2
Ohio ............................ 13
Oklahoma ........................ 1
Oregon .......................... 8
Pennsylvania .................... 6
Rhode Island .................... 1
Tennessee ....................... 2
Texas ........................... 16
Utah ............................ 1
Virginia ........................ 8
Washington ...................... 5
Wisconsin ....................... 2
United Kingdom .................. 16
--
Total ......................... 267
===
The Company leases an additional 11 office facilities in connection with
its IT Staffing services in Arizona, California, Colorado, Florida,
Pennsylvania and Washington.
The Company or a principal operating subsidiary is a guarantor of a
substantial portion of the leases to which other subsidiaries are party. See
Note 11 of Notes to Consolidated Financial Statements for information regarding
the minimum annual rental commitments of the Company. The stock of
substantially all of the Company's subsidiaries is pledged as security for the
lenders under the Company's revolving credit facility (the "Credit Agreement").
In addition, substantially all of the property and assets of BDM
17
<PAGE>
and its subsidiaries and the stock of BDM's subsidiaries are pledged as
security for the lenders under BDM's credit facility.
Item 3. Legal Proceedings.
In March 1997, the Company experienced three fires, all of which
authorities have determined were caused by arson. The fires resulted in damage
to one and destruction of the Company's other RIMS facility in South Brunswick
Township, New Jersey.
Approximately 61 of the Company's customers or their insurance carriers
have asserted claims as a consequence of the destruction of or damage to their
records as a result of the fires, some of which claims allege negligence or
other culpability on the part of the Company. The Company and its insurers have
denied any liability on the part of the Company as to all of these claims. The
Company is presently aware of six lawsuits filed against the Company by certain
of its customers and/or their insurers, and of two lawsuits filed by the
insurers of abutters of the South Brunswick facility, all alleging damages in
unspecified amounts arising out of the fires. Those lawsuits were filed in the
U.S. District Court for the District of New Jersey; the New Jersey Superior
Court, Middlesex County, Law Division; and the Supreme Court for New York
County, New York.
The Company has denied liability and asserted various affirmative defenses
in each of these cases. The Company has also moved for dismissal of certain of
the customer claims, and has asserted counterclaims for indemnification against
certain of the plaintiffs. Discovery is ongoing in all eight cases, and six of
the cases in New Jersey state court have been consolidated for purposes of
discovery and pre-trial administration. Iron Mountain denies any liability as a
result of the destruction of or damage to customer records as a result of the
fires, which were beyond its control, and intends to vigorously defend itself
against these and any other lawsuits that may arise. The Company is also
pursuing coverage of these claims and proceedings with its various insurers.
The Company has been paid by its general liability and property insurance
carrier for costs incurred as a result of business interruption and property
damage due to the fires. However, the Company's errors and omissions carrier
has made an initial determination denying coverage as to these claims. On
November 19, 1998, Iron Mountain filed an action in the United States District
Court for the District of Massachusetts (Iron Mountain Incorporated and Iron
Mountain Records Management, Inc. v. National Union Fire Insurance Co. of
Pittsburgh, PA) seeking a declaration of coverage and other relief. The parties
are currently in active negotiations, together with the general liability and
property carrier, to resolve all coverage issues.
The outcome of these proceedings cannot be predicted. Based on its present
assessment of the situation, after consultation with legal counsel, management
does not believe that the outcome of these proceedings 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.
On June 5, 1997, Arcus Group filed a complaint for a refund of federal
taxes paid for the year 1995 in the amount of $0.8 million against the United
States in the Court of Federal Claims. This claim is based on the utilization
of Arcus Group's net operating loss carryforwards for the tax year ended
December 31, 1995. On September 3, 1997, the United States filed its answer in
the case, denying Arcus Group's use of its net operating losses. The lawsuit is
in the discovery stage. If Arcus Group prevails in the litigation, Iron
Mountain will be able to use $8.0 million in loss carryforwards per year
against income generated by the former Arcus group of companies each year
through at least the year 2002. If Arcus Group does not prevail, then Iron
Mountain may have to pay taxes for the years 1996 and 1997, in which years
Arcus Group did claim the benefit of its loss carryforwards, and these
additional taxes would be added to goodwill as additional purchase price.
Management does not believe that the amount of taxes which Iron Mountain would
have to pay in such event would have a material adverse effect on Iron
Mountain's financial condition or results of operations, although there can be
no assurance in this regard.
In addition to the matters discussed above, the Company is involved in
litigation from time to time in the ordinary course of business, and in the
opinion of management, no other material legal proceedings are pending to which
the Company, or any of its properties, is subject.
18
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended December 31, 1998.
19
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The Common Stock is traded on the Nasdaq National Market under the symbol
"IMTN." Iron Mountain first issued its Common Stock to the public in February
1996. On June 30, 1998, the Company's Board of Directors (the "Iron Mountain
Board") authorized and approved a three-for-two split effected in the form of a
dividend on the Company's Common Stock. Such additional shares of Common Stock
were issued on July 31, 1998 to all stockholders of record as of the close of
business on July 17, 1998. The following table sets forth the high and low
sales prices on the Nasdaq National Market, for the years 1997 and 1998, giving
effect to such stock split:
High Low
---- ---
Sale Prices
-----------
1997
First Quarter .......... $ 20.67 $ 14.33
Second Quarter ......... 20.00 15.50
Third Quarter .......... 24.17 19.50
Fourth Quarter ......... 26.50 21.29
1998
First Quarter .......... $ 25.08 $ 20.92
Second Quarter ......... 30.67 24.58
Third Quarter .......... 30.50 22.50
Fourth Quarter ......... 36.25 23.00
The closing price of the Common Stock on the Nasdaq National Market on
March 1, 1999 was $31.25. As of March 1, 1999, there were 298 holders of record
of Common Stock and no holders of record of the Company's Nonvoting Common
Stock, par value $.01 per share. The Company believes that there are more than
2,900 beneficial owners of the Common Stock.
Iron Mountain does not currently pay dividends on shares of 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 Common Stock in the foreseeable future. Future
determinations by the Iron Mountain Board to pay dividends on the 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 for that purpose. Some of the Company's agreements, pursuant to which
the Company has borrowed funds, contain provisions that limit the amount of
dividends and stock repurchases that the Company may make.
20
<PAGE>
Item 6. Selected Consolidated Financial and Operating Information.
The following selected consolidated statements of operations and balance
sheet data of the Company as of and for each of the years ended December 31,
1994, 1995, 1996, 1997 and 1998 have been derived from the Company's audited
consolidated financial statements. The selected consolidated financial and
operating information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with Iron Mountain's Consolidated Financial Statements and the
Notes thereto included elsewhere in this filing.
On June 30, 1998, the Iron Mountain Board authorized and approved a
three-for-two stock split effected in the form of a dividend on the Company's
Common Stock. Such additional shares of Common Stock were issued on July 31,
1998 to all stockholders of record as of the close of business on July 17,
1998. All share and per share amounts in the accompanying Selected Consolidated
Financial and Operating Information have been restated to reflect the stock
split.
Selected Consolidated Financial and Operating Information
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage ............................................. $54,098 $ 64,165 $85,826 $125,968 $230,702
Service and Storage Material Sales .................. 33,520 40,271 52,892 82,797 192,810
------- -------- ------- -------- --------
Total Revenues .................................... 87,618 104,436 138,718 208,765 423,512
Operating Expenses:
Cost of Sales (Excluding Depreciation) .............. 45,880 52,277 70,747 106,879 220,980
Selling, General and Administrative ................. 20,853 26,035 34,342 51,668 105,025
Depreciation and Amortization ....................... 8,690 12,341 16,936 27,107 49,152
------- -------- ------- -------- --------
Total Operating Expenses .......................... 75,423 90,653 122,025 185,654 375,157
------- -------- ------- -------- --------
Operating Income ..................................... 12,195 13,783 16,693 23,111 48,355
Interest Expense, Net ................................ 8,954 11,838 14,901 27,712 45,756
Other Income, Net (1) ................................ -- -- -- -- 1,384
------- -------- ------- -------- --------
Income (Loss) Before Provision (Benefit) for
Income Taxes ........................................ 3,241 1,945 1,792 (4,601) 3,983
Provision (Benefit) for Income Taxes ................. 1,957 1,697 1,435 (80) 6,949
------- -------- ------- -------- --------
Income (Loss) Before Extraordinary Charge ............ 1,284 248 357 (4,521) (2,966)
Extraordinary Charge, Net of Tax Benefit (2) ......... -- -- 2,126 -- --
------- -------- ------- -------- --------
Net Income (Loss) .................................... 1,284 248 (1,769) (4,521) (2,966)
Accretion of Redeemable Put Warrant .................. 1,412 2,107 280 -- --
------- -------- ------- -------- --------
Net Loss Applicable to Common Stockholders $ (128) $ (1,859) $(2,049) $(4,521) $(2,966)
======= ======== ======= ======== ========
Income (Loss) per Common Share--Basic
and Diluted:
Income (Loss) Before Extraordinary Charge $ (0.40) $ (32.61) $ 0.00 $ (0.26) $ (0.11)
Extraordinary Charge, Net of Tax Benefit (2) -- -- (0.15) -- --
------- -------- ------- -------- --------
Net Loss Applicable to Common
Stockholders ....................................... $ (0.40) $ (32.61) $ (0.15) $ (0.26) $ (0.11)
======= ======== ======= ======== ========
Weighted Average Common Shares
Outstanding ........................................ 321 57 13,911 17,172 27,470
======= ======== ======= ======== ========
Pro Forma (3):
Net Loss Applicable to Common
Stockholders ....................................... $ (0.01) $ (0.16) $ (0.13) $ (0.26) $ (0.11)
======= ======== ======= ======== ========
Weighted Average Common Shares
Outstanding ........................................ 11,976 11,676 15,206 17,172 27,470
======= ======== ======= ======== ========
Other Data:
EBITDA (4) ........................................... $20,885 $ 26,124 $33,629 $50,218 $97,507
EBITDA as a Percentage of Total Revenues ............. 23.8% 25.0% 24.2% 24.1% 23.0%
Capital Expenditures:
Growth (5)(6) ....................................... $15,829 $ 14,395 $23,334 $37,082 $54,566
Maintenance (7) ..................................... 1,151 858 1,112 1,238 1,888
------- -------- ------- -------- --------
Total Capital Expenditures (6) ..................... $16,980 $ 15,253 $24,446 $38,320 $56,454
======= ======== ======= ======== ========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and Cash Equivalents ......... $ 1,303 $ 1,585 $ 3,453 $ 24,510 $ 1,715
Total Assets ...................... 136,859 186,881 281,799 636,786 967,385
Total Debt ........................ 86,258 121,874 184,733 428,018 456,178
Stockholders' Equity .............. 22,869 21,011 52,384 137,733 338,882
</TABLE>
- ----------------
(1) Other income, net includes a $1.7 million gain resulting from the
settlement of several insurance claims related to the March 1997 fires at
Iron Mountain's South Brunswick Township, New Jersey facilities.
(2) The extraordinary 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.
(3) Represents pro forma earnings per share as if the preferred stock that was
converted into Common Stock in connection with the Company's Initial
Public Offering (as defined herein) had been converted for all periods
presented. See Notes 6 and 7 of Notes to Consolidated Financial
Statements.
(4) Based on its experience in the RIMS industry, the Company believes that
EBITDA is an important tool for measuring the performance of RIMS
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 RIMS companies, and substantially all
of the Company'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 generally accepted accounting principles ("GAAP")) as an
indicator of the Company'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 Company's sources and applications of cash flow.
(5) Growth capital expenditures consist primarily of investments in racking
systems, management information systems, new buildings and improvements to
existing facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Capital Investments."
(6) Includes $2,901 in 1994 related to the cost of constructing a RIMS facility
which was sold in a sale and leaseback transaction in 1994.
(7) Consists of capital expenditures made in order to maintain the Company's
current revenue stream.
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with "Item 6.
Selected Consolidated Financial and Operating Information" and the Company'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 the Company is to increase its
consolidated EBITDA, which is a source of funds for investment in continued
internal growth and growth through acquisitions and to service indebtedness.
The Company has benefited from growth in consolidated EBITDA, which has
increased from $33.6 million for 1996 to $97.5 million for 1998 (a compound
annual growth rate of 70.3%). However, other measures of the Company's
financial performance, such as consolidated net income and consolidated net
income applicable to common stockholders, have been negatively affected by this
objective.
For the years ended December 31, 1996 through 1998, the Company
experienced consolidated net losses applicable to common stockholders. Such net
losses are attributable in part to significant charges associated with the
Company's pursuit of its growth strategy, namely: (i) increases in depreciation
and amortization expenses associated with expansion of the Company's storage
capacity, (ii) increases in goodwill amortization associated with acquisitions
accounted for under the purchase method and (iii) increases in interest expense
associated with the borrowings used to fund its acquisitions. In addition,
consolidated net income applicable to common stockholders was negatively
affected in 1996 by an extraordinary charge related to the early retirement of
debt.
The Company classifies its operations into two fundamental businesses:
RIMS and IT Staffing. The Company acquired its IT Staffing business in the
Arcus Merger. The reportable segments are managed separately since each
business has different economic characteristics based on the differing customer
requirements and the nature of the services provided.
The Company's RIMS revenues consist of storage revenues as well as service
and storage material sales revenues. Storage revenues consist of periodic
charges related to the storage of materials (either on a per unit or per cubic
foot of records basis) and have accounted for approximately 60% of total RIMS
revenues in each of the last five years. In certain circumstances, based upon
customer requirements, storage revenues include periodic charges associated
with normal, recurring service activities. Service and storage material sales
revenues are comprised of charges for related service activities and the sale
of storage materials and are derived primarily from the Company'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, destructions of records, permanent
withdrawals from storage and sales of specially designed storage containers,
magnetic media, including computer tapes, and related supplies. Customers are
generally billed on a monthly basis on contractually agreed-upon terms.
The Company's IT Staffing business generates revenues by supplying
information technology professionals to its clients on either a contract or
temporary basis. The Company also recruits information technology professionals
for permanent placement with its clients.
Cost of sales (excluding depreciation) for the RIMS segment 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, the Company
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) occupying larger facilities, which, when filled, are
less expensive per Carton to operate. For the IT Staffing segment, cost of
sales (excluding depreciation) consists primarily of wages and benefits.
Selling, general and administrative expenses for both the RIMS and IT
Staffing segments 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.
23
<PAGE>
The Company's consolidated depreciation and amortization charges result
primarily from the capital-intensive nature of the RIMS business and the
acquisitions the Company 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
hardware and software. Amortization primarily relates to goodwill and
noncompetition agreements arising from acquisitions and customer acquisition
costs. The Company has accounted for all of its acquisitions under the purchase
method. Since the purchase price for RIMS 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
consolidated net income. The Company has not acquired any IT Staffing companies
other than through its acquisition of Arcus Group.
EBITDA is an important financial performance measure in the RIMS industry,
both for determining the value of companies within the industry and for
defining standards for borrowing from institutional lenders. For 1996, 1997 and
1998, the Company's RIMS EBITDA margins were 24.2%, 24.1% and 25.0%,
respectively. The Company acquired 16, 18 and 15 RIMS businesses in 1996, 1997
and 1998, respectively, most of which had lower EBITDA margins than the rest of
the Company's RIMS business. The anticipated synergies relating to such
acquisitions were generally not realized immediately. Nonetheless, the Company
has been able to maintain its recent RIMS EBITDA margins through increased
overall operating efficiencies and economies of scale and the realization of
synergies in connection with earlier acquisitions.
Although the EBITDA margins for the Company's IT Staffing business are
lower than for the Company's RIMS business, the capital requirements in the IT
Staffing business are minimal. The EBITDA margin of the Company's IT Staffing
business for 1998 was 3.9%. This resulted in the Company's 1998 consolidated
EBITDA margin being lower than it was in prior years. The Company's
consolidated EBITDA margin for 1998 was 23.0%, as compared to 24.1% for 1997
and to the Company's RIMS EBITDA margin of 25.0% for 1998.
In March 1997, the Company experienced three fires that resulted in damage
to one and destruction of the Company's other RIMS facility in South Brunswick
Township, New Jersey. The affected facilities represented less than three
percent of revenues and less than two percent of consolidated EBITDA for 1996.
The results for the year ended December 31, 1997 do not include any gain or
loss resulting from the fires. In June 1998, the Company settled several
insurance claims, including a significant claim under its business interruption
insurance policy, related to the fires. Other income, net, for the year ended
December 31, 1998 includes a $1.7 million gain related to this settlement. The
calculation of EBITDA does not include this gain. See "Item 3. Legal
Proceedings" and Note 11 of Notes to Consolidated Financial Statements for a
description of certain claims and proceedings against the Company relating to
these fires.
In June 1998, the Iron Mountain Board authorized and approved a
three-for-two stock split effected in the form of a dividend on the Company's
Common Stock. Such additional shares of Common Stock were issued on July 31,
1998 to all stockholders of record as of the close of business on July 17,
1998. All issued and outstanding share and per share amounts included herein
have been restated to reflect the stock split.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. SOP 98-1
also defines which types of costs should be capitalized and which should be
expensed. The Company will adopt SOP 98-1 prospectively beginning January 1,
1999. Based on the Company's current budget, it expects net income and EBITDA
to be negatively impacted by approximately $2 million and $4 million per year,
respectively.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as
a percentage of total consolidated revenues.
24
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Storage ................................................ 61.9% 60.3% 54.5%
Service and Storage Material Sales ..................... 38.1 39.7 45.5
----- ----- -----
Total Revenues ........................................ 100.0 100.0 100.0
----- ----- -----
Operating Expenses:
Cost of Sales (Excluding Depreciation) ................. 51.0 51.2 52.2
Selling, General and Administrative .................... 24.8 24.7 24.8
Depreciation and Amortization .......................... 12.2 13.0 11.6
----- ----- -----
Total Operating Expenses .............................. 88.0 88.9 88.6
----- ----- -----
Operating Income ........................................ 12.0 11.1 11.4
Interest Expense ........................................ 10.7 13.3 10.8
Other Income, Net ....................................... -- -- 0.3
----- ----- -----
Income (Loss) before Provision for Income Taxes ......... 1.3 ( 2.2) 0.9
Provision for Income Taxes .............................. 1.0 -- 1.6
----- ----- -----
Income (Loss) Before Extraordinary Charge ............... 0.3 ( 2.2) ( 0.7)
Extraordinary Charge, Net of Tax Benefit ................ 1.6 -- --
----- ----- -----
Net Loss ................................................ ( 1.3) ( 2.2) ( 0.7)
Accretion of Redeemable Put Warrant ..................... 0.2 -- --
----- ----- -----
Net Loss Applicable to Common Stockholders .............. ( 1.5)% ( 2.2)% ( 0.7)%
===== ===== =====
EBITDA .................................................. 24.2% 24.1% 23.0%
===== ===== =====
</TABLE>
The following table sets forth, for the year ended December 31, 1998,
information derived from the Company's consolidated statements of operations,
as it relates to the Company's RIMS and IT Staffing business segments,
expressed as a percentage of total revenues for each such segment.
<TABLE>
<CAPTION>
RIMS IT Staffing
---------- -------------
<S> <C> <C>
Segment Revenues:
Storage ........................................ 60.1% --%
Service and Storage Material Sales ............. 39.9 100.0
----- -----
Total Segment Revenues ........................ 100.0 100.0
----- -----
Operating Expenses:
Cost of Sales (Excluding Depreciation) ......... 50.0 73.1
Selling, General and Administrative ............ 25.0 23.0
Depreciation and Amortization .................. 12.6 2.0
----- -----
Total Operating Expenses ...................... 87.6 98.1
----- -----
Operating Income ................................ 12.4 1.9
===== =====
EBITDA .......................................... 25.0 3.9
===== =====
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Consolidated storage revenues increased $104.7 million, or 83.1%, to
$230.7 million for the year ended December 31, 1998 from $126.0 million for the
year ended December 31, 1997, primarily due to the completion of 33
acquisitions during 1998 and 1997. Consolidated and RIMS internal revenue
growth was 10.2% and resulted primarily from net increases in records and other
media stored by existing customers and from sales to new customers. The RIMS
business accounted for all of the storage revenues for the years ended December
31, 1998 and 1997.
Consolidated service and storage material sales revenues increased $110.0
million, or 132.9%, to $192.8 million for the year ended December 31, 1998 from
$82.8 million for the year ended December 31, 1997, primarily due to
acquisitions. Consolidated and RIMS internal revenue growth was 14.6% and
resulted from increases in service and storage material sales to existing
customers and the addition of
25
<PAGE>
new customer accounts. Included within the $110.0 million increase is $39.6
million attributable to the IT Staffing business. Service and storage material
sales revenues for the Company's RIMS business increased $70.4 million, or
85.0%, to $153.2 million from $82.8 million for the year ended December 31,
1997.
For the reasons discussed above, total consolidated revenues increased
$214.7 million, or 102.9%, to $423.5 million for the year ended December 31,
1998 from $208.8 million for the year ended December 31, 1997. Total revenues
for the RIMS business increased $175.1 million, or 83.9%, to $383.9 million for
the year ended December 31, 1998 from $208.8 million for the year ended
December 31, 1997. Total IT Staffing revenues amounted to $39.6 million for the
year ended December 31, 1998. Consolidated and RIMS internal revenue growth was
11.9%.
Consolidated cost of sales (excluding depreciation) increased $114.1
million, or 106.8%, to $221.0 million (52.2% of consolidated revenues) for the
year ended December 31, 1998 from $106.9 million (51.2% of consolidated
revenues) for the year ended December 31, 1997. The dollar increase was
primarily attributable to the increase in records and other media stored,
expenses related to certain facility relocations and costs associated with the
Company's new IT Staffing business. The increase as a percentage of
consolidated revenues was primarily attributable to the IT Staffing business
having a lower gross margin than the RIMS business. Cost of sales (excluding
depreciation) for the Company's RIMS business increased $85.2 million to $192.1
million (50.0% of RIMS revenues) for the year ended December 31, 1998 from
$106.9 million (51.2% of RIMS revenues) for the same period last year. The
decrease as a percentage of revenues was primarily attributable to: (i) certain
data security acquisitions, including the Arcus Merger, and the acquisition of
a software escrow business, acquired in the third quarter of 1997, having a
higher gross margin than the rest of the Company and (ii) the closing of
redundant facilities associated with certain acquisitions. The IT Staffing
business reported cost of sales (excluding depreciation) of $28.9 million
(73.1% of IT Staffing revenues).
Consolidated selling, general and administrative expenses increased $53.4
million, or 103.3%, to $105.0 million (24.8% of consolidated revenues) for the
year ended December 31, 1998 from $51.7 million (24.7% of consolidated
revenues) for the year ended December 31, 1997. The dollar increase was
primarily attributable to: (i) the addition of overhead attributable to the
Arcus Merger, (ii) additional salespeople, primarily related to the
acquisitions of Arcus Group and Safesite Records Management Corporation
("Safesite") and the decision by the Company to significantly increase its
selling resources, (iii) increased personnel, office and overhead costs to
support the Company's growth and (iv) recruiting, relocation and training
expenses associated with acquisition integration. As a result, selling, general
and administrative expenses for the RIMS business increased $44.2 million to
$95.9 million (25.0% of RIMS revenues) for the year ended December 31, 1998
from $51.7 million (24.7% of RIMS revenues) for the year ended December 31,
1997. The IT Staffing business reported selling, general and administrative
expenses of $9.1 million (23.0% of IT Staffing revenues).
Consolidated depreciation and amortization expense increased $22.1
million, or 81.5%, to $49.2 million (11.6% of consolidated revenues) for the
year ended December 31, 1998 from $27.1 million (13.0% of consolidated
revenues) for the year ended December 31, 1997. The dollar increase was
primarily attributable to the additional depreciation and amortization expense
related to the Company's acquisitions and capital expenditures for the
Company's RIMS businesses, including racking systems, information systems and
improvements to existing facilities. As a result, depreciation and amortization
expense for the RIMS business increased $21.2 million to $48.3 million (12.6%
of RIMS revenues) for the year ended December 31, 1998 from $27.1 million
(13.0% of RIMS revenues) for the year ended December 31, 1997. The IT Staffing
business reported depreciation and amortization expenses of $0.8 million (2.0%
of IT Staffing revenues).
As a result of the foregoing factors, consolidated operating income
increased $25.3 million, or 109.5%, to $48.4 million (11.4% of consolidated
revenues) for the year ended December 31, 1998 from $23.1 million (11.1% of
consolidated revenues) for the year ended December 31, 1997. Operating income
for the RIMS business increased $24.6 million, or 106.3%, to $47.7 million
(12.4% of RIMS revenues) for the year ended December 31, 1998 from $23.1
million (11.1% of RIMS revenues) for the year ended December 31, 1997.
Operating income for the IT Staffing business was $0.8 million (1.9% of IT
Staffing revenues) for the year ended December 31, 1998.
26
<PAGE>
Consolidated interest expense increased $18.0 million, or 65.1%, to $45.7
million for the year ended December 31, 1998 from $27.7 million for the year
ended December 31, 1997. The increase was primarily attributable to increased
indebtedness related to the financing of acquisitions and capital expenditures.
Such increase was partially offset by lower effective interest rates for the
year ended December 31, 1998 compared to the same period in 1997.
Consolidated other income for the year ended December 31, 1998 is
comprised of a $1.7 million gain resulting from the settlement of several
insurance claims, including a significant claim under the Company's business
interruption insurance policy, related to the March 1997 fires at the Company's
South Brunswick Township, New Jersey facilities. Such gain is partially offset
by a $0.3 million loss on a foreign currency transaction in connection with the
acquisition of BDM.
As a result of the foregoing factors, consolidated income (loss) before
the provision (benefit) for income taxes increased $8.6 million to income of
$4.0 million (0.9% of consolidated revenues) for the year ended December 31,
1998 from a loss of $4.6 million (2.2% of consolidated revenues) for the year
ended December 31, 1997. The provision for income taxes was $6.9 million for
the year ended December 31, 1998 compared to a credit of $0.1 million for the
year ended December 31, 1997. The Company's effective tax rate is higher than
statutory rates primarily due to the amortization of the nondeductible portion
of goodwill associated with certain acquisitions (the tax laws generally permit
deduction of such expenses for asset purchases, but not for acquisitions of
stock). In connection with the 1998 Acquisitions, the Company recorded
approximately $128.1 million in nondeductible goodwill.
Consolidated net loss decreased $1.5 million to a net loss of $3.0 million
(0.7% of consolidated revenues) for the year ended December 31, 1998 from a
consolidated net loss of $4.5 million (2.2% of consolidated revenues) for the
year ended December 31, 1997.
As a result of the foregoing factors, consolidated EBITDA increased $47.3
million, or 94.2%, to $97.5 million (23.0% of consolidated revenues) for the
year ended December 31, 1998 from $50.2 million (24.1% of consolidated
revenues) for the year ended December 31, 1997. EBITDA for the RIMS business
increased $45.8 million, or 91.2%, to $96.0 million (25.0% of RIMS revenues)
for the year ended December 31, 1998 from $50.2 million (24.1% of RIMS
revenues) for the year ended December 31, 1997. EBITDA for the IT Staffing
business was $1.6 million (3.9% of IT Staffing revenues) for the year ended
December 31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Consolidated storage revenues increased $40.2 million, or 46.8%, to $126.0
million for the year ended December 31, 1997 from $85.8 million for the year
ended December 31, 1996. Thirty-four acquisitions completed by the Company in
1996 and 1997 accounted for $34.0 million, or 84.7%, of such increase. The
balance of such increase resulted from net Carton growth from existing
customers and from sales to new customers.
Consolidated service and storage material sales revenues increased $29.9
million, or 56.5% to $82.8 million for the year ended December 31, 1997 from
$52.9 million for the year ended December 31, 1996. Acquisitions completed by
the Company in 1996 and 1997 accounted for $25.9 million, or 86.8%, 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. The greater percentage increase in service and storage material sales
revenues, as compared to storage revenues, for the year ended December 31, 1997
was primarily attributable to certain businesses acquired in 1997 that have a
higher component of service and storage material sales revenues, compared to
storage revenues, than the rest of the Company's RIMS business.
For the reasons discussed above, total consolidated revenues increased
$70.1 million, or 50.5%, to $208.8 million for the year ended December 31, 1997
from $138.7 million for the year ended December 31, 1996. An increase of $59.9
million, or 42.3 percentage points, was attributable to acquisitions completed
by the Company in 1996 and 1997, and an increase of $10.2 million, or 8.2
percentage points, was attributable to internal growth. The internal growth
percentage includes the loss of revenues resulting
27
<PAGE>
from the fires in South Brunswick Township, New Jersey in March 1997. Excluding
the Company's South Brunswick operations for both years, internal growth for
the year was 10.1%.
Consolidated cost of sales (excluding depreciation) increased $36.2
million, or 51.1%, to $106.9 million (51.2% of revenues) for the year ended
December 31, 1997 from $70.7 million (51.0% of revenues) for the year ended
December 31, 1996. The dollar increase was primarily attributable to the
increase in Cartons stored and expenses related to certain facility
relocations. The increase as a percentage of revenues was primarily
attributable to recent acquisitions, which initially have lower gross margins
than the rest of the Company.
Consolidated selling, general and administrative expenses increased $17.4
million, or 50.5%, to $51.7 million (24.7% of revenues) for the year ended
December 31, 1997 from $34.3 million (24.8% of revenues) for the year ended
December 31, 1996. The dollar increase was primarily attributable to: (i)
increased personnel, office and overhead costs needed to support the Company's
growth, (ii) the addition of overhead, primarily salespeople, related to the
acquisition of Safesite and (iii) the integration, training and redeployment of
personnel principally related to the Safesite acquisition.
Consolidated depreciation and amortization increased $10.2 million, or
60.1%, to $27.1 million (13.0% of revenues) for the year ended December 31,
1997 from $16.9 million (12.2% of revenues) for the year ended December 31,
1996. The dollar increase was primarily attributable to the additional
depreciation and amortization related to the Company's acquisitions and capital
expenditures including racking systems, information systems and improvements to
existing facilities.
As a result of the foregoing factors, consolidated operating income
increased $6.4 million, or 38.4%, to $23.1 million (11.1% of revenues) for the
year ended December 31, 1997 from $16.7 million (12.0% of revenues) for the
year ended December 31, 1996.
Consolidated interest expense increased $12.8 million, or 86.0%, to $27.7
million for the year ended December 31, 1997 from $14.9 million for the year
ended December 31, 1996. The increase was primarily attributable to increased
indebtedness related to the financing of acquisitions. Such increase was
partially offset by lower effective interest rates for the year ended December
31, 1997 as compared to the same period for 1996.
As a result of the foregoing factors, consolidated income (loss) before
provision (benefit) for income taxes decreased $6.4 million to a loss of $4.6
million (2.2% of revenues) for the year ended December 31, 1997 from income of
$1.8 million (1.3% of revenues) for the year ended December 31, 1996. Provision
(benefit) for income taxes was a credit of $0.1 million for the year ended
December 31, 1997 compared with a provision of $1.4 million for the year ended
December 31, 1996. The Company's effective tax rate is less favorable than
statutory rates primarily due to the amortization of the nondeductible portion
of goodwill associated with certain acquisitions (the tax laws generally permit
deduction of such expenses for asset purchases, but not for acquisitions of
stock). In connection with the 1997 Acquisitions, the Company recorded
approximately $145 million in nondeductible goodwill.
Consolidated net loss increased $2.7 million to a net loss of $4.5 million
(2.2% of revenues) for the year ended December 31, 1997 from a net loss of $1.8
million (1.3% of revenues) for the year ended December 31, 1996. Net loss
applicable to common stockholders increased $2.5 million to a net loss of $4.5
million (2.2% of revenues) for the year ended December 31, 1997 from a net loss
of $2.0 million (1.5% of revenues) after accretion of $0.3 million related to a
redeemable put warrant to acquire 666,578 shares of Common Stock (the
"Warrant") for the year ended December 31, 1996. The Warrant was redeemed in
full in February 1996, with a portion of the proceeds from the Company's
initial public offering (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, consolidated EBITDA increased $16.6
million, or 49.3%, to $50.2 million (24.1% of revenues) for the year ended
December 31, 1997 from $33.6 million (24.2% of revenues) for the year ended
December 31, 1996.
28
<PAGE>
Recent Consolidated Quarterly Financial Data
The following table sets forth, for the quarterly periods indicated,
information derived from the Company's consolidated statements of operations.
The unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the information for the quarters presented. The operating results for
any quarter are not necessarily indicative of results for the year or for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
1997 1998
-------------------------------------------- ---------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June. 30 Sept. 30 Dec. 31
----------- ----------- ---------- --------- ----------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage ............... $ 25,823 $ 27,987 $ 32,390 $39,768 $ 52,948 $ 55,592 $ 59,506 $ 62,656
Service and,
Storage Material
Sales ................ 16,331 18,598 22,265 25,603 46,536 47,471 48,454 50,349
-------- -------- -------- ------- -------- -------- -------- --------
Total Revenues ....... 42,154 46,585 54,655 65,371 99,484 103,063 107,960 113,005
Operating Expenses:
Cost of Sales
(Excluding
Depreciation) ........ 21,764 24,108 27,870 33,137 52,610 53,664 56,335 58,371
Selling, General and
Administrative ........ 10,207 11,296 14,180 15,985 24,418 25,801 26,447 28,359
Depreciation and
Amortization .......... 5,722 6,243 6,530 8,612 11,264 12,122 12,839 12,927
-------- -------- -------- ------- -------- -------- -------- --------
Total Operating
Expenses ....... .... 37,693 41,647 48,580 57,734 88,292 91,857 95,621 99,657
-------- -------- -------- ------- -------- -------- -------- --------
Operating Income ....... $ 4,461 $ 4,938 $ 6,075 $ 7,637 $ 11,192 $ 11,476 $ 12,339 $ 13,348
======== ======== ======== ======= ======== ======== ======== ========
EBITDA ................. $ 10,183 $ 11,181 $ 12,605 $16,249 $ 22,456 $ 23,598 $ 25,178 $ 26,275
======== ======== ======== ======= ======== ======== ======== ========
</TABLE>
Liquidity and Capital Resources
Recent Financings and Sources of Funds
In connection with certain of the 1998 Acquisitions, the Company issued
2,645,913 shares of its Common Stock and options to acquire approximately
885,000 shares of its Common Stock with fair values of approximately $51.4
million and $15.7 million, respectively.
In April 1998, the Company issued and sold an aggregate of 6,037,500
shares (including 787,500 to cover over-allotments) of its Common Stock in an
underwritten public offering (the "1998 Equity Offering"). Net proceeds after
deducting underwriters' discounts were $132.9 million and were used to repay
outstanding bank debt, to fund the cash portion of the purchase price of
certain of the 1998 Acquisitions and for general corporate purposes.
Net cash provided by financing activities was (i) $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 Company's 10 1/8% Senior Subordinated Notes
due 2006 and $33.3 million from the Initial Public Offering, offset by $102.2
million of repayment of indebtedness and $6.6 million used to retire the
Warrant, (ii) $231.2 million for the year ended December 31, 1997, consisting
primarily of the net proceeds of $242.6 million from the sale of the Company's
8 3/4% Senior Subordinated Notes due 2009 (the "1997 Notes") offset by $10.3
million of repayment of indebtedness and (iii) $159.3 million for the year
ended December 31, 1998, consisting primarily of the net proceeds of $132.9
million from 1998 Equity Offering and additional borrowings under the Credit
Agreement of $23.7 million. As of December 31, 1998, outstanding borrowings
under the Credit Agreement amounted to $35.3 million.
29
<PAGE>
The annual maturities of the Company's indebtedness for the years ending
December 31, 1999, 2000, 2001, 2002 and 2003 are $1.7 million, $0.8 million,
$1.7 million, $35.9 million and $0.4 million, respectively. As of March 1,
1999, the Company had outstanding borrowings of approximately $85.5 million
under the Credit Agreement, which were used to fund, among other things, the
purchase price of the acquisition of four RIMS businesses, including BDM, and
general corporate purposes.
As of March 1, 1999, the Company had $506.1 million of total debt, of
which $420.6 million had fixed interest rates and $85.5 million had variable
interest rates. See Note 4 of Notes to Consolidated Financial Statements.
Net cash provided by operations was $67.1 million for the year ended
December 31, 1998 compared to $22.4 million for the same period in 1997. The
increase was primarily attributable to the increase in EBITDA, accounts
payable, other long-term liabilities and deferred income and the decrease in
inventory, prepaid expenses and other current assets.
At December 31, 1998, the Company had estimated net operating loss
carryforwards of approximately $46.2 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. The
preceding net operating loss carryforwards do not include preacquisition net
operating loss carryforwards of Arcus Group. As a result of the litigation
relating to Arcus Group's net operating loss carryforwards, the Company has not
recognized the deferred tax asset generated by such loss carryforwards. If the
litigation is resolved favorably, any tax benefit realized will be recorded as
a reduction of goodwill.
Capital Investments
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of: (i) acquisitions, (ii) capital
expenditures, primarily related to growth, including investments in real
estate, racking systems, management information systems and improvements to
existing facilities, and (iii) customer acquisition costs. Cash paid for these
investments during 1998 amounted to $189.7 million, $56.5 million and $3.0
million, respectively. These investments have been primarily funded through
cash flows from operations, borrowings under the Credit Agreement, a portion of
the net proceeds from the sale of the 1997 Notes and the net proceeds from the
1998 Equity Offering.
As a result of the Company implementing its acquisition strategy, cash
paid for acquisitions was $68.5 million, $192.2 million, and $189.7 million for
1996, 1997 and 1998, respectively. In addition, in connection with certain of
the 1997 Acquisitions and 1998 Acquisitions, the Company issued Common Stock
and options to purchase Common Stock with an aggregate fair value of $88.9 and
$67.1 million, respectively. From January 1, 1999 through March 1, 1999, the
Company acquired four additional RIMS businesses for total consideration of
approximately $55 million.
In February 1999, the Company entered into definitive agreements to
acquire all of the outstanding capital stock of Data Base and related real
estate, a RIMS company based in Bellevue, Washington, operating in 12 markets,
for total consideration of approximately $115 million. The consideration will
consist of $46 million in Common Stock (1,476,577 shares), and the balance in
cash and assumed indebtedness.
For 1996, 1997 and 1998, the Company's growth-related capital expenditures
were $23.3 million, $37.1 million and $54.6 million, respectively.
Growth-related capital expenditures consist primarily of investments in racking
systems, management information systems, new buildings and improvements to
existing facilities. For 1996, 1997 and 1998, the Company's capital
expenditures made in order to maintain the Company's current revenue stream
were $1.1 million, $1.2 million and $1.9 million, respectively.
The Company currently estimates that its capital expenditures (other than
capital expenditures related to future acquisitions, which cannot be presently
estimated) for 1999 will be approximately $65 million. The Company expects to
fund these expenditures with cash flows from operations.
In addition, the Company incurs costs (net of revenues received for the
initial transfer of records) related to the acquisition of large volume
accounts. For 1996, 1997 and 1998, the Company's additions to customer
acquisition costs were $1.6 million, $1.6 million and $3.0 million,
respectively.
30
<PAGE>
Acquisitions
The Company's liquidity and capital resources have been significantly
impacted by acquisitions within the RIMS industry and, given the Company's
acquisition strategy, may be significantly impacted for the foreseeable future.
The Company has historically financed the cash portion of its acquisitions
with borrowings under its credit agreements in conjunction with cash flows
provided by operations and with the net proceeds of issuances of debt
securities and Common Stock. The Company's future interest expense may increase
significantly as a result of the additional indebtedness the Company 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, or the future issuance of debt securities, the resulting
increase in debt and interest expense could have a negative effect on such
measures of liquidity as debt to equity, EBITDA to debt and EBITDA to interest
expense.
In connection with its acquisition program, the Company undertakes certain
restructurings of the acquired businesses. Formalized restructuring plans for
acquisitions are completed within one year of the date of acquisition. The
restructuring activities include 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 $6.6 million and $11.4 million in 1997 and
1998, respectively, as part of the purchase accounting for the acquisitions.
During 1997 and 1998, the Company expended $2.2 million and $4.7 million,
respectively, for restructuring costs. In addition, the Company made $0.3
million and $1.6 million of adjustments in 1997 and 1998, respectively, which
reduced goodwill, as a result of management finalizing restructuring plans
within one year of acquisition. These expenditures consisted primarily of
severance costs and costs relating to exiting facilities. At December 31, 1998,
the Company had a total of $10.5 million accrued for restructuring costs for
all of its then completed acquisitions. The Company expects to record reserves
for the acquisitions completed between January 1, 1999 and March 1, 1999 and is
currently evaluating its restructuring plans. The Company will continue to
re-evaluate its restructuring plans regarding these acquisitions during the
year following their consummation.
Future Capital Needs
The Company's ability to generate sufficient cash to fund its needs
depends generally on the results of its operations and the availability of
financing. Management believes that cash flows from operations in conjunction
with borrowings from existing and possible future debt financings 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 the Company.
Seasonality
Historically, the Company's businesses have not been subject to
seasonality in any material respect.
Inflation
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through increased operating efficiencies, the Company cannot
assure that it will be able to offset any future inflationary cost increases
through similar efficiencies or increased storage or service charges.
Year 2000 Readiness
General
The Year 2000 ("Y2K") problem refers to the inability of systems,
primarily software systems, to properly recognize and process date sensitive
information relating to the year 2000 and beyond. In order to respond to this
problem, the Company has established a Y2K Project Plan (the "Plan"). The Plan
is
31
<PAGE>
comprised of five major phases: awareness, assessment, renovation, validation
and implementation. These phases are applied to three general categories:
operational systems (consisting primarily of inventory and billing systems),
financial accounting systems and other products and services obtained from
third parties.
Operational Systems
The Company's primary operational systems for its RIMS segment are
Safekeeper, an internally developed software application used mainly in its
business records operations, and MediaLink, a software application obtained
from a third party used mainly in the Company's data security operations.
Additionally, as an active acquirer of businesses, the Company currently uses,
and will continue to use, several different legacy operational systems that
have been, and will be, inherited through its ongoing acquisition program. Both
Safekeeper and MediaLink are Y2K compliant. Based on the Company's assessment,
management believes that approximately 85% of its business units are currently
operating with an operational system that is Y2K compliant or upgradable to a
currently available Y2K compliant version of the existing software. Conversion
of the remaining business units to a Y2K compliant operational system is
currently underway.
The Company's IT Staffing business uses commercially available,
off-the-shelf software packages from nationally recognized vendors for its
primary software applications, which include its financial accounting, time and
billing and resume retrieval database systems. Based on publicly available
certifications from the vendors, the Company believes that these software
packages are Y2K compliant. The IT Staffing business upgraded its accounting
software to the Y2K compliant release in December 1998, and expects to complete
the upgrade of its time and billing software to the Y2K compliant releases by
the end of the second quarter of 1999.
Financial Accounting Systems
As part of its normal course of business, the Company has several system
improvement initiatives underway. One such initiative involves the installation
of new financial accounting software from Oracle Corporation ("Oracle"). Oracle
has certified that its accounting software is Y2K compliant. The installation
of the Oracle software is substantially complete and is expected to be
concluded by the end of the third quarter of 1999.
The Company currently uses, and will continue to use, several different
legacy accounting systems that have been, and will be, inherited through its
ongoing acquisition program. Accordingly, the Company continues to assess these
newly acquired legacy systems and, based on vendor certifications, believes
that substantially all of these systems are Y2K compliant. The Company is in
the process of remediating the remaining systems and expects to complete such
remediation before the end of the third quarter of 1999.
Products and Services Obtained from Third Parties
Products and services obtained from third parties are comprised mainly of
(i) facility systems, including telecommunications, climate control systems,
security systems, fire and safety systems ("Facility Systems"), and (ii)
products and services purchased from vendors, including third party payroll
processing and products for resale such as cartons and operating supplies. The
Company has substantially completed assessment of its telecommunications
systems and is in the process of implementing its remediation plan for such
systems that are not Y2K compliant. With respect to its other Facility Systems
and products and services purchased from vendors, the Company's assessment
phase is substantially complete and its implementation phase is expected to be
completed by the end of the third quarter of 1999.
Customers
The Company's customer base is diversified in terms of revenue and
industry concentration. Only two customers account for more than 1% of total
revenues and no customer accounts for more than 2% of total revenues. Given the
nature of the services the Company provides to its customers, as well as the
diversification of its customer base, the Company does not believe that Y2K
issues associated with its customers will have a material adverse effect on its
financial condition or results of operations.
32
<PAGE>
Costs
Based on the Company's current assessment of its Y2K issues, the total
cost associated with required modifications to become Y2K compliant is not
expected to be material to the Company's financial position. Certain costs
associated with the Company's pre-existing system improvement initiatives and
the purchase of equipment (including the financial accounting software
developed by Oracle, Safekeeper and MediaLink) will be capitalized and
amortized over their useful lives. Certain payroll and related costs represent
the redeployment of existing staff resources rather than incremental costs to
the Company. All other costs associated with the Plan will be expensed as
incurred. Costs associated with the Plan to be incurred in 1999 are estimated
to be under $3 million and are included in the Company's operating and capital
budgets for 1999.
Contingency Plans
As part of its Y2K project, the Company has analyzed its points of major
risk and is developing contingency plans as a backup to its remediation effort.
Year 2000 Risks
The failure on the part of the Company or one of its suppliers to correct
a material Y2K problem could result in an interruption in, or a failure of,
certain normal business activities or operations, although the extent of such a
business disruption is not known at this time. The implementation of the Plan
is expected to significantly reduce the Company's level of uncertainty about
the Y2K problem. The Company believes that, with the completion of its existing
system improvement initiatives and the successful execution of the Plan, the
likelihood of significant interruptions of normal operations will be
substantially reduced. However, the Company cannot assure that it will be able
to address the Y2K issues for all of its software applications and major
operating systems in a timely manner or that it will not encounter unexpected
difficulties or significant expenses. If the Company or its major third party
suppliers of products and services fail to adequately address their Y2K issues,
or the Company fails to successfully integrate or convert its computer systems
generally, the Company's business, financial condition or results of operations
could be materially adversely affected.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
The Company does not hold any derivative financial instruments, derivative
commodity instruments or other financial instruments. The acquisition of BDM,
which was financed with British pounds, as described in Note 2 to the
Consolidated Financial Statements, and any other international investments, if
completed, may be subject to risks and uncertainties relating to fluctuations
in currency valuation.
The Company engages neither in speculative nor derivative trading
activities. As of December 31, 1998, the Company had $35.3 million of debt
outstanding with a weighted average variable interest rate of 6.45% and $420.9
million of fixed rate debt. If the weighted average variable interest rate had
increased by 1% to 7.45%, such increase would have had a negative impact on the
Company's net income for the year ended December 31, 1998 of approximately
$212,000. See Note 4 to the Consolidated Financial Statements for a discussion
of the Company's long-term indebtedness, including the fair values of such
indebtedness as of December 31, 1998.
33
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Public Accountants ............................................... 35
Consolidated Balance Sheets, December 31, 1997 and 1998 ................................ 36
Consolidated Statements of Operations, Years ended December 31, 1996, 1997 and 1998 .... 37
Consolidated Statements of Stockholders' Equity, Years ended December 31, 1996, 1997 and
1998 .................................................................................. 38
Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1997 and 1998 .... 39
Notes to Consolidated Financial Statements ............................................. 40
Financial Statement Schedule:
Report of Independent Public Accountants .............................................. 58
Schedule II--Valuation and Qualifying Accounts ........................................ 59
</TABLE>
34
<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, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1999
35
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 24,510 $ 1,715
Accounts receivable (less allowances of $1,929 and $3,316
as of 1997 and 1998, respectively) ..................... 40,545 75,565
Receivable from insurance company ....................... 5,410 329
Foreign currency transaction receivable ................. -- 45,885
Deferred income taxes ................................... 5,896 10,474
Prepaid expenses and other .............................. 5,566 9,969
--------- ---------
Total Current Assets ................................... 81,927 143,937
Property, Plant and Equipment:
Property, plant and equipment ........................... 245,174 354,101
Less--Accumulated depreciation .......................... (61,276) (87,358)
--------- ---------
Net Property, Plant and Equipment ...................... 183,898 266,743
Other Assets:
Goodwill, net ........................................... 340,852 527,235
Customer acquisition costs, net ......................... 7,319 9,574
Deferred financing costs, net ........................... 14,429 13,392
Other ................................................... 8,361 6,504
--------- ---------
Total Other Assets ..................................... 370,961 556,705
--------- ---------
Total Assets ........................................... $ 636,786 $ 967,385
========= =========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current Liabilities:
Current portion of long-term debt ....................... $ 520 $ 1,731
Note payable ............................................ 3,000 --
Accounts payable ........................................ 11,022 20,620
Accrued expenses ........................................ 28,131 48,539
Foreign currency transaction payable .................... -- 46,200
Deferred income ......................................... 11,931 26,043
Other current liabilities ............................... 1,149 339
--------- ---------
Total Current Liabilities .............................. 55,753 143,472
Long-term Debt, net of current portion ................... 424,498 454,447
Other Long-Term Liabilities .............................. 5,336 8,925
Deferred Rent ............................................ 8,202 9,616
Deferred Income Taxes .................................... 5,264 12,043
Commitments and Contingencies (see Note 11)
Stockholders' Equity:
Preferred stock ......................................... -- --
Common stock ............................................ 202 294
Additional paid-in capital .............................. 151,904 355,927
Accumulated deficit ..................................... (14,373) (17,339)
--------- ---------
Total Stockholders' Equity ............................. 137,733 338,882
--------- ---------
Total Liabilities and Stockholders' Equity ............. $ 636,786 $ 967,385
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
<S> <C> <C> <C>
Revenues:
Storage ............................................. $ 85,826 $ 125,968 $ 230,702
Service and storage material sales .................. 52,892 82,797 192,810
--------- --------- ---------
Total Revenues ..................................... 138,718 208,765 423,512
Operating Expenses:
Cost of sales (excluding depreciation) .............. 70,747 106,879 220,980
Selling, general and administrative ................. 34,342 51,668 105,025
Depreciation and amortization ....................... 16,936 27,107 49,152
--------- --------- ---------
Total Operating Expenses ........................... 122,025 185,654 375,157
--------- --------- ---------
Operating Income ..................................... 16,693 23,111 48,355
Interest Expense ..................................... 14,901 27,712 45,756
Other Income, net .................................... -- -- 1,384
--------- --------- ---------
Income (Loss) Before Provision (Benefit) for
Income Taxes ...................................... 1,792 (4,601) 3,983
Provision (Benefit) for Income Taxes ................. 1,435 (80) 6,949
--------- --------- ---------
Income (Loss) Before Extraordinary Charge .......... 357 (4,521) (2,966)
Extraordinary Charge from Early Retirement of Debt
(Net of Tax Benefit of $1,413)....................... 2,126 -- --
--------- --------- ---------
Net Loss ........................................... (1,769) (4,521) (2,966)
Accretion of Redeemable Put Warrant .................. 280 -- --
--------- --------- ---------
Net Loss Applicable to Common Stockholders ......... $ (2,049) $ (4,521) $ (2,966)
========= ========= =========
Income (Loss) per Common Share--Basic and Diluted
(See Notes 6 and 7):
Income (loss) before extraordinary charge ........... $ 0.00 $ (0.26) $ (0.11)
Extraordinary charge (net of tax benefit) ........... ( 0.15) -- --
--------- --------- ---------
Net Loss Applicable to Common Stockholders .......... $ (0.15) $ (0.26) $ (0.11)
========= ========= =========
Weighted Average Common Shares Outstanding ........... 13,911 17,172 27,470
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
Preferred Stock Class A Voting Voting
---------------------- --------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------------- -------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 499,395 5 44,888 -- -- --
Conversion of preferred stock
to common stock (499,395) (5) (44,888) -- 10,915,712 109
Issuance of shares in initial
public offering -- -- -- -- 3,525,000 36
Exercise of stock options -- -- -- -- 10,344 --
Issuance of shares for
services -- -- -- -- 1,372 --
Conversion of common
stock--nonvoting to
common stock--voting -- -- -- -- 34,058 --
Net loss -- -- -- -- -- --
Warrant accretion -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1996 -- -- -- -- 14,486,486 145
Exercise of stock options -- -- -- -- 123,657 1
Issuance of shares for
services -- -- -- -- 2,751 --
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- -- -- 4,851,341 49
Conversion of common
stock--nonvoting to
Common Stock--voting -- -- -- -- 715,942 7
Net loss -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1997 -- -- -- -- 20,180,177 202
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- -- -- 2,645,913 26
Issuance of shares in
secondary public offering -- -- -- -- 6,037,500 60
Exercise of stock options -- -- -- -- 566,615 6
Net loss -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1998 -- -- -- -- 29,430,205 294
======== === ======= == ========== ===
<CAPTION>
Common Stock
---------------------
Non-Voting Additional Total
--------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- -- 28,809 (7,803) 21,011
Conversion of preferred stock
to common stock 750,000 7 (111) -- --
Issuance of shares in initial
public offering -- -- 33,249 -- 33,285
Exercise of stock options -- -- 118 -- 118
Issuance of shares for
services -- -- 19 -- 19
Conversion of common
stock--nonvoting to
common stock--voting (34,058) -- -- -- --
Net loss -- -- -- (1,769) (1,769)
Warrant accretion -- -- -- (280) (280)
------- -- ------ ------ ------
Balance, December 31, 1996 715,942 7 62,084 (9,852) 52,384
Exercise of stock options -- -- 1,532 -- 1,533
Issuance of shares for
services -- -- 52 -- 52
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- 88,236 -- 88,285
Conversion of common
stock--nonvoting to
Common Stock--voting (715,942) (7) -- -- --
Net loss -- -- -- (4,521) (4,521)
-------- --- ------ ------ ------
Balance, December 31, 1997 -- -- 151,904 (14,373) 137,733
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- 66,888 -- 66,914
Issuance of shares in
secondary public offering -- -- 131,961 -- 132,021
Exercise of stock options -- -- 5,174 -- 5,180
Net loss -- -- -- (2,966) (2,966)
-------- --- ------- ------- -------
Balance, December 31, 1998 -- -- 355,927 (17,339) 338,882
======== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................... $ (1,769) $ (4,521) $ (2,966)
Adjustments to reconcile net loss to cash flows
provided by operating activities:
Depreciation and amortization ......................... 16,936 27,107 49,152
Amortization of financing costs ....................... 857 1,095 1,801
Provision for doubtful accounts ....................... 639 874 1,735
Extraordinary loss on early retirement of debt ........ 3,539 -- --
Loss on foreign currency transaction .................. -- -- 316
Other, net ............................................ -- 52 --
Changes in Assets and Liabilities (exclusive of acquisitions):
Accounts receivable ................................... (4,395) (4,433) (14,064)
Inventory, prepaid expenses and other assets .......... (878) (2,949) 4,340
Deferred income taxes ................................. (973) 1,190 9,058
Accounts payable ...................................... (1,278) 4,653 5,018
Accrued expenses ...................................... 3,642 (1,115) 370
Other long-term liabilities ........................... (193) (1,240) 3,587
Deferred rent ......................................... (332) 551 1,414
Deferred income ....................................... 161 671 7,369
Other liabilities ..................................... (56) 485 --
---------- ---------- ----------
Cash Flows Provided by Operating Activities .......... 15,900 22,420 67,130
---------- ---------- ----------
Cash Flows from Investing Activities:
Cash paid for acquisitions ............................. (68,496) (192,230) (189,729)
Capital expenditures ................................... (24,446) (38,320) (56,454)
Additions to customer acquisition costs ................ (1,642) (1,635) (3,024)
Other, net ............................................. (25) (333) --
---------- ---------- ----------
Cash Flows Used in Investing Activities .............. (94,609) (232,518) (249,207)
---------- ---------- ----------
Cash Flows from Financing Activities:
Repayment of debt ...................................... (171,730) (178,181) (171,080)
Net proceeds from borrowings ........................... 69,570 167,850 194,811
Net proceeds from sale of senior subordinated notes..... 160,050 242,640 --
Net proceeds from initial public offering .............. 33,285 -- --
Proceeds from secondary equity offering, net of ........
underwriting discount ................................ -- -- 132,905
Retirement of redeemable put warrant ................... (6,612) -- --
Prepayment penalties on early retirement of debt ....... (1,785) -- --
Exercise of stock options .............................. 66 786 4,482
Financing costs ........................................ (2,267) (1,291) (764)
Stock issuance costs ................................... -- (649) (1,072)
---------- ---------- ----------
Cash Flows Provided by Financing Activities ........... 80,577 231,155 159,282
---------- ---------- ----------
Increase (decrease) in Cash and Cash Equivalents ........ 1,868 21,057 (22,795)
Cash and Cash Equivalents, Beginning of Year ............ 1,585 3,453 24,510
---------- ---------- ----------
Cash and Cash Equivalents, End of Year .................. $ 3,453 $ 24,510 $ 1,715
========== ========== ==========
Supplemental Information:
Cash Paid for Interest .................................. $ 11,590 $ 22,440 $ 42,407
========== ========== ==========
Cash Paid for Income Taxes .............................. $ 197 $ 1,306 $ 1,700
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 an international full-service
provider of records and information management and related services for all
media in various locations throughout the United States and the United Kingdom
to Fortune 500 companies and numerous legal, banking, health care, accounting,
insurance, entertainment and government organizations. The Company also
provides information technology staffing ("IT Staffing") services.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The accompanying 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. 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 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.
c. 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.
d. Foreign Currency Transaction
On December 31, 1998, the Company had a receivable denominated in British
pounds from, and a payable in U.S. dollars to, a bank as a result of exercising
a foreign exchange agreement on December 30, 1998. Included in other income,
net, for the year ended December 31, 1998 is a $316 loss on the remeasurement
of the receivable based on the applicable exchange rate on December 31, 1998.
The British pounds were being acquired to finance the BDM acquisition discussed
in Note 15.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards
regarding accounting and reporting requirements for derivative instruments and
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The new standard is effective for fiscal years
beginning after June 15, 1999. The Company is presently studying the effect of
the new pronouncement and, as required, expects to adopt SFAS No. 133 beginning
January 1, 2000. As of December 31, 1998, the Company did not own any
derivative instruments.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method with the following useful lives:
40
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
<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
Furniture and fixtures ................. 3 to 5 years
Computer hardware and software ......... 3 years
</TABLE>
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Land and buildings ..................... $ 67,870 $ 99,678
Leasehold improvements ................. 19,583 27,509
Racking ................................ 94,960 127,287
Warehouse equipment/vehicles ........... 12,290 23,239
Furniture and fixtures ................. 4,875 9,241
Computer hardware and software ......... 29,913 47,400
Construction in progress ............... 15,683 19,747
-------- --------
$245,174 $354,101
-------- --------
</TABLE>
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 development of internal-use computer software projects
(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.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. SOP 98-1
also defines which types of costs should be capitalized and which should be
expensed. The Company will adopt SOP 98-1 prospectively beginning January 1,
1999. The new accounting will result in certain costs being expensed starting
in 1999 that would have been capitalized under the previous policy.
Minor maintenance costs are expensed as incurred. Major improvements to
the leased buildings are capitalized as leasehold improvements and depreciated.
f. 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 to 30 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 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 $26,931 and
$46,333 as of December 31, 1997 and 1998, respectively.
41
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
g. Customer Acquisition Costs
Costs related to the acquisition of large volume accounts, net of revenues
received for the initial transfer of the records, are capitalized and amortized
for an appropriate period not to exceed 12 years. If the customer terminates
its relationship with the Company, 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 the
unamortized costs. As of December 31, 1997 and 1998, those costs were $9,769
and $12,793, respectively, and accumulated amortization of those costs were
$2,450 and $3,219, respectively.
h. 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, 1997 and 1998, deferred
financing costs were $16,163 and $16,928, respectively, and accumulated
amortization of those costs were $1,734 and $3,536, respectively.
i. Other Assets
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities,
including organization costs, to be expensed as incurred. The Company will
adopt SOP 98-5 beginning January 1, 1999. Management believes that the adoption
of SOP 98-5 will not have a material impact on the Company's financial
statements.
j. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Incentive compensation ......... $ 3,932 $ 5,934
Interest ....................... 8,427 9,975
Workers' compensation .......... 3,022 2,948
Payroll and vacation ........... 3,432 7,451
Restructuring costs ............ 5,443 10,482
Other .......................... 3,875 11,749
------- -------
$28,131 $48,539
------- -------
</TABLE>
k. Revenues
The Company's revenues consist of storage revenues and service and storage
material sales revenues. Storage revenues consist of periodic charges related
to the storage of materials (either on a per unit or per cubic foot of records
basis). In certain circumstances, based upon customer requirements, storage
revenues include periodic charges associated with normal, recurring service
activities. Service and storage material sales revenues are comprised of
charges for related service activities and the sale of storage materials. In
certain circumstances, storage material sales are recorded net of product costs
when the Company functions as a sales representative of the product
manufacturer and does not receive or take title to the products. Customers are
generally billed on a monthly basis on contractually agreed-upon terms.
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
42
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
for customers where storage fees are billed in advance are accounted for as
deferred income and amortized over the applicable period.
In 1998, service revenues include IT Staffing revenues which are
recognized as the services are rendered.
l. 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.
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 their intrinsic value with disclosure
of the effects of fair value accounting on net income (loss) and earnings
(loss) 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 accompanying consolidated balance sheets. Amounts receivable, if
any, under cap agreements are accounted for as a reduction of interest expense.
As of December 31, 1998, there were no interest rate cap agreements
outstanding.
o. Income (Loss) Per Common Share
During 1997, the Company adopted SFAS No. 128, "Earnings Per Share," and
restated its net income (loss) per share for the year ended 1996 (see Note 7).
p. Reclassifications
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.
3. Common Stock Split
On June 30, 1998, the Company's Board of Directors authorized and approved
a three-for-two stock split effected in the form of a dividend on the Company's
Common Stock. Such additional shares of Common Stock were issued on July 31,
1998 to all stockholders of record as of the close of business on July 17,
1998. All issued and outstanding share and per share amounts in the
accompanying financial statements and Notes thereto have been restated to
reflect the stock split.
4. Debt
Long-term debt consists of the following:
43
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ -----------
<S> <C> <C>
Revolving Credit Facility ....................................... $ -- $ 35,300
10-1/8% Senior Subordinated Notes due 2006 (the "1996 Notes").... 165,000 165,000
8-3/4% Senior Subordinated Notes due 2009 (the "1997 Notes") .... 249,525 249,566
Real Estate Mortgages ........................................... 10,312 2,349
Other ........................................................... 181 3,963
-------- --------
Long-term debt .................................................. 425,018 456,178
Less current portion ............................................ (520) (1,731)
-------- --------
Long-term debt, net of current portion .......................... $424,498 $454,447
======== ========
</TABLE>
a. Revolving Credit Facility
Iron Mountain has a $250 million revolving credit facility, as amended
(the "Credit Agreement"), which is scheduled to mature on September 30, 2002.
The amendments amended and restated, among other terms, interest rates,
commitment fees and financial covenants.
The Credit Agreement specifies certain minimum or maximum relationships
between operating cash flows (earnings before interest, taxes, depreciation,
amortization, extraordinary charges and other income) and interest, total debt
and fixed charges. There are restrictions on dividends declared by the Company,
sales or pledging of assets, acquisitions, capital expenditures and changes in
business and ownership; cash dividends are effectively prohibited. As of
December 31, 1998, the Company was in compliance with all of its debt
covenants. Loans under the Credit Agreement are secured by the capital stock of
all of the Company's domestic subsidiaries.
The interest rate on loans under the Credit Agreement 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. At December 31, 1998, the effective interest rate was 6.45%.
b. 1996 Notes
On October 1, 1996, the Company issued $165 million of 10 1/8% Senior
Subordinated Notes due 2006. Interest on the 1996 Notes is payable semiannually
on April 1 and October 1 and commenced on April 1, 1997. The net proceeds of
$160.1 million after underwriting discounts and commissions were used to repay
outstanding bank debt under the Credit Agreement 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 and an original
issue discount and a loss on the termination of interest rate protection
agreements.
The 1996 Notes contain covenants and restrictions similar to, or less
restrictive than, the Credit Agreement. During the first 36 months after the
date of issuance of the 1996 Notes, and subject to certain restrictions, the
Company may, with the net proceeds of one or more Qualified Equity Offerings,
as defined, redeem up to 35% of the 1996 Notes at a redemption price of
109.125% of their initial principal amount. After September 30, 2001, and
subject to certain restrictions, the Company may, at its option,
44
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
redeem any or all of the 1996 Notes at face value, plus a premium ranging from
approximately 2% to 5% through September 30, 2004. Thereafter, the 1996 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 1996 Notes may require the Company to repurchase the 1996 Notes.
c. 1997 Notes
On October 24, 1997, the Company issued $250 million of 8 3/4% Senior
Subordinated Notes due 2009. Interest on the 1997 Notes is payable semiannually
on March 31 and September 30 and commenced on March 31, 1998. The net proceeds
were $242.6 million after an original issue discount of $485 and underwriting
discounts and commissions.
The 1997 Notes contain covenants and restrictions similar to, or less
restrictive than, the Credit Agreement. Prior to September 30, 2002, and
subject to certain restrictions, the Company may, at its option, redeem any or
all of the 1997 Notes at a make-whole price, as defined. On or after September
30, 2002, and subject to certain restrictions, the Company may, at its option,
redeem any or all of the 1997 Notes at face value, plus a premium of up to
approximately 4% through September 30, 2005. Thereafter, the 1997 Notes may be
redeemed at face value. Also, any time through October 23, 2000, the Company
may redeem a portion of the 1997 Notes, subject to restrictions, with the net
proceeds of one or more Qualified Equity Offerings, as defined, at a redemption
price of 108.75% of the principal amount of such 1997 Notes. Additionally,
under certain circumstances, including a change of control or following certain
asset sales, the holders of the 1997 Notes may require the Company to
repurchase the 1997 Notes.
d. Real Estate Mortgages
The real estate mortgages include an $8,037, 10 year, 11% mortgage based
on a 30 year amortization with a $7,495 balloon payment due October 2000. The
mortgage was repaid in full during 1998. Also included in real estate mortgages
is a $3,000, 8% note that is payable in various installments commencing in 1997
and maturing in November 2006.
e. Other
Other long-term debt includes various notes and obligations assumed by the
Company as a result of certain acquisitions completed by the Company during
1998.
Maturities of long-term debt are as follows:
Year Amount
---- --------
1999 .................... $ 1,731
2000 .................... 807
2001 .................... 1,661
2002 .................... 35,899
2003 .................... 419
Thereafter .............. 415,661
--------
$456,178
========
As of December 31, 1998, the 1996 and 1997 Notes were fully and
unconditionally guaranteed, on a joint and several basis, on a senior
subordinated basis, by all of the Company's direct and indirect domestic
subsidiaries (the "Subsidiary Guarantors"). The Company is a holding company
and during the periods presented substantially all of the assets of which were
the stock of the Subsidiary Guarantors,
45
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
and substantially all of the operations of which were conducted by the
Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings
and equity of the Subsidiary Guarantors were 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.
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:
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revolving Credit Facility. ......... $ -- $ -- $ 35,300 $35,300
1996 Notes. ........................ 165,000 179,850 165,000 178,200
1997 Notes ......................... 249,525 255,000 249,566 257,500
Real estate mortgages .............. 10,312 11,322 2,349 2,349
Other .............................. 181 181 3,963 3,963
</TABLE>
5. Acquisitions
The Company purchased substantially all of the assets and assumed certain
liabilities of 16, 18 and 15 records management businesses during 1996, 1997
and 1998, respectively. 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 their 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 and is being amortized over the estimated benefit
period of 25 to 30 years. Consideration for the various acquisitions included:
(i) cash which was provided through the Company's Credit Agreement, a portion
of the net proceeds from the initial public offering of its common stock (the
"Initial Public Offering"), the Company's 1998 equity offering and the issuance
of the 1996 Notes and the 1997 Notes; (ii) issuance of the Company's common
stock and options to purchase the Company's common stock; and (iii) certain net
assets of a business acquired in 1997.
A summary of the consideration paid and the allocation of the purchase
price of the acquisitions is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash Paid ...................................... $ 68,496 $192,230 $189,729
Fair Value of Common Stock Issued .............. -- 85,863 51,448
Fair Value of Options Issued ................... -- 3,071 15,655
Fair Value of Certain Net Assets of a Business
Acquired in 1997 .............................. -- -- 3,000
-------- -------- --------
Total Consideration ........................ 68,496 281,164 259,832
-------- -------- --------
Fair Value of Assets Acquired .................. 19,476 68,774 89,053
Liabilities Assumed ............................ (4,874) (26,932) (38,165)
-------- -------- --------
Fair Value of Net Assets Acquired .......... 14,602 41,842 50,888
-------- -------- --------
Recorded Goodwill .............................. $ 53,894 $239,322 $208,944
======== ======== ========
</TABLE>
46
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Acquisitions (continued)
The following unaudited pro forma combined information shows the results
of the Company's operations for the years ended December 31, 1997 and 1998 as
though each of the significant acquisitions completed during 1997 and 1998 had
occurred on January 1, 1997:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Revenues .......................................... $393,753 $439,679
Net Loss .......................................... (9,013) (4,604)
Loss per Common Share--Basic and Diluted .......... (0.31) (0.16)
</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 January 1, 1997 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 acquired businesses. Certain acquisitions completed in
1997 are not included in the pro forma results as their effect was immaterial.
In connection with the acquisitions completed in 1997 and 1998, the
Company has undertaken certain restructurings of the acquired businesses. 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. These restructuring activities
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."
The following is a summary of reserves related to such restructuring
activities:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Reserves, beginning of the year .......... $ 1,340 $ 5,443
Reserves established ..................... 6,574 11,368
Expenditures ............................. (2,163) (4,690)
Adjustments to goodwill .................. (308) (1,639)
-------- --------
Reserves, end of the year ................ $ 5,443 $ 10,482
======== ========
</TABLE>
6. Capital Stock, Redeemable Put Warrant and Stock Options
a. Capital Stock
On February 6, 1996, the Company completed its Initial Public Offering and
issued 3,525,000 shares of common stock--voting.
In connection with the Initial Public Offering, the Board of Directors
approved, and the stockholders ratified, a recapitalization and the designation
of three new classes of stock as follows:
<TABLE>
<CAPTION>
Authorized
Class Shares
----- -----------
<S> <C>
Preferred stock, $.01 par value.................. 2,000,000
Common stock--voting, $.01 par value............. 13,000,000
Common stock--nonvoting, $.01 par value.......... 1,000,000
</TABLE>
Upon consummation of the Initial Public Offering, all shares of capital
stock were automatically converted into shares of common stock--voting and, in
the case of one stockholder, common stock--nonvoting. The number of common
shares received upon conversion were as follows:
47
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
<TABLE>
<CAPTION>
Common
-------------------------
Preferred Voting Nonvoting
----------- ------------ ----------
<S> <C> <C> <C>
Series A1 and Series A3 ......... 50,000 1,480,971 --
Series A2 ....................... 98,000 2,152,719 750,000
Series C ........................ 351,395 7,214,690 --
------- --------- -------
Total ........................... 499,395 10,848,380 750,000
======= ========== =======
</TABLE>
On March 3, 1997, the Board of Directors approved, and the stockholders
ratified, an increase in the number of authorized shares of common
stock--voting, $.01 par value, from 13,000,000 shares to 20,000,000 shares. On
January 5, 1998, the stockholders voted to increase the number of authorized
shares of common stock to 100,000,000 shares.
On April 3, 1998, the Company issued and sold an aggregate of 6,037,500
shares (including 787,500 to cover over-allotments) of its Common Stock in an
underwritten public offering. Net proceeds to the Company after deducting
underwriters' discounts and commissions were $132.9 million and were used to
repay outstanding bank debt, to fund the cash portion of the purchase price of
certain acquisitions completed in 1998 and for general corporate purposes.
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:
issue of the Company's capital stock as of December 31:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------------------------------
Authorized Issued and Outstanding
----------------------------- -----------------------------------
Par
Equity Type Value 1997 1998 1997 1998
----------- ----- ------------ -------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Preferred stock .............. $ .01 2,000,000 2,000,000 -- --
Common stock--voting ......... .01 20,000,000 100,000,000 20,180,177(1) 29,430,205
Common stock--nonvoting .01 1,000,000 1,000,000 -- --
</TABLE>
- ----------------
(1) This amount gives effect to the stock dividend discussed in Note 3. The
actual number of issued and outstanding shares as of December 31, 1997 was
13,453,451.
b. Redeemable Put Warrant
In connection with the issuance of certain debt, the Company also issued a
put warrant, dated December 14, 1990 (the "Warrant"), exercisable for 666,578
shares of common stock for nominal consideration upon the occurrence of certain
specified events. On February 7, 1996, in connection with the Initial Public
Offering, the Warrant was redeemed for $6,612. This Warrant was 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.
c. Stock Options
Effective November 30, 1995, the Board of Directors approved the adoption
of the 1995 Stock Incentive Plan (the "Stock Incentive Plan"). A total of
1,500,000 shares of common stock were available for grant as options and other
rights under the Stock Incentive Plan. On March 3, 1997 and March 23, 1998, the
number of shares of common stock available for grant as options under the Stock
Incentive Plan increased to 2,100,000 and 3,000,000, respectively.
Effective December 21, 1995, the Board of Directors approved the 1995
Stock Option Plan for Non-Employee Directors (the "Non-Employee Director Plan")
that permitted non-employee directors to elect to receive all or a portion of
their compensation in the form of common stock. Directors electing to receive
48
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
common stock received, as an incentive, an amount of stock equivalent to 110%
of the director's compensation otherwise due to be paid in cash. During 1997,
the Company issued 2,226 shares under the Non-Employee Director Plan. On June
30, 1997, the Non-Employee Director Plan was terminated.
During 1997, the Company issued options to employees of two acquired
companies to purchase 218,879 shares of the Company's common stock. The options
replaced options held by the employees for the acquired companies' common
stock. The options were accounted for as additional purchase price based on the
fair value of the options when issued.
During 1998, the Company assumed two existing stock option plans from an
acquired company and options under the existing plans were converted into
options to purchase 885,000 shares of the Company's common stock under such
plans. No new options may be issued under these plans. The options were
accounted for as additional purchase price based on the fair value of the
options when issued.
The following is a summary of stock option transactions, including those
issued to employees of acquired companies, during the applicable periods:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------------- -----------------
<S> <C> <C>
Options outstanding, December 31, 1995 ......... 501,461 5.44
Granted ........................................ 680,781 10.99
Exercised ...................................... (10,344) 6.39
Canceled ....................................... (27,606) 7.84
------- -----
Options outstanding, December 31, 1996 ......... 1,144,292 8.68
Granted ........................................ 703,670 17.01
Exercised ...................................... (125,711) 6.59
Canceled ....................................... (46,203) 14.73
--------- -----
Options outstanding, December 31, 1997 ......... 1,676,048 12.17
Granted ........................................ 1,173,018 12.02
Exercised ...................................... (566,615) 7.88
Canceled ....................................... (116,132) 12.36
--------- -----
Options outstanding, December 31, 1998 ......... 2,166,319 13.21
========= =====
</TABLE>
Except for the options granted in connection with acquisitions, the stock
options were granted with exercise prices equal to or greater than the market
price of the stock at the date of grant. The majority of options become
exercisable ratably over a period of five years unless the holder terminates
employment. The number of options available for grant at December 31, 1998 was
894,994.
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 issued to employees at their 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 loss applicable to common
stockholders and net loss per common share would have been increased to the pro
forma amounts indicated in the table below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Net loss applicable to common stockholders, as reported ........... $ (2,049) $ (4,521) $ (2,966)
Net loss applicable to common stockholders, pro forma ............. (2,614) (5,411) (3,870)
Net loss per common share--basic and diluted, as reported ......... (0.15) (0.26) (0.11)
Net loss per common share--basic and diluted, pro forma ........... (0.19) (0.31) (0.14)
</TABLE>
49
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
The weighted average fair value of options granted in 1996, 1997 and 1998
was $4.92, $11.06 and $8.92 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:
<TABLE>
<CAPTION>
Assumption 1996 1997 1998
- -------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Expected volatility .................. 24.2% 29.2% 28.4%
Risk-free interest rate .............. 6.34 5.91 5.11
Expected dividend yield .............. None None None
Expected life of the option .......... 7.5 years 7.0 years 5.0 years
</TABLE>
The following table summarizes additional information regarding options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Life Exercise Exercise
Exercise Prices Number (in Years) Price Number Price
- -------------------------- ------------ ------------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.75 to $0.87............ 31,374 8.0 $ 0.87 18,241 $ 0.87
$4.32 to $5.77............ 486,771 3.6 4.86 455,699 4.80
$6.63 to $9.10............ 232,971 6.9 8.02 130,391 8.07
$10.25 to $10.94.......... 633,993 7.4 10.42 296,739 10.50
$17.17 to $25.03.......... 668,475 8.8 21.83 111,487 21.21
$26.79 to $29.19.......... 112,735 9.5 28.03 4,291 27.17
------- --- -------- ------- --------
2,166,319 7.0 $ 13.21 1,016,848 $ 8.71
========= === ======== ========= ========
</TABLE>
7. Income (Loss) Per Common Share--Basic and Diluted
In accordance with SFAS No. 128, basic income (loss) per common share is
calculated by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding. The calculation of
diluted income (loss) per share is consistent with that of basic income (loss)
per share but gives effect to all dilutive potential common shares (that is,
securities such as options, warrants or convertible securities) that were
outstanding during the period, unless the effect is antidilutive.
Income (loss) per common share--basic and diluted has been calculated as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Income (loss) before extraordinary charge .......................... $ 357 $ (4,521) $ (2,966)
Accretion of redeemable put warrant ................................ (280) -- --
-------- -------- --------
Income (loss) applicable to common stockholders, before
extraordinary charge .............................................. 77 (4,521) (2,966)
Extraordinary charge (net of tax benefit) .......................... (2,126) -- --
-------- -------- --------
Net loss applicable to common stockholders ......................... $ (2,049) $ (4,521) $ (2,966)
======== ======== ========
Weighted average common shares outstanding (in thousands) .......... 13,911 17,172 27,470
======== ======== ========
</TABLE>
50
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Income (Loss) Per Common Share--Basic and Diluted (continued)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Income (loss) per common share--basic and diluted:
Income (loss) before extraordinary charge .......... $ 0.00 $ (0.26) $ (0.11)
Extraordinary charge (net of tax benefit) .......... ( 0.15) -- --
-------- --------- ---------
Net loss applicable to common stockholders ......... $ (0.15) $ (0.26) $ (0.11)
========= ========= =========
</TABLE>
Because their effect is antidilutive, 1,144,929, 1,676,048 and 2,166,319
shares of common stock underlying outstanding options have been excluded from
the above calculation for the years ended December 31, 1996, 1997 and 1998,
respectively.
The effect of adopting SFAS No.128 on the previously reported loss per
share data for the year ended 1996 was as follows:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Primary and fully diluted net loss per share (as previously reported) $ (0.14)
Effect of SFAS No. 128 ............................................... (0.01)
Net loss per common share--basic and diluted ......................... (0.15)
=======
</TABLE>
8. 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 Company has estimated federal net operating loss carryforwards of
$46,153 at December 31, 1998 to reduce future federal income taxes, if any,
which begin to expire in 2005. The preceding net operating loss carryforwards
do not include preacquisition net operating loss carryforwards of Arcus Group.
As a result of the litigation relating to Arcus Group's net operating loss
carryforwards, the Company has not recognized the deferred tax asset generated
by such loss carryforwards. If the litigation is resolved favorably, any tax
benefit realized will be recorded as a reduction of goodwill. The Company also
has estimated state net operating loss carryforwards of approximately $17,951
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.
51
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Income Taxes (continued)
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,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Accrued liabilities .................................................. $ 4,726 $ 8,033
Deferred rent ........................................................ 3,411 3,767
Net operating loss carryforwards ..................................... 7,360 16,759
AMT credit ........................................................... 587 587
Other ................................................................ 2,317 6,151
--------- ---------
18,401 35,297
Valuation Allowance .................................................. -- (4,369)
--------- ---------
18,401 30,928
--------- ---------
Deferred Tax Liabilities:
Other assets, principally due to differences in amortization ......... (2,693) (6,389)
Plant and equipment, principally due to differences in
depreciation ........................................................ (11,217) (22,284)
Customer acquisition costs ........................................... (3,859) (3,824)
--------- ---------
(17,769) (32,497)
--------- ---------
Net deferred tax asset (liability) .................................... $ 632 $ (1,569)
========= =========
</TABLE>
The Company receives a tax deduction upon exercise of non-qualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise which is
included in the net operating loss carryforwards above. A valuation allowance
has been recorded for this tax asset because of uncertainty of its realization.
If the assets are realized, they will be credited to either additional paid-in
capital ($1,873) or, for options granted for acquisitions, to goodwill
($2,496).
The Company and its subsidiaries file a consolidated federal income tax
return. The provision (benefit) for income tax consists of the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
Federal--current .......... $ 958 $ -- $ --
Federal--deferred ......... 57 (459) 4,811
State--current ............ 1,450 399 505
State--deferred ........... (1,030) (20) 1,633
-------- ------ ------
$ 1,435 $ (80) $6,949
======== ====== ======
</TABLE>
52
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Income Taxes (continued)
A reconciliation of total income tax expense (benefit) and the amount
computed by applying the federal income tax rate of 34% to income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---- ---- ----
Computed "expected" tax provision (benefit) ......... $ 609 $ (1,564) $ 1,354
Increase in income taxes resulting from:
State taxes (net of federal tax benefit) ........... 278 250 1,406
Nondeductible goodwill amortization ................ 602 1,221 3,806
Other .............................................. (54) 13 383
------ -------- -------
$1,435 $ (80) $ 6,949
====== ======== =======
</TABLE>
9. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1997
Revenues .................................... $42,154 $ 46,585 $ 54,655 $ 65,371
Gross profit ................................ 20,390 22,477 26,785 32,233
Net loss .................................... (516) (969) (325) (2,711)
Net loss per common share--basic and diluted (0.04) (0.06) (0.02) (0.14)
1998
Revenues .................................... $99,484 $103,063 $107,960 $113,005
Gross profit ................................ 46,874 49,399 51,625 54,634
Net loss .................................... (314) (261) (1,069) (1,322)
Net loss per common share--basic and diluted (0.01) (0.01) (0.04) (0.05)
</TABLE>
10. Segment Information
On December 31, 1998, Iron Mountain adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). The new
rules establish revised standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. The adoption of SFAS 131 did not have a
material effect on the Company's primary financial statements, but did affect
the disclosure of segment information contained herein.
Iron Mountain classifies its operations into two fundamental businesses:
records and information management services ("RIMS") and information technology
staffing ("IT Staffing"). The reportable segments are managed separately since
each business has different economic characteristics based on the differing
customer requirements and the nature of the services provided. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies (see Note 2). The Company assesses performance
based on earnings before interest, taxes, depreciation, amortization,
extraordinary items and other income ("EBITDA").
53
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Segment Information (continued)
<TABLE>
<CAPTION>
IT
RIMS Staffing Total
------------ ---------- ------------
<S> <C> <C> <C>
1998:
Revenues from External Customers ........................ $ 383,961 $ 39,551 $ 423,512
Revenues from Other Operating Segments .................. -- 268 268
--------- -------- ---------
Total Reportable Segment Revenues ....................... $ 383,961 $ 39,819 $ 423,780
========= ======== =========
EBITDA .................................................. $ 95,981 $ 1,526 $ 97,507
Segment Assets .......................................... 940,698 26,687 967,385
Capital Expenditures, Exclusive of Acquisitions ......... 55,898 556 56,454
</TABLE>
A reconciliation of the totals reported for the reportable operating
segments to the applicable line items in the consolidated financial statements
for the year ended December 31, 1998 is as follows:
<TABLE>
<S> <C>
Total Revenues:
Total Revenues from Reportable Segments .............. $ 423,780
Intercompany Eliminations and Other Revenues ......... (268)
---------
Total Consolidated Revenues ........................ $ 423,512
=========
Income Before Provision for Income Taxes:
Total EBITDA from Reportable Segments ................ $ 97,507
Depreciation and Amortization ........................ (49,152)
Interest Expense ..................................... (45,756)
Other Income, net .................................... 1,384
---------
Income Before Provision for Income Taxes ........... $ 3,983
=========
</TABLE>
Information as to Iron Mountain's products and services and operations in
different geographical areas is as follows:
<TABLE>
<S> <C>
Revenues by Product and Services:
Storage Revenues ........................... $ 230,702
Service and Storage Material Sales ......... 153,259
IT Staffing Revenues ....................... 39,551
---------
Total Revenues ........................... $ 423,512
=========
Revenues:
United States .............................. $ 421,510
International .............................. 2,002
---------
Total Revenues ........................... $ 423,512
=========
Long-lived Assets:
United States .............................. $ 821,929
International .............................. 485
---------
Total Long-lived Assets .................. $ 822,414
=========
</TABLE>
Information is not provided for 1996 and 1997 because the IT Staffing
business was not acquired until 1998 and the Company had no international
operations in those years.
54
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. 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 $21,114, $29,332 and $47,049 for the years ended December 31, 1996, 1997
and 1998, respectively.
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Year Operating
- -------------------------------------------- ----------
<S> <C>
1999 .................................. $ 41,700
2000 .................................. 39,999
2001 .................................. 36,928
2002 .................................. 33,545
2003 .................................. 29,442
Thereafter ............................ 141,339
--------
Total minimum lease payments .......... $322,953
========
</TABLE>
Included in the lease commitments disclosed in the preceding paragraph are
certain five-year operating lease agreements signed in 1998 for specified
records storage warehouses. At the end of the lease term, the Company, at its
option, may: (i) negotiate a renewal of the lease; (ii) purchase the properties
at a price equal to the lessor's original cost (approximately $47.5 million);
or (iii) allow the lease to expire and cause the properties to be sold. The
Company's ability to cause the properties to be sold depends upon its
compliance with certain terms of the lease. Under certain conditions, the
Company would receive any excess of the net sales proceeds over the properties'
original cost. In the event that the net sales proceeds are less than 85% of
the properties' original cost, the Company would make contingent rental
payments to the lessor equal to that difference.
b. Facility Fire
In March 1997, the Company experienced three fires, all of which
authorities have determined were caused by arson. These fires resulted in
damage to one and destruction of the Company's other RIMS facility in South
Brunswick Township, New Jersey.
Some of Iron Mountain's customers or their insurance carriers have
asserted claims as a consequence of the destruction of or damage to their
records as a result of the fires, some of which allege negligence or other
culpability on the part of Iron Mountain. The Company has received notices of
claims and lawsuits filed by customers and abutters seeking damages against the
Company and to rescind their written contracts with Iron Mountain. Iron
Mountain denies any liability as a result of the destruction of or damage to
customer records as a result of the fires, which were beyond its control, and
intends to vigorously defend itself against these and any other lawsuits that
may arise. The Company is also pursuing coverage of these claims and lawsuits
with its various insurers. The claims process is lengthy and its outcome cannot
be predicted with certainty.
55
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Commitments and Contingencies (continued)
Based on its present assessment of the situation, management, after
consultation with legal counsel, 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.
In June 1998, the Company settled several insurance claims, including a
significant claim under its business interruption policy, related to the fires.
Other income, net, for the year ended December 31, 1998 includes a $1.7 million
gain related to the settlement.
c. Other 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.
12. Related Party Transactions
Iron Mountain leases space to an affiliated company, Schooner Capital LLC
("Schooner") for its corporate headquarters located in Boston, Massachusetts.
For the years ended December 31, 1996, 1997 and 1998, Schooner paid Iron
Mountain rent totaling $68, $85 and $90, respectively. Iron Mountain leased one
facility from a landlord which was a related party. Total rental payments for
the years ended December 31, 1996, 1997 and 1998, for this facility totaled
$94, $99 and $99, respectively. In the opinion of management, both of these
leases were entered into at market prices and terms.
13. Employee Benefit Plans
a. 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 $419, $642 and $910 for the years ended December 31, 1996, 1997 and
1998, respectively.
b. Employee Stock Purchase Plan
During 1998, the Company introduced an employee stock purchase plan (the
"ESPP") which is available for participation by substantially all employees who
have met certain service requirements. Eligible employees may elect to
contribute from 1% to 15% of their gross compensation per pay period to the
ESPP. Such contributions are accumulated throughout the year until September
30, the end of the fiscal year of the ESPP, and are then invested in the
Company's Common Stock. Such shares are purchased at 85% of the lower of the
fair value at the beginning or end of the fiscal year of the ESPP. Once
purchased, such shares are subject to a one year resale restriction. There were
no shares granted under the ESPP during 1998.
56
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Noncash Transactions
The Company used the following as part of the consideration paid for
certain acquisitions:
<TABLE>
<CAPTION>
1996 1997 1998
------ ----------- -----------
<S> <C> <C> <C>
Fair Value of Common Stock Issued ........................................ -- $ 85,863 $ 51,448
Fair Value of Options Issued ............................................. -- 3,071 15,655
Fair Value of Certain Net Assets of a Business Acquired in 1997 .......... -- -- 3,000
</TABLE>
In December 1998, the Company entered into a foreign currency exchange
agreement and has recorded an asset and a liability based upon the exchange
rates as of December 31, 1998. A cash settlement of the agreement occurred in
January 1999.
During 1997, $3,086 of property and equipment, destroyed in a fire, was
transferred to receivable from insurance company.
See Note 5 for liabilities assumed in acquisitions.
15. Subsequent Events
a. Completed Acquisitions
In January 1999, the Company completed the acquisition of a majority
interest in Britannia Data Management Limited ("BDM"), a provider of records
management services in the United Kingdom. Total consideration for the 50.1
percent interest in BDM consisted of $49.8 million, including $47.3 million in
cash and the balance in the capital stock of the Company's pre-existing United
Kingdom subsidiary. The acquisition will be accounted for as a purchase.
In February 1999, the Company acquired a records management business for
approximately $3 million in cash and accounted for such acquisition as a
purchase.
b. Pending Acquisitions (Unaudited)
In February 1999, the Company signed definitive agreements to acquire two
records management business for aggregate consideration of approximately $2
million in cash. The acquisitions will be accounted for as purchases and closed
in March 1999.
In February 1999, the Company signed definitive agreements to acquire all
of the outstanding common stock of Data Base, Inc. and certain real estate for
approximately $115 million, including $46 million (1,476,577 shares) of the
Company's common stock. The acquisition, which is subject to regulatory
approval and other customary closing conditions, will be accounted for as a
purchase and is expected to close in April 1999.
c. Line of Credit Agreement
In January 1999, the Company entered into a $10 million credit facility
with a bank that matures on September 30, 1999. Interest on borrowings under
this facility will be paid monthly at the lender's index rate plus one-half of
one percent. Restrictive covenants under this agreement are similar to those on
the Company's $250 million revolving credit facility discussed in Note 4.
57
<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, 1998 and have issued our
report thereon dated February 19, 1999. 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
February 19, 1999
58
<PAGE>
Schedule II
IRON MOUNTAIN INCORPORATED
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of Charged to Other End of the
Year Ended December 31, the Year Expense Additions Deductions Year
- ------------------------------------------ -------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and credit
memos:
1996 .................................... $ 651 $ 639 $ 61 (290) $1,061
1997 .................................... 1,061 874 483 (489) 1,929
1998 .................................... 1,929 1,735 829 (1,177) 3,316
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of End of the
Year Ended December 31, the Year Additions Deductions Adjustments(1) Year
- ------------------------------------- -------------- ----------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for restructuring activities:
1996 ............................... $ 59 $ 1,883 $ (602) $ -- $ 1,340
1997 ............................... 1,340 6,574 (2,163) (308) 5,443
1998 ............................... 5,443 11,368 (4,690) (1,639) 10,482
</TABLE>
- ----------------
(1) The adjustments represent changes to goodwill as a result of management
finalizing its restructuring plan within one year of each acquisition.
59
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
60
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors and executive officers of Iron Mountain are as follows (all
information is as of March 30, 1999):
<TABLE>
<CAPTION>
Names of Directors and Executive Officers Age Position
- ------------------------------------------- ----- --------------------------------------------
<S> <C> <C>
C. Richard Reese(1) ....................... 53 Chairman of the Board of Directors and
Chief Executive Officer
David S. Wendell .......................... 45 President, Chief Operating Officer and
Director
John F. Kenny, Jr. ........................ 41 Executive Vice President and Chief
Financial Officer
Harold E. Ebbighausen ..................... 44 President of Arcus Data Security, Inc.
George P. Groff ........................... 49 President of Arcus Staffing Resources, Inc.
Christophe M. Giecold ..................... 41 President of International Division of IMRM
Richard A. Drutman ........................ 56 Executive Vice President of Arcus Data
Security, Inc.
Robert G. Miller .......................... 42 Executive Vice President of IMRM
Christopher Neefus ........................ 43 Executive Vice President of IMRM
Kenneth F. Radtke, Jr. .................... 53 Executive Vice President of IMRM
Robert P. Swift ........................... 57 Executive Vice President of IMRM
Clarke H. Bailey(1)(3) .................... 44 Director
Constantin R. Boden(2)(3) ................. 62 Director
Kent P. Dauten(2) ......................... 43 Director
Eugene B. Doggett ......................... 62 Director
B. Thomas Golisano ........................ 57 Director
Arthur D. Little(2)(3) .................... 55 Director
Vincent J. Ryan(1)(3) ..................... 63 Director
</TABLE>
- ----------------
(1) Member of the Executive Committee; Mr. Ryan is the Chairman of the
Executive Committee.
(2) Member of the Audit Committee; Mr. Boden is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Little is the Chairman of the
Compensation Committee.
The Iron Mountain Board currently consists of nine directors. There are
three classes of directors who serve for three-year terms and are elected on a
staggered basis, one class of directors standing for election each year.
Directors of each class will thereafter hold office until the third annual
meeting of the stockholders of the Company following their election or until
their successors are elected and qualified.
The executive officers were elected by the Iron Mountain Board on May 28,
1998, other than Mr. Giecold, who was elected on March 30, 1999. All executive
officers hold office at the discretion of the Iron Mountain Board until the
first 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
that he has held since November 1995, and the Chief Executive Officer of Iron
Mountain, a position that he has held since 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 member of the investment committee of Schooner Capital LLC
("Schooner"), which owns approximately 9.3% of the outstanding stock of the
Company. 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. He holds a Master of Business Administration degree from
Harvard Business School.
61
<PAGE>
David S. Wendell is the President and Chief Operating Officer and a
Director of Iron Mountain, positions that 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.
John F. Kenny, Jr. is an Executive Vice President and the Chief Financial
Officer of Iron Mountain, positions that he has held since May 1997. Mr. Kenny
joined Iron Mountain in 1991, and held operating responsibilities 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 Vice President of CS First Boston Merchant Bank, New York, with
responsibility for risk capital investments. Mr. Kenny has also served as a
Director and the Treasurer of PRISM. He holds a Master of Business
Administration degree from Harvard Business School.
Harold E. Ebbighausen is the President of Arcus Data Security, Inc., a
subsidiary of Iron Mountain conducting data security services, a position that
he has held since May 1998. Prior to 1997, he had been serving as Vice
President of Data Security Services since joining the Company in September
1996. Prior to joining Iron Mountain, Mr. Ebbighausen was Vice President of
Document Management Services with INSCI Corporation, a software provider for
computer output and data storage solutions to optical and CD technology.
Previously, he held a number of field management positions with Anacomp, Inc.,
a service bureau provider in the micrographics industry.
George P. Groff is the President of Arcus Staffing Resources, Inc., a
subsidiary of the Company conducting IT Staffing services, a position that he
has held since March 1998. From 1993 to March 1998, Mr. Groff served as a Vice
President of Arcus Staffing Resources, Inc. and of Wolf Advisory International,
Inc., a company that he joined in 1989 that was acquired by Arcus Group in
1996. He holds a Master of Business Administration degree from Golden Gate
University.
Christophe M. Giecold is the President of the International Division of
Iron Mountain Records Management, Inc., Iron Mountain's principal RIMS
subsidiary ("IMRM"), a position that he has held since March 1999. Mr. Giecold
was the General Manager--Records Management Continental Europe for Brambles
Europe, from 1996 until joining Iron Mountain. From 1993 to 1996, Mr. Giecold
was Managing Director of DERBIT, an international manufacturer and distributor
of waterproofing materials, in Bologna, Italy. He holds a Master of Business
Administration degree from Solvay Business School in Brussels, Belgium.
Richard A. Drutman is an Executive Vice President of Arcus Data Security,
Inc., a subsidiary of Iron Mountain conducting data security services, a
position that he has held since March 1998. Mr. Drutman joined the Company in
January 1998 as a result of the consummation of the Arcus Merger. Mr. Drutman
joined Arcus Data Security, Inc. in 1976 and held various positions, including
Senior Vice President and Chief Operating Officer from 1991 to 1996 and
President and Chief Executive Officer from 1996 to January 1998. He holds a
Bachelor of Arts degree from California State University at Los Angeles.
Robert G. Miller is an Executive Vice President of IMRM, a position that
he has held since December 1996. Mr. Miller joined Iron Mountain in 1988 and
held various positions including 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.
Christopher Neefus is an Executive Vice President of IMRM, a position that
he has held since July 1997. Mr. Neefus was a Vice President of Sales and
Customer Service for ASI, Inc., a software provider for the storage of computer
generated information, from 1995 until joining the Company. From 1990 to 1995,
Mr. Neefus was the Region Vice President of Anacomp, Inc., a service bureau
provider in the micrographics industry. Mr. Neefus holds a Bachelor of Arts
degree in Communications Arts from Hofstra University.
Kenneth F. Radtke, Jr. is an Executive Vice President of IMRM, 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
62
<PAGE>
Manager, New York Region. Mr. Radtke has worked in the records and information
services industry since 1988 as President and Chief Executive Officer of
Dataport Company, Inc. and Senior Vice President of a subsidiary of Arcus
Group. He holds a graduate degree from the University of Wisconsin, Graduate
School of Banking.
Robert P. Swift is an Executive Vice President of IMRM, a position that 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.
Clarke H. Bailey is a Director of Iron Mountain, a position that he has
held since January 1998, when he was appointed to the Iron Mountain Board in
accordance with the terms of the Arcus Merger. He is Co-Chairman and Director
of Hudson River Capital LLC, a private equity firm specializing in middle
market acquisitions, recapitalizations and expansion capital investments and
Chairman, Chief Executive Officer and a Director of National Fulfillment, Inc.,
a private company specializing in literature fulfillment, marketing support and
textbook depository services. Mr. Bailey was the Chairman and Chief Executive
Officer of each of Arcus Group, United Acquisition Company and Arcus Technology
Services, Inc., positions that he had held since 1995, until the consummation
of the Arcus Merger, and is a Director of Connectivity Technologies Inc., Swiss
Army Brands, Inc. and SWWT, Inc. (formerly known as Sweetwater, Inc.). Mr.
Bailey also serves as a Director of Glenayre Technologies, Inc. (formerly N-W
Group, Inc.), a manufacturing company in the telecommunications industry. Prior
to joining Glenayre in 1990, Mr. Bailey was a Managing Director at Oppenheimer
& Co., Inc. He holds a Master of Business Administration degree from The
Wharton School, University of Pennsylvania.
Constantin R. Boden is a Director of Iron Mountain, a position that he has
held since December 1990. Mr. Boden is the principal of Boden Partners LLC and
chairman of the advisory board of Boston Capital Ventures, a risk capital
concern. For 34 years, until January 1995, Mr. Boden was employed by The First
National Bank of Boston, most recently as Executive Vice President,
International Banking. He holds a Master of Business Administration degree from
Harvard Business School.
Kent P. Dauten is a Director of Iron Mountain, a position that he has held
since November 1997, when he was appointed to the Iron Mountain Board in
accordance with the terms of the merger of Record Masters with and into a
wholly owned subsidiary of the Company (the "Record Masters Merger"). He also
serves as President of Keystone Capital, Inc. ("Keystone"), a management and
consulting advisory service firm, a position he has held since March 1994. In
February 1995, Mr. Dauten founded and served as President of Records Masters
until the consummation of the Record Masters Merger. From 1993 to 1994, he was
employed in various investment management positions, most recently as Senior
Vice President of Madison Dearborn Partners, Inc. and from 1979 to 1992, he was
Senior Vice President of First Chicago Venture Capital. Mr. Dauten currently
serves as a director of Health Management Associates, Inc., a hospital
management firm, and is a Trustee of ElderTrust, a health care real estate
investment trust. Mr. Dauten holds a Master of Business Administration degree
from Harvard Business School.
Eugene B. Doggett is a Director of Iron Mountain, a position that he has
held since 1990. From 1987 until May 1997, Mr. Doggett was the Chief Financial
Officer of Iron Mountain, and from 1990 until May 1998, Mr. Doggett was an
Executive Vice President of Iron Mountain. Mr. Doggett is also a Director of
Mac-Gray Corporation, a publicly held supplier of card and coin-operated
laundry services in multiple housing facilities. Prior to joining the Company,
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.
B. Thomas Golisano is a Director of Iron Mountain, a position that he has
held since June 1997, when he was appointed to the Iron Mountain Board in
accordance with the terms of the merger with Safesite. He founded Paychex Inc.,
a publicly held, national payroll service company, in 1971 and serves 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 the founder of the B. Thomas Golisano
Foundation.
63
<PAGE>
Arthur D. Little is a Director of Iron Mountain, a position that 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 Chairman of the Iron
Mountain Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors, and persons who own more than 10
percent of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "Commission"). Such executive officers,
Directors and 10 percent stockholders are also required by Commission rules to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that they were not required to
file a Form 5, the Company believes that, during the fiscal year ended December
31, 1998, its executive officers, Directors and 10 percent stockholders
complied with all Section 16(a) filing requirements applicable to such persons,
except that Richard A. Drutman, an executive officer of the Company, did not
timely file a statement of changes in beneficial ownership on Form 4 pertaining
to a distribution of Common Stock to Mr. Drutman from a limited liability
company of which Mr. Drutman is a member.
64
<PAGE>
Item 11. Executive Compensation.
The following table provides certain information concerning compensation
earned by the Chief Executive Officer and the other four most highly
compensated executive officers who received compensation in excess of $100,000
in 1998 (the "Named Executive Officers") for the years ended December 31, 1996,
1997 and 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------- ------------------------------------
Number of Shares
Name and Underlying All Other
Principal Position Year Salary Bonus Options(1) Compensation(2)
- ------------------------------- ------ ----------- ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
C. Richard Reese .............. 1998 $308,538 $190,000 0 $4,000
Chairman of the Board and 1997 $298,381 $200,000 0 $4,000
Chief Executive Officer 1996 $268,958 $165,000 0 $1,941
David S. Wendell .............. 1998 $224,981 $138,588 0 $4,000
President and Chief 1997 $221,723 $150,000 47,244 $4,000
Operating Officer 1996 $203,550 $125,000 60,000 $1,941
John F. Kenny, Jr. ............ 1998 $192,788 $135,000 0 $2,400
Executive Vice President and 1997 $166,723 $150,000 158,268 $2,400
Chief Financial Officer 1996 $129,723 $ 49,999 49,500 $1,618
George P. Groff ............... 1998 $156,667 $ 60,000 0 $2,400
President of Arcus Staffing 1997 N/A N/A N/A N/A
Resources, Inc. 1996 N/A N/A N/A N/A
Harold E. Ebbighausen ......... 1998 $148,269 $110,000 0 $2,400
President of Arcus Data 1997 $123,413 $ 49,365 16,536 $ 0
Security, Inc. 1996 $ 29,856 $ 14,000 30,250 $ 0
</TABLE>
- ----------------
(1) Reflects a three-for two stock split effected in the form of a dividend on
the Company's Common Stock that occurred in July 1998.
(2) Reflects the Company's matching contribution to The Iron Mountain Companies
401(k) Plan for each individual. Amounts shown for 1998 are estimated
maximum contributions; the actual contributions have not yet been
calculated.
65
<PAGE>
The following table sets forth certain information with respect to the
exercise of stock options during the year ended December 31, 1998 by, and the
unexercised options to purchase Common Stock of, the Named Executive Officers.
Mr. Reese does not have any options.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money-Options at
Shares December 31, 1998 December 31, 1998(1)
Name and Acquired on Value ----------------------------- -----------------------------
Principal Positions Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------- ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David S. Wendell ................ 2,985 $56,109 180,555 105,720 $5,305,472 $2,296,365
President and Chief
Operating Officer
John F. Kenny, Jr. .............. 0 $ 0 102,047 182,334 $2,438,582 $3,349,540
Executive Vice President
and Chief Financial Officer
George P. Groff ................. 0 $ 0 11,407 25,379 $ 176,914 $ 388,226
President of Arcus Data
Security, Inc.
Harold E. Ebbighausen ........... 0 $ 0 13,988 8,208 $ 396,583 $ 232,863
President of Arcus
Staffing Resources, Inc.
</TABLE>
- ----------------
(1) Based on a year-end value of $36.0625 per share, less the exercise price.
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 receives an annual retainer fee of $5,000 as compensation for his
or her services as a member of the Iron Mountain Board, $500 for attendance at
committee meetings and an option to purchase $100,000 of Common Stock (the
"Director's Compensation"). Each option is granted under the Iron Mountain
Incorporated 1995 Stock Incentive Plan (the "Stock Incentive Plan"), has an
exercise price equal to fair market value (as defined in the Stock Incentive
Plan), vests in equal amounts over a period of twelve quarters and has a ten
year term. Each Director is granted a new option to acquire $100,000 of Common
Stock every three years. All Directors 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.
The Company paid a total of $39,000 in cash for Directors fees in respect
of services for 1998.
Change of Control Arrangement
The Stock Incentive Plan provides for acceleration of the vesting of
options and stock appreciation rights ("SARs") if the Company or any wholly
owned subsidiary of the Company is a party to a merger or consolidation
(whether or not the Company is the surviving corporation) in any transaction or
series of related transactions and there is a "Limited Change of Control" of
the Company. A Limited Change of Control occurs if after the merger or
consolidation (a) individuals who immediately prior to the merger or
consolidation served as members of the Iron Mountain Board no longer constitute
a majority of the Iron Mountain Board or the board of directors of the
surviving corporation and (b) the voting securities of the Company outstanding
immediately prior to the merger or consolidation do not represent (either by
remaining outstanding or upon conversion into securities of the surviving
corporation) more than 50% of the voting power of the securities of the Company
or the surviving corporation immediately after the merger or consolidation. In
addition, if the Company is not the surviving corporation, a holder of options
or SARs is entitled to receive upon exercise of his or her options or SARs the
number and class of shares of stock or other securities and any other
consideration of the surviving or resulting corporation that the optionee or
holder of SARs would have been entitled to receive pursuant to the merger or
consolidation had the optionee or holder of SARs held the shares of Common
Stock subject to the option or SAR.
66
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Iron Mountain Board consists of Mr.
Little, who is the Chairman, and Messrs. Boden, Ryan and Bailey. Mr. Reese is a
member of the investment committee of Schooner and a trustee of Schooner
Capital Trust, the sole member of Schooner. Mr. Ryan is the Chairman of the
Board and principal stockholder of Schooner Capital Trust.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information known to the Company
with respect to beneficial ownership of Common Stock by (i) each stockholder
known by the Company to be the beneficial owner of more than five percent of
the Common Stock, (ii) each Director, (iii) the Named Executive Officers and
(iv) all executive officers and Directors of the Company as a group. Such
information is presented as of March 30, 1999. The following table reflects a
three-for-two stock split effected in the form of a dividend on the Company's
Common Stock that occurred in July 1998.
<TABLE>
<CAPTION>
Amount of Beneficial
Ownership(1)
--------------------------
Name (1) Shares Percent Owned
- ------------------------------------------------------ ----------- --------------
<S> <C> <C>
Directors and Executive Officers
C. Richard Reese(2) ............................... 1,690,694 5.7%
David S. Wendell(3) ............................... 210,787 *
John F. Kenny, Jr.(4) ............................. 131,409 *
Harold E. Ebbighausen(5) .......................... 11,407 *
George P. Groff(6) ................................ 13,988 *
Clarke H. Bailey(7) ............................... 55,698 *
Constantin R. Boden(8) ............................ 32,547 *
Kent P. Dauten(9) ................................. 1,410,454 4.8%
Eugene B. Doggett(10) ............................. 113,727 *
B. Thomas Golisano(11) ............................ 1,521,867 5.2%
Arthur D. Little(12) .............................. 40,624 *
Vincent J. Ryan(13) ............................... 5,041,852 17.1%
All Directors and executive officers as a group
(18 persons)(14) ................................. 9,563,752 31.8%
Five Percent Stockholders
Baron Capital Group, Inc./Ronald Baron(15) ........ 1,675,750 5.7%
Schooner Capital LLC(16) .......................... 2,736,076 9.3%
</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 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 22,995 shares of Common Stock held by
trusts for the benefit of Mr. Reese's children, as to which Mr. Reese
disclaims beneficial ownership. Also includes 874,249 shares of 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 the predecessor corporation to Schooner. Pursuant to such
arrangement, upon the earlier to occur of (i) Schooner's sale or exchange
of substantially all of the shares of Common Stock held by Schooner or
(ii) the cessation of Mr. Reese's employment with Iron Mountain, Schooner
is required to transfer such shares of Common Stock to Mr. Reese or remit
to Mr. Reese cash in an amount equal to the then current fair value of
such shares of Common Stock. Schooner has agreed to vote the shares of
Common Stock subject to such arrangement at the direction of Mr. Reese.
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 203,670 shares that Mr. Wendell has the right to
acquire pursuant to currently exercisable options.
(4) Mr. Kenny is an Executive Vice President and Chief Financial Officer of
Iron Mountain. Includes 123,799 shares that Mr. Kenny has the right to
acquire pursuant to currently exercisable options.
(5) Mr. Ebbighausen is the President of Arcus Data Security, Inc., a
subsidiary of Iron Mountain. Consists solely of shares that Mr.
Ebbighausen has the right to acquire pursuant to currently exercisable
options.
(6) Mr. Groff is the President of Arcus Staffing Resources, Inc., a subsidiary
of Iron Mountain. Consists solely of shares that Mr. Groff has the right
to acquire pursuant to currently exercisable options.
67
<PAGE>
(7) Mr. Bailey is a Director of Iron Mountain. Includes 1,227 shares that Mr.
Bailey has the right to acquire pursuant to currently exercisable options.
(8) Mr. Boden is a Director of Iron Mountain. Includes 1,227 shares that Mr.
Boden has the right to acquire pursuant to currently exercisable options.
(9) Mr. Dauten is a Director of Iron Mountain. Includes 1,227 shares that Mr.
Dauten has the right to acquire pursuant to currently exercisable options.
(10) Mr. Doggett is a Director of Iron Mountain. Includes 1,227 shares that Mr.
Doggett has the right to acquire pursuant to currently exercisable
options.
(11) Mr. Golisano is a Director of Iron Mountain. Includes 6,654 shares that
Mr. Golisano has the right to acquire pursuant to currently exercisable
options. Mr. Golisano's address is c/o Paychex Inc., 911 Panorama Trail
South, Rochester, New York 14625.
(12) Mr. Little is a Director of Iron Mountain. Includes 37,500 shares held by
The Little Family Trust, as to which Mr. Little disclaims beneficial
ownership, as well as 1,227 shares that Mr. Little has the right to
acquire pursuant to currently exercisable options.
(13) Mr. Ryan is a Director of Iron Mountain. Mr. Ryan holds 2,304,549 shares
of Common Stock. Also includes 1,227 shares that Mr. Ryan has the right to
acquire pursuant to currently exercisable options. The remaining shares of
Common Stock listed as being beneficially owned by Mr. Ryan are held by
Schooner, as to which Mr. Ryan has sole voting power and investment power
as the Chairman of the Board of Schooner and the principal stockholder of
Schooner Capital Trust, the sole member of Schooner. Mr. Ryan's address is
c/o Schooner Capital LLC, 745 Atlantic Avenue, Boston, Massachusetts
02111. See footnote (16) regarding shares held by Schooner.
(14) Includes 519,596 shares that Directors and executive officers have the
right to acquire pursuant to currently exercisable options.
(15) Includes 1,650,000 shares held by BAMCO, Inc. ("BAMCO") and 25,750 shares
held by Baron Capital Management, Inc. ("BCM"), both of which are
subsidiaries of Baron Capital Group, Inc. ("BCG"), in which Ronald Baron
owns a controlling interest. BCG and Ronald Baron disclaim beneficial
ownership of shares held by their controlled entities or the investment
advisory clients thereof to the extent such shares are held by persons
other than BCG and Ronald Baron. BAMCO and BCM disclaim beneficial
ownership of shares held by their investment advisory clients to the
extent such shares are held by persons other than BAMCO, BCM and their
affiliates. The address of Baron Capital Group, Inc. and Ronald Baron is
767 Fifth Avenue, New York, New York 10153.
(16) Mr. Ryan is the Chairman of the Board of Schooner and the principal
stockholder of Schooner Capital Trust, the sole member of Schooner, and,
accordingly, has sole voting and investment power with respect to the
shares of Common Stock held by Schooner. Includes 874,249 shares of Common
Stock as to which Schooner shares beneficial ownership with Mr. Reese as
described in footnote (2). Schooner has agreed to vote the shares of
Common Stock subject to such arrangements at the direction of Mr. Reese.
The address of Schooner Capital LLC is 745 Atlantic Avenue, Boston,
Massachusetts 02111.
68
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Real Estate Transactions
IMRM was the tenant under a lease dated January 1, 1991 for a 31,500
square-foot building in Houston, Texas. The owner of the building was IM
Houston (CR) Limited Partnership, a Texas limited partnership, of which
Mountain Realty, Inc., a Massachusetts corporation whose sole stockholder is
Mr. Ryan, is the sole general partner, and the limited partners of which are
Messrs. Reese and Doggett. IMRM paid annual rent of approximately $99,326 for
the year ended December 31, 1998. As tenant, IMRM was responsible for taxes,
insurance and maintenance. Iron Mountain Statutory Trust-1998 ("IMST"), a non-
affiliated entity formed to acquire and lease records storage properties to
IMRM, purchased the property from IM Houston (CR) Limited Partnership in
January 1999 for a purchase price of approximately $930,000. The purchase price
was determined through an independent appraisal of the property. IMRM leases
the space from IMST and will continue to use the space as a RIMS facility. The
prior lease and the acquisition of the property by IMST were, in the opinion of
management, on commercially reasonable terms and no less favorable to IMRM and
IMST than could have been obtained from an unaffiliated party at the time of
the transactions.
Schooner leases space from the Company at the Company's corporate
headquarters. Such lease is a tenancy-at-will and may be terminated by either
the Company or Schooner at any time. As consideration for such lease, Schooner
pays rent to the Company 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 $90,375 in the year ended December
31, 1998, and Schooner currently pays annual rent of approximately $90,375. The
Company believes that the terms of this lease are no less favorable to it than
would have been negotiated with an unrelated third party.
Other Transactions
The Company paid compensation of approximately $165,984 for the year ended
December 31, 1998 to Mr. T. Anthony Ryan. Mr. Ryan is Vice President, Real
Estate, of the Company and is the brother of Mr. Vincent J. Ryan, a Director of
the Company. The Company believes that the terms of Mr. Ryan's employment are
no less favorable to it than would be negotiable with an unrelated third party.
In November 1997, the Company entered into a management advisory agreement
with Keystone, of which Kent P. Dauten, a Director of the Company, is
president. Keystone received fees of approximately $20,000 per month under such
agreement relating to consulting with respect to medical records management
services. The Company paid Keystone fees totaling $60,000 in 1998 for
consulting services through March 1998, after which time the agreement was
terminated. In addition, Keystone provided acquisition and divestiture
investment banking consulting services to the Company from May 1998 through
September 1998 in connection with the exchange of assets between a subsidiary
of the Company and a third party. The Company paid Keystone a contingent fee of
$92,000 in October 1998 for such services. The Company believes that the terms
of each of these agreements were no less favorable to it than would have been
negotiated with an unrelated third party.
69
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedule filed as
part of this report:
As listed in the Index to Financial Statements and Financial Statement
Schedule on page 34 hereof.
(a)(3) Exhibits filed as part of this report:
As listed in the Exhibit Index following the signature page hereof.
(b) Reports on Form 8-K:
On November 23, 1998, the Company filed a current report on Form 8-K under
Item 7 pertaining to unaudited condensed consolidated pro forma financial
statements with respect certain businesses acquired during 1998 and 1997,
including the RIMS business of Wellington Financial Services, Inc. (d/b/a
Michigan Data Storage), Safesite, Concorde Group, Inc., Data Securities
International, Inc., Records Retention/FileSafe, L.P., Allegiance Business
Archives, Ltd., Record Masters, Arcus Group, Midwest Records Management (a
division of I-GO Van & Storage Co.), Sloan Vaults (d/b/a The Vault),
InterMation, Inc. and National Underground Storage, Inc. for the nine months
ended September 30, 1998 and for the year ended December 31, 1997.
On December 9, 1998, the Company filed a current report on Form 8-K under
Item 5 pertaining to the Company's entrance into a definitive agreement to
purchase a majority interest in BDM from Mentmore Abbey plc. No financial
statements were filed therewith.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
IRON MOUNTAIN INCORPORATED
By: /s/ Richard Reese
----------------------------------
C. Richard Reese, Chairman of the
Board and Chief Executive Officer
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C. Richard Reese Chairman of the Board March 31, 1999
- ------------------------- and Chief Executive Officer
C. Richard Reese
/s/ David S. Wendell President, Chief Operating March 31, 1999
- ------------------------- Officer and Director
David S. Wendell
/s/John F. Kenny, Jr Executive Vice President and March 31, 1999
- ------------------------- Chief Financial Officer
/s/John F. Kenny, Jr
/s/ Jean A. Bua Vice President and Corporate March 31, 1999
- ------------------------- Controller (principal accounting officer)
Jean A. Bua
/s/ Clarke H. Bailey Director March 31, 1999
- -------------------------
Clarke H. Bailey
/s/ Constantin R. Boden Director March 31, 1999
- -------------------------
Constantin R. Boden
/s/ Kent P. Dauten Director March 31, 1999
- -------------------------
Kent P. Dauten
/s/ Eugene B. Doggett Director March 31, 1999
- -------------------------
Eugene B. Doggett
/s/ B. Thomas Golisano Director March 31, 1999
- -------------------------
B. Thomas Golisano
/s/ Arthur D. Little Director March 31, 1999
- -------------------------
Arthur D. Little
/s/ Vincent J. Ryan Director March 31, 1999
- -------------------------
Vincent J. Ryan
</TABLE>
71
<PAGE>
INDEX TO EXHIBITS
Exhibits indicated below are incorporated by reference to documents of the
Company on file with the Commission. Exhibit numbers in parentheses refer to
the Exhibit numbers in the applicable filing (which are identified in the
footnotes appearing at the end of this index). All other exhibits are filed
herewith. Each exhibit marked by a pound sign (#) is a management contract or
compensatory plan.
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ----------- ---- -------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of September 26, 1997, by (2.2)(7)
and among Iron Mountain, Arcus Group, United Acquisition
Company and Arcus Technology Services, Inc. (collectively, the
"Arcus Parties")
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of (2.1A)(9)
November 25, 1997, by and among Iron Mountain and each of the
Arcus Parties
2.3 Agreement and Plan of Merger, dated as of February 19, 1997, by (2)(4)
and among Iron Mountain, IM-1 Acquisition Corp. and Safesite
2.4 Amendment No. 1 to Agreement and Plan of Merger, dated as of (2A)(5)
April 1, 1997, by and among Iron Mountain, IM-1 Acquisition Corp.
and Safesite
2.5 Amendment No. 2 to Agreement and Plan of Merger, dated as of (2B)(5)
May 7, 1997, by and among Iron Mountain, IM-1 Acquisition Corp.
and Safesite
2.6 Agreement and Plan of Merger, dated as of August 25, 1997, by (2.3)(7)
and among Iron Mountain, DSI Acquisition Corporation and Data
Securities International, Inc.
2.7 Agreement and Plan of Merger, dated as of September 17, 1997, by (2.2)(8)
and among Iron Mountain, IM-3 Acquisition Corp. and HIMSCORP,
Inc.
2.8 Agreement and Plan of Merger, dated as of February 24, 1998, by (2.7)(12)
and among Iron Mountain, IM-3 Acquisition Corp. and InterMation,
Inc. (confidential treatment granted as to certain portions)
2.9 Agreement and Plan of Merger, dated as of June 5, 1998, by and (2.1)(13)
among IMRM, Iron Mountain/NUS, Inc. and National Underground
Storage, Inc. (confidential treatment granted as to certain portions)
2.10 Stock Purchase Agreement, dated as of February 28, 1999, by and Filed herewith
among Iron Mountain, Data Base and all of the stockholders of Data as Exhibit 2.10
Base (portions of this exhibit have been omitted pursuant to a
request for confidential treatment)
3.1 Amended and Restated Certificate of Incorporation of Iron Mountain, (3.1)(10)
as amended
3.2 Amended and Restated By-Laws of Iron Mountain, as amended (3.2)(10)
10.1 Second Amended and Restated Credit Agreement, dated as of (10.1)(7)
September 26, 1997, among Iron Mountain, the lenders party thereto
and The Chase Manhattan Bank, as Administrative Agent
10.2 Amendment No. 1 to the Second Amended and Restated Credit (10.1)(14)
Agreement, dated as of December 31, 1997, among Iron Mountain,
the lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent
10.3 Amendment No. 2 to the Second Amended and Restated Credit (10.1)(16)
Agreement, dated as of November 9, 1998, among Iron Mountain,
the lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item Exhibit
- ----------- ---- -------
<S> <C> <C>
10.4 Indenture for 101/8% Senior Subordinated Notes due 2006 by and (10.3)(4)
among Iron Mountain, certain of its subsidiaries and First National
Association, as trustee, dated October 1, 1996
10.5 Indenture of 83/4% Senior Subordinated Notes due 2009 by and (4.1)(6)
among Iron Mountain, certain of its subsidiaries and The Bank of
New York, as trustee, dated October 24, 1997
10.6 Iron Mountain Incorporated 1995 Stock Incentive Plan, as amended # (10.1)(3)
10.7 Iron Mountain/UAC 1995 Stock Option Plan # (10.1)(11)
10.8 Iron Mountain/ATSI 1995 Stock Option Plan # (10.2)(11)
10.9 Iron Mountain Incorporated 1998 Employee Stock Purchase Plan # (10.8)(14)
10.10 Record Center Storage Services Agreement between IMRM and (10.18)(1)
Resolution Trust Corporation, dated July 31, 1992, as renewed by
letter agreement effective July 26, 1998 between Iron Mountain and
the Federal Deposit Insurance Corporation
10.11 Amended and Restated Registration Rights Agreement, dated as of (10.2)(3)
June 12, 1997, between Iron Mountain and certain stockholders of
Iron Mountain #
10.12 Joinder to Registration Rights Agreement, dated as of October 31, (10.12)(9)
1997, by and between Iron Mountain and Kent P. Dauten #
10.13 Stockholders' Agreement, dated September 17, 1997, by and (10.13)(10)
between Iron Mountain and Kent P. Dauten #
10.14 Stockholders' Agreement, dated as of February 19, 1997, by and (10.20)(4)
between Iron Mountain and certain stockholders of Safesite #
10.15 Asset Purchase and Sale Agreement, dated as of August 20, 1997, (10.2)(7)
by and between IMRM and Records Retention/FileSafe, L.P.
10.16 Stockholders' Agreement, dated as of September 26, 1997, by and (10.16)(9)
among Iron Mountain and certain stockholders of the Arcus Parties #
10.17 Lease Agreement, dated as of October 1, 1998, between Iron (10.20)(15)
Mountain Statutory Trust--1998 and IMRM
10.18 Unconditional Guaranty, dated as of October 1, 1998, from Iron (10.21)(15)
Mountain to Iron Mountain Statutory Trust--1998
10.19 Amended and Restated Agency Agreement, dated October 1, 1998, (10.22)(15)
by and between Iron Mountain Statutory Trust--1998 and IMRM
10.20 Agreement, dated as of December 2, 1998, by and between Iron (2.1)(16)
Mountain and Mentmore Abbey plc
10.21 Strategic Alliance Agreement, dated as of January 4, 1999, by and (10.2)(16)
among Iron Mountain, Iron Mountain (U.K.) Limited, Britannia Data
Management Limited and Mentmore Abbey plc
10.22 Amendment and Agreement Re: Leasehold Improvements, Filed herewith
dated as of January 28, 1999, by and among Iron Mountain, as Exhibit 10.22
Statutory Trust--1998 First Union National Bank, Scotiabanc Inc.,
IMRM, Iron Mountain, the lenders party thereto, The Bank of Nova
Scotia, as Agent for the lenders, and BTM Capital Corporation, as
LC Issuer
12 Schedule of computation of ratio of earnings to fixed charges Filed herewith
as Exhibit 12
21 Subsidiaries of Iron Mountain Filed herewith
as Exhibit 21
23 Consent of Arthur Andersen LLP Filed herewith
as Exhibit 23
27 Financial Data Schedule -- December 31, 1998 Filed herewith
as Exhibit 27
</TABLE>
73
<PAGE>
- ----------------
(1) Filed as an Exhibit to Iron Mountain's Registration Statement No. 33-99950
filed with the Commission on December 1, 1995.
(2) Filed as an Exhibit to Iron Mountain's Registration Statement No.
333-10359 filed with the Commission on August 16, 1996.
(3) Filed as an Exhibit to Iron Mountain's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed with the Commission, File No.
0-27584.
(4) Filed as an Exhibit to Iron Mountain's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission, File No. 0-27584.
(5) Filed as an Exhibit to Iron Mountain's Registration Statement No.
333-24635 filed with the Commission on April 4, 1997, as amended on May 7,
1997 and May 13, 1997.
(6) Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K dated
October 30, 1997, filed with the Commission, File No. 0-27584.
(7) Filed as an Exhibit to Iron Mountain's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed with the Commission, File No.
0-27584.
(8) Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K/A dated
November 10, 1997, filed with the Commission, File No. 0-27584.
(9) Filed as an Exhibit to Iron Mountain's Registration Statement No.
333-41045 filed with the Commission on November 26, 1997.
(10) Filed as an Exhibit to Iron Mountain's Registration Statement No.
333-44185 filed with the Commission on January 13, 1998.
(11) Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K dated
March 9, 1998, filed with the Commission, File No. 0-27584.
(12) Filed as an Exhibit to Iron Mountain's Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the Commission, File No. 0-27584.
(13) Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K dated
July 10, 1998, filed with the Commission, File No. 0-27584.
(14) Filed as an Exhibit to Amendment No. 1 to Iron Mountain's Registration
Statement No. 333-44187 filed with the Commission on August 3, 1998.
(15) Filed as an Exhibit to Iron Mountain's Registration Statement No.
333-67765 filed with Commission on November 23, 1998.
(16) Filed as an Exhibit to Iron Mountain's Current Report on Form 8-K dated
January 19, 1999, filed with the Commission, File No. 0-27584.
74
EXHIBIT 2.10
**Confidential portions have been omitted pursuant to a request for
confidential treatment and have been filed separately with
the Securities and Exchange Commission (the "Commission").**
================================================================================
STOCK PURCHASE AGREEMENT
AMONG
John J. Luger,
Donna M. Luger,
Mary Ann Montandon, George F. Luger and Lisa Luger Frey,
as co-trustees of the Lisa Luger Frey GST Trust,
Mary Ann Montandon, George F. Luger and Tanya Luger Paszkeicz,
as co-trustees of the Tanya Luger Paszkeicz GST Trust,
Mary Ann Montandon, George F. Luger and John J. Luger, Jr.,
as co-trustees of the John J. Luger, Jr. GST Trust,
and
Mary Ann Montandon and George F. Luger,
as co-trustees of the Justin T. Luger GST Trust,
AS SELLERS,
DATA BASE, INC., a Washington corporation,
AS THE COMPANY,
IRON MOUNTAIN INCORPORATED,
AS PURCHASER,
Dated as of
February 28, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS.........................................................................................................1
2. PURCHASE AND SALE...................................................................................................7
3. PURCHASE PRICE......................................................................................................7
4. CLOSING.............................................................................................................7
4.1. Time and Place of Closing.....................................................................................7
4.2. Obligations To Be Performed at Closing........................................................................8
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER TO EFFECT CLOSING..................................................9
5.1. Accuracy of Representations and Warranties; Compliance With Covenants.........................................9
5.2. Legal Proceedings; Governmental Filings......................................................................10
5.3. Third-Party Consents.........................................................................................10
5.4. HSR Act......................................................................................................10
5.5. Real Estate Purchase Agreement...............................................................................11
5.6. Resignations; Releases.......................................................................................11
5.7. Related Person Transactions..................................................................................11
5.8. Escrow Agreement.............................................................................................11
5.9. Legal Opinion................................................................................................11
5.10. No Material Adverse Change..................................................................................11
5.11. Satisfaction with Documents.................................................................................12
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS TO EFFECT THE CLOSING...............................................12
6.1. Accuracy of Representations and Warranties; Compliance With Covenants........................................12
i
<PAGE>
6.2. Legal Proceedings; Governmental Filings......................................................................12
6.2. HSR Act......................................................................................................13
6.3. Real Estate Purchase Agreement...............................................................................13
6.4. Escrow Agreement.............................................................................................13
6.5. Legal Opinion................................................................................................13
6.6. No Material Adverse Change...................................................................................13
6.7. Third-Party Consents.........................................................................................13
6.8. Satisfaction with Documents..................................................................................13
7. REPRESENTATIONS AND WARRANTIES OF SELLERS..........................................................................14
7.1. Organization and Authority...................................................................................14
7.2. Due Authorization and Execution..............................................................................14
7.3. Certain Assets...............................................................................................14
7.4. Contracts....................................................................................................15
7.5. Intellectual Property........................................................................................16
7.6. Permits......................................................................................................16
7.7. Insurance....................................................................................................16
7.8. Financial Statements.........................................................................................17
7.9. Capitalization; Subsidiaries.................................................................................17
7.10. No Approvals or Notices Required; No Conflicts With Material Contracts......................................18
7.11. Affiliated Transactions.....................................................................................18
7.12. Employees...................................................................................................18
7.13. Taxes.......................................................................................................19
7.14. Compliance With Laws........................................................................................19
7.15. Conduct in the Ordinary Course..............................................................................20
7.16. Absence of Legal Proceedings................................................................................21
7.17. ERISA.......................................................................................................21
7.18. No Material Adverse Change..................................................................................23
ii
<PAGE>
7.19. Environmental Matters.......................................................................................23
7.20. Brokerage...................................................................................................24
7.21. Operational Matters.........................................................................................24
7.22. Adverse Restrictions........................................................................................25
7.23. Year 2000...................................................................................................25
7.24. Corporate Records...........................................................................................25
7.25. Seller's Expertise..........................................................................................25
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................................26
8.1. Organization and Authority...................................................................................26
8.2. Due Authorization and Execution..............................................................................27
8.3. No Approvals or Notices Required; No Conflicts With Material Agreements......................................27
8.4. Absence of Legal Proceedings.................................................................................27
8.5. Restricted Securities; Investment Intent.....................................................................27
8.6. Purchaser's Expertise and Investigation......................................................................28
8.7. Financing....................................................................................................28
8.8. Brokerage....................................................................................................28
8.9. Capitalization of Purchaser..................................................................................29
8.10. SEC Filings; Financial Statements...........................................................................29
8.11. Shelf Registration Statement................................................................................30
8.12. Year 2000...................................................................................................30
9. INTERIM COVENANTS OF THE PARTIES...................................................................................30
9.1. Inspection...................................................................................................30
9.2. Notice of Developments.......................................................................................30
9.3. Conduct of Business in the Ordinary Course...................................................................31
9.4. Employee Benefits............................................................................................32
10. ADDITIONAL COVENANTS OF THE PARTIES...............................................................................33
iii
<PAGE>
10.1. Filings; Cooperation; Information...........................................................................33
10.2. Further Assurances..........................................................................................33
10.3. Exclusivity.................................................................................................34
10.4. Shelf Registration Statement................................................................................34
11. INCOME TAX MATTERS................................................................................................36
11.1. Refunds or Credits; Tax Benefits............................................................................36
11.2. Tax Administration..........................................................................................36
11.3. Contests....................................................................................................36
11.4. Section 338(h)(10) Election.................................................................................37
12. INDEMNIFICATION AND SURVIVAL OF WARRANTIES........................................................................37
12.1. Indemnification.............................................................................................37
12.2. Claim Procedure.............................................................................................38
12.3. Limitations on Claims.......................................................................................39
12.4. Escrow Indemnity Deposits...................................................................................41
13. TERMINATION.......................................................................................................42
14. MISCELLANEOUS.....................................................................................................43
14.1. Confidentiality.............................................................................................43
14.2. Entire Understanding........................................................................................43
14.3. Expenses....................................................................................................44
14.4. Amendment...................................................................................................44
14.5. Waivers.....................................................................................................44
14.6. Parties in Interest; Assignment.............................................................................44
14.7. Notices.....................................................................................................44
14.8. Attorneys'Fees..............................................................................................46
14.9. Counterparts................................................................................................46
14.10. Headings...................................................................................................46
iv
<PAGE>
14.11. Time of the Essence........................................................................................46
14.12. Applicable Law.............................................................................................46
14.13. Specific Performance.......................................................................................46
14.14. Construction...............................................................................................47
</TABLE>
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered
into as of February 28, 1999, by and among (i) John J. Luger, (ii) Donna M.
Luger, (iii) Mary Ann Montandon, George F. Luger and Lisa Luger Frey, as
co-trustees of the Lisa Luger Frey GST Trust, (iv) Mary Ann Montandon, George F.
Luger and Tanya Luger Paszkeicz, as co-trustees of the Tanya Luger Paszkeicz GST
Trust, (v) Mary Ann Montandon, George F. Luger and John J. Luger, Jr., as
co-trustees of the John J. Luger, Jr. GST Trust, and (vi) Mary Ann Montandon and
George F. Luger, as co-trustees of the Justin T. Luger GST Trust (each a
"Seller" and collectively, "Sellers"), Iron Mountain Incorporated, a Delaware
corporation ("Purchaser"), and Data Base, Inc., a Washington corporation (the
"Company").
Sellers own all of the issued and outstanding shares (the "Shares") of
Common Stock, $0.0855 par value per share (the "Common Stock"), of the Company.
Sellers desire to sell to Purchaser, and Purchaser desires to purchase
from Sellers, the Shares on the terms and conditions described in this
Agreement.
The parties therefore agree as follows:
AGREEMENT
1. Definitions
For the purposes of this Agreement:
"Benefit Arrangement" means any material benefit arrangement that is
not a Plan, including (i) any employment or consulting agreement, (ii) any
arrangement providing for insurance coverage or workers' compensation benefits,
(iii) any incentive bonus or deferred bonus arrangement, (iv) any arrangement
providing termination allowance, severance pay, salary continuation for
disability, or other leave of absence, supplemental unemployment benefits,
lay-off, reduction in force or similar benefits, (v) any stock option or equity
compensation plan, (vi) any deferred compensation plan, (vii) any compensation
policy or practice, (viii) any educational assistance arrangements or policies,
(ix) any plan governed by Section 125 of the Code and (x) any change of control
arrangements or policies.
"Business" means the business conducted by the Company, including,
without limitation, the pickup, transportation, storage and delivery of data on
magnetic or optical media or in paper form, the performance of source code
escrow services, and the provision of services relating to the foregoing.
"Cash Portion of the Purchase Price" means the Purchase Price less
$46,000,000.
"Closing" means consummation of the transactions contemplated in
Section 4 hereof with respect to the Shares.
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"Closing Bonus" means a bonus in an aggregate amount of not more than
**The confidential portion has been so omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.** that
the Company intends to pay to certain employees of the Company immediately prior
to Closing (such amount to be financed through an increase in Indebtedness,
therefore reducing the Purchase Price pursuant to Section 3 of this Agreement to
the extent such Indebtedness is not paid by the Company at Closing).
"Closing Date" means the date on which Closing occurs, determined as
provided in Section 4.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, $0.0855 par value per share, of
the Company.
"Company" means Data Base, Inc., a Washington corporation.
"Covered Liabilities" has the meaning assigned to that term in Section
12.1(a) hereof.
"Cumulative Limitation Amount" has the meaning assigned to that term
in Section 10.4(d) hereof.
"Customer Contracts" means all data protection service agreements,
recovery data management and service agreements, source code escrow agreements,
and other contracts and purchase orders between the Company and the Company's
customers related to the Business.
"DBRHC" means Data Base Real Estate Holdings, LLC, a Washington
limited liability company.
"DBRHC Real Estate" means the real estate owned by DBRHC that is the
subject of leases under which DBRHC is the landlord and the Company is the
tenant listed in Schedule A.
"Deferral Notice" has the meaning assigned to that term in Section
10.4(b) hereof.
"Deferral Period" has the meaning assigned to that term in Section
10.4(b) hereof.
"Determination Price" means $31.153125.
"DOJ" means the Antitrust Division of the United States Department of
Justice.
"Environmental Laws" means all Governmental Regulations relating to
pollution or protection of the environment or public health, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 USC 9601 et seq and any analogous state statutes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any Person that is or has been in the
five-year period ending on the Closing Date 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 Agent" means an escrow agent to be selected by Purchaser,
subject to the consent of Sellers (such consent not to be unreasonably withheld
or delayed).
"Escrow Agreement" has the meaning assigned to that term in Section
5.8 hereof.
"Escrow Indemnity Deposits" means **The confidential portion has been
so omitted pursuant to a request for confidential treatment and has been filed
separately with the Commission.** shares of Iron Mountain Common Stock to be
withheld from the Stock Portion of the Purchase Price delivered to Sellers on
the Closing Date, together with any interest and earnings which accrue thereon.
"Escrow Indemnity Period" means a period of **The confidential portion
has been so omitted pursuant to a request for confidential treatment and has
been filed separately with the Commission.** after the Closing Date.
"Escrow Release Date" has the meaning assigned to that term in Section
12.4(c) hereof.
"Excluded Assets" means the assets of the Company listed in Schedule B
that will be distributed by the Company to John J. Luger at or prior to Closing.
"Financial Statements" has the meaning assigned to that term in
Section 7.8 hereof.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Entity" has the meaning assigned to that term in Section
7.6 hereof.
"Governmental Regulation" has the meaning assigned to that term in
Section 4.1 hereof.
"Hazardous Substance" means any substance (i) the presence of which
requires or may hereafter require notification, removal or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "dangerous waste," "toxic
substance" or similar term under any present Environmental Law; (iii) which is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous and which is regulated pursuant to any
Environmental Law or (iv) without limitation, which contains gasoline, diesel
fuel or other petroleum products.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means: (a) debt of the Company evidenced by notes
payable, as shown on the 1998 Balance Sheet, to (i) Seafirst Bank, (ii) James
Tidyman, (iii) First Safe Deposit
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Corporation, (iv) Michael Cranston and William Krohn, (v) John J. Luger, (vi)
HKLS Inc. and (vii) Kathryn Schroeder, as trustee for the Joe Bingaman Trust;
(b) all obligations, contingent or otherwise, (i) in respect of borrowed money,
notes or similar interests, (ii) under leases which should be capitalized in
accordance with GAAP on the Company's balance sheet, and (iii) in respect of the
deferred purchase price of property and guarantees, endorsements and other
contingent obligations in respect of obligations of the type referred in this
clause (b) of others; (c) the aggregate full amount of (1) all installment sales
amounts, contingent payments or "earnouts" that the Company may be required to
pay under any agreements pursuant to which the Company acquired the outstanding
capital stock or assets of another Person and (2) deferred compensation payable
pursuant to the deferred compensation plan listed as item 2 on Schedule 7.17(a);
(d) accrued interest to the Closing Date in respect of the obligations of the
type referred to in clauses (a) and (b) above, and all fees, expenses and other
amounts (including any prepayment penalty or so-called "breakage" amounts) due
in connection with the prepayment in full of such Indebtedness which will be
prepaid at Closing; and (e) expenses incurred by the Company directly related to
consummation of the transactions contemplated by this Agreement and,
notwithstanding the limitation in Section 3, whether or not a bill or invoice
relating to such expenses has been delivered on or prior to the Closing Date.
"Indemnification Determination Price" as of a particular date means
the average closing price per share of Iron Mountain Common Stock, based on each
day's closing price as provided by the NASDAQ National Market System or, if
unavailable from such source, then as reported in the Wall Street Journal, for
the period of thirty (30) trading days ending on the third trading day prior to
(and not including) such date.
"Indemnified Party" has the meaning assigned to that term in Section
12.2 hereof.
"Indemnifying Party" has the meaning assigned to that term in Section
12.2 hereof.
"Initial Distribution Date" has the meaning assigned to that term in
Section 12.4(b) hereof.
"Intellectual Property" has the meaning assigned to that term in
Section 7.5 hereof.
"Iron Mountain Common Stock" means the common stock of Purchaser to be
issued to Sellers in partial consideration for the Shares pursuant to Section
4.2(b) hereof.
"Iron Mountain SEC Reports" has the meaning assigned to that term in
Section 8.10(a) hereof.
"Joinder Agreement" means the Amendment, Waiver and Joinder Agreement
to Registration Rights Agreement to be entered at or prior to Closing by
Sellers, Purchaser and stockholders of Purchaser named in the Registration
Rights Agreement representing not less than a majority in interest of such
stockholders substantially in the form attached as Exhibit 4.2(a)(2).
"Lien" means any mortgage, lien, charge, security interest, pledge or
other deposit arrangement, encumbrance, condition, sale, title retention or
other similar arrangement, device or agreement, restriction, equity, claim or
right of or obligation to, any other Person, of whatever kind and character.
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"Material Adverse Change" with respect to a Party means a material
adverse change in such Party's business, assets, liabilities, properties,
financial condition or results of operations, other than any such change arising
out of or resulting **The confidential portion has been so omitted pursuant to a
request for confidential treatment and has been filed separately with the
Commission.** from general economic, financial, competitive or market conditions
or from changes in or generally affecting the industry in which such Party
conducts its business (it being understood and agreed that a reduction in the
price of shares of Iron Mountain Common Stock shall not, in and of itself,
constitute or be deemed to reflect a Material Adverse Change).
"Material Contract" means each agreement, contract or understanding
(other than a Customer Contract) to which the Company is a party or by which it
or any of its assets is bound that (i) involves obligations of or payments to or
from the Company reasonably expected to exceed **The confidential portion has
been so omitted pursuant to a request for confidential treatment and has been
filed separately with the Commission.** per year or **The confidential portion
has been so omitted pursuant to a request for confidential treatment and has
been filed separately with the Commission.** in the aggregate; (ii) constitutes
a joint venture or similar contract or agreement; (iii) constitutes a note,
mortgage, indenture, guaranty, other obligation, agreement or other instrument
for or relating to any lending or borrowing (including assumed debt); (iv)
constitutes an agreement under which the Company is lessee of or holds or
operates any real property or material item of equipment; (v) imposes any
nondisclosure or confidentiality obligations on the Company (other than those
entered into in the ordinary course of business with customers and employees);
or (vi) prohibits or limits the Company from freely engaging in any business or
competing anywhere in the world.
"Material Information Event" has the meaning assigned to that term in
Section 10.4(b) hereof.
"1998 Balance Sheet" means the December 31, 1998 balance sheet forming
part of the Financial Statements.
"Noncompetition Agreement" has the meaning assigned to that term in
Section 4.2(a) hereof.
"Party" shall, unless the context otherwise requires, refer to
Purchaser, on the one hand, and the Company and Sellers, on the other hand.
"Permits" has the meaning assigned to that term in Section 7.6 hereof.
"Person" means any natural person, corporation, firm, unincorporated
organization, partnership, limited partnership, limited liability company,
trust, business trust, joint venture, joint stock company, Governmental Entity
or other organization or entity.
"Plan" means any employee benefit plan (within the meaning of Section
3(3) of ERISA).
"Pro Rata Share" has the meaning assigned to that term in Section
4.2(b) hereof.
"Purchase Price" has the meaning assigned to that term in Section 3
hereof.
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"Purchaser" means Iron Mountain Incorporated, a Delaware corporation.
"Purchaser Indemnified Parties" has the meaning assigned to that term
in Section 12.1(a) hereof.
"Qualified Plan" has the meaning assigned to that term in Section
7.17(d) hereof.
"Real Estate Purchase Agreement" means the Real Estate Purchase and
Sale Agreement that has been, or contemporaneously with execution and delivery
of this Agreement will be, entered into between DBRHC and Purchaser, pursuant to
which DBRHC intends to sell to Purchaser, and Purchaser intends to buy from
DBRHC, all of the DBRHC Real Estate.
"Registration Rights Agreement" means that Amended and Restated
Registration Rights Agreement dated as of June 12, 1997 among Purchaser and the
stockholders of Purchaser named therein, as amended by the Joinder Agreement.
"Related Agreements" means this Agreement, the Escrow Agreement, the
Noncompetition Agreement, the Joinder Agreement and the Registration Rights
Agreement.
"Related Person" with respect to any Person means (i) any member of
such Person's immediate family, (ii) any individual or entity that directly or
indirectly controls, is controlled by or is under common control with such
Person or any member of such Person's immediate family, (iii) any entity which
such Person or any member of such Person's immediate family serves as a
director, officer, partner, executor or trustee of such entity and (iv) any
entity in which such Person or any member of such Person's immediate family owns
a ten percent (10%) or more interest in the capital stock or beneficial interest
of such entity.
"Sale Notice" has the meaning assigned to that term in Section 10.4(b)
hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Indemnified Parties" has the meaning assigned to that term in
Section 12.1(b) hereof.
"Sellers" means (i) John J. Luger, (ii) Donna M. Luger, (iii) Mary Ann
Montandon, George F. Luger and Lisa Luger Frey, as co-trustees of the Lisa Luger
Frey GST Trust, (iv) Mary Ann Montandon, George F. Luger and Tanya Luger
Paszkeicz, as co-trustees of the Tanya Luger Paszkeicz GST Trust, (v) Mary Ann
Montandon, George F. Luger and John J. Luger, Jr., as co-trustees of the John J.
Luger, Jr. GST Trust, and (vi) Mary Ann Montandon and George F. Luger, as
co-trustees of the Justin T. Luger GST Trust.
"Sellers' Knowledge" means the actual knowledge of John J. Luger,
Matthew B. Frey, Kevin Koski, John Tomovcsik and Marian Kessel.
"Sellers' Representative" has the meaning assigned to that term in
Section 12.4 hereof.
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"Separate Counsel" has the meaning assigned to that term in Section
12.2(b) hereof.
"Shares" means all of the issued and outstanding shares of the Common
Stock.
"Shelf Registration Statement" has the meaning assigned to that term
in Section 10.4(a) hereof.
"Stock Portion of the Purchase Price" means $46,000,000.
"Taxes" has the meaning assigned to that term in Section 7.13 hereof.
"Termination Date" means May 1, 1999.
"Unresolved Claims" means any claim under Section 12 by a Purchaser
Indemnified Party against Sellers, until such time as such claim or request has
been paid in full or otherwise fully settled, compromised or adjusted by
Purchaser, the Sellers' Representative 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.
"Year 2000 Compliant" means the ability to correctly recognize,
record, store, present and process calendar dates after December 31, 1999 in the
same manner as calendar dates before December 31, 1999.
2. Purchase and Sale
Purchaser hereby agrees to purchase from each Seller, and each Seller
hereby agrees to sell to Purchaser, on the terms and conditions contained
herein, all of the Shares owned by such Seller as set forth on Schedule 2
attached hereto, free and clear of all Liens; provided, however, that Purchaser
shall not be required to purchase any Shares unless all Shares (which shall
consist of all shares of outstanding capital stock of the Company) are
transferred to Purchaser, free and clear of all Liens, at Closing.
3. Purchase Price
The purchase price to be paid to Sellers for the Shares (the "Purchase
Price") will be One Hundred Million Dollars ($100,000,000), less the outstanding
balance, if any, of the Indebtedness as of the Closing Date. Subject to the
provisions of Section 12.4 hereof, the Purchase Price shall be payable to
Sellers at Closing in the manner described in Section 4.2(b) hereof.
4. Closing
4.1. Time and Place of Closing
The Closing shall occur in at the offices of Heller Ehrman White &
McAuliffe, 6100 Columbia Center, 701 Fifth Avenue, Seattle, Washington, on the
day that is the later of (a) five (5) business days after (i) expiration or
early termination of the "waiting period" and any extensions thereof under the
HSR Act and (ii) if an injunction, court order, judgment, decree,
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administrative order, statute, law (including common law), ordinance, by-law,
rule, regulation or policy of any Governmental Entity (a "Governmental
Regulation") enjoining or restraining consummation of the transactions
contemplated by this Agreement has been obtained, the reversal, lifting or other
successful appeal or resolution of such Governmental Regulation (which reversal,
lifting, or appeal shall itself become final and non-appealable) or (b) five (5)
business days after satisfaction of all other conditions to performance of the
Parties' obligations to close hereunder, or on such other date as the Parties
may mutually agree in writing. The consummation of the transactions contemplated
by this Agreement and Closing will be deemed to take place at 12:01 a.m. (local
time) on the date on which Closing actually occurs. If Closing does not occur on
or before the Termination Date, either Party may give notice to the other of its
intention to terminate this Agreement, in which event the obligation of each
Party to close the transactions contemplated hereby shall terminate on that date
which is five (5) business days after the giving of such notice if Closing has
not by then occurred, unless the failure to effect Closing shall have resulted
from a default by the Party giving such notice of termination; provided,
however, that the Termination Date shall be extended to June 1, 1999 if the sole
reason Closing has not occurred by the Termination Date is due to the failure to
satisfy the conditions set forth in Section 5.4 and Section 6.3. No such notice
shall relieve any Party of any liability for its breach of this Agreement.
4.2. Obligations To Be Performed at Closing
(a) At Closing, Sellers shall:
(i) deliver to Purchaser stock certificate(s)
representing the Shares, duly endorsed in blank or accompanied by stock powers
or other duly executed instruments of transfer, as may be necessary to effect
the transfer of good and marketable title to the Shares to Purchaser or such
Person as Purchaser may designate to hold such Shares, free and clear of all
Liens;
(ii) deliver the resignations, effective as of the
Closing Date, of all officers and members of the Board of Directors of the
Company as are requested by Purchaser;
(iii) deliver true, correct and complete originals
of the stock books, stock ledgers, minute books and corporate seals of the
Company as are in the Company's possession;
(iv) cause John J. Luger to execute and deliver to
Purchaser the Noncompetition Agreement in favor of Purchaser in the form
attached as Exhibit 4.2(a)(1) hereto (the "Noncompetition Agreement");
(v) cause the Sellers' Representative to execute
and deliver to Purchaser the Escrow Agreement;
(vi) execute and deliver to Purchaser the Joinder
Agreement;
(vii) deliver to Purchaser payoff letter(s)
relating to the Indebtedness that will be paid by the Company at Closing; and
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(viii) execute and deliver to Purchaser any other
documents required to be delivered by Sellers to Purchaser at or prior to
Closing pursuant to this Agreement or otherwise in connection with the
transactions contemplated by this Agreement.
(b) At Closing, Purchaser shall:
(i) pay to Sellers the Cash Portion of the
Purchase Price by wire transfer to a bank account designated by Sellers in
immediately available funds;
(ii) subject to the provisions of Section 12.4,
execute and deliver to each Seller stock certificate(s) representing that number
of shares of Iron Mountain Common Stock as shall equal the product of (A) the
quotient obtained by dividing the Stock Portion of the Purchase Price by the
Determination Price multiplied by (B) such Seller's pro rata share of the Common
Stock as set forth on Schedule 2 ("Pro Rata Share"), provided, that if such
product would result in a fractional share, then in lieu of issuing any such
fractional share, Purchaser shall pay to such Seller cash in an amount equal to
the product of the Determination Price multiplied by such fraction;
(iii) execute and deliver the Noncompetition
Agreement to John J. Luger;
(iv) execute and deliver to the Sellers'
Representative the Escrow Agreement;
(v) execute and deliver to each Seller the Joinder
Agreement and deliver to Sellers signature pages for all other parties to the
Joinder Agreement (other than Sellers);
(vi) deliver to Sellers a copy of a resolution of
the directors and, if required by law, shareholders of Purchaser, certified by
an officer of Purchaser, approving the transactions that are the subject of this
Agreement; and
(vii) execute and deliver to Sellers any other
documents required to be delivered by Purchaser to Sellers at or prior to
Closing pursuant to this Agreement or otherwise in connection with the
transactions contemplated by this Agreement; and
5. Conditions Precedent to Obligations of Purchaser to Effect Closing
The obligations of Purchaser to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by it at Closing
shall be subject to the satisfaction of the following conditions at or before
Closing, any one or more of which may be waived by Purchaser and the
non-fulfillment of any of which will permit Purchaser, at its sole option, to
terminate this Agreement:
5.1. Accuracy of Representations and Warranties; Compliance With
Covenants
All representations and warranties of Sellers contained herein
(including all applicable Exhibits and Schedules) shall have been true in all
material respects when made. In addition, the
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representations and warranties of Sellers contained in this Agreement identified
on Exhibit 5.1 hereto shall be true in all material respects (except for
representations and warranties that contain a qualification as to materiality,
which shall be true and correct in all respects) on and as of the Closing Date
with the same force and effect as if again made on and as of such date. Further,
all other representations and warranties of Sellers contained herein shall be
true in all material respects (except for representations and warranties that
contain a qualification as to materiality, which shall be true and correct in
all respects) on and as of the Closing Date with the same force and effect as if
again made on and as of such date, except for any breaches that, individually or
in the aggregate, would not result in a Material Adverse Change in the Company.
The Company and Sellers shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants and conditions contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date (other than Sellers'
obligations under Section 4.2(a), which shall be performed in all respects). At
Closing Sellers shall have delivered a certificate confirming the matters set
forth in the second, third and fourth sentences of this Section 5.1.
5.2. Legal Proceedings; Governmental Filings
Except with respect to the HSR Act or antitrust matters, which will be
governed by Section 5.4, no Governmental Regulation shall be in effect which
enjoins, restrains, conditions or prohibits, or seeks damages or other relief in
connection with, consummation of this Agreement or the transactions contemplated
herein, and no litigation, investigation or administrative proceeding (other
than action initiated or threatened by Purchaser) shall be pending or threatened
in writing which would enjoin, restrain, condition or prevent, or seeks damages
or other relief in connection with, consummation of this Agreement or the
transactions contemplated herein or which reasonably could be expected to result
in a Material Adverse Change in the Company. All filings required by applicable
law to be made by Sellers with or to any Governmental Entity in connection with
the transactions contemplated by this Agreement shall have been made and any
waiting period thereunder shall have lapsed.
5.3. Third-Party Consents
Except with respect to the HSR Act or antitrust matters, which will be
governed by Section 5.4, Sellers shall have obtained all written consents, if
any, to consummation of the transactions contemplated by this Agreement (i) by
any party to a Material Contract if such consent is required, (ii) by any
licensor of any material Intellectual Property used by the Company if such
consent is required and (iii) any other required consent (other than those
which, if not obtained, would not, individually or in the aggregate, result in a
Material Adverse Change in the Company).
5.4. HSR Act
All required waiting periods applicable to this Agreement and the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated without there being in effect a Governmental Regulation
enjoining or restraining consummation of such transactions; provided that upon
the reversal, lifting or other successful appeal or
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resolution of such Governmental Regulation, the condition set forth in this
Section 5.4 will be deemed fulfilled.
5.5. Real Estate Purchase Agreement
The conditions precedent to Purchaser's obligations to acquire the
DBRHC Real Estate shall have been satisfied or waived, and DBRHC shall
simultaneously with Closing perform all of its obligations to convey the DBRHC
Real Estate to Purchaser, in accordance with the terms of the Real Estate
Purchase Agreement.
5.6. Resignations; Releases
Each of the officers and directors of the Company and each trustee
and/or administrator under any Plan or Benefit Arrangement of the Company shall
have submitted his, her or its unqualified written resignation, dated as of the
Closing Date, from all such positions held with the Company (and, at the request
of Purchaser, from positions as an employee of the Company) and as a trustee
and/or administrator for each such Plan or Benefit Arrangement (which
resignation shall include a release, in form and substance reasonably acceptable
to Purchaser, pursuant to which the Company will be released from any and all
liabilities, claims and actions effective as of the Closing Date).
5.7. Related Person Transactions
Except for (i) leases between the Company and DBRHC to be assigned to
Purchaser under the Real Estate Purchase Agreement and (ii) such contracts,
agreements and undertakings which Purchaser has given notice to the Company it
wants to retain, which contracts shall be effective as of the Closing Date, all
contracts, agreements and undertakings between the Company and any Related
Person thereof or of any Seller thereof shall have been satisfied and discharged
as of the Closing Date with no further liability to the Company.
5.8. Escrow Agreement
Purchaser, the Sellers' Representative and the Escrow Agent shall have
executed and delivered an Escrow Agreement in form and substance reasonably
satisfactory to Sellers and Purchaser to hold the Escrow Indemnity Deposits
contemplated hereby (the "Escrow Agreement").
5.9. Legal Opinion
Sellers and the Company shall have furnished Purchaser with an opinion
dated the Closing Date of Heller, Ehrman, White & McAuliffe, counsel for Sellers
and the Company, in form and substance reasonably satisfactory to Purchaser and
its counsel.
5.10. No Material Adverse Change
Since December 31, 1998, there shall not have occurred and be
continuing any Material Adverse Change in the Company.
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5.11. Satisfaction with Documents
All agreements, certificates, opinions and other documents shall be
reasonably satisfactory in form, scope and substance to Purchaser and its
counsel, and Purchaser 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.
6. Conditions Precedent to Obligations of Sellers to Effect the Closing
The obligations of Sellers to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at Closing
shall be subject to the satisfaction of the following conditions at or before
Closing, any one or more of which may be expressly waived in writing by Sellers
and the non-fulfillment of any of which will permit Sellers, at their sole
option, to terminate this Agreement:
6.1. Accuracy of Representations and Warranties; Compliance With
Covenants
All representations and warranties of Purchaser contained herein
(including all applicable Exhibits and Schedules) shall have been true in all
material respects when made. In addition, the representations and warranties of
Purchaser contained in this Agreement identified on Exhibit 6.1 hereto shall be
true in all material respects (except for representations and warranties that
contain a qualification as to materiality, which shall be true and correct in
all respects) on and as of the Closing Date with the same force and effect as if
again made on and as of such date. Further, all other representations and
warranties of Purchaser contained herein shall be true in all material respects
(except for representations and warranties that contain a qualification as to
materiality, which shall be true and correct in all respects) on and as of the
Closing Date with the same force and effect as if again made on and as of such
date, except for any breaches that, individually or in the aggregate, would not
result in a Material Adverse Change in Purchaser. Purchaser shall have performed
in all material respects all obligations and agreements and complied in all
material respects with all covenants and conditions contained in this Agreement
to be performed and complied with by it on or prior to the Closing Date (other
than Purchaser's obligations under Section 4.2(b), which shall be performed in
all respects). At Closing Sellers shall have delivered a certificate confirming
the matters set forth in the second, third and fourth sentences of this Section
6.1.
6.2. Legal Proceedings; Governmental Filings
Except with respect to the HSR Act or antitrust matters, which will be
governed by Section 6.3, no order of any court or administrative agency shall be
in effect which enjoins, restrains, conditions or prohibits, or seeks damages or
other relief from Sellers in connection with, consummation of this Agreement or
the transactions contemplated herein, and no litigation, investigation or
administrative proceeding (other than action initiated by the Company or
Sellers) shall be pending or threatened in writing which would enjoin, restrain,
condition or prevent, or seeks damages or other relief from Sellers in
connection with, consummation of this Agreement or the transactions contemplated
herein. All filings required by applicable law to be made by
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Purchaser with or to any Governmental Entity in connection with the transactions
contemplated by this Agreement shall have been made and any waiting period
thereunder shall have lapsed.
6.3. HSR Act
All required waiting periods applicable to this Agreement and the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated without there being in effect a Governmental Regulation
enjoining or restraining consummation of such transactions; provided that upon
the reversal, lifting or other successful appeal or resolution of such
Governmental Regulation, the condition set forth in this Section 6.3 will be
deemed fulfilled.
6.4. Real Estate Purchase Agreement
The conditions precedent to Seller's obligations to sell the DBRHC
Real Estate shall have been satisfied or waived, and Purchaser shall
simultaneously with Closing perform all of its obligations to acquire the DBRHC
Real Estate to Purchaser, in accordance with the terms of the Real Estate
Purchase Agreement.
6.5. Escrow Agreement
Purchaser, the Sellers' Representative and the Escrow Agent shall have
executed and delivered the Escrow Agreement.
6.6. Legal Opinion
Purchaser shall have furnished Sellers with an opinion dated the
Closing Date of Sullivan & Worcester LLP, counsel for Purchaser, in form and
substance reasonably satisfactory to Sellers, the Company and their counsel.
6.7. No Material Adverse Change
Since September 30, 1998, there shall not have occurred and be
continuing any Material Adverse Change in Purchaser.
6.8. Third-Party Consents
Purchaser shall have obtained the written consent of stockholders of
Purchaser named in the Registration Rights Agreement representing a majority in
interest of such stockholders.
6.9. Satisfaction with Documents
All agreements, certificates, opinions and other documents shall be
reasonably satisfactory in form, scope and substance to Sellers and their
counsel, and Sellers and their counsel shall have received all information and
copies of all documents, including records of corporate proceedings, which they
may reasonably request in connection therewith, such documents where appropriate
to be certified by proper corporate officers.
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7. Representations and Warranties of Sellers
To induce Purchaser to enter into and perform this Agreement, Sellers
represent and warrant to Purchaser as follows:
7.1. Organization and Authority
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington, is duly qualified to do
business and is in good standing in all other jurisdictions where its failure to
qualify to do business would result in a Material Adverse Change in the Company.
The Company has all requisite power and authority to own or hold under lease its
properties and to conduct the Business, to execute and deliver this Agreement
and to perform its obligations hereunder and consummate the transactions
contemplated hereby.
7.2. Due Authorization and Execution
The execution, delivery and performance of each Related Agreement to
which it is a party has been duly authorized by all requisite action on the part
of the Company and each Seller. Each Related Agreement to which it is a party
has been, or at Closing will be, duly authorized, executed and delivered by the
Company and each Seller and is, or at Closing will be, a legal, valid and
binding obligation of the Company and such Seller, enforceable against each of
them in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally and except as the availability of equitable remedies may be
limited by equitable principles of general applicability.
7.3. Certain Assets
(a) Except as set forth on Schedule 7.3, the Company (i) has
good and marketable title to all of the material assets and properties used in
the Company's Business or otherwise reflected on the 1998 Balance Sheet and to
all assets and properties acquired by the Company since such date that would,
had it been acquired prior to such date, be capitalized on or included in such
balance sheet (except for assets and properties sold, consumed or otherwise
disposed of by the Company in the ordinary course of business since the date
thereof), and (ii) has good title to all leasehold estates in all material
assets and properties which it leases, in each case, free and clear of all Liens
except for (A) Liens in favor of Seafirst Bank as set forth on Schedule 7.3,
which will be paid in full and terminated at Closing, (B) Liens for current
Taxes not yet due and payable or for Taxes the validity of which is being
contested in good faith and for which adequate reserves have been established on
the 1998 Balance Sheet, (C) statutory mechanics', materialmen's and other
similar Liens which have arisen in the ordinary course of business, and (D)
Liens contemplated by this Agreement or any of the Exhibits or Schedules hereto
or by any of the documents referred to herein or therein. To Sellers' Knowledge,
all material assets and properties owned or leased by it are in good operating
condition and repair except for reasonable wear and tear.
(b) Each lease or other agreement pursuant to which the
Company leases any material assets or properties is a legal, valid and binding
obligation of the Company and, to Sellers' Knowledge, each other party thereto.
Except as set forth on Schedule 7.3, neither
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the Company nor, to Sellers' Knowledge, any other party thereto, is in material
breach or default of any such lease or other agreement. The Company enjoys
undisturbed possession under all such leases or other agreements.
(c) Schedule 7.3 sets forth a true and complete list of all
banks, brokerage firms, trust companies or savings and loan associations in
which the Company has an account or safe deposit box, and the persons authorized
to have access to, draw on or authorize transactions in such account or safe
deposit box, and the names of all Persons, if any, holding powers of attorney
from the Company and a summary statement as to the terms thereof.
(d) The Company owns, or has the right to use pursuant to
valid leases and licenses, all assets that are necessary for the conduct of the
Business.
7.4. Contracts
(a) Schedule 7.4(a) sets forth a true and complete list of
(i) all customers serviced by the Company as of December 31, 1998, by customer
number (but not by name) and billings for such customer for the month of
December 1998 and (ii) all Material Contracts of the Company. The Company has
made available for Purchaser's inspection the Material Contracts and its
standard forms of (x) data protection service agreements, (y) recovery data
management and service agreements and (z) source code escrow agreements. As of
December 31, 1998, no single Customer account represented more than **The
confidential portion has been so omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.** of the Company's
gross revenues for the fiscal year then ended.
(b) To Sellers' Knowledge, each of the Customer Contracts
and Material Contracts is valid and in full force and effect and enforceable
against the parties thereto. To Seller's Knowledge, except as set forth in
Schedule 7.4(b)(1), (i) there are no existing material defaults, and the Company
has not received or given notice of a material default or claimed default, with
respect to any Customer Contract or Material Contract (other than delinquencies
by customers of **The confidential portion has been so omitted pursuant to a
request for confidential treatment and has been filed separately with the
Commission.** or less as of the date of this Agreement), (ii) no event has
occurred which with notice or lapse of time, or both, would constitute a default
thereunder and (iii) except in the context of negotiations of expired or nearly
expired contracts in the usual course of the Company's Business, the Company has
not received any notice or other information indicating that any party to any
Customer Contract or Material Contract intends to cancel or terminate the same
or to materially decrease the rate of or materially change the terms of doing
business with the Company. Schedule 7.4(b)(2) sets forth the results of Sellers'
review, conducted in connection with preparations for the transactions
contemplated by this Agreement, of the following features of the Company's
Customer Contracts: (i) the form (if any) used and (ii) whether there are
material deviations from the form and, if so, whether such deviations relate to
the disclaimers of liability for consequential damages or reproduction of data.
**The confidential portion has been so omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.**
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7.5. Intellectual Property
Except as set forth in Schedule 7.5 and except for licenses of
computer software used by the Company that is generally available
"off-the-shelf" through commercial software vendors, the Company owns or has the
right to use, without payment to or interference from any person, all of the
trademarks, service marks, trade names, copyrights, patents, applications for
registration of any of the foregoing, computer software or software programs
(including source code and object code), proprietary methodologies, processes,
specifications, and other intellectual property of whatever kind or description,
which are necessary for the present or planned operation of the Business (the
"Intellectual Property"), except if the failure to own or have the right to use
the Intellectual Property will not result in a Material Adverse Change in the
Company. Without intending to limit the generality of the foregoing, each of
SecureBase and SecureSync is original and is capable of copyright protection in
the United States, and, except as set forth in Schedule 7.5, the Company has
complete rights to and ownership of SecureBase and SecureSync, including
possession of the source code for such software applications in its most recent
form. Each of SecureBase and SecureSync (i) is free from any material defect or
programming or documentation error and operates and runs in substantial
conformity to the specifications thereof (except (A) as set forth in Schedule
7.23, with respect to whether SecureBase and SecureSync are Year 2000 Compliant,
or (B) where the existence of such defect or error or failure to so operate and
run could not reasonably be expected to result in a Material Adverse Change in
the Company), and (ii) can be recreated from its associated source code. The
Company has received no notice of, and to Sellers' Knowledge (except that as to
SecureBase and SecureSync, such knowledge qualifier shall not apply) there is
no, conflict with, infringement of or other violation of rights of others with
respect to any Intellectual Property. Schedule 7.5 sets forth all licenses,
sublicenses or agreements pertaining to any of the Intellectual Property (other
than with respect to "off-the-shelf" software) owned or used by the Company in
the present and planned operation of the Business. To Sellers' Knowledge, none
of the Company's Intellectual Property is being infringed or violated by any
other Person.
7.6. Permits
The Company has obtained all approvals, permissions, consents,
licenses, franchises, permits and other authorizations (collectively, "Permits")
from any federal, state or local governmental or regulatory entity (a
"Governmental Entity") that are required for the conduct of the Business and no
event has occurred which (with the giving of notice or passage of time or both)
may constitute a material breach or violation of any such Permits. To Sellers'
Knowledge, all Permits are in full force and effect and the Company has not
received notice from any Governmental Entity of its intent to revoke or
terminate any of such Permits.
7.7. Insurance
Schedule 7.7 sets forth a description of each insurance policy
maintained by the Company with respect to the Business (including, without
limitation, expiration dates, risks insured against, amounts of coverage, annual
premiums, exclusions, deductibles and self-insured retention amounts) and each
such policy is in full force and effect. Except as set forth in Schedule 7.7,
the Company is not in default with respect to its obligations under any such
policy and does not have any self-insurance or co-insurance programs. Except as
set forth in Schedule 7.7, the Company
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has not, within the past year, or to Sellers' Knowledge within the four (4)
years prior to such year, been refused insurance by any insurance carrier to
which it has applied for insurance.
7.8. Financial Statements
The Company has provided to Purchaser true and complete copies of the
audited balance sheets of the Company dated as of December 31, 1997 and 1998,
and the related audited statements of income, cash flow and changes in
shareholders' equity for the Company for the respective 12-month periods then
ended (collectively, the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in accordance with GAAP
applied on a consistent basis and the Company's usual and customary practices.
The Financial Statements fairly present the financial condition, assets and
liabilities of the Company as of the dates thereof and the results of operations
for the indicated periods. At December 31, 1998, the Company did not have any
obligations or liabilities, past, present or deferred, fixed, absolute,
contingent or other, regardless of when asserted, relating to the Company
arising out of transactions entered into at or prior to such date, or any action
or inaction at or prior to such date, except (i) as disclosed in the 1998
Balance Sheet, or the notes thereto, or (ii) for obligations arising under
contracts entered into in the ordinary course prior to such date to the extent
performance is required after such date. Since December 31, 1998, 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 could not be reasonably expected to,
in the aggregate, result in a Material Adverse Change in the Company, and fees
relating to the transactions contemplated by this Agreement.
7.9. Capitalization; Subsidiaries
(a) The authorized capital stock of the Company consists of
500,000 shares of Common Stock, $0.0855 par value per share, including 1,000
shares designated as Voting Common Stock (of which 400 shares are issued and
outstanding) and 499,000 shares designated as Nonvoting Common Stock (of which
99,600 shares are issued and outstanding).
(b) Sellers own all of the issued and outstanding shares of
Common Stock, free and clear of all Liens, except for Liens (i) arising in
connection with this Agreement or (ii) arising from applicable securities laws.
All of the issued and outstanding shares of Common Stock have been duly
authorized, validly issued and fully paid and are nonassessable and are not
subject to any preemptive or similar rights and are owned of record and
beneficially as set forth in Schedule 2. All outstanding Common Stock was issued
in compliance with the Securities Act and any applicable state securities laws.
(c) There are no outstanding (i) securities convertible into
or exchangeable for the capital stock of the Company, (ii) options, warrants or
other rights to purchase or subscribe for capital stock of the Company or (iii)
contracts, commitments, agreements, understandings or arrangements relating to
the sale, transfer or issuance of any capital stock of the Company or any other
equity interests or profit participations in the Company, any such convertible
or exchangeable securities or any such options, warrants or rights, pursuant to
which the Company or any Seller is subject or bound. The Company is not a party
to or bound by any agreement, put or commitment pursuant to which it is
obligated to
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purchase or redeem any shares of capital stock. There are no voting trusts or
voting agreements with respect to the Common Stock.
(d) The Company does not have any subsidiaries and is not
the owner of capital stock or other equity interests in any entity.
7.10. No Approvals or Notices Required; No Conflicts With Material
Contracts
Except as listed in Schedule 7.10, the execution, delivery and
performance of each Related Agreement to which it is a party by the Company and
each Seller, and the Real Estate Purchase Agreement by DBRHC, and the
consummation of the transactions contemplated hereby and thereby will not (a)
conflict with or constitute a default or violation (with or without the giving
of notice or lapse of time, or both) of any Governmental Regulation, or of any
Permit, authorization, status, concession, franchise, license, statute, law,
ordinance, rule or regulation applicable to any Seller, the Company or DBRHC,
(b) require any consent, approval or authorization of, or declaration, filing or
registration with any Governmental Entity, except (i) for filings with the FTC
and the DOJ pursuant to the HSR Act, and (ii) where the failure to obtain such
consent is not reasonably likely to have a Material Adverse Change in the
Company, (c) result in a material default under or violation of (with or without
the giving of notice or lapse of time, or both), acceleration or termination
(with or without the giving of notice or lapse of time or both) of, or give rise
to an acceleration of any material obligation or to the loss of a material
benefit under, any Material Contract or other restriction, encumbrance,
obligation or liability affecting the DBRHC Real Estate, the Company or the
Business (other than Customer Contracts or the item of Indebtedness described in
clause (a)(i) in the definition of Indebtedness set forth in Section 1), (d)
conflict with or result in a breach of or constitute a default or violation
under any provision of the articles of incorporation or bylaws of the Company or
any applicable trust agreement of Sellers, or (e) result in or permit the
creation or imposition of any Lien upon any property now owned or leased by the
Company or any Seller.
7.11. Affiliated Transactions
Except as set forth on Schedule 7.11 and except for (i) leases of the
DBRHC Real Estate, (ii) Indebtedness to John J. Luger, (iii) distributions of
the Excluded Assets by the Company to John J. Luger and (iv) any entitlement to
the Closing Bonus, no Seller or any Related Person of Sellers or the Company is
a party to any agreement, contract, commitment or transaction with the Company
or has any interest in any asset or property of the Company.
7.12. Employees
(a) There are no, and there has not been during the last
five years any, collective bargaining or other agreements with any labor union
or other employee organization to which the Company is a party and which relate
to the Company's employees engaged in the Business. There have not been any
unfair labor practices complaints, strikes, slowdowns, work stoppages, or (to
Sellers' Knowledge) threats of the same, by any of Sellers' present or former
employees. To Sellers' Knowledge, there is no union or other organizational
campaign being conducted, and during the past five years, there have been no
union or other organizational
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campaigns conducted, for the purpose of obtaining representation of any of the
Company's employees.
(b) Schedule 7.12 contains a list of all employees of the
Company as of December 31, 1998, and their dates of hire, positions, base
compensation and accrued vacation as of such date.
(c) Except as set forth on Schedule 7.12 and Schedule 9.4
and except for the Closing Bonus, no employee of the Company will receive,
accrue or be entitled to receive or accrue any additional benefits, service or
accelerated rights to payments or benefits, or any severance, termination
payments or other similar benefits as a result of the consummation of the
transactions contemplated hereby. No employee shall receive from the Company,
directly or indirectly, any payment, whether made under a Plan, Benefit
Arrangement or otherwise, that shall constitute a parachute payment within the
meaning of Section 280G of the Code.
7.13. Taxes
The Company has duly and timely filed with the appropriate
governmental agencies all tax returns, information returns and tax reports
required by law to have been filed by it. The Company has paid in full all
taxes, including any interest, penalties or other additions to tax imposed by
any federal, state, local or foreign government or any agency or political
subdivision of any such government, including, without limitation, all income
taxes, real and personal property taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes, gross
receipts taxes and other governmental charges that the Company is required to
pay, withhold or collect (collectively, "Taxes"), shown to be payable on such
returns and reports or subsequently assessed. To Sellers' Knowledge, no
deficiencies exist or have been asserted or are expected to be asserted with
respect to Taxes. The Company is not a party to any action or proceeding for
assessment or collection of Taxes nor (to Sellers' Knowledge) has such event
been asserted or threatened. No audit or investigation of the Company for Taxes
by any Governmental Entity is under way. The Company has been a subchapter S
corporation for federal and state income tax purposes since April 1, 1991, and
shall continue to be a subchapter S corporation for federal and state income tax
purposes until Closing.
7.14. Compliance With Laws
The Company is, and has during the past five years been, in compliance
with all Governmental Regulations applicable to the Company and the operation of
the Business, the failure to comply with which might, in the aggregate, result
in a Material Adverse Change in the Company, including, without limitation, all
Governmental Regulations relating to antitrust, consumer protection, currency
exchange, employee compensation, equal opportunity, health, occupational safety,
securities matters, building, zoning and fire safety. The Company has received
no notification that it is in violation of any Governmental Regulation, and no
proceeding or inquiry has been initiated or (to Sellers' Knowledge) threatened
with respect to any alleged violation of any Governmental Regulation. Except as
disclosed in Schedule 7.14, as of the date hereof, there are no judgments,
orders, injunctions, decrees, stipulations or awards against the Company, its
properties or the Business that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Change in the Company.
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7.15. Conduct in the Ordinary Course
Except as set forth on Schedule 7.15 or as contemplated by this
Agreement, since December 31, 1998, the Company has conducted its business in
the ordinary course, consistent with past practices. Without limiting the
foregoing, except as set forth in Schedule 7.15 or as contemplated by this
Agreement, since December 31, 1998, the Company has not, other than in the
ordinary course of business consistent with past practice:
(a) sold, mortgaged, pledged or encumbered, or agreed to
sell, mortgage or encumber, any of its material property or assets;
(b) incurred any obligation (contingent or otherwise), or
purchased, acquired, transferred or conveyed, any material assets or property,
or entered into any transaction or made or entered in any contract or commitment
(including commitments to purchase any property or equipment);
(c) suffered any material damage or loss to any material
assets or property;
(d) failed to maintain, or suffered the termination or lapse
of, any material Permits necessary for operation of the Business;
(e) amended, terminated or allowed to expire any of its
insurance policies or Material Contracts;
(f) canceled any debt or claim;
(g) borrowed any funds;
(h) waived any material rights without fair and adequate
consideration;
(i) created or permitted to be created any material Lien on
its material assets or property, or discharged or satisfied any Lien or paid any
liability other than current liabilities and the current portion of long-term
debt of the Company;
(j) issued, sold or pledged, authorized or committed to the
issuance, sale or pledge of (A) additional shares of capital stock, or
securities convertible into any such shares, or any rights, warrants or options
to acquire any such shares or other convertible securities or (B) any other
securities in respect of, in lieu of, or substitution for, the Common Stock
outstanding on the date of this Agreement;
(k) entered into, adopted or modified any Plan or Benefit
Arrangement, increased the compensation or fringe benefits payable to any of its
directors, officers, employees or consultants or otherwise altered, modified or
changed the terms of their employment or engagement;
(l) amended its articles of incorporation, bylaws or other
organizational documents;
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(m) declared or paid any dividend on or in respect of, or
purchased, redeemed or otherwise retired, any shares of capital stock of the
Company, or made any other distribution on or in respect of any such shares
(other than the distribution of the Excluded Assets to John J. Luger);
(n) entered into any transaction with any Related Person of
the Company or any Seller (whether or not in the ordinary course and other than
(i) the distribution of the Excluded Assets to John J. Luger, (ii) execution and
delivery of leases relating to the DBRHC Real Estate, and (iii) the payment of
Indebtedness to John J. Luger);
(o) accelerated the collection of accounts receivable or
delayed payment of accounts payable;
(p) increased, or changed any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(q) changed any method of accounting or accounting practice
of the Company; or
(r) entered into any agreement or commitment to do any of
the foregoing actions contemplated by this Section 7.15.
7.16. Absence of Legal Proceedings
No litigation, investigation or administrative proceeding (including,
without limitation, any arbitration proceeding) is pending or (to Sellers'
Knowledge) threatened in writing against or affecting the Company, its
properties and assets or the Business which seeks to enjoin, restrain, condition
or prevent consummation by Sellers of this Agreement or the transactions
contemplated herein, or which would alone or in the aggregate have or reasonably
be expected to result in a Material Adverse Change in the Company. Except as
disclosed in Schedule 7.16, to Sellers' Knowledge, there are no events or
conditions which would reasonably be expected to result in a legal or
administrative proceeding against the Company that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change in the
Company.
7.17. ERISA
(a) Except as described in Schedule 7.17(a), neither the
Company nor any ERISA Affiliate contributes to any Plan or Benefit Arrangement
nor has contributed to or sponsored any Plan or Benefit Arrangement in the
five-year period ending on the Closing Date. For purposes of this Section 7.17,
references to the Company shall be deemed to include its ERISA Affiliates, if
any.
(b) Except as set forth on Schedule 7.17(b), the Company has
(and upon consummation of the transactions contemplated by this Agreement will
have) no liability (contingent or otherwise) under the applicable provisions of
ERISA, any other similar federal or state statute, or under any of its Plans or
Benefit Arrangements, to the Pension Benefit Guaranty Corporation or to any
other person or entity, for any unfunded liability whatsoever with respect to
any current or former employee of the Company, except for routine benefit
claims.
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(c) The form and operation of each Plan and Benefit
Arrangement of the Company has complied in all material respects with the
applicable provisions of ERISA, the Code and other Governmental Regulations.
Except as set forth in Schedule 7.17(b), the Company has not received notice
from any Governmental Entity challenging such compliance. Except as set forth in
Schedule 7.17(b), the Company has timely complied in all material respects with
all reporting and disclosure obligations as they apply to its Plans and Benefit
Arrangements and has complied in all material respects with the requirements of
parts 6 and 7 of Subtitle B of Title I of ERISA (COBRA and HIPAA) and any
equivalent state Governmental Regulations.
(d) The Internal Revenue Service has issued a favorable
determination letter with respect to each Plan of the Company which is or was
intended to comply with Section 401 of the Code (a "Qualified Plan"). No event
has occurred that will or could reasonably be expected to give rise to
disqualification of any Qualified Plan or to a tax under Section 511 of the
Code.
(e) The Company has not, and has not in the past, been a
party to or made contributions to any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA). The Company does not maintain or sponsor, and has
not maintained or sponsored in the past, a pension plan (within the meaning of
Section 3(2) of ERISA) subject to Title IV of ERISA. None of the Company, any of
its Plans, or any trustee or administrator of any of its Plans has engaged in a
non-exempt prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) which would subject the Company or any of its
directors, officers and employees to any material liability.
(f) Except as set forth in Schedule 7.17(b), the Company has
delivered to Purchaser copies of each Form 5500 for each of its Plans and
Benefit Arrangements filed in the last two years, and such forms are true and
complete in all material respects. The Company has delivered to Purchaser
correct and complete copies of all of its Plans and Benefit Arrangements and,
where applicable, each of the following documents with respect to such Plans and
Benefit Arrangements: (i) any amendments; (ii) any related trust documents;
(iii) any documents governing the investment and management of the Plan or the
Benefit Arrangement, or the assets thereof, including, without limitation, any
documents relating to fees incurred by the sponsor or participants and
beneficiaries; (iv) the most recent summary plan descriptions and summaries of
material modifications; and (v) written communications to employees to the
extent the substance of the Plans and Benefit Arrangements described therein
differ materially from the other documentation furnished to Purchaser under this
clause.
(g) None of the Company, any Related Person of the Company,
the directors, officers and employees of the Company or any such Related
Persons, or any administrator or fiduciary of any Plan of the Company, has
engaged in any transaction or acted or failed to act in a manner which would
subject the Company or any of its directors, officers and employees to any
material liability under ERISA for a breach of fiduciary duties under ERISA.
(h) Except as disclosed on Schedule 7.17(h), none of the
assets of any Plan of the Company that is intended to comply with Section 401(a)
of the Code are invested in securities of the Company or in employer real
property, and each asset held under any such Plan
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may be liquidated or terminated without the imposition of any redemption or
surrender charge or comparable liability.
(i) Except as set forth in Schedule 7.17(b), there have been
no acts or omissions by the Company that have given rise to or could 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.
(j) There are no claims (other than routine claims for
benefits) pending or, to Sellers' Knowledge, threatened involving any Plan of
the Company or the assets of any such Plan.
(k) The 1998 Balance Sheet includes a pro rata amount of the
contributions that would otherwise have been made in accordance with past
practices for the periods covered thereby.
(l) No Plan of the Company that 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.
(m) Except as set forth in Schedule 7.17(m), 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 years, and other than pursuant to the
provisions of the COBRA or any equivalent state Governmental Regulation, 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
affiliates.
(n) Except as set forth in Schedule 7.7, each Plan of the
Company providing medical, dental, and prescription benefits, life insurance,
accidental death and dismemberment, and long term disability coverage is
fully-insured and not self-insured.
7.18. No Material Adverse Change
Since December 31, 1998, there has not been and, to Sellers'
Knowledge, there is not threatened any Material Adverse Change in the Company.
7.19. Environmental Matters
The Company has not entered into or become bound by any consent
decree, administrative order or compliance order relating to any Environmental
Laws, nor has it received any request for information or notice of any violation
of, or any liability, investigatory, corrective or remedial obligation under any
Environmental Laws. Schedule 7.19 lists all site assessments, audits or other
investigations that have been conducted by or on behalf of, or are in possession
of, the Company or DBRHC relating to environmental matters at any property now
or formerly owned, leased or operated by the Company and the Company has made
all such site assessments, audits or other investigations available to Purchaser
for inspection. The Company has obtained all material Permits and made all
material filings which are required to be filed by it under
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applicable Environmental Laws in connection with the ownership of the Company's
properties, facilities and assets, and the operation of the Business, and no
event has occurred which may constitute a material breach or violation of any
such Permits. All Permits are in full force and effect, no application deadlines
for renewal of such Permits have passed and the Company has not received notice
from any Governmental Entity that it intends to revoke or terminate any of such
Permits. The Company has not disposed of, transported, released or arranged for
the disposal of any Hazardous Substance, or owned, leased or operated any
property or facility, in a manner giving rise to liabilities under any
Environmental Laws. To Sellers' Knowledge, there are no underground storage
tanks, polychlorinated biphenyls or asbestos-containing material in any form and
condition at any property owned, leased or operated by the Company. No Lien in
favor of any Governmental Entity relating to any liability of the Company or any
other Person arising under any Environmental Laws has attached to any property
owned, leased or operated by the Company. To Sellers' Knowledge, no facts or
circumstances with respect to the past or current operation, properties or
facilities of the Company or any predecessor or affiliate thereof would give
rise to any liability or corrective or remedial obligation under any
Environmental Laws. The Company is, and at all times has been, in compliance in
all material respects with all applicable Environmental Laws. To Sellers'
Knowledge, no Hazardous Substance has been spilled, disposed of, discharged or
released into, upon, from, over or about any property presently or formerly
owned, leased or operated by the Company, in a manner that has given or would
give rise to liabilities under any Environmental Laws.
7.20. Brokerage
Neither Sellers nor any director, officer, agent or employee acting on
behalf of the Company has retained any broker or finder in connection with the
transactions contemplated by this Agreement other than Donaldson, Lufkin &
Jenrette Securities Corporation, whose fees shall be paid by the Company.
7.21. Operational Matters
(a) All items received and stored by the Company on behalf
of customers are held in storage by the Company (except for items withdrawn or
destroyed at the customer's request), and are locatable without extraordinary
effort through the Company's inventory software system or manual inventory
system. The Company's invoices to customers do not charge customers for storage
of nonexistent items or services not performed in any material respect.
(b) The Company's invoices to its customers are accurate in
all material respects. Except for invoices to deferred customers who are billed
in advance but as to which the Company does not recognize income until services
are actually performed, the Company invoices for storage monthly in arrears and
does not invoice for any services until the services have been performed.
(c) There are no material pending, or to Sellers' Knowledge
threatened, claims by customers for damage (including damage by water) to
customer materials in the Company's custody.
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(d) The Company has sufficient racked and unfilled shelving
locations to accommodate all magnetic media in the Company's custody, plus all
magnetic media returned to customers on temporary retrieval.
7.22. Adverse Restrictions
To Sellers' Knowledge, the Company is not a party to or subject to,
nor is any of its property subject to, any contract, agreement, lease, or any
other obligation or restriction of any kind or character, or any aggregation
thereof, which impairs in any material respect the Company from conducting the
Business as it is currently being conducted or which could reasonably be
expected to result in a Material Adverse Change in the Company.
7.23. Year 2000
Schedule 7.23 sets forth the material steps that have been taken by
the Company as of the date hereof with respect to reviewing and assessing the
extent to which the Business is Year 2000 Compliant.
7.24. Corporate Records
The copies of the articles of incorporation, bylaws and all amendments
thereto of the Company that have been delivered to Purchaser are true, correct
and complete copies thereof, as in effect on the date hereof. The minute books
of the Company, copies of which have been made available to Purchaser, contain
accurate minutes of all actions taken at all meetings of, and accurate consents
to all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of the Company.
7.25. Seller's Expertise
(a) The shares of Iron Mountain Common Stock to be acquired
by each Seller pursuant hereto are being acquired solely for the account of such
Seller for purposes of investment and not with a view to the sale, transfer or
other distribution thereof, as those terms are used in the Securities Act and
the rules and regulations promulgated thereunder, other than pursuant to a sale
under the Shelf Registration Statement or another transaction registered under
the Securities Act or qualifying for a exemption from registration. Each Seller
understands that (i) the shares of Iron Mountain Common Stock have not been and,
other than pursuant to the Shelf Registration Statement, will not be registered
under the Securities Act by reason of their issuance by Purchaser in a
transaction exempt from the registration requirements of the Securities Act,
which exemption depends, among other things, on the bona fide nature of Sellers'
investment intent as expressed herein, and (ii) the shares of Iron Mountain
Common Stock must be held indefinitely by Seller unless a subsequent disposition
thereof is registered under the Securities Act or exempt from registration. Each
Seller is able to bear the economic risk of an investment in the shares of Iron
Mountain Common Stock for an indefinite period of time. Each Seller is an
informed and sophisticated purchaser, possesses such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment under this Agreement and has engaged expert legal,
financial, tax, business and other advisors, experienced in the evaluation and
purchase of interests in companies such as Purchaser.
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John J. Luger and Donna M. Luger are "accredited investors" as defined in Rule
501(a) under the Securities Act.
(b) Each Seller acknowledges that (i) Purchaser has provided
such Seller with the Iron Mountain SEC Reports, (ii) such Seller has been
afforded an opportunity to ask such questions of officers of Purchaser relating
to Purchaser and the Iron Mountain Common Stock as he, she or it determines is
necessary to understand the risks of acquiring the shares of Iron Mountain
Common Stock, and (iii) such Seller has asked any and all questions of interest
to such Seller in connection with the transactions contemplated by this
Agreement, all of which have been answered to such Seller's satisfaction.
(c) Each Seller agrees not to offer, sell, assign, exchange,
transfer, encumber, pledge, distribute or otherwise dispose of the Iron Mountain
Common Stock except in full compliance with all of the applicable provisions of
the Securities Act and applicable state securities laws, and any attempt by such
Seller to do so except in such full compliance shall be treated as ineffective
for all purposes. The certificates representing the shares of Iron Mountain
Common Stock issued to such Seller hereunder shall bear a legend substantially
as follows:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT UNDER THE ACT AND REGISTRATION OR
QUALIFICATION FOR SALE UNDER APPROPRIATE STATE SECURITIES
LAWS SHALL BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) THE
ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE
ISSUER OR OTHER COUNSEL SATISFACTORY IN FORM, SCOPE AND
SUBSTANCE TO THE ISSUER, TO THE EFFECT THAT REGISTRATION OR
QUALIFICATION UNDER THE ACT AND APPROPRIATE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
(d) Each Seller understands that Purchaser may issue
appropriate stock transfer instructions to the transfer agent for shares of Iron
Mountain Common Stock to the effect that such shares of Iron Mountain Common
Stock may be sold publicly only in compliance with Rule 144 under the Securities
Act or in a transaction otherwise exempt from the registration requirements of
the Securities Act.
8. Representations and Warranties of Purchaser
To induce Sellers to enter into this Agreement, Purchaser represents
and warrants to Sellers as follows:
8.1. Organization and Authority
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly qualified to do
business and is in good standing in all other jurisdictions where its failure to
qualify to do business would result in a Material Adverse Change in Purchaser.
Purchaser has all requisite power and authority to own or hold under lease
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its properties and to conduct its business, to execute and deliver this
Agreement and to perform its obligations hereunder and consummate the
transactions contemplated hereby.
8.2. Due Authorization and Execution
The execution, delivery and performance of each Related Agreement has
been duly authorized by all requisite action on the part of Purchaser. Each
Related Agreement has been, or at Closing will be, duly authorized, executed and
delivered by Purchaser and is, or at Closing will be, a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and except
as the availability of equitable remedies may be limited by equitable principles
of general applicability.
8.3. No Approvals or Notices Required; No Conflicts With Material
Agreements
The execution, delivery and performance of each Related Agreement by
Purchaser and the consummation of the transactions contemplated hereby and
thereby will not (a) conflict with or constitute a default or violation (with or
without the giving of notice or lapse of time, or both) of any Governmental
Regulation, or of any Permit, authorization, status, concession, franchise,
license, statute, law, ordinance, rule or regulation applicable to Purchaser,
(b) require any consent, approval or authorization of, or declaration, filing or
registration with any Governmental Entity, except (i) for filings with the FTC
and the DOJ pursuant to the HSR Act, and (ii) where the failure to obtain such
consent is not reasonably likely to result in a Material Adverse Change in
Purchaser, (c) result in a material default under or violation of (with or
without the giving of notice or lapse of time, or both) acceleration or
termination (with or without the giving of notice or lapse of time or both) of,
or give rise to an acceleration of any material obligation or to the loss of a
material benefit under, any material agreement or other restriction,
encumbrance, obligation or liability to which Purchaser or any of Purchaser's
assets is subject (except that the consent of the parties to the Registration
Rights Agreement is required for the Joinder Agreement and the Shelf
Registration Statement), or (d) conflict with or result in a breach of or
constitute a default or violation under any provision of the certificate of
incorporation or bylaws of the Company.
8.4. Absence of Legal Proceedings
No litigation, investigation or administrative proceeding (including,
without limitation, any arbitration proceeding) is pending or (to Purchaser's
knowledge) threatened in writing against or affecting Purchaser, its properties
and assets which seeks to enjoin, restrain, condition or prevent consummation by
Purchaser of this Agreement or the transactions contemplated herein.
8.5. Restricted Securities; Investment Intent
Purchaser is acquiring the Shares for its own account, for investment
purposes and not with a view to, or for sale in connection with, any resale or
other distribution thereof, nor with any present intention of distributing or
selling such Shares. Purchaser acknowledges and agrees that neither the Shares
themselves nor any sale of the Shares have been registered under the
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Securities Act or the laws of any state, and that the Shares cannot be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of,
and Purchaser will not sell, transfer, offer for sale, pledge, hypothecate or
otherwise dispose of any of the Shares, without registration under the
Securities Act and any applicable state securities laws, except pursuant to an
exemption from such registration under the Securities Act and such laws.
8.6. Purchaser's Expertise and Investigation
(a) Purchaser is an informed and sophisticated purchaser,
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investment under this
Agreement and has engaged expert legal, financial, tax, business and other
advisors, experienced in the evaluation and purchase of companies such as the
Company. Purchaser is an "accredited investor" as defined in Rule 501(a) under
the Securities Act. Purchaser has undertaken such investigation as it deems
necessary or appropriate, and has had the opportunity to ask questions of the
management of the Company with respect to the Company, to enable it to make an
informed decision with regard to this Agreement and the transactions
contemplated hereby.
(b) Purchaser acknowledges and agrees that, in entering into
this Agreement, in acquiring the Shares and in consummating the other
transactions contemplated by this Agreement:
(i) Purchaser has relied and will rely solely upon
its own investigation and analysis and the representations and warranties
contained in the Related Agreements;
(ii) None of Sellers or the Company (nor any of
their respective representatives) has made any representation or warranty except
as expressly set forth in the Related Agreements; and
(iii) None of Sellers or the Company (nor any of
their respective representatives) will have any liability to Purchaser (or any
of its representatives) on any basis on account of any information made
available or statements made except for those expressly contained in the Related
Agreements and only in accordance with this Agreement.
8.7. Financing
Purchaser has and will have on the Closing Date sufficient funds and
Iron Mountain Common Stock available to it to purchase the Shares pursuant to
this Agreement and to otherwise satisfy all of its obligations in connection
with this Agreement.
8.8. Brokerage
Neither Purchaser nor any director, officer, agent or employee acting
on behalf of Purchaser has retained any broker or finder in connection with the
transactions contemplated by this Agreement.
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8.9. Capitalization of Purchaser
As of the date hereof, the authorized and outstanding capital stock,
option securities and convertible securities of Purchaser is as set forth in
Schedule 8.9 attached to this Agreement. All of such outstanding capital stock
has been duly authorized and validly issued, is fully paid and nonassessable and
is not subject to any preemptive or similar rights. When issued to Sellers under
this Agreement, the Iron Mountain Common Stock will be duly authorized, validly
issued, fully paid and nonassessable and will not be subject to any preemptive
or similar rights.
8.10. SEC Filings; Financial Statements.
(a) Purchaser has filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 1998, and has
heretofore made available to Sellers, in the form filed with the SEC (excluding
any exhibits thereto), (i) its Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, (ii) its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii) its
Current Reports on Form 8-K filed by it with the SEC since January 1, 1998, (iv)
its proxy statement relating to its 1998 meeting of stockholders, and (v) all
other forms, reports and registration statements filed by it with the SEC since
January 1, 1998 (the forms, reports and other documents referred to in clauses
(i) through (v) above collectively, the "Iron Mountain SEC Reports"). The Iron
Mountain SEC Reports and any forms, reports and other documents filed by
Purchaser with the SEC after the date of this Agreement and for so long as the
Shelf Registration Statement shall be effective, (x) complied with or will
comply in all material respects with the requirements of the Securities Act and
the Securities Exchange Act of 1934, as amended, 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) Since September 30, 1998, there has been no Material
Adverse Change in Purchaser and, to the actual knowledge of C. Richard Reese,
John F. Kenny or Donald P. Richards, there has not been threatened any, Material
Adverse Change in Purchaser. Since September 30, 1998, Purchaser has not
incurred any obligations or liabilities, other than obligations and liabilities
incurred in connection with acquisitions or in the ordinary course of business
consistent with past practice of Purchaser, which do not and could not be
reasonably expected to, in the aggregate, result in a Material Adverse Change in
Purchaser. Without limiting the foregoing, since such date, there has not
occurred any (i) increase in, or any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves or (ii)
change in any method of accounting or accounting practice of Purchaser which
have resulted in or could reasonably be expected to result in a Material Adverse
Change in Purchaser.
(c) Purchaser's financial statements, including in each case
the notes thereto, contained in the Iron Mountain SEC Reports have been prepared
from the books and records of Purchaser and its subsidiaries in accordance with
GAAP applied on a consistent basis and Purchaser's usual and customary
practices, except as otherwise noted therein. Such financial statements fairly
present the financial condition, assets and liabilities of Purchaser and its
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consolidated subsidiaries as of the dates thereof and the results of operations
for the indicated periods subject, in the case of unaudited financial statements
to normal nonmaterial year-end audit adjustments and accruals.
8.11. Shelf Registration Statement
As of its effective date, the Shelf Registration Statement 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 statement therein or necessary to make the statements
therein not misleading (except for information provided in writing by Sellers to
Purchaser for inclusion in the Shelf Registration Statement).
8.12. Year 2000
Schedule 8.12 sets forth the material steps that have been taken by
Purchaser as of the date hereof with respect to reviewing and assessing the
extent to which its business is Year 2000 Compliant.
9. Interim Covenants of the Parties
9.1. Inspection
From the date of this Agreement to and including the Closing Date, the
Company will grant to Purchaser, its agents, employees, accountants and
attorneys full access to and the opportunity to examine (including the
opportunity to make copies of), during the Company's normal business hours at
the Company's premises and upon reasonable prior notice, all properties,
facilities, employees, books, records, documents, instruments and papers of the
Company relating to the Business and property of the Company, and shall cause
its agents, employees, officers, attorneys, accountants and customers to furnish
such additional information with respect to the Business and property of the
Company as Purchaser shall from time to time reasonably request. No
investigation pursuant to this Section 9.1 or otherwise shall affect any
representation or warranty in this Agreement of Seller or the Company or any
condition to the obligations of Purchaser.
9.2. Notice of Developments
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
reasonably likely to cause (i) any representation or warranty made by it
contained in this Agreement to be untrue or inaccurate, (ii) any change to be
made in the schedules attached to this Agreement, or (iii) any failure of such
Party 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. No disclosure by a Party pursuant to this Section which constitutes a
change in information originally presented in this Agreement or the Schedules
hereto shall constitute a waiver by the Party receiving such disclosure of any
condition to such Party's obligation to close the transactions contemplated
hereby unless the Party to which such disclosure is made agrees in writing to
waive such condition (it being understood that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the Party receiving such notice).
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9.3. Conduct of Business in the Ordinary Course
From the date of this Agreement to and including the Closing Date,
Sellers will not transfer the Shares or subject the Shares to any Lien, and will
cause the Company to conduct the Business in the usual and ordinary course with
a view to keeping its organization and properties intact, including its present
business operations, physical facilities, working conditions and employees and
its present relationships with lessors, licensors, suppliers and customers and
others having business relations with it and maintaining or enhancing the value
of the Business, except for transactions outside the ordinary course which are
specifically contemplated by this Agreement (such as distributions of the
Excluded Assets by the Company to John J. Luger and borrowings constituting
Indebtedness to pay transaction costs and the Closing Bonus). Subject to the
foregoing, Sellers shall not allow the Company without Purchaser's consent to:
(a) sell, mortgage, pledge or encumber, or agree to sell,
mortgage or encumber, any of its material property or assets;
(b) incur any obligation (contingent or otherwise), or
purchase, acquire, transfer or convey, any material assets or property, or enter
into any transaction or make or enter in any contract or commitment, except in
the ordinary course of business;
(c) fail to maintain, or suffer the termination or lapse of,
any material Permits necessary for operation of the Business;
(d) amend, terminate or allow to expire any of its insurance
policies or Material Contracts (other than Material Agreements relating to
Indebtedness);
(e) cancel any debt or claim;
(f) borrow any funds except in the ordinary course of
business and except under the Seafirst Bank facility constituting Indebtedness;
(g) waive any material rights without fair and adequate
consideration;
(h) create or permit to be created any material Lien on its
material assets or property, or discharge or satisfy any Lien or pay any
liability other than current liabilities and the current portion of long-term
debt of the Company and any Indebtedness;
(i) issue, sell or pledge, or authorize the issuance, sale
or pledge of (i) additional shares of capital stock, or securities convertible
into any such shares, or any rights, warrants or options to acquire any such
shares or other convertible securities or (ii) any other securities in respect
of, in lieu of, or substitution for, the Common Stock outstanding on the date of
this Agreement;
(j) enter into, adopt or modify any Plan or Benefit
Arrangement, increase the compensation or fringe benefits payable to any of its
directors, officers, employees or consultants or otherwise alter, modify or
change the terms of their employment or engagement, except for: (i) the vesting
of any otherwise non-vested accounts under any Qualified Plan and payment of an
extraordinary Company contribution to any such Qualified Plan
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(provided such extraordinary contribution shall be included in calculating the
amount of the Closing Bonus); and (ii) termination of any such Qualified Plan
and distribution of the assets held thereunder to the beneficiaries of such
Qualified Plan in accordance with Section 9.4;
(k) amend its articles of incorporation, bylaws or other
organizational documents;
(l) declare or pay any dividend on or in respect of, or
purchase, redeem or otherwise retire, any shares of capital stock of the
Company, or make any other distribution on or in respect of any such shares
(other than a distribution of Excluded Assets to John J. Luger);
(m) enter into any transaction with any Related Person of
the Company or any Seller (whether or not in the ordinary course and other than
(i) the distribution of the Excluded Assets to John J. Luger) and (ii) the
payment of Indebtedness to John J. Luger;
(n) accelerate the collection of accounts receivable or
delay payment of accounts payable;
(o) increase, or change any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(p) change any method of accounting or accounting practice
of the Company; or
(q) enter into any agreement or commitment to do any of the
foregoing actions contemplated by this Section 9.3.
9.4. Employee Benefits
(a) From and after the Closing Date, Purchaser will cause
the Company to provide to all persons who were employees of the Company on the
Closing Date severance benefits on the terms and conditions set forth on
Schedule 9.4 attached hereto. Subject to the immediately preceding sentence and
provided that it complies in all material respects with applicable Governmental
Regulations and the terms of the severance arrangements identified in Schedule
9.4, Purchaser may, in its sole discretion, substitute employee compensation,
benefit and severance programs for those of the Company and the Company's ERISA
Affiliates as are comparable with the programs provided from time to time to
Purchaser's employees and the employees of Purchaser's ERISA Affiliates.
(b) At least one day prior to the Closing Date, the Company
shall take, and shall cause each ERISA Affiliate to take, all actions necessary
to terminate each Qualified Plan and distribute the assets held thereunder to
the beneficiaries of each such Qualified Plan as soon as reasonably practicable
after receipt of a favorable determination letter from the Internal Revenue
Service with respect to such termination (unless the determination letter
provides otherwise). Purchaser agrees to cause the Company to apply for such a
determination as soon as practicable after Closing. If a Qualified Plan is
terminated in accordance with this Section 9.4(b), benefit accruals, including
contributions of salary reduction contributions, if any, shall
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cease. The Company agrees not to take, and agrees to cause each ERISA Affiliate
not to take, any action to merge any of its Qualified Plans, transfer the assets
of any of its Qualified Plans, or terminate any of its Qualified Plans, except
as otherwise provided in this Section 9.4(b) following the execution of this
Agreement without the consent of Purchaser.
10. Additional Covenants of the Parties
10.1. Filings; Cooperation; Information
Promptly after the execution of this Agreement, each Party will
promptly prepare and make (or cause to be prepared and made) all required
filings, submissions and notifications under the laws of any domestic or foreign
jurisdictions, including all filings, submissions and notifications required
under the HSR Act, to the extent necessary to consummate the transactions
contemplated by this Agreement. Each Party will promptly consult and cooperate
with the other Party with regard to, and provide any necessary information and
reasonable assistance to the other Party and copies of, all filings, submissions
and notifications made and other information supplied by such Party with or to
any Governmental Entity in connection with this Agreement or any of the
transactions contemplated hereby. Each Party will furnish to the FTC, the DOJ
and to all other Governmental Entities such necessary information and reasonable
assistance as the FTC, the DOJ or other Governmental Entity may reasonably
request in connection with the foregoing.
10.2. Further Assurances
In addition to obligations elsewhere in this Agreement, each Party
from time to time, whether before or after the Closing Date, will use their best
efforts to ensure that all conditions to the other Party's obligations to
consummate the transactions contemplated by this Agreement have been satisfied
(insofar as such matters are within such Party's control) and 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 Governmental Regulations to consummate and
make effective the transactions contemplated by this Agreement in a manner
consistent with applicable Governmental Regulations, which efforts will include
each Party using its best efforts to lift, prevent or reverse any pending or
threatened preliminary or permanent injunction, order or other Governmental
Regulation that would reasonably be expected to adversely affect the ability of
any Party to consummate the transactions contemplated by this Agreement,
including any Governmental Regulation relating to or arising under the HSR Act
or other applicable antitrust laws, and, if issued, to appeal any such
Governmental Regulation through the United States Court of Appeals for the
relevant circuit. 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 Governmental Regulations or filed by it
or any of its Related Persons with any Governmental Entity in connection with
the transactions contemplated hereby. Notwithstanding anything to the contrary
contained in this Agreement, in connection with or as a condition to receiving
the consent or approval of any Governmental Entity, third party or otherwise,
neither the Company (except with the consent of Purchaser following Closing) nor
Purchaser shall be required (i) to divest, abandon, license or take similar
action with respect to any assets (tangible or intangible) of it or any of its
respective Related Persons (including, without limitation, the Company after
consummation of the transactions contemplated hereby),
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or (ii) to expend material sums of money or grant any material financial or
other accommodations (other than as contemplated hereby).
10.3. Exclusivity
Until consummation of the transactions contemplated hereby or
termination of this Agreement pursuant to Section 13, none of Sellers, the
Company or any of their respective Related Persons, representatives, officers,
employees, directors, or agents will, directly or indirectly, (i) submit,
solicit, initiate, encourage or discuss any proposal or offer from any Person
(other than Purchaser or its Related Persons) or enter into any agreement or
accept any offer relating to any (a) reorganization, liquidation, dissolution or
refinancing of the Company, (b) merger or consolidation involving the Company,
(c) purchase or sale of any assets or capital stock of the Company (other than a
purchase or sale of assets in the ordinary course of business consistent with
past practice) or (d) similar transaction or business combination involving the
Company or its assets or (ii) furnish any information with respect to, assist or
participate in or facilitate in any other manner any effort or attempt by any
Person to do or seek to do any of the foregoing. Sellers shall notify Purchaser
promptly if any Person makes any proposal, offer, inquiry or contact with
respect to an action described in clauses (a) through (d) above.
10.4. Shelf Registration Statement
(a) As soon as reasonably possible following the Closing
Date, Purchaser shall prepare and file a registration statement with the SEC
under the Securities Act and Rule 415 thereunder (the "Shelf Registration
Statement"), on the least burdensome form then available to Purchaser, to
register for resale all shares of Iron Mountain Common Stock, and shall use its
reasonable best efforts to secure the effectiveness of the Shelf Registration
Statement as soon as reasonably practicable thereafter. The Company will bear
all Registration Expenses (as defined in the Registration Rights Agreement) in
connection with such registration. Without limiting the generality of the
foregoing, Purchaser will reimburse Sellers for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the Iron
Mountain Common Stock in connection with review and maintenance of the Shelf
Registration Statement.
(b) If any Seller shall propose to sell any shares pursuant
to the Shelf Registration Statement, it shall notify Purchaser of its intent to
do so at least three (3) business days prior to such sale (a "Sale Notice"),
which Sale Notice shall generally describe the anticipated volume and timing of
the proposed sale. A Sale Notice shall be deemed to constitute a representation
that any information previously supplied by such Seller for inclusion in the
Shelf Registration Statement is accurate as of the date of such notice and will
continue to be accurate during the period of the proposed sale (except if such
Seller gives notice to Purchaser of any changes to such information). Following
receipt of a Sale Notice, and except as set forth in the following sentence,
Purchaser shall use its reasonable best efforts as soon as practicable to amend
or supplement the Shelf Registration Statement or any filings incorporated by
reference therein to the extent necessary to allow such sales, and shall notify
all Sellers promptly after it has determined that such sales have become
permissible. At any time after receipt by Purchaser of a Sale Notice, Purchaser
may give notice to the Sellers (a "Deferral Notice") that sales of Iron Mountain
Common Stock should not be made at that time pursuant to the Shelf Registration
Statement if, in its good faith judgment (i)(A) there exists material
information concerning
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Purchaser which has not been disclosed to the public which causes the Shelf
Registration Statement, the prospectus which is part thereof or any document
incorporated therein by reference to contain an untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading ("Material Information Event") and
(B) disclosure of such information at that time would be detrimental to
Purchaser and its shareholders or (ii) it is not legally permissible at such
time to effect sales under the Shelf Registration Statement. If a Deferral
Notice has been given, Purchaser shall use commercially reasonable efforts to
minimize the length of such deferral period (the "Deferral Period") and in any
event shall notify Sellers in writing promptly after the Material Information
Event no longer exists or it is legally permissible to effect sales under the
Shelf Registration Statement (it being understood that, in taking such
commercially reasonable efforts, Purchaser shall not be required to forego any
action it is pursuing for valid business purposes, including, without
limitation, the acquisition or divestiture of a material portion of its assets).
(c) Purchaser shall use its reasonable best efforts to keep
the Shelf Registration Statement effective until the first anniversary of the
Closing Date or, if earlier, the date as of which all shares of Iron Mountain
Common Stock shall have been sold; provided, however, that if the cumulative
number of days covered by Deferral Periods exceeds **The confidential portion
has been so omitted pursuant to a request for confidential treatment and has
been filed separately with the Commission.**, then the Shelf Registration
Statement shall be kept effective for an additional number of days equal to such
excess, unless the shares of Iron Mountain Common Stock owned by Sellers on the
first anniversary of the Closing Date represents less than **The confidential
portion has been so omitted pursuant to a request for confidential treatment and
has been filed separately with the Commission.** of the total outstanding common
stock of Purchaser.
(d) Notwithstanding the foregoing, the Sellers agree that so
long as the Shelf Registration Statement is effective, they will limit their
aggregate sales of Iron Mountain Common Stock (whether in the over the counter
market or in block trades) during any three-month period to that number of Iron
Mountain Common Stock which equals the Cumulative Limitation Amount (as defined
below). The foregoing sentence is not intended to limit or restrict (i) hedging
or (ii) other similar arrangements which do not constitute a transfer of the
Iron Mountain Common Stock or sales of Iron Mountain Common Stock pursuant to
the Registration Rights Agreement. "Cumulative Limitation Amount" means the
number of shares of Iron Mountain Common Stock which could be sold during such
period pursuant to Subsection (e) of Rule 144 under the Securities Act (without
regard to any other limitation contained in Rule 144 under the Securities Act),
multiplied by 1.5.
(e) The rights and obligations of Purchaser and Sellers with
respect to the Shelf Registration Statement shall include those set forth in
Sections 1(c), 2 (with the exception of subsections (c) and (e) thereof), 3 and
7 of the Registration Rights Agreement, which provisions are incorporated herein
by this reference. To the extent that the provisions therein are inconsistent
with the provisions of this Section 10.4, the provisions of this Section 10.4
shall control. The defined terms used in those sections shall have the meanings
given to them in Section 8 of the Registration Rights Agreement, except that all
references to "Registrable Securities" shall mean Iron Mountain Common Stock,
all references to "Registration Statement" shall mean the Shelf Registration
Statement, all references to "Prospectus" shall mean the
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prospectus which is part of the Shelf Registration Statement, all references to
"Company" shall mean Purchaser and all references to "holders" or "Stockholders"
shall mean Sellers.
11. Income Tax Matters
11.1. Refunds or Credits; Tax Benefits
Any refunds or credits of Taxes imposed upon the Company, to the
extent that such refunds or credits are attributable to any taxable year or
taxable period ending on or before the Closing Date, will be for the account of
Sellers, and, to the extent that such refunds or credits are attributable to any
taxable year or taxable period beginning after the Closing Date, such refunds or
credits will be for the account of Purchaser. Each Party will promptly remit to
the other Party any such amount due to the other Party under this Section 11.1
upon receipt thereof or, if an amount is credited to the account of such Party,
upon such amount being so credited.
11.2. Tax Administration
(a) Sellers will prepare and file (i) all corporate returns
relating to Income Taxes with regard to the Company for which Sellers have
liability as a result of the Company's status as an S corporation for the period
ending on the Closing Date, (ii) the applicable Washington State tax return for
the period ending on the Closing Date and (iii) all other tax returns of the
Company that are due on or prior to the Closing Date. Purchaser will prepare and
file all other tax returns with regard to the Company. All such tax returns will
be prepared in a manner consistent with prior years' tax returns using, to the
extent permitted by law, methods, conventions and elections consistent with
those previously used by Sellers and the Company.
(b) As soon as practicable, but in any event within three
(3) days after Sellers' request, Purchaser will deliver to Sellers such
information and will make available such representatives of the Company and of
Purchaser as Sellers may reasonably request, to enable Sellers to complete and
file all tax returns for which Sellers have responsibility under this Section
11, to address any audit by any taxing authority or other tax controversy with
regard to any taxable year or taxable period for which they have any
responsibility or liability under this Section 11 or otherwise to enable Sellers
to satisfy accounting, tax or other requirements.
11.3. Contests
Promptly after any taxing authority asserts a claim for, makes an
assessment of, or otherwise investigates or disputes, the amount of Taxes for
which Sellers are or may be liable under this Section 11, including in
connection with an audit, Purchaser will provide written notice thereof to
Sellers. Sellers will have the obligation to control any resulting audit or
administrative or judicial proceedings and to determine whether and when to
settle any such claim, assessment or dispute if such audit, proceeding or
determination affects the amount of Taxes for which Sellers are or may be liable
under this Section 11.
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11.4. Section 338(h)(10) Election
Purchaser and each Seller (i) shall elect to treat the purchase and
sale of the Shares as an acquisition by Purchaser of all of the assets of the
Company and as a sale of all of the assets of the Company to Purchaser pursuant
to Section 338(h)(10) of the Code, (ii) agree to execute Form 8023 and such
other forms and instruments as shall be reasonably necessary, and to supply any
information called for by such forms and instruments, in order to effectuate
such elections and (iii) shall timely file such forms and instruments with
required attachments with the Internal Revenue Service and any applicable state
taxing authorities.
12. Indemnification and Survival of Warranties
12.1. Indemnification
(a) By Sellers. Each Seller agrees that, subject to such
limitations as provided herein, such Seller shall be jointly and severally
liable to Purchaser, its Related Persons, each of their respective directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "Purchaser Indemnified
Parties") for, and agree to defend and indemnify and hold each Purchaser
Indemnified Party harmless against and in respect of (i) any and all losses,
damages, liability costs and expenses, including reasonable attorneys',
accountants' and experts' fees and expenses, including, without limitation,
those incurred to enforce the terms of this Agreement (collectively, "Covered
Liabilities") incurred by any Purchaser Indemnified Party by reason of a breach
of any of the representations, warranties, covenants or agreements made by the
Company or Sellers in this Agreement, or in any other instrument or agreement
specifically contemplated by this Agreement, (ii) any and all Covered
Liabilities incurred by any Purchaser Indemnified Party by reason of (A) any
violation of Governmental Regulations arising from those matters included as
items 3 and 4 on Schedule 7.17(b), (B) the Company's or Sellers' failure to pay,
withhold or collect any Taxes required to have been paid, withheld or collected
for any taxable period ending on or prior to the Closing Date (including as a
result of the Section 338(h)(10) election described in Section 11.4) or (C) the
Company not being treated as a subchapter S corporation for federal and state
income tax purposes, or (iii) liabilities of the Company or DBRHC arising out of
or in connection with any of the businesses, assets (including the DBRHC Real
Estate), operations or activities of the Company or DBRHC (including any
predecessor of the Company or DBRHC, and any former business, asset, operation,
activity or subsidiary of any of the foregoing) owned or conducted, as the case
may be, on or prior to the Closing Date including any liability based on
negligence, gross negligence, strict liability or any other theory of liability,
whether in law (whether common or statutory) or equity, but excluding (A)
liabilities or other obligations of the type reflected on the 1998 Balance Sheet
incurred in the ordinary course consistent with past practice since December 31,
1998, other than any liabilities or obligations arising from any litigation or
other legal, arbitration or administrative proceeding, or any claim with respect
thereto (including, without limitation, tort claims or other claims based on
strict liability, negligence or willful misconduct or violations of Governmental
Regulations), (B) Indebtedness (but only to the extent Indebtedness at Closing
is not greater than the Purchase Price adjustment under Section 3) and (C)
obligations reflected in the 1998 Balance Sheet, including the notes thereto.
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(b) By Purchaser. Purchaser agrees that it shall be liable
to Sellers, their respective Related Persons, each of their respective
directors, officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Seller
Indemnified Parties") for, and agrees to defend and indemnify and to hold each
Seller Indemnified Party harmless against and in respect of, any and all Covered
Liabilities incurred by any Seller Indemnified Party by reason of (i) a breach
of any of the representations, warranties, covenants or agreements made by
Purchaser in this Agreement, or in any other instrument or agreement
specifically contemplated by this Agreement or (ii) liabilities of the Company
or Purchaser arising out of or in connection with any of the respective
businesses, assets (including the DBRHC Real Estate), operations or activities
of the Company or Purchaser (including any predecessor of Purchaser, and any
former business, asset, operation, activity or subsidiary of any of the
foregoing) owned or conducted, as the case may be, after the Closing Date
including (A) any liability based on negligence, gross negligence, strict
liability or any other theory of liability, whether in law (whether common or
statutory) or equity, or (B) any claims made by an employee with respect to
employment with the Company after the Closing Date or because of the failure of
the Company to provide continuing employment on or after the Closing Date.
(b) Materiality. For purposes of determining whether any
breach of a representation, warranty, covenant or agreement herein has occurred
and calculating any liability arising under this Section 12.1 (other than any
breach of Section 7.18, the last sentence of Section 8.10(a) or Section
8.10(b)), any and all "materiality," "Material Adverse Change" or similar
qualifiers included in such representation, warranty, covenant or agreement
shall be ignored.
12.2. Claim Procedure
(a) If a Seller Indemnified Party or a Purchaser Indemnified
Party (the "Indemnified Party") is threatened in writing with any claim, or any
claim is presented in writing to or any action or proceeding formally commenced
against such Party, which may give rise to the right of indemnification
hereunder, the Indemnified Party will promptly give written notice thereof
(specifying in reasonable detail the basis for the claim and, to the extent
known, the amount thereof) to the Party subject to such rights of
indemnification (the "Indemnifying Party"); provided, however, that the failure
of any Indemnified Party to give notice as provided in this Section 12.2 shall
not relieve the Indemnifying Party of its obligations under this Section 12.2,
except to the extent that the Indemnifying Party is actually prejudiced by such
failure to give notice. The Indemnifying Party shall have the right to
participate in the defense of such claim, action or proceeding, and, to the
extent the Indemnifying Party so desires and notifies the Indemnifying Party of
such election within ten (10) business days after receiving notice of such claim
(or sooner, if the nature of such claim so requires), jointly with any other
Indemnifying Party similarly notified, to assume the defense thereof with
counsel mutually satisfactory to the parties, such determination to be made on a
reasonable basis. Pending notice and assumption of defense by the Indemnifying
Party, an Indemnified Party may take such steps to defend against such claim as,
in such Indemnified Party's good faith judgment, are appropriate to protect its
and the Indemnifying Party's interests. If the Indemnified Party requests in
writing that such action, claim or proceeding not be contested, then it shall
not be contested but shall not be covered by the indemnities provided herein.
The Indemnifying Party may settle an indemnifiable matter
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which it has duly elected to contest without the consent of the Indemnified
Party, so long as such settlement includes as an unconditional term thereof the
delivery by the claimant or plaintiff to the Indemnified Party of a written
release from all liability in respect of such claim, unless (i) such settlement
includes injunctive relief or other equitable remedies against the Indemnified
Party, (ii) the amount of such settlement exceeds the limits on indemnification
set forth in this Section 12 or (iii) such settlement otherwise could reasonably
be expected to have an adverse effect upon the Indemnified Party, in which case
such matter shall be settled only with the consent of the Indemnified Party. In
the event an Indemnified Party unreasonably declines to consent to such
settlement, then the Indemnified Party shall have no right to indemnification
beyond the amount of the proposed settlement that the Indemnifying Party and the
claimant shall have tentatively agreed to. The Indemnified Party shall cooperate
with the Indemnifying Party in the defense of any indemnified claim (it being
understood the costs incurred in such cooperation shall be Covered Liabilities).
In the event an Indemnified Party fails to follow the claim procedure specified
in this section with respect to a claim by any third party against such
Indemnified Party, then such Indemnified Party shall have no right to recover
from the Indemnifying Party on such claim based on a breach of warranty or a
right to indemnification hereunder, but only to the extent the Indemnifying
Party was actually prejudiced by such failure. Notwithstanding anything to the
contrary contained herein, any amounts owing from an Indemnifying Party shall be
reduced to the extent any tax benefit derived by the Indemnified Party or any of
its affiliates from the accrual of such claim.
(b) If an Indemnifying Party elects not to defend against a
third-party claim, fails to notify an Indemnified Party of its election as
provided in this Section 12.2 within the ten-day period described in clause (a)
above or, after such notification, does not in fact defend such third-party
claim, the Indemnified Party may defend, compromise, and settle such third-party
claim and shall be entitled to indemnification hereunder (to the extent
permitted hereunder); provided, however, that no such Indemnified Party may
compromise or settle any such third-party claim without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, an Indemnified Party shall
have the right to employ one law firm as counsel, together with a separate local
law firm in each applicable jurisdiction ("Separate Counsel"), to represent such
Indemnified Party in any action or group of related actions (which firm or firms
shall be reasonably acceptable to the Indemnifying Party) if the Indemnified
Party has been advised by counsel either that there is a reasonable likelihood
of a conflict of interest between such Indemnified Party and such Indemnifying
Party in respect of such claim, or that there may be defenses available to such
Indemnified Party which are different from or in addition to those available to
such Indemnifying Party and the representation of both parties by the same
counsel would be inappropriate, and in that event (i) the reasonable fees and
expenses of each such Separate Counsel shall be considered Covered Liabilities,
and (ii) each of such Indemnifying Party and such Indemnified Party shall have
the right to conduct its own defense in respect of such claim.
12.3. Limitations on Claims
(a) Survival. All representations, warranties and agreements
made by Sellers and Purchaser shall survive Closing. Notwithstanding the
foregoing, if an Indemnified Party fails to give written notice, on or before
the last day of the Escrow Indemnity Period, to the
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Indemnifying Party of any claim for breach of a representation or warranty
contained herein, or for indemnification hereunder, then such claim is barred,
except that (i) such time limitation shall not apply to the extent any Seller
Indemnified Party seeks recovery under **The confidential portion has been so
omitted pursuant to a request for confidential treatment and has been filed
separately with the Commission.** or to the extent any Purchaser Indemnified
Party seeks indemnification for the breach of the representations and warranties
set forth in **The confidential portion has been so omitted pursuant to a
request for confidential treatment and has been filed separately with the
Commission.**, (ii) with respect to claims under **The confidential portion has
been so omitted pursuant to a request for confidential treatment and has been
filed separately with the Commission.**, written notice by a Purchaser
Indemnified Party must be given on or prior to the date that is **The
confidential portion has been so omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.** after the Closing
Date, and (iii) with respect to claims under **The confidential portion has been
so omitted pursuant to a request for confidential treatment and has been filed
separately with the Commission.**, written notice by Purchaser must be given on
or prior to **The confidential portion has been so omitted pursuant to a request
for confidential treatment and has been filed separately with the Commission.**
(b) Threshold Amount. Notwithstanding anything to the
contrary contained herein, Sellers shall not be liable under Section 12.1(a)(i)
for breach of any representations or warranties made by Sellers in this
Agreement, or in any other instrument or agreement specifically contemplated by
this Agreement, until such time as the aggregate amount of such liability,
together with any liability of DBRHC under Section 16 of the Real Estate
Purchase Agreement, reaches an amount equal to **The confidential portion has
been so omitted pursuant to a request for confidential treatment and has been
filed separately with the Commission.**, subject to the limitations set forth in
this Section 12.3.
(c) Maximum Amount. The aggregate liability of Sellers, the
Company and DBRHC for breach of this Agreement or the Real Estate Purchase
Agreement or otherwise with respect to the Shares and the transactions
contemplated by this Agreement (other than the Noncompetition Agreement) shall
not in any event exceed **The confidential portion has been so omitted pursuant
to a request for confidential treatment and has been filed separately with the
Commission.** of the sum of (i) the Purchase Price plus (ii) **The confidential
portion has been so omitted pursuant to a request for confidential treatment and
has been filed separately with the Commission.**; provided, however, that such
limitation shall not in any event apply to any claims by any Purchaser
Indemnified Party (i) arising from Sellers' breach of the representations and
warranties set forth in **The confidential portion has been so omitted pursuant
to a request for confidential treatment and has been filed separately with the
Commission.**, (ii) under **The confidential portion has been so omitted
pursuant to a request for confidential treatment and has been filed separately
with the Commission.**, or (iii) that a Seller knowingly or recklessly made
misstatements or omissions with respect to any representation or warranty of
such Seller hereunder or otherwise fraudulently induced Purchaser to enter into
this Agreement. Notwithstanding the foregoing, the Parties understand that after
Closing, the Company shall have no liability for breach of this Agreement or the
Real Estate Purchase Agreement or otherwise with respect to the Shares and the
transactions contemplated by this Agreement.
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(d) No Claims for Matters Within Purchaser's Knowledge.
Notwithstanding anything contained in this Agreement to the contrary, Sellers
shall have no liability for breaches of any representations, warranties or
covenants made by Sellers herein or in any of the documents required to be
delivered by Sellers under this Agreement if C. Richard Reese, John F. Kenny,
Jr. or Donald P. Richards had actual knowledge of such breach at or before
Closing and Purchaser fails to give Sellers notice of such breach at or before
Closing. No Purchaser Indemnified Party shall have the right to bring any
lawsuit or other legal action against Sellers, or to pursue any other remedy
against Sellers, as a result of any such breach if C. Richard Reese, John F.
Kenny, Jr. or Donald P. Richards had actual knowledge of such breach at or
before Closing and Purchaser fails to give Sellers notice of such breach at or
before Closing.
(e) Pro Rata Share. Subject to clauses (a) - (d) above, the
obligation of each Seller (other than John J. Luger and Donna M. Luger) with
respect to any liability of Sellers under Section 12.1(a) shall be limited to
the product obtained by multiplying (i) such Seller's Pro Rata Share by (ii) the
aggregate amount of such liability.
12.4. Escrow Indemnity Deposits
(a) An amount equal to the Escrow Indemnity Deposits shall
be withheld from the Purchase Price payable at Closing and held in escrow
pursuant to the Escrow Agreement. Any Covered Liabilities of any Purchaser
Indemnified Party to be satisfied out of the Escrow Indemnity Deposits shall be
made in accordance with the terms of the Escrow Agreement in Iron Mountain
Common Stock, which stock shall be valued at the Indemnification Determination
Price as of the date on which such claim is actually satisfied out of the Escrow
Indemnity Deposits. In the event that the valuation of the Iron Mountain Common
Stock as of any date other than the Escrow Release Date would result in the
issuance of a fractional share to a Seller, then in lieu of issuing any such
fractional share, Purchaser shall round up such fraction to the next whole
number. In the event that the valuation of the Iron Mountain Common Stock as of
the Escrow Release Date would result in the issuance of a fractional share to a
Seller, then in lieu of issuing any such fractional share, Purchaser shall pay
to such Seller an amount equal to the product of the Indemnification
Determination Price multiplied by such fraction.
(b) In the event there are no Unresolved Claims, on the
**The confidential portion has been so omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.**
anniversary of the Closing Date, or the next business day if such date is not a
business day (the "Initial Distribution Date"), an aggregate of **The
confidential portion has been so omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.** of the Escrow
Indemnity Deposits less any amounts previously distributed to a Purchaser
Indemnified Party from the Escrow Indemnity Deposits shall be distributed to the
Sellers' Representative in shares of Iron Mountain Common Stock (which stock
shall be valued at the Indemnification Determination Price as of the Initial
Distribution Date) for the benefit of each Seller in accordance with such
Seller's Pro Rata Share. In the event one or more Unresolved Claims with respect
to the Escrow Indemnity Deposits, if any, shall exist on the Initial
Distribution Date, that number of shares of Iron Mountain Common Stock (which
stock shall be valued at the Indemnification Determination Price as of the
Initial Distribution Date) equal to the sum of (i) **The confidential portion
has been so omitted pursuant to a request for confidential treatment and has
been filed separately with the
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Commission.**, (ii) the aggregate amount of such Unresolved Claims and (iii) the
amount reasonably estimated by Purchaser to cover the fees, expenses and other
costs (including reasonable attorneys', accountants' and experts' fees and
expenses) which will be required to resolve such Unresolved Claims shall be
retained as part of the Escrow Indemnity Deposits and the balance thereof, if
any, shall be distributed to the Sellers' Representative (as defined below) for
the benefit of each Seller in accordance with such Seller's Pro Rata Share. Upon
the resolution of all such Unresolved Claims for which notice has been given in
accordance with Section 12.2 prior to the Initial Distribution Date and the
payment of all Covered Liabilities with respect thereto out of the Escrow
Indemnity Deposits, the balance of the Escrow Indemnity Deposits, if any, so
retained on the Initial Distribution Date with respect to such Unresolved Claims
shall be distributed to the Sellers' Representative for the benefit of each
Seller in accordance with such Seller's Pro Rata Share.
(c) In the event there are no Unresolved Claims on the date
which is one day after the expiration of the Escrow Indemnity Period, or the
next business day if such date is not a business day (the "Escrow Release
Date"), the Escrow Indemnity Deposits then remaining shall be distributed to the
Sellers' Representative for the benefit of each Seller in accordance with such
Seller's Pro Rata Share. In the event one or more Unresolved Claims with respect
to the Escrow Indemnity Deposits, if any, shall exist upon the expiration of the
Escrow Indemnity Period, that number of shares of Iron Mountain Common Stock
(which stock shall be valued at the Indemnification Determination Price as of
the Escrow Release Date) equal to the sum of (i) the aggregate amount of such
Unresolved Claims and (ii) the amount reasonably estimated by Purchaser to cover
the Covered Liabilities which will be required to resolve such Unresolved Claims
shall be retained as part of the Escrow Indemnity Deposits and the balance
thereof, if any, shall be distributed to the Sellers' Representative for the
benefit of each Seller in accordance with such Seller's Pro Rata Share. Upon the
resolution of all such Unresolved Claims and the payment of all Covered
Liabilities out of the Escrow Indemnity Deposits, the balance of the Escrow
Indemnity Deposits, if any, shall be distributed to the Sellers' Representative
for the benefit of each Seller in accordance with such Seller's Pro Rata Share.
(d) Each Seller hereby appoints John J. Luger (the "Sellers'
Representative"), with full and unqualified power to delegate (with the approval
of Purchaser, which shall not be unreasonably withheld) to one or more Persons
the authority granted to such Person hereunder to act as such Seller's agent and
attorney-in-fact, with full power of substitution, to execute the Escrow
Agreement and to take all actions called for by this Section 12 and the Escrow
Agreement on such Seller's behalf, in accordance with the terms of this Section
12 and the Escrow Agreement.
13. Termination
This Agreement may be terminated at any time prior to Closing:
(a) by the mutual consent of Sellers and Purchaser;
(b) pursuant to the provisions of Section 4.1 hereof;
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(c) by Purchaser if any condition specified in Section 5 has
not been met or waived by Purchaser at any such time as such condition can no
longer be satisfied;
(d) by Sellers if any condition specified in Section 6 has
not been met or waived by Sellers at any such time as such condition can no
longer be satisfied; or
(e) by Sellers or Purchaser, if any Governmental Regulation
shall be in effect which enjoins, restrains, conditions or prohibits
consummation of this Agreement or the transactions contemplated herein, and such
Governmental Regulation has become final and nonappealable.
Upon any termination of this Agreement pursuant to this Section 13,
there shall be no liability on the part of any Party; provided, however, that
such termination shall not affect the liability of any Party for the breach of
any provision of this Agreement.
14. Miscellaneous
14.1. Confidentiality
Prior to Closing no Party hereto shall issue, or cause to be made or
issued, any announcement or written statement concerning this Agreement or the
transactions contemplated hereby for dissemination to the general public without
the prior consent of the other Party, except as required under applicable
Governmental Regulation or the terms of any agreement, undertaking or listing
requirement of any exchange (including, without limitation, the NASDAQ National
Market). Each of Sellers and Purchaser shall maintain the confidentiality of
information relating to the consideration paid under this Agreement and the Real
Estate Purchase Agreement except to the extent disclosure is (i) necessary to
prepare relevant tax returns or (ii) required under applicable Governmental
Regulation or the terms of any agreement, undertaking or listing requirement of
any exchange (including, without limitation, the NASDAQ National Market) on
which a Party or its Related Person's securities are listed. After Closing,
Sellers shall maintain the confidentiality of any such proprietary information
relating to the Company and not, directly or indirectly, disclose or permit the
disclosure of any such information except as may be required by applicable
Governmental Regulation, or make use of or permit the use of such information,
for their own benefit or the benefit of others. Effective as of the Closing
Date, Sellers shall, to the extent possible, assign to Purchaser all of their
rights under any confidentiality or nondisclosure agreements executed by third
parties in connection with the proposed sale by Sellers of the Shares.
14.2. Entire Understanding
The terms set forth in this Agreement (including all Exhibits and
Schedules hereto) supersede all previous discussions, understandings and
agreements among the Parties with respect to the subject matter hereof, and are
intended by the Parties as a final, complete and exclusive expression of the
terms of their agreement and may not be contradicted, explained or supplemented
by evidence of any prior agreement, any contemporaneous oral agreement.
Notwithstanding the foregoing, unless and until Closing shall occur, Purchaser's
use and disclosure of information provided by Sellers and the Company in
connection with the
43
<PAGE>
transactions contemplated hereby shall continue to be governed by the
Nondisclosure Agreement dated December 23, 1998, as revised December 29, 1998,
between Purchaser and the Company.
14.3. Expenses
Each Party shall bear its own expenses relating to the negotiation,
preparation, execution and delivery of this Agreement, including without
limitation, fees for its attorneys, accountants and other advisors, except that
the Company shall bear any expenses of Sellers or the Company properly
deductible by the Company for federal income tax purposes.
14.4. Amendment
The Parties may amend, modify or supplement this Agreement at any
time, but only in writing duly executed by all Parties.
14.5. Waivers
Any terms, covenants, representations, warranties or agreements of any
Party hereto may be waived at any time by an instrument in writing executed by
the Party for whose benefit such terms exist. The failure of any Party at any
time or times to require performance of any provisions hereof shall in no manner
affect its right at a later time to enforce the same. No waiver by any Party of
any condition or of any breach of any terms, covenants, representations,
warranties or agreements contained in this Agreement shall be effective unless
in writing, and no waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in other instances
or a waiver of any other condition or any breach of any other terms, covenants,
representations, warranties or agreements.
14.6. Parties in Interest; Assignment
This Agreement is not intended, nor shall it be construed, to confer
any enforceable rights on any person (other than DBRHC to the extent its
realization of benefits under the Real Estate Purchase Agreement may be affected
by Purchaser's default hereunder) not a party hereto. Neither this Agreement nor
any of the rights, interests or obligations hereunder of any Party shall be
assigned without the prior written consent of the other party; provided,
however, that (i) Purchaser may assign its rights hereunder to any Related
Person (so long as Purchaser remains responsible for its and such Related
Person's obligations hereunder) and (ii) any Party may assign its rights,
interests and obligations hereunder to any Person that acquires all or
substantially all of the assets of such Party (including without limitation as a
result of any merger, consolidation or similar transaction). All of the terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors, heirs, executors and
permitted assigns of the parties hereto.
14.7. Notices
Any notice or demand desired or required to be given hereunder shall
be in writing and shall be (i) personally delivered, (ii) sent by a nationally
recognized courier service with proof of delivery, (iii) deposited in the mail,
postage prepaid, certified or registered, return receipt requested, or (iv) sent
by legible facsimile or other electronic transmission; in each case
44
<PAGE>
addressed to the intended recipient at the address set forth below or to such
other address as such recipient shall have previously designated to the sender
by such a notice. Any notice delivered personally shall be deemed to be given
when actually delivered; any notice transmitted by mail or courier shall be
deemed to be given on the date of its first attempted delivery; and any notice
delivered by facsimile or other electronic transmission shall be deemed to be
given upon electronic confirmation of such transmission, provided that an
original of such facsimile or other electronic transmission is also sent to the
intended recipient by means described in clauses (i), (ii) or (iii).
Notices shall be sent as follows:
To SELLERS on or before the Closing Date:
Data Base, Inc.
10811 Main Street
Bellevue, Washington 98004-6323
Fax: **The confidential portion has been so omitted
pursuant to a request for confidential treatment and
has been filed separately with the Commission.**
Attention: Mr. John J. Luger
To SELLERS and/or SELLERS' REPRESENTATIVE after the Closing Date:
c/o Mr. John J. Luger
**The confidential portion has been so omitted
pursuant to a request for confidential treatment and
has been filed separately with the Commission.**
Fax: **The confidential portion has been so omitted
pursuant to a request for confidential treatment and
has been filed separately with the Commission.**
in each case with a copy to:
Heller, Ehrman, White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7098
Fax: (206) 447-0849
Attention: Mr. Donald E. Percival
TO PURCHASER:
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, MA 02111
Fax: (617) 535-4766
Attention: Mr. Richard Reese
45
<PAGE>
with copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Fax: (617) 338-2880
Attention: Mr. William Curry
14.8. Attorneys' Fees
In the event of any dispute or action regarding the interpretation or
enforcement of any provision of this Agreement, or on account of any default
under or breach of this Agreement, the prevailing Party shall be entitled to
recover from the other Party, in addition to any other relief, all reasonable
attorneys' fees and expenses incurred by the prevailing Party, whether or not
litigation is commenced.
14.9. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14.10. Headings
The headings preceding the text of the Sections of this Agreement are
for convenience only and form no part of the agreement between the parties.
14.11. Time of the Essence
Time is of the essence in this Agreement.
14.12. Applicable Law
This Agreement, including all matters of construction, validity and
performance, shall be governed by and construed and enforced in accordance with
the laws of the Washington, as applied to contracts executed and to be fully
performed in such state by citizens of such state.
14.13. Specific Performance
The Parties each acknowledge that, in view of the uniqueness of the
subject matter hereof, the Parties would not have an adequate remedy at law for
money damages in the event that this Agreement were not performed in accordance
with its terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the Parties may be entitled at law or in equity.
46
<PAGE>
14.14. Construction
Each Party acknowledges and agrees that (i) such Party has had an
equal opportunity to participate in drafting this Agreement and (ii) no
ambiguity shall be construed against any Party based upon a claim that Party
drafted the applicable language.
47
<PAGE>
IN WITNESS WHEREOF, the Parties have entered into and signed this
Agreement as of the date and year first above written.
Sellers:
- --------
/s/
-------------------------------------------------------
John J. Luger
/s/
-------------------------------------------------------
Donna M. Luger
Mary Ann Montandon, George F. Luger and Lisa Luger Frey, as
co-trustees of the LISA LUGER FREY GST TRUST
By /s/
--------------------------------------------------
Mary Ann Montandon, Trustee
By /s/
--------------------------------------------------
George F. Luger, Trustee
By /s/
--------------------------------------------------
Lisa Luger Frey, Trustee
Mary Ann Montandon, George F. Luger and Tanya Luger Paszkeicz,
as co-trustees of the TANYA LUGER PASZKEICZ GST TRUST
By /s/
--------------------------------------------------
Mary Ann Montandon, Trustee
By /s/
--------------------------------------------------
George F. Luger, Trustee
By /s/
--------------------------------------------------
Tanya Luger Paszkeicz, Trustee
48
<PAGE>
Mary Ann Montandon, George F. Luger and John J. Luger, Jr., as
co-trustees of the JOHN J. LUGER, JR. GST TRUST
By /s/
--------------------------------------------------
Mary Ann Montandon, Trustee
By /s/
--------------------------------------------------
George F. Luger, Trustee
By /s/
--------------------------------------------------
John J. Luger, Jr., Trustee
Mary Ann Montandon and George F. Luger, as co-trustees of the
JUSTIN T. LUGER GST TRUST
By /s/
--------------------------------------------------
Mary Ann Montandon, Trustee
By /s/
--------------------------------------------------
George F. Luger, Trustee
Company: DATA BASE, INC.,
- ------- a Washington corporation
By /s/
----------------------------------------------------
John J. Luger, President
Purchaser: IRON MOUNTAIN INCORPORATED,
- --------- a Delaware corporation
By /s/
----------------------------------------------------
Donald P. Richards, Vice President
49
<PAGE>
The following exhibits and schedules have been omitted and will be
supplementally filed with the Commission upon request:
EXHIBITS
- --------
Exhibit 4.2(a)(1) Noncompetition Agreement
Exhibit 4.2(a)(2) Joinder Agreement
Exhibit 5.1 Certain Representations and Warranties of Sellers
Exhibit 6.1 Certain Representations and Warranties of Purchaser
SCHEDULES
- ---------
Schedule A DBRHC Real Estate
Schedule B Excluded Assets
Schedule 2 Shareholders
Schedule 7.3 Certain Assets
Schedule 7.4(a) List of Customers and Material Contracts
Schedule 7.4(b)(1) Accounts Receivable Aging for Certain Customers
Schedule 7.4(b)(2) Summary of Customer Contract Review
Schedule 7.5 Intellectual Property
Schedule 7.7 Insurance
Schedule 7.10 List of Required Approvals and Conflicts with
Material Contracts
Schedule 7.11 Affiliated Transactions
Schedule 7.12 Employees
Schedule 7.14 Compliance with Laws
Schedule 7.16 Absence of Legal Proceedings
Schedule 7.15 Conduct in the Ordinary Course
Schedule 7.17(a) Contributions to Plans or Benefit Arrangements
Schedule 7.17(b) Liabilities under Plans or Benefit Arrangements
Schedule 7.17(h) Certain Plan Assets
Schedule 7.17(m) Present Value of Accumulated Plan Liabilities
Schedule 7.19 Environmental Matters
Schedule 7.23 Year 2000 (Sellers)
Schedule 8.9 Capitalization of Purchaser
Schedule 8.12 Year 2000 (Purchaser)
Schedule 9.4 Required Severance Benefits to the Company's
Employees
EXHIBIT 10.22
AMENDMENT AND AGREEMENT RE: LEASEHOLD IMPROVEMENTS
AMENDMENT AND AGREEMENT (this "Amendment") dated as of January 28, 1999
among IRON MOUNTAIN STATUTORY TRUST - 1998, a Connecticut statutory trust, and
with respect to any property located in Louisiana, First Union National Bank, as
Trustee for Iron Mountain Statutory Trust - 1998 Louisiana Subtrust, as lessor
(the "Lessor"), SCOTIABANC INC., a Delaware corporation, as beneficiary (the
"Beneficiary"), IRON MOUNTAIN RECORDS MANAGEMENT, INC., a Delaware corporation,
as lessee (the "Lessee"), IRON MOUNTAIN INCORPORATED, a Delaware corporation, as
Guarantor (the "Guarantor"), the financial institutions listed on the signature
pages hereto as "Lenders" (the "Lenders"), THE BANK OF NOVA SCOTIA, as agent for
the Lenders (in that capacity, the "Agent Bank") and BTM CAPITAL CORPORATION, a
Delaware corporation, as LC Issuer (the "LC Issuer").
A. The Beneficiary is the sole beneficiary of the Lessor, which was created
pursuant to an Amended and Restated Owner Trust Agreement dated as of October 1,
1998 (the "Owner Trust Agreement") between the Beneficiary and First Union
National Bank;
B. Lessor has leased to Lessee, subject to the terms and conditions of a
Lease Agreement dated as of October 1, 1998, as in effect and modified from time
to time (the "Lease Agreement") between Lessor and Lessee, certain property
acquired by the Lessor and located at 900 Distributors Row, Harahan, Louisiana
(the "Harahan Leased Property");
C. To finance the acquisition of the Harahan Leased Property, (i) the
Lenders advanced $2,951,526.78 to the Lessor pursuant to the Term Loan Agreement
dated as of October 1, 1998 (the "Loan Agreement") among the Lessor, the Lenders
and the Agent Bank, which advances are evidenced by Term Notes dated November
10, 1998 (the "Harahan Notes") by the Lessor to the Lenders in like aggregate
principal amount, (ii) the Beneficiary made an Equity Investment of $91,911.85
pursuant to the terms of the Owner Trust Agreement, and (iii) the LC Issuer
issued its Letter of Credit No. B0154-2004 to the Agent Bank;
D. The Lessee, as "Agent" under the Amended and Restated Agency Agreement
dated as of October 1, 1998 (the "Agency Agreement") with the Lessor, as
"Owner", proposes to construct certain leasehold improvements at the Harahan
Leased Property, the specifications and budget for which is attached as Schedule
A hereto (the "Harahan Leasehold Improvements");
E. The Lessee has requested that the Lessor acquire and lease the Harahan
Leasehold Improvements to the Lessor pursuant to the Lease Agreement and the
Agency Agreement, and in connection therewith, that the Lenders make additional
advances of $484,900 in the aggregate under the Term Loan Agreement and the
Harahan Notes, and that the Beneficiary make an Equity Investment of $15,100
under Owner Trust Agreement (collectively, the "Additional Harahan Owner
Advances"); and
F. The Beneficiary, the Lessor, the Agent Bank, the Lenders and the LC
Issuer have agreed, subject to the terms and conditions hereof, to amend the
Lease Agreement and the Harahan Notes to permit the acquisition and leasing of
the Harahan Leasehold Improvements;
<PAGE>
-2-
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in Appendix I to the Lease Agreement are used herein as defined
therein.
Section 2. Amendment and Consent. Subject to the occurrence of the
Effective Date (as defined in Section 3 below):
(a) The Beneficiary, the Lessor, the Agent Bank, the Lenders and the LC
Issuer each consent to the acquisition by the Lessor of the Harahan Improvements
and to the disbursement of the proceeds of the Additional Harahan Owner Advances
by the Lessor to the Lessee under the Agency Agreement and the Loan Agreement on
a day other than a Closing Date to pay the costs of the Harahan Leasehold
Improvements
(b) Schedule C-1 (Termination Values) and Schedule G-1 (Maximum Lessor and
Lessee Risk Amounts) to the Lease Agreement shall be amended in full to read as
set forth in Exhibits A and B hereto, respectively;
Section 3. Effective Date. This Amendment shall become effective on
the date (the "Effective Date") that the following conditions have been
satisfied:
(i) the Lessee, the Guarantor, the Beneficiary, the Lessor, the
Lenders, the Agent Bank and the LC Issuer shall each have received
counterparts of this Amendment, executed by the other parties hereto;
(ii) the Lessor shall have executed and delivered to the Agent Bank,
for delivery to each Lender, an allonge for each of the Harahan Notes in
substantially the form of Exhibit C hereto, appropriately completed;
(iii) the LC Issuer shall have executed and delivered to the Agent
Bank a Supplement to Letter of Credit No. B0154-2004 in the form attached
as Exhibit D hereto; and
(iv) each of the conditions to (x) the obligations of the Lessor as
"Owner" under Section 5.1 of the Agency Agreement, (y) the obligations of
the Lessee as "Agent" under Section 6.1 of the Agency Agreement and (z) the
obligations of the Lenders under Section 3.2 of the Loan Agreement, to the
extent applicable to the making of the Additional Harahan Owner Advances
for the purposes of paying costs consisting of Harahan Leasehold
Improvements, shall have been satisfied to the reasonable satisfaction of
the Beneficiary, the Lessor, the Agent Bank, the Lenders and the LC Issuer.
Section 4. Representations and Warranties. The Lessee and the
Guarantor each hereby represents and warrants that:
(i) The Harahan Leasehold Improvements comply with the provisions of
clauses (A), (D), (G), (H) and (I) of Section 10(c) of the Lease Agreement
and all other
<PAGE>
-3-
requirements of Section 10(d) of the Lease Agreement;
(ii) the representations and warranties made by the Lessee and the
Guarantor in each Operative Document to which it is a party are correct on
and as of the date hereof, as though made on and as of such date; and
(iii) no event has occurred and is continuing that constitutes a
Default or an Event of Default under the Lease Agreement, the Agency
Agreement, the Guaranty or any other Operative Document to which they are a
party.
Section 5. Confirmation of Guaranty. Guarantor hereby consents to this
Amendment and hereby confirms and agrees that each of the Guaranty and the
Assignment of Guaranty is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects.
Section 6. Miscellaneous. Except as specifically provided herein, the
Lease Agreement and each of the other Operative Documents shall remain unchanged
and in full force and effect. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. This Amendment and the rights and obligations in respect
hereof shall be governed by, and construed and interpreted in accordance with,
the laws of the Commonwealth of Massachusetts, except to the extent that in
seeking to enforce this Amendment with respect to a Leased Property, the laws of
the state in which such Leased Property is located require that its laws govern,
notwithstanding the express intent of the parties hereto.
Section 7. Louisiana Property. In this Agreement, "Lessor" shall mean
and include both Iron Mountain Statutory Trust - 1998, a Connecticut statutory
trust having an address at c/o First Union National Bank, 10 State House Square,
Hartford, Connecticut 06103 and First Union National Bank as trustee of the Iron
Mountain Statutory Trust - 1998 Louisiana Subtrust, such subtrust being referred
to herein as the "Louisiana Subtrust." All references hereunder to "Lessor"
shall be deemed to include the Louisiana Subtrust.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LESSOR
------
IRON MOUNTAIN STATUTORY TRUST - 1998
By: First Union National Bank, not in its individual
capacity, except as expressly set forth herein, but
solely as trustee under the Amended and Restated Owner
Trust Agreement dated as of October 1, 1998
AND
FIRST UNION NATIONAL BANK, a national banking institution,
not in its individual capacity, but solely as Trustee of the
IRON MOUNTAIN STATUTORY TRUST - 1998 LOUISIANA SUBTRUST
By: /s/ Diane M. Welsh
--------------------------------
Name: Diane M. Welsh
Title: Vice President
THE BENEFICIARY
---------------
SCOTIABANC INC.
By: /s/ W. J. Brown
--------------------------------
Name: W. J. Brown
Title: Managing Director
THE LESSEE
----------
IRON MOUNTAIN RECORDS MANAGEMENT, INC.
By: /s/ J. P. Lawrence
---------------------------------
Name: J. P. Lawrence
Title: Vice President, Treasurer
<PAGE>
-5-
THE GUARANTOR
-------------
IRON MOUNTAIN INCORPORATED
By: /s/ J. P. Lawrence
--------------------------------
Name: J. P. Lawrence
Title: Vice President, Treasurer
THE LENDERS
-----------
THE BANK OF NOVA SCOTIA,
as Lender and as Agent Bank
By: /s/ T. M. Pitcher
---------------------------------
Name: T. M. Pitcher
Title: Authorized Signatory
BANKBOSTON, N.A.
By: /s/ James Lau
---------------------------------
Name: James Lau
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Michael A. Palmer
---------------------------------
Name: Michael A. Palmer
Title: Vice President
US TRUST
By: /s/ D. G. Eastman
---------------------------------
Name: D. G. Eastman
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Nancy A. Perkins
---------------------------------
Name: Nancy A. Perkins
Title: Vice President
<PAGE>
-6-
THE LC ISSUER
-------------
BTM CAPITAL CORPORATION
By: /s/ Joseph W. O'Brien
---------------------------------
Name: Joseph W. O'Brien
Title: Senior Vice President
[Schedules and Exhibits Omitted:
Schedule A: Description of Harahan Improvements
Exhibit A: Restated Schedule C-1 to Lease Agreement
Exhibit B: Restated Schedule G-1 to Lease Agreement
Exhibit C: Form of Allonge to Term Note
Exhibit D: Form of Supplement to Letter of Credit]
IRON MOUNTAIN INCORPORATED
STATEMENT OF THE CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from operations
before provision (benefit)
for income taxes $ 3,241 $ 1,945 $ 1,792 $(4,601) $ 3,983
Add: Fixed charges 13,472 17,058 21,939 37,489 61,439
------ ------ ------ ------ ------
$16,713 $19,003 $23,731 $32,888 $65,422
======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 8,954 $11,838 $14,901 $27,712 $45,756
Interest portion of rent
expense 4,518 5,220 7,038 9,777 15,683
----- ----- ----- ----- ------
$13,472 $17,058 $21,939 $37,489 $61,439
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 1.2x 1.1x 1.1x 0.9x 1.1x
</TABLE>
EXHIBIT 21
Iron Mountain Incorporated
Subsidiaries
------------
<TABLE>
<CAPTION>
Jurisdiction of
Entity Organization
- --------------------------------------------------------------------------------- ---------------
<S> <C>
Iron Mountain Records Management, Inc. Delaware
Iron Mountain Records Management of Ohio, Inc. Delaware
Iron Mountain Records Management of Michigan, Inc. Delaware
Iron Mountain/National Underground Storage, Inc. Pennsylvania
Iron Mountain Records Management of San Antonio, Inc. Delaware
Iron Mountain Records Management of San Antonio-FP, Inc. Delaware
Iron Mountain Safe Deposit Corporation Delaware
Iron Mountain Consulting Services, Inc. Delaware
Iron Mountain of Maryland LLC Delaware
IM Billerica, Inc. Massachusetts
Criterion Atlantic Property, Inc. Delaware
HIMSCORP of Philadelphia, Inc. Delaware
HIMSCORP of Pittsburgh, Inc. Delaware
HIMSCORP of New Orleans, Inc. Delaware
HIMSCORP of San Diego, Inc. Delaware
HIMSCORP of Los Angeles, Inc. Delaware
HIMSCORP of Cleveland, Inc. Delaware
HIMSCORP of Portland, Inc. Delaware
HIMSCORP of Detroit, Inc. Delaware
HIMSCORP of Houston, Inc. Delaware
Record Keepers, Inc. Maryland
Arcus Data Security, Inc. Delaware
Arcus Data Security LLC Delaware
Iron Mountain Global, Inc. Delaware
Iron Mountain (Netherlands) B.V. Netherlands
Iron Mountain (UK) Ltd. United Kingdom
Britannia Data Management Limited United Kingdom
DSI Technology Escrow Services, Inc. Delaware
Iron Mountain/Safesite, Inc. Delaware
IM-AEI Acquisition Corp. Delaware
Iron Mountain Records Management of Utah, Inc. Delaware
Arcus Staffing Resources, Inc. Delaware
Each entity is 100% owned by its parent, except that Britannia Data Management Limited is
owned 50.1% by Iron Mountain (UK) Ltd.
</TABLE>
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
of our reports, dated February 19, 1999, included in this Form 10-K, into the
Company's previously filed registration statements on Forms S-3 (File No.
333-44185), S-4 (File Nos. 333-44187 and 333-67765) and S-8 (File Nos.
333-24803, 333-33191, 333-43901, 333-60919, 333-60921 and 333-67499).
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1997 AND 1998, AND THE AUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. ON JUNE 30, 1998, THE
COMPANY'S BOARD OF DIRECTORS AUTHORIZED AND APPROVED A THREE-FOR-TWO STOCK SPLIT
EFFECTED IN THE FORM OF A DIVIDEND ON THE COMPANY'S COMMON STOCK. SUCH
ADDITIONAL SHARES OF COMMON STOCK WERE ISSUED ON JULY 31, 1998 TO ALL
STOCKHOLDERS OF RECORD AS OF THE CLOSE OF BUSINESS ON JULY 17, 1998. ALL ISSUED
AND OUTSTANDING SHARE AND PER SHARE AMOUNTS IN THE ACCOMPANYING FINANCIAL
STATEMENTS AND NOTES THERETO HAVE BEEN RESTATED TO REFLECT THE STOCK SPLIT.
PREVIOUS FDS HAVE NOT BEEN RESTATED TO REFLECT THE STOCK SPLIT.
</LEGEND>
<CIK> 0001004317
<NAME> IRON MOUNTAIN INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 24,510 1,715
<SECURITIES> 0 0
<RECEIVABLES> 42,474 78,881
<ALLOWANCES> (1,929) (3,316)
<INVENTORY> 0 0
<CURRENT-ASSETS> 81,927 143,937
<PP&E> 245,174 354,101
<DEPRECIATION> (61,276) (87,358)
<TOTAL-ASSETS> 636,786 967,385
<CURRENT-LIABILITIES> 55,753 143,472
<BONDS> 425,018 456,178
0 0
0 0
<COMMON> 202 294
<OTHER-SE> 137,531 338,588
<TOTAL-LIABILITY-AND-EQUITY> 636,786 967,385
<SALES> 208,765 423,512
<TOTAL-REVENUES> 208,765 423,512
<CGS> 106,879 220,980
<TOTAL-COSTS> 185,654 375,157
<OTHER-EXPENSES> 0 (1,384)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,712 45,756
<INCOME-PRETAX> (4,601) 3,983
<INCOME-TAX> (80) 6,949
<INCOME-CONTINUING> (4,521) (2,966)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,521) (2,966)
<EPS-PRIMARY> (0.26) (0.11)
<EPS-DILUTED> (0.26) (0.11)
</TABLE>
